<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
NEWSOUTH BANCORP, INC.
- ----------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which
transaction applies:
________________________________________________________________
2. Aggregate number of securities to which transaction
applies:
________________________________________________________________
3. Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated and state
how it was determined):
________________________________________________________________
4. Proposed maximum aggregate value of transaction:
________________________________________________________________
5. Total fee paid:
________________________________________________________________
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1. Amount Previously Paid:
____________________________________________
2. Form, Schedule or Registration Statement No.:
____________________________________________
3. Filing Party:
____________________________________________
4. Date Filed:
____________________________________________<PAGE>
<PAGE>
[NEWSOUTH BANCORP, INC. LETTERHEAD]
January 12, 1998
Dear Stockholder:
We invite you to attend the first Annual Meeting of
Stockholders (the "Annual Meeting") of NewSouth Bancorp, Inc.
(the "Company") to be held at the main office of NewSouth Bank
(the "Bank") located at 1311 Carolina Avenue, Washington, North
Carolina on Thursday, February 12, 1998, at 10:00 a.m., eastern
time.
The attached Notice of Annual Meeting and Proxy Statement
describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of
NewSouth Bank, the Company's wholly owned subsidiary. Directors
and officers of the Company and the Bank will be present to
respond to any questions the stockholders may have.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN,
DATE AND RETURN THE ACCOMPANYING FORM OF PROXY AS SOON AS
POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL
MEETING. Your vote is important, regardless of the number of
shares you own. This will not prevent you from voting in person
but will assure that your vote is counted if you are unable to
attend the meeting.
On behalf of the Board of Directors and all the employees
of the Company and the Bank, I wish to thank you for your
continued support.
Sincerely,
/s/ Thomas A. Vann
Thomas A. Vann
President<PAGE>
<PAGE>
________________________________________________________________
NEWSOUTH BANCORP, INC.
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
________________________________________________________________
________________________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 12, 1998
________________________________________________________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders (the "Annual Meeting") of NewSouth Bancorp, Inc.
(the "Company") will be held at the main office of NewSouth Bank
(the "Bank") located at 1311 Carolina Avenue, Washington, North
Carolina on Thursday, February 12, 1998, at 10:00 a.m., eastern
time.
A Proxy Statement and Proxy Card for the Annual Meeting are
enclosed.
The Annual Meeting is for the purpose of considering and
acting upon the following matters:
1. The election of two directors of the Company; and
2. The transaction of such other business as may
properly come before the Annual Meeting or any
adjournment thereof.
The Board of Directors is not aware of any other business
to come before the Annual Meeting.
Any action may be taken on any one of the foregoing
proposals at the Annual Meeting on the date specified above or
on any date or dates to which, by original or later adjournment,
the Annual Meeting may be adjourned. Stockholders of record at
the close of business on January 2, 1998, are the stockholders
entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof.
You are requested to fill in and sign the enclosed proxy
card which is solicited by the Board of Directors and to mail it
promptly in the enclosed envelope. The proxy will not be used
if you attend and vote at the Annual Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William L. Wall
William L. Wall
Secretary
Washington, North Carolina
January 12, 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE
COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO
INSURE A QUORUM. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.<PAGE>
<PAGE>
________________________________________________________________
PROXY STATEMENT
OF
NEWSOUTH BANCORP, INC.
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 12, 1998
________________________________________________________________
________________________________________________________________
GENERAL
________________________________________________________________
This Proxy Statement is furnished to stockholders of
NewSouth Bancorp, Inc. (the "Company") in connection with the
solicitation by the Board of Directors of the Company of proxies
to be used at the Annual Meeting of Stockholders (the "Annual
Meeting") which will be held at the main office of NewSouth Bank
(the "Bank") located at 1311 Carolina Avenue, Washington, North
Carolina on Thursday, February 12, 1998, at 10:00 a.m., eastern
time, and at any adjournment thereof. The accompanying Notice
of Annual Meeting and proxy card and this Proxy Statement are
being first mailed to stockholders on or about January 12, 1998.
________________________________________________________________
VOTING AND REVOCABILITY OF PROXIES
________________________________________________________________
Stockholders who execute proxies retain the right to revoke
them at any time. Unless so revoked, the shares represented by
properly executed proxies will be voted at the Annual Meeting
and all adjournments thereof. Proxies may be revoked by written
notice to William L. Wall, Secretary of the Company, at the
address shown above, by filing a later dated proxy prior to a
vote being taken on a particular proposal at the Annual Meeting
or by attending the Annual Meeting and voting in person. The
presence of a stockholder at the Annual Meeting will not in
itself revoke such stockholder's proxy.
Proxies solicited by the Board of Directors of the Company
will be voted in accordance with the directions given therein.
WHERE NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED FOR
THE NOMINEES FOR DIRECTORS SET FORTH BELOW. The proxy confers
discretionary authority on the persons named therein to vote
with respect to the election of any person as a director where
the nominee is unable to serve or for good cause will not serve,
and matters incident to the conduct of the Annual Meeting. If
any other business is presented at the Annual Meeting, proxies
will be voted by those named therein in accordance with the
determination of a majority of the Board of Directors. Proxies
marked as abstentions will not be counted as votes cast. Shares
held in street name which have been designated by brokers on
proxies as not voted will not be counted as votes cast. Proxies
marked as abstentions or as broker non-votes, however, will be
treated as shares present for purposes of determining whether a
quorum is present.
________________________________________________________________
VOTING SECURITIES AND SECURITY OWNERSHIP
________________________________________________________________
The securities entitled to vote at the Annual Meeting
consist of the Company's common stock, par value $.01 per share
(the "Common Stock"). Stockholders of record as of the close of
business on January 2, 1998 (the "Record Date") are entitled to
one vote for each share of Common Stock then held. As of the
Record Date, there were 2,909,500 shares of Common Stock issued
and outstanding. The presence, in person or by proxy, of at
least one-third of the total number of shares of Common Stock
outstanding and entitled to vote will be necessary to constitute
a quorum at the Annual Meeting.
Persons and groups beneficially owning more than 5% of the
Common Stock are required to file certain reports with respect
to such ownership pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The following table sets
forth information regarding the shares of Common Stock
beneficially owned as of the Record Date by persons who
beneficially own more than 5% of the Common Stock, each of the
Company's directors, including
<PAGE>
<PAGE>
the executive officer of the Company named in the Summary
Compensation Table, set forth under "Proposal I -- Election of
Directors -- Executive Compensation -- Summary Compensation
Table," and all of the Company's directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
Person Owning OWNED AT PERCENT OF
Greater than 5% RECORD DATE(1) CLASS (2)
- --------------- -------------- ----------
<S> <C> <C>
NewSouth Bancorp, Inc. 232,760 (3) 8.0%
Employee Stock Ownership Plan
Trust ("ESOP")
1311 Carolina Avenue
Washington, North Carolina 27889
Directors:
Edmund T. Buckman, Jr. 40,000 (4) 1.37
Linley H. Gibbs, Jr. 20,000 (5) *
Fred N. Holscher 13,763 (6) *
Frederick H. Howdy 40,000 (7) 1.37
Charles E. Parker, Jr. 20,000 *
Marshall T. Singleton 30,000 (8) 1.03
Thomas A. Vann 42,441 (9) 1.46
All directors and executive 236,097 8.11
officers of the Company
as a group (14 persons)
<FN>
__________
(1) In accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of Common Stock if
he or she has or shares voting or investment power with
respect to such Common Stock. As used herein, "voting power"
is the power to vote or direct the voting of shares and
"investment power" is the power to dispose or direct the
disposition of shares. Except as otherwise noted, ownership
is direct, and the named individuals and group exercise sole
voting and investment power over the shares of the Common
Stock. The listed amounts do not include shares with respect
to which Directors Gibbs, Holscher, and Howdy have voting
power by virtue of their positions as trustees of the trusts
holding 232,760 shares under the ESOP and 116,380 shares
under the Company's proposed Management Recognition Plan
("MRP"). Shares held by the ESOP trust and allocated to the
accounts of participants are voted in accordance with the
participants' instructions, and unallocated shares are voted
in the same ratio as ESOP participants direct the voting of
allocated shares or, in the absence of such direction, in the
ESOP trustees' best judgment. The shares held by the MRP
trust are voted in the same proportion as the ESOP trustees
vote the shares held in the ESOP trust.
(2) Based on a total of 2,909,500 shares of Common Stock
outstanding at the Record Date.
(3) These shares are currently held in a suspense account for
future allocation and distribution among participants as the
loan used to purchase the shares is repaid. The ESOP
trustees vote all allocated shares in accordance with the
instructions of the participating employees. Unallocated
shares and allocated shares for which no instructions have
been received are voted by the trustees in the same ratio as
participants direct the voting of allocated shares or, in the
absence of such direction, as directed by the Company's Board
of Directors. At the Record Date, 24,828 shares had been
allocated.
(4) Includes 20,000 shares owned by Mr. Buckman's spouse.
(5) Includes 1,400 shares owned by Mr. Gibbs' spouse.
(6) Includes 1,350 shares owned by Mr. Holscher's spouse, 200
shares owned by his son and 100 shares owned by his daughter.
(7) Includes 20,000 shares owned by Dr. Howdy's spouse.
(8) Includes 10,000 shares owned by B.E. Singleton & Sons, Inc.,
a corporation co-owned by Mr. Singleton, and 1,484 shares
owned by his spouse.
(9) Includes 20,000 shares owned by Mr. Vann's spouse, 1,000
shares owned by his son and 1,441 shares allocated to Mr.
Vann's account under the ESOP.
* Less than 1% of outstanding Common Stock.
</FN>
</TABLE>
2<PAGE>
<PAGE>
________________________________________________________________
PROPOSAL I -- ELECTION OF DIRECTORS
________________________________________________________________
GENERAL
The Company's Board of Directors consists of seven members.
The Company's Certificate of Incorporation requires that
directors be divided into three classes, as nearly equal in
number as possible, with approximately one-third of the
directors elected each year. At the Annual Meeting, two
directors will be elected for a term expiring at the 2001 Annual
Meeting. The Board of Directors has nominated Linley H. Gibbs,
Jr. and Thomas A. Vann to serve as directors for a three-year
period. Both nominees are currently members of the Board.
Under Delaware law and the Company's Bylaws, directors are
elected by a plurality of the votes present in person or by
proxy at a meeting at which a quorum is present.
It is intended that the persons named in the proxies
solicited by the Board of Directors will vote for the election
of the named nominees. If either nominee is unable to serve,
the shares represented by all valid proxies will be voted for
the election of such substitute as the Board of Directors may
recommend or the size of the Board may be reduced to eliminate
the vacancy. At this time, the Board knows of no reason why
either nominee might be unavailable to serve.
The following table sets forth, for each nominee for
director and continuing director of the Company, his age, the
year he first became a director of the Bank, which is the
Company's principal operating subsidiary, and the expiration of
his term as a director. All such persons were appointed as
directors in 1996 in connection with the incorporation and
organization of the Company. Each director of the Company also
is a member of the Board of Directors of the Bank.
<TABLE>
<CAPTION>
YEAR FIRST
AGE AT ELECTED AS CURRENT
SEPTEMBER 30, DIRECTOR OF TERM
NAME 1997 THE BANK TO EXPIRE
- ---- ------------- ----------- ---------
<S> <C> <C> <C>
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2001
Linley H. Gibbs, Jr. 66 1985 1998
Thomas A. Vann 48 1979 1998
DIRECTORS CONTINUING IN OFFICE
Charles E. Parker, Jr. 61 1971 1999
Marshall T. Singleton 58 1990 1999
Edmund T. Buckman, Jr. 71 1975 2000
Fred N. Holscher 49 1985 2000
Frederick H. Howdy 65 1975 2000
</TABLE>
Set forth below is information concerning the Company's
directors. Unless otherwise stated, all directors have held the
positions indicated for at least the past five years.
LINLEY H. GIBBS, JR. has been retired since 1992. Prior to
his retirement, Mr. Gibbs served as a general manager with
Hamilton Beach, an appliance manufacturing company in
Washington, North Carolina.
THOMAS A. VANN serves as President of the Company and the
Bank. He joined the Bank in 1972 as Assistant Manager. Mr.
Vann was promoted to a number of positions prior to becoming
President of the Bank in 1977.
3
<PAGE>
CHARLES E. PARKER, JR. is a Vice President of the Robinson
Insurance Agency in New Bern. He joined the agency in 1989.
MARSHALL T. SINGLETON has been a co-owner of B.E. Singleton
& Sons, a highway construction firm, since 1960.
EDMUND T. BUCKMAN, JR. has been retired since 1994. Prior
to his retirement, Mr. Buckman was the owner of Buckman Auto
Supply in Washington, North Carolina.
FRED N. HOLSCHER is a partner with the Washington, North
Carolina law firm of Rodman, Holscher, Francisco & Peck, P.A.
and has been with the firm since 1973.
FREDERICK H. HOWDY is President of Drs. Freshwater and Howdy
P.A., a dental health care corporation of North Carolina. Prior
to that, he was a dentist in Washington, North Carolina for 36
years.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following sets forth information with respect to
executive
officers who do not serve on the Board of Directors.
<TABLE>
<CAPTION>
AGE AT
SEPTEMBER 30,
NAME 1997 TITLE (1)
- ---- ------------- ---------
<S> <C> <C>
William L. Wall 51 Executive Vice President, Chief
Financial Officer and Secretary
of the Company and the Bank
John B. Burgess, Sr. 61 Executive Vice President -- Commercial
Lending and Credit Administration
Jack L. Ashley 52 Vice President -- Branch
Administration and Operations
William R. Outland 60 Vice President -- Consumer Lending
Walter P. House 52 Vice President -- Mortgage Operations
Sherry L. Correll 42 Vice President -- Savings and
Deposit Administration
Mary R. Boyd 47 Vice President -- Loan Servicing
Kristie W. Hawkins 32 Treasurer and Controller of the
Company and the Bank
<FN>
_______________
(1) All positions are with the Bank unless indicated otherwise.
</FN>
</TABLE>
WILLIAM L. WALL joined the Bank in 1993 and currently serves
as Executive Vice President, Chief Financial Officer and
Secretary of the Company and the Bank. Prior to joining the
Bank, Mr. Wall served as Senior Vice President, Treasurer and
Chief Financial Officer of Pioneer Savings Bank in Rocky Mount,
North Carolina.
JOHN B. BURGESS, SR. joined the Bank in October 1992 and
currently serves as Executive Vice President of Commercial
Lending and Credit Administration. Prior to joining the Bank,
Mr. Burgess served as Executive Vice President of Unity Bank in
Rocky Mount, North Carolina.
JACK L. ASHLEY joined the Bank in 1997 and currently serves
as Vice President of Branch Administration and Operations.
Prior to joining the Bank, from June 1995 to August 1997, Mr.
Ashley served as Senior Vice President and Region Executive of
United Carolina Bank in Greenville, North Carolina. Prior to
that, Mr. Ashley was employed for 17 years with Southern
National Bank in various capacities, most recently as Senior
Vice President.
WILLIAM R. OUTLAND has served as the Bank's Vice President
of Consumer Lending since he joined the Bank in 1983.
4<PAGE>
<PAGE>
WALTER P. HOUSE joined the Bank in 1990 and currently serves
as Vice President of Mortgage Operations.
SHERRY L. CORRELL is currently the Vice President of Savings
and Deposit Administration. She joined the Bank in 1985.
MARY R. BOYD has been with the Bank since 1983 and currently
serves as a Vice President - Loan Servicing.
KRISTIE W. HAWKINS joined the Bank in 1982. Prior to being
promoted to her current position of Controller and Treasurer,
she served as the Bank's Assistant Treasurer and Secretary as
well as accounting department supervisor.
COMMITTEES OF THE BOARD OF DIRECTORS
The Boards of Directors of the Company and the Bank meet
monthly and may have additional special meetings. During the
year ended September 30, 1997, the Board of Directors of the
Company met nine times and the Board of Directors of the Bank
met 13 times. No director attended fewer than 75% in the
aggregate of the total number of Company or Bank Board of
Directors meetings held during the year ended September 30, 1997
and the total number of meetings held by committees on which he
served during such fiscal year. The Company's Board of
Directors has standing Audit and Executive Committees.
The Board of Directors' Audit Committee consists of
Directors Buckman, Singleton and Parker, who serves as
Chairperson. The function of the Audit Committee is to examine
and approve the audit report prepared by the independent
auditors of the Company, to review and recommend the independent
auditors to be engaged by the Company, to review the internal
audit function and internal accounting controls, and to review
and approve audit policies. The Audit Committee met once during
the year ended September 30, 1997.
The Board of Directors' Executive Committee consists of
Directors Gibbs, Holscher, Vann and Howdy, who serves as
Chairperson. The Executive Committee, among other things,
evaluates the compensation and benefits of the directors,
officers and employees, recommends changes, and monitors and
evaluates employee performance. The Executive Committee reports
its evaluations and findings to the full Board of Directors and
all compensation decisions are ratified by the full Board of
Directors. Directors who also are officers abstain from
discussion and voting on matters affecting their compensation.
The Executive Committee is empowered to exercise all of the
authority of the Board when the Board is not in session. The
Executive Committee met six times during the year ended
September 30, 1997.
The Company's full Board of Directors acts as a nominating
committee. The Board of Directors met once during the year
ended September 30, 1997 for the purpose of considering
potential nominees to the Board of Directors. In its
deliberations, the Board, functioning as a nominating committee,
considers the candidate's knowledge of the banking business and
involvement in community, business and civic affairs, and also
considers whether the candidate would provide for adequate
representation of its market area. The Company's Articles of
Incorporation set forth procedures that must be followed by
stockholders seeking to make nominations for director. In order
for a stockholder of the Company to make any nominations, he or
she must give written notice thereof to the Secretary of the
Company not less than thirty days nor more than sixty days prior
to the date of any such meeting; provided, however, that if less
than forty days' notice of the meeting is given to stockholders,
such written notice shall be delivered or mailed, as prescribed,
to the Secretary of the Company not later than the close of
business on the tenth day following the day on which notice of
the meeting was mailed to stockholders. Each such notice given
by a stockholder with respect to nominations for the election of
directors must set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of each
such nominee; and (iii) the number of shares of stock of the
Company which are beneficially owned by each such nominee. In
addition, the stockholder making such nomination must promptly
provide any other information reasonably requested by the
Company.
5<PAGE>
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Company's executive compensation policies are
established by the Executive Committee of the Board of Directors
(the "Committee") composed of three outside directors and the
Company's President, Thomas Vann. Mr. Vann does not participate
in deliberations regarding his compensation. The Committee is
responsible for developing the Company's executive compensation
policies. The Company's President, under the direction of the
Committee, implements the Company's executive compensation
policies. The Committee's objectives in designing and
administering the specific elements of the Company's executive
compensation program are as follows:
. To link executive compensation rewards to
increases in shareholder value, as
measured by favorable long-term operating
results and continued strengthening of the
Company's financial condition.
. To provide incentives for executive
officers to work towards achieving
successful annual results as a step in
achieving the Company's long-term
operating results and strategic
objectives.
. To correlate, as closely as possible,
executive officers' receipt of
compensation with the attainment of
specified performance objectives.
. To maintain a competitive mix of total
executive compensation, with particular
emphasis on awards related to increases in
long-term shareholder value.
. To attract and retain top performing
executive officers for the long-term
success of the Company.
In furtherance of these objectives, the Committee has
determined that there should be two specific components of
executive compensation: base salary and a cash bonus.
Base Salary. The Committee makes recommendations to the
Board concerning executive compensation on the basis of surveys
of salaries paid to executive officers of other bank holding
companies, non-diversified banks and other financial
institutions similar in size, market capitalization and other
characteristics. In addition, the Company maintains a salary
administration program, pursuant to which it assembles a list of
executive positions, with job descriptions and salary ranges,
which the Committee uses in setting executive salaries. In
setting executive salaries, the Committee also takes into
consideration the relative complexity of the Bank's operations,
compared to those of other similarly sized banks, attributable
to the large volume of loans serviced for others. The
Committee's objective is to provide for base salaries that are
competitive with the average salary paid by the Company's peers.
Bonus. The Bank pays a discretionary bonus on an annual
basis based on satisfaction of a combination of individual and
Bank performance objectives. Whether bonuses are paid each
year and the amount of such bonuses are determined by the
Committee, subject to ratification by the Board of Directors, at
year end based on the Bank's ability to achieve performance
goals established by the Board in each year's Business Plan.
Discretionary bonuses for achieving specific performance goals
during the year are paid during the next fiscal year.
In addition, the Committee believes that stock related award
plans are an important element of compensation since they
provide executives with incentives linked to the performance of
the Common Stock. Accordingly, the Committee intends to
recommend that the Board of Directors adopt a stock option plan
and a management recognition plan, which plans would be subject
to stockholder approval at a meeting currently expected to be
held in April 1998.
6<PAGE>
<PAGE>
It is anticipated that the Board of Directors will adopt a
stock option plan pursuant to which officers and directors would
be granted options to acquire Common Stock and that the Company
will reserve for issuance pursuant to an option plan a number of
shares equal to 10% of the outstanding Common Stock. The
Committee believes that an option plan can serve as a means of
providing key employees with the opportunity to acquire a
proprietary interest in the Company and to link their interests
with those of the Company's stockholders.
In addition, it is anticipated that the Board of Directors
will adopt a management recognition plan pursuant to which
officers and directors would be granted awards of restricted
Common Stock, subject to vesting and forfeiture as determined by
the Committee, and that the Company will reserve for issuance
pursuant to a management recognition plan a number of shares
equal to 4% of the outstanding Common Stock. The purpose of a
management recognition plan is to reward and retain personnel of
experience and ability in key positions of responsibility by
providing such employees with a proprietary interest in the
Company as compensation for their past contributions to the
Company and the Bank and as an incentive to make further
contributions in the future.
Compensation of the President
Mr. Vann's base salary is established in accordance with the
terms of the employment agreement entered into between the
Company and Mr. Vann. See " -- Executive Compensation --
Employment Agreements." The Committee determines the
President's compensation on the basis of several factors. In
determining Mr. Vann's base salary, the Committee conducted
surveys of compensation paid to chief executive officers of
similarly situated banks and non-diversified banks and other
financial institutions of similar asset size. The Committee
believes that Mr. Vann's base salary is generally competitive
with the average salary paid to executives of similar rank and
expertise at banking institutions which the Committee considered
to be comparable and taking into account the Bank's superior
performance and complex operations relative to comparable
institutions.
Mr. Vann received bonus compensation for fiscal year 1997
pursuant to the same basic factors as described above under " --
Bonus." In establishing Mr. Vann's bonus, the Committee
considered the Company's overall performance, record of increase
in shareholder value and success in meeting strategic objectives
and his personal leadership and accomplishments. These factors
were considered in conjunction with the Company's financial
results for fiscal 1997 in relation to the established Business
Plan and achieving certain annual performance goals, including
but not limited to return on assets and return on equity,
satisfactory results of regulatory examinations and independent
audits, and successfully completing the conversion of the Bank
from the mutual to the stock form of ownership and from a
savings bank to a commercial bank.
The Committee believes that the Company's executive
compensation program serves the Company and its shareholders by
providing a direct link between the interests of executive
officers and those of shareholders generally and by helping to
attract and retain qualified executive officers who are
dedicated to the long-term success of the Company.
Members of the Executive Committee
Frederick H. Howdy (Chairman)
Linley H. Gibbs, Jr.
Fred N. Holscher
Thomas A. Vann
<PAGE>
<PAGE>
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph and table which follow show the cumulative total
return on the Common Stock for the period from April 8, 1997
(the day trading began in the Common Stock following completion
of the Company's initial public offering) through the fiscal
year ended September 30, 1997 with (1) the total cumulative
return of all companies whose equity securities are traded on
the Nasdaq market and (2) the total cumulative return of banking
companies traded on the Nasdaq market. The comparison assumes
$100 was invested on April 8, 1997 in the Company's Common Stock
and in each of the foregoing indices and assumes reinvestment of
dividends. The stockholder returns shown on the performance
graph are not necessarily indicative of the future performance
of the Common Stock or of any particular index.
CUMULATIVE TOTAL STOCKHOLDER RETURN
COMPARED WITH PERFORMANCE OF SELECTED INDEXES
April 8, 1997 through September 30, 1997
04/08/97 09/30/97
-------- --------
COMPANY $100 $154.8
NASDAQ 100 134.4
NASDAQ BANKS 100 136.0
[Line graph appears here depicting the cumulative total
shareholder return of $100 invested in the Common Stock as
compared to $100 invested in all companies whose equity
securities are traded on the Nasdaq market and banking companies
traded on the Nasdaq market. Line graph begins at April 8, 1997
and plots the cumulative total return at September 30, 1997.
Plot points are provided above.]
8<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth
the cash and noncash compensation for the fiscal years ended
September 30, 1997 and 1996 awarded to or earned by the
President. No other executive officer of the Company earned
salary and bonus in fiscal 1997 exceeding $100,000 for services
rendered in all capacities to the Company and the Bank.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation(1) Compensation
- ------------------ ------ ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Thomas A. Vann 1997 $156,750 $50,000 $ -- $104,927 (2)
President 1996 135,000 55,000 -- 60,025
<FN>
_____________
(1) Executive officers of the Company and the Bank receive
indirect compensation in the form of certain perquisites and
other personal benefits. The amount of such benefits
received by the named executive officer in fiscal 1997 did
not exceed 10% of the executive officer's salary and bonus.
(2) For the year ended September 30, 1997, consists of $4,711 in
matching contributions under the Bank's 401(k) Plan, $7,706
in Board of Directors and Committee fees, $44,860
representing the value as of September 30, 1997 of shares of
Common Stock allocated to Mr. Vann's account under the ESOP,
$26,900 accrued under a Supplemental Income Plan Agreement,
$11,500 accrued under a Directors Deferred Compensation Plan
Agreement, $3,250 accrued under a Directors Deferred
Retirement Plan Agreement and $6,000 accrued pursuant to the
Bank's Pension Plan.
</FN>
</TABLE>
Pension Plan. The Bank sponsors a defined benefit plan (the
"Pension Plan") in which employees who have one year of service
and have reached age 21 are eligible to participate.
Participating employees become 100% vested in their right to
benefits upon completing five years of service, except that
participants become 100% vested upon attaining age 65,
regardless of years of service. If vested, a participant in the
Pension Plan will receive, after completion of 30 or more years
of service, an annual normal retirement benefit at age 65 equal
to the sum of (a) 37.5% of the participant's average salary over
his highest five years of compensation up to the "covered
compensation level" (as defined in the Pension Plan), plus (b)
52.5% of the participant's average salary of his highest five
years of compensation over the covered compensation level. Upon
termination of employment at or after age 65 before completion
of 30 years of service, the retirement benefit will be
multiplied by the ratio the employee's actual years of
service bear to 30 years. On an actuarially reduced basis, the
Pension Plan also provides for both early retirement benefits,
beginning at age 55, and death benefits. The Bank makes all
contributions to the Pension Plan. At September 30, 1997, Mr.
Vann had approximately 25 years of credited service under the
Pension Plan.
The following table illustrates annual pension benefits at
age 65 under the Pension Plan at various levels of compensation
and years of service, assuming 100% vesting of benefits and
retirement at September 30, 1997. All retirement benefits
illustrated in the table below are without regard to any Social
Security benefits to which a participant might be entitled. The
Pension Plan is not subject to offset for Social Security
benefits.
<TABLE>
<CAPTION> Years of Service
Average Final -------------------------------------------------
Compensation (1) 15 20 25 30 35
- ---------------- ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
125,000 $30,500 $ 40,600 $ 50,800 $ 61,000 $ 61,000
150,000 37,000 49,400 61,700 74,100 74,100
175,000 43,600 58,100 72,700 87,200 87,200
200,000 50,200 66,900 83,600 100,300 100,300
225,000 56,700 75,600 94,500 113,500 113,500
250,000 63,300 84,400 105,500 126,600 126,600
300,000 76,400 101,900 127,400 152,800 152,800
<FN>
__________
(1) The compensation covered by the Pension Plan consists of
salary and bonus and the portion of all other compensation
represented by Board of Directors and Committee fees listed
on the Summary Compensation Table.
</FN>
</TABLE>
9<PAGE>
<PAGE>
Employment Agreements. The Company and the Bank have
entered into employment agreements (the "Employment Agreements")
pursuant to which Thomas A. Vann (the "Employee") serves as
President of the Bank and President of the Company. In such
capacities, the Employee is responsible for overseeing all
operations of the Bank and the Company and for implementing the
policies adopted by the Boards of Directors.
The Employment Agreements became effective on April 7, 1997
and provide for a term of three years. On each anniversary date
of the commencement of the Employment Agreements, the term of
the Employee's employment will be extended for an additional
one-year period beyond the then effective expiration date, upon
a determination by the Board of Directors that the performance
of the Employee has met the required performance standards and
that such Employment Agreements should be extended. The
Employment Agreements provide the Employee with a salary review
by the Board of Directors not less often than annually, as well
as with inclusion in any discretionary bonus plans, retirement
and medical plans, customary fringe benefits, vacation and sick
leave. The Employment Agreements terminate upon the Employee's
death, may terminate upon the Employee's disability and is
terminable by the Bank for "just cause" (as defined in the
Employment Agreements). In the event of termination for just
cause, no severance benefits are available. If the Company or
the Bank terminates the Employee without just cause, the
Employee will be entitled to a continuation of his salary and
benefits from the date of termination through the remaining term
of the Employment Agreements plus an additional 12 month's
salary and, at the Employee's election, either continued
participation in benefits plans in which the Employee would have
been eligible to participate through the Employment Agreements'
expiration date or the cash equivalent thereof. If the
Employment Agreements are terminated due to the Employee's
"disability" (as defined in the Employment Agreements), the
Employee will be entitled to a continuation of his salary and
benefits through the date of such termination, including any
period prior to the establishment of the Employee's disability.
In the event of the Employee's death during the term of the
Employment Agreements, his estate will be entitled to receive
his salary through the last day of the calendar month in which
the Employee's death occurred. The Employee is able to
voluntarily terminate his Employment Agreements by providing 90
days' written notice to the Boards of Directors of the Bank and
the Company, in which case the Employee is entitled to receive
only his compensation, vested rights and benefits up to
the date of termination.
In the event of (i) the Employee's involuntary termination
of employment other than for "just cause" during the period
beginning six months before a change in control and ending on
the later of the second anniversary of the change in control or
the expiration date of the Employment Agreements (the "Protected
Period"), (ii) the Employee's voluntary termination within 90
days of the occurrence of certain specified events occurring
during the Protected Period which have not been consented to by
the Employee, or (iii) the Employee's voluntary termination of
employment for any reason within the 30-day period beginning on
the date of the change in control, the Employee will be paid
within 10 days of such termination (or the date of the change in
control, whichever is later) an amount equal to the difference
between (i) 2.99 times his "base amount," as defined in Section
280G(b)(3) of the Internal Revenue Code, and (ii) the sum of any
other parachute payments, as defined under Section 280G(b)(2) of
the Internal Revenue Code, that the Employee receives on account
of the change in control. "Change in control" generally refers
to the acquisition, by any person or entity, of the ownership or
power to vote more than 25% of the Bank's or Company's voting
stock, the control of the election of a majority of the Bank's
or the Company's directors, or the exercise of a controlling
influence over the management or policies of the Bank or the
Company. In addition, under the Employment Agreements, a change
in control occurs when, during any consecutive two-year period,
directors of the Company or the Bank at the beginning of such
period cease to constitute two-thirds of the Board of Directors
of the Company or the Bank, unless the election of replacement
directors was approved by a two-thirds vote of the initial
directors then in office. The Employment Agreement with
the Bank provides that within 10 business days following a
change in control, the Bank shall fund a trust in the amount of
2.99 times the Employee's base amount, that will be used to pay
the Employee amounts owed to him. The aggregate payment that
would be made to Mr. Vann assuming his termination of employment
under the foregoing circumstances at September 30, 1997 would
have been approximately $502,320. These provisions may have an
anti-takeover effect by making it more expensive for a potential
acquiror to obtain control of the Company. In the event that
the Employee prevails over the Company and the Bank, or obtains
a written settlement, in a legal dispute as to the Employment
Agreement, he will be reimbursed for his legal and other
expenses.
10<PAGE>
<PAGE>
DIRECTOR COMPENSATION
Each member of the Bank's Board of Directors receives a fee
of $1,150 for each regular and special Board meeting attended
and $75 for each Board committee meeting attended. No fees are
paid for attendance at meetings of the Company's Board.
Directors also participate in certain benefit plans of the
Company and the Bank, as described below.
The Bank has entered into a Supplemental Income Agreement
(as amended, the "SIA") with Thomas A. Vann. Pursuant to the
terms of the SIA, Mr. Vann may elect to defer a portion of his
cash compensation on a monthly basis. Upon the earlier of Mr.
Vann's (i) attainment of age 65 ("SIA Retirement Age") and (ii)
the date of Mr. Vann's retirement before the SIA Retirement Age
but after attaining age 55 and completing at least 29 years of
service with the Bank ("SIA Early Retirement Date"), the Bank
shall pay Mr. Vann (in lieu of cash compensation otherwise
receivable) an amount equal to $19,250 ("SIA Retirement Amount")
annually for a period of 15 years. This amount shall be
increased by 5% for every full year of service after July 1,
1990, provided that there will be no increases in benefits (i)
after Mr. Vann reaches age 65 and (ii) for more than 10 years of
additional service.
In the event of Mr. Vann's death after becoming entitled to
receive the SIA Retirement Amount but before any payments have
been made, his beneficiary shall receive all remaining payments.
In the event of Mr. Vann's death prior to attaining age 65, the
Bank will pay his beneficiary $19,250 annually for 15 years. In
the event of Mr. Vann's termination of employment by reason
other than death, retirement upon attaining age 65, or upon the
occurrence of the SIA Early Retirement Date, Mr. Vann (or his
beneficiary) shall be entitled to receive, on the earlier of his
attainment of age 65 and his death, a percentage of the SIA
Retirement Amount. This percentage will be based on Mr. Vann's
full years of service up to the date of his termination,
beginning with 0% for less than 20 years of service, and
increased in 5% increments (from 50% to 100%) for every year of
service thereafter, starting with 50% at 20 years of service up
to 100% for 29 years of service. In the event that Mr. Vann's
employment terminates for any reason other than his death, or
retirement on the SIA Early Retirement Date prior to the
time he is first entitled to receive payments under the SIA, Mr.
Vann shall be entitled to receive such percentages of his SIA
Retirement Amount, as discussed above, when he reaches age 55 or
on upon his death, whichever is earlier. In the event that a
termination of protected employment occurs (i) on or before the
SIA Retirement Date or SIA Early Retirement Date and (ii)
following a "change in control" (as defined below), then Mr.
Vann shall be deemed to have retired as of the SIA Early
Retirement Date, except that the SIA Early Retirement Date shall
be deemed to be the date of the change in control.
The Bank has entered into a Supplemental Income Plan
Agreement (as amended, the "SIPA") with Thomas A. Vann.
Pursuant to the terms of SIPA, if Mr. Vann retires from
employment with the Bank either at or after the age of 65 (the
"Retirement Date") or at or after age 55 with at least 10 years
of service with the Bank after January 1, 1994 (the "Early
Retirement Date"), the Bank shall pay, in equal monthly
installments, a minimum sum of $40,000 ("SIPA Retirement
Amount") per annum for a period of 15 years. This amount shall
increase by 5% for each full year of service completed by Mr.
Vann after January 1, 1994.
In the event of Mr. Vann's death after becoming entitled to
receive payments but before all payments have been made, the
Bank will make the remaining payments to his designated
beneficiary. In the event of Mr. Vann's death before the
Retirement Date or Early Retirement Date, the Bank shall make
payments in the same manner as if he had retired. In the event
that Mr. Vann terminates his service for reasons other than (i)
his retirement on the Early Retirement Date, (ii) a change in
control, (iii) "termination of protected employment" (as defined
below), or (iv) his death, and the termination occurs before he
is entitled to receive payments, Mr. Vann shall be entitled to
receive a percentage of his SIPA Retirement Amount upon his
attainment of age 55 or prior death. This percentage will be
based on Mr. Vann's full years of service after January 1, 1994,
and increased in 10% increments (from 10% to 100%) for every
year of service after January 1994, starting with 10% at one
year of service up to 100% for 10 years of service. Payments
shall be made in equal monthly installments. In the event
that, prior to the Retirement Date or Early Retirement Date, a
"termination of protected employment" occurs following a change
in control, Mr. Vann shall be
11<PAGE>
<PAGE>
deemed to have retired as of his Early Retirement Date, and the
Early Retirement Date shall be considered the date of the change
in control.
The Bank has entered into a Directors' Deferred
Compensation Plan Agreement (as amended, the "Agreement") with
each of Directors Buckman, Howdy, Gibbs, Parker, Singleton,
Holscher and Vann (the "Directors"). Pursuant to the terms of
the Agreements, the Directors have agreed to defer the receipt
of their Directors' fees in the amount of $350 per month,
beginning on January 1, 1994 and ending on December 31, 1998.
In exchange for the agreement to defer fees, the Directors shall
receive certain retirement benefits (described below) upon the
later to occur of their 65th birthday and January 1, 1999 (the
"Qualifying Date"). Upon the Qualifying Date, the Bank shall
pay a Director a certain amount ("Deferred Amount") per month
for 120 months. The Deferred Amount for Directors Buckman,
Howdy, Gibbs, Parker, Singleton, Holscher and Vann equals $513,
$942, $942, $1,533, $1,975, $4,088, and $4,818, respectively.
In the event of a Director's death after becoming entitled
to receive the Deferred Amount but before all of the payments
have been made, the Bank shall make the remaining payments to
the Director's beneficiary. Similarly, in the event of a
Director's death while serving as a Director but before the
Qualifying Date, the Bank will pay the Deferred Amount per month
for 120 months to the Director's beneficiary. In the event that
a Director voluntarily resigns after January 1, 1996 but before
the Qualifying Date, then the Director will receive a percentage
of the monthly Deferred Amount. This percentage varies among
the different Agreements, but is generally determined by a
formula based on the Director's full years of service after
January 1, 1994. The Deferred Amounts generally vest over a
period of five to ten years under the different Agreements. In
the event that the Director's service is terminated on or before
the Qualifying Date for a reason other than death or voluntary
resignation, then he shall be paid the vested monthly Deferred
Amount, and the Qualifying Date shall be deemed to be the date
of the Director's termination of service.
The Bank has entered into a Directors' Retirement Plan
Agreement, as amended ("Retirement Plan") with Directors
Buckman, Howdy, Parker, Singleton, Holscher, Gibbs and Vann.
Under the terms of the Retirement Plan, the Bank will pay a
director a monthly amount (the "Retirement Plan Amount") for a
period of 120 months beginning upon the later to occur of the
director's 70th birthday and January 1, 1999 ("Retirement Plan
Qualifying Date"). Under the Retirement Plan, Directors Vann,
Buckman, Howdy, Parker, Singleton, Holscher and Gibbs each will
receive $2,000 per month.
In the event of a director's death prior to January 1,
1999, the Bank will pay the Retirement Plan Amount on a monthly
basis for a period of 120 months to the director's beneficiary.
Similarly, in the event of a director's death after becoming
entitled to receive the payments under the Retirement Plan but
before all payments have been made, the Bank shall pay the
remaining amounts to the director's beneficiary. In the event
that the director voluntarily resigns prior to January 1, 1999,
the director shall be entitled to receive a percentage of the
monthly Retirement Plan Amount. This percentage varies among
the different Retirement Plan agreements, but is generally
determined by a formula based on the director's full years of
service after January 1, 1994. The Retirement Plan Amounts
generally vest over a period of five to ten years under the
different agreements. In the event that on or before the
Retirement Plan Qualifying Date the director's service
is terminated for any reason within 24 months following a change
in control, the Bank will pay the director the monthly
Retirement Plan Amount for a period of 120 months.
The Bank has entered into a deferred compensation agreement
entitled Director's Deferred Payment Agreement (as amended, the
"Payment Agreement") with Directors Buckman, Howdy, Gibbs,
Parker, Holscher and Vann. Under the terms of each Payment
Agreement, a director deferred receipt of his director's fees in
an amount equivalent to $291.66 per month over a six-year
period. In addition, Mr. Vann has agreed to defer receipt of
his director's fees in the amount of $220.35 per month from
September 1, 1995 until the end of his term as a director. In
exchange for the agreement to defer receipt of his director's
fees, a director will receive, upon the earlier of the
director's 65th birthday or termination of service as a director
for any reason on or after attaining age 55, a certain amount
("Payment") per month for a period of 120 months. Directors
Buckman, Howdy, Gibbs, Parker, Holscher, and Vann will receive a
monthly Payment of $1,054, $1,726, $1,610, $2,748, $3,628, and
$8,256, respectively.
12<PAGE>
<PAGE>
In the event of a director's death after becoming entitled
to receive monthly Payments but before all Payments have been
made, the Bank will pay all remaining amounts to the director's
beneficiary. Similarly, in the event of the director's death
prior to the commencement of his monthly Payments, the Bank will
pay a monthly amount for 120 months to the director's
beneficiary. In the event that prior to the commencement of the
monthly Payments a director's service is terminated for any
reason other than death, then the director will be entitled to
begin receiving his Payments (beginning on a date to be
determined by the Bank, but not later than the first day of the
sixth month following the month in which the director's 55th
birthday, or if earlier, death, occurs).
With respect to all of the deferred compensation and
retirement arrangements discussed above, the timing of the first
payments under the agreements shall be determined by the Bank,
provided that such payments shall commence no later than the
first day of the sixth month following the month in which the
event triggering the distribution occurred. In addition, each
arrangement provides that within ten business days after a
change in control, the Bank shall fund, or cause to be funded, a
trust in an amount equal to the present value of all benefits
that may become payable under the respective arrangements,
unless the recipient of the benefits has provided a release of
any claims under the agreement. With respect to the above plans
and agreements, "change in control" generally refers to the
acquisition, by any person or entity, of the ownership or power
to vote more than 25% of the Bank's or Company's voting stock,
the control of the election of a majority of the Bank's or the
Company's directors, or the exercise of a controlling influence
over the management or policies of the Bank or the Company. In
addition, a change in control occurs when, during any
consecutive two-year period, directors of the Company or the
Bank at the beginning of such period ("Continuing Directors")
cease to constitute at least two-thirds of the Board of
Directors of the Company or the Bank, unless the election of
replacement directors was approved by at least two-thirds of the
Continuing Directors then in office. "Termination of protected
employment" generally refers to an employee's termination of
employment without just cause, or the employee's voluntary
termination of employment for certain events which have not been
consented to in advance by the employee, including but not
limited to a material reduction in base compensation as in
effect on the date of a change in control, the failure of the
Bank to maintain existing or substantially similar employee
benefit plans, the assignment of duties and responsibilities
which are other than those normally associated with the
employee's position, a material reduction in the employee's
authority and responsibility, and the failure to elect
or re-elect the employee to the Board of Directors, if he has
served on the Board during the term of the applicable agreement
or plan.
With the exception of the Retirement Plan, the cost of
which is funded through payments by the Bank, the cost of all of
the director retirement and deferred compensation plans
described above is funded through deferral of compensation or
Board of Director fees otherwise payable to the beneficiary
under the plan or agreement. The deferred amounts are then used
to purchase insurance, and dividends on such insurance in turn
are utilized to purchase additional insurance, which will
provide the funds necessary to meet the Bank's obligations under
the plans and agreements when such obligations become due. The
Board of Directors periodically reviews its insurance coverage
to ensure that the coverage is adequate to reimburse the Bank
for its anticipated expenses under the plans and agreements. If
the insurance coverage is found to be inadequate as to a covered
director, the Board of Directors may require the director to
defer additional sums to reimburse the Bank for the purchase of
additional insurance or may reduce the retirement benefit.
Under the director retirement and deferred compensation
plans, directors are considered general creditors of the Bank
with respect to retirement benefits and will receive such
benefits only if the Bank continues to be solvent or, if the
Bank is insolvent, only to the extent funds remain following
full payment to priority creditors such as depositors and
secured creditors.
13<PAGE>
<PAGE>
TRANSACTIONS WITH MANAGEMENT
The Bank offers loans to its directors and executive
officers. At September 30, 1997, the Bank's loans to directors
and executive officers totaled $1.1 million, or 1.9% of the
Company's stockholders' equity at that date. All loans to the
Company's and the Bank's directors and executive officers and
members of their immediate families and corporations or
organizations of which a director or executive officer is an
executive officer, partner or 10% owner were made in the
ordinary course of business on the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and do not
involve more than the normal risk of collectibility or present
other unfavorable features.
________________________________________________________________
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
________________________________________________________________
Coopers & Lybrand L.L.P., which was the Company's
independent auditors for the 1997 fiscal year, has been retained
by the Board of Directors to be the Company's auditors for the
1998 fiscal year. A representative of Coopers & Lybrand L.L.P.
is expected to be present at the Annual Meeting and will have
the opportunity to make a statement if he or she so desires. The
representative will also be available to answer appropriate
questions.
________________________________________________________________
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
________________________________________________________________
Pursuant to regulations promulgated under the Exchange Act,
the Company's officers and directors and all persons who own
more than ten percent of the Common Stock ("Reporting Persons")
are required to file reports detailing their ownership and
changes of ownership in the Common Stock and to furnish the
Company with copies of all such ownership reports that are
filed. Based solely on the Company's review of the copies of
such ownership reports which it has received in the past fiscal
year or with respect to the past fiscal year, or written
representations that no annual report of changes in beneficial
ownership were required, the Company believes that during fiscal
year 1997 all Reporting Persons have complied with these
reporting requirements.
________________________________________________________________
OTHER MATTERS
________________________________________________________________
The Board of Directors is not aware of any business to come
before the Annual Meeting other than those matters described
above in this proxy statement and matters incident to the
conduct of the Annual Meeting. However, if any other matters
should properly come before the Annual Meeting, it is intended
that proxies in the accompanying form will be voted in respect
thereof in accordance with the determination of a majority of
the Board of Directors.
________________________________________________________________
MISCELLANEOUS
________________________________________________________________
The cost of soliciting proxies will be borne by the
Company. The Company will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to the beneficial
owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may
solicit proxies personally or by telegraph or telephone without
additional compensation therefor.
The Company's 1997 Annual Report to Stockholders, including
financial statements, is being mailed to all stockholders of
record as of the close of business on the Record Date. Any
stockholder who has not received a copy of such Annual Report
may obtain a copy by writing to the Secretary of the Company.
Such Annual Report is not to be treated as a part of the proxy
solicitation material or as having been incorporated herein by
reference.
14<PAGE>
<PAGE>
________________________________________________________________
STOCKHOLDER PROPOSALS
________________________________________________________________
In order to be eligible for inclusion in the proxy
materials of the Company for the Annual Meeting of Stockholders
for the year ending September 30, 1998, any stockholder proposal
to take action at such meeting must be received at the Company's
executive offices at 1311 Carolina Avenue, Washington, North
Carolina 27889 by no later than September 14, 1998. Any such
proposals shall be subject to the requirements of the proxy
rules adopted under the Securities Exchange Act of 1934, as
amended.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William L. Wall
William L. Wall
Secretary
January 12, 1998
Washington, North Carolina
________________________________________________________________
ANNUAL REPORT ON FORM 10-K
________________________________________________________________
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1997 AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT
CHARGE TO EACH STOCKHOLDER AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO CORPORATE SECRETARY, NEWSOUTH BANCORP, INC., 1311
CAROLINA AVENUE, WASHINGTON, NORTH CAROLINA 27889.
15<PAGE>
<PAGE>
REVOCABLE PROXY
NEWSOUTH BANCORP, INC.
WASHINGTON, NORTH CAROLINA
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 12, 1998
The undersigned hereby appoints Frederick H. Howdy, Edmund
T. Buckman, Jr. and Fred N. Holscher with full powers of
substitution, to act as attorneys and proxies for the
undersigned, to vote all shares of the common stock of NewSouth
Bancorp, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Stockholders, to be held at the main office of
NewSouth Bank (the "Bank") located at 1311 Carolina Avenue,
Washington, North Carolina, on Thursday, February 12, 1998, at
10:00 a.m. (the "Annual Meeting"), and at any and all
adjournments thereof, as follows:
<TABLE>
<CAPTION>
VOTE FOR ALL
FOR WITHHELD EXCEPT
--- -------- -------
<S> <C> <C> <C>
1. The election as directors of both
nominees listed(except as marked
to the contrary below). [ ] [ ] [ ]
Linley H. Gibbs, Jr.
Thomas A. Vann
INSTRUCTION: TO WITHHOLD YOUR VOTE
FOR ANY INDIVIDUAL NOMINEE, MARK "FOR
ALL EXCEPT" AND WRITE THAT NOMINEE'S
NAME IN THE SPACE PROVIDED BELOW.
________________________________
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED
PROPOSITION.
________________________________________________________________
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED.
IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING,
INCLUDING MATTERS RELATING TO THE CONDUCT OF THE ANNUAL MEETING,
THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN
ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF
DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF
NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.
________________________________________________________________
<PAGE>
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the
Annual Meeting or at any adjournment thereof, then the power of
said attorneys and prior proxies shall be deemed terminated and
of no further force and effect. The undersigned may also revoke
his proxy by filing a subsequent proxy or notifying the
Secretary of his decision to terminate his proxy.
The undersigned acknowledges receipt from the Company prior
to the execution of this proxy of a Notice of Annual Meeting and
a Proxy Statement dated January 12, 1998.
Dated: _______________________, 1998
__________________________ __________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
__________________________ __________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the enclosed
card. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title. Corporation
proxies should be signed in corporate name by an authorized
officer. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
