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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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Commission file number 000-21701
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CAROLINA FINCORP, INC.
(Name of small business issuer in its charter)
North Carolina 56-1978449
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(I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
115 South Lawrence Street
Rockingham, North Carolina 27380-1597
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(Address of principal executive offices) (Zip Code)
(910) 997-6245
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(Issuer's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, no par value Nasdaq SmallCap Market
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(Title of class) (Name of each exchange on which registered)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year $ 8,206,317
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.Common Stock, no par value -- $4,110,985.50 (based on the price at which
the stock was sold on September 15, 1997).
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, no par value 1,851,500
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(Class) (Outstanding at September 15, 1997)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended June 30, 1997
(the "1997 Annual Report"), are incorporated by reference into Part I and Part
II.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on November 24, 1997 (the "Proxy Statement"), are incorporated by reference
into Part II and Part III.
Transitional Small Business Disclosure Format (Check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Prior to November 22, 1996, Richmond Savings, Inc., SSB (the "Bank")
operated as a mutual North Carolina-chartered savings bank. On November 22,
1996, the Bank converted from a North Carolina-chartered mutual savings bank to
a North Carolina-chartered stock savings bank (the "Conversion"). In connection
with the Conversion, all of the issued and outstanding capital stock of the Bank
was acquired by Carolina Fincorp, Inc., a North Carolina corporation (the
"Company") which was organized to become the Bank's holding company and
incorporated on June 5, 1996. At that time, the Company had an initial public
offering of its common stock, no par value (the "Common Stock").
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHCA") and the savings bank
holding company laws of North Carolina. The Company's and the Bank's principal
office is located at 115 South Lawrence Street, Rockingham, North Carolina. The
Company's activities consist of investing the proceeds of the Conversion which
were retained at the holding company level, holding the indebtedness outstanding
from the Richmond Savings Bank, Inc., SSB Employee Stock Ownership Plan (the
"ESOP"), and owning the Bank. The Company's principal sources of income are
earnings on capital retained by the Company, interest payments received from the
ESOP with respect to the ESOP loan, and dividends paid by the Bank to the
Company, if any.
The Bank was organized in 1906, and has been a member of the Federal
Home Loan Bank (the "FHLB") system and its deposits have been federally insured
since 1957. The deposits of the Bank are insured by the Savings Association
Insurance Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum amount permitted by law.
The Bank conducts business through two full service offices in
Rockingham and full services offices in Southern Pines and Ellerbe, North
Carolina. In addition, the Bank has a loan origination office in Laurinburg,
North Carolina. The Bank's primary market area consists of Richmond, Moore and
Scotland counties in North Carolina. At June 30, 1997, the Company had total
assets of $111.5 million net loans of $78.7 million, deposits of $83.8 million,
investment securities of $27.3 million and stockholders' equity of $25.4
million.
At June 30, 1997, the Company and the Bank hada total of 39 full-time
employees and 5 part-time employees.
The Company has no operations and conducts no business of its own
other than owning the Bank; investing its portion of the net proceed received in
the Conversion and lending funds to the ESOP. Accordingly, the discussion of
the business which follows in this Form 10-KSB concerns the business conducted
by the Bank, unless otherwise indicated.
Lending Activities
The Bank is engaged primarily in the business of attracting deposits
from the general public and using such deposits to make mortgage loans secured
by real estate. The Bank's primary source of revenue is interest income from
its lending activities, consisting primarily of mortgage loans for the purchase
or refinancing of one-to-four family residential real property located in its
primary market area. The Bank also makes home equity loans and loans secured by
multi-family and commercial properties, construction loans, home improvement
loans, savings accounts loans and various types of consumer loans. Over 94% of
the Bank's loan portfolio, before net items, is secured by real estate. On June
30, 1997, the Bank's largest single outstanding loan had a balance of
approximately $1.4 million. This loan was performing in accordance with its
original terms. In addition to interest earned on loans, the Bank receives fees
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in connection with loan originations, loan servicing, loan modifications, late
payments, loan assumptions and other miscellaneous services. Adjustable rate
loans are generally originated with the intention that they be held in the
Bank's portfolio. Fixed rate one-to-four family residential loans are generally
originated in conformity with secondary market purchase requirements and sold in
the secondary market. During fiscal 1997, 1996 and 1995, the Bank sold $1.0
million, $1.4 million, and $640,000, respectively, of fixed rate loans in order
to better manage its interest rate risk.
The Bank's net loan portfolio totaled approximately $78.7 million at
June 30, 1997 representing 70.56% of the Bank's total assets at such date. At
June 30, 1997, 71.56% of the Bank's loan portfolio, before net items, was
composed of one-to-four family residential mortgage loans. Home equity and home
improvement loans represented 10.32% of the Bank's loan portfolio, before net
items, and multi-family residential and commercial and construction loans
represented 12.42% of the Bank's loan portfolio, before net items, on such date.
As of June 30, 1997, 75.48% of the loans in the Bank's loan portfolio had
adjustable interest rates. Loans maturing or repricing on or after June 30,
1998, consist of fixed rate real estate loans of $14.5 million, adjustable rate
real estate loans of $ 28.4, other fixed rate loans of $ 4.3 million and other
adjustable rate loans of $369,000. See Note C - Loans Receivable to the
Financial Statements Contained in the 1997 Annual Report.
Investment Securities
Interest and dividend income from other investment securities provide
the second largest source of income to the Bank after distribution from the
Bank. Interest and dividend income from investment securities also generally
provides the second largest source of income to the Company after interest on
loans. In addition, the Company and the Bank receive interest income from
deposits in other financial institutions. At June 30, 1997, the Company and
Bank's investment securities portfolio totaled approximately $27.3 million and
consisted of U.S. government and agency securities, mortgage-backed securities,
municipal bonds, interest-earning deposits in other financial institutions, and
investments in corporate debt securities of two large financial institutions and
IBM corporation.
Investments in mortgage-backed securities involve a risk that, because
of changes in the interest rate environment, actual prepayments will be greater
than estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates. See Note B - Investment Securities to the
Financial Statements Contained in the 1997 Annual Report.
As a member of the FHLB of Atlanta, the Bank is required to maintain
an investment in stock of the FHLB of Atlanta equal to the greater of 1% of the
Bank's outstanding home loans or 5% of its outstanding advances from the FHLB of
Atlanta. No ready market exists for such stock, which is carried at cost. As
of June 30, 1997, the Bank's investment in stock of the FHLB of Atlanta was
$734,700.
North Carolina regulations require the Bank to maintain a minimum
amount of liquid assets which may be invested in specified short-term
securities. See "-- Regulation of the Bank - Liquidity." The Bank is also
permitted to make certain other securities investments.
Deposits and Borrowings
Deposits. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. The Bank attracts both short-term and
long-term deposits from the general public by offering a variety of accounts and
rates. The Bank offers passbook savings accounts, statement savings accounts,
negotiable order of withdrawal accounts, individual retirement accounts, and
fixed rate certificates with varying maturities. At June 30, 1997, 12.74% of
the Bank's deposits consisted of passbook and statement savings accounts, 9.77%
consisted of interest-bearing transaction accounts and 2.66% consisted of
noninterest-bearing transaction accounts. Although the vast majority of the
Bank's deposits are authentic deposit accounts, management of the Bank believes
that it has been successful in maintaining a high percentage of demand deposit
and transaction accounts which are generally considered to be less interest rate
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sensitive than certificated accounts. This is consistent with the Bank's
asset/liability management strategies. Deposit flows are greatly influenced by
economic conditions, the general level of interest rates, competition, and other
factors, including the restructuring of the thrift industry. The Bank's savings
deposits traditionally have been obtained primarily from its primary market
area. The Bank utilizes traditional marketing methods to attract new customers
and savings deposits, including print media advertising and direct mailings.
The Bank does not advertise for deposits outside of its local market area or
utilize the services of deposit brokers. See Note G - Deposit Accounts to the
Financial Statements Contained in the 1997 Annual Report.
In addition to deposits, the Bank derives funds from loan principal
repayments, interest payments, investment income and principal repayments,
interest from its own interest-earning deposits, interest income and repayments
from mortgage-backed securities and otherwise from its operations. Loan
repayments are a relatively stable source of funds while deposit inflows and
outflows may be significantly influenced by general interest rates and money
market conditions.
Borrowings. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources. They
may also be used on a longer term basis for general business purposes. Although
it has not done so in several years, the Bank may obtain advances from the FHLB
of Atlanta to supplement its liquidity needs. The FHLB system functions in a
reserve credit capacity for savings institutions. As a member, the Bank is
required to own capital stock in the FHLB of Atlanta and is authorized to apply
for advances from the FHLB of Atlanta on the security of that stock and a
floating lien on certain of its real estate secured loans and other assets.
Each credit program has its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances are based either
on a fixed percentage of an institution's net worth or on the FHLB of Atlanta's
assessment of the institution's creditworthiness. As of June 30, 1997, the Bank
received advances from the FHLB of Atlanta equal to $500,000, such advances
maturing on August 21, 1997 at an interest rate of 5.92% per annum.
Results of Operations
The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its
interest-earning assets, such as loans and investments, and the cost of its
interest-bearing liabilities, consisting of deposits. The Bank's operations are
affected to a much lesser degree by non-interest income, such as transaction and
other service fee income, and other sources of income. The Bank's net income is
also affected by, among other things, provisions for loan losses and operating
expenses. The Bank's principal operating expenses, aside from interest
expense, consist of compensation and employee benefits, office occupancy costs,
data processing expenses and federal deposit insurance premiums. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and policies concerning monetary and fiscal affairs,
housing and financial institutions and the attendant actions of regulatory
authorities.
Market Area
The Bank's primary market area consists of Richmond, Moore and
Scotland Counties in North Carolina. Richmond County, which contains Rockingham,
is located in south central North Carolina near the North Carolina-South
Carolina boundary, and is the home of the North Carolina Motor Speedway,
location of two Winston-Cup stock car races annually. Moore County, which is
immediately north of Richmond County, is the home of several retirement
communities and golf resorts, including Pinehurst and Southern Pines. Scotland
County, which includes Laurinburg, is located east of Richmond County. Richmond
and Scotland Counties have experienced relatively slow growth during the last
five (5) years. Moore County, which includes the resort and retirement
communities of Pinehurst and Southern Pines, has experienced greater growth.
The economy of the Bank's primary market area is largely rural, with employment
diversified among manufacturing, agricultural, retail and wholesale trade,
government, services and utilities. Major area employers include Richmond
Apparel Company, Burlington Industries, Sara Lee Hosiery, Perdue Farms, Inc.,
Richmond Memorial Hospital, Firsthealth Moore Regional Hospital, Ithaca
Industries, Inc., Resorts of Pinehurst, Campbell Soup Company and Abbott
Laboratories.
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Subsidiaries
The Bank is the only subsidiary of the Company. As a North Carolina
chartered savings bank, the Bank is able to invest up to 10% of its total assets
in subsidiary service corporations. However, any investment in service
corporation which would cause the Bank to exceed an investment of 3% of assets
must receive prior approval of the FDIC.
The Bank has one wholly-owned subsidiary, Richmond Investment
Services, Inc. (formerly CERKO, Inc.), a North Carolina corporation ("R.I.S.").
R.I.S. acts as an agent in the sale of annuities, Medicare and Medicaid
supplements, and major medical and life insurance policies. In addition, R.I.S.
owns certain real property. Regulations of the Administrator and FDIC place
limitations upon the activities of subsidiaries of North Carolina-chartered
savings banks. The total assets of R.I.S. at June 30, 1997 were $180,000 and
the net income for that subsidiary for the year ended June 30, 1997 was $21,000.
Competition
The Bank faces strong competition both in attracting deposits and
making real estate and other loans. Its most direct competition for deposits
has historically come from other savings institutions, credit unions and
commercial banks located in its primary market area, including large financial
institutions which have greater financial and marketing resources available to
them. The Bank has also faced additional significant competition for investors'
funds from short-term money market securities and other corporate and
governmental securities. The ability of the Bank to attract and retain savings
deposits depends on its ability to generally provide a rate of return, liquidity
and risk comparable to that offered by competing investment opportunities.
The Bank experiences strong competition for real estate loans from
other savings institutions, commercial banks, and mortgage banking companies.
The Bank competes for loans primarily through the interest rates and loan fees
its charges, the efficiency and quality of service it provides borrowers, and
its more flexible underwriting standards. Competition may increase as a result
of the continuing reduction of restrictions on the interstate operations of
financial institutions.
Supervision and Regulation
Bank holding companies and state savings banks are extensively
regulated under both federal and state law. The following is a brief summary of
certain statutes and rules and regulations that affect or will affect the
Company and the Bank. This summary is qualified in its entirety by reference to
the particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.
Regulation of the Company
General. The Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank to be issued in the Conversion. As
a savings bank holding company subject to the Bank Holding Company Act of 1956,
as amended ("BHCA"), the Company is subject to certain regulations of the
Federal Reserve. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any bank or savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of the Federal
Reserve.
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Additionally, the BHCA prohibits the Company from engaging in, or
acquiring ownership or control of, more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto.
Similarly, Federal Reserve approval (or, in certain cases, non-
disapproval) must be obtained prior to any person acquiring control of the
Company. Control is conclusively presumed to exist if, among other things, a
person acquires more than 25% of any class of voting stock of the holding
company or controls in any manner the election of a majority of the directors of
the holding company. Control is presumed to exist if a person acquires more
than 10% of any class of voting stock and the stock is registered under Section
12 of the Exchange Act or the acquiror will be the largest shareholder after the
acquisition.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the depositors
of such depository institutions and the FDIC insurance funds in the event the
depository institution becomes in danger of default or in default. For example,
to avoid receivership of an insured depository institution subsidiary, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all acceptable capital
standards as of the time the institution fails to comply with such capital
restoration plan. Under a policy of the Federal Reserve with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so absent such policy. The Federal Reserve under the BHCA also has the
authority to require a bank holding company to terminate any activity or to
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the SAIF or the
Bank Insurance Fund (the "BIF") as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
Federal regulations require that the Company must notify the Federal
Reserve Bank of Richmond prior to repurchasing Common Stock in excess of ten
percent of its net worth during a rolling twelve month period. As a result of
the Company's ownership of the Bank, the Company is registered under the savings
bank holding company laws of North Carolina. Accordingly, the Company is also
subject to regulation and supervision by the Administrator.
Capital Adequacy Guidelines for Holding Companies. The Federal
Reserve has adopted capital adequacy guidelines for bank holding companies and
banks that are members of the Federal Reserve system and have consolidated
assets of $150 million or more. For bank holding companies with less than $150
million in consolidated assets, the guidelines are applied on a bank-only basis
unless the parent bank holding company (i) is engaged in nonbank activity
involving significant leverage or (ii) has a significant amount of outstanding
debt that is held by the general public.
Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines. Under these regulations, the minimum
ratio of total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) is 8%. At least half of
the total capital is required to be "Tier I capital," principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock, and a
limited amount
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of cumulative perpetual preferred stock, less certain goodwill items. The
remainder ("Tier II capital") may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss allowance. In
addition to the risk-based capital guidelines, the Federal Reserve has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company which has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a Tier I
capital (leverage) ratio of at least 1% to 2% above the stated minimum.
Federal Securities Law
The Company has registered its Common Stock with the SEC pursuant to
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and
will not deregister the Common Stock for a period of three years following the
completion of the Conversion. As a result of such registration, the proxy and
tender offer rules, insider trading reporting requirements, annual and periodic
reporting and other requirements of the Exchange Act are applicable to the
Company.
Regulation of the Bank
General. Federal and state legislation and regulation have
significantly affected the operations of federally insured savings institutions
and other federally regulated financial institutions in the past several years
and have increased competition among savings institutions, commercial banks and
other providers of financial services. In addition, federal legislation has
imposed new limitations on investment authority, and higher insurance and
examination assessments on savings institutions and has made other changes that
may adversely affect the future operations and competitiveness of savings
institutions with other financial institutions, including commercial banks and
their holding companies. The operations of regulated depository institutions,
including the Bank, will continue to be subject to changes in applicable
statutes and regulations from time to time.
The Bank is a North Carolina-chartered savings bank, is a member of
the FHLB system, and its deposits are insured by the FDIC through the SAIF. It
is subject to examination and regulation by the FDIC and the Administrator and
to regulations governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities, and
general investment authority. Generally, North Carolina state chartered savings
banks whose deposits are issued by the SAIF are subject to restrictions with
respect to activities and investments, transactions with affiliates and loans-
to-one borrower similar to those applicable to SAIF insured savings
associations. Such examination and regulation is intended primarily for the
protection of depositors and the federal deposit insurance funds.
The Bank is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings). As creditors of loans secured by real property and as
owners of real property, financial institutions, including the Bank, may be
subject to potential liability under various statutes and regulations applicable
to property owners generally, including statutes and regulations relating to the
environmental condition of real property.
The FDIC has extensive enforcement authority over North Carolina-
chartered savings banks, including the Bank. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated in response to violations of
laws and regulations and unsafe or unsound practices.
The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound
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practices; (iii) existence of an unsafe or unsound condition to transact
business; (iv) likelihood that the savings bank will be unable to meet the
demands of its depositors or to pay its obligations in the normal course of
business; and (v) insufficient capital or the incurring or likely incurring of
losses that will deplete substantially all of the institution's capital with no
reasonable prospect of replenishment of capital without federal assistance.
Transactions with Affiliates. Under current federal law, transactions
between the Bank and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of the Bank is any company or entity that
controls, is controlled by or is under common control with the savings bank.
Generally, subsidiaries of a bank, other than a bank subsidiary, and certain
other types of companies are not considered to be affiliates. Generally,
Sections 23A and 23B (i) limit the extent to which the Bank or its subsidiaries
may engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such the Bank's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the Bank or the
subsidiary as those provided to a nonaffiliate. The term "covered transaction"
includes the making of loans or other extensions of credit to an affiliate, the
purchase of assets from an affiliate, the purchase of, or an investment in, the
securities of an affiliate, the acceptance of securities of an affiliate as
collateral for a loan or extension of credit to any person, or issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate.
Further, current federal law has extended to savings banks the
restrictions contained in Section 22(h) of the Federal Reserve Act and its
implementing regulations with respect to loans to directors, executive officers
and principal stockholders. Under Section 22(h), loans to directors, executive
officers and stockholders who own more than 10% of a savings bank, and certain
affiliated entities of any of the foregoing, may not exceed, together with all
other outstanding loans to such person and affiliated entities, the savings
bank's loans-to-one borrower limit as established by federal law and all loans
to such persons may not exceed the institution's unimpaired capital and
unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of a savings bank, and their respective
affiliates, unless such loan is approved in advance by a majority of the
disinterested directors of the board of directors of the savings bank and the
Company. Any "interested" director may not participate in the voting. The
Federal Reserve has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of unimpaired
capital and unimpaired surplus (up to $500,000). Further, pursuant to Section
22(h) the Federal Reserve requires that loans to directors, executive officers,
and principal stockholders be made on terms substantially the same as offered in
comparable transactions to other persons and not involve more than the normal
risk of repayment or present other unfavorable features. Section 22(h) also
generally prohibits a depository institution from paying the overdrafts of any
of its executive officers or directors.
Deposit Insurance. The Bank is required to pay assessments based on a
percentage of its insured deposits to the FDIC for insurance of its deposits by
the SAIF. Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Regulation of the Bank - Prompt
Corrective Regulatory Action." Within each capital group, institutions are
assigned to one of three subgroups on the basis of supervisory evaluations by
the institution's primary supervisory authority and such other information as
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance fund. Subgroup A consists of
financially sound institutions with only a few minor weaknesses. Subgroup B
consists of institutions that demonstrate weaknesses which, if not corrected,
could result in significant deterioration of the institution and increased risk
of loss to the deposit insurance fund. Subgroup C consists of institutions that
pose a substantial probability of loss to the deposit insurance fund unless
effective corrective action is taken. The assessment rate for SAIF members had
ranged from 0.23% of deposits for well capitalized institutions in Subgroup A to
0.31% of deposits for undercapitalized institutions in Subgroup C while
assessments for over 90% of the BIF members had been the statutory minimum of
$2,000. Recently enacted legislation provided for a one-time assessment of 65.7
basis points
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of insured deposits as of March 31, 1995, that fully capitalized the SAIF and
had the effect of reducing future SAIF assessments. Accordingly, although the
special assessment resulted in a one-time charge to the Bank of approximately
$519,000 pre-tax, the recapitalization of the SAIF had the effect of reducing
the Bank's future deposit insurance premiums to the SAIF. Under the recently
enacted legislation, both BIF and SAIF members will be assessed an amount for
the Financing Corporation Bond payments. BIF members will be assessed
approximately 1.3 basis points while the SAIF rate will be approximately 6.4
basis points until January 1, 2000. At that time, BIF and SAIF members will
begin pro rata sharing of the payment at an expected rate of 2.43 basis points.
Community Reinvestment Act. The Bank, like other financial
institutions, is subject to the Community Reinvestment Act, as amended ("CRA").
A purpose of this Act is to encourage financial institutions to help meet the
credit needs of its entire community, including the needs of low- and moderate-
income neighborhoods. During the Bank's last compliance examination the Bank
received a "satisfactory" rating with respect to CRA compliance. The Bank's
rating with respect to CRA compliance would be a factor to be considered by the
Federal Reserve and FDIC in considering applications submitted by the Bank to
acquire branches or to acquire or combine with other financial institutions and
take other actions and could result in the denial of such applications.
The federal banking regulatory agencies have issued a rewrite of the
CRA regulations, which became effective on January 1, 1996, to implement a new
evaluation system that rates institutions based on their actual performance in
meeting community credit needs. Under the regulations, a savings bank will be
evaluated and rated under three categories: a lending test, an investment test
and a service test. For each of these three tests, the savings bank will be
given a rating of either "outstanding," "high satisfactory," "low satisfactory,"
"needs to improve" or "substantial non-compliance." A set of criteria for each
rating has been developed and is included in the regulation. If an institution
disagrees with a particular rating, the institution has the burden of rebutting
the presumption by clearly establishing that the quantitative measures do not
accurately present its actual performance, or that demographics, competitive
conditions or economic or legal limitations peculiar to the service area should
be considered. The ratings received under the three tests will be used to
determine the overall composite CRA rating. The composite ratings will be the
same as those that are currently given: "outstanding," "satisfactory," "needs to
improve" or "substantial non-compliance."
Capital Requirements Applicable To The Bank. The FDIC requires the
Bank to have a minimum leverage ratio of Tier I capital (principally consisting
of common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangible items,
goodwill items, identified losses and investments in securities subsidiaries) to
total assets of at least 3%; provided, however that all institutions, other than
those (i) receiving the highest rating during the examination process and (ii)
not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the stated minimum, with an absolute minimum
leverage ratio of not less than 4%. The FDIC also requires the Bank to have a
ratio of total capital to risk-weighted assets, including certain off-balance
sheet activities, such as standby letters of credit, of at least 8%. At least
half of the total capital is required to be Tier I capital. The remainder
("Tier II capital") may consist of a limited amount of subordinated debt,
certain hybrid capital instruments, other debt securities, certain types of
preferred stock and a limited amount of loan loss allowance.
An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
bank may be deemed to be operating in an unsafe or unsound condition, allowing
the FDIC to take various enforcement actions, including possible termination of
insurance or placement of the institution in receivership. At June 30, 1997, the
Bank had a leverage ratio of 16.1%.
The Administrator requires that net worth equal at least 5% of total
assets. Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.
At June 30, 1997, the Bank complied with each of the capital
requirements of the FDIC and the Administrator.
8
<PAGE>
Each federal banking agency is required to establish risk-based
capital standards that take adequate account of interest rate risk,
concentration of credit risk, and the risk of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multifamily
mortgages.
On August 2, 1995, the federal banking agencies issued a joint notice
of adoption of final risk based capital rules to take account of interest rate
risk. The final regulation required an assessment of the need for additional
capital on a case-by-case basis, considering both the level of measured exposure
and qualitative risk factors. The final rule also stated an intent to, in the
future, establish an explicit minimum capital charge for interest rate risk
based on the level of a bank's measured interest rate risk exposure.
Effective June 26, 1996, the federal banking agencies issued a joint
policy statement announcing the agencies' election not to adopt a standardized
measure and explicit capital charge for interest rate risk at that time.
Rather, the policy statement (i) identifies the main elements of sound interest
rate risk management, (ii) describes prudent principles and practices for each
of those elements, and (iii) describes the critical factors affecting the
agencies' evaluation of a bank's interest rate risk when making a determination
of capital adequacy. The joint policy statement is not expected to have a
material impact on Bank's management of interest rate risk.
Loans-To-One-Borrower. The Bank is subject to the Administrator's
loans-to-one-borrower limits. Under these limits, no loans and extensions of
credit to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth. These limits also authorize
savings banks to make loans-to-one-borrower, for any purpose, in an amount not
to exceed $500,000. A savings bank also is authorized to make loans-to-one-
borrower to develop domestic residential housing units, not to exceed the lesser
of $30 million or 30% of the savings bank's net worth, provided that the
purchase price of each single-family dwelling in the development does not exceed
$500,000 and the aggregate amount of loans made under this authority does not
exceed 150% of net worth. These limits also authorize a savings bank to make
loans-to-one-borrower to finance the sale of real property acquired in
satisfaction of debts in an amount up to 50% of net worth.
As of June 30, 1997, the largest aggregate amount of loans which the
Bank had to any one borrower was $1.4 million. The Bank had no loans
outstanding which management believes violate the applicable loans-to-one-
borrower limits. The Bank does not believe that the loans-to-one-borrower
limits will have a significant impact on its business, operations and earnings.
Federal Home Loan Bank System. The FHLB system provides a central
credit facility for member institutions. As a member of the FHLB of Atlanta,
the Bank is required to own capital stock in the FHLB of Atlanta in an amount at
least equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. On June 30, 1997, the Bank was in compliance with
this requirement with an investment in FHLB of Atlanta stock of $734,700.
Each FHLB is required to contribute at least 10% of its reserves and
undivided profits to fund the principal and a portion of the interest on certain
bonds and certain other obligations which are used to fund the resolution of
troubled savings association cases, and to transfer a percentage of its annual
net earnings to the Affordable Housing Program. These contributions continue to
reduce the FHLB of Atlanta's earnings and the Bank's dividends on its FHLB of
Atlanta stock.
Federal Reserve System. Federal Reserve regulations require savings
banks, not otherwise exempt from the regulations, to maintain reserves against
their transaction accounts (primarily negotiable order of withdrawal accounts)
and certain nonpersonal time deposits. The reserve requirements are subject to
adjustment by the Federal Reserve. As of June 30, 1997, the Bank was in
compliance with the applicable reserve requirements of the Federal Reserve.
9
<PAGE>
Restrictions on Acquisitions. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of a state savings bank without giving at least 60 days' written
notice to the FDIC and providing the FDIC an opportunity to disapprove the
proposed acquisition. Pursuant to regulations governing acquisitions of
control, control of an insured institution is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock. In addition, control is presumed to have been acquired,
subject to rebuttal, upon the acquisition of more than 10% of any class of
voting stock. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings bank or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisitions of control by such person.
Liquidity. The Bank is subject to the Administrator's requirement
that the ratio of liquid assets to total assets equal at least 10%. The
computation of liquidity under North Carolina regulation allows the inclusion of
mortgage-backed securities and investments which, in the judgment of the
Administrator, have a readily marketable value, including investments with
maturities in excess of five years. On June 30, 1997, the Bank's liquidity
ratio, calculated in accordance with North Carolina regulations, was
approximately 18.71%.
Additional Limitations on Activities. Recent FDIC law and regulations
generally provide that the Bank may not engage as principal in any type of
activity, or in any activity in an amount, not permitted for national banks, or
directly acquire or retain any equity investment of a type or in an amount not
permitted for national banks. The FDIC has authority to grant exceptions from
these prohibitions (other than with respect to non-service corporation equity
investments) if it determines no significant risk to the insurance fund is posed
by the amount of the investment or the activity to be engaged in and if the Bank
is and continues to be in compliance with fully phased-in capital standards.
National banks are generally not permitted to hold equity investments other than
shares of service corporations and certain federal agency securities. Moreover,
the activities in which service corporations are permitted to engage are limited
to those of service corporations for national banks.
Savings banks are also generally prohibited from directly or
indirectly acquiring or retaining any corporate debt security that is not of
investment grade (generally referred to as "junk bonds"). State savings banks
are also required to notify the FDIC at least 30 days prior to the establishment
or acquisition of any subsidiary, or at least 30 days prior to conducting any
such new activity. Any such activities must be conducted in accordance with the
regulations and orders of the FDIC and the Administrator.
Prompt Corrective Regulatory Action. Federal law provides the federal
banking agencies with broad powers to take corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," or
"critically undercapitalized." Under the FDIC regulations applicable to the
Bank, an institution is considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" institution
is defined as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier I risk-based capital ratio of 4% or greater and (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of an institution
with the highest examination rating and which is not experiencing or
anticipating significant growth). An institution is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier I risk-based capital ratio of less than 4% or (iii) a leverage
ratio of less than 4% (or 3% in the case of an institution with the highest
examination rating and which is not experiencing or anticipating significant
growth); (B) "significantly undercapitalized" if the institution has (i) a total
risk-based capital ratio of less than 6%, or (ii) a Tier I risk-based capital
ratio of less than 3% or (iii) a leverage ratio of less than 3% and (C)
"critically undercapitalized" if the institution has a ratio of tangible equity
to total assets equal to or less than 2%.
10
<PAGE>
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state. The states may
specifically permit interstate acquisitions prior to September 29, 1995, by
enacting legislation that provides for such transactions. North Carolina
adopted nationwide reciprocal interstate acquisition legislation in 1994.
Such interstate acquisitions are subject to certain restrictions.
States may require the bank or savings bank being acquired to have been in
existence for a certain length of time but not in excess of five years. In
addition, no bank or saving bank may acquire more than 10% of the insured
deposits in the United States or more than 30% of the insured deposits in any
one state, unless the state has specifically legislated a higher deposit cap.
States are free to legislate stricter deposit caps.
The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time. Unlike interstate acquisitions, a state may
deny interstate branching if it specifically elects to do so by June 1, 1997.
States may choose to allow interstate branching prior to June 1, 1997 by opting-
in to a group of states that permits these transactions. These states generally
allow interstate branching via a merger of an out-of-state bank with an in-state
bank, or on a de novo basis. North Carolina has enacted legislation permitting
branching transactions.
It is anticipated that the Interstate Banking Act will increase
competition within the markets in which the Bank now operates, although the
extent to which such competition will increase in such markets or the timing of
such increase cannot be predicted.
Restrictions on Dividends and Other Capital Distributions. A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations. In
addition, a North Carolina-chartered stock savings bank, for a period of five
years after its conversion from mutual to stock form, must obtain the written
approval from the Administrator before declaring or paying a cash dividend on
its capital stock in an amount in excess of one-half of the greater of (i) the
institution's net income for the most recent fiscal year end, or (ii) the
average of the institution's net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends, if applicable. Under FDIC regulations, stock repurchases may be made by
the savings bank only upon receipt of FDIC approval.
Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely affect the safety and soundness
of the institution.
In addition, the Bank is not permitted to declare or pay a cash
dividend on or repurchase any of its capital stock if the effect thereof would
be to cause its net worth to be reduced below the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock ownership.
Other North Carolina Regulations. As a North Carolina-chartered
savings bank, the Bank derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to, the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina
law requires that the Bank maintain federal deposit insurance as a condition of
doing business.
11
<PAGE>
The Administrator conducts regular examinations of North Carolina-
chartered savings banks. The purpose of such examinations is to assure that
institutions are being operated in compliance with applicable North Carolina law
and regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC. In addition, the Administrator is
required to conduct an examination of any institution when he has good reason to
believe that the standing and responsibility of the institution is of doubtful
character or when he otherwise deems it prudent. The Administrator is empowered
to order the revocation of the license of an institution if he finds that it has
violated or is in violation of any North Carolina law or regulation and that
revocation is necessary in order to preserve the assets of the institution and
protect the interests of its depositors. The Administrator has the power to
issue cease and desist orders if any person or institution is engaging in, or
has engaged in, any unsafe or unsound practice or unfair and discriminatory
practice in the conduct of its business or in violation of any other law, rule
or regulation.
A North Carolina-chartered savings bank must maintain net worth,
computed in accordance with the Administrator's requirements, of 5% of total
assets and liquidity of 10% of total assets, as discussed above. Additionally, a
North Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.
Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans. In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii) bank demand or time deposits; (iv) stock or obligations of the federal
deposit insurance fund or a FHLB; (v) savings accounts of any savings
institution as approved by the board of directors; and (vi) stock or obligations
of any agency of the State of North Carolina or of the United States or of any
corporation doing business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings institutions
may consolidate or merge, subject to approval of the Administrator. The
approval is conditioned upon findings by the Administrator that, among other
things, such merger or consolidation will promote the best interests of the
members or stockholders of the merging institutions. North Carolina law also
provides for simultaneous mergers and conversions and for supervisory mergers
conducted by the Administrator.
Future Requirements. Statutes and regulations are regularly
introduced which contain wide-ranging proposals for altering the structures,
regulations and competitive relationships of financial institutions. It cannot
be predicted whether or what form any proposed statute or regulation will be
adopted or the extent to which the business of the Company and the Bank may be
affected by such statute or regulation.
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth the location of the Bank's headquarters
in Rockingham, North Carolina, its three full-service branch offices, its loan
origination office, and one vacant lot owned by the Bank as well as certain
other information relating to these offices and vacant lots as of June 30, 1997:
<TABLE>
<CAPTION>
Net Book Value
of Property and
Improvements Own or Lease Lease Expiration Date
----------------- ------------- ----------------------
<S> <C> <C> <C>
Headquarters Office:
115 South Lawrence Street
Rockingham, NC $256,000 Owned
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
of Property and
Improvements Own or Lease Lease Expiration Date
----------------- ------------- ----------------------
<S> <C> <C> <C>
Full-Service Branch Offices:
Rockingham Road Office
1222 Rockingham Road
Rockingham, NC $463,000 Owned
Southern Pines Office
495 Pinehurst Avenue
Southern Pines, NC $719,000 Owned
Ellerbe Office
115 West Sunset Avenue
Ellerbe, NC $344,000 Owned
Loan Origination Office:
800-C Atkinson Street
Laurinburg, NC - Leased Month to Month basis
Vacant Lot:
Corner of Highway 5 and
Trotter Drive
Pinehurst, NC $191,996 Owned
* 410 South Main Street
Laurinburg, NC $ 89,466 Owned
</TABLE>
*The Laurinburg lot is owned by Richmond Investment Services, Inc., a wholly
owned subsidiary of the Bank, and it may be purchased by the Bank in the future.
The Bank's management considers each of these properties to be in good
condition and is of the opinion that it is adequately covered by insurance. The
total net book value of the Bank's furniture, fixtures and equipment at June 30,
1997 was $336,000. Any property acquired as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until such time as it
is sold or otherwise disposed of by the Bank in an effort to recover its
investment. As of June 30, 1997, the Bank owned no real estate acquired in
settlement of loans.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management, neither the Company nor the Bank is
involved in any pending legal proceedings other than routine litigation that is
incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during
the quarter ended June 30, 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See the information under the section captioned "Common Stock
Information" on page 41 of the Company's 1997 Annual Report, which section is
incorporated herein by reference. See "ITEM 1. DESCRIPTION OF BUSINESS --
Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions" above for regulatory restrictions which limit the ability of the
Bank to pay dividends to the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
See the information set forth under ITEM 1 above and the information
set forth under the section captioned "Management's Discussion and Analysis" on
pages 3 through 11 in the Company's 1997 Annual Report, which section is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company set forth on
pages 12 through 40 in the Company's 1997 Annual Report are incorporated herein
by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
N/A.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH 16(a) OF THE EXCHANGE ACT
The information required by this Item regarding directors and
executive officers of the Company is set forth under the sections captioned
"Proposal 1 - Election of Directors" beginning on page 7 of the Proxy Statement
and "Executive Officers" beginning on page 10 of the Proxy Statement, which
sections are incorporated herein by reference.
The information required by this Item regarding compliance with
Section 16(a) of the Securities Exchange Act of 1934 is set forth under the
section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" set
forth on page 6 of the Proxy Statement, which is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the sections
captioned "Proposal 1 - Election of Directors - Directors Compensation" on page
9 and "- Executive Compensation" on pages 10 through 13 of the Proxy Statement,
which sections are incorporated herein by reference.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference
from the section captioned "Security Ownership of Certain Beneficial Owners" on
pages 4 through 6 of the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See also the section captioned "Certain Indebtedness and Transactions
of Management" on page 13 of the Proxy Statement, which section is incorporated
herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
(3)(i) Articles of Incorporation, incorporated herein by
reference to Exhibit 3.1 to the Registration Statement
on Form S-1, Registration No. 333-6855, dated July 26,
1996 and amended on September 10, 1996.
(3)(ii) Bylaws, incorporated herein by reference to Exhibit 3.2
to the Registration Statement on Form S-1, Registration
No. 333-6855, dated July 26, 1996 and amended on
September 10, 1996.
(4) Specimen Stock Certificate incorporated herein by
reference to Exhibit 4.1 to the Registration Statement
on Form S-1, Registration No. 333-6855, dated July 26,
1996 and amended on September 10, 1996.
10(a) Employment Agreement with R. Larry Campbell.
10(b) Employment Agreement with John W. Bullard.
10(c) Nonqualified Supplemental Retirement Plan with R. Larry
Campbell.
10(d) Nonqualified Supplemental Retirement Plan with John W.
Bullard.
(11) Statement Regarding Computation of Per Share Earnings
(13) Portions of 1997 Annual Report to Stockholders
(21) See ITEM 1. - "DESCRIPTION OF BUSINESS --Subsidiaries."
for discussion of subsidiaries
(27) Financial Data Schedule
Reports on Form 8-K
The Company filed no reports on Form 8-K during the last quarter of
the fiscal year ended June 30, 1997. There have been no reportable transactions
during the two most recent fiscal years nor are there any reportable
transactions proposed as of the date of this Form 10-KSB.
15
<PAGE>
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.
CAROLINA FINCORP, INC.
Date: September 24, 1997 By: /s/ R. Larry Campbell
--------------------------------------
R. Larry Campbell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ R. Larry Campbell President, Chief Executive September 24, 1997
- ---------------------------------- Officer and Director
R. Larry Campbell
/s/ John W. Bullard Executive Vice-President September 24, 1997
- ---------------------------------- and Chief Operations Officer
John W. Bullard
/s/ Winston G. Dwyer Treasurer and Chief Financial September 24, 1997
- ---------------------------------- Officer
Winston G. Dwyer
/s/ J. Stanley Vetter Chairman of the Board of September 24, 1997
- ---------------------------------- Directors
J. Stanley Vetter
/s/ John T. Page, Jr. Vice Chairman of the September 24, 1997
- ---------------------------------- Board of Directors
John T. Page, Jr.
/s/ Russell E. Bennett, Jr. Director September 24, 1997
- ----------------------------------
Russell E. Bennett, Jr.
/s/ Buena Vista Coggin Director September 24, 1997
- ----------------------------------
Buena Vista Coggin
/s/ Joe M. McLaurin Director September 24, 1997
- ----------------------------------
Joe M. McLaurin
/s/ W. Jesse Spencer Director September 24, 1997
- ----------------------------------
W. Jesse Spencer
/s/ E.E. Vuncannon, Jr. Director September 24, 1997
- ----------------------------------
E.E. Vuncannon, Jr.
</TABLE>
16
<PAGE>
RICHMOND SAVINGS BANK, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of November 22, 1996, by and between
RICHMOND SAVINGS BANK, INC., SSB (hereinafter referred to as the "Savings Bank")
and R. LARRY CAMPBELL (hereinafter referred to as the "Officer") and is joined
in by CAROLINA FINCORP, INC., the parent holding company of the Savings Bank
(hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its President and Chief Executive Officer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the President and Chief Executive Officer of the Savings Bank upon the terms and
conditions set forth herein; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Holding
Company, the Savings Bank and their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President and Chief Executive Officer of the Savings Bank.
The Officer shall render such administrative and
<PAGE>
management services to the Savings Bank as are customarily performed by persons
situated in a similar executive capacity. The Officer shall promote the
business of the Savings Bank and perform such other duties as shall, from time
to time, be reasonably prescribed by the Board of Directors of the Savings Bank
(the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $95,400 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased from time
to time in such amounts as the Board, in its discretion, may decide. The
Officer will be entitled to such customary fringe benefits, vacation and sick
leave as are consistent with the normal practices and established policies of
the Savings Bank.
3. Bonus Compensation. The Officer shall be entitled to participate in
------------------
any bonus compensation plan adopted by the Directors of the Savings Bank which
would apply to the Officer's position.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical and dental coverage,
disability coverage, education, or other retirement or employee benefits that
the Savings Bank or the Holding Company have adopted, or may, from time to time
adopt, for benefit of their executive employees and for employees generally,
subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the
2
<PAGE>
payment of reasonable expenses for attending annual and periodic meetings of
trade associations, and any other benefits which are commensurate with the
duties and responsibilities to be performed by the Officer under this Agreement.
Additionally, the Officer shall be entitled to such vacation and sick leave as
shall be established under uniform employee policies promulgated by the
Directors. The Savings Bank shall reimburse the Officer for all out-of-pocket
reasonable and necessary business expenses which the Officer may incur in
connection with his services on behalf of the Savings Bank.
5. Term. The term of employment under this Agreement shall be for a period
----
of three (3) years commencing on the effective date of this Agreement (effective
date meaning the date first set forth above), and will automatically extend on a
year to year basis at the conclusion of the initial three year period provided
neither the Board nor the Officer give the other written notice at least 90 days
prior to the expiration date of the initial three year period, and provided that
neither give the other written notice at least 90 days prior to the expiration
date of any subsequent yearly period, and further provided that this section be
additionally subject to provisions in Section 8(c).
6. Loyalty. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards as expected of
the Officer and as outlined in Section 1 of this Agreement, and as may be
established from time to time by the Board.
3
<PAGE>
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate this Agreement at any time, or request
Officer's resignation, but only upon a two-thirds vote of the Board. Any
termination of the Officer by the Board shall not prejudice the Officer's right
to compensation or other benefits under this Agreement for the remaining period
which would have been covered by this Agreement if such termination had not
occurred. However, in no event will the Officer be compensated for more or less
than twelve months. Any benefits to which the Officer may be entitled shall not
be affected.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank shall (i) pay the Officer all of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations which were suspended.
4
<PAGE>
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the Administrator of the Savings Institution
Division of the North Carolina Department of Commerce (the "Administrator"), at
the time the Administrator approves a supervisory merger to resolve problems
related to operation of the Savings Bank or when the Savings Bank is determined
by the Administrator to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
10. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subsection (b)
below), the term of employment under this Agreement shall automatically be
extended for a period of three (3) years beginning on the date of the Change in
Control, and the acquiror shall be bound by the terms of this Agreement and
shall be prohibited, during the remainder of the term of this Agreement, from:
5
<PAGE>
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Section 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, bonus compensation plans,
management retention plans, retirement plans or similar plans or
benefits being provided by the Savings Bank or the Holding Company to
the Officer as of the effective date of the Change in Control; or
(iv) Transferring Officer to a location more than forty (40) miles
distant from Officer's primary work station at the time of a Change in
Control, without the Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported by the Holding Company in response to Item 1 of the Current
Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act; or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
Holding Company's shareholders was approved by the Savings Bank's
6
<PAGE>
or Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Section 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Noncompetition. Officer agrees that he will not, for a period of 12
--------------
full months after separation from the Savings Bank, become a director or
officer, or go to work for or become employed by any bank, savings bank, or
similar financial institution, or engage in, raid or attempt to switch any
7
<PAGE>
customers on the books of the Savings Bank at the time the Officer separated
from the Savings Bank. This covenant applies only to the North Carolina counties
of Richmond, Moore and Scotland and is in no way intended to prevent Officer
from gaining employment in any other financial institution except within the
counties herein listed.
13. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
14. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
15. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
RICHMOND SAVINGS BANK, INC., SSB
By: /s/ J. Stanley Vetter, M..D.
--------------------------------------------
Chairman of the Board
/s/ R. Larry Campbell (SEAL)
-----------------------------------------
R. Larry Campbell
The foregoing Agreement is consented and agreed to by Carolina Fincorp,
Inc., the parent holding company of Richmond Savings Bank, Inc., SSB.
CAROLINA FINCORP, INC.
By: /s/ J. Stanley Vetter, M.D.
--------------------------------------------
Member of Board of Directors
9
<PAGE>
RICHMOND SAVINGS BANK, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of November 22, 1996, by and between
RICHMOND SAVINGS BANK, INC., SSB (hereinafter referred to as the "Savings Bank")
and JOHN W. BULLARD (hereinafter referred to as the "Officer") and is joined in
by CAROLINA FINCORP, INC., the parent holding company of the Savings Bank
(hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its Executive Vice President and Chief Operations Officer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the Executive Vice President and Chief Operations Officer of the Savings Bank
upon the terms and conditions set forth herein; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Holding
Company, the Savings Bank and their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the Executive Vice President and Chief Operations Officer of
the Savings Bank. The Officer shall render such
<PAGE>
administrative and management services to the Savings Bank as are customarily
performed by persons situated in a similar executive capacity. The Officer
shall promote the business of the Savings Bank and perform such other duties as
shall, from time to time, be reasonably prescribed by the Board of Directors of
the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $63,600 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased from time
to time in such amounts as the Board, in its discretion, may decide. The
Officer will be entitled to such customary fringe benefits, vacation and sick
leave as are consistent with the normal practices and established policies of
the Savings Bank.
3. Bonus Compensation. The Officer shall be entitled to participate in
------------------
any bonus compensation plan adopted by the Directors of the Savings Bank which
would apply to the Officer's position.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical and dental coverage,
disability coverage, education, or other retirement or employee benefits that
the Savings Bank or the Holding Company have adopted, or may, from time to time
adopt, for benefit of their executive employees and for employees generally,
subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the
2
<PAGE>
payment of reasonable expenses for attending annual and periodic meetings of
trade associations, and any other benefits which are commensurate with the
duties and responsibilities to be performed by the Officer under this Agreement.
Additionally, the Officer shall be entitled to such vacation and sick leave as
shall be established under uniform employee policies promulgated by the
Directors. The Savings Bank shall reimburse the Officer for all out-of-pocket
reasonable and necessary business expenses which the Officer may incur in
connection with his services on behalf of the Savings Bank.
5. Term. The term of employment under this Agreement shall be for a
----
period of three (3) years commencing on the effective date of this Agreement
(effective date meaning the date first set forth above), and will automatically
extend on a year to year basis at the conclusion of the initial three year
period provided neither the Board nor the Officer give the other written notice
at least 90 days prior to the expiration date of the initial three year period,
and provided that neither give the other written notice at least 90 days prior
to the expiration date of any subsequent yearly period, and further provided
that this section be additionally subject to provisions in Section 8(c).
6. Loyalty. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards as expected of
the Officer and as outlined in Section 1 of this Agreement, and as may be
established from time to time by the Board.
3
<PAGE>
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate this Agreement at any time, or request
Officer's resignation, but only upon a two-thirds vote of the Board. Any
termination of the Officer by the Board shall not prejudice the Officer's right
to compensation or other benefits under this Agreement for the remaining period
which would have been covered by this Agreement if such termination had not
occurred. However, in no event will the Officer be compensated for more or less
than twelve months. Any benefits to which the Officer may be entitled shall not
be affected.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank shall (i) pay the Officer all of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations which were suspended.
4
<PAGE>
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the Administrator of the Savings Institution
Division of the North Carolina Department of Commerce (the "Administrator"), at
the time the Administrator approves a supervisory merger to resolve problems
related to operation of the Savings Bank or when the Savings Bank is determined
by the Administrator to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
10. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subsection (b)
below), the term of employment under this Agreement shall automatically be
extended for a period of three (3) years beginning on the date of the Change in
Control, and the acquiror shall be bound by the terms of this Agreement and
shall be prohibited, during the remainder of the term of this Agreement, from:
5
<PAGE>
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Section 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, bonus compensation plans,
management retention plans, retirement plans or similar plans or
benefits being provided by the Savings Bank or the Holding Company to
the Officer as of the effective date of the Change in Control; or
(iv) Transferring Officer to a location more than forty (40) miles
distant from Officer's primary work station at the time of a Change in
Control, without the Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported by the Holding Company in response to Item 1 of the Current
Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act; or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
6
<PAGE>
Holding Company's shareholders was approved by the Savings Bank's or
Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Section 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Noncompetition. Officer agrees that he will not, for a period of 12
--------------
full months after separation from the Savings Bank, become a director or
officer, or go to work for or become employed by any bank, savings bank, or
similar financial institution, or engage in, raid or attempt to switch any
7
<PAGE>
customers on the books of the Savings Bank at the time the Officer separated
from the Savings Bank. This covenant applies only to the North Carolina counties
of Richmond, Moore and Scotland and is in no way intended to prevent Officer
from gaining employment in any other financial institution except within the
counties herein listed.
13. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
14. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
15. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
RICHMOND SAVINGS BANK, INC., SSB
By: /s/ J. Stanley Vetter, M.D.
----------------------------------------
Chairman of the Board
/s/ John W. Bullard (SEAL)
----------------------------------------
John W. Bullard
The foregoing Agreement is consented and agreed to by Carolina Fincorp,
Inc., the parent holding company of Richmond Savings Bank, Inc., SSB.
CAROLINA FINCORP, INC.
By: /s/ J. Stanley Vetter, M.D.
-------------------------------------
Member of Board of Directors
9
<PAGE>
1-1-92
Split Dollar
AMENDMENT OF EXECUTIVE INCOME PLAN
DEFERRED COMPENSATION PLAN
--------------------------
AGREEMENT, made and entered into this 1st day of January, 1992, by and
between Richmond Federal Savings Bank, an Association duly organized and
existing under the laws of the State of North Carolina, and having its usual
place of business at 115 South Lawrence Street, Rockingham, North Carolina
(hereinafter sometimes called the "Association"), and Robert Larry Campbell,
currently residing at Rockingham, North Carolina (hereinafter called
"Executive).
WITNESSETH THAT:
WHEREAS, the Executive and the Association have entered into a Split Dollar
Agreement dated January 1, 1987, (hereinafter called the "Split Dollar
Agreement"); and
NOW, THEREFORE, in consideration of the premises, and the services rendered
and to be rendered to the Association by the Executive, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Association
and the Executive in accordance with Article X of the Split Dollar Agreement,
hereby agree to amend Paragraph four, Article I & III of said Agreement as more
fully explained below:
AMENDMENT:
In reference to paragraph four of the Split Dollar Agreement, SMA Life
Assurance Company policy #L542,689 has been increased to $375,000.
1.01(a) The death benefit proceeds payable to the Executive's beneficiary
has been increased to $300,000.
3.01 An amount equal to $300,000 shall be paid to the beneficiary.
The Association and the Executive hereby agree that the Deferred
Compensation Agreement dated January 1, 1987 shall be deemed to include this
amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
22nd day of January, 1992.
/s/ Robert Larry Campbell
--------------------------------------
Robert Larry Campbell
RICHMOND FEDERAL SAVINGS BANK
By: /s/ Stanley Vetter, M.D.
--------------------------------------
President
ATTEST:
/s/ J. Martin Page
- -------------------------------
Secretary
WITNESS:
/s/ Karen M. Rickett
- -------------------------------
/s/ Angela U. Ammons
- -------------------------------
<PAGE>
Revised 1-1-92
Deferred Compensation
AMENDMENT OF EXECUTIVE INCOME PLAN
DEFERRED COMPENSATION PLAN
--------------------------
AGREEMENT, made and entered into this 1st day of January, 1992, by and
between Richmond Federal Savings Bank, an Association duly organized and
existing under the laws of the State of North Carolina, and having its usual
place of business at 115 South Lawrence Street, Rockingham, North Carolina
(hereinafter sometimes called the "Association"), and Robert Larry Campbell,
currently residing at Rockingham, North Carolina (hereinafter called
"Executive).
WITNESSETH THAT:
WHEREAS, the Executive and the Association have entered into a Deferred
Compensation Agreement dated January 1, 1987, (hereinafter called the "Deferred
Compensation Agreement"); and
NOW, THEREFORE, in consideration of the premises, and the services rendered
and to be rendered to the Association by the Executive, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Association
and the Executive in accordance with Article XI of the Deferred Compensation
Agreement, hereby agree to amend Article III & V of said Agreement as more fully
explained below:
AMENDMENT:
3.01(a) Policy #S633,855 issued by SMA Life Assurance Company has been
increased to $2,500/mo. benefit.
5.01(a) The monthly retirement payment has been increased to two thousand,
five hundred and no/100 ($2,500).
5.01(b)(1) Monthly payments shall be two thousand, five hundred and no/100
($2,500).
5.02(a) The annual benefit amount used in calculating the accrued benefit
shall be $30,000.
The Association and the Executive hereby agree that the Deferred Compensation
Agreement dated January 1, 1987 shall be deemed to include this amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
22nd day of January, 1992.
/s/ Robert Larry Campbell
--------------------------------------
Robert Larry Campbell
RICHMOND FEDERAL SAVINGS BANK
By: /s/ J. Stanley Vetter, M.D.
--------------------------------------
Chairman
ATTEST:
/s/ J. Martin Page
- --------------------------
Secretary
WITNESS:
/s/ Karen M. Rickett
- --------------------------
/s/ Angela U. Ammons
- --------------------------
<PAGE>
EXECUTIVE INCOME
DEFERRED COMPENSATION AGREEMENT
INCLUDING
PAYMENT OF DISABILITY INCOME POLICY PREMIUMS
AGREEMENT, made and entered into this 1st day of January, 1987 by and
between Richmond Federal Savings & Loan Association, a corporation duly
organized and existing under the laws of the State of North Carolina, and having
its usual place of business at 115 South Lawrence Street, Rockingham, North
Carolina (hereinafter sometimes called the "Corporation"), and Robert Larry
Campbell, currently residing at 115 Pinedale Drive, Rockingham, North Carolina
(hereinafter called "Executive").
WITNESSETH THAT:
WHEREAS, the Executive is presently employed by the Corporation in the
position of Vice President, in which capacity his services have contributed to
the successful operation of the Corporation, and the Corporation and its
Directors believe it is in the best interest of the Corporation to retain the
services of the Executive; and
WHEREAS, the Executive desires to enter into this agreement with the
Corporation under which, in consideration of services rendered and to be
rendered by him to the Corporation, it will agree to make certain payments to
him in the event of his retirement while in the employment of the Corporation
and will pay premiums on a disability income policy to be owned by the Executive
which will provide him with a monthly benefit in the event of his disability as
defined in the disability policy, all subject to the terms and conditions
hereof; and
WHEREAS, the Directors of the Corporation have concluded and agreed that it
is in the best interests of the Corporation to enter into this agreement with
the Executive;
NOW, THEREFORE, in consideration of the premises, and the services rendered
and to be rendered to the Corporation by the Executive, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Corporation
and the Executive hereby mutually covenant and agree as follows:
ARTICLE I
Retirement of Executive Following Age 65
----------------------------------------
1.01 The Corporation agrees that the Executive may retire from the active
and daily service of the Corporation on the day which is one day prior to the
first day of the month in which the Executive has his sixty-fifth (65th)
birthday. It is understood and agreed that with the consent of the directors of
the Corporation, the Executive may remain in the active and full-time employment
of the Corporation after his sixty-fifth (65th) birthday, and that the word
"retirement" as used in this
<PAGE>
agreement shall refer to the actual. retirement of the Executive, and that no
benefit shall be paid the Executive under this agreement until his actual
retirement from regular full-time employment in the Corporation, unless the
Executive and the Corporation shall otherwise mutually agree in writing.
1.02 The Corporation agrees that commencing on the first payment date (as
defined in Section 5.02) after the date of the Executive's retirement, and on
each payment date thereafter for the term of this agreement, it will make
monthly retirement payments in the amount provided in Article V hereof. The
Corporation agrees to continue to make such monthly payments to the Executive
during his life for ten (10) years and until the Executive shall have received
one hundred and twenty (120) monthly payments; subject, however, to the
conditions and limitations provided for and set forth hereinbelow.
ARTICLE II
Death During Retirement
-----------------------
2.01 The Corporation agrees that if the Executive shall retire but shall
die before receiving any or all of the said monthly payments, as provided in
Section 1.02, it will continue to make such monthly retirement payments to the
designated beneficiary of the Executive who shall be living and entitled to
receive such payments on the then current monthly payment date. If the
Executive retires, and dies after the expiration of said 120 month period, no
further payments shall be due or payable by the Corporation under this
agreement.
2.02 As long as this Agreement is in force, the Executive shall be
entitled to specify, in accordance with the procedures set forth in Section
12.01, the beneficiary or beneficiaries of any payments remaining to be paid
under this agreement at the time of his death.
ARTICLE III
Payment of Disability Income Policy Premiums
--------------------------------------------
3.01(a) The Corporation has caused SMA Life Assurance Company's
("Insurer") Sickness and Accident Disability Income Policy # S 573,315-00
("Policy") insuring the Executive to be in effect, the Corporation will pay the
premiums that may be required to keep the Policy in force.
3.01(b) A claim for benefits under the Policy shall be made directly with
the Insurer as provided in the Claims Procedure in Article VII of this
agreement. It shall be the Executive's responsibility to submit doctor's
statements or any other supporting documentation or information requested by the
Insurer at any time as to such Executive's disability. Proof of continued
disability must be furnished by the Executive upon request by the Insurer.
3.01(c) The Executive agrees that he shall rely solely and exclusively on
said policy to provide the disability benefit provided under this Article III
without recourse against the Corporation. The parties agree that the Insurer's
decision regarding the Executive's entitlement or continued entitlement to
disability benefits under said policy shall be binding and conclusive as between
the parties to the Agreement.
<PAGE>
3.01(d) It is the intention of the parties to this Agreement:
(1) That the benefits payable to the Executive under the provisions
of this Article III shall qualify as amounts received under an accident and
health plan meeting the requirements of Section 105 of the Internal Revenue Code
of 1954, as amended; and
(2) That the payment of premiums for the disability policy by the
Corporation shall qualify as contribution by an employer to an accident and
health plan under Section 106 of the said Internal Revenue Code.
3.01(e) For purposes of determining the Executive's eligibility for
retirement benefits under Article I of the Agreement, the Executive shall be
deemed to be in the "active and daily service" of the Corporation for the entire
period that he is disabled within the meaning of the disability income policy
including any elimination period contained therein.
ARTICLE IV
Termination of Employment
-------------------------
4.01 In the event that the Executive terminates his employment with the
Corporation voluntarily, or if he is discharged for dishonesty, fraud, gross
neglect of duties, intentional damage to the property of the Company or
intentional performance of any act materially inimical to the interest of the
Company or for other due cause as determined by the Directors of the Company
prior to his attaining age 65, no amounts shall be payable hereunder to him or
any other person.
4.02 However, if the employment of the executive shall be terminated
without due cause, he shall have a vested interest in the accrued retirement
benefits as set forth in Section 4.03.
4.03 Vesting shall be based on a full year of service with the Corporation
from the date of participation. There shall be no vesting until completion of
three (3) full years of service at which time the vesting percentage shall be
20. Thereafter, and for each additional one full year of service, the vesting
percentage shall increase by 20, except that at age 65 the percentage will be
100. The vesting percentage shall not be greater than 100. There shall be no
vesting for a partial year of service. All vested percentage shall be a
percentage of the accrued retirement benefit and will be paid starting at the
executive's normal retirement date in 120 monthly installments.
4.04 Monthly payments shall be made on the first business day of each
calendar month until the employee or his beneficiary has received one hundred
twenty (120) monthly payments. However, at the discretion of the Board of
Directors the Corporation may elect to pay the present value of any monthly
payments due under this agreement in a lump sum to the employee or to his
beneficiary. The prime rate in effect at that time shall be used in determining
the present value of the payments.
If monthly payments are elected by the Corporation under this
Section, the Board of Directors in its discretion, may elect to commence the
payments either on the first day of the thirteenth month after termination or at
age 65 of the employee.
<PAGE>
Any benefits the employee would have been entitled to receive had he
lived shall be payable to the employee's beneficiary.
ARTICLE V
Amount of Monthly Payments
--------------------------
5.01(a) The amount of each monthly retirement payment to be made by the
Corporation from its own funds and by its own check to the Executive or the
Executive's beneficiary, as provided for in this Section 1.02 shall be one
thousand six hundred sixty six dollars and sixty seven cents ($1666.67).
5.01(b) If the monthly payments are payable by the Company under Section
1.02 (concerning retirement), or Article II (concerning death during
retirement), the amount of each monthly payment shall be determined as of the
employees actual retirement date in the following manner:
1. If monthly payments are payable under Section 1.02, the amount of
each monthly payment shall be one thousand six hundred sixty six dollars and
sixty seven cents.
2. If monthly payments are payable to the employee's beneficiary
under Section 2.01, the amount of each monthly payment shall be the same as that
which would have been paid to the employee had he lived.
3. If monthly payments are payable by the Company under Section 4.02
(concerning termination of employment without cause) the amount of each monthly
payment shall be based on a percentage of the Employee's accrued benefit
determined as of the date of termination.
5.02(c) For purposes of the Article, the accrued benefit shall be the
result obtained under the following formula. The annual benefit of $20,000 shall
be multiplied by a fraction, the denominator of which shall be 65 minus the
Employee's age when he first became a participant in the plan and the numerator
of which shall be the number of full years of service with the Corporation. The
resulting figure shall them be multiplied by the vesting percentage to arrive at
the annual retirement benefit. The employee's age shall be his age at his last
birthday immediately prior to his becoming a participant in the plan. There
shall be no credit given for a partial year of service. Payments shall be made
on a monthly basis; the annual benefit shall be divided by 12 for this purpose.
However, the Board of Directors in its discretion may elect to pay the present
value of these payments in a lump sum as provided in Section 4.04.
ARTICLE VI
Employee Retirement Income Security Act of 1974 (ERISA)
-------------------------------------------------------
6.01 For purposes of ERISA, the Corporation will be the "Named Fiduciary"
and "Plan Administrator" of the plan for which this agreement is hereby
designated the written plan instrument.
<PAGE>
6.02 The Corporation's Board of Directors may authorize a person or group
of persons to fulfill the responsibilities of the Corporation as Plan
Administrator. The Named Fiduciary or the Plan Administrator may employ others
to render advice with regard to its responsibility under the Plan. The Named
Fiduciary may also allocate fiduciary responsibilities to others and may
exercise any other powers necessary for the discharge of its duties to the
extent not in conflict with ERISA.
ARTICLE VII
Claims Procedure
----------------
7.01 The following Claims Procedure shall control the determination of
benefit payments under this plan:
(a) Filing of a Claim for Benefits
Any insured, beneficiary or other individual ("Claimant")
entitled to benefits under the Plan or under a policy will file a
claim request with the Plan Administrator with respect to
retirement benefits under the plan and with the Insurer with
respect to disability benefits under the disability income
policy. The Plan Administrator will, upon written request of a
claimant, make available copies of any claim forms or
instructions provided by the Insurer or advise the Claimant where
copies of such forms or instructions may be obtained.
(b) Denial of Claim
A Claim for Benefits under the Plan will be denied if the
Corporation determines that the claimant is not entitled to
receive benefits under the Plan. Notice of a denial shall be
furnished to the Claimant within a reasonable period of time
after receipt of the Claim for Benefits by the Plan
Administrator.
(c) Content of Notice
The Plan Administrator shall provide within ninety (90) days to
every Claimant who is denied a Claim for Benefits written notice
setting forth, in a manner calculated to be understood by the
Claimant, the following:
1. The specific reason or reasons for the denial;
2. Specific reference to pertinent Plan provisions on which the
denial is based;
3. A description of any additional material or information
necessary for the Claimant to perfect the claim, and any
explanation of why such material or information is necessary;
and
<PAGE>
4. An explanation of the Plan's Claim Review Procedure as set
forth below.
(d) Review Procedure
The purpose of the Review Procedure is to provide a method by
which a Claimant may have a reasonable opportunity to appeal a
denial of a Claim to the Named Fiduciary for a full and fair
review. To accomplish that purpose, the Claimant or his duly
authorized representative:
1. May require a review upon written application to the Named
Fiduciary;
2. May review pertinent Plan documents; and
3. May submit issues and comments in writing.
A Claimant (or his duly authorized representative) shall request
a review by filing a written application for review with the
Named Fiduciary at any time within sixty (60) days after receipt
by the Claimant of written notice of the denial of his claim.
(e) Decision on Review
A decision on review of a denied claim shall be made in the
following manner:
1. The decision on review shall be made by the Named Fiduciary,
who may in his discretion hold a hearing on the denied claim.
Such decision shall be made promptly, and not later than
sixty (60) days after receipt of the request for review,
unless special circumstances (such as the need to hold a
hearing) require an extension of time for processing, in
which case a decision shall be rendered as soon as possible,
but not later than one hundred and twenty (120) days after
receipt of the request for review.
2. The decision on review shall be in writing and shall include
specific reasons for the decisions, written in a manner
calculated to be understood by the Claimant, and specific
references to the pertinent Plan provisions upon which the
decision is based.
<PAGE>
ARTICLE VIII
Financing of Benefits
---------------------
8.01 All retirement benefits and policy premiums under the plan shall
be provided out of the general assets of the Corporation at the time such
benefits are to be made. The parties agree that the Corporation is under no
obligation to set aside funds in advance of the time for payment, or to
otherwise provide security for its obligations under this Agreement.
8.02 Retirement payments for the Plan shall be made out of the
general assets of the Corporation upon submission and approval of a Claim for
Benefits made pursuant to the Claims Procedure established as required by ERISA,
and set forth above.
ARTICLE IX
Governing Laws
--------------
9.01 This Agreement shall be governed by and construed in accordance
with the laws of North Carolina, where it is made and to be performed. It sets
forth the entire agreement between the parties concerning the subject matter
thereof, and any amendment or discharge shall be made only in writing. This
Agreement shall bind and benefit the parties and their legal representatives and
successors.
ARTICLE X
Not a Contract of Employment
----------------------------
10.01 This agreement shall not be deemed to constitute a contract of
employment between the parties, nor shall any provision restrict the right of
the Corporation to discharge the Executive.
ARTICLE XI
Amendment or Termination
------------------------
11.01 No beneficiary under this Agreement shall obtain any vested
right to have this agreement continued in force, and it may be amended or
modified in whole or in part by the Executive and the Corporation in writing at
any time without the consent of said beneficiary.
ARTICLE XII
Further Provisions
------------------
12.01 The term "beneficiary" as used herein shall mean any person or
trust, or combination thereof, last designated by the Executive in writing and
filed with the Corporation by the Executive during his lifetime upon a
Nomination of Beneficiary form provided by the Corporation. Any such
designation or designations of beneficiary shall be revocable at any time or
times without the consent of any beneficiary, whether now living or born
thereafter, by written designations of beneficiaries made by the Executive and
similarly filed by him with the Corporation during his lifetime. In the absence
of or failure of designated beneficiaries, the executor(s) or administrator(s)
of the Executive shall be his beneficiary.
<PAGE>
12.02 It is agreed that neither the Executive nor any beneficiary
hereunder shall have any right to commute, sell, assign, transfer or otherwise
convey the right to receive any payments hereunder, which payments and the right
thereto are expressly declared to be nonassignable and nontransferable, and in
the event of any attempted assignment or transfer, this Agreement shall
terminate and the Corporation shall have no further liability hereunder.
12.03 The Corporation agrees that it will not merge or consolidate
with another Corporation or organization, or permit its business activities to
be taken over by any other organization unless and until the succeeding or
continuing Corporation or other organization shall expressly assume the rights
and obligations of the Corporation herein set forth.
12.04 This agreement shall be executed in duplicate, each copy of
which when so executed and delivered shall be an original, but both copies
shall, together, constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 1st day of January, 1987.
/s/ Robert Larry Campbell
--------------------------------------------
ROBERT LARRY CAMPBELL
RICHMOND FEDERAL SAVINGS & LOAN
ASSOCIATION
By: /s/ Buena Vista Coggin
-----------------------------------------
BUENA VISTA COGGIN, PRESIDENT
ATTEST:
/s/ Arlie S. Baldwin
- ------------------------------
SECRETARY
WITNESS:
- ------------------------------
- ------------------------------
<PAGE>
EXECUTIVE INCOME PLAN
---------------------
DESCRIPTION OF BENEFITS
-----------------------
FOR
---
LARRY CAMPBELL
--------------
DEATH BENEFIT
-------------
$200,000 to the family if death occurs prior to retirement.
Death Benefit is income tax free and may be estate tax free.
DISABILITY BENEFIT
------------------
$17,796 per year of disability income payable upon permanent disability until
retirement age is reached.
RETIREMENT BENEFIT
------------------
$20,000 per year of retirement income payable at retirement for 10 years to you
and/or family.
<PAGE>
EXECUTIVE INCOME
SPLIT DOLLAR AGREEMENT
AGREEMENT, made and entered into this 1st day of January, 1997 by and
between Richmond Federal Savings & Loan Association, a corporation duly
organized and existing under the laws of the State of North Carolina, and having
it usual place of business at 115 South Lawrence Street, Rockingham, North
Carolina (hereinafter sometimes called "Corporation"), and Robert Larry Campbell
currently residing at 115 Pinedale Drive, Rockingham, North Carolina
(hereinafter called "Executive").
WITNESSETH THAT:
WHEREAS, the Executive is presently employed by the Corporation in the
position of Vice President, in which capacity his services nave contributed to
the successful operation of the Corporation, and the Corporation and its
Directors believe it is in the best interest of the Corporation to retain the
services of the Executive; and
WHEREAS, the Corporation is desirous of assisting the Executive in
paying for a pre-retirement life insurance benefit; and
WHEREAS, the Corporation has determined that this insurance can best
be provided under a "split dollar" arrangement and the Corporation has applied
for insurance Policy No. L 392,179-00 (the "policy") issued by SMA Life (the
"Insurer") in the face amount of $225,000 on the Executive's life; and
WHEREAS, the Corporation and the Executive agree to make said
insurance policy subject to this split dollar agreement.
NOW, THEREFORE, in consideration of the premises, and the services to
be rendered to the Corporation by the Executive, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Corporation and the
Executive hereby mutually covenant and agree as follows:
ARTICLE I
Policy Ownership and Dividend Application
-----------------------------------------
1.01 The Policy has been issued to the Corporation as the owner
thereof. The Corporation will have and may exercise all ownership rights in the
policy except as provided hereafter:
<PAGE>
(a) As long as this Agreement is in force, the Executive shall
be entitled to specify in writing to the Corporation, the
beneficiary or beneficiaries and the mode of payment thereto
of an amount of death benefit proceeds payable under the
policy equal to $200,000. The Corporation agrees that upon
receipt of such written request, it will immediately take
such action as is necessary to evidence any such change in
the Executive's desired beneficiary designation which change
shall become effective as provided in the policy;
(b) The Corporation will not, without the written consent of the
Executive, assign its rights in the policy other than for
purposes of obtaining a loan against the policy as provided
in paragraph (c) below;
(c) The Corporation will have the right (i) to borrow from the
Insurer and to secure that loan by the policy for any
purpose including, but not limited to, borrowing for the
purpose of paying premiums without giving notice to the
employee, and (ii) to make partial withdrawals of the policy
surrender value; provided, however, that if the exercise of
such rights would reduce the death benefit payable to the
Executive's beneficiary pursuant to Section 3.01(a), then
such rights shall be exercisable by the Corporation only
with the written consent of the Executive.
1.02 Except as provided in paragraph 1.01 above, the Corporation
agrees with the Executive that so long as this agreement is in force; it will
not exercise any rights under the policy which will compromise or reduce the
death benefit payable to the Executive's beneficiary.
1.03 Dividends payable under the policy, if any, will be applied as
provided in the application of the policy.
1.04 As between the Executive and the Corporation, this agreement
shall take precedence over any provisions of the policy (including any riders,
amendments and attachments thereto) in case of a conflict between the terms of
the policy and this agreement.
ARTICLE II
Payment of Premiums
-------------------
2.01 As long as this agreement is in force, the Executive and the
Corporation agree to share in the payment of the premiums on said policy of
insurance in such amounts and in the manner set forth below:
(a) Unless paragraph (b) applies, the Executive's share of the
annual premium shall be that portion of the annual premium
due on the policy that is equal to the amount of the
economic benefit that would be taxable to the Executive but
for the pay-merit by the Executive of such amount based upon
an amount of insurance protection equal to the Executive's
death benefit specified in
<PAGE>
Article 1. The Corporation shall pay the balance of each
such annual premium.
(b) If the policy is a flexible premium contract such that
premiums may be varied as to the amount and timing of
premium payments, then the Executive shall be required to
make an annual premium contribution in an amount determined
in accordance with paragraph (a) above, beginning on the
policy issue date and continuing thereafter on the
anniversary of such date. The Corporation shall pay premiums
at such times and in such amounts as it may determine in its
sole discretion.
2.02 The amount of economic benefit that would be taxable to the
Executive shall be computed in accordance with the Insurer's current published
rate per $1000 of insurance protection for Individual 1-year term life insurance
available to all standard risks as provided in Revenue Ruling 66-110, 1966-1
C.B.12.
2.03 In order to facilitate the payment of premiums on the policy, it
is agreed that the Corporation in the first policy year, and in each year
thereafter and as long as this agreement is in force, shall forward the total
amount of the premium then currently due and payable on the policy directly to
the Insurer and, immediately thereafter, it shall indicate in the appropriate
Corporate records that the annual sum payable by the Executive as provided for
above in Section 2.01, shall be added to his annual salary or compensation.
ARTICLE III
Beneficiary Provisions
----------------------
3.01 If the Executive dies while this agreement is in force, the
policy death benefit shall be divided as follows:
(a) An amount equal to $200,000 shall be paid to the beneficiary
or beneficiaries then specified by the Executive as provided
in Section 1.01(a), above but subject to the provisions of
Section 1.01(c).
(b) The balance of said policy death benefit, if any shall be
paid to the Corporation.
3.02 It is agreed by the parties hereto that no beneficiary shall
have any right to reimbursement or contribution from the estate of the Executive
or from the Corporation with respect to the amount collected by this Corporation
under said policy.
3.03 If the Executive shall die while this agreement is in force, the
Corporation agrees to take such action as may be necessary to obtain payment
from the insurer of the amounts payable under said policy to the beneficiaries
designated therein.
<PAGE>
ARTICLE IV
Termination of Agreement
------------------------
4.01 This agreement shall automatically terminate upon the happening
of any of the following events:
(a) The Executive's termination of employment voluntarily, or
his discharge for any reason prior to death. The Executive's total
disability shall not be considered a termination of employment. Total
disability shall have the same meaning as under the waiver of premium
rider acquired or available with the policy.
(b) Express termination of this agreement by either the
Corporation or the Executive at any time upon 30 days written notice
to the other.
(c) On the day prior to the date of the Executive's retirement,
which retirement date shall be the day prior to the first day of the
month in which the insured has his sixty-fifth (65th) birthday. It is
understood and agreed that with the consent of the Directors of the
Corporation, the Executive may remain in the active and full-time
employment after the above stated retirement date, and the retirement
date as used in this agreement shall refer to the actual retirement
date of the Executive. The retirement date shall be specified on a
Policy Contract Change Form provided by the Insurer.
(d) Death of the Executive, subject, however to the provisions
of Article III.
(e) Lapse or termination of the Policy.
4.02 Upon termination of this agreement under Section 4.01 (a), (b),
or (c), the Corporation shall become sole owner of the policy unless otherwise
agreed by the parties.
ARTICLE V
Reorganization
--------------
5.01 The Corporation agrees that it will not merge or consolidate
with another corporation or organization, or permit its business activities to
be taken over by any other organization unless and until the succeeding or
continuing corporation or other organization shall expressly assume the rights
and obligations of the Corporation herein set forth.
ARTICLE VI
Governing Laws
--------------
6.01 This Agreement shall be governed by and construed in accordance
with the laws of North Carolina, where it is made and to be performed. It sets
forth the entire agreement between the parties concerning the subject matter
thereof, and any amendment shall be made only in writing. This Agreement shall
bind and benefit the parties and their legal representatives and successors.
<PAGE>
ARTICLE VII
Not a Contract of Employment
------------------------------
7.01 This Agreement shall not be deemed to constitute a contract of
employment between the parties, nor shall any provisions restrict the right of
the Corporation to discharge the Executive.
ARTICLE VIII
Employment Retirement Income Security Act of 1984 (ERISA)
---------------------------------------------------------
8.01 For the purposes of ERISA, the Corporation shall be the "Named
Fiduciary" and "Plan Administrator" of the split dollar life insurance plan for
which this agreement is hereby designated the written plan instrument.
8.02 The Corporation's Board of Directors may authorize a person or
group of persons to fulfill the responsibilities of the Corporation as Plan
Administrator. The Named Fiduciary or the Plan Administrator may employ others
to render advice with regard to its responsibilities under the Plan. The Named
Fiduciary may also allocate fiduciary responsibilities to others and may
exercise any other powers necessary for the discharge of its duties to the
extent not in conflict with ERISA.
ARTICLE IX
Claims Procedure
----------------
9.01 The following Claims Procedures shall control the determination
of benefit payments under this Plan:
(a) Any insured, beneficiary or other individual ("claimant") entitled to
benefits under the plan or under the policy shall file a claim request with
the Plan Administrator with respect to benefits under the Plan and with the
Insurer with respect to benefits under the policy. The Plan Administrator
shall, upon written request of a claimant, make available copies of any
claim forms instructions provided by the insurer or advise the Claimant
where copies of such forms or instructions may be obtained.
(b) Denial of Claim
A Claim for Benefits under the Plan shall be denied if the Corporation
determines that the claimant is not entitled to receive benefits under the
Plan. Notice of the denial shall be furnished to the Claimant within a
reasonable period of time after receipt of the Claim for Benefits by the
Plan Administrator. In the case of benefits which are provided under the
policy, the initial decision on the claims shall be made by the Insurer.
(c) Content of Notice
The Plan Administrator shall provide within ninety (90) days to every
Claimant who is denied a Claim for Benefits written notice setting forth,
in a manner calculated to be understood by the Claimant, the following:
<PAGE>
1. The specific reason or reasons for the denial;
2. Specific reference to pertinent Plan provisions on which the denial is
based;
3. A description of any additional material or information necessary for
the Claimant to perfect the claim, and an explanation of why such
material or information is necessary; and
4. An explanation of the Plan's Claim Review Procedure as set forth below.
(d) Review Procedure
The purpose of the Review Procedure is to provide a method by which a
Claimant may have a reasonable Opportunity to appeal a denial of a Claim to
the Named Fiduciary for a full and fair review. To accomplish that purpose,
the Claimant or his duly authorized representative:
1. May require a review upon written application to the Named Fiduciary;
2. May review pertinent Plan documents; and
3. May submit issues and comments in writing.
A Claimant (or his duly authorized representative) shall request a
review by filing a written application for review with the Named
Fiduciary at any time within sixty (60) days after receipt by the
Claimant of written notice of the denial of his claim.
(e) Decision of Review
A decision on review of a denied claim shall be made in the following
manner:
1. The decision on review shall be made by the Named Fiduciary, who may in
his discretion hold a hearing on the denied claim. Such decision shall
be made promptly, and not later than sixty (60) days after receipt of
the request for review, unless special circumstances (such as the need
to hold a hearing) require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not
later than one hundred and twenty (120) days after receipt of the
request for review.
2. The decision on review shall be in writing and shall include specific
reasons for the decision, written in a manner calculated to be
understood by the Claimant, and specific references to the pertinent
Plan provisions upon which the decision is based.
<PAGE>
ARTICLE X
Amendment
---------
10.01 No beneficiary under the policy shall obtain any vested right
to have this agreement continued in force and it may be amended or modified in
whole or in part by the Executive and the Corporation in writing at any time
without the consent of said beneficiary.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 1st day of January 1 1987.
/s/ Robert Larry Campbell
--------------------------------------------
Robert Larry Campbell
RICHMOND FEDERAL SAVINGS BANK
By: /s/ Buena Vista Coggin
-----------------------------------------
Buena Vista Coggin, President
ATTEST:
/s/ Arlie S. Baldwin
- --------------------------
Secretary
WITNESS:
- --------------------------
- --------------------------
<PAGE>
SPLIT DOLLAR
LIFE INSURANCE PLAN
SUMMARY PLAN DESCRIPTION
The Split Dollar Life Insurance Plan provides your beneficiary with a stated
death benefit in the event of your death while this plan is in effect. The plan
terminates and no death benefit will be provided if you cease to be employed by
this company for any reason or if you retire.
This Summary describes the Split Dollar life insurance agreement entered into
between you and this company on January 1, 1987. This Summary Plan Description
is only a summary of the key provisions of the Plan. In case of any differences
between the Summary Plan Description and the actual Agreement, the actual
Agreement will govern.
The following represents a description of the plan in terms which are easy to
understand. For simplification, technical language has been avoided as much as
possible.
ELIGIBILITY
-----------
Eligibility to participate in this Plan is selective. The employer retains
absolute discretion to determine which employees will be allowed to participate
in the plan. Furthermore, the employer may terminate the plan at its discretion
at any time.
The sole benefit provided under this plan is the right to name a beneficiary of
a stipulated portion of the proceeds of an insurance policy on your life. You
may assign this right to third parties if you so desire.
The following events will automatically terminate the plan:
1. if your employment with the employer is terminated prior to retirement; or
2. on the day specified on a Policy Contract Change (Form 200) provided by the
insurer (the day which is one day prior to the date specified as your
retirement date); or
3. Express termination of the plan by either you or the employer at any time
upon thirty (30) days written notice to the other; or
4. On the day prior to the date of your retirement, which is one day prior to
the first day of the month in which you will attain your 65th birthday.
However, you may, with the consent of the Board of Directors, remain in
active and daily service of the employer beyond age 65; and in that event,
the term "retirement" date shall mean the date of your actual retirement; or
5. Upon the payment to your designated beneficiary of the death benefit payable
under the plan, or
<PAGE>
6. Lapse or termination of the insurance policy.
EMPLOYEE CONTRIBUTION/PURCHASE OF INSURANCE
-------------------------------------------
As part of this plan, you have agreed to undergo a medical exam and take all
action necessary for the employer to obtain a contract of insurance on your
life. You understand that the amount of insurance purchased may be greater than
the proceeds payable to your beneficiary. Furthermore, all such proceeds in
excess of your stipulated death benefit will belong to the employer. The amount
of your stipulated death benefit will not be changed or reduced without your
consent, subject, however, to the right of the company to unilaterally terminate
the plan in its entirety.
Your have also agreed to contribute to the premium payments for the policy of
insurance on your life. The monies necessary for your contribution, however,
will be provided by the corporation and will be taxable to you as additional
compensation. You have no right in any monies so contributed and will not be
entitled to a refund of such monies at any time. The amount of your
contribution is stipulated in the split dollar agreement and will increase each
year.
CLAIMS PROCEDURE
----------------
If you are not satisfied with a decision made as to your benefits under the plan
and wish to make a claim, the following information about the Plan's Claims
Procedure is intended to help you:
1. Claims Fiduciary - The Plan Administrator is Richmond Federal Savings & Loan
----------------
Association.
2. Claim for Benefits - A claim for benefits under the Plan should be made in
------------------
writing to the Plan Administrator.
3. Notice of Claim Denial - If your claim for benefits is turned down, wholly
----------------------
or partially, the Plan Administrator will notify you within ninety (90) days
after you file your claim. The notice of denial will be in clear,
understandable language and will give the reasons why your claim was turned
down. You will be informed of the Plan Provisions on which the decision was
based and will be told what additional information or material you need to
support the claim.
4. Request for Review of Claim Denial - If your claim is turned down, you may
----------------------------------
request a full and fair review of a denial of your claim for benefits. You
must make this request of the Plan Administrator in writing within sixty
(60) days after you receive denial.
5. Final Decision - The final written decision of the Plan Administrator will
--------------
be delivered to you within sixty (60) days of his receipt of your appeal.
This period may be extended if circumstances make it necessary.
<PAGE>
Employer's Name, Address and Identification Number:
Richmond Federal Savings & Loan Association
115 South Lawrence Street
Rockingham, North Carolina 28379
EIN: 56-0377020
Type of Administration:
Split Dollar Insurance Plan - Insurance Contract. Plan Administrator and
---------------------------
agent for service of legal process:
Richmond Federal Savings & Loan Association
115 South Lawrence Street
Rockingham, North Carolina 28379
Telephone: (919) 895-6046
Your Rights as a Participant
- ----------------------------
As a participant in the Plans you are entitled to certain rights and protections
under the Employee Retirement Income Security Act of 1974 (ERISA). However, you
should be aware that the split dollar plan as a welfare plan covering fewer than
100 participants is exempt from many of the reporting and disclosure
requirements of those specific rights. Additionally, the deferred compensation
plan, as an unfunded plan of deferred compensation for a select group of
management or highly paid employees, is exempt from the full reporting and
disclosure requirements where the alternative compliance procedure allowed for
by the Secretary of Labor has been followed.
In addition to creating rights for plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your plan, called "fiduciaries" and "administrators" of
the plan, have a duty to do so prudently and in the interest of you and other
plan participants and beneficiaries. No one, including your employer or any
other person, may terminate your employment or otherwise discriminate against
you in any way to prevent you from obtaining a benefit or exercising your rights
under ERISA. If your claim for a benefit is denied in whole or in part you must
receive a written explanation of the reason for the denial. You have the right
to have the plan administrator review and reconsider your claim. Under ERISA,
there are steps you can take to enforce the above rights. For instance, if you
request materials from the plan administrator and do not receive them within 30
days, you may file suit in a federal court. In such a case, the court may
require the plan administrator to provide the materials and pay you up to $100 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the administrator. If you have a claim for
benefits which is denied or ignored, in whole or in part, you may file suit in a
state or federal court. If the plan fiduciaries misuse the plan's money, or if
you are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor, or you may file suit in a federal court. The
court will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these costs and
fees. If you lose, the court may order you to pay these costs and fees,
<PAGE>
for example, if it finds your claim is frivolous. If you have any questions,
about your plan, you should contact the plan administrator. If you have any
questions about this statement or about your rights under ERISA, you should
contact the nearest Area Office of the U.S. Labor-Management Services
Administration, Department of Labor.
<PAGE>
FORM 200 (2/83) [_] State Mutual Life Insurance Company of
America
[X] SMA Life Assurance Company
POLICY CONTRACT CHANGE Members of THE AMERICA GROUP
Worcester, Massachusetts 01605
================================================================================
NOTE: SEE REVERSE SIDE FOR PROPER ENTRY AND INSTRUCTIONS
- --------------------------------------------------------------------------------
INSURED POLICY(IES) AGENCY
L392,179
R. LARRY CAMPBELL CHARLOTTE 014
ENTER CONSECUTIVE NO. ONLY
================================================================================
AGENCY DATA (Required for change in plan only)
- --------------------------------------------------------------------------------
GENERAL AGENT WRITING AGENT
JEFF LYONS, CLU RONALD W. ERICKSON, CLU
- --------------------------------------------------------------------------------
in regard to the above-mentioned policy(ies) the undersigned (requests) the
following: amendment thereto:
The undersigned corporation will be the owner of the policy applied for and will
have the right on its sole signature without the consent of any person to sell,
surrender, exercise the exchange option, if any, make policy loans, pledge or
assign the policy absolutely or as security for a loan.
The owner will not change the beneficiary as set forth in paragraph (a), below,
without the consent of the insured. The insured's right to consent shall
terminate on the earlier of (1) the day prior to July 1, 2009 or (2) the
insured's termination of employment in the undersigned corporation, at which
time the owner shall become the beneficiary and the owner shall have the right
thereafter to change the beneficiary. This shall not prevent the owner from
exercising any of the other aforesaid rights under the policy upon its sole
signature even when the effect is to terminate the beneficiary's interest in the
policy.
At the death of the insured prior to the earlier of July 1, 2009 or the
insured's termination of employment, the death benefit payable under the policy
will be divided as follows:
(a) an amount equal to $200,000, or all of the proceeds if less than $200,000,
shall be paid to Barbara B. Campbell, spouse of the insured, if living,
otherwise the executors or administrators of the estate of the insured, and
(b) the balance of the proceeds (less any indebtedness and/or withdrawals under
the policy, and subject to the claims of any assignee) shall be paid to the
owner.
On the earlier of the date of July 1, 2009 or the insured's termination of
employment and thereafter this Policy Contract Change, Form 200, shall no longer
be in effect and the provisions hereof shall become null and void.
Neither the insured nor the beneficiary designated by the insured shall on the
earlier of the date of July 1, 2009 or termination of employment and thereafter
have any right, title or interest in and to the policy or any riders attached
thereto.
The undersigned corporation shall on the earlier of the date of July 1, 2009 or
the insured's termination of employment and thereafter become the sole
beneficiary of the entire basic policy and any rider attached thereto unless
another beneficiary has been named by the owner.
SMA Life Assurance Company will be entitled to rely upon an affidavit by the
owner as to the amount of death benefit to which it is entitled and as to its
rights to name or change beneficiaries as to all or any part of the proceeds and
said SMA Life will be fully released and discharged of any liability for any
action taken in reliance upon such affidavit.
If this application is for the conversion, split or exchange of the policy the
beneficiary(ies) revocable or irrevocable, as the case may be, and the mode of
payment under the new policy(ies) shall be the same as currently in effect in
the policy to which this application relates.
The above change shall become effective upon the receipt and acceptance of this
request by the Company or its Office.
- --------------------------------------------------------------------------------
COLLATERAL ASSIGNEE'S SIGNATURE, OWNER'S SIGNATURE
IF APPLICABLE
RICHMOND FEDERAL SAVINGS & LOAN ASSOCIATION
/s/ Buena Vista Coggin, President
- --------------------------------------------------------------------------------
BENEFICIARY'S SIGNATURE, IF SIGNED AT DATE
APPLICABLE
ROCKINGHAM, NC 11-25-86
- --------------------------------------------------------------------------------
THIS SPACE RESERVED FOR OFFICE ENTRIES
- --------------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
NOMINATION OF BENEFICIARY
TO: Richmond Federal Savings & Loan Association (hereinafter called the
"Corporation")
I, Robert Larry Campbell, in accordance with the right granted to me in Section
2.01 of the agreement between me and the Corporation dated January 1, 1987 do
hereby nominate as beneficiary thereunder in the event of my death:
Barbara B. Campbell, Spouse
still reserving the privilege of changing the Beneficiary herein named at any
time or times without the consent of any such Beneficiary -
This nomination is made upon the following terms and conditions:
1. The word Beneficiary as used herein shall include the plural, wherever the
contract so permits.
2. If any sole Beneficiary who is then receiving monthly payments hereunder and
under said agreement shall not be living on any monthly payment date provided
for in said agreement, any and all remaining monthly payments shall be made
payable to the next beneficiary in the order named above unless the executors
or administrators of such sole Beneficiary are named as Beneficiaries
hereinabove.
3. If more than one Beneficiary is named either individually or as a class,
monthly payments shall be made equally to such Beneficiaries unless otherwise
provided hereinabove. If any such Beneficiaries die while receiving monthly
payments under said agreement, any and all remaining payments shall be made
equally to the surviving Beneficiaries of such designation or class or all to
the sole survivor of them unless otherwise provided hereinabove. If all of
such Beneficiaries shall die, any and all remaining payments shall be made to
the next Beneficiary in the order named hereinabove.
4. If none of the Beneficiaries named hereinabove is living on any said monthly
payment date, any and all remaining payments shall be made to my executors or
administrators, or upon their written request, to any person or persons so
designated by them.
5. If any such monthly payments shall be payable upon any trust, the Corporation
shall not be liable to see to the application by the Trustee of any payment
hereunder at any time, and may rely upon the sole signature of the Trustee to
any receipt, release or waiver, or to any transfer or other instrument to
whomsoever made purporting to affect this nomination or any right hereunder.
This nomination shall be executed in duplicate, but it shall not be valid unless
one copy thereof is filed and receipt thereof acknowledged thereon by the
Corporation during my lifetime. Any revocation or change of the Nomination of
Beneficiary shall not be valid unless it is filed with and receipt thereof is
acknowledged thereon by the Corporation during my lifetime, and any loss or
destruction of any copy retained by me shall NOT constitute a revocation or
change of this nomination.
This nomination cancels and supersedes any Nomination of Beneficiary heretofore
made by me with respect to said agreement and the right to receive payments
thereunder.
<PAGE>
Date: January 1, 1987 /s/ Robert Larry Campbell
--------------------------------------------
ROBERT LARRY CAMPBELL
The Corporation hereby acknowledges receipt of the above Nomination of
Beneficiary this 1st day of January, 1987.
RICHMOND FEDERAL SAVINGS & LOAN
ASSOCIATION
By: /s/ Arlie S. Baldwin
----------------------------------------------
SECRETARY
<PAGE>
EXECUTIVE INCOME PLAN
---------------------
Description of Benefits
For:
JOHN W. BULLARD
DEATH BENEFIT
-------------
$100,000 to the family if death occurs before retirement. Death Benefit is
income tax-free and may be estate tax-free.
DISABILITY BENEFIT
------------------
$10,000 per year of disability income payable upon permanent disability until
retirement age 65 is reached.
RETIREMENT BENEFIT
------------------
$10,000 per year of retirement income payable at age 65 for 10 years to the
executive and/or the family. Continues to beneficiary if death occurs.
<PAGE>
EXECUTIVE INCOME
DEFERRED COMPENSATION
INCLUDING
PAYMENT OF DISABILITY INCOME POLICY PREMIUMS
AGREEMENT, made and entered into this 1st day of January, 1992 by and
between Richmond Federal Savings Bank, an association duly organized and
existing under the laws of the State of North Carolina, and having its usual
place of business at 115 South Lawrence Street, Rockingham, North Carolina,
(hereinafter sometimes called the "Association"), and John W. Bullard currently
residing at Laurinburg, North Carolina, (hereinafter called "Executive").
WITNESSED THAT:
WHEREAS, the Executive is presently employed by the Association in the
position of Vice-President; Mortgage Lending, in which capacity his services
have contributed to the successful operation of the Association and the
Association and its Directors believe it is in the best interest of the
Association to retain the services of the Executive; and
WHEREAS, the Executive desires to enter into this agreement with the
Association under which, in consideration of services rendered and to be
rendered by him to the Association, it will agree to make certain payments to
him in the event of his retirement while in the employment of the Association
and will pay premiums on a disability income policy to be owned by the Executive
which will provide him with a monthly benefit in the event of his disability as
defined in the disability policy, all subject to the terms and conditions
hereof; and
WHEREAS, the Directors of the Association have concluded and agreed that it
is in the best interest of the Association to enter into this agreement with the
Executive;
NOW, THEREFORE, in the consideration of the premises, and the services
rendered and to be rendered to the Association by the Executive, and for other
good and valuable consideration, receipt of which is hereby acknowledged, the
Association and the Executive hereby mutually covenant and agree as follows:
<PAGE>
ARTICLE I
Retirement of Executive Following Age 65
----------------------------------------
1.01 The Association agrees that the Executive may retire from the active
and daily services of the Association on the day which is one day prior to the
first day of the month in which the Executive has his sixty-fifth (65th)
birthday. It is understood and agreed that with the consent of the directors of
the Association, the Executive may remain in the active and full-time employment
of the Association after his sixty-fifth (65th) birthday, and that the word
"retirement" as used in this agreement shall refer to the actual retirement of
the Executive, and that no benefit shall be paid the Executive under this
agreement until his actual retirement from regular full-time employment in this
Association, unless the Executive and the Association shall otherwise, mutually
agree in writing.
1.02 The Association agrees that commencing on the first payment date (as
defined in Section 5.02) after the date of the Executive's retirement, and on
each payment date thereafter for the term of this agreement, it will make
monthly retirement payments in the amount provided in Article V hereof. The
Association agrees to continue to make such monthly payments to the Executive
during his life for ten (10) years and until the Executive shall have received
one hundred, twenty, (120) monthly payments; subject, however, to the conditions
and limitations provided for and set forth hereinbelow.
ARTICLE II
Death During Retirement
-----------------------
2.01 The Association agrees that if the Executive shall retire but shall
die before receiving any or all of the said monthly payments, as provided in
Section 1.02, it will continue to make such monthly retirement payments to the
designated beneficiary of the Executive who shall be living and entitled to
receive such payments on the then current monthly payment date. If the
Executive retires, and dies after the expiration of said 120 month period, no
further payments shall be due or payable by the Association under this
agreement.
2.02 As long as this Agreement is in force, the Executive shall be
entitled to specify, in accordance with the procedures set forth in Section
12.01, the beneficiary or beneficiaries of any payments remaining to be paid
under this agreement at the time of his death.
ARTICLE III
Payment of Disability Income Policy Premiums
--------------------------------------------
3.01(a) The Association has caused SMA Life Assurance Company's
("Insurer") Sickness and Accident Disability Income Policy #S633,855 ("Policy")
insuring the Executive to be in effect, the Association will pay the premiums
that may be required to keep the Policy in force.
3.01(b) A claim for benefits under the Policy shall be made directly with
the Insurer as provided in the Claims Procedure in Article VII of this
agreement. It shall be the Executive's
<PAGE>
responsibility to submit doctor's statements or any other supporting
documentation or information requested by the Insurer at any time as to such
Executive's disability. Proof of continued disability must be furnished by the
Executive upon request by the Insurer.
3.01(c) The Executive agrees that he shall rely solely and exclusively on
said policy to provide the disability benefit provided under this Article III
without recourse against the Association. The parties agree that the Insurer's
decision regarding the Executive's entitlement or continued entitlement to
disability benefits under said policy shall be binding and conclusive as between
the parties to the Agreement.
3.01(d) It is the intention of the parties to this Agreement:
(1) That the benefits payable to the Executive under the provisions
of this Article III shall qualify as amounts received under an accident and
health plan meeting the requirements of Section 105 of the Internal Revenue Code
of 1954, as amended; and
(2) That the Payment of premiums for the disability policy by the
Association shall qualify as contribution by an employer to an accident and
health plan under Section 106 of the said Internal Revenue Code.
3.01(e) For purposes of determining the Executive's eligibility for
retirement benefits under Article I of the Agreement, the Executive shall be
deemed to be in the "active and daily service" of the Association for the entire
period that he is disabled within the meaning of the disability income policy
including any elimination period contained therein.
ARTICLE IV
Termination of Employment
-------------------------
4.01 If the Executive voluntarily terminates service with the Association,
or if he is discharged from employment with the Association prior to normal
retirement age and such discharge is not for cause, he shall have a vested
interest in the accrued retirement benefit as set forth in Sections 4.02 and
4.03.
4.02 If the Executive is discharged for dishonesty, fraud, gross neglect
of duties, intentional damage to the property of the Association or the
intentional performance of any act that is materially adverse to the interest of
the Association or for other due cause as determined by the Directors of the
Association prior to his attaining age 65, he shall have no vested interest in
the retirement benefit set forth in Section 4.03 and 5.02(a).
4.03 Vesting shall be based on a full year of service with the Association
from the date of participation. There shall be no vesting until completion of
three (3) full years of service at which time the vesting percentage shall be
20. Thereafter, and for each additional one full year of service,
<PAGE>
the vesting percentage shall increase by 20 except that at age 65 the vesting
percentage will be 100. The vesting percentage shall not be greater than 100.
There shall be no vesting for a partial year of service. All vested percentage
shall be a percentage of the accrued retirement benefit and will be paid
starting at the executive's normal retirement date in 120 monthly installments.
4.04 Monthly payments shall be made on the first business day of each
calendar month until the employee or his beneficiary has received one hundred,
twenty (120) monthly payments. However, at the discretion of the Board of
Directors, the Association may elect to pay the present value of any monthly
payments due under this agreement in a lump sum to the employee or to his
beneficiary. The prime rate in effect at that time shall be used in determining
the present value of the payments.
If monthly payments are elected by the Association under this section, the
Board of Directors in its discretion, may elect to commence the payments either
on the first day of the thirteenth month after termination, or at age 65 of the
employee.
If the employer decides to defer payments to age 65 and the participant
should become deceased, the employer shall pay the beneficiary or estate the
present value.
Any benefits the employee would have been entitled to receive had he lived
shall be payable to the employee's beneficiary.
ARTICLE V
Amount of Monthly Payments
--------------------------
5.01(a) The amount of each monthly retirement payment to be made by the
Association from its own funds and by its own check to the Executive or
Executive's beneficiary, as provided for in Section 1.02 shall be eight
hundred, thirty-three and thirty-three cents ($833.33).
5.01(b) If the monthly payments are payable by the company under Section
1.02, (concerning retirement), or Article II, (concerning death during
retirement), the amount of each monthly payment shall be determined as of the
employees actual retirement date in the following manner:
1. If monthly payments are payable under Section 1.02, the amount
of each monthly payment shall be eight hundred, thirty-three and
thirty-three cents ($833.33).
2. If monthly payments are payable to the employee's beneficiary
under Section 2.01, the amount of each monthly payment shall be
the same as that which would have been paid to the employee had
he lived.
3. If monthly payments are payable by the Company under Section
4.02 (concerning termination of employment without cause) the
amount of each
<PAGE>
monthly payment shall be based on a percentage of the Employee's
accrued benefit determined as of the date of termination.
5.02 Monthly retirement benefits shall commence on the first business day
following the date of the Executive's retirement, and thereafter shall be made
on the first business day of each succeeding calendar month.
5.02(a) For purposes of Article IV, the accrued benefit shall be the
result obtained under the following formula. The annual benefit of $10,000
shall be multiplied by a fraction, the denominator of which shall be 65 minus
the Employee's age when he first became a participant in the plan and the
numerator of which shall be the number of full years of service with the
Association. The resulting figure shall then be multiplied by the vesting
percentage to arrive at the annual retirement benefit. The employee's age shall
be his age at his last birthday immediately prior to his becoming a participant
in the plan. There shall be no credit given for a partial year of service.
Payments shall be made on a monthly basis; the annual benefit shall be divided
by 12 for this purpose. However, the Board of Directors in its discretion may
elect to pay the present value of these payments in a lump sum as provided in
Section 4.04.
ARTICLE VI
Employee Retirement Income Security Act of 1974 (ERISA)
------------------------------------------------------
6.01 For the purpose of ERISA, the Association will be the "Named
Fiduciary" and "Plan Administrator" of the plan for which this agreement is
hereby designated the written plan instrument.
6.02 The Association's Board of Directors may authorize a person or group
of persons to fulfill the responsibilities of the Association as Plan
Administrator. The Named Fiduciary or the Plan Administrator may employ others
to render advice with regard to its responsibility under the Plan. The Named
Fiduciary may also allocate fiduciary responsibilities to others and may
exercise any other powers necessary for the discharge of its duties to the
extent not in conflict with ERISA.
ARTICLE VII
Claims Procedure
----------------
7.01 The following Claims Procedure shall control the determination of
benefit payments under this plan:
(a) Filing of a Claim for Benefits
Any insured, beneficiary or other individual ("Claimant")
entitled to benefits under the Plan or under a policy will file
a claim request with the Plan Administrator with respect to
retirement benefits under the plan and with the Insurer with
respect to disability income policy. The Plan Administrator
will, upon written request of a claimant, make available copies
of any claim forms
<PAGE>
or instructions provided by the Insurer or advise the Claimant
where copies of such forms or instructions may be obtained.
(b) Denial of Claim
A Claim for Benefits under the Plan will be denied if the
Association determines that the claimant is not entitled to
receive benefits under the Plan. Notice of a denial shall be
furnished to the Claimant within a reasonable period of time
after receipt of the Claim for Benefits by the Plan
Administrator.
(c) Content of Notice
The Plan Administrator shall provide within ninety (90) days to
every Claimant who is denied a Claim for Benefits written notice
setting forth, in a manner calculated to be understood by the
Claimant, the following:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent Plan provisions on which
the denial is based;
(3) A description of any additional material or information
necessary for the Claimant to perfect the claim, and any
explanation of why such material or information is
necessary; and
(4) An explanation of the Plan's Claim Review Procedure as set
forth below.
(d) Review Procedure
The purpose of the Review Procedure is to provide a method
by which a Claimant may have a reasonable opportunity to
appeal a denial of a Claim to the Named Fiduciary for a
full and fair review. To accomplish that purpose, the
Claimant or his duly authorized representative:
(1) May require a review upon written application to the
Named Fiduciary;
(2) May review pertinent Plan documents; and
(3) May submit issues and comments in writing.
A claimant (or their duly authorized representative) shall
request a review by filing a written application for
review with the Named Fiduciary at any time
<PAGE>
within sixty (60) days after receipt by the Claimant of
written notice of the denial of the claim.
(e) Decision on Review
A decision on review of a denied claim shall be made in
the following manner:
(1) The decision on review shall be made by the Named
Fiduciary, who may in his discretion hold a hearing
on the denied claim. Such decision shall be made
promptly, and not later than sixty (60) days after
receipt of the request for review, unless special
circumstances (such as the need to hold a hearing)
require an extension of time for processing, in
which case a decision shall be rendered as soon as
possible, but not later than one hundred and twenty
(120) days after receipt of the request for review.
(2) The decision on review shall be in writing and shall
include specific reasons for the decisions, written
in a manner calculated to be understood by the
Claimant, and specific references to the pertinent
Plan provisions upon which the decision is based.
ARTICLE VIII
Financing of Benefits
---------------------
8.01 All retirement benefits and policy premiums under the plan shall be
provided out of the general assets of the Association at the time such benefits
are to be made. The parties agree that the Association is under no obligation
to set aside funds in advance of the time for payment, or to otherwise provide
security for its obligations under this Agreement.
8.02 Retirement payments for the Plan shall be made out of the general
assets of the Association upon submission and approval of a Claim for Benefits
made pursuant to the Claims Procedure established as required by ERISA, and set
forth above.
ARTICLE IX
Governing Laws
--------------
9.01 This Agreement shall be governed by and construed in accordance with
the laws of North Carolina, where it is made and to be performed. It sets forth
the entire agreement between the parties concerning the subject matter thereof,
and any amendment or discharge shall be made only in writing. This Agreement
shall bind and benefit the parties and their legal representatives and
successors.
<PAGE>
ARTICLE X
Not a Contract of Employment
----------------------------
10.01 This Agreement shall not be deemed to constitute a contract of
employment between the parties, nor shall any provision restrict the right of
the Association to discharge the Executive.
ARTICLE XI
Amendment or Termination
------------------------
11.01 No beneficiary under this Agreement shall obtain any vested right to
have this agreement continued in force, and it may be amended or modified in
whole or in part by the Executive and the Association in writing at any time
without the consent of said beneficiary.
ARTICLE XII
Further provisions
------------------
12.01 The term "beneficiary" as used herein shall mean any person or
trust, or combination thereof, last designated by the Executive in writing and
filed with the Association by the Executive during his lifetime upon a
Nomination of Beneficiary form provided by the Association. Any such
designation or designations of beneficiary shall be revocable at any time or
times without the consent of any beneficiary, whether now living or born
thereafter, by written designations of beneficiaries made by the Executive and
similarly filed by him with the Association during his lifetime. In the absence
of or failure of designated beneficiaries, the executor(s) or administrator(s)
of the Executive shall be his beneficiary.
12.02 It is agreed that neither the Executive nor any beneficiary
hereunder shall have any right to commute, sell, assign, transfer or otherwise
convey the right to receive any payments hereunder, which payments and the right
thereto are expressly declared to be nonassignable and nontransferable, and in
the event of any attempted assigned or transfer, this Agreement shall terminate
and the Association shall have no further liability hereunder.
12.03 The Association agrees that it will not merge or consolidate with
another Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the rights
and obligations or the Association herein set forth.
12.04 This agreement shall be executed in duplicate, each copy of which
when so executed and delivered shall be an original, but both copies shall,
together, constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
22nd day of January, 1992.
/s/ John W. Bullard
-------------------------------
John W. Bullard, Executive
RICHMOND FEDERAL SAVINGS BANK
By : /s/ R. Larry Campbell
-------------------------------
President
ATTEST:
/s/ J. Martin Page
- -------------------------------
Secretary
WITNESS:
/s/ Karen M. Rickett
- -------------------------------
/s/ Angela U. Ammons
- -------------------------------
<PAGE>
EXECUTIVE INCOME
SPLIT DOLLAR AGREEMENT
AGREEMENT, made and entered into this 1st day of January, 1992 by and
between Richmond Federal Savings Bank, an Association duly organized and
existing under the laws of the State of North Carolina, and having its usual
place of business at 115 South Lawrence Street, Rockingham, North Carolina,
(hereinafter sometimes called "Association"). and John W. Bullard currently
residing at Laurinburg, North Carolina (hereinafter called "Executive").
WITNESSETH THAT:
WHEREAS, the Executive is presently employed by the Association in the
position of Vice-President; Mortgage Lending, in which capacity his services
have contributed to the successful operation of the Association, and the
Association and its Directors believe it is in the best interest of the
Association to retain the services of the Executive; and
WHEREAS, the Association is desirous of assisting the Executive in paying
for a pre-retirement life insurance benefit; and
WHEREAS, the Association has determined that this insurance can best be
provided under a "split dollar" arrangement and the Association has applied for
Insurance Policy No. L542,689 (the "policy") issued by SMA Life Assurance
Company (the "Insurer") in the face amount of $125,000 on the Executive's life;
and
WHEREAS, the Association and the Executive agree to make said insurance
policy subject to this split dollar agreement.
NOW, THEREFORE, consideration of the premises, and the services to be
rendered to the Association by the Executive, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Association and the
Executive hereby mutually covenant and agree as follows:
ARTICLE I
Policy Ownership and Dividend Application
-----------------------------------------
1.01 The Policy has been issued to the Association as the owner thereof. The
Association will have and may exercise all ownership rights in the policy except
as provided hereafter:
(a) As long as this Agreement is in force, the Executive shall be
entitled to specify in writing to the Association, the beneficiary or
beneficiaries and the mode of payment thereto of an amount of death benefit
proceeds payable under the policy equal to $100,000. The Association agrees that
upon receipt of such written request, it will immediately take such action as is
necessary
<PAGE>
to evidence any such change in the Executive's desired beneficiary designation
which change shall become effective as provided in the policy;
(b) The Association will not, without the written consent of the
Executive, assign its rights in the policy other than for purposes of obtaining
a loan against the policy provided in paragraph (c) below;
(c) The Association will have the right (i) to borrow from the Insurer
and to secure that loan by the policy for any purpose including, but not limited
to, borrowing for the purpose of paying premiums without giving notice to the
employee, and (ii) to make partial withdrawals of the policy surrender value;
provided, however, that if the exercise of such rights would reduce the death
benefit payable to the Executive's beneficiary pursuant to Section 3.01(a), then
such rights shall be exercisable by the Association only with the written
consent of the Executive.
1.02 Except as provided in paragraph 1.01 above, the Association agrees with
the Executive that so long as this agreement is in force, it will not exercise
any rights under the policy which will compromise or reduce the death benefit
payable to the Executive's beneficiary.
1.03 Dividends payable under the policy, if any, will be applied as provided in
the application of the policy.
1.04 As between the Executive and the Association, this agreement shall take
precedence over any provisions of the policy (including any riders, amendments
and attachments thereto) in case of a conflict between the terms of the policy
and this agreement.
ARTICLE II
Payment of Premiums
-------------------
2.01 As long as this agreement is in force, the Executive and the Association
agree to share in the payment of the premiums on said policy of insurance in
such amounts and in the manner set forth below:
(a) Unless paragraph (b) applies, the Executive's share of the annual
premium shall be that portion of the annual premium due on the policy that is
equal to the amount of the economic benefit that would be taxable to the
Executive but for the payment by the Executive of such amount based upon an
amount of insurance protection equal to the Executive's death benefit specified
in Article 1. The Association shall pay the balance of each such annual
premium.
(b) If the policy is a flexible premium contract such that premiums may
be varied as to the amount and timing of premium payments, then the Executive
shall be required to make an annual premium contribution in an amount determined
in accordance with paragraph (a) above, beginning on the policy issue date and
continuing thereafter on the anniversary of such date. The Association shall pay
premiums at such times and in such amounts as it may determine in its sole
discretion.
<PAGE>
2.02 The amount of economic benefit that would be taxable to the Executive
shall be computed in accordance with the Insurer's current published rate per
$1000 of insurance protection for Individual 1-year term life insurance
available to all standard risks as provided in Revenue Ruling 66-110, 1966-1
C.B.12.
2.03 In order to facilitate the payment of premiums on the policy, it is agreed
that the Association in the first policy year, and in each year thereafter and
as long as this agreement is in force, shall forward the total amount of
premium then currently due and payable on the policy directly to the Insurer
and, immediately thereafter, it shall indicate in the appropriate Association
records that the annual sum payable by the Executive as provided for above in
Section 2.01, shall be added to his annual salary or compensation.
ARTICLE III
Beneficiary Provisions
----------------------
3.01 If the Executive dies while this agreement is in force, the policy death
benefit shall be divided as follows:
(a) An amount equal to $100,000 shall be paid to the beneficiary or
beneficiaries then specified by the Executive as provided in Section 1.01 (a),
above but subject to the provisions of Section 1.01 (c).
(b) The balance of said policy death benefit, if any shall be paid to
the Association.
3.02 It is agreed by the parties hereto that no beneficiary shall have any
right to reimbursement or contribution from the estate of the Executive or from
the Association with respect to the amount collected by this Association under
said policy.
3.03 If the Executive shall die while this agreement is in force, the
Association agrees to take such action as may be necessary to obtain payment
from the insurer of the amounts payable under said policy to the beneficiaries
designated therein.
ARTICLE IV
Termination of Agreement
------------------------
4.01 This agreement shall automatically terminate upon the happening of any of
the following events:
(a) The Executive's termination of employment voluntarily, or his
discharge for any reason prior to death. The Executive's total disability shall
not be considered a termination of employment. Total disability shall have the
same meaning as under the waiver of premium rider acquired or available with the
policy.
<PAGE>
(b) Express termination of this agreement by either the Association or
the Executive at any time upon 30 days written notice to the other.
(c) On the day prior to the date of the Executive's retirement, which
retirement date shall be the day prior to the first day of the month in which
the insured has his sixty-fifth (65th) birthday. It is understood and agreed
that with the consent of the Directors of the Association, the Executive may
remain in the active and full-time employment after the above stated retirement
date, and the retirement date as used in this agreement shall refer to the
actual retirement date of the Executive. The retirement date shall be specified
on a Policy Contract Change Form provided by the Insurer.
(d) Death of the Executive, subject, however to the provisions of
Article III.
(e) Lapse or termination of the Policy.
4.02 Upon termination of this agreement under Section 4.01 (a), (b), or (c),
the Association shall become sole owner of the policy unless otherwise agreed by
the parties.
ARTICLE V
Reorganization
--------------
5.01 The Association agrees that it will not merge or consolidate with another
corporation or organization, or permit its business activities to be taken over
by any other organization unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of the Association herein set forth.
ARTICLE VI
Governing Laws
--------------
6.01 This agreement shall be governed by and construed in accordance with the
laws of North Carolina, where it is made and to be performed. It sets forth the
entire agreement between the parties concerning the subject matter thereof, and
any amendment shall be made only in writing. This Agreement shall bind and
benefit the parties and their legal representatives and successors.
ARTICLE VII
Not a Contract of Employment
----------------------------
7.01 This Agreement shall not be deemed to constitute a contract of employment
between the parties, nor shall any provisions restrict the right of the
Association to discharge the Executive.
<PAGE>
ARTICLE VIII
Employment Retirement Income Security Act of 1984 (ERISA)
--------------------------------------------------------
8.01 For the purposes of ERISA, the Association shall be the "Named Fiduciary"
and "Plan Administrator" of the split dollar life insurance plan for which this
agreement is hereby designated the written plan instrument.
8.02 The Association's Board of Directors may authorize a person or group of
persons to fulfill the responsibilities of the Association as Plan
Administrator. The named Fiduciary or the Plan Administrator may employ others
to render advice with regard to its responsibility under the Plan. The Named
Fiduciary may also allocate fiduciary responsibilities to others and may
exercise any other powers necessary for the discharge of its duties to the
extent not in conflict with ERISA.
ARTICLE IX
Claims Procedure
----------------
9.01 The following Claims Procedures shall control the determination of benefit
payments under this Plan:
(a) Any insured, beneficiary or other individual ("claimant") entitled
to benefits under the plan or under the policy shall file a claim request with
the Plan Administrator with respect to benefits under the Plan and with the
Insurer with respect to benefits under the policy. The Plan Administrator
shall, upon written request of a claimant, make available copies of any claim
forms or instructions provided by the Insurer or advise the Claimant where
copies of such forms or instructions may be obtained.
(b) Denial of Claim
A Claim for Benefits under the Plan shall be denied if the
Association determines that the claimant is not entitled to receive benefits
under the Plan. Notice of the denial shall be furnished to the Claimant within a
reasonable period of time after receipt of the Claim for Benefits by the Plan
Administrator. In the case of benefits which are provided under the policy, the
initial decision on the claims shall be made by the Insurer.
(c) Content of Notice
The Plan Administrator shall provide within ninety (90) days to
every Claimant who is denied a Claim for Benefits written notice setting forth,
in a manner calculated to be understood by the Claimant, the following:
1. The specific reason or reasons for the denial;
2. Specific reference to pertinent Plan provisions on which the
denial is based;
<PAGE>
3. A description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary; and
4. An explanation of the Plan's Claim Review Procedure as set
forth below.
(d) Review Procedure
The purpose of the Review Procedure is to provide a method by which a
Claimant may have a reasonable opportunity to appeal a denial of a Claim to the
Named Fiduciary for a full and fair review. To accomplish that purpose, the
Claimant or his duly authorized representative:
1. May require a review upon written application to the Named
Fiduciary;
2. May review pertinent Plan documents; and
3. May submit issues and comments in writing.
A Claimant (or his duly authorized representative) shall request a review
by filing a written application for review with the Named Fiduciary at any time
within sixty (60) days after receipt by the Claimant of written notice of the
denial of his claim.
(e) Decision of Review
A decision on review of a denied claim shall be made in the following
manner:
1. The decision on review shall be made by the Named Fiduciary,
who may in his discretion hold a hearing on the denied claim.
Such decision shall be made promptly, and not later than sixty
(60) days after receipt of the request for review, unless
special circumstances (such as the need to hold a hearing)
require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later
than one hundred and twenty (120) days after receipt of the
request for review.
2. The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner
calculated to be understood by the Claimant, and specific
references to the pertinent Plan provisions upon which the
decision is based.
<PAGE>
ARTICLE X
Amendment
---------
10.01 No beneficiary under the policy shall obtain any vested right to have
this agreement continued in force and it may be amended or modified in whole or
in part by the Executive and the Association in writing at any time without the
consent of said beneficiary.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this 22nd day of January, 1992.
/s/ John W. Bullard
------------------------------------------
John W. Bullard, Executive
RICHMOND FEDERAL SAVINGS BANK
By: /s/ R. Larry Campbell
--------------------------------------
President
ATTEST:
/s/ J. Martin Page
- ---------------------------------
Secretary
WITNESS:
/s/ Karen M. Rickett
- ---------------------------------
/s/ Angela U. Ammons
- ---------------------------------
<PAGE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The Conversion was effective November 22, 1996. Accordingly, earnings per
share data for the year ended June 30, 1997 is comprised of the earnings for the
post-Conversion period. The weighted average number of shares outstanding
includes all shares issued and outstanding of 1,851,500 less 112,000 shares
purchased by the ESOP at the time of the Conversion plus the pro-rata portion of
shares committed to be released through June 30, 1997.
<TABLE>
<S> <C>
Net income for the period from November 22, 1996 to June 30, 1997 $831,586
Weighted average number of shares outstanding 1,790,311
Earnings per share $.46
</TABLE>
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis
===============================================================================
Management's discussion and analysis is intended to assist readers in the
understanding and evaluation of the financial condition and results of
operations of Carolina Fincorp, Inc. and Subsidiaries. It should be read in
conjunction with the audited consolidated financial statements and accompanying
notes included in this report and the supplemental financial data appearing
throughout this discussion and analysis.
Description of Business
Carolina Fincorp, Inc. ("Carolina" or "Parent") was incorporated under the laws
of the State of North Carolina for the purpose of becoming the bank holding
company of Richmond Savings Bank, Inc., SSB (the "Bank" or "Richmond Savings")
in connection with the Bank's conversion from a state-chartered mutual savings
bank to a state-chartered stock savings bank (the "Conversion"), pursuant to its
Plan of Conversion. Carolina was organized to acquire all of the common stock of
Richmond Savings upon its conversion to stock form. A subscription and community
offering (the "Offering") of Carolina's common stock closed on November 22,
1996, at which time Carolina acquired all of the outstanding common stock of the
Bank and commenced operations.
In accordance with the Plan of Conversion, Carolina issued common stock with a
value of $18,515,000 in the Offering and received proceeds of $17,585,611, net
of Conversion costs. Carolina transferred a portion of the net proceeds to
Richmond Savings for the purchase of all of the outstanding common stock of the
Bank.
Carolina has no operations and conducts no business of its own other than owning
Richmond Savings, investing its portion of the net proceeds received in the
Conversion, and lending funds to the Richmond Savings Bank, Inc., SSB Employee
Stock Ownership Plan (the "ESOP") which was formed in connection with the
Conversion. The principal business of the Bank is accepting deposits from the
general public and using those deposits and other sources of funds to make loans
secured by real estate located in the Bank's primary market area of Richmond
County in North Carolina. On June 30, 1997, approximately 93% of the Bank's net
loan portfolio was composed of real estate loans.
Carolina's principal sources of income are earnings on capital retained by
Carolina, interest earned from the loan to the ESOP, and dividends paid by the
Bank to Carolina, if any. Revenues of Richmond Savings are derived primarily
from interest on loans. Richmond Savings also receives interest income from its
investment securities and interest-earning deposit balances and various types of
non-interest income. The major expenses of Richmond Savings are interest on
deposits and general and administrative expenses such as salaries, employee
benefits, federal deposit insurance premiums, data processing and occupancy and
related expenses.
Richmond Investment Services, Inc. (formerly CERKO, Inc.) is a wholly-owned
subsidiary of Richmond Savings whose principal business activity is that of an
agent for various insurance products.
Carolina and its subsidiaries are collectively referred to herein as the
"Company."
- --------------------------------------------------------------------------------
Page 3
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
Asset/Liability Management
The Company's asset/liability management, or interest rate risk management,
program is focused primarily on evaluating and managing the composition of its
assets and liabilities in view of various interest rate scenarios. Factors
beyond the Company's control, such as market interest rates and competition, may
also have an impact on the Company's interest income and interest expense.
In the absence of other factors, the yield or return associated with the
Company's earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and, conversely, interest
income will decrease when interest rates decrease. In general, interest expense
will increase when interest rates rise over an extended period of time, and,
conversely, interest expense will decrease when interest rates decrease.
Interest Rate Gap Analysis. As a part of its interest rate risk management
policy, the Company calculates an interest rate "gap." Interest rate "gap"
analysis is a common, though imperfect, measure of interest rate risk, which
measures the relative dollar amounts of interest-earning assets and
interest-bearing liabilities which reprice within a specific time period, either
through maturity or rate adjustment. The "gap" is the difference between the
amounts of such assets and liabilities that are subject to repricing. A
"negative" gap for a given period means that the amount of interest-bearing
liabilities maturing or otherwise repricing within that period exceeds the
amount of interest-earning assets maturing or otherwise repricing within the
same period. Accordingly, in a declining interest rate environment, an
institution with a negative gap would generally be expected, absent the effects
of other factors, to experience a lower decrease in the yield of its assets
relative to the cost of its liabilities and its income should be positively
affected. Conversely, the cost of funds for an institution with a negative gap
would generally be expected to increase more quickly than the yield on its
assets in a rising interest rate environment, and such institution's net
interest income generally would be expected to be adversely affected by rising
interest rates. Changes in interest rates generally have the opposite effect on
an institution with a "positive gap."
The Company's one-year interest sensitivity gap as a percentage of total
interest-earning assets at June 30, 1997 was a negative 22.74%. At June 30,
1997, the Company's three-year and five-year cumulative interest sensitivity
gaps as a percentage of total interest-earning assets were a negative 21.22% and
a negative 6.15%, respectively.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1997 which are projected to
reprice or mature in each of the future time periods shown. Except as stated
below, the amounts of assets and liabilities shown which reprice or mature
within a particular period were determined in accordance with the contractual
terms of the assets or liabilities. Loans with adjustable rates are shown as
being due at the end of the next upcoming adjustment period. Passbook accounts,
money market deposit accounts and negotiable order of withdrawal or other
transaction accounts are assumed to be subject to immediate repricing and
depositor availability and have been placed in the shortest period. In making
the gap computations, none of the assumptions sometimes made regarding
prepayment rates and deposit decay rates have been used for any other
interest-earning assets or interest-bearing liabilities. In addition, the table
does not reflect scheduled principal payments which will be received throughout
the lives of the loans. The interest rate sensitivity of the Company's assets
and liabilities illustrated in the following table would vary substantially if
different assumptions were used or if actual experience differs from that
indicated by such assumptions.
- --------------------------------------------------------------------------------
Page 4
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
<TABLE>
<CAPTION>
Terms to Repricing at June 30, 1997
------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
INTERESTS-EARNING ASSETS
Loans receivable:
Real estate loans:
Residential 1-4 family
Adjustable $ 18,916 $ 13,622 $ 9,140 $ 3,087 $ 44,765
Fixed 55 129 1,043 13,071 14,298
Multi-family residential and commercial
Adjustable 1,197 1,865 626 72 3,760
Fixed - 52 21 146 219
Construction
Adjustable 2,811 - - - 2,811
Home equity credit lines
Adjustable 7,951 - - - 7,951
Other Loans:
Adjustable 30 - 13 356 399
Fixed 562 1,023 782 2,504 4,871
Interest-earning balances in other banks 1,862 - - - 1,862
Investments 6,532 2,994 6,498 8,638 24,662
FHLB common stock - - - 735 735
--------- --------- --------- --------- ---------
Total interest-earning assets $ 39,916 $ 19,685 $ 18,123 $ 28,609 $ 106,333
--------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES
Deposits
Passbook and statement accounts $ 10,669 $ - $ - $ - $ 10,669
Now and VIP checking accounts 8,185 - - - 8,185
Non-interest-bearing accounts 2,224 - - - 2,224
Certificate accounts 42,523 18,059 2,099 - 68,681
Advances from the Federal Home Loan Bank 500 - - - $ 500
--------- --------- --------- --------- ---------
Total interest-bearing liabilities $ 64,101 $ 18,059 $ 2,099 $ - $ 84,259
--------- --------- --------- --------- ---------
INTEREST SENSITIVITY GAP PER PERIOD $ (24,185) $ 1,626 $ 16,024 $ 28,609 $ 22,074
CUMULATIVE INTEREST SENSITIVITY GAP (24,185) (22,559) (6,535) 22,074 22,074
CUMULATIVE GAP AS A PERCENTAGE OF
TOTAL INTEREST-EARNING ASSETS (22.74%) (21.22%) (6.15%) 20.76% 20.76%
CUMULATIVE INTEREST-EARNING ASSETS AS A
PERCENTAGE OF INTEREST-BEARING LIABILITIES 62.27% 72.54% 92.24% 126.20% 126.20%
</TABLE>
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
Net Interest Income
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities ("net
earning balance"). The following table sets forth information relating to
average balances of the Company's assets and liabilities for the years ended
June 30, 1997 and 1996. For the periods indicated, the table reflects the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities (derived by dividing income or expense by the
monthly average balance of interest-earning assets or interest-bearing
liabilities, respectively) as well as the net yield on interest-earning assets
(which reflects the impact of the net earning balance). Nonaccruing loans were
included in the computation of average balances.
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Year Ended June 30, 1997
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning balances $ 5,323 $ 387 7.27% $ 3,876 $ 245 6.32%
Investments 21,537 1,356 6.30% 16,366 995 6.08%
Loans 72,440 5,902 8.15% 68,332 5,596 8.19%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 99,300 7,645 7.70% 88,574 6,836 7.72%
Other assets 4,682 3,844
--------- ---------
Total assets $ 103,982 $ 92,418
========= =========
Interest-bearing liabilities:
Deposits $ 82,857 3,884 4.69% $ 79,867 3,949 4.94%
Borrowings 56 3 5.36% - - 0.00%
--------- --------- --------- --------- --------- ----------
Total interest-bearing liabilities 82,913 3,887 4.69% 79,867 3,949 4.94%
Other liabilities 1,904 4,124
Stockholders' equity 19,165 8,427
--------- ---------
Total liabilities and stockholders' equity $ 103,982 $ 92,418
========= =========
Net interest income and interest rate spread $ 3,758 3.01% $ 2,887 2.77%
========= ========= ========= =========
Net yield on average interest-earning assets 3.78% 3.26%
========= =========
Ratio of average interest-earning assets to
average interest-bearing liabilities 119.76% 110.90%
========= =========
</TABLE>
- --------------------------------------------------------------------------------
Page 6
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
Rate/Volume Analysis
The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
<TABLE>
<CAPTION>
Year Ended June 30, 1997 vs. 1996
--------------------------------------
Increase (Decrease) Due To
--------------------------------------
Volume Rate Total
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income:
Interest-earning balances $ 98 $ 44 $ 142
Investments 320 41 361
Loans 336 (30) 306
------ ------ ------
Total interest income 754 55 809
------ ------ ------
Interest expense:
Deposits 145 (210) (65)
Borrowings 2 1 3
------ ------ ------
Total interest expense 147 (209) (62)
------ ------ ------
Net interest income $ 607 $ 264 $ 871
====== ====== ======
</TABLE>
Comparison of Financial Condition at June 30, 1997 and 1996
Principally as a result of net proceeds of $17.6 million received on November
22, 1996 from the sale of the Company's common stock, consolidated total assets
increased by $17.4 million, from $94.1 million at June 30, 1996 to $111.5
million at June 30, 1997. Proceeds generated by the stock sale were used
principally to fund growth in loans receivable and an increase of $9.3 million
in investment securities available for sale since the beginning of the year
ended June 30, 1997. Loan demand has been strong, with net loans receivable
increasing by $10.3 million from $68.4 million to $78.7 million during the year
ended June 30, 1997. Customer deposit accounts increased less than expected
during the year, principally as a result of deposit withdrawals by customers who
used the funds thus provided to purchase shares of the Company's common stock.
Total stockholders' equity was $25.4 million at June 30, 1997 as compared with
$8.6 million at June 30, 1996. The Company and its bank subsidiary substantially
exceeded all regulatory capital requirements.
During the year ended June 30, 1997, the Company's bank subsidiary occupied two
new branch facilities in Rockingham and Ellerbe, replacing existing locations.
Total costs incurred in constructing and furnishing the new facilities
approximated $855,000.
- --------------------------------------------------------------------------------
Page 7
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
Nonperforming Assets
Nonperforming assets, composed of nonaccrual loans and foreclosed real estate,
increased moderately during the year, from a total of $56,000 at June 30, 1996
to $206,000 at June 30, 1997. Nonaccrual loans totaled $206,000 and $27,000 and
foreclosed real estate totaled $0 and $29,000 at June 30, 1997 and 1996,
respectively.
Comparison of Results of Operations for the Years Ended June 30, 1997 and 1996
Net Income. The Company earned consolidated net income of $753,000 during the
year ended June 30, 1997 as compared with net income of $591,000 during the
prior year, an increase of $162,000. The increase resulted primarily from
earnings generated from the investment of proceeds from sale of the Company's
common stock which were partially offset by a special insurance assessment
imposed on all SAIF-insured institutions by the FDIC to recapitalize the SAIF
fund. Richmond Savings' assessment was $519,000. Net of an income tax benefit of
$176,000, this special assessment decreased earnings during the period by
$343,000. If this special assessment had not been incurred, net income during
the year ended June 30, 1997 would have been $1,096,000.
Net Interest Income. Net interest income increased to $3,758,000 during the year
ended June 30, 1997 as compared with $2,887,000 during the previous year. This
increase resulted from an increase in average interest-earning assets of $10.7
million, consisting of a $6.6 million increase in the average balance of
investments (including interest-earning bank balances) and a $4.1 million
increase in the average balance of loans receivable.
Provision for Loan Losses. The provision for loan losses was $70,000 and $36,000
for the years ended June 30, 1997 and 1996, respectively. Management believes
that the provision for loan losses and the resulting loan loss allowance at June
30, 1997 will be adequate to absorb losses on existing loans. There were $59,000
in net loan charge-offs during the year ended June 30, 1997 as compared with net
charge-offs of $10,000 during the year ended June 30, 1996. Nonaccrual loans
aggregated $206,000 at June 30, 1997.
Other Income. Other income increased from $532,000 to $561,000, principally as a
result of a gain of $52,000 from the sale of the Ellerbe branch facility.
Other Expenses. Exclusive of the FDIC special insurance assessment explained
under the caption "Net Income," general and administrative expenses remained
relatively stable, increasing to $2,575,000 during the year ended June 30, 1997
as compared with $2,493,000 during the year ended June 30, 1996.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 34.8% and 33.6% for the years ended June 30,
1997 and 1996, respectively.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
Liquidity and Capital Resources
On May 21, 1997, Carolina Fincorp, Inc. paid its first quarterly dividend of
$.05 a share. Although Carolina anticipates that it will continue to declare
cash dividends on a regular basis, the Board of Directors will continue to
review its policy on the payment of dividends on an ongoing basis, and such
payment will be subject to future earnings, cash flows, capital needs, and
regulatory restrictions.
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of Carolina's asset and liability management strategy. Liquidity is the
ability to fund the needs of the Bank's borrowers and depositors, pay operating
expenses, and meet regulatory liquidity requirements. Maturing investments, loan
and mortgage-backed security principal repayments, deposits and income from
operations are the main sources of liquidity. The Bank's primary uses of
liquidity are to fund loans and to make investments.
As of June 30, 1997, liquid assets (cash and cash equivalents, and marketable
investment securities) were approximately $28.3 million, which represents 33.8%
of deposits. As a North Carolina-chartered savings bank, Richmond Savings is
required to maintain liquid assets equal to at least 10% of its total assets.
For purposes of this requirement, liquid assets consist of cash and readily
marketable investment securities. At June 30, 1997, this liquidity ratio, based
on North Carolina regulations, was 25.4%. Management considers current liquidity
levels to be adequate to meet the Company's foreseeable needs.
At June 30, 1997, outstanding mortgage loan commitments were $581,000, available
line of credit balances were $7,257,000, and the undisbursed portion of
construction loans was $3.5 million. Funding for these commitments is expected
to be provided from deposits, loan and mortgage-backed securities principal
repayments, maturing investments and income generated from operations.
Under federal capital regulations, Carolina and Richmond Savings must satisfy
certain minimum leverage ratio requirements and risk-based capital requirements.
Failure to meet such requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on Richmond Savings' financial statements. At June 30,
1997 and 1996, Carolina and Richmond Savings exceeded all such requirements.
The Bank is restricted in its ability to pay dividends and to make
distributions. A significant source of Carolina's funds are dividends received
from the Bank. In fiscal 1998, the amount of dividends that can be paid by the
Bank without prior approval from regulators is approximately $310,000. These
funds should be adequate to cover Carolina's needs.
- --------------------------------------------------------------------------------
Page 9
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
Impact of Inflation and Changing Prices
The financial statements and notes thereto presented herein have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
nearly all the Company's assets and liabilities are monetary in nature. As a
result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
Impact of New Accounting Standards
FASB Statement on Earnings Per Share. In March 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128. The Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15, "Earnings per Share" ("EPS"), and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This Statement
supersedes Opinion 15 and AICPA Accounting Interpretations 1-102 of Opinion 15.
This Statement will be effective for the Company's fiscal year ending June 30,
1998. Management does not believe the impact of adopting SFAS No. 128 will be
material to the Company's financial statements.
- --------------------------------------------------------------------------------
Page 10
<PAGE>
Carolina Fincorp, Inc. and Subsidiaries
Management's Discussion and Analysis (Continued)
================================================================================
FASB Statement on Accounting for Stock-Based Compensation. In October 1995, the
FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based method" of
accounting for an employee stock option whereby compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period. FASB has encouraged all entities to adopt the fair value based
method; however, it will allow entities to continue the use of the "intrinsic
value based method" prescribed by APB Opinion No. 25. Under the intrinsic value
based method, compensation cost is the excess of the market price of the stock
at the grant date over the amount an employee must pay to acquire the stock.
However, most stock option plans have no intrinsic value at the grant date and,
as such, no compensation cost is recognized under APB Opinion No. 25. Entities
electing to continue use of the accounting treatment of APB Opinion No. 25 must
make certain pro forma disclosures as if the fair value based method had been
applied. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15, 1995. Pro
forma disclosures must include the effects of all awards granted in fiscal years
beginning after December 15, 1994. The Company expects to use the "intrinsic
value based method" as prescribed by APB Opinion No. 25. Accordingly, management
does not believe the impact of adopting SFAS No. 123 will be material to the
Company's financial statements.
FASB Statement on Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS No. 125. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with
pledge of collateral. This Statement is effective for transfer and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. The effective date for certain
provisions of this Statement has been postponed for one year. Management
anticipates that the adoption of the Statement should have no material impact on
its consolidated financial statements.
FASB Statement on Reporting Comprehensive Income. In June 1997, the FASB issued
SFAS No. 130. This Statement establishes standards of reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. In addition to net income as has been historically
determined, comprehensive income for the Company would include unrealized
holding gains and losses in available for sale securities. This Statement will
be effective for the Company's fiscal year ending June 30, 1999, and the Company
does not intend to early adopt. Had the Company early-adopted this Statement, it
would have reported comprehensive income of $800,867 and $512,564 for the years
ended June 30, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
Page 11
<PAGE>
[LETTERHEAD OF DIXON,ODOM & CO., L.L.P. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Carolina Fincorp, Inc.
Rockingham, North Carolina
We have audited the accompanying consolidated statements of financial condition
of Carolina Fincorp, Inc. and Subsidiaries as of June 30, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Carolina Fincorp,
Inc. and Subsidiaries at June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Dixon, Odom & Co., L.L.P.
Southern Pines, North Carolina
July 28, 1997
---------
Page 12
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
===============================================================================
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------------- --------------
<S> <C> <C>
Cash on hand and in banks $ 1,789,958 $ 1,207,513
Interest-earning balances in other banks 1,862,462 4,685,583
Investment securities available for sale, at fair value (amortized cost of
$17,779,550 and $8,526,954 at June 30, 1997 and 1996, respectively) (Note B) 17,713,835 8,386,835
Investment securities held to maturity, at amortized cost (fair value of
$6,911,620 and $7,871,834 at June 30, 1997 and 1996, respectively) (Note B) 6,948,232 7,974,880
Loans receivable, net (Note C) 78,674,342 68,357,610
Accrued interest receivable 702,489 577,578
Premises and equipment, net (Note D) 2,118,184 1,355,694
Real estate acquired in settlement of loans - 29,074
Stock in the Federal Home Loan Bank, at cost 734,700 734,700
Other assets 958,323 800,589
-------------- --------------
TOTAL ASSETS $ 111,502,525 $ 94,110,056
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts (Note G) $ 83,759,560 $ 83,714,929
Advances from the Federal Home Loan Bank (Note F) 500,000 -
Accrued interest payable 178,583 210,823
Advance payments by borrowers for property taxes and insurance 456,094 469,603
Accrued expenses and other liabilities 1,160,244 1,073,975
-------------- --------------
TOTAL LIABILITIES 86,054,481 85,469,330
-------------- --------------
Commitments and contingencies (Notes C and K)
STOCKHOLDERS' EQUITY (Notes H, J and K)
Preferred stock, no par value, 5,000,000 shares authorized, no shares issued
and outstanding - -
Common stock, 20,000,000 shares authorized; 1,851,500 shares issued and
outstanding at June 30, 1997 17,585,611 -
ESOP note receivable (1,491,000) -
Retained earnings, substantially restricted 9,396,148 8,731,804
Unrealized holding losses (42,715) (91,078)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 25,448,044 8,640,726
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 111,502,525 $ 94,110,056
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. Page 13
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
INTEREST INCOME
Loans $ 5,902,020 $ 5,596,504
Investments and deposits in other banks 1,743,151 1,239,616
------------------ -----------------
TOTAL INTEREST INCOME 7,645,171 6,836,120
------------------ -----------------
INTEREST EXPENSE (Note G)
Deposit accounts 3,884,049 3,949,476
Borrowings 3,371 -
------------------ -----------------
TOTAL INTEREST EXPENSE 3,887,420 3,949,476
------------------ -----------------
NET INTEREST INCOME 3,757,751 2,886,644
PROVISION FOR LOAN LOSSES (Note C) 70,000 36,000
------------------ -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,687,751 2,850,644
------------------ -----------------
OTHER INCOME
Transaction and other service fee income 368,413 357,386
Gain on sale of loans 8,059 8,390
Loss on sale of investment securities - (4,404)
Gain on sale of premises and equipment 52,267 -
Other income 132,407 170,970
------------------ -----------------
TOTAL OTHER INCOME 561,146 532,342
------------------ -----------------
OTHER EXPENSES
Personnel costs 1,391,054 1,284,791
Occupancy 152,888 148,963
Equipment rental and maintenance 177,735 159,803
Marketing 61,797 50,351
Data processing and outside service fees 285,027 274,763
Federal and other insurance premiums (Note I) 628,966 218,822
Supplies, telephone and postage 132,953 116,280
Other 263,725 239,107
------------------ -----------------
TOTAL OTHER EXPENSES 3,094,145 2,492,880
------------------ -----------------
INCOME BEFORE INCOME TAXES 1,154,752 890,106
INCOME TAX EXPENSE (Note J) 402,248 299,146
------------------ -----------------
NET INCOME $ 752,504 $ 590,960
================== =================
NET INCOME PER COMMON SHARE (Note A) $ 46 $ -
================== =================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. Page 14
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
ESOP
Common Note Retained
Stock Receivable Earnings
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance at June 30, 1995 $ - $ - $ 8,140,844
Net income - - 590,960
Change in unrealized holding gains
(losses), net of income taxes of $42,314 - - -
--------------- --------------- ---------------
Balance at June 30, 1996 - - 8,731,804
Net income - - 752,504
Net proceeds from issuance of 1,851,500
shares of no par value common stock 17,585,611 - -
Purchase of 112,000 shares of common stock
by ESOP - (1,549,551) -
Repayment of ESOP note - 58,551 -
Cash dividends paid ($.05 per share) - - (88,160)
Change in unrealized holding gains
(losses), net of income taxes of $26,041 - - -
--------------- --------------- ---------------
Balance at June 30, 1997 $ 17,585,611 $ (1,491,000) $ 9,396,148
=============== =============== ===============
<CAPTION>
Unrealized Total
Holding Stockholders'
Gains (Losses) Equity
--------------- ---------------
<S> <C> <C>
Balance at June 30, 1995 $ (12,682) $ 8,128,162
Net income - 590,960
Change in unrealized holding gains
(losses), net of income taxes of $42,314 (78,396) (78,396)
--------------- ---------------
Balance at June 30, 1996 (91,078) 8,640,726
Net income - 752,504
Net proceeds from issuance of 1,851,500
shares of no par value common stock - 17,585,611
Purchase of 112,000 shares of common stock
by ESOP - (1,549,551)
Repayment of ESOP note - 58,551
Cash dividends paid ($.05 per share) - (88,160)
Change in unrealized holding gains
(losses), net of income taxes of $26,041 48,363 48,363
--------------- ---------------
Balance at June 30, 1997 $ (42,715) $ 25,448,044
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. Page 15
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 752,504 $ 590,960
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 152,699 130,485
Amortization, net 50,872 42,925
Gain on sale of assets, net (54,801) (3,986)
Origination of mortgage loans held for sale (990,203) (1,380,132)
Proceeds from sale of loans held for sale 998,262 1,388,522
Release of ESOP shares 58,551 -
Provision for loan losses 70,000 36,000
Deferred income taxes (21,497) (2,988)
Deferred compensation 107,828 97,024
Change in assets and liabilities
Increase in accrued interest receivable (124,911) (40,399)
(Increase) decrease in other assets (160,201) 25,026
Decrease in accrued interest payable (32,240) (7,348)
Increase (decrease) in accrued expenses and other liabilities (26,103) 52,108
------------ -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 780,760 928,197
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-earning balances in other banks 2,823,121 (1,237,525)
Purchases of:
Available for sale investment securities (11,510,273) (4,559,814)
Held to maturity investment securities (515,000) (3,482,952)
Proceeds from maturities and calls of:
Available for sale investment securities 2,250,000 2,000,000
Held to maturity investment securities 1,527,431 2,401,418
Proceeds from sales of:
Available for sale investment securities - 1,511,069
Net (increase) decrease in loans (10,484,302) 283,896
Purchase of premises and equipment (951,990) (81,353)
Proceeds from sale of premises and equipment 86,010 -
Proceeds from sale of real estate acquired in settlement of loans 98,186 -
Capital expenditures for real estate acquired in settlement of loans (520) (3,459)
------------ -----------
NET CASH USED BY
INVESTING ACTIVITIES (16,677,337) (3,168,720)
------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. Page 16
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997 and 1996
===============================================================================
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand accounts $ (1,026,113) $ 174,584
Net increase in certificates of deposit 1,070,744 2,103,277
Decrease in advance payments by borrowers for
taxes and insurance (13,509) (187,183)
Stock conversion costs incurred - (61,622)
Net increase in borrowed funds 500,000 -
Net proceeds from issuance of common stock 17,585,611 -
Loan to ESOP for purchase of common stock (1,549,551) -
Cash dividends paid (88,160) -
------------------ -----------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 16,479,022 2,029,056
------------------ -----------------
NET INCREASE (DECREASE) IN
CASH ON HAND AND IN BANKS 582,445 (211,467)
CASH ON HAND AND IN BANKS, BEGINNING 1,207,513 1,418,980
------------------ -----------------
CASH ON HAND AND
IN BANKS, ENDING $ 1,789,958 $ 1,207,513
================== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 3,919,660 $ 3,956,824
================== =================
Income taxes $ 425,621 $ 234,733
================== =================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Loans receivable transferred to real
estate acquired in settlement of loans $ 68,592 $ 25,615
================== =================
Transfer of investment securities
from held to maturity to available for sale (Note B) $ - $ 1,995,851
================== =================
Unrealized holding gain (loss) on available for sale
investment securities, net of deferred income taxes $ 48,363 $ (78,396)
================= ==================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. Page 17
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
- ---------------------------
In November 1996, pursuant to a Plan of Conversion which was approved by its
members and regulators, Richmond Savings Bank, Inc., SSB ("Richmond Savings" or
"Bank") converted from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank (the "Conversion") and became a
wholly-owned subsidiary of Carolina Fincorp, Inc. ("Carolina" or "Parent").
Carolina was formed to acquire all of the common stock of Richmond Savings upon
its conversion to stock form. Carolina has no operations and conducts no
business on its own other than owning Richmond Savings, investing its portion of
the net proceeds received in the Conversion and lending funds to the Employee
Stock Ownership Plan (the "ESOP") which was formed in connection with the
Conversion.
Nature of Business
- ------------------
Richmond Savings maintains its offices and conducts its primary business in
Richmond, Moore and Scotland counties, North Carolina. The Bank is primarily
engaged in the business of attracting deposits from the general public and using
such deposits to make mortgage loans secured by one-to-four family residential
real estate located in its primary market area. The Bank also makes home equity
line of credit loans, multi-family residential loans, commercial loans,
construction loans, loans secured by deposit accounts, and various types of
consumer loans. Richmond Savings has been and intends to continue to be a
community-oriented financial institution offering a variety of financial
services to meet the needs of the communities it serves. Richmond Investment
Services, Inc. (formerly CERKO, Inc.) is a wholly-owned subsidiary of Richmond
Savings whose principal business activity is that of an agent for various
insurance products.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements include the accounts of the
Parent, the Bank and the Bank's wholly-owned subsidiary, together referred to as
the "Company." All significant intercompany transactions and balances are
eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly sensitive to significant change relate
to the determination of the allowance for losses on loans and the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for losses on
loans and foreclosed real estate, management obtains independent appraisals for
significant properties.
- --------------------------------------------------------------------------------
Page 18
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates (Continued)
- ----------------------------
A majority of the Bank's loan portfolio consists of single-family residential
loans in its market area. The regional economy is currently stable and consists
of various types of industry. Real estate prices in this market are also stable;
however, the ultimate collectibility of a substantial portion of the Bank's loan
portfolio is susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.
Investment Securities
- ---------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. There were no trading securities at
June 30, 1997 or 1996. Securities held to maturity are those securities for
which the Company has the ability and intent to hold to maturity. All other
securities are classified as available for sale.
Available for sale securities consist of investment securities not classified as
trading securities or held to maturity securities and are recorded at fair
value. Held to maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on securities available for sale are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Transfers of securities between categories are recorded
at fair value at the date of transfer. Unrealized holding gains or losses
associated with transfers of securities from held to maturity to available for
sale are recorded as a separate component of stockholders' equity.
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to earnings
and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to the yield. Realized gains and losses are included
in earnings and the costs of securities sold are derived using the specific
identification method.
- --------------------------------------------------------------------------------
Page 19
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable
- ----------------
Loans receivable are stated at unpaid balances, less the allowance for loan
losses and net deferred loan fees.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The Bank accounts for impaired loans in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosure." A loan is impaired when, based on
current information and events, it is probable that all amounts due according to
the contractual terms of the loan agreement will not be collected. Impaired
loans are measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate or at the loan's observable
market price, or the fair value of the collateral of the loan if the loan is
collateral dependent. Interest income from impaired loans is recognized using
the cash basis method of accounting during the time within that period in which
the loans were impaired.
Loans Held for Sale
- -------------------
First mortgage loans held for sale are valued at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on an aggregate basis.
Allowance for Loan Losses
- -------------------------
The Bank provides for loan losses on the allowance method. Accordingly, all loan
losses are charged to the related allowance and all recoveries are credited to
it. Additions to the allowance for loan losses are provided by charges to
operations based on various factors which, in management's judgment, deserve
current recognition in estimating possible losses. Such factors considered by
management include the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, delinquency trends, and economic conditions.
Management evaluates the carrying value of loans periodically and the allowance
is adjusted accordingly. While management uses the best information available to
make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.
- --------------------------------------------------------------------------------
Page 20
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
- -------------------------------------
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination.
Premises and Equipment
- ----------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation of premises and equipment is recorded on a straight-line basis over
the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are charged to expense as incurred,
while those for improvements are capitalized. The costs and accumulated
depreciation relating to premises and equipment retired or otherwise disposed of
are eliminated from the accounts, and any resulting gains or losses are credited
or charged to earnings.
Investment in Federal Home Loan Bank Stock
- ------------------------------------------
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta ("FHLB"). This investment is carried at cost.
Real Estate Acquired In Settlement of Loans
- -------------------------------------------
Real estate acquired in settlement of loans is carried at the lower of cost or
fair value less estimated costs to dispose. Generally accepted accounting
principles define fair value as the amount that is expected to be received in a
current sale between a willing buyer and seller other than in a forced or
liquidation sale. Fair values at foreclosure are based on appraisals. Losses
arising from the acquisition of foreclosed properties are charged against the
allowance for loan losses. Subsequent writedowns are provided by a charge to
operations through the allowance for losses on other real estate in the period
in which the need arises.
Income Taxes
- ------------
Deferred tax assets and liabilities are recorded for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Future tax
benefits are recognized to the extent that realization of such benefits is more
likely than not. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which the assets
and liabilities are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
- --------------------------------------------------------------------------------
Page 21
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
- ------------------------
In the event the future tax consequences of differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities result
in deferred tax assets, applicable accounting standards require an evaluation of
the probability of being able to realize the future benefits indicated by such
assets. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. In
assessing the realizability of the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies.
A deferred tax liability is not recognized for portions of the allowance for
loan losses for income tax purposes in excess of the financial statement
balance, as described in Note J. Such a deferred tax liability will only be
recognized when it becomes apparent that those temporary differences will
reverse in the foreseeable future.
Benefit Plans
- -------------
The Bank has an ESOP which covers substantially all of its employees. Minimum
contributions to the ESOP are based upon the amortization requirements of the
ESOP's debt to the Parent. Contributions are determined by the Board of
Directors based upon compensation limitations and are expensed in accordance
with the AICPA's Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans." The Bank also has a noncontributory defined contribution
retirement plan and a 401(k) retirement plan covering substantially all of its
employees. The Bank's policy is to fund retirement plan contributions to these
plans as accrued. Effective October 18, 1996, as a result of adoption of the
ESOP, the Company's Board of Directors decided to terminate the defined
contribution retirement plan.
Net Income Per Common Share
- ---------------------------
Net income per common share for the year ended June 30, 1997 is based on
unaudited net income earned from the date of Conversion, November 22, 1996, to
the end of the fiscal year, divided by the weighted average number of shares
outstanding during that period. For purposes of this computation, the number of
shares of common stock purchased by the Bank's ESOP which has not been allocated
to participant accounts is not assumed to be outstanding.
- --------------------------------------------------------------------------------
Page 22
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
- --------------------------------
FASB Statement on Earnings Per Share. In March 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128. The Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15, "Earnings per Share" ("EPS"), and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
the presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This Statement
supersedes Opinion 15 and AICPA Accounting Interpretations 1-102 of Opinion 15.
This Statement will be effective for the Company's fiscal year ending June 30,
1999. Management does not believe the impact of adopting SFAS No. 128 will be
material to the Company's financial statements.
FASB Statement on Accounting for Stock-Based Compensation. In October 1995, the
FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based method" of
accounting for an employee stock option whereby compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period. FASB has encouraged all entities to adopt the fair value based
method; however, it will allow entities to continue the use of the "intrinsic
value based method" prescribed by APB Opinion No. 25. Under the intrinsic value
based method, compensation cost is the excess of the market price of the stock
at the grant date over the amount an employee must pay to acquire the stock.
However, most stock option plans have no intrinsic value at the grant date and,
as such, no compensation cost is recognized under APB Opinion No. 25. Entities
electing to continue use of the accounting treatment of APB Opinion No. 25 must
make certain pro forma disclosures as if the fair value based method had been
applied. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15, 1995. Pro
forma disclosures must include the effects of all awards granted in fiscal years
beginning after December 15, 1994. The Company expects to use the "intrinsic
value based method" as prescribed by APB Opinion No. 25. Accordingly, management
does not believe the impact of adopting SFAS No. 123 will be material to the
Company's financial statements.
- --------------------------------------------------------------------------------
Page 23
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
- --------------------------------------------
FASB Statement on Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS No. 125. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with
pledge of collateral. This Statement is effective for transfer and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. The effective date for certain
provisions of this Statement has been postponed for one year. Management
anticipates that the adoption of the Statement should have no material impact on
its consolidated financial statements.
FASB Statement on Reporting Comprehensive Income. In June 1997, the FASB issued
SFAS No. 130. This Statement establishes standards of reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. In addition to net income as has been historically
determined, comprehensive income for the Company would include unrealized
holding gains and losses on available for sale securities. This Statement will
be effective for the Company's fiscal year ending June 30, 1999, and the Company
does not intend to early adopt. Had the Company early-adopted this Statement, it
would have reported comprehensive income of $800,867 and $512,564 for the years
ended June 30, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
Page 24
<PAGE>
CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE B - INVESTMENT SECURITIES
The following is a summary of the securities portfolios by major classification:
<TABLE>
<CAPTION>
June 30, 1997
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U. S. government securities and obligations
of U. S. government agencies $ 17,779,550 $ 16,485 $ 82,200 $ 17,713,835
================ ================ ================= =================
Securities held-to-maturity:
U. S. government securities and obligations
of U. S. government agencies $ 4,013,745 $ 3,790 $ 39,195 $ 3,978,340
Mortgage-backed securities 1,441,497 17,101 14,953 1,443,645
Corporate debt securities 1,492,990 5,000 8,355 1,489,635
---------------- ---------------- ----------------- -----------------
$ 6,948,232 $ 25,891 $ 62,503 $ 6,911,620
================ ================ ================= =================
<CAPTION>
June 30, 1996
-------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
Securities available-for-sale:
U. S. government securities and obligations
of U. S. government agencies $ 8,526,954 $ 10,270 $ 150,389 $ 8,386,835
================ ================ ================= =================
Securities held-to-maturity:
U. S. government securities and obligations
of U. S. government agencies $ 4,008,469 $ 1,850 $ 98,715 $ 3,911,604
Mortgage-backed securities 1,816,592 21,505 14,105 1,823,992
Corporate debt securities 1,998,695 1,685 15,590 1,984,790
Municipal securities 151,124 324 - 151,448
---------------- ---------------- ----------------- -----------------
$ 7,974,880 $ 25,364 $ 128,410 $ 7,871,834
================ ================ ================= =================
</TABLE>
- --------------------------------------------------------------------------------
Page 25
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE B - INVESTMENT SECURITIES (Continued)
The amortized cost and fair values of securities available for sale and held to
maturity at June 30, 1997 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
-------------------------------------- --------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Due within one year $ 5,501,245 $ 5,493,295 $ 1,038,817 $ 1,036,205
Due after one year through five years 7,518,015 7,495,615 1,995,335 1,993,050
Due after five years through ten years 4,254,905 4,230,070 3,631,774 3,586,322
Due after ten years 505,385 494,855 282,306 296,043
---------------- ---------------- ----------------- ----------------
$ 17,779,550 $ 17,713,835 $ 6,948,232 $ 6,911,620
================ ================ ================= ================
</TABLE>
In November 1995, the FASB published a guide with respect to implementation of
SFAS No. 115 (the "guide"). Any entity which implemented SFAS No. 115 prior to
issuance of this guide was permitted to make a one-time reassessment of its
implementation of SFAS No. 115 on the basis of the information contained in the
guide. The guide stated that timely reclassifications from the held to maturity
category that resulted from that one-time reassessment would not call into
question the classifications of the entity's other securities. On December 31,
1995, the Bank reclassified securities with an amortized cost of $1,995,851 and
a net unrealized gain of $12,954 from held to maturity to available for sale.
Proceeds from maturities of investment securities available for sale during the
year ended June 30, 1997 were $2,250,000. There were no sales of investment
securities available for sale during the year ended June 30, 1997.
Proceeds from sales and maturities of investment securities available for sale
during the year ended June 30, 1996 were $3,511,069. Gross losses of $4,404 were
realized on those sales.
Securities with a carrying value of $1,320,992 and $554,172 and a fair value of
$1,322,358 and $568,355 at June 30, 1997 and 1996, respectively, were pledged to
secure public monies on deposit as required by law.
- --------------------------------------------------------------------------------
Page 26
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE B - INVESTMENT SECURITIES (Continued)
The following table sets forth certain information regarding the carrying
values, weighted average yields and contractual maturities of the Company's
investment portfolio at June 30, 1997:
<TABLE>
<CAPTION>
Carrying Value
-------------------------------------------------------------------------------
After After
One Year Five Years
One Year Through Through After Ten
or Less Five years Ten Years Years Total
-------- ---------- --------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities $ 5,493 $ 7,496 $ 4,230 $ 495 $ 17,714
Securities held to maturity:
U.S. government and agency securities 1,000 1,000 2,014 - 4,014
Mortgage-backed securities 39 - 1,120 282 1,441
Corporate bonds - 996 497 - 1,493
Other:
Interest-earning balances in other banks 1,862 - - - 1,862
Federal Home Loan Bank stock - - - 735 735
----------- ------------ ----------- --------- ------------
Total $ 8,394 $ 9,492 $ 7,861 $ 1,512 $ 27,259
=========== ============ =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
Average Yield
---------------------------------------------------------------------------------
After After
One Year Five Years
One Year Through Through After Ten
or Less Five years Ten Years Years Total
-------- ---------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities 5.53% 6.52% 6.99% 7.26% 6.35%
Securities held to maturity:
U.S. government and agency securities 5.61% 5.79% 6.53% - 6.12%
Mortgage-backed securities 6.37% - 7.08% 8.50% 7.34%
Corporate bonds - 6.72% 6.48% - 6.64%
Other:
Interest-earning balances in other banks 6.23% - - 6.23%
Federal Home Loan Bank stock - - - 7.25% 7.25%
Total 5.70% 6.46% 6.85% 7.49% 6.40%
</TABLE>
- --------------------------------------------------------------------------------
Page 27
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE C - LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Percentage Percentage
Amount of Total Amount of Total
------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Type of loan:
Real estate loans:
One-to-four family residential $ 59,063,396 75.07% $ 55,385,874 81.02%
Multi-family residential and commercial 3,979,061 5.06% 1,963,248 2.87%
Construction 6,276,804 7.98% 2,300,620 3.37%
Home equity lines of credit 7,951,066 10.11% 5,465,095 7.99%
------------ --------- ------------ -------
Total real estate loans 77,270,327 98.22% 65,114,837 95.25%
------------ --------- ------------ -------
Other loans:
Consumer loans 4,152,974 5.28% 2,861,449 4.19%
Home improvement loans 570,853 0.73% 927,919 1.36%
Loans secured by deposits 545,661 0.69% 723,838 1.06%
------------ --------- ------------ -------
Total other loans 5,269,488 6.70% 4,513,206 6.61%
------------ --------- ------------ -------
Total loans 82,539,815 104.92% 69,628,043 101.86%
Less:
Construction loans in process 3,465,422 4.40% 881,075 1.29%
Allowance for loan losses 400,051 0.52% 389,358 0.57%
------------ --------- ------------ -------
$ 78,674,342 100.00% $ 68,357,610 100.00%
============ ========= ============ =======
</TABLE>
The allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- ------------------
<S> <C> <C>
Balance at beginning of year $ 389,358 $ 362,871
------------------- ------------------
Loans charged off:
Real estate - -
Other (60,521) (10,970)
------------------- ------------------
Total loans charged off (60,521) (10,970)
------------------- ------------------
Recoveries:
Real estate - -
Other 1,214 1,457
------------------- ------------------
Total loan recoveries 1,214 1,457
------------------- ------------------
Provision for loan losses 70,000 36,000
------------------- ------------------
Balance at end of year $ 400,051 $ 389,358
=================== ==================
</TABLE>
- --------------------------------------------------------------------------------
Page 28
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE C - LOANS RECEIVABLE (Continued)
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------ ------------------------------------------------
Percent of Percent Percent of Percent
Allowance of Loans Allowance of Loans
Amount of to Total to Gross Amount of to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans
--------- --------- ----- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family
residential $ 63,000 15.75% 71.56% $ 57,000 14.64% 79.55%
Multi-family residential
and commercial 37,000 9.25% 4.82% 15,000 3.85% 2.82%
Construction 11,000 2.75% 7.60% 6,000 1.54% 3.30%
Home equity lines of credit 40,000 10.00% 9.64% 27,000 6.93% 7.85%
-------------- ---------- ---------- ------------ ---------- ---------
Total real estate loans 151,000 37.75% 93.62% 105,000 26.96% 93.52%
-------------- ---------- ---------- ------------ ---------- ---------
Other loans:
Consumer loans 124,000 31.00% 5.03% 174,000 44.69% 4.11%
Home improvement loans 17,000 4.25% 0.69% 4,000 1.03% 1.33%
Loans secured by deposits - 0.00% 0.66% - 0.00% 1.04%
-------------- ---------- ---------- ------------ ---------- ---------
Total other loans 141,000 35.25% 6.38% 178,000 45.72% 6.48%
-------------- ---------- ---------- ------------ ---------- ---------
Unallocated 108,051 27.00% 0.00% 106,358 27.32% 0.00%
-------------- ---------- ---------- ------------ ---------- ---------
Total allowance for
loan losses $ 400,051 100.00% 100.00% $ 389,358 100.00% 100.00%
============== ========== ========== ============ ========== =========
</TABLE>
Nonaccrual loans, which consisted of loans on which principal or interest were
delinquent for 90 days or more, totaled approximately $206,000 and $27,000 at
June 30, 1997 and 1996, respectively. Such loans had the effect of reducing
interest income by approximately $7,000 and $800 during the years ended June 30,
1997 and 1996, respectively.
Loans serviced for other investors amounted to $8,164,383 and $9,695,290 at June
30, 1997 and 1996, respectively. The Bank had no loans held for sale at June 30,
1997 or 1996.
At June 30, 1997, the Bank had mortgage loan commitments outstanding of $581,000
and pre-approved but unused lines of credit totaling $7,257,000. In management's
opinion, these commitments, and undisbursed proceeds on construction loans in
process reflected above, represent no more than normal lending risk to the Bank
and will be funded from normal sources of liquidity.
- --------------------------------------------------------------------------------
Page 29
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE C - LOANS RECEIVABLE (Continued)
The Bank has had loan transactions with its directors and executive officers.
Such loans were made in the ordinary course of business and also on
substantially the same terms and collateral as those comparable transactions
prevailing at the time and did not involve more than the normal risk of
collectibility or present other unfavorable features. A summary of related party
loan transactions is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Balance at beginning of year $ 101,408 $ 111,650
Additional borrowings - 793
Loan repayments (20,013) (11,035)
---------------- ----------------
Balance at end of year $ 81,395 $ 101,408
================ ================
NOTE D - PREMISES AND EQUIPMENT
<CAPTION>
Premises and equipment consist of the following:
1997 1996
---------------- ----------------
<S> <C> <C>
Land $ 648,069 $ 467,285
Building and improvements 1,682,308 1,159,259
Furniture and equipment 1,034,330 857,026
Leasehold improvements - 21,740
---------------- ----------------
3,364,707 2,505,310
Accumulated depreciation (1,246,523) (1,149,616)
---------------- ----------------
$ 2,118,184 $ 1,355,694
================ ================
</TABLE>
NOTE E - FEDERAL INSURANCE OF DEPOSITS
Eligible deposit accounts are insured up to $100,000 by the Federal Deposit
Insurance Corporation.
NOTE F - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Atlanta, with weighted average
interest rates, are as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
5.92% due on August 21, 1997 $ 500,000 $ -
================ ================
</TABLE>
- --------------------------------------------------------------------------------
Page 30
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE F - ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
At June 30, 1997, Richmond Savings also had $11,500,000 available on a line of
credit from the Federal Home Loan Bank. All advances are secured by a blanket
floating lien on the Bank's one-to-four family residential mortgage loans.
NOTE G - DEPOSIT ACCOUNTS
A comparative summary of deposit accounts at June 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- -----------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Demand accounts:
Passbook and statement accounts $ 10,669,197 2.96% $ 11,367,611 2.95%
NOW accounts 5,664,210 1.98% 5,663,141 2.31%
VIP checking accounts 2,520,810 3.10% 3,119,522 3.44%
Non-interest bearing accounts 2,224,264 - 1,954,320 -
-------------- -------------
21,078,481 2.40% 22,104,594 2.59%
Certificates of deposit 62,681,079 5.55% 61,610,335 5.44%
-------------- -------------
Total deposit accounts $ 83,759,560 4.76% $ 83,714,929 4.69%
============== =============
</TABLE>
The weighted average cost of deposit accounts was 4.76% and 4.69% at June 30,
1997 and 1996, respectively.
A summary of certificate accounts by maturity as of June 30, 1997 follows:
<TABLE>
<CAPTION>
Less than $100,000
$100,000 or More Total
----------- -------------- -----
(In thousands)
<S> <C> <C> <C>
Three months or less $ 14,451 $ 2,556 $ 17,007
Over three months through twelve months 21,475 4,041 25,516
Over one year through three years 15,820 2,239 18,059
Over three years 1,725 374 2,099
------------ ------------- -------------
Total certificate accounts $ 53,471 $ 9,210 $ 62,681
============ ============= =============
</TABLE>
- --------------------------------------------------------------------------------
Page 31
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE G - DEPOSIT ACCOUNTS (Continued)
Interest expense on deposits for the years ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Passbook savings $ 344,120 $ 339,120
NOW and VIP checking accounts 217,251 231,069
Certificates of deposit 3,329,862 3,391,091
---------------- ----------------
3,891,233 3,961,280
Penalties for early withdrawal 7,184 11,804
---------------- ----------------
$ 3,884,049 $ 3,949,476
================ ================
</TABLE>
NOTE H - EMPLOYEE AND DIRECTOR BENEFIT PLANS
Employee Stock Ownership Plan
- -----------------------------
The Bank has established an ESOP to benefit all qualified employees. The ESOP
purchased 112,000 shares of common stock in the Conversion with proceeds
received from a loan of $1,549,551 from the Parent. The loan is to be repaid
over fifteen years in quarterly installments of principal and interest. Interest
is based upon the prime rate and will be adjusted annually. Dividends, if any,
paid on shares held by the ESOP may also be used to reduce the loan. Dividends
used to repay the loan are not reported as dividends in the financial
statements. The loan may be prepaid without penalty. The unallocated shares of
stock held by the ESOP are pledged as collateral for the loan. The ESOP is
funded by contributions made by the Bank in amounts sufficient to retire the
debt. At June 30, 1997, the outstanding balance of the loan is $1,491,000, and
is presented as a reduction of stockholders' equity.
Shares are released as the debt is repaid and earnings from the common stock
held by the ESOP are allocated among active participants on the basis of
compensation in the year of allocation. Benefits become 100% vested after seven
years of credited service. Forfeitures of nonvested benefits will be reallocated
among remaining participating employees in the same proportion as contributions.
Expense of $58,551 has been incurred during the year ended June 30, 1997 in
connection with the ESOP. The expense includes the cash contribution necessary
to fund the ESOP.
At June 30, 1997, 4,232 shares held by the ESOP have been released or committed
to be released to the plan's participants for purposes of computing earnings per
share. The fair value of the unallocated shares amounted to approximately
$1,722,000 at June 30, 1997.
- --------------------------------------------------------------------------------
Page 32
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE H - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)
Deferred Compensation Plans
- ---------------------------
The Bank has deferred compensation plans for certain directors and officers.
These plans provide benefits upon disability, death or attainment of a certain
age. The Bank has made current provisions for future payments under these plans,
and the related liabilities and deferred income tax benefits are included in the
accompanying consolidated financial statements. Expenses associated with these
plans were $107,828 and $97,024 for the years ended June 30, 1997 and 1996,
respectively.
Defined Contribution Plan
- -------------------------
The Bank had a defined contribution retirement plan which covered substantially
all the Bank's employees. Contributions to the plan were discretionary, but were
generally made in amounts which were estimated to be sufficient to provide a
target retirement benefit based on a percentage of the employee's eligible
compensation. This plan was terminated on October 18, 1996. Contributions to the
plan totaled $45,067 and $27,000 for the years ended June 30, 1997 and 1996,
respectively.
401(k) Retirement Plan
- ----------------------
The Bank maintains for the benefit of its eligible employees a 401(k) plan.
Under the plan, the Bank does not make contributions. It does, however, match
fifty percent of eligible employee contributions, but the amount matched shall
not exceed three percent of compensation. The plan eligibility requirement is
completion of one year's full time service for employees who have attained the
age of twenty-one. At June 30, 1997 and 1996, substantially all full-time
employees are eligible and are covered by the plan. Provisions for contributions
to the plan totaled $15,285 and $14,526 for the years ended June 30, 1997 and
1996, respectively.
Employment Agreements
- ---------------------
The Bank has entered into employment agreements with its chief executive officer
and one other executive officer to ensure a stable and competent management
base. The agreements provide for a three-year term, but the agreements may be
extended for an additional year at the end of the initial term and annually
thereafter. The agreements provide for benefits as spelled out in the contracts
and cannot be terminated by the Board of Directors, except for cause, without
prejudicing the officers' rights to receive certain vested rights, including
compensation. In the event of a change in control of the Bank, as defined in the
agreements, the acquirer will be bound to the terms of the contracts.
- --------------------------------------------------------------------------------
Page 33
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE H - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)
Severance Plan
- --------------
The Bank has also adopted a severance plan for the benefit of its employees in
the event of a change in control of the Bank which provides for varying
severance benefits for employees based on their salaries and length of service
with the Bank.
Proposed Management Recognition and Stock Option Plans
- ------------------------------------------------------
The Company's stockholders will be asked to consider at a future stockholders'
meeting approval of a management recognition plan. Such a plan is designed to
provide the directors, officers and certain employees of the Bank with an
ownership interest in the Company to encourage their continued service to the
Bank. Up to 74,060 shares of the Company's stock would be awarded under the
plan. The stockholders will also be asked to approve certain stock option plans
for directors, officers and employees of the Bank. The plans may provide for the
issuance of incentive or non-incentive options. As many as 185,150 shares are
expected to be reserved for future issuance under the stock option plans. The
Company may elect to fund any approved plans through the issuance of authorized
but unissued shares, or may elect to purchase the shares to fund the plans in
the open market.
NOTE I - SPECIAL SAIF ASSESSMENT
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was signed into
law. The legislation included a special assessment to recapitalize the SAIF
insurance fund up to its statutory goal of 1.25% of insured deposits. The
assessment required the Bank to pay an amount equal to 65.7 basis points of its
SAIF-assessable deposit base as of March 31, 1995, which resulted in a charge to
income during the year ended June 30, 1997 of $519,463.
- --------------------------------------------------------------------------------
Page 34
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE J - INCOME TAXES
The components of income tax expense are as follows for the years ended June 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Current tax expense $ 423,745 $ 302,134
Net deferred benefit included in operations (21,497) (2,988)
---------------- ----------------
$ 402,248 $ 299,146
================ ================
<CAPTION>
The differences between the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income before income
taxes were as follows for the years ended June 30, 1997 and 1996:
1997 1996
---------------- ----------------
<S> <C> <C>
Income tax at federal statutory rate $ 392,616 $ 302,636
State income tax, net of federal tax benefit 5,579 -
Other 4,053 (3,490)
---------------- ----------------
$ 402,248 $ 299,146
================ ================
<CAPTION>
Deferred tax assets and liabilities arising from temporary differences at June
30, 1997 and 1996 are summarized as follows:
1997 1996
---------------- ----------------
<S> <C> <C>
Deferred tax assets relating to:
Deferred compensation $ 286,654 $ 259,034
Unrealized losses on investment securities
available for sale 23,000 49,042
---------------- ----------------
Gross deferred tax assets 309,654 308,076
Valuation allowance - -
---------------- ----------------
Net deferred tax assets 309,654 308,076
---------------- ----------------
Deferred tax liabilities relating to:
Allowance for loan losses (78,838) (74,999)
Premises and equipment (55,910) (70,704)
FHLB stock dividends (135,948) (135,948)
Loan fees and costs (54,115) (37,038)
---------------- ----------------
Total deferred tax liabilities (324,811) (318,689)
---------------- ----------------
Net deferred tax liability $ (15,157) $ (10,613)
================ ================
</TABLE>
- --------------------------------------------------------------------------------
Page 35
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE J - INCOME TAXES (Continued)
Retained earnings at June 30, 1997 includes approximately $1,400,000 for which
no deferred income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for income tax purposes only.
Reductions of the amount so allocated for purposes other than tax bad debt
losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the then current
corporate income tax rate.
During 1996, Congress enacted certain tax legislation that exempted thrift
institutions from being taxed on these pre-1987 bad debt reserves. Further, the
use of the reserve method is now required for all thrifts. The Bank will be
recapturing $580,000 of its bad debt reserve created in prior years by using the
percentage of taxable income method, requiring payment of additional income
taxes of approximately $225,000. Deferred income taxes have been previously
established for the taxes arising from the reserve recapture, and thus the
ultimate payment of the taxes will not result in a charge to earnings.
NOTE K - REGULATORY RESTRICTIONS
Capital Requirements
- --------------------
The Parent is regulated by the Board of Governors of the Federal Reserve System
and is subject to securities registration and public reporting regulations of
the Securities and Exchange Commission. The Bank is regulated by the Federal
Deposit Insurance Corporation ("FDIC") and the Administrator, Savings
Institutions Division, North Carolina Department of Commerce (the
"Administrator").
The Bank is subject to the capital requirements of the FDIC and the
Administrator. The FDIC requires the Bank to maintain minimum ratios of Tier 1
capital to risk-weighted assets and total capital to risk-weighted assets of 4%
and 8%, respectively. Tier 1 capital consists of total shareholders' equity
calculated in accordance with generally accepted accounting principles less
intangible assets, and total capital is comprised of Tier 1 capital plus certain
adjustments, the only one of which applies to the Bank is the allowance for
possible loan losses. Risk-weighted assets refer to the on- and off-balance
sheet exposures of the Bank adjusted for their relative risk levels using
formulas set forth in FDIC regulations. The Bank is also subject to an FDIC
leverage capital requirement, which calls for a minimum ratio of Tier 1 capital
(as defined above) to quarterly average total assets of 3% to 5%, depending on
the institution's composite ratings as determined by its regulators. The
Administrator requires a net worth equal to at least 5% of total assets.
- --------------------------------------------------------------------------------
Page 36
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE K - REGULATORY RESTRICTIONS (Continued)
Capital Requirements (Continued)
- --------------------
At June 30, 1997, the Bank was in compliance with all of the aforementioned
capital requirements as shown below:
<TABLE>
<CAPTION>
Leverage Tier 1 Risk
Ratio Adjusted Risk Based N.C. Savings
Tier 1 Capital Capital Capital Bank Capital
-------------- ------- ------- ------------
<S> <C> <C> <C> <C>
Consolidated stockholders' equity $ 25,448,044 $ 25,448,044 $ 25,448,044 $ 25,448,044
Separate equity of Carolina
Fincorp, Inc. (8,663,046) (8,663,046) (8,663,046) (8,663,046)
Unrealized loss on securities 19,113 19,113 19,113 19,113
Loan loss allowance - - 400,051 400,051
-------------- ------------- ------------ ------------
Regulatory capital 16,804,111 16,804,111 17,204,162 17,204,162
Minimum capital requirement 3,123,000 2,309,000 4,618,000 5,206,000
-------------- ------------- ------------ ------------
Excess regulatory capital $ 13,681,111 $ 14,495,111 $ 12,586,162 $ 11,998,162
============== ============= ============= ============
</TABLE>
Liquidation Account
- -------------------
At the time of Conversion, the Bank established a liquidation account in an
amount equal to its net worth at June 30, 1996. The liquidation account will be
maintained for the benefit of eligible deposit account holders who continue to
maintain their deposit accounts in the Bank after Conversion. Only in the event
of a complete liquidation will each eligible deposit account holder be entitled
to receive a liquidation distribution from the liquidation account in the amount
of the then current adjusted subaccount balance for deposit accounts then held
before any liquidation distribution may be made from the Bank to the Parent.
Dividends cannot be paid from this liquidation account.
Dividends
- ---------
Subject to applicable law, the Boards of Directors of the Bank and the Parent
may each provide for the payment of dividends. Future declarations of cash
dividends, if any, by the Parent may depend upon dividend payments by the Bank
to the parent. Subject to regulations of the Administrator, the Bank may not
declare or pay a cash dividend on or repurchase any of its common stock if its
stockholders' equity would thereby be reduced below either the aggregate amount
then required for the liquidation account or the minimum regulatory capital
requirements imposed by federal and state regulations. In addition, for a period
of five years after the Conversion, the Bank will be required, under existing
North Carolina regulations, to obtain prior written approval of the
Administrator before it can declare and pay a cash dividend on its capital stock
in an amount in excess of one-half of the greater of (i) its net income for the
most recent fiscal year, or (ii) the average of its net income after dividends
for the most recent fiscal year and not more than two of the immediately
preceding fiscal years, if applicable. As a result of this limitation, the Bank
cannot pay a dividend in excess of $310,000 without the approval of the
Administrator.
- --------------------------------------------------------------------------------
Page 37
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE L - CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK
The Bank generally originates single-family residential loans within its primary
lending area of Richmond County. The Bank's underwriting policies require such
loans to be made at no greater than 80% loan-to-value based upon appraised
values unless private mortgage insurance is obtained. These loans are secured by
the underlying properties.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit on mortgage loans,
standby letters of credit and equity lines of credit. Those instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statements of financial condition. The contract or
notional amounts of those instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
A summary of the contract amount of the Bank's exposure to off-balance sheet
risk as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Financial instruments whose contract amounts represent credit risk:
<S> <C>
Commitments to extend credit, mortgage loans $ 581,000
Undisbursed construction loans 3,465,422
Undisbursed lines of credit 7,257,000
</TABLE>
NOTE M - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has implemented Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments ("SFAS 107"), which
requires disclosure of the estimated fair values of the Company's financial
instruments whether or not recognized in the balance sheet, where it is
practical to estimate that value. Such instruments include cash and
interest-earning balances in other banks, investment securities, loans, stock in
the Federal Home Loan Bank of Atlanta, deposit accounts, and advances from the
Federal Home Loan Bank. Fair value estimates are made at a specific point in
time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no active market readily exists for a
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
- --------------------------------------------------------------------------------
Page 38
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE M - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Interest-Earning Balances in Other Banks
The carrying amounts for cash and interest-earning balances in
other banks approximate fair value because of the short maturities
of those instruments.
Investment Securities
Fair value for investment securities equals quoted market price if such
information is available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans
For certain homogenous categories of loans, such as residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
Stock in Federal Home Loan Bank of Atlanta
The fair value for FHLB stock is its carrying value, since this is the
amount for which it could be redeemed. There is no active market for this
stock and the Bank is required to maintain a minimum balance based on the
unpaid principal of home mortgage loans.
Deposit Liabilities
The fair value of demand deposits is the amount payable on demand at the
reporting date. The fair value of certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Advances from Federal Home Loan Bank
The fair value of these advances is based upon the discounted value using
current rates at which borrowings of similar maturity could be obtained.
Financial Instruments with Off-Balance Sheet Risk
With regard to financial instruments with off-balance sheet risk
discussed in Note L, it is not practicable to estimate the fair value of
future financing commitments.
- --------------------------------------------------------------------------------
Page 39
<PAGE>
CAROLINA FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
================================================================================
NOTE M - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The carrying amounts and estimated fair values of the Company's financial
instruments, none of which are held for trading purposes, are as follows at June
30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ ------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Face Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and interest-earning
balances in other banks $ 3,652,420 $ 3,652,420 $ 5,893,096 $ 5,893,096
Investment securities 24,662,067 24,625,455 16,361,715 16,258,669
Loans 78,674,342 80,611,473 68,357,610 69,180,000
Stock in FHLB of Atlanta 734,700 734,700 734,700 734,700
Financial liabilities:
Deposits 83,759,560 82,127,429 83,714,929 82,086,000
Advances from Federal Home Loan Bank 500,000 501,350 - -
</TABLE>
NOTE N - PARENT COMPANY FINANCIAL DATA
The following is a summary of the condensed financial statements of Carolina
Fincorp, Inc. as of and for the year ended June 30, 1997:
Condensed Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets:
Cash $ 814,741
Investment securities available for sale 7,736,990
Investment in Richmond Savings Bank, Inc., SSB 16,804,111
Accrued interest receivable 88,637
Other assets 4,415
------------------
$ 25,448,894
==================
Liabilities and Stockholders' Equity:
Liabilities - Accounts payable $ 850
------------------
Stockholders' equity:
Common stock 17,585,611
ESOP note receivable (1,491,000)
Retained earnings 9,372,546
Unrealized loss on available for sale securities, net of tax (19,113)
------------------
25,448,044
------------------
$ 25,448,894
==================
</TABLE>
Condensed Statement of Income
Period from November 22, 1996 to June 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Equity in earnings of subsidiaries $ 620,503
Interest income 362,693
Operating expenses (37,052)
Income taxes (114,558)
------------------
Net income $ 831,586
==================
</TABLE>
- --------------------------------------------------------------------------------
Page 40
<PAGE>
CAROLINA FINCORP, INC.
CORPORATE INFORMATION
===============================================================================
Executive Officers
R. Larry Campbell John W. Bullard
President and CEO Vice President and COO
Directors
J. Stanley Vetter - Chairman Joe M. McLaurin
Physician - Richmond Family Medicine Retired Corporate Executive
John T. Page, Jr. - Vice Chairman Russell E. Bennett, Jr.
Attorney - Page & Webb, Attorneys Retired Corporate Executive
E.E. Vuncannon, Jr. W. Jesse Spencer
President - E.E. Vuncannon, Inc. Certified Public Accountant
Buena Vista Coggin R. Larry Campbell
Retired Corporate Executive President - Carolina Fincorp, Inc.
Stock Transfer Agent Annual Meeting
Registrar and Transfer Company The 1997 annual meeting of stockholders of
10 Commerce Drive Carolina Fincorp, Inc. will be held at 2:00
Cranford, NJ 07016 p.m. on November 24, 1997 at the Calvin
Little Room, Thomas H. Leath Memorial
Library, 412 East Franklin Street,
Rockingham, NC
Special Legal Counsel
Form 10-KSB
Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P. A copy of Form 10-KSB as filed with the
2000 Renaissance Plaza Securities and Exchange Commission will be
230 North Elm Street furnished without charge to the Company's
Greensboro, NC 27420 stockholders for the Company's most recent
fiscal year upon written request to R.
Larry Campbell, President, Carolina Fincorp,
Inc., 115 South Lawrence Street, Rockingham,
Independent Auditors NC 28379.
Corporate Office
Dixon, Odom & Co., L.L.P.
6 Turnberry Wood 115 South Lawrence Street
Southern Pines, NC 28387 Rockingham, NC 28379
Common Stock Information
The Company's stock began trading on November 25, 1996. There are 1,851,500
shares of common stock outstanding which were held by approximately 669
stockholders of record (excluding shares held in street name) on June 30, 1997.
The Company's common stock is quoted on the NASDAQ National Market under the
symbol "CFNC." The high and low sales prices for the common stock for the
quarter ended December 31, 1996 were $12.50 and $13.75, respectively; for the
quarter ended March 31, 1997 were $15.25 and $13.25, respectively; and for the
quarter ended June 30, 1997, $15.38 and $14.00, respectively. On May 21, 1997,
the Company paid a dividend of $.05 a share to stockholders of record on May 9,
1997. On August 20, 1997, the Company paid a dividend of $.06 a share to
stockholders of record on August 8, 1997.
Disclaimer
This annual report has not been reviewed or confirmed for accuracy or relevance
by the Federal Deposit Insurance Corporation.
- --------------------------------------------------------------------------------
Page 41
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,790
<INT-BEARING-DEPOSITS> 1,862
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,714
<INVESTMENTS-CARRYING> 6,948
<INVESTMENTS-MARKET> 6,912
<LOANS> 78,674
<ALLOWANCE> 400
<TOTAL-ASSETS> 111,503
<DEPOSITS> 83,760
<SHORT-TERM> 500
<LIABILITIES-OTHER> 1,795
<LONG-TERM> 0
0
0
<COMMON> 17,586
<OTHER-SE> 7,862
<TOTAL-LIABILITIES-AND-EQUITY> 111,503
<INTEREST-LOAN> 5,902
<INTEREST-INVEST> 1,743
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,645
<INTEREST-DEPOSIT> 3,884
<INTEREST-EXPENSE> 3,887
<INTEREST-INCOME-NET> 3,758
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,094
<INCOME-PRETAX> 1,155
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 753
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
<YIELD-ACTUAL> 3.78
<LOANS-NON> 206
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 47
<ALLOWANCE-OPEN> 389
<CHARGE-OFFS> 60
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 400
<ALLOWANCE-DOMESTIC> 292
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 108
</TABLE>
