<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission Number: 0-23751
SOUTHBANC SHARES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-2361245
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
907 N. Main Street, Anderson, South Carolina 29621-5526
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 225-0241
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share
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(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _____
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Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained herein, and will not be
contained, to the best of registrant's knowledge, in any definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of December 1, 1999, there were issued and outstanding 3,125,288 shares
of the Registrant's Common Stock. The registrant's voting stock is traded over-
the-counter and is listed on the Nasdaq National Market under the symbol "SBAN."
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing sales price of the Registrant's common stock as
quoted on the Nasdaq National Market on December 1, 1999 of $21.50, was
approximately $67.2 million. For the purposes of this calculation, officers and
directors of the registrant are considered nonaffiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
September 30, 1999 ("Annual Report") (Parts I and II).
2. Portions of Definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders (Part III).
<PAGE>
This report contains certain "forward-looking statements" concerning the
future operations of SouthBanc Shares Inc. Forward-looking statements are used
to describe future plans and strategies, including expectations of future
financial results. Management's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could affect
actual results include interest rate trends, the general economic climate in the
market area in which SouthBanc Shares Inc. operates, as well as nationwide,
SouthBanc Shares Inc.'s ability to control costs and expenses, competitive
products and pricing, loan delinquency rates, changes in federal and state
legislation and regulation, and the impact of Year 2000 issues. These factors
should be considered in evaluating the forward-looking statements and undue
reliance should not be placed on such statements. SouthBanc Shares, Inc.
assumes no obligation to update any forward-looking statements.
Part I
Item 1. Business
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General
SouthBanc Shares, Inc. ("Company" or "SouthBanc Shares"), a Delaware
corporation, was organized on November 6, 1997 for the purpose of becoming the
holding company for Perpetual Bank, A Federal Savings Bank ("Bank") upon the
Bank's reorganization as a wholly owned subsidiary of the Company resulting from
the conversion of SouthBanc Shares, M.H.C., Anderson, South Carolina, from a
federal mutual holding company to a stock holding company ("Conversion and
Reorganization"). The Conversion and Reorganization was completed on April 14,
1998. In connection with the Conversion and Reorganization, the Company issued
2,281,312 shares of its common stock at $20.00 per share and each share of
common stock of the Bank issued and outstanding and held by persons other than
the SouthBanc Shares, M.H.C., Anderson, South Carolina ("Savings Bank Public
Stockholders") were exchanged for 2.85164 shares of common stock of the Company
(with cash issued in lieu of fractional shares at the rate of $20.00 per share).
The Company has not engaged in any significant activity other than holding the
stock of the Bank. Accordingly, the information set forth in this report,
including financial statement and related data, relates primarily to the Bank.
The Bank is primarily engaged in the business of attracting deposits from
the general public and originating mortgage loans, which are secured by one- to
four-family residential properties, or investing in mortgage-backed securities.
To a lesser extent, the Bank originates loans secured by commercial real estate
as well as commercial business and consumer loans. The Bank's savings accounts
are insured up to the applicable limits by the Federal Deposit Insurance
Corporation through the Savings Association Insurance Fund. The Bank is a
member of the Federal Home Loan Bank System. The Bank conducts its operations
through its main office and four branch offices located in Anderson.
Market Area
The Bank considers Anderson and Oconee Counties, South Carolina, as its
primary market area. Additional loan origination demand is generated from
customers living in contiguous counties. The Bank also purchases loans secured
by properties in South Carolina located outside its primary market area.
Anderson County is included in the Greenville/Spartanburg metropolitan
statistical area. The Cities of Greenville and Spartanburg are located 30 and
60 miles northeast of Anderson, respectively, and Atlanta, the closest major
city, is 120 miles to the southwest. Much of Anderson County is rural and
roughly half of the land area is used for agricultural purposes. Anderson
County has benefitted from the growth of the Greenville metropolitan area and is
experiencing significant residential and commercial development along Interstate
85, a major transportation route that crosses through Anderson County. Major
area employers include BMW Manufacturing Corp., Hoechst Celenese Corporation,
Owens Corning and Michelin Tire. Oconee is a smaller but rapidly growing county
located west of Anderson County.
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Lending Activities
General. Historically, the Bank's principal lending activity has been the
origination of residential real estate loans for the purpose of constructing or
financing one- to four-family residential properties. The Bank also invests in
commercial real estate loans, commercial business loans and construction loans.
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Loan Portfolio Analysis. The following table sets forth the composition of
the Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
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1999 1998 1997
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Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family (1)........................... $143,526 56.18% $131,117 59.63% $118,279 66.16%
Multi-family...................................... 1,909 0.75 1,290 0.59 1,245 0.70
Commercial real estate............................ 46,198 18.08 33,779 15.36 26,976 15.09
Construction...................................... 41,141 16.10 33,747 15.35 17,145 9.59
-------- ------ -------- ------ -------- ------
Total mortgage loans.......................... 232,774 91.11 199,933 90.93 163,645 91.54
-------- ------ -------- ------ -------- ------
Commercial business loans............................ 15,441 6.04 11,155 5.06 7,182 4.02
Consumer loans:
Home equity and second mortgage................... 1,454 0.57 2,122 0.97 3,405 1.90
Lines of credit................................... 12,943 5.07 11,538 5.25 9,156 5.12
Automobile loans.................................. 4,907 1.92 5,366 2.44 3,540 1.98
Other............................................. 4,220 1.65 3,815 1.73 3,072 1.72
-------- ------ -------- ------ -------- ------
Total consumer loans........................... 23,524 9.21 22,841 10.39 19,173 10.72
-------- ------ -------- ------ -------- ------
Total loans.................................... 271,739 106.36 233,929 106.38 190,000 106.28
Less:
Undisbursed proceeds for loans in process......... 13,316 (5.21) 11,886 (5.18) 8,985 (5.03)
Unearned discounts................................ 317 (0.12) 273 (0.12) 357 --
Allowance for loan losses......................... 2,618 (1.03) 2,374 (1.08) 1,886 (1.05)
-------- ------ -------- ------ -------- ------
Net loans receivable........................... $255,488 100.00% $219,896 100.00% $178,772 100.00%
======== ====== ======== ====== ======== ======
<CAPTION>
-------------------------------------------
1996 1995
------------------- -------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family (1)..................... $ 91,186 64.78% $ 81,226 69.70%
Multi-family................................ 1,010 0.72 630 0.54
Commercial real estate...................... 17,009 12.08 7,355 6.31
Construction................................ 19,509 13.86 11,523 9.89
-------- ------ -------- ------
Total mortgage loans.................... 128,714 91.44 100,734 86.44
-------- ------ -------- ------
Commercial business loans...................... 5,529 3.93 3,657 3.13
Consumer loans:
Home equity and second mortgage............. 5,036 3.58 7,535 6.47
Lines of credit............................. 6,713 4.77 6,279 5.39
Automobile loans............................ 2,677 1.90 1,438 1.23
Other....................................... 2,490 1.77 2,293 1.97
-------- ------ -------- ------
Total consumer loans..................... 16,916 12.02 17,545 15.06
-------- ------ -------- ------
Total loans.............................. 151,159 107.39 121,936 104.63
Less:
Undisbursed proceeds for loans in process... 8,866 (6.30) 4,119 (3.53)
Unearned discounts.......................... -- -- -- --
Allowance for loan losses................... 1,535 (1.09) 1,278 (1.10)
-------- ------ -------- ------
Net loans receivable..................... $140,758 100.00% $116,539 100.00%
======== ====== ======== ======
</TABLE>
__________________________
(1) Includes construction loans converted to permanent loans and participation
loans.
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<PAGE>
One- to Four-Family and Multi-Family Mortgage Loans. The Bank originates
permanent conventional mortgage loans secured by one- to four-family residential
properties with original loan-to-value ratios up to 90% of the appraised value
or the purchase price of the property, whichever is less. At September 30,
1999, the Bank had $143.5 million, or 56.18% of total loans, in one- to four-
family mortgage loans. The Bank requires hazard insurance on the property
securing the loan. All one- to four-family mortgage loans require a title
examination or abstract of title. Title insurance is required on all fixed-rate
mortgage loans so that they may be sold in the secondary market. One- to four-
family mortgage loans are generally underwritten to conform to Federal Home Loan
Mortgage Corporation guidelines. Loan to value ratios are limited to 80% but
may be increased to 95%, provided that private mortgage insurance coverage is
obtained for amounts over 80%.
The Bank offers both fixed-rate mortgages and adjustable rate mortgage
loans with terms of 15 to 30 years. At September 30, 1999, adjustable rate
mortgage loans totaled $75.9 million, or 52.9% of the one- to four-family loan
portfolio. Borrower demand for adjustable rate mortgages versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the difference between the interest
rates and loan fees for fixed-rate mortgage loans and interest rates and loan
fees for adjustable rate mortgages. Fixed-rate loans are originated for sale in
the secondary market, though loans with terms of 15 years occasionally are
retained in the Bank's portfolio. The relative amount of fixed-rate and
Adjustable rate mortgage loans that can be originated at any time is largely
determined by the demand for each in the prevailing competitive environment.
The Bank has purchased one- to four-family mortgage loans from a mortgage
banking company located in Hilton Head Island, South Carolina, and a mortgage
banking company located in Greenville, South Carolina. These purchases account
for a substantial portion of the growth in the one- to four-family loan
portfolio in recent periods. During the year ended September 30, 1999, the Bank
purchased $16.5 million of one- to four-family mortgage loans. Substantially
all of these purchases were from the Greenville mortgage company. In future
periods, the Bank expects that a substantial portion of purchased loan volume
will come from that company, rather than the Hilton Head Island mortgage
company, because of the increasing competition in the Hilton Head Island market.
At September 30, 1999, the Bank had $2.1 million of purchased loans secured
by residential properties on Hilton Head Island, South Carolina, all of which
were one-year adjustable rate mortgage loans. These loans were all purchased
from the same mortgage company, located on Hilton Head Island. Prior to
purchase, the Bank reviews each loan for conformance to the Bank's underwriting
criteria. At September 30, 1999, the largest loan had an outstanding balance of
$655,000. Although all such loans were performing according to their terms at
September 30, 1999, they do possess certain risks due to the average size of
such loans and the location of the properties outside the Bank's primary market
area.
At September 30, 1999, the Bank had $40.9 million of purchased one- to
four-family mortgage loans secured by residential properties located primarily
in Greenville, South Carolina. These loans were all purchased from the mortgage
company in which a service corporation subsidiary of the Bank has an equity
investment. See "-- Subsidiary Activities." Prior to purchase, the Bank
reviews each loan for conformity with the Bank's underwriting criteria. Subject
to market conditions, the Bank expects to purchase additional such loans.
The Bank does not actively solicit multi-family loans but extends them as
an accommodation to existing customers. At September 30, 1999, multi-family
loans totaled $1.9 million, or 0.75% of net loans receivable, and consisted of 7
loans, the largest of which had an outstanding balance of $1.1 million. All
such loans are secured by properties located in the Bank's primary market area.
At September 30, 1999, all multi-family loans were performing according to their
terms.
Construction Loans. The construction loan portfolio was $41.1 million, or
16.10% of the total loan portfolio at September 30, 1999. The Bank intends to
continue emphasizing and expanding this type of lending. Such loans are
primarily combined construction and permanent mortgage loans. The construction
portion of the loan is for a period of up to 12 months on an interest only basis
and at a maximum loan to value ratio of 95%. The permanent mortgage is made for
up to 30 years. Construction-permanent loans are made at the same fixed- or
adjustable-rates of interest that
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<PAGE>
are offered for permanent residential mortgage loans made by the Bank. The
majority of construction loans are made against binding sales contracts for the
home being built. The Bank also originates speculative construction loans to a
small number of residential builders in its primary market area well known to
the Bank. At September 30, 1999, the Bank had $41.1 million, or 16.10% of total
loans, in construction loans, of which $12.6 million were speculative
construction loans.
Construction lending generally is considered to involve a higher degree of
credit risk than long-term financing of residential properties. The risk of
loss on a construction loan depends largely upon the accuracy of the initial
estimate of the property's value at completion of construction or development
and the estimated cost (including interest) of construction. If the estimate of
construction cost and the marketability of the property upon completion of the
project prove to be inaccurate, the Bank may be compelled to advance additional
funds to complete the development. If the borrower is unable to sell the
completed project in a timely manner or obtain adequate proceeds to repay the
loan, the loan may become non-performing. Furthermore, if the estimate of value
proves to be inaccurate, the Bank may be confronted with, at or prior to the
maturity of the loan, a project with a value which is insufficient to assure
full repayment. The ability of the developer or builder to sell developed lots
or completed dwelling units will depend on, among other things, demand, pricing
and availability of comparable properties, and economic conditions.
The Bank's underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, the Bank considers
evidence of the availability of permanent financing for the borrower, the
reputation of the borrower, the amount of the borrower's equity in the project,
the independent appraisal and review of cost estimates, the pre-construction
sale and leasing information, and the cash flow projections of the borrower. In
addition, except for the purchased construction loans on Hilton Head Island,
South Carolina, the majority of the construction loans granted by the Bank are
secured by property in the Bank's primary market area. The Bank reviews such
purchased construction loans for conformity with the Bank's underwriting
criteria before purchase.
Commercial Real Estate Loans. The Bank originates and purchases commercial
real estate loans. Commercial real estate loans totaled $46.2 million, or
18.08% of the total loan portfolio, at September 30, 1999. Currently, the Bank
originates commercial real estate loans only to select borrowers known to the
Bank and secured by properties in its primary market area and generally in
amounts between $100,000 and $500,000. At September 30, 1999, the largest
commercial real estate loan originated by the Bank had an outstanding balance of
$1.5 million and was secured by a church. The loan was performing according to
its terms at that date. At September 30, 1999, the largest purchased commercial
real estate loan had an outstanding balance of $1.5 million and was secured by a
commercial real estate located in Beaufort, South Carolina. The loan was
performing according to its terms at that date.
Of primary concern in commercial real estate lending is the borrower's
creditworthiness and the feasibility and cash flow potential of the project.
The Bank's income property collateral is not concentrated in any one industry or
area. Examples of the types of collateral securing the income property loans
include office buildings and residential rental properties. Loans secured by
income properties are generally larger and involve greater risks than
residential mortgage loans because payments on loans secured by income
properties are often dependent on successful operation or management of the
properties. As a result, repayment of such loans may be subject, to a greater
extent than residential real estate loans, to supply and demand in the market in
the type of property securing the loan and, therefore, may be subject to adverse
conditions in the real estate market or the economy. If the cash flow from the
project is reduced, the borrowers ability to repay the loan may be impaired.
Commercial Business Loans. At September 30, 1999, the Bank had $15.4
million of commercial business loans, which represented 6.04% of total loans.
Commercial business loans generally include equipment loans with terms of up to
five years and lines of credit secured by savings accounts and unsecured line of
credit. Such loans are generally made in amounts up to $100,000 and carry
adjustable rates of interest. The Bank generally requires annual financial
statements from its commercial business borrowers and personal guarantees if the
borrower is a corporation. At September 30, 1999, the largest outstanding
commercial business loan was a $3.5 million line of credit that was secured by
residential mortgage loans. At September 30, 1999, there was an outstanding
balance of $500,000 on the line of credit.
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<PAGE>
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
are often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation of collateral in the event of a borrower
default is often not a sufficient source of repayment because accounts
receivable may be uncollectible and inventories and equipment may be obsolete or
of limited use, among other things. Accordingly, the repayment of a commercial
business loan depends primarily on the creditworthiness of the borrower (and any
guarantors), while liquidation of collateral is a secondary and often
insufficient source of repayment.
Consumer Loans. The Bank originates a wide variety of consumer loans,
which are made primarily on a secured basis to existing customers. Consumer
loans include savings account loans, direct automobile loans, direct boat loans,
renewable lines of credit and unsecured loans. These loans are made at both
fixed- and variable-rates of interest, adjustable annually, and with varying
terms depending on the type of loan. In addition, the Bank offers unsecured
consumer loans. Consumer loans totaled $23.5 million at September 30, 1999, or
9.21% of the Bank's total loan portfolio.
At September 30, 1999, the largest components of the consumer loan
portfolio were home equity and second mortgage loans and lines of credit. At
September 30, 1999, such loans totaled $14.2 million, or 5.56% of the total loan
portfolio. At September 30, 1999, commitments to extend credit under lines of
credit totaled $18.9 million.
Home equity and second mortgage loans are generally for the improvement of
residential properties. The majority of these loans are made to existing loan
customers and are secured by a first or second mortgage on residential property.
The Bank actively solicits these types of loans by contacting their borrowing
customers directly. The loan-to-value ratio on these properties is typically
below 80%, including the first mortgage and home equity or second mortgage loan.
Home equity and second mortgage loans are typically variable rate loans with a
fixed payment that matures over 15 years. Rates adjust monthly; however, the
payment remains constant over the loan term and any rate adjustment is reflected
in an increase in the loan term. The interest rate is tied to the prime lending
rate.
Lines of credit are generally secured by a second mortgage on residential
property and are generally made to existing customers. Credit lines are
generally 80% of the appraised value of the collateral property. Terms range
from five to 15 years and the interest rate is generally tied to the prime
lending rate.
The Bank views consumer lending as an important component of its business
operations because consumer loans generally have shorter-terms and higher
yields, thus reducing exposure to changes in interest rates. In addition, the
Bank believes that offering consumer loans helps to expand and create stronger
ties to its customer base. The Bank intends to continue emphasizing this type
of lending.
The Bank employs strict underwriting standards for consumer loans. These
procedures include an assessment of the applicant's payment history on other
debts and ability to meet existing obligations and payments on the proposed
loans. Although the applicant's creditworthiness is a primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, to the proposed loan amount. The Bank underwrites and
originates all of its consumer loans internally, which management believes
limits exposure to credit risks relating to loans underwritten or purchased from
brokers or other outside sources.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
assets that depreciate rapidly, such as automobiles. In the latter case,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the
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application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Such loans may also give rise to claims and defenses by the
borrower against the Bank as the holder of the loan, and a borrower may be able
to assert claims and defenses which it has against the seller of the underlying
collateral.
Loan Maturity. The following table sets forth certain information at
September 30, 1999 regarding the dollar amount of loans maturing in the Bank's
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Loan balances do not include unearned
discounts, unearned income and allowance for loan losses.
<TABLE>
<CAPTION>
One Year After 3 Years After 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
----------- --------- ------------- -------------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage (1).............. $ 2,068 $10,200 $10,446 $13,255 $107,556 $143,525
Commercial real estate................ 15,494 7,479 17,538 3,403 4,193 48,107
Commercial business................... 6,735 3,235 4,314 1,157 -- 15,441
Construction.......................... 17,026 10,800 -- -- -- 27,826
Automobile............................ 262 2,233 2,361 54 -- 4,910
Savings account loans................. 948 173 91 144 -- 1,356
Other................................. 13,620 2,044 511 898 185 17,258
------- ------- ------- ------- -------- --------
Total loans..................... $56,153 $36,164 $35,261 $18,911 $111,934 $258,423
======= ======= ======= ======= ======== ========
</TABLE>
________________
(1) Includes one- to four-family and multi-family loans.
The following table sets forth the dollar amount of all loans due after
September 30, 2000, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Adjustable
Rates Rates
------------- -------------
(In thousands)
<S> <C> <C>
Residential mortgage (1).................... $ 65,575 $75,882
Commercial real estate...................... 30,208 2,405
Commercial business......................... 6,738 1,968
Construction................................ 7,392 3,408
Automobile.................................. 4,648 --
Savings account loans....................... 408 --
Other....................................... 2,334 1,304
-------- -------
Total loans........................... $117,303 $84,967
======== =======
</TABLE>
________________
(1) Includes one- to four-family and multi-family loans.
Loan Soliciting and Processing. Loan originations come from a number of
sources. The Bank's customary sources of loans are from realtors, walk-in
customers, referrals and existing customers. A formal business development
program has been implemented where loan officers and sales personnel make
regular sales calls on building contractors and realtors.
The Banks' Loan Committee approves loan applications up to and including
$500,000. Loan applications in excess of $500,000 must be approved by the full
Board of Directors.
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<PAGE>
Loan Purchases and Sales and Servicing. The Bank is an active purchaser of
loans. The Bank purchases one- to four-family, commercial real estate and
construction loans from a mortgage company in which a service corporation
subsidiary of the Bank has an equity investment. Furthermore, the Bank
purchases periodically participation interests in permanent real estate loans
and construction loans. Any participation interest purchased must meet the
Bank's own underwriting standards. The Bank purchases loans from institutions
in the State of South Carolina.
The Bank periodically sells one- to four-family mortgage loans to the
Federal Home Loan Mortgage Corporation in order to comply with the regulations
limiting the amount of loans to one borrower or to reduce the amount of fixed-
rate loans in the Bank's portfolio. The Bank generally sells all fixed-rate, 30-
year residential mortgage loans.
The Bank participates in loan servicing activities both directly and
indirectly. Direct servicing activities arise in connection with loans that the
Bank originates but sells with servicing rights retained. The Bank generally
receives a fee payable monthly of 1/4% to 3/8% per annum of the unpaid balance
of each loan for which it retains servicing rights. At September 30, 1999, the
Bank was servicing loans for others aggregating $60.0 million. During the year
ended September 30, 1999, the Bank earned servicing fee income of $193,000.
The Bank participates indirectly in loan servicing activities through its
equity investment, through a service corporation subsidiary, in a mortgage
banking company (see "-- Subsidiary Activities") and through an investment in a
limited partnership. At September 30, 1999, the mortgage banking company was
servicing 980 loans for others aggregating $134.0 million.
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The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Total loans at beginning of period.......................... $219,896 $190,000 $151,159
-------- -------- --------
Loans originated:
One- to four-family....................................... 28,977 50,582 18,783
Multi-family.............................................. -- 119 240
Commercial real estate.................................... 16,367 12,604 11,912
Construction loans........................................ 14,548 17,140 10,934
Commercial business....................................... 16,846 7,481 10,731
Consumer.................................................. 16,789 20,134 24,739
-------- -------- --------
Total loans originated................................... 93,527 108,060 77,339
-------- -------- --------
Loans purchased:
One- to four-family....................................... 30,518 47,829 23,581
Commercial real estate.................................... 106 6,226 3,146
-------- -------- --------
Total loans purchased.................................... 30,624 54,055 26,727
-------- -------- --------
Loans sold:
Total whole loans sold..................................... (7,477) (33,684) (5,747)
-------- -------- --------
Total loans sold.......................................... (7,477) (33,684) (5,747)
Mortgage loan principal repayments.......................... (64,831) (98,535) (59,478)
Net loan activity........................................... 51,843 29,896 38,841
-------- -------- --------
Total loans at end of period................................ $271,739 $219,896 $190,000
======== ======== ========
</TABLE>
Equity Investment in Limited Partnership. In December 1996, the Bank
purchased for approximately $5.0 million a 20.625% equity interest in a limited
partnership that invests in mortgage servicing rights. Through this limited
partnership, the Bank invests in servicing rights tied to a national portfolio
of residential mortgage loans. The value of the Bank's investment in the limited
partnership would be adversely affected by credit quality deterioration of the
underlying mortgage loans. The value of the investment would also be adversely
affected by a change in market interest rates. Under either circumstance, the
Bank may be required to accelerate its amortization of this investment, or even
write-off the full value of the investment in a given period, which would have a
material adverse effect on the Bank. See Note 3 of Notes to Consolidated
Financial Statements.
Loan Commitments. The Bank issues commitments for fixed- and adjustable-
rate single-family residential mortgage loans conditioned upon the occurrence of
certain events. Such commitments are made in writing on specified terms and
conditions and are honored for up to 30 days from approval, depending on the
type of transaction. The Bank had outstanding loan commitments (including
commitments to fund letters of credit) of approximately $53.9 million at
September 30, 1999. See Note 18 of Notes to Consolidated Financial Statements.
Loan Origination and Other Fees. The Bank, in most instances, receives loan
origination fees and discount "points." Loan fees and points are a percentage of
the principal amount of the mortgage loan that are charged to the borrower for
funding the loan. The Bank usually charges origination fees of 0.5% to 1.0% on
one- to four-family residential real estate loans and 1.0% to 2.0% on long-term
commercial real estate loans. Current accounting standards require fees received
for originating loans to be deferred and amortized into interest income over the
contractual life of the loan. Deferred fees associated with loans that are sold
are recognized as income at the time of sale.
-9-
<PAGE>
The Bank offsets all loan origination fees and certain related direct loan
origination costs against all fees and costs associated with loan origination.
The resulting net amount is deferred and amortized over the contractual life of
the related loans as an adjustment to the yield on such loans, unless
prepayments of a large group of similar loans are probable and the timing and
amount of prepayments can be reasonably estimated. The Bank offsets commitment
fees against related direct costs and the resulting net amount is recognized
over the contractual life of the related loans as an adjustment of yield if the
commitment is exercised. If the commitment expires unexercised, the fees
collected are recognized as non-interest income upon expiration of the
commitment.
Delinquencies. The Bank's collection procedures provide for a series of
contacts with delinquent borrowers. After a delinquency of 15 days, a late
charge is assessed. If the delinquency continues, subsequent efforts will be
made to contact the delinquent borrower. The Bank's collection procedures
provide that when a loan is 30 days overdue, and again on the 45th day, the
borrower will be contacted by mail and payment will be requested. If a loan
continues in a delinquent status for 90 days or more, the Bank generally
initiates foreclosure proceedings. In certain instances, however, the Board may
decide to modify the loan or grant a limited moratorium on loan payments to
enable the borrower to reorganize his financial affairs.
The following table sets forth information with respect to the Bank's non-
performing assets for the periods indicated. During the periods shown, the Bank
had no restructured loans within the meaning of Statement of Financial
Accounting Standards ("SFAS") No. 15.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage............................................. $2,145 $ 948 $ 220 $ 190 $ 348
Consumer............................................. 86 21 -- -- 124
Commercial........................................... 126 206 183 126 --
------ ------ ------ ------ ------
2,357 1,175 403 316 472
------ ------ ------ ------ ------
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Residential....................................... -- -- 6 467 82
Consumer............................................. -- -- 8 2 9
Commercial........................................... -- -- 465 10 --
------ ------ ------ ------ ------
-- -- 479 479 91
------ ------ ------ ------ ------
Total of non-accrual and
past due 90 days or more............................. 2,357 1,175 882 795 563
------ ------ ------ ------ ------
Real estate owned, net.................................. 230 89 163 3 32
------ ------ ------ ------ ------
total nonperforming assets.............................. $2,587 $1,264 $1,045 $ 798 $ 595
====== ====== ====== ====== =======
Total loans delinquent 90 days
or more to net loans................................. 0.92% 0.53% 0.49% 0.56% 0.48%
Total loans delinquent 90 days
or more to total assets.............................. 0.63% 0.32% 0.34% 0.38% 0.32%
Total nonperforming assets to
total assets......................................... 0.70% 0.35% 0.41% 0.38% 0.33%
</TABLE>
At September 30, 1999, non-accrual mortgage loans consisted of one
speculative residential construction loan with an aggregate outstanding balance
of $88,000, 15 single-family residential mortgage loans with an aggregate
outstanding balance of $1.2 million, and three commercial real estate mortgage
loans with an aggregate outstanding balance of $873,000. All 19 properties are
located in the Bank's primary market area. Non-accrual consumer loans consisted
of two home improvements loans with an aggregate outstanding balance of $12,000,
one automobile loan with an outstanding balance of $12,000, and three lines of
credit loans with an aggregate outstanding balance of $62,000.
-10-
<PAGE>
Non-accrual commercial loans consisted of one equipment loan with a balance of
$37,000 and one equipment lease with a balance of $89,000.
The Bank does not accrue interest loans, including impaired loans under
SFAS No. 114, for which management deems the collection of additional interest
to be doubtful. If interest on these non-accrual loans had been accrued,
interest income of approximately $209,000 would have been recorded for the year
ended September 30, 1999.
Asset Classification. Office of Thrift Supervision regulations require that
each insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, Office of
Thrift Supervision examiners have authority to identify problem assets and, if
appropriate, require them to be classified. There are three classifications for
problem assets: substandard, doubtful and loss. "Substandard" assets must have
one or more defined weaknesses and are characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. "Doubtful" assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified
"loss" is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted. The regulations have also created
a "special mention" category, described as assets which do not currently expose
an insured institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution must either
establish specific allowances for loan losses in the amount of 100% of the
portion of the asset classified loss or charge-off such amount. A portion of
general loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital.
The aggregate amounts of the Bank's classified assets and of the Bank's
general and specific loss allowances and charge-offs for the period then ended,
were as follows:
<TABLE>
<CAPTION>
At or For the Year Ended
September 30,
----------------------------
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Loss.............................. $ 30 $ 56 $ 140
Doubtful.......................... 12 50 8
Substandard assets................ 2,419 1,254 1,227
Special mention................... -- -- 58
------ ------ ------
$2,461 $1,360 $1,433
====== ====== ======
General loss allowances........... $2,588 $2,318 $1,746
Specific loss allowances.......... 30 56 140
Net charge-offs................... 237 119 304
</TABLE>
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed-in- lieu of foreclosure is classified as real estate
owned until it is sold. When property is acquired it is recorded at the fair
value of the property received. Subsequently, it is carried at the lower of its
new cost basis or fair value, less estimated selling costs. The Bank had
$230,000 of real estate owned at September 30, 1999.
Allowance for Loan Losses. The Bank's management evaluates the need to
establish allowances against losses on loans each year based on estimated losses
on specific loans when a decline in value has occurred. Such evaluation includes
a review of all loans for which full collectibility may not be reasonably
assured and considers, among other
-11-
<PAGE>
matters, the estimated market value of the underlying collateral of problem
loans, prior loss experience, economic conditions and overall portfolio quality.
At September 30, 1999, the Bank had an allowance for loan losses of $2.6
million, or 1.01% of total loans. Based on past experience and future
expectations, management believes that the allowance for loan losses is adequate
at September 30, 1999.
While the Bank believes it has established its existing allowance for loan
losses in accordance with generally accepted accounting principles ("GAAP"), the
allowance is based on estimates which are subject to change based upon changes
in the loan portfolio and economic conditions, among other things. Furthermore,
there can be no assurance that the Bank's regulators, in reviewing the Bank's
loan portfolio, will not request that the Bank increase its allowance for loan
losses, thereby negatively affecting the Bank's financial condition and earnings
based upon information available to the regulators at the time of their
examination.
The following table sets forth an analysis of the Bank's gross allowance
for possible loan losses for the periods indicated. Where specific loan loss
reserves have been established, any difference between the loss reserve and the
amount of loss realized has been charged or credited to current income.
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period............... $2,374 $1,886 $1,535 $1,278 $ 962
------ ------ ------ ------ ------
Provision for loan losses...................... 481 607 655 349 362
Recoveries:
Residential mortgage........................ -- -- 4 6 --
Consumer.................................... 23 20 24 17 6
Commercial.................................. 15 35 -- -- --
------ ------ ------ ------ ------
Total recoveries......................... 38 55 28 23 6
------ ------ ------ ------ ------
Charge-offs:
Residential mortgage........................ -- -- 4 18 --
Consumer.................................... 131 83 100 97 52
Commercial.................................. 144 91 228 -- --
------ ------ ------ ------ ------
Total charge-offs........................ 275 174 332 115 52
------ ------ ------ ------ ------
Net charge-offs.......................... 237 119 304 92 46
------ ------ ------ ------ ------
Allowance at end of period..................... $2,618 $2,374 $1,886 $1,535 $1,278
====== ====== ====== ====== ======
Ratio of allowance to total loans
outstanding at the end of the period........ 1.01% 1.07% 1.04% 1.08% 1.08%
Ratio of net charge-offs to average
loans outstanding during the period......... 0.10% 0.06% 0.18% 0.07% 0.04%
</TABLE>
-12-
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------- -----------------------------
As a % % of As a % % of As a % % of
Of Out- Loans in Of Out- Loans in Of Out- Loans in
Standing Category Standing Category Standing Category
Loans in to Total Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans Amount Category Loans
------ -------- ------- ------ -------- --------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage........ $ 976 0.52% 68% $ 851 0.50% 70% $ 766 0.60% 70%
Commercial real estate
and commercial business.... 1,085 1.76 23 953 2.12 20 737 2.16 19
Consumer.................... 557 2.37 9 570 2.50 10 383 2.00 11
------ ---- --- ------ ---- --- ------ ---- ---
Total allowance for
loan losses....... $2,618 1.01% 100% $2,374 1.07% 100% $1,886 1.04% 100%
====== ==== === ====== ==== === ====== ==== ===
<CAPTION>
-----------------------------------------------------------------
1996 1995
------------------------------ -----------------------------
As a % % of As a % % of
Of Out- Loans in Of Out- Loans in
Standing Category Standing Category
Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans
------ -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage.......... $ 726 0.71% 72% $ 573 0.57% 83%
Commercial real estate
and commercial business...... 465 2.06 16 297 8.12 3
Consumer...................... 344 2.03 12 408 2.32 14
------ ---- --- ------ ---- ---
Total allowance for
loan losses......... $1,535 1.08% 100% $1,278 1.08% 100%
====== ==== === ====== ==== ===
</TABLE>
-13-
<PAGE>
Investment Activities
The Company has made significant investments in mortgage-backed securities,
including collateralized mortgage obligations. The Bank had mortgage-backed
securities with an amortized cost of $60.0 million and a market value of $58.4
million at September 30, 1999, all of which were invested in U.S. Government
agency securities, investment grade securities, and securities guaranteed by the
funding arm of the Resolution Trust Corporation.
At September 30, 1999, the Company had invested $21.6 million in
collateralized mortgage obligations ($10.1 million in U.S. Government agency
issues and $11.5 million in investment grade private issues) with an average
estimated life varying from six months to 30 years and an average yield of
7.05%. At September 30, 1999, collateralized mortgage obligations consisted of
Fannie Mae, Ginnie Mae and Freddie Mac issues, as well as investment grade
private issues. Collateralized mortgage obligations may be used as collateral
for borrowings and, through repayments, as a source of liquidity. Management
considers collateralized mortgage obligations to be advantageous since they
offer yields above those available for investments of comparable credit quality
and duration and qualify as thrift investments under the qualified thrift lender
test. See "Regulation and Supervision -- Federal Savings Institution Regulation
- -- Qualified Thrift Lender Test." At September 30, 1999, the collateralized
mortgage obligation portfolio consisted of various tranches but no residuals.
In recent years, the Company has used the proceeds from the paydown of
collateralized mortgage obligations to invest in one- to four-family and other
types of lending, and expects to continue to do so in the future, subject to
market conditions.
Collateralized mortgage obligations are subject to repayment by the
mortgagors of the underlying collateral at any time. Such prepayment may
subject the Bank's collateralized mortgage obligations to yield and price
volatility. To assess this volatility, the Office of Thrift Supervision
requires the Bank to test annually its collateralized mortgage obligations to
determine whether they are high-risk or non-high-risk securities. The policy
established a three-part risk measurement test for fixed-rate and a one-part
test for floating-rate collateralized mortgage obligations and other mortgage
derivative securities. Securities failing any one of the tests are deemed to be
high-risk securities. The Office of Thrift Supervision may require an
institution to dispose of one or all of the collateralized mortgage obligations
failing such tests. At September 30, 1999, all of the Bank's collateralized
mortgage obligations met the criteria established by the policy designated as
non-high-risk securities for continuing classification as suitable investments.
However, changes in interest rates may cause one or more of the Bank's
collateralized mortgage obligations to fail a stress test. The Office of Thrift
Supervision may then require the Bank to dispose of the collateralized mortgage
obligations failing the test. This may affect the classification of such
securities under SFAS No. 115.
Changes in the level of interest rates can have an adverse effect on the
mortgage-backed securities and collateralized mortgage obligation portfolio,
thereby exposing the Bank to repayment risk and reinvestment risk.
-14-
<PAGE>
The following table sets forth the composition of the Bank's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- ----------------------
Amortized Percent of Amortized Percent of Amortized Percent of
Cost (1) Portfolio Cost (1) Portfolio Cost (1) Portfolio
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. agency securities...................... $ 8,158 11% $ 5,706 6% $10,191 22%
Certificates of deposit..................... -- -- -- -- -- --
U.S. Treasury securities.................... 1,009 1 500 1 998 2
Equity mutual fund.......................... 1,043 1 994 1 -- --
Common stock - savings and loans............ 150 -- 1,733 2 -- --
Municipal bonds............................. 3,290 4 6,129 6 -- --
Bank preferred stock........................ -- -- 3,152 3 -- --
Trust preferred bonds....................... 4,023 5 5,028 5 -- --
Mortgage-backed securities
and Collateralized mortgage obligations.. 60,028 78 73,719 76 35,714 76
------- --- ------- --- ------- ---
Total................................. $77,701 100% $96,961 100% $46,903 100%
======= === ======= === ======= ===
</TABLE>
____________________________
(1) The market value of the Bank's investment portfolio amounted to $74.6
million, $97.2 million and $47.2 million at September 30, 1999, 1998 and
1997, respectively.
The following table sets forth the maturities and weighted average yields
of the debt securities in the Bank's investment securities portfolio at
September 30, 1999.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
----------------- --------------- --------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ ------- ----- ------- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency securities................ $ -- --% $ -- --% $ -- --% $ 8,158 7.06%
U.S. Treasury securities.............. 1,009 5.10 -- -- -- -- -- --
Equity mutual fund.................... -- -- -- -- -- -- 1,043 --
Common stock - savings and loans...... -- -- -- -- -- -- 150 --
Municipal bonds....................... -- -- -- -- -- -- 3,290 7.09
Bank preferred stock.................. -- -- -- -- -- -- -- --
Trust preferred stock................. -- -- -- -- -- -- 4,023 8.49
Mortgage-backed securities
and collateralized mortgage
obligations........................ -- -- -- -- 169 9.69 59,859 6.96
------ ------ ------- -------
Total........................... $1,009 5.10% $ -- --% $169 9.69% $76,523 6.95%
====== ====== ======= =======
</TABLE>
-15-
<PAGE>
The following table sets forth certain information with respect to each
security (other than U.S. Government and agency securities) which had an
aggregate amortized cost in excess of 10% of the Bank's stockholders' equity at
the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- -------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
--------- -------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
RTC mortgage-backed securities................... $ 340 $ 333 $ 795 $ 795 $ 899 $ 888
Collateralized mortgage obligations.............. 21,657 21,243 41,098 41,047 21,138 21,211
------- ------- ------- ------- ------- -------
Total...................................... $21,997 $21,576 $41,893 $41,842 $22,027 $22,099
======= ======= ======= ======= ======= =======
</TABLE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
loan principal repayments. 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. The Bank also has access to
advances from the Federal Home Loan Bank-Atlanta. These advances can be used on
a short-term basis to compensate for reductions in the availability of funds
from other sources or they may be used on a longer-term basis for general
business purposes. The Bank has also on occasion utilized repurchase
agreements.
Deposit Accounts. Local deposits are and traditionally have been the
primary source of the Bank's funds for use in lending and other general business
purposes. The Bank offers a number of deposit accounts, including passbook,
individual retirement accounts, money market deposits and certificate accounts
currently ranging in maturity from three months to five years. Deposit accounts
vary as to terms, with the principal differences being the minimum balance
required, the time period the funds must remain on deposit and the interest
rate. From time to time, the Bank offers premiums to attract deposits. The
Bank is a member of an automated teller machine network, which is available to
the Bank's checking account depositors.
In recent years, the Bank has offered newly authorized types of short-term
accounts and other savings alternatives that are more responsive to changes in
market rates of interest than passbook accounts and longer maturity fixed-rate,
fixed-term certificates that were the Bank's primary source of deposits prior to
1978. There has been some shifting of deposit mix which has primarily resulted
from the progressive elimination of federally imposed rate ceilings on various
types of deposits offered by federally insured financial institutions such as
the Bank. The deregulation of various federal controls on insured deposits has
allowed the Bank to be more competitive in obtaining funds and has given it more
flexibility to meet the threat of net deposit outflows. The Bank reviews the
interest rates offered on various savings accounts periodically so as to remain
competitive with other financial institutions in its market area.
Since early 1995, the Bank has increased its core deposit base by
aggressively promoting checking accounts. At September 30, 1999, checking
account balances totaled $59.0 million.
At September 30, 1999, certificate of deposits scheduled to mature within
one year totaled $117.7 million. Although no assurances can be given, based on
past experience, the Bank believes that a substantial portion of these
certificates of deposit will be renewed.
At September 30, 1999, the Bank had no brokered deposits.
-16-
<PAGE>
The following table sets forth information concerning the Bank's deposits
at September 30, 1999.
<TABLE>
<CAPTION>
Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- -------- ------ -------------------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
2.18% None Negotiable order of withdrawal ("NOW") accounts $ 100 $ 43,256 19.55%
-- None Non-interest-bearing accounts 100 15,729 7.11
2.48 None Savings accounts 100 26,387 11.93
Certificates of Deposit
-----------------------
5.21 Within 6 months Fixed-term, fixed-rate 1,000 85,685 38.73
5.15 7 - 12 months Fixed-term, fixed-rate 1,000 32,038 14.48
5.20 13 - 36 months Fixed-term, fixed-rate 1,000 16,890 7.63
5.22 37 - 120 months Fixed-term, fixed-rate 1,000 1,273 0.57
-------- ------
$221,258 100.00%
======== ======
</TABLE>
The following table indicates the amount of jumbo certificates of deposit
by time remaining until maturity at September 30, 1999. Jumbo certificates of
deposit require minimum deposits of $100,000 and have negotiable interest rates.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposit
- --------------- --------------
(In thousands)
<S> <C>
Three months or less................................ $ 6,568
Over three months through six months................ 5,762
Over six months through twelve months............... 5,397
Over twelve months.................................. 2,448
-------
Total......................................... $20,175
=======
</TABLE>
Deposit Flow. The following table sets forth the balances of deposits in
the various types of accounts offered by the Bank at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------- --------------------------------
Percent Increase Percent Increase Percent Increase
Amount of Total (Decrease) Amount of Total (Decrease) Amount of Total (Decrease)
-------- -------- ---------- -------- --------- ---------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing.......... $ 15,729 7.11% $ 531 $ 15,198 7.31% $ 3,386 $ 11,812 5.88% $ 3,464
NOW checking.................. 43,256 19.55 7,460 35,796 17.23 9,800 25,996 12.93 1,703
Regular savings accounts...... 26,387 11.93 1,183 25,204 12.13 844 24,360 12.12 1,249
Fixed-rate certificates
which mature in the
year ending (1)(2):
Within 1 year.............. 117,723 53.21 20,857 96,866 46.62 (18,785) 115,651 57.53 31,881
After 1 year, but
within 2 years.......... 15,025 6.79 (17,641) 32,666 15.72 15,667 16,999 8.46 1,148
After 2 years, but
within 5 years.......... 3,138 1.41 1,077 2,061 0.99 (4,123) 6,184 3.08 1,902
-------- ------ -------- -------- ------ -------- -------- ------ -------
Total................. $221,258 100.00% $ 13,467 $207,791 100.00% $ 6,789 $201,002 100.00% $41,367
======== ====== ======== ======== ====== ======== ======== ====== =======
</TABLE>
________________
(1) At September 30, 1999, 1998 and 1997, jumbo certificates amounted to $20.2
million, $17.4 million and $18.5 million, respectively.
(2) IRA accounts included in certificate balances are $20.9 million, $19.7
million and $18.8 million at September 30, 1999, 1998 and 1997,
respectively.
-17-
<PAGE>
Time Deposits by Rates and Maturities. The following table sets forth the
time deposits in the Bank classified by rates at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
--------------------------------
1999 1998 1997
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
Below 3.00%..................... $ 159 $ 165 $ 194
3.00 - 5.00%.................... 58,368 1,392 2,012
5.01 - 7.00%.................... 77,022 129,629 136,400
7.01 - 9.00%.................... 337 407 228
-------- -------- --------
Total..................... $135,886 $131,593 $138,834
======== ======== ========
</TABLE>
The following table sets forth the amount and maturities of time deposits
at September 30, 1999.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------
Percent
Over Two Over Three Over Five of Total
Less Than One to to Three to Five to Ten Certificate
One Year Two Years Years Years Years Total Accounts
--------- --------- -------- ---------- --------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2.50 - 5.00%.................... $ 51,569 $ 4,679 $1,089 $1,190 $ -- $ 58,527 43.07%
5.01 - 7.00%.................... 66,083 10,184 754 1 -- 77,022 56.68
7.01 - 9.00%.................... 71 162 22 82 -- 337 0.25
-------- ------- ------ ------ --------- -------- ------
Total..................... $117,723 $15,025 $1,865 $1,273 $ -- $135,886 100.00%
======== ======= ====== ====== ========= ======== ======
</TABLE>
Deposit Activity. The following table sets forth the savings activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Beginning balance........................................... $207,791 $201,002 $160,244
-------- -------- --------
Net increase (decrease) before interest credited............ 4,746 (1,223) 32,599
Interest credited........................................... 8,721 8,012 8,159
Net increase in savings deposits............................ 13,467 6,789 40,758
-------- -------- --------
Ending balance.............................................. $221,258 $207,791 $201,002
======== ======== ========
</TABLE>
Borrowings
Historically, the Bank has relied on repurchase agreements as a source of
borrowings to finance the purchase of investment securities. Funding for
lending activities has been provided from deposits and borrowings from the
Federal Home Loan Bank-Atlanta. Under repurchase agreements, the Bank "sells"
securities (generally U.S. Treasury securities and federal agency obligations
and mortgage-backed securities) under an agreement to buy them back at a
specified price at a later date. Repurchase agreements are subject to renewal,
and are deemed to be borrowings collateralized by the securities sold. The Bank
had $20.3 million of repurchase agreements outstanding at September 30, 1999.
The Bank has issued retail and commercial repurchase agreements and would
consider issuing them again in the future in an appropriate interest rate
environment. Under commercial repurchase agreements, the Bank sells the
-18-
<PAGE>
investment security to broker dealers who may then loan the security to other
parties in the normal course of operations. Commercial repurchase agreements
generally mature within 90 days from the date of the transaction.
Advances from the Federal Home Loan Bank are typically secured by the
Bank's first mortgage loans. At September 30, 1999, the Bank was eligible to
borrow up to $93.9 million from the Federal Home Loan Bank-Atlanta. The Bank
had Federal Home Loan Bank advances of $73.0 million outstanding at September
30, 1999. See Note 9 of Notes to Consolidated Financial Statements.
The Federal Home Loan Bank functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member, the Bank is required to own capital stock in the
Federal Home Loan Bank and is authorized to apply for advances on the security
of such stock and certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the U.S. Government)
provided certain standards related to creditworthiness have been met. Advances
are made pursuant to several different programs. 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 Federal Home Loan Bank's assessment of the
institution's creditworthiness. Under its current credit policies, the Federal
Home Loan Bank generally limits advances to 20% of a member's assets, and short-
term borrowings of less than one year may not exceed 10% of the institution's
assets. The Federal Home Loan Bank determines specific lines of credit for each
member institution.
The following table sets forth certain information regarding borrowings by
the Bank at the end of and during the periods indicated:
<TABLE>
<CAPTION>
At September 30,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Weighted average rate paid on:
Federal Home Loan Bank-Atlanta advances............ 5.21% 5.03% 6.24%
Securities sold under agreements to repurchase..... 5.54 5.54 --
</TABLE>
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding at any month end:
Securities sold under agreements to repurchase........................ $20,366 $20,185 $ --
Federal Home Loan Bank-Atlanta advances............................... 78,000 61,784 15,000
Approximate average borrowings outstanding with respect to:
Securities sold under agreements to repurchase........................ 20,245 17,912 --
Federal Home Loan Bank-Atlanta advances............................... 65,975 40,241 23,951
Approximate weighted average rate paid on:
Securities sold under agreements to repurchase........................ 5.04% 5.61% --
Federal Home Loan Bank-Atlanta advances............................... 5.61% 5.54% 5.75%
</TABLE>
Competition
Anderson and Oconee Counties have a relatively large number of financial
institutions, many of which are branches of large southeast regional financial
institutions, and thus the Bank faces strong competition in the attraction of
savings deposits (its primary source of lendable funds) and in the origination
of loans. Its most direct competition
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for savings deposits and loans has historically come from other thrift
institutions, credit unions and commercial banks located in its market area.
Particularly in times of high interest rates, the Bank has faced additional
significant competition for investors' funds from short-term money market
securities and other corporate and government securities and mutual funds. The
Bank's competition for loans comes principally from other thrift institutions,
credit unions, commercial banks, finance companies, mortgage banking companies
and mortgage brokers.
Subsidiary Activities
The Company has one wholly owned subsidiary, the Bank. The Bank had an
ownership interest in three service corporations at September 30, 1999. Under
Office of Thrift Supervision regulations, the Bank is authorized to invest up to
3% of its assets in service corporations, with amounts in excess of 2% only if
used primarily for community purposes. At September 30, 1999, the Bank's net
investment of approximately $3.3 million in its service corporations did not
exceed this investment authority.
The Bank has three service corporations: United Service Corporation of
Anderson, Inc. ("United Service"), United Investments Services, Inc. ("United
Investments") and Mortgage First Service Corporation ("Mortgage First").
United Service is a wholly-owned subsidiary of the Bank. At September 30,
1999, United Service had assets of $2.6 million. United Service is involved in
the following residential and commercial real estate development projects:
Perpetual Square. A 33-acre commercial development in Anderson County
purchased in January 1996 for a purchase price of $970,000. The purchase price
and infrastructure improvement costs (i.e., installation of roads, utilities,
etc.) were financed by a loan from the Bank that had an outstanding balance of
$38,000 at September 30, 1999. As of September 30, 1999, approximately 20 acres
have been sold and the Bank had no outstanding loans to purchasers. In October
1997, the Bank established a branch office at this location. See "--Properties."
At September 30, 1999, the Bank's net investment in this project was
approximately $548,000.
The Meadows Development. A 99-acre residential subdivision consisting of
approximately 108 lots located in Anderson County purchased in October 1996 for
a purchase price of $600,000. The purchase price and infrastructure improvement
costs were financed by a loan from the Bank that had an outstanding balance of
$1.1 million at September 30, 1999. The Bank has entered into a contractual
agreement with the local office of a national realtor to market the subdivision
lots, and marketing began in September 1997. The realtor has no investment in
the project. As of September 30, 1999, 60 lots were sold and the Bank had
outstanding loans to purchasers totaling $395,000. At September 30, 1999, the
Bank's net investment in this project was approximately $1.2 million.
Ashton Place Subdivision. A 24-acre multi-family housing development
consisting of 44 lots located in Anderson County purchased in January 1996 for a
purchase price of $164,000. The purchase price and infrastructure improvement
costs were financed by a loan from the Bank that had been paid off as of
September 30, 1999. The lots are being developed in four phases of 11 lots each.
As of September 30, 1999, 40 lots have been sold and four lots remain unsold in
phase IV. At September 30, 1999, the Bank had loans outstanding to purchasers
totaling $855,000. At September 30, 1999, the Bank's net investment in this
project was approximately $65,000.
North Park. A 57-acre industrial park located in Anderson County purchased
in June 1996 at a purchase price of $248,000. The purchase price and
infrastructure improvement costs were financed by a loan from the Bank that had
no outstanding balance as of September 30, 1999. As of September 30, 1999, 20
acres had been sold and the Bank had outstanding loans to purchasers totaling
$366,000, all of which were permanent mortgage loans. At September 30, 1999, the
Bank's net investment in this project was approximately $285,000.
United Investments, a wholly-owned subsidiary of United Service, offers
full service brokerage services. On a consolidated basis United Service and
United Investments had net income of $177,000 for the year ended September 30,
1999.
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<PAGE>
Mortgage First is a wholly-owned subsidiary of the Bank. In August 1996,
Mortgage First made a $400,000 equity investment in a start-up regional mortgage
banking company known as "First Trust Mortgage Corporation of the South" ("First
Trust"), with offices in Rock Hill, Columbia, Clemson and Greenville, South
Carolina. During the year ended September 30, 1999, First Trust closed 1,538
loans totaling $215.6 million.
The Bank has purchased loans from First Trust in recent periods. See "--
Lending Activities -- Loan Purchases and Sales and Servicing." All loans are
purchased from First Trust subject to the Bank's underwriting standards. The
Bank intends to purchase at least $1.8 million of loans from First Trust
monthly. At September 30, 1999, the Bank's financial commitment to First Trust
and its maximum exposure to share in any losses incurred by First Trust were
limited solely to the amount of its equity investment through Mortgage First.
The Bank, either directly or through Mortgage First, may undertake future
additional financial commitments that would increase its loss exposure to First
Trust's operations; however, there are no such agreements, plans or
understandings at present. The Bank recorded a gain of approximately $179,000
related to First Trust's operations for the year ended September 30, 1999.
Robert W. Orr, President and Chief Executive Officer of the Company and the
Bank, and Barry C. Visioli, Senior Vice President of the Company and the Bank,
are directors of First Trust.
Personnel
As of September 30, 1999, the Bank had 96 full-time employees and 25 part-
time employees. The employees are not represented by a collective bargaining
unit. The Bank believes its relationship with its employees is good.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, SouthBanc Shares is required by
federal law to file reports with, and otherwise comply with, the rules and
regulations of the Office of Thrift Supervision. The Bank is regulated,
examined and supervised extensively by the Office of Thrift Supervision, as its
primary federal regulator, and the Federal Deposit Insurance Corporation, as the
deposit insurer. The Bank is a member of the Federal Home Loan Bank System and
its deposit accounts are insured up to applicable limits by the Savings
Association Insurance Fund managed by the Federal Deposit Insurance Corporation.
The Bank must file reports with the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation concerning its activities and financial condition
in addition to obtaining certain approvals before entering into certain
transactions such as mergers with, or acquisitions of, other savings
institutions. The Office of Thrift Supervision and the Federal Deposit
Insurance Corporation examine the Bank periodically to test the Bank's safety
and soundness and compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework for the Bank's
activities and is intended primarily to protect the insurance fund and the
Bank's depositors.
The regulatory structure also gives regulatory authorities extensive
discretion in their supervisory and enforcement activities and examination
policies, including policies regarding asset classification and the
establishment of adequate loan loss reserves for regulatory purposes. Any
change in regulatory requirements and policies, whether by the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation or the Congress, could
have a material adverse impact on SouthBanc Shares, the Bank and their
operations. The description of statutory provisions and regulations that apply
to SouthBanc Shares and the Bank discussed below and elsewhere in this
prospectus is not a complete description of them and their effects on the Bank
and SouthBanc Shares.
Holding Company Regulation
SouthBanc Shares is a nondiversified unitary savings and loan holding
company under federal law. Formerly, a unitary savings and loan holding company
was not restricted as to the types of business activities in which it could
engage, provided that its subsidiary savings association continued to be a
qualified thrift lender. See "--Federal Savings Institution Regulation --
Qualified Thrift Lender Test." Recent legislation, however, restricts unitary
savings and loan holding companies not existing or applied for before May 4,
1999 to activities permissible for a financial holding
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<PAGE>
company as defined under the legislation, including insurance and securities
activities, and those permitted for a multiple savings and loan holding company
as described below. SouthBanc Shares qualifies for the grandfather.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company and from acquiring or retaining
control of a depository institution that is not insured by the Federal Deposit
Insurance Corporation, unless it first receives the approval of the Office of
Thrift Supervision. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision considers the financial
and managerial resources and future prospects of the holding company and the
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.
The Office of Thrift Supervision may not approve any acquisition that
results in a multiple savings and loan holding company controlling savings
institutions in more than one state. However, there are two exceptions to this
general rule. First, the approval of interstate supervisory acquisitions by
savings and loan holding companies. Second, the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit the acquisition. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.
Although savings and loan holding companies do not have specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, federal regulations place these restrictions on
subsidiary savings institutions as described below. The Bank must notify the
Office of Thrift Supervision 30 days before declaring any dividend to SouthBanc
Shares. In addition, the financial impact of a holding company on its
subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision, which has authority to order the stoppage of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association
are limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The Office of Thrift Supervision capital regulations
require savings institutions to meet three minimum capital standards: a 1.5%
tangible capital ratio, a 3% leverage ratio and an 8% risk-based capital ratio.
Effective April 1, 1999, however, the minimum leverage ratio increased to 4% for
all institutions except those with the highest rating on the CAMELS financial
institution rating system. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMELS financial institution rating system) and, together with the risk-
based capital standard itself, a 4% Tier 1 risk-based capital standard. The
Office of Thrift Supervision regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard requires an institution to maintain Tier 1
or core capital to risk-weighted assets of at least 4% and total capital to
risk-weighted assets of at least 8%. Total capital is defined as core capital
and supplementary capital. In determining the amount of risk-weighted assets,
all assets, including certain off-balance sheet assets, are multiplied by a
risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision
capital regulation based on the risks believed inherent in the type of asset.
Core or Tier 1 capital is defined as common stockholders' equity and retained
earnings, certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries, less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital include cumulative
preferred stock, long-term perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock, and the
allowance for loan and lease losses limited to a maximum of 1.25% of risk-
weighted assets. Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.
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<PAGE>
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. Presently, the Office of Thrift Supervision has deferred
implementation of the interest rate risk component. At September 30, 1999, the
Bank met each of its capital requirements. See Note 12 to Notes to Consolidated
Financial Statements for further information.
Prompt Corrective Regulatory Action. The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 or core
capital to risk-weighted assets of less than 4%, or a ratio of core capital to
total assets of less than 4%, or 3% or less for institutions with the highest
examination rating, is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Although there is a narrow exception, the Office
of Thrift Supervision is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized" if the institution is
critically undercapitalized on average during the calendar quarter 270 days
after becoming critically undercapitalized. The regulation also provides that
an institution must file a capital restoration plan with the Office of Thrift
Supervision within 45 days of the date that the Office of Thrift Supervision
notifies it that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
immediately apply to an undercapitalized institution, including, but not limited
to, increased monitoring by regulators and restrictions on growth, capital
distributions and expansion. The Office of Thrift Supervision could also take
any one of a number of discretionary supervisory actions, including issuing a
capital directive and replacing senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of the Bank are presently insured
by the Savings Association Insurance Fund. The Federal Deposit Insurance
Corporation maintains a risk-based assessment system by which institutions are
assigned to one of three categories based on their capitalization and one of
three subcategories based on examination ratings and other supervisory
information. An institution's assessment rate depends upon the categories to
which it is assigned. Assessment rates for Savings Association Insurance Fund
member institutions are determined semiannually by the Federal Deposit Insurance
Corporation and currently range from zero basis points for the healthiest
institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to pay on bonds issued in the late 1980s by the Financing Corporation
to recapitalize the predecessor to the Savings Association Insurance Fund.
During 1998, Financing Corporation payments for Savings Association Insurance
Fund members approximated 6.10 basis points, while Bank Insurance Fund members
paid 1.22 basis points. By law, there will be equal sharing of Financing
Corporation payments between the members of both insurance funds on the earlier
of January 1, 2000 or the date the two insurance funds are merged.
The Federal Deposit Insurance Corporation may terminate an institution's
deposit insurance if it finds that the institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or condition imposed
by the Federal Deposit Insurance Corporation or the Office of Thrift
Supervision. The management of the Bank does not know of any practice,
condition or violation that might lead to termination of its deposit insurance.
Financial Institution Modernization Legislation. Recently enacted federal
legislation designed to modernize the regulation of the financial services
industry expands the ability of bank holding companies to affiliate with other
types of financial services companies such as insurance companies and investment
banking companies. However, the legislation provides that companies that
acquire control of a single savings association after May 4, 1999 (or that filed
an application for that purpose after that date) are not entitled to the
unrestricted activities formerly allowed for a unitary savings and loan holding
company. Rather, these companies will have authority to engage in the
activities permitted "a financial holding company" under the new legislation,
including insurance and securities-related activities, and the
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<PAGE>
activities currently permitted for multiple savings and loan holding companies,
but generally not in commercial activities. The authority for unrestricted
activities is grandfathered for unitary savings and loan holding companies, such
as SouthBanc Shares, that existed before May 4, 1999. However, the authority for
unrestricted activities would not apply to any company that acquired SouthBanc
Shares.
Loans to One Borrower. Federal law provides that savings institutions must
generally follow the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral.
Qualified Thrift Lender Test. Federal law requires savings institutions to
meet a qualified thrift lender test. Under the test, a savings association is
required to either qualify as a "domestic building and loan association" under
the Internal Revenue Code or maintain at least 65% of its "portfolio assets" in
certain "qualified thrift investments" in at least 9 months out of each 12 month
period. "Portfolio assets" equals total assets less specified liquid assets up
to 20% of total assets, intangibles, including goodwill, and the value of
property used to conduct business. "Qualified thrift investments" are primarily
residential mortgages and related investments, including certain mortgage-backed
securities.
A savings institution that fails the qualified thrift lender test faces
certain operating restrictions and may be required to convert to a commercial
bank charter. As of September 30, 1999, the Bank complied with the qualified
thrift lender test. Recent legislation has expanded the extent to which
education loans, credit card loans and small business loans may be considered
"qualified thrift investments."
Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to stockholders of another institution in a cash-out merger. The rule
effective through the first quarter of 1999 established three tiers of
institutions based primarily on an institution's capital level. A Tier I
institution exceeded all capital requirements before and after a proposed
capital distribution and has not been advised by the Office of Thrift
Supervision that it needs more than normal supervision. A Tier I institution
could, after first giving notice to but without obtaining approval of the Office
of Thrift Supervision, make capital distributions during the calendar year equal
to the greater of 100% of its net earnings to date during the calendar year plus
the amount that would have reduced by one-half the excess capital over its
capital requirements at the beginning of the calendar year, or 75% of its net
income for the previous four quarters. Any additional capital distributions
required prior regulatory approval.
Effective April 1, 1999, the Office of Thrift Supervision's capital
distribution regulation changed. Under the new regulation, an application to
and the prior approval of the Office of Thrift Supervision is required before
any capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under Office of Thrift Supervision
regulations (generally, compliance with all capital requirements and examination
ratings in one of two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with Office of Thrift Supervision. If an
application is not required, the institution must still give advance notice to
Office of Thrift Supervision of the capital distribution. If the Bank's capital
fell below its regulatory requirements or if the Office of Thrift Supervision
notified it that it was in need of more than normal supervision, the Bank's
ability to make capital distributions could be restricted. In addition, the
Office of Thrift Supervision could prohibit a proposed capital distribution,
which would otherwise be permitted by the regulation if the Office of Thrift
Supervision determines that the distribution would be an unsafe or unsound
practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings.
This liquidity requirement is currently 4%, but may be changed from time to time
by the Office of Thrift Supervision to any amount within the range of 4% to 10%.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank met these requirements at September 30, 1999.
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<PAGE>
Assessments. Savings institutions are required to pay assessments to the
Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the Bank's latest quarterly thrift financial report. The Bank's assessments for
the fiscal year ended September 30, 1999 totaled $76,000.
Branching. Office of Thrift Supervision regulations permit federally
chartered savings associations to branch nationwide under certain conditions.
Generally, federal savings associations may establish interstate networks and
geographically diversify their loan portfolios and lines of business. The
Office of Thrift Supervision authority preempts any state law purporting to
regulate branching by federal savings associations.
Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" is limited by federal law. Generally, an
affiliate is any company that controls or is under common control with an
institution, including SouthBanc Shares. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% Stockholders, as well as entities within the control of these persons, is
also governed by federal law. These persons are often referred to as "insiders"
of a company. Loans to insiders are required to be made on terms substantially
the same as those offered to unaffiliated individuals and may not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. The law limits both the individual and aggregate
amount of loans the Bank may make to insiders based, in part, on the Bank's
capital position and requires certain board approval procedures to be followed.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order, to removal of officers and/or
directors, to institution of a receivership or conservatorship, or to
termination of deposit insurance. Civil penalties cover a wide range of
violations and can amount to $25,000 per day, or even $1 million per day in
especially serious cases. The Federal Deposit Insurance Corporation has the
authority to recommend to the Director of the Office of Thrift Supervision that
enforcement action to be taken with respect to a particular savings institution.
If action is not taken by the Director, the Federal Deposit Insurance
Corporation has authority to take action under certain circumstances. Federal
law also establishes criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
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<PAGE>
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank of Atlanta
provides a central credit facility primarily for member institutions. The Bank,
as a member of the Federal Home Loan Bank of Atlanta, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank of Atlanta in an
amount at least equal to 1.0% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank of
Atlanta, whichever is greater. The Bank was in compliance with this requirement
with an investment in Federal Home Loan Bank of Atlanta stock at September 30,
1999, of $3.7 million. Federal Home Loan Bank of Atlanta advances must be
secured by specified types of collateral.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, the Bank's net interest income would
likely also be reduced. Recent legislation has changed the structure of the
Federal Home Loan Banks funding obligations for insolvent thrifts, revised the
capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict the
effect that these changes may have with respect to its Federal Home Loan Bank
membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts,
primarily NOW and regular checking accounts. The regulations generally require
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less, subject to adjustment by the
Federal Reserve Board the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10%, subject to adjustment by the Federal Reserve Board between 8%
and 14%, against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances, as adjusted
by the Federal Reserve Board, are exempted from the reserve requirements. The
Bank complies with the foregoing requirements.
Community Reinvestment Act
Under the Community Reinvestment Act, as implemented by Office of Thrift
Supervision regulations, a savings association has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income neighborhoods.
The Community Reinvestment Act does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the Community
Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift
Supervision, in connection with its examination of an institution, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of applications by such institution.
The Community Reinvestment Act requires public disclosure of an institution's
Community Reinvestment Act rating. The Bank's latest Community Reinvestment Act
rating, received from the Office of Thrift Supervision was "satisfactory."
TAXATION
Federal Taxation
General. The Company and the Bank report their income on a fiscal year
basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax
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matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Company. For
additional information regarding income taxes, see Note 11 of Notes to
Consolidated Financial Statements.
Bad Debt Reserve. Historically, savings institutions such as the Bank,
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift"), were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with
respect to "qualifying real property loans," which are generally loans secured
by certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). For taxable years beginning after December
31, 1995, the Bank's bad debt deduction must be determined under the experience
method using a formula based on actual bad debt experience over a period of
years or, if the Bank is a "large" Bank (assets in excess of $500 million) on
the basis of net charge-offs during the taxable year. The new rules allowed an
institution to suspend bad debt reserve recapture for the 1996 and 1997 tax
years if the institution's lending activity for those years is equal to or
greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only
home purchase or home improvement loans are included and the institution can
elect to have the tax years with the highest and lowest lending activity removed
from the average calculation. If an institution is permitted to postpone the
reserve recapture, it must begin its six-year recapture no later than the 1998
tax year. The unrecaptured base year reserves will not be subject to recapture
as long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continues to be subject
to provisions of present law referred to below that require recapture of the
pre-1988 bad debt reserve in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Bank makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Bank's loan portfolio decreased since December
31, 1987) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a "nondividend distribution," then approximately one
and one-half times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). See "Regulation and Supervision" for
limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income at a rate of 20%. The excess of the tax bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method is treated as a preference
item for purposes of computing the alternative minimum taxable income. In
addition, only 90% of alternative minimum taxable income can be offset by net
operating loss carryovers. Alternative minimum taxable income is increased by
an amount equal to 75% of the amount by which the Bank's adjusted current
earnings exceeds its alternative minimum taxable income (determined without
regard to this preference and prior to reduction for net operating losses). For
taxable years
-27-
<PAGE>
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of 0.12% of the excess of alternative minimum taxable income (with certain
modification) over $2.0 million is imposed on corporations, including the Bank,
whether or not an alternative minimum tax is paid.
Dividends-Received Deduction. The Company may exclude from its income 100%
of dividends received from the Bank as a member of the same affiliated group of
corporations. The corporate dividends-received deduction is generally 70% in
the case of dividends received from unaffiliated corporations with which the
Company and the Bank will not file a consolidated tax return, except that if the
Company or the Bank owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
State Taxation
Delaware. As a Delaware holding company not earning income in Delaware,
the Company is exempted from Delaware corporate income tax, but is required to
file an annual report with and pay an annual franchise tax to the State of
Delaware.
Audits
There have not been any Internal Revenue Service audits of the Bank's
Federal income tax returns or audits of the Bank's state income tax returns
during the past five years.
-28-
<PAGE>
Item 2. Properties
- -------------------
The following table sets forth certain information relating to the Bank's
offices as of September 30, 1999. All offices are owned by the Bank except as
noted in the table.
<TABLE>
<CAPTION>
Lease
Year Owned Square Expiration
Location Opened or Leased Footage Date
- -------- ---------- ------------- ----------- -------------------------
<S> <C> <C> <C> <C>
Main Office:
907 N. Main Street 1979 Owned 50,000 --
Anderson, South Carolina
Branch Offices:
104 Whitehall Road 1975 Building owned 2,000 December 31, 2004, with
Anderson, South Carolina Land leased two renewal options for
ten years each
2821 South Main Street 1976 Building owned 2,500 April 30, 2000, with five
Anderson South Carolina Land leased renewal options for five
years each
Perpetual Square 1997 Owned 2,700 --
SC Highway 81
Anderson, South Carolina
Northtowne 1994 Owned 2,800 --
3898 Liberty Highway
Anderson, South Carolina
1007 By-Pass 123 1996 Owned 2,900 --
Seneca, South Carolina
</TABLE>
The Bank has an in-house computer system to process customer records and
monetary transactions, post deposit and general ledger entries and record
activity in installment lending, loan servicing and loan originations. See the
information under the caption entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Issues" in the 1999
Annual Report to Stockholders for information regarding the Company's Year 2000
program.
Item 3. Legal Proceedings
- --------------------------
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1999.
-29-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ---------------------------------------------------------------------------
Matters
- -------
The information contained under the section captioned "Market for Common
Stock and Dividend Information" in the 1999 Annual Report to Stockholders is
incorporated herein by reference.
Item 6. Selected Financial Data
- ---------------------------------
The information contained under the section captioned "Selected Financial
Information" in the 1999 Annual Report to Stockholders is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Market Risk and
Asset and Liability Management" in the 1999 Annual Report to Stockholders is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------
(a) Financial Statements
Independent Auditors' Report*
Consolidated Statements of Financial Condition as of September
30, 1999 and 1998
Consolidated Statements of Income for the Years Ended September
30, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997
Notes to the Consolidated Financial Statements*
* Included in the Annual Report attached as Exhibit 13 hereto and
incorporated herein by reference. All schedules have been omitted as
the required information is either inapplicable or included in the
Consolidated Financial Statements or related Notes contained in the
Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
PART III
Item 10. Directors, Executive Officers of the Registrant
- ---------------------------------------------------------
The following table sets forth certain information regarding the
executive officers of the Company. The officers of SouthBanc Shares are elected
annually by the board of directors. Each officer holds office until his
successor is duly elected and qualified or until his death or until he resigns
or is removed.
-30-
<PAGE>
<TABLE>
<CAPTION>
Name Age(1) Position
- ---- ------ --------
<S> <C> <C>
Harold A. Pickens, Jr. 66 Chairman of the Board
Robert W. "Lujack" Orr 51 President, Chief Executive Officer and a Director
Thomas C. Hall 52 Treasurer and Chief Financial Officer
Barry C. Visioli 51 Senior Vice President
Sylvia B. Reed 59 Corporate Secretary
The following table sets forth certain information regarding the
executive officers of the Company.
Name Age(1) Position
- ---- ------ --------
<S> <C> <C>
Thomas C. Hall 52 Senior Vice President and Treasurer
Barry C. Visioli 51 Senior Vice President
Sylvia B. Reed 59 Corporate Secretary
</TABLE>
___________________
(1) As of September 30, 1999.
Harold A. "Drew" Pickens, Jr. is the retired owner of Harold A. Pickens and
Sons, Inc., with which he has been affiliated since 1956.
Robert W. "Lujack" Orr has been employed by the Bank since 1974 and has
held a variety of positions, such as Senior Vice President/Funds Acquisition and
Executive Vice President, prior to assuming his current position as President
and Managing Officer on January 1, 1991. Mr. Orr is a director of First Trust,
the mortgage banking company in which a service corporation subsidiary of the
Bank has an equity investment.
Thomas C. Hall has been employed by the Bank since 1975 and currently
serves as Senior Vice President, Treasurer and Chief Financial Officer
responsible for areas of accounting, investments, data processing and deposits.
Barry C. Visioli has been affiliated with the Bank since 1973. Mr. Visioli
serves as Senior Vice President and is responsible for Lending Operations. Mr.
Visioli is a director of First Trust, the mortgage banking company in which a
service corporation subsidiary of the Bank has an equity investment.
Sylvia B. Reed joined the Bank in 1986 and currently serves as Corporate
Secretary.
Item 11. Executive Compensation
- --------------------------------
The information contained under the sections captioned "Executive
Compensation" and "Directors' Compensation" in the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Stock Ownership" in the Proxy
Statement.
(b) Security Ownership of Management
-31-
<PAGE>
The information required by this item is incorporated herein by
reference to the sections captioned "Stock Ownership" in the
Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any
pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change in control
of the Company.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information set forth under the section captioned "Transactions with
Management" in the Proxy Statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Exhibits
3.1 Certificate of Incorporation of SouthBanc Shares, Inc.
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No.
333-42517) filed on December 17, 1997)
3.2 Bylaws of SouthBanc Shares, Inc. (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 333-42517) filed on
December 17, 1997)
4.0 Specimen stock certificate (incorporated by reference
to Exhibit 4.0 to the Company's Registration Statement
on Form S-1 (File No. 333-42517) filed on December 17,
1997)
10.1 Employment Agreement between SouthBanc Shares, Inc. and
Robert W. Orr
10.2 Employment Agreement between SouthBanc Shares, Inc. and
Thomas C. Hall
10.3 Employment Agreement between SouthBanc Shares, Inc. and
Barry C. Visioli
10.4 Employment Agreement between Perpetual Bank, A Federal
Savings Bank and Robert W. Orr
10.5 Employment Agreement between Perpetual Bank, A Federal
Savings Bank and Thomas C. Hall
10.6 Employment Agreement between Perpetual Bank, A Federal
Savings Bank and Barry C. Visioli
10.7 1998 Stock Option Plan (incorporated by reference to
the Company's Annual Meeting Proxy Statement dated
December 18, 1998)
10.8 1998 Management Development and Recognition Plan
(incorporated by reference to the Company's Annual
Meeting Proxy Statement dated December 18, 1998)
10.9 Supplemental Executive Retirement Agreement with Robert
W. Orr
10.10 Supplemental Executive Retirement Agreement with Thomas
C. Hall
10.11 Supplemental Executive Retirement Agreement with Barry
C. Visioli
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Elliott, Davis & Company, LLP
27 Financial Data Schedule
-32-
<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.
SOUTHBANC SHARES, INC.
Date: December 28, 1999 By: /s/ Robert W. Orr
----------------------------------------
Robert W. Orr
President and Managing Officer
(Duly Authorized Representative)
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Robert W. Orr By: /s/ Thomas C. Hall
-------------------------------- ------------------------------------
Robert W. Orr Thomas C. Hall
President and Managing Officer Senior Vice President and Treasurer
(Principal Executive Officer) (Principal Financial and Accounting
Officer)
Date: December 28, 1999 Date: December 28, 1999
By: /s/ Harold A. Pickens, Jr. By: /s/ Cordes G. Seabrook, Jr.
-------------------------------- ------------------------------------
Harold A. Pickens, Jr. Cordes G. Seabrook, Jr.
Chairman of the Board Director
Date: December 28, 1999 Date: December 28, 1999
By: /s/ Martha S. Clamp By: /s/ Jim Gray Watson
-------------------------------- ------------------------------------
Martha S. Clamp Jim Gray Watson
Director Director
Date: December 28, 1999 Date: December 28, 1999
By: /s/ Jack F. McIntosh By: /s/ Richard C. Ballenger
-------------------------------- ------------------------------------
Jack F. McIntosh Richard C. Ballenger
Director Director
Date: December 28, 1999 Date: December 28, 1999
By: /s/ F. Stevon Kay
--------------------------------
F. Stevon Kay
Director
Date: December 28, 1999
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 21, 1999, by and
between SouthBanc Shares, Inc. (the "Holding Company"), and Robert W. Orr
("Executive"). Any reference to "Institution" herein shall mean Perpetual Bank,
A Federal Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present
<PAGE>
any conflict of interest with the Holding Company or its Subsidiaries, or
materially affect the performance of Executive's duties pursuant to this
Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as President of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $101,764 per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any tax-
qualified retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable in accordance with the Holding Company's customary
practices. During the period of this Agreement, Executive's Base Salary shall
be reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board delegated such responsibility by the Board.
The Committee or the Board may increase Executive's Base Salary. Any increase
in Base Salary shall become the "Base Salary" for purposes of this Agreement.
In addition to the Base Salary provided in this Section 3(a), the Holding
Company shall also provide Executive, at no premium cost to Executive, with all
such other benefits as provided uniformly to permanent full-time employees of
the Holding Company and its Subsidiaries. In addition, Executive shall be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company or its Subsidiaries in which Executive is
eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under all plans relating to stock options, restricted stock
awards, stock purchases, pension, thrift, supplemental retirement, profit-
sharing, employee stock ownership, group life insurance, medical and other
health and welfare coverage, education, cash or stock bonuses that are now or
hereafter made available by the Holding Company or its Subsidiaries to its
senior executives and key
2
<PAGE>
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Executive
shall be entitled to incentive compensation and bonuses as provided in any plan
of the Holding Company and its Subsidiaries in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as President, unless consented to by the
Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm customarily performing such valuation, of any
stock options or related rights which as of the Date of Termination have been
granted to Executive but are not exercisable by Executive and the value of any
restricted stock or related rights which have been granted to Executive; but in
which Executive does not have a non-
3
<PAGE>
forfeitable or fully-vested interest as of the Date of Termination; and (ii) all
benefits, including health insurance in accordance with Section 3(b) that would
have been provided to Executive for the remaining term of this Agreement had an
Event of Termination not occurred. At the election of the Executive, which
election is to be made prior to an Event of Termination, such payments shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") 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 whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred
4
<PAGE>
or to have been effectuated upon the receipt of all required federal regulatory
approvals not including the lapse of any statutory waiting periods, or (D) a
proxy statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times
Executive's Average Annual Compensation (as defined herein) for the five (5)
preceding taxable years that Executive has been employed by the Holding Company
or its Subsidiaries or such lesser number of years in the event Executive shall
have been employed with the Holding Company or its Subsidiaries for less than
five (5) years. Such Average Annual Compensation shall include all taxable
income paid by the Holding Company or its Subsidiaries, including but not
limited to, Base Salary, commissions and bonuses, as well as contributions on
behalf of Executive to any pension plan, profit sharing, or employee stock
ownership plan, directors or board committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.
5
<PAGE>
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, for any taxable year in which
the Executive shall be liable, as determined for the payment of an excise tax
under Section 4999 of the Code (or any successor provision thereto), with
respect to any payment in the nature of the compensation made by the Holding
Company or the Institution to (or for the benefit of) Executive pursuant to this
Agreement or otherwise, the Holding Company shall pay to the Executive an
additional amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X= E x P
-------------------------------------------
1-[(FI x (1 - SLI)) + SLI + E]
E= the rate at which the excise tax is assessed under Section 499 of the
Code;
P= the amount with respect to which such excise tax is assessed,
determined without regard to Section 2;
FI= the highest marginal rate of federal income, employment, and other
taxes (other than taxes imposed under Section 499 of the Code)
applicable to Executive for the taxable year in question; and
SLI= the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for the
taxable year in question.
With respects to any payment in the nature of compensation that is made to
(or for the benefit of) Executive under the terms of this Section or otherwise
and on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It if the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
Notwithstanding the foregoing, if it shall subsequently be determined in a
final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than
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the amount determined as "P", above (such greater amount being hereafter
referred to as "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive, in order to put the
Executive (or the Holding Company, as the case may be) in the same position as
the Executive (or the Holding Company, as the case may be) would have been if
the amount determined as "P" above had been equal to the Determinative Excess
Parachute Payment. In determining the Adjustment Amount, the independent
accountants shall take into account any and all taxes (including any penalties
and interest) paid by or for Executive or refunded to Executive or for
Executive's benefits. As soon as practicable after the Adjustment Amount has
been so determined, the Holding Company shall pay the Adjustment Amount to
Executive.
In each calendar year that Executive receives payments or benefits under
this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid under this
Supplemental Agreement is being reviewed or is in dispute. The Holding Company
shall assume control at its expense over all legal and accounting matters
pertaining to such federal tax treatment (except to the extent necessary or
appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall cooperate fully with the settlement or otherwise prejudice any
rights the Holding Company may have in connection therewith without prior
consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section
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8 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination, such stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may
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reasonably be required by the Holding Company in connection with any litigation
in which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge,
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in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement of even date herewith,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South Carolina
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other
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cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, SouthBanc Shares, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the 21/st/ day of
June, 1999.
ATTEST: SOUTHBANC SHARES, INC.
/s/ Sylvia B.Reed By: /s/ Harold A. Pickens Jr.
- ----------------------- -------------------------------------
Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Lee S. Rucks By: /s/ Robert W. Orr
- ----------------------- -------------------------------------
Robert W. Orr
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 21, 1999, by and
between SouthBanc Shares, Inc. (the "Holding Company"), and Thomas C. Hall
("Executive"). Any reference to "Institution" herein shall mean Perpetual Bank,
A Federal Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Senior Vice President of the Holding Company. The Executive shall
render administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer or director of
any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other
<PAGE>
offices or positions in, companies or organizations, which, in such Board's
judgment, will not present any conflict of interest with the Holding Company or
its Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as Vice President of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $85,696 per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any tax-qualified
retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable in accordance with the Holding Company's customary
practices. During the period of this Agreement, Executive's Base Salary shall
be reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board delegated such responsibility by the Board.
The Committee or the Board may increase Executive's Base Salary. Any increase
in Base Salary shall become the "Base Salary" for purposes of this Agreement.
In addition to the Base Salary provided in this Section 3(a), the Holding
Company shall also provide Executive, at no premium cost to Executive, with all
such other benefits as provided uniformly to permanent full-time employees of
the Holding Company and its Subsidiaries. In addition, Executive shall be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company or its Subsidiaries in which Executive is
eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under all plans relating to stock options, restricted stock
awards, stock purchases, pension, thrift, supplemental retirement, profit-
sharing, employee stock ownership, group life insurance, medical and other
health and welfare coverage, education, cash or stock bonuses that are now or
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hereafter made available by the Holding Company or its Subsidiaries to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive compensation and
bonuses as provided in any plan of the Holding Company and its Subsidiaries in
which Executive is eligible to participate. Nothing paid to the Executive under
any such plan or arrangement will be deemed to be in lieu of other compensation
to which the Executive is entitled under this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as Vice President, unless consented to by the
Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm customarily performing such valuation, of any
stock options or related rights which as of the Date of Termination have been
granted to Executive but are not exercisable by Executive and the value of any
restricted stock or
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related rights which have been granted to Executive; but in which Executive does
not have a non-forfeitable or fully-vested interest as of the Date of
Termination; and (ii) all benefits, including health insurance in accordance
with Section 3(b) that would have been provided to Executive for the remaining
term of this Agreement had an Event of Termination not occurred. At the election
of the Executive, which election is to be made prior to an Event of Termination,
such payments shall be made in a lump sum. In the event that no election is
made, payment to the Executive will be made on a monthly basis in approximately
equal installments during the remaining term of the Agreement. Such payments
shall not be reduced in the event the Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") 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 whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the
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resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times
Executive's Average Annual Compensation (as defined herein) for the five (5)
preceding taxable years that Executive has been employed by the Holding Company
or its Subsidiaries or such lesser number of years in the event Executive shall
have been employed with the Holding Company or its Subsidiaries for less than
five (5) years. Such Average Annual Compensation shall include all taxable
income paid by the Holding Company or its Subsidiaries, including but not
limited to, Base Salary, commissions and bonuses, as well as contributions on
behalf of Executive to any pension plan, profit sharing plan, or employee stock
ownership plan, directors or board committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, for any taxable year in which
the Executive shall be liable, as determined for the payment of an excise tax
under Section 4999 of the Code (or any successor provision thereto), with
respect to any payment in the nature of the compensation made by the Holding
Company or the Institution to (or for the benefit of) Executive pursuant to this
Agreement or otherwise, the Holding Company shall pay to the Executive an
additional amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X= E x P
------------------------------
1-[(FI x (1 - SLI)) + SLI + E]
E= the rate at which the excise tax is assessed under Section 499 of the
Code;
P= the amount with respect to which such excise tax is assessed,
determined without regard to Section 2;
FI= the highest marginal rate of federal income, employment, and other
taxes (other than taxes imposed under Section 499 of the Code)
applicable to Executive for the taxable year in question; and
SLI= the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for the
taxable year in question.
With respects to any payment in the nature of compensation that is made to
(or for the benefit of) Executive under the terms of this Section or otherwise
and on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It if the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
Notwithstanding the foregoing, if it shall subsequently be determined in a
final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than
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the amount determined as "P", above (such greater amount being hereafter
referred to as "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive, in order to put the
Executive (or the Holding Company, as the case may be) in the same position as
the Executive (or the Holding Company, as the case may be) would have been if
the amount determined as "P" above had been equal to the Determinative Excess
Parachute Payment. In determining the Adjustment Amount, the independent
accountants shall take into account any and all taxes (including any penalties
and interest) paid by or for Executive or refunded to Executive or for
Executive's benefits. As soon as practicable after the Adjustment Amount has
been so determined, the Holding Company shall pay the Adjustment Amount to
Executive.
In each calendar year that Executive receives payments or benefits under
this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid under this
Supplemental Agreement is being reviewed or is in dispute. The Holding Company
shall assume control at its expense over all legal and accounting matters
pertaining to such federal tax treatment (except to the extent necessary or
appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall cooperate fully with the settlement or otherwise prejudice any
rights the Holding Company may have in connection therewith without prior
consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section
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8 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination, such stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may
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reasonably be required by the Holding Company in connection with any litigation
in which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge,
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in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement of even date herewith,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South Carolina
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other
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cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, SouthBanc Shares, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the 21/st/ day of
June, 1999.
ATTEST: SOUTHBANC SHARES, INC.
/s/ Sylvia B. Reed By: /s/ Harold A. Pickens, Jr.
- ----------------------------- ------------------------------------
Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Lee S. Rucks By: /s/ Thomas C. Hall
- ----------------------------- ------------------------------------
Thomas C. Hall
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 21, 1999, by and
between SouthBanc Shares, Inc. (the "Holding Company"), and Barry C. Visioli
("Executive"). Any reference to "Institution" herein shall mean Perpetual Bank,
A Federal Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Senior Vice President of the Holding Company. The Executive shall
render administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer or director of
any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present
<PAGE>
any conflict of interest with the Holding Company or its Subsidiaries, or
materially affect the performance of Executive's duties pursuant to this
Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as Vice President of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $74,984 per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any tax-qualified
retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable in accordance with the Holding Company's customary
practices. During the period of this Agreement, Executive's Base Salary shall
be reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board delegated such responsibility by the Board.
The Committee or the Board may increase Executive's Base Salary. Any increase
in Base Salary shall become the "Base Salary" for purposes of this Agreement.
In addition to the Base Salary provided in this Section 3(a), the Holding
Company shall also provide Executive, at no premium cost to Executive, with all
such other benefits as provided uniformly to permanent full-time employees of
the Holding Company and its Subsidiaries. In addition, Executive shall be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company or its Subsidiaries in which Executive is
eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under all plans relating to stock options, restricted stock
awards, stock purchases, pension, thrift, supplemental retirement, profit-
sharing, employee stock ownership, group life insurance, medical and other
health and welfare coverage, education, cash or stock bonuses that are now or
hereafter made available by the Holding Company or its Subsidiaries to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall
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administration of such plans and arrangements. Executive shall be entitled to
incentive compensation and bonuses as provided in any plan of the Holding
Company and its Subsidiaries in which Executive is eligible to participate.
Nothing paid to the Executive under any such plan or arrangement will be deemed
to be in lieu of other compensation to which the Executive is entitled under
this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as Vice President, unless consented to by the
Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm customarily performing such valuation, of any
stock options or related rights which as of the Date of Termination have been
granted to Executive but are not exercisable by Executive and the value of any
restricted stock or related rights which have been granted to Executive; but in
which Executive does not have a non-forfeitable or fully-vested interest as of
the Date of Termination; and (ii) all benefits, including health insurance in
accordance with Section 3(b) that would have been provided to Executive for the
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remaining term of this Agreement had an Event of Termination not occurred. At
the election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") 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 whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management
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of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Institution
or the Holding Company shall be distributed, or (E) a tender offer is made for
20% or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times
Executive's Average Annual Compensation (as defined herein) for the five (5)
preceding taxable years that Executive has been employed by the Holding Company
or its Subsidiaries or such lesser number of years in the event Executive shall
have been employed with the Holding Company or its Subsidiaries for less than
five (5) years. Such Average Annual Compensation shall include all taxable
income paid by the Holding Company or its Subsidiaries, including but not
limited to, Base Salary, commissions and bonuses, as well as contributions on
behalf of Executive to any pension plan, profit sharing plan, or employee stock
ownership plan, directors or board committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, for any taxable year in which
the Executive shall be liable, as determined for the payment of an excise tax
under Section 4999 of the Code (or any successor provision thereto), with
respect to any payment in the nature of the compensation made by the Holding
Company or the Institution to (or for the benefit of) Executive pursuant to this
Agreement or otherwise, the Holding Company shall pay to the Executive an
additional amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X= E x P
-------------------------------------------
1-[(FI x (1 - SLI)) + SLI + E]
E= the rate at which the excise tax is assessed under Section 499 of the
Code;
P= the amount with respect to which such excise tax is assessed,
determined without regard to Section 2;
FI= the highest marginal rate of federal income, employment, and other
taxes (other than taxes imposed under Section 499 of the Code)
applicable to Executive for the taxable year in question; and
SLI= the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for the
taxable year in question.
With respects to any payment in the nature of compensation that is made to
(or for the benefit of) Executive under the terms of this Section or otherwise
and on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It if the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
Notwithstanding the foregoing, if it shall subsequently be determined in a
final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as
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"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive, in order to put the Executive (or the
Holding Company, as the case may be) in the same position as the Executive (or
the Holding Company, as the case may be) would have been if the amount
determined as "P" above had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, the independent accountants shall
take into account any and all taxes (including any penalties and interest) paid
by or for Executive or refunded to Executive or for Executive's benefits. As
soon as practicable after the Adjustment Amount has been so determined, the
Holding Company shall pay the Adjustment Amount to Executive.
In each calendar year that Executive receives payments or benefits under
this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid under this
Supplemental Agreement is being reviewed or is in dispute. The Holding Company
shall assume control at its expense over all legal and accounting matters
pertaining to such federal tax treatment (except to the extent necessary or
appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall cooperate fully with the settlement or otherwise prejudice any
rights the Holding Company may have in connection therewith without prior
consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted
7
<PAGE>
to Executive under any stock benefit plan of the Institution, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
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10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
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11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement of even date herewith,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall
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<PAGE>
be deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South Carolina
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
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19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
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21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, SouthBanc Shares, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the 21/st/ day of
June, 1999.
ATTEST: SOUTHBANC SHARES, INC.
/s/ Sylvia B. Reed By: /s/ Harold A. Pickens, Jr.
- -------------------------- ---------------------------------------------
Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Lee S. Rucks By: /s/ Barry C. Visioli
- -------------------------- ---------------------------------------------
Barry C. Visioli
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 21, 1999, by and
among Perpetual Bank, A Federal Savings Bank (the "Bank"), a federally chartered
stock savings bank, SouthBanc Shares, Inc., a corporation organized under the
laws of the State of Delaware, the holding company for the Bank (the "Holding
Company"); and Robert W. Orr ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
President and Chief Executive Officer of the Bank. Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be thirty-six (36) months unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the Agreement
and Executive's performance annually for purposes of determining whether to
extend the Agreement and the rationale and results thereof shall be included in
the minutes of the Board's meeting. The Board shall give notice to the Executive
as soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations;
<PAGE>
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in such Board's judgment, will not
present any conflict of interest with the Bank, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $101,764 per
year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Bank. Such Base
Salary shall be payable in accordance with the Bank's customary payroll
practices. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank. In addition, Executive shall be entitled to incentive compensation
and bonuses as provided in any plan or arrangement of the Bank in which
Executive is eligible to participate.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Bank employees on a non-discriminatory basis. Without limiting
the generality of the foregoing provisions of this Subsection (b), Executive
shall be entitled to participate in or receive benefits under all plans relating
to stock options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group life
insurance, medical and other health and welfare coverage, education, cash or
stock bonuses that are now or hereafter made available by the Bank to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) The Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a termination governed by Section 5(a) hereof, or Termination
for Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Bank's employ upon any (A) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (B)
relocation of Executive's principal place of employment by more than 25 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (C) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (D) a liquidation or dissolution of the
Bank or Holding Company, or (E) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), or (E) above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of: (i)
the Base Salary and bonuses in accordance with Section 3(a) of this Agreement
that would have been paid to Executive for the remaining term of this Agreement
had the Event of Termination not occurred; and (ii) all benefits, including
health insurance in accordance with Section 3(b) that would have been provided
to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred; provided, however, that any payments pursuant to
-------- -------
this subsection and subsection 4(c) below shall not, in the aggregate, exceed
three times Executive's average annual compensation for the five most recent
taxable years that Executive has been employed by the Bank or such lesser number
of years in the event that Executive shall have been employed by the Bank for
less than five years. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the
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<PAGE>
remaining term of the Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the 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 voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") 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 whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment
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at any time during the term of this Agreement due to: (1) Executive's dismissal
or (2) Executive's voluntary resignation during the twelve (12) month period
following the date of the Change in Control following any demotion, loss of
title, office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of his death, disability,
retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
three (3) times Executive's Average Annual Compensation (as defined herein) for
the five (5) most recent taxable years that Executive has been employed by the
Bank or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five (5) years. Such "Average Annual
Compensation" shall include all taxable income paid by the Bank, including but
not limited to, Base Salary, commissions, and bonuses, as well as contributions
on Executive's behalf to any pension plan, profit sharing plan or employee stock
ownership plan, directors or board committee fees and fringe benefits paid or to
be paid to the Executive in any such year and payment of any expense items
without accountability or business purpose or that do not meet the Internal
Revenue Service requirements for deductibility by the Bank; provided, however,
-------- -------
that any payment under this provision and subsection 5(d) below shall not exceed
three (3) times the Executive's average annual compensation. In the event the
Bank is not in compliance with its minimum capital requirements or if such
payments would cause the Bank's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such time
as the Bank or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one
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dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by Section
5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
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written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which the
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners, agents, servants, employees and all
persons acting for or under the direction of Executive. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available to
the Bank for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or
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<PAGE>
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Bank. Further, Executive may disclose information regarding the business
activities of the Bank to the OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Bank will
be entitled to an injunction restraining Executive from disclosing, in whole or
in part, the knowledge of the past, present, planned or considered business
activities of the Bank or affiliates thereof, or from rendering any services to
any person, firm, corporation, other entity to whom such knowledge, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Bank from pursuing any other remedies
available to the Bank for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement of even date herewith,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement. Payments
pursuant to this Agreement and the Holding Company Agreement shall be allocated
in proportion to the services rendered and time expended on such activities by
Executive as determined by the Holding Company and the Bank on a quarterly
basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
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13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
In the event any of the foregoing provisions of this Section 15 are in
conflict with the terms of this Agreement, this Section 15 shall prevail.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Bank 's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal
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Deposit Insurance Act, 12 U.S.C. (S)1818(e)(4) or (g)(1), all obligations of the
Bank under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations of the Bank or when the Bank is
determined by the Director 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.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of South Carolina without regards to
principles of conflicts of law of this state, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring
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such expenses or liabilities), such expenses and liabilities to include, but not
be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Section 545.121 and any rules or regulations promulgated thereunder.
23. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF, Perpetual Bank, A Federal Savings Bank and SouthBanc
Shares, Inc. have caused this Agreement to be executed and their seals to be
affixed hereunto by their duly authorized officers and directors, and Executive
has signed this Agreement, on the 21/st/ day of June, 1999.
ATTEST: PERPETUAL BANK, A FEDERAL SAVINGS BANK
/s/ Sylvia B. Reed By: /s/ Harold A. Pickens, Jr.
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Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
ATTEST: SOUTHBANC SHARES, INC.
(As Guarantor)
/s/ Gayle I McCoy By: /s/ Harold A. Pickens, Jr.
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Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Lee S. Rucks /s/ Robert W. Orr
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Robert W. Orr
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 21, 1999, by and
among Perpetual Bank, A Federal Savings Bank (the "Bank"), a federally chartered
stock savings bank, SouthBanc Shares, Inc., a corporation organized under the
laws of the State of Delaware, the holding company for the Bank (the "Holding
Company"); and Thomas C. Hall ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Senior Vice President of the Bank. Executive shall render administrative and
management services to the Bank such as are customarily performed by persons
situated in a similar executive capacity. During said period, Executive also
agrees to serve, if elected, as an officer and director of the Holding Company
or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be thirty-six (36) months unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board shall give notice to
the Executive as soon as possible after such review as to whether the Agreement
is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations;
<PAGE>
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in such Board's judgment, will not
present any conflict of interest with the Bank, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Bank may be terminated by the Bank or the Executive during the term of
this Agreement, subject to the terms and conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $85,696 per
year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Bank. Such
Base Salary shall be payable in accordance with the Bank's customary payroll
practices. During the period of this Agreement, Executive's Base Salary shall
be reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank. In addition, Executive shall be entitled to incentive compensation
and bonuses as provided in any plan or arrangement of the Bank in which
Executive is eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under all plans relating to
stock options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group life
insurance, medical and other health and welfare coverage, education, cash or
stock bonuses that are now or hereafter made available by the Bank to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) The Bank shall pay or reimburse Executive for all reasonable travel and
other reasonable expenses incurred by Executive performing his obligations under
this Agreement and may provide such additional compensation in such form and
such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a termination governed by Section 5(a) hereof, or Termination
for Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Bank's employ upon any (A) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (B)
relocation of Executive's principal place of employment by more than 25 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (C) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (D) a liquidation or dissolution of the
Bank or Holding Company, or (E) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), or (E) above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred; and (ii) all benefits,
including health insurance in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred; provided, however, that any payments pursuant
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this subsection and subsection 4(c) below shall not, in the aggregate, exceed
three times Executive's average annual compensation for the five most recent
taxable years that Executive has been employed by the Bank or such lesser number
of years in the event that Executive shall have been employed by the Bank for
less than five years. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the
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remaining term of the Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the 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 voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") 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 whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment
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at any time during the term of this Agreement due to: (1) Executive's dismissal
or (2) Executive's voluntary resignation during the twelve (12) month period
following the date of the Change in Control following any demotion, loss of
title, office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of his death, disability,
retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
three (3) times Executive's Average Annual Compensation (as defined herein) for
the five (5) most recent taxable years that Executive has been employed by the
Bank or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five (5) years. Such "Average Annual
Compensation" shall include all taxable income paid by the Bank, including but
not limited to, Base Salary, commissions, and bonuses, as well as contributions
on Executive's behalf to any pension plan, profit sharing plan or employee stock
ownership plan, directors or board committee fees and fringe benefits paid or to
be paid to the Executive in any such year and payment of any expense items
without accountability or business purpose or that do not meet the Internal
Revenue Service requirements for deductibility by the Bank; provided, however,
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that any payment under this provision and subsection 5(d) below shall not exceed
three (3) times the Executive's average annual compensation. In the event the
Bank is not in compliance with its minimum capital requirements or if such
payments would cause the Bank's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such time
as the Bank or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one
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dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by Section
5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
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written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which the
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners, agents, servants, employees and all
persons acting for or under the direction of Executive. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available to
the Bank for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or
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after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Bank. Further, Executive may disclose information regarding the business
activities of the Bank to the OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Bank will
be entitled to an injunction restraining Executive from disclosing, in whole or
in part, the knowledge of the past, present, planned or considered business
activities of the Bank or affiliates thereof, or from rendering any services to
any person, firm, corporation, other entity to whom such knowledge, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Bank from pursuing any other remedies
available to the Bank for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement of even date herewith,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by Executive as determined by the Holding Company and the Bank on a
quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
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13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
In the event any of the foregoing provisions of this Section 15 are in
conflict with the terms of this Agreement, this Section 15 shall prevail.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal
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Deposit Insurance Act, 12 U.S.C. (S)1818(e)(4) or (g)(1), all obligations of the
Bank under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations of the Bank or when the Bank is
determined by the Director 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.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of South Carolina without regards to
principles of conflicts of law of this state, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring
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such expenses or liabilities), such expenses and liabilities to include, but not
be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Section 545.121 and any rules or regulations promulgated thereunder.
23. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF, Perpetual Bank, A Federal Savings Bank and SouthBanc
Shares, Inc. have caused this Agreement to be executed and their seals to be
affixed hereunto by their duly authorized officers and directors, and Executive
has signed this Agreement, on the 21/st/ day of June, 1999.
ATTEST: PERPETUAL BANK, A FEDERAL SAVINGS BANK
/s/ Sylvia B. Reed By: /s/ Harold A. Pickens, Jr.
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Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
ATTEST: SOUTHBANC SHARES, INC.
(As Guarantor)
/s/ Gayle I McCoy By: /s/ Harold A. Pickens, Jr.
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Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Lee S. Rucks /s/ Thomas C. Hall
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Thomas C. Hall
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 21, 1999, by and
among Perpetual Bank, A Federal Savings Bank (the "Bank"), a federally chartered
stock savings bank, SouthBanc Shares, Inc., a corporation organized under the
laws of the State of Delaware, the holding company for the Bank (the "Holding
Company"); and Barry C. Visioli ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Senior Vice President of the Bank. Executive shall render administrative and
management services to the Bank such as are customarily performed by persons
situated in a similar executive capacity. During said period, Executive also
agrees to serve, if elected, as an officer and director of the Holding Company
or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be thirty-six (36) months unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board shall give notice to
the Executive as soon as possible after such review as to whether the Agreement
is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations;
<PAGE>
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in such Board's judgment, will not
present any conflict of interest with the Bank, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $74,984 per
year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Bank. Such
Base Salary shall be payable in accordance with the Bank's customary payroll
practices. During the period of this Agreement, Executive's Base Salary shall
be reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank. In addition, Executive shall be entitled to incentive compensation
and bonuses as provided in any plan or arrangement of the Bank in which
Executive is eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under all plans relating to
stock options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group life
insurance, medical and other health and welfare coverage, education, cash or
stock bonuses that are now or hereafter made available by the Bank to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) The Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a termination governed by Section 5(a) hereof, or Termination
for Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Bank's employ upon any (A) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (B)
relocation of Executive's principal place of employment by more than 25 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (C) material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (D) a liquidation or dissolution of the
Bank or Holding Company, or (E) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), or (E) above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred; and (ii) all benefits,
including health insurance in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred; provided, however, that any payments pursuant to
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this subsection and subsection 4(c) below shall not, in the aggregate, exceed
three times Executive's average annual compensation for the five most recent
taxable years that Executive has been employed by the Bank or such lesser number
of years in the event that Executive shall have been employed by the Bank for
less than five years. In the event the Bank is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of the
Executive, which election is to be made prior to an Event of Termination, such
payments shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the
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remaining term of the Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the 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 voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") 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 whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment
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at any time during the term of this Agreement due to: (1) Executive's dismissal
or (2) Executive's voluntary resignation during the twelve (12) month period
following the date of the Change in Control following any demotion, loss of
title, office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of his death, disability,
retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
three (3) times Executive's Average Annual Compensation (as defined herein) for
the five (5) most recent taxable years that Executive has been employed by the
Bank or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five (5) years. Such "Average Annual
Compensation" shall include all taxable income paid by the Bank, including but
not limited to, Base Salary, commissions, and bonuses, as well as contributions
on Executive's behalf to any pension plan, profit sharing plan or employee stock
ownership plan, directors or board committee fees and fringe benefits paid or to
be paid to the Executive in any such year and payment of any expense items
without accountability or business purpose or that do not meet the Internal
Revenue Service requirements for deductibility by the Bank; provided, however,
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that any payment under this provision and subsection 5(d) below shall not exceed
three (3) times the Executive's average annual compensation. In the event the
Bank is not in compliance with its minimum capital requirements or if such
payments would cause the Bank's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such time
as the Bank or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following the Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one
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dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by Section
5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
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written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which the
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners, agents, servants, employees and all
persons acting for or under the direction of Executive. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available to
the Bank for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or
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after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Bank. Further, Executive may disclose information regarding the business
activities of the Bank to the OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Bank will
be entitled to an injunction restraining Executive from disclosing, in whole or
in part, the knowledge of the past, present, planned or considered business
activities of the Bank or affiliates thereof, or from rendering any services to
any person, firm, corporation, other entity to whom such knowledge, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Bank from pursuing any other remedies
available to the Bank for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement of even date herewith,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by Executive as determined by the Holding Company and the Bank on a
quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
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13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
In the event any of the foregoing provisions of this Section 15 are in
conflict with the terms of this Agreement, this Section 15 shall prevail.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Bank 's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal
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Deposit Insurance Act, 12 U.S.C. (S)1818(e)(4) or (g)(1), all obligations of the
Bank under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations of the Bank or when the Bank is
determined by the Director 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.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of South Carolina without regards to
principles of conflicts of law of this state, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
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(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Section 545.121 and any rules or regulations promulgated thereunder.
23. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF, Perpetual Bank, A Federal Savings Bank and SouthBanc
Shares, Inc. have caused this Agreement to be executed and their seals to be
affixed hereunto by their duly authorized officers and directors, and Executive
has signed this Agreement, on the 21/st/ day of June, 1999.
ATTEST: PERPETUAL BANK, A FEDERAL SAVINGS BANK
/s/ Sylvia B. Reed By: /s/ Harold A. Pickens, Jr.
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Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
ATTEST: SOUTHBANC SHARES, INC.
(As Guarantor)
/s/ Gayle I McCoy By: /s/ Harold A. Pickens, Jr.
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Harold A. Pickens, Jr.
For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Lee S. Rucks /s/ Barry C. Visioli
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Barry C. Visioli
<PAGE>
EXHIBIT 10.9
PERPETUAL BANK, A FEDERAL SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is made effective as of April 1, 1998 by and between
Perpetual Bank, A Federal Savings Bank (the "Bank"), and Robert W. Orr (the
"Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Bank, the Bank is
willing to provide salary continuation benefits to the Executive. The Bank will
pay such benefits from its general assets.
The Executive and the Bank agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Change in Control" shall mean an event deemed to occur if and
when (a) an offeror other than the Company purchases shares of the common stock
of the Company or the Bank pursuant to a tender or exchange offer for such
shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) is or becomes the beneficial owner,
directly or indirectly, of securities of the Company or the Bank representing
25% or more of the combined voting power of the Company's or the Bank's then
outstanding securities, (c) the membership of the board of directors of the
Company or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four month period
(whether commencing before or after the date of adoption of this Agreement) do
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Bank approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's or the Bank's assets,
or a plan of partial or complete liquidation.
1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be that section as it now exists
and to any successor provision.
1.1.3 "Company" means SouthBanc Shares, Inc., a Delaware corporation.
1.1.4 "Disability" means the Executive's inability to perform
substantially all normal duties of the Executive's positions, as determined by
the Bank's Board of Directors in its sole discretion. As a condition to any
benefits, the Bank may require the Executive to submit to such physical or
mental evaluations and tests as the Board of Directors deems appropriate.
<PAGE>
1.1.5 "Normal Retirement Date" means the date on which Executive
attains age 65.
1.1.6 "Termination of Employment" means the Executive's ceasing to
be employed by the Bank for any reason whatsoever, voluntary or involuntary,
other than by reason of an approved leave of absence.
1.1.7 "Plan Year" means the twelve-month period ending March 31.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. If the Executive terminates employment on
or after the Normal Retirement Date for reasons other than death, the Bank shall
pay to the Executive the benefit described in this Section 2.1.
2.1.1 Amount of Benefit. The benefit under this Section 2.1 is
$7,575.00 per month.
2.1.2 Payment of Benefit. The Bank shall pay the benefit under
Section 2.1.1 to the Executive on the first day of each month commencing with
the month following his termination of employment and continuing for 239
additional months.
2.2 Early Retirement Benefit. If the Executive terminates employment
before the Normal Retirement Date, and for reasons other than death or
Disability, the Bank shall pay to the Executive the benefit described in Section
2.2.
2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the
benefit determined under Schedule A, Column 2 based on the date of the
Executive's termination of employment.
2.2.2 Payment of Benefits. The Bank shall pay the benefit under
Section 2.1.1 to the Executive on the first date of each month commencing with
the month following the Executive's Normal Retirement Date and continuing for
239 additional months. Notwithstanding anything herein to the contrary, the
Executive may, prior to his termination of employment, elect to commence payment
of the Early Retirement Benefit on the first day of the month following his
termination of employment in the form of a reduced benefit determined under
Schedule A, Column 1 and continuing for 239 additional months.
2.3 Disability Benefit. If the Executive terminates employment for
Disability prior to the Normal Retirement Date, the Bank shall pay the Executive
the benefit described in this Section 2.3.
2
<PAGE>
2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the
benefit determined under Schedule A, Column 1 based on the date of the
Executive's termination of employment for Disability.
2.3.2 Payment of Benefit. The Bank shall pay the benefit to the
Executive on the first day of each month commencing with the month following the
Executive's termination of employment for disability and continuing for 239
additional months.
2.4 Change of Control Benefit. Upon the occurrence of a Change of Control
while the Executive is in the active service of the Bank, the Bank shall pay the
Executive the benefit described in this Section 2.4 in lieu of any other benefit
under this Agreement.
2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the
Executive's Normal Retirement Benefit as provided in Section 2.1.1.
2.4.2 Payment of Benefit. The Bank (or any successor thereto) shall
pay the benefit to the Executive on the first day of each month commencing with
the month following the Executive's Normal Retirement Date and continuing for
239 additional months.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the
active service of the Bank, the Bank shall pay to the Executive's beneficiary
the benefit described in this Section 3.1
3.1.1 Amount of Benefits. The benefit under Section 3.1 is the
lifetime benefits that would have been paid to the Executive under Section 2.1
calculated as if the date of the Executive's death were his Normal Retirement
Date.
3.1.2 Payment of Benefit. The Bank shall pay the benefit to the
Beneficiary on the first day of each month following the Executive's death and
continuing for 239 months.
3.2 Death During Benefit Period. If the Executive dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Bank shall pay the remaining benefits to the Executive's
beneficiary at the same time and in the same amounts they would have been paid
to the Executive had the Executive survived.
3.3 Death After Early Retirement. If the Executive dies after terminating
employment for Early Retirement under Section 2.2 but prior to commencement of
benefits payments under this Agreement, the Bank shall pay to the Executive's
beneficiary the benefit described in this Section 3.3.
3
<PAGE>
3.3.1 Amount of Benefit. The benefit under Section 3.3 is the
lifetime benefits that would have been paid to the Executive under Section 2.2.
3.3.2 Payment of Benefit. The Bank shall pay the benefit to the
Beneficiary of the first day of each month commencing with the month following
the Executive's death and continuing for 239 months.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary
by filing a written designation with the Bank. The Executive may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Executive and accepted by
the Bank during the Executive's lifetime. The Executive's beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Executive, or if the Executive names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive's surviving
spouse, if any, and if none, to the Executive's surviving children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Bank may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
or person or incapable person. The Bank may require proof of incompetency,
minority, or guardianship as it may deem appropriate prior to distribution of
the benefit. Such distribution shall completely discharge the Bank from all
liability with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provisions of this Agreement to the contrary, the Bank
shall not pay any benefit under this Agreement:
5.1 Excess Parachute Payment. To the extent that the benefits payable
under this Agreement, taken together with any other payments of benefits to be
provided to Executive upon a Change in Control, would be an excess parachute
payments under Section 280G of the Code.
5.2 Termination of Cause. If the Bank terminates the Executive's
employment for:
5.2.1 Gross negligence or gross neglect of duties;
4
<PAGE>
5.2.2 Commission of a felony or of a gross misdemeanor involving
moral turpitude; or
5.2.3 Fraud, disloyalty, dishonestly or willful violation of any law,
regulation or significant Bank policy committed in connection with the
Executive's employment and resulting in an adverse effect on the Bank.
5.3 Suicide, Misstatement. No benefits shall be payable if the Executive
commits suicide within two years after the date of this Agreement, or if the
Executive has made any material misstatement of fact on any application for life
insurance purchased by the Bank.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Bank shall notify the Executive's beneficiary
in writing, within ninety (90) days of his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Agreement. If the Bank determines that the beneficiary is not eligible for
benefits or full benefits, the notice shall set forth (1) the specific reasons
for such denial, (2) a specific reference to the provisions of the Agreement on
which the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Bank
determines that there are special circumstances requiring additional time to
make a decision, the Bank shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Bank
not to be eligible for benefits, or if the beneficiary believes that he or she
is entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Bank by filing a petition for
review with the Bank within sixty (60) days after the receipt of the notice
issued by the Bank. Said petition shall state the specific reasons which the
beneficiary believe entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Bank of the petition,
the Bank shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her positions to the Bank orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Bank shall notify the beneficiary of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Agreement on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient , the decision may be deferred
for up to another sixty-day period at the election of the Bank, but notice of
this deferral shall be given to the beneficiary.
5
<PAGE>
Article 7
Amendment and Termination
The Bank may amend or terminate this Agreement at any time prior to the
Executive's Termination of Employment by written notice to the Executive;
provided, however, that any amendment or termination of this Agreement shall not
- -------- -------
affect the vested benefit of the Executive as of the date of such amendment or
termination.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Bank,
and their beneficiaries, survivors, executors, administrators and transferees.
The Bank, or the Company acting on behalf of the Bank, shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank, expressly and unconditionally to assume and agree to perform the
Bank's obligations under this Agreement, in the same manner and to the same
extent that the Bank would be required to perform if no such succession or
assignment had taken place.
8.2 No Guaranty of Employment. This Agreement is not an employment policy
or contract. It does not give the Executive the right to remain an employee of
the Bank, nor does it interfere with the Bank's right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive's right to terminate employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
8.4 Tax Withholding. The Bank shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of South Carolina, except to the extent preempted by the
laws of the United States of America.
8.6 Unfunded Arrangement. The Executive and beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Bank to pay such
benefits. The rights to benefits are not subject in any manner or anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive's life is a general
asset of the Bank to which the Executive and beneficiary have no preferred or
secured claim.
6
<PAGE>
IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank
have signed this Agreement on the 20/th/ day of April, 1998.
Attest: PERPETUAL BANK, A FEDERAL
SAVINGS BANK
/s/ Sylvia B. Reed /s/ Harold A. Pickens, Jr.
- ------------------------------ ------------------------------------
Chairman of the Board
Witness:
/s/ Jennifer L. Motes /s/ Robert W. Orr
- ------------------------------ ------------------------------------
Robert W. Orr
7
<PAGE>
EXHIBIT 10.10
PERPETUAL BANK, A FEDERAL SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is made effective as of April 1, 1998 by and between
Perpetual Bank, A Federal Savings Bank (the "Bank"), and Thomas C. Hall (the
"Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Bank, the Bank is
willing to provide salary continuation benefits to the Executive. The Bank will
pay such benefits from its general assets.
The Executive and the Bank agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Change in Control" shall mean an event deemed to occur if and
when (a) an offeror other than the Company purchases shares of the common stock
of the Company or the Bank pursuant to a tender or exchange offer for such
shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) is or becomes the beneficial owner,
directly or indirectly, of securities of the Company or the Bank representing
25% or more of the combined voting power of the Company's or the Bank's then
outstanding securities, (c) the membership of the board of directors of the
Company or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four month period
(whether commencing before or after the date of adoption of this Agreement) do
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Bank approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's or the Bank's assets,
or a plan of partial or complete liquidation.
1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be that section as it now exists
and to any successor provision.
1.1.3 "Company" means SouthBanc Shares, Inc., a Delaware corporation.
1.1.4 "Disability" means the Executive's inability to perform
substantially all normal duties of the Executive's positions, as determined by
the Bank's Board of Directors in its sole discretion. As a condition to any
benefits, the Bank may require the Executive to submit to such physical or
mental evaluations and tests as the Board of Directors deems appropriate.
<PAGE>
1.1.5 "Normal Retirement Date" means the date on which Executive
attains age 65.
1.1.6 "Termination of Employment" means the Executive's ceasing to be
employed by the Bank for any reason whatsoever, voluntary or involuntary, other
than by reason of an approved leave of absence.
1.1.7 "Plan Year" means the twelve-month period ending March 31.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. If the Executive terminates employment on
or after the Normal Retirement Date for reasons other than death, the Bank shall
pay to the Executive the benefit described in this Section 2.1.
2.1.1 Amount of Benefit. The benefit under this Section 2.1 is
$3,433.33 per month.
2.1.2 Payment of Benefit. The Bank shall pay the benefit under
Section 2.1.1 to the Executive on the first day of each month commencing with
the month following his termination of employment and continuing for 239
additional months.
2.2 Early Retirement Benefit. If the Executive terminates employment
before the Normal Retirement Date, and for reasons other than death or
Disability, the Bank shall pay to the Executive the benefit described in Section
2.2.
2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the
benefit determined under Schedule A, Column 2 based on the date of the
Executive's termination of employment.
2.2.2 Payment of Benefits. The Bank shall pay the benefit under
Section 2.1.1 to the Executive on the first date of each month commencing with
the month following the Executive's Normal Retirement Date and continuing for
239 additional months. Notwithstanding anything herein to the contrary, the
Executive may, prior to his termination of employment, elect to commence payment
of the Early Retirement Benefit on the first day of the month following his
termination of employment in the form of a reduced benefit determined under
Schedule A, Column 1 and continuing for 239 additional months.
2.3 Disability Benefit. If the Executive terminates employment for
Disability prior to the Normal Retirement Date, the Bank shall pay the Executive
the benefit described in this Section 2.3.
2
<PAGE>
2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the
benefit determined under Schedule A, Column 1 based on the date of the
Executive's termination of employment for Disability.
2.3.2 Payment of Benefit. The Bank shall pay the benefit to the
Executive on the first day of each month commencing with the month following the
Executive's termination of employment for disability and continuing for 239
additional months.
2.4 Change of Control Benefit. Upon the occurrence of a Change of Control
while the Executive is in the active service of the Bank, the Bank shall pay the
Executive the benefit described in this Section 2.4 in lieu of any other benefit
under this Agreement.
2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the
Executive's Normal Retirement Benefit as provided in Section 2.1.1.
2.4.2 Payment of Benefit. The Bank (or any successor thereto) shall
pay the benefit to the Executive on the first day of each month commencing with
the month following the Executive's Normal Retirement Date and continuing for
239 additional months.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the
active service of the Bank, the Bank shall pay to the Executive's beneficiary
the benefit described in this Section 3.1
3.1.1 Amount of Benefits. The benefit under Section 3.1 is the
lifetime benefits that would have been paid to the Executive under Section 2.1
calculated as if the date of the Executive's death were his Normal Retirement
Date.
3.1.2 Payment of Benefit. The Bank shall pay the benefit to the
Beneficiary on the first day of each month following the Executive's death and
continuing for 239 months.
3.2 Death During Benefit Period. If the Executive dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Bank shall pay the remaining benefits to the Executive's
beneficiary at the same time and in the same amounts they would have been paid
to the Executive had the Executive survived.
3.3 Death After Early Retirement. If the Executive dies after terminating
employment for Early Retirement under Section 2.2 but prior to commencement of
benefits payments under this Agreement, the Bank shall pay to the Executive's
beneficiary the benefit described in this Section 3.3.
3
<PAGE>
3.3.1 Amount of Benefit. The benefit under Section 3.3 is the
lifetime benefits that would have been paid to the Executive under Section 2.2.
3.3.2 Payment of Benefit. The Bank shall pay the benefit to the
Beneficiary of the first day of each month commencing with the month following
the Executive's death and continuing for 239 months.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary
by filing a written designation with the Bank. The Executive may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Executive and accepted by
the Bank during the Executive's lifetime. The Executive's beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Executive, or if the Executive names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive's surviving
spouse, if any, and if none, to the Executive's surviving children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Bank may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
or person or incapable person. The Bank may require proof of incompetency,
minority, or guardianship as it may deem appropriate prior to distribution of
the benefit. Such distribution shall completely discharge the Bank from all
liability with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provisions of this Agreement to the contrary, the Bank
shall not pay any benefit under this Agreement:
5.1 Excess Parachute Payment. To the extent that the benefits payable
under this Agreement, taken together with any other payments of benefits to be
provided to Executive upon a Change in Control, would be an excess parachute
payments under Section 280G of the Code.
5.2 Termination of Cause. If the Bank terminates the Executive's
employment for:
5.2.1 Gross negligence or gross neglect of duties;
4
<PAGE>
5.2.2 Commission of a felony or of a gross misdemeanor involving
moral turpitude; or
5.2.3 Fraud, disloyalty, dishonestly or willful violation of any law,
regulation or significant Bank policy committed in connection with the
Executive's employment and resulting in an adverse effect on the Bank.
5.3 Suicide, Misstatement. No benefits shall be payable if the Executive
commits suicide within two years after the date of this Agreement, or if the
Executive has made any material misstatement of fact on any application for life
insurance purchased by the Bank.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Bank shall notify the Executive's beneficiary
in writing, within ninety (90) days of his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Agreement. If the Bank determines that the beneficiary is not eligible for
benefits or full benefits, the notice shall set forth (1) the specific reasons
for such denial, (2) a specific reference to the provisions of the Agreement on
which the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Bank
determines that there are special circumstances requiring additional time to
make a decision, the Bank shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Bank
not to be eligible for benefits, or if the beneficiary believes that he or she
is entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Bank by filing a petition for
review with the Bank within sixty (60) days after the receipt of the notice
issued by the Bank. Said petition shall state the specific reasons which the
beneficiary believe entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Bank of the petition,
the Bank shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her positions to the Bank orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Bank shall notify the beneficiary of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Agreement on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient , the decision may be deferred
for up to another sixty-day period at the election of the Bank, but notice of
this deferral shall be given to the beneficiary.
5
<PAGE>
Article 7
Amendment and Termination
The Bank may amend or terminate this Agreement at any time prior to the
Executive's Termination of Employment by written notice to the Executive;
provided, however, that any amendment or termination of this Agreement shall not
- -------- -------
affect the vested benefit of the Executive as of the date of such amendment or
termination.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Bank,
and their beneficiaries, survivors, executors, administrators and transferees.
The Bank, or the Company acting on behalf of the Bank, shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank, expressly and unconditionally to assume and agree to perform the
Bank's obligations under this Agreement, in the same manner and to the same
extent that the Bank would be required to perform if no such succession or
assignment had taken place.
8.2 No Guaranty of Employment. This Agreement is not an employment policy
or contract. It does not give the Executive the right to remain an employee of
the Bank, nor does it interfere with the Bank's right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive's right to terminate employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
8.4 Tax Withholding. The Bank shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of South Carolina, except to the extent preempted by the
laws of the United States of America.
8.6 Unfunded Arrangement. The Executive and beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Bank to pay such
benefits. The rights to benefits are not subject in any manner or anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive's life is a general
asset of the Bank to which the Executive and beneficiary have no preferred or
secured claim.
6
<PAGE>
IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank
have signed this Agreement on the 20/th/ day of April, 1998.
Attest: PERPETUAL BANK, A FEDERAL
SAVINGS BANK
/s/ Sylvia B. Reed /s/ Harold A. Pickens,Jr.
- --------------------------- ----------------------------------
Chairman of the Board
Witness:
/s/ Jennifer L. Motes /s/ Thomas C. Hall
- --------------------------- ----------------------------------
Thomas C. Hall
7
<PAGE>
EXHIBIT 10.11
PERPETUAL BANK, A FEDERAL SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is made effective as of April 1, 1998 by and between
Perpetual Bank, A Federal Savings Bank (the "Bank"), and Barry C. Visioli (the
"Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Bank, the Bank is
willing to provide salary continuation benefits to the Executive. The Bank will
pay such benefits from its general assets.
The Executive and the Bank agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Change in Control" shall mean an event deemed to occur if and
when (a) an offeror other than the Company purchases shares of the common stock
of the Company or the Bank pursuant to a tender or exchange offer for such
shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) is or becomes the beneficial owner,
directly or indirectly, of securities of the Company or the Bank representing
25% or more of the combined voting power of the Company's or the Bank's then
outstanding securities, (c) the membership of the board of directors of the
Company or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four month period
(whether commencing before or after the date of adoption of this Agreement) do
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Bank approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's or the Bank's assets,
or a plan of partial or complete liquidation.
1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.
References to a Code section shall be deemed to be that section as it now exists
and to any successor provision.
1.1.3 "Company" means SouthBanc Shares, Inc., a Delaware corporation.
1.1.4 "Disability" means the Executive's inability to perform
substantially all normal duties of the Executive's positions, as determined by
the Bank's Board of Directors in its sole discretion. As a condition to any
benefits, the Bank may require the Executive to submit to such physical or
mental evaluations and tests as the Board of Directors deems appropriate.
<PAGE>
1.1.5 "Normal Retirement Date" means the date on which Executive
attains age 65.
1.1.6 "Termination of Employment" means the Executive's ceasing to
be employed by the Bank for any reason whatsoever, voluntary or involuntary,
other than by reason of an approved leave of absence.
1.1.7 "Plan Year" means the twelve-month period ending March 31.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. If the Executive terminates employment on
or after the Normal Retirement Date for reasons other than death, the Bank shall
pay to the Executive the benefit described in this Section 2.1.
2.1.1 Amount of Benefit. The benefit under this Section 2.1 is
$2,808.33 per month.
2.1.2 Payment of Benefit. The Bank shall pay the benefit under
Section 2.1.1 to the Executive on the first day of each month commencing with
the month following his termination of employment and continuing for 239
additional months.
2.2 Early Retirement Benefit. If the Executive terminates employment
before the Normal Retirement Date, and for reasons other than death or
Disability, the Bank shall pay to the Executive the benefit described in Section
2.2.
2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the
benefit determined under Schedule A, Column 2 based on the date of the
Executive's termination of employment.
2.2.2 Payment of Benefits. The Bank shall pay the benefit under
Section 2.1.1 to the Executive on the first date of each month commencing with
the month following the Executive's Normal Retirement Date and continuing for
239 additional months. Notwithstanding anything herein to the contrary, the
Executive may, prior to his termination of employment, elect to commence payment
of the Early Retirement Benefit on the first day of the month following his
termination of employment in the form of a reduced benefit determined under
Schedule A, Column 1 and continuing for 239 additional months.
2.3 Disability Benefit. If the Executive terminates employment for
Disability prior to the Normal Retirement Date, the Bank shall pay the Executive
the benefit described in this Section 2.3.
2
<PAGE>
2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the
benefit determined under Schedule A, Column 1 based on the date of the
Executive's termination of employment for Disability.
2.3.2 Payment of Benefit. The Bank shall pay the benefit to the
Executive on the first day of each month commencing with the month following the
Executive's termination of employment for disability and continuing for 239
additional months.
2.4 Change of Control Benefit. Upon the occurrence of a Change of Control
while the Executive is in the active service of the Bank, the Bank shall pay the
Executive the benefit described in this Section 2.4 in lieu of any other benefit
under this Agreement.
2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the
Executive's Normal Retirement Benefit as provided in Section 2.1.1.
2.4.2 Payment of Benefit. The Bank (or any successor thereto) shall
pay the benefit to the Executive on the first day of each month commencing with
the month following the Executive's Normal Retirement Date and continuing for
239 additional months.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the
active service of the Bank, the Bank shall pay to the Executive's beneficiary
the benefit described in this Section 3.1
3.1.1 Amount of Benefits. The benefit under Section 3.1 is the
lifetime benefits that would have been paid to the Executive under Section 2.1
calculated as if the date of the Executive's death were his Normal Retirement
Date.
3.1.2 Payment of Benefit. The Bank shall pay the benefit to the
Beneficiary on the first day of each month following the Executive's death and
continuing for 239 months.
3.2 Death During Benefit Period. If the Executive dies after benefit
payments have commenced under this Agreement but before receiving all such
payments, the Bank shall pay the remaining benefits to the Executive's
beneficiary at the same time and in the same amounts they would have been paid
to the Executive had the Executive survived.
3.3 Death After Early Retirement. If the Executive dies after terminating
employment for Early Retirement under Section 2.2 but prior to commencement of
benefits payments under this Agreement, the Bank shall pay to the Executive's
beneficiary the benefit described in this Section 3.3.
3
<PAGE>
3.3.1 Amount of Benefit. The benefit under Section 3.3 is the
lifetime benefits that would have been paid to the Executive under Section 2.2.
3.3.2 Payment of Benefit. The Bank shall pay the benefit to the
Beneficiary of the first day of each month commencing with the month following
the Executive's death and continuing for 239 months.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary
by filing a written designation with the Bank. The Executive may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Executive and accepted by
the Bank during the Executive's lifetime. The Executive's beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Executive, or if the Executive names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive's surviving
spouse, if any, and if none, to the Executive's surviving children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Bank may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
or person or incapable person. The Bank may require proof of incompetency,
minority, or guardianship as it may deem appropriate prior to distribution of
the benefit. Such distribution shall completely discharge the Bank from all
liability with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provisions of this Agreement to the contrary, the Bank
shall not pay any benefit under this Agreement:
5.1 Excess Parachute Payment. To the extent that the benefits payable
under this Agreement, taken together with any other payments of benefits to be
provided to Executive upon a Change in Control, would be an excess parachute
payments under Section 280G of the Code.
5.2 Termination of Cause. If the Bank terminates the Executive's
employment for:
5.2.1 Gross negligence or gross neglect of duties;
4
<PAGE>
5.2.2 Commission of a felony or of a gross misdemeanor involving
moral turpitude; or
5.2.3 Fraud, disloyalty, dishonestly or willful violation of any law,
regulation or significant Bank policy committed in connection with the
Executive's employment and resulting in an adverse effect on the Bank.
5.3 Suicide, Misstatement. No benefits shall be payable if the Executive
commits suicide within two years after the date of this Agreement, or if the
Executive has made any material misstatement of fact on any application for life
insurance purchased by the Bank.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Bank shall notify the Executive's beneficiary
in writing, within ninety (90) days of his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Agreement. If the Bank determines that the beneficiary is not eligible for
benefits or full benefits, the notice shall set forth (1) the specific reasons
for such denial, (2) a specific reference to the provisions of the Agreement on
which the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to be
taken if the beneficiary wishes to have the claim reviewed. If the Bank
determines that there are special circumstances requiring additional time to
make a decision, the Bank shall notify the beneficiary of the special
circumstances and the date by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the Bank not to
be eligible for benefits, or if the beneficiary believes that he or she is
entitled to greater or different benefits, the beneficiary shall have the
opportunity to have such claim reviewed by the Bank by filing a petition for
review with the Bank within sixty (60) days after the receipt of the notice
issued by the Bank. Said petition shall state the specific reasons which the
beneficiary believe entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Bank of the petition, the
Bank shall afford the beneficiary (and counsel, if any) an opportunity to
present his or her positions to the Bank orally or in writing, and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Bank shall notify the beneficiary of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Agreement on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient, the decision may be deferred
for up to another sixty-day period at the election of the Bank, but notice of
this deferral shall be given to the beneficiary.
5
<PAGE>
Article 7
Amendment and Termination
The Bank may amend or terminate this Agreement at any time prior to the
Executive's Termination of Employment by written notice to the Executive;
provided, however, that any amendment or termination of this Agreement shall not
- -------- -------
affect the vested benefit of the Executive as of the date of such amendment or
termination.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the Bank,
and their beneficiaries, survivors, executors, administrators and transferees.
The Bank, or the Company acting on behalf of the Bank, shall require any
successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all the business or assets
of the Bank, expressly and unconditionally to assume and agree to perform the
Bank's obligations under this Agreement, in the same manner and to the same
extent that the Bank would be required to perform if no such succession or
assignment had taken place.
8.2 No Guaranty of Employment. This Agreement is not an employment policy
or contract. It does not give the Executive the right to remain an employee of
the Bank, nor does it interfere with the Bank's right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive's right to terminate employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
8.4 Tax Withholding. The Bank shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of South Carolina, except to the extent preempted by the
laws of the United States of America.
8.6 Unfunded Arrangement. The Executive and beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Bank to pay such
benefits. The rights to benefits are not subject in any manner or anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive's life is a general
asset of the Bank to which the Executive and beneficiary have no preferred or
secured claim.
6
<PAGE>
IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank
have signed this Agreement on the 20/th/ day of April, 1998.
Attest: PERPETUAL BANK, A FEDERAL
SAVINGS BANK
/s/ Sylvia B. Reed /s/ Harold A. Pickens, Jr.
- ------------------------------- -----------------------------------
Chairman of the Board
Witness:
/s/ Jennifer L. Motes /s/ Barry C. Visioli
- ------------------------------- -----------------------------------
Barry C. Visioli
7
<PAGE>
EXHIBIT 13
SouthBanc Shares, Inc.
1999 Annual Report
<PAGE>
SouthBanc Shares, Inc.
TABLE OF CONTENTS
Selected Financial Information........................ 3
Key Operating Ratios.................................. 5
Letter to Shareholders................................ 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 7
Independent Auditor's Report.......................... 23
Consolidated Balance Sheets........................... 24
Consolidated Statements of Income..................... 25
Consolidated Statements of Stockholders' Equity....... 26
Consolidated Statements of Cash Flows................. 28
Notes to Consolidated Financial Statements............ 30
Corporate Information................................. 57
Market for Common Stock and Dividend Policy........... 58
1
<PAGE>
SouthBanc Shares, Inc.
907 North Main Street
Anderson, South Carolina 29621
SouthBanc Shares, Inc. ("Company"), a Delaware corporation, was organized on
November 6, 1997, for the purpose of becoming the holding company for Perpetual
Bank, A Federal Savings Bank ("Savings Bank") upon the Savings Bank's
reorganization as a wholly owned subsidiary of the Company resulting from the
conversion of SouthBanc Shares, M.H.C., Anderson, South Carolina ("MHC"), from a
federal mutual holding company to a stock holding company ("Conversion and
Reorganization"). The Conversion and Reorganization was completed on April 14,
1998. In connection with the Conversion and Reorganization, the Company issued
2,281,312 shares of its common stock at $20.00 per share. In addition, each
share of common stock of the Savings Bank issued and outstanding and held by
persons other than the MHC were exchanged in the Conversion and Reorganization
for 2.85164 shares of common stock of the Company (with cash issued in lieu of
fractional shares at the rate of $20.00 per share).
The Company's primary business is coordinating and directing the affairs and
operations of the Savings Bank. The Savings Bank is primarily engaged in the
business of attracting deposits from the general public and originating and
purchasing mortgage loans, which are secured by one-to-four-family residential
properties, or investing in mortgage-backed securities. To a lesser but growing
extent, the Savings Bank originates loans secured by commercial real estate as
well as commercial business and consumer loans. The Savings Bank's savings
accounts are insured up to the applicable limits by the Federal Deposit
Insurance Corporation ("FDIC") through the Savings Association Insurance Fund
("SAIF"). The Savings Bank is a member of the Federal Home Loan Bank ("FHLB")
System. The Savings Bank conducts its operations through its Main Office
located at 907 North Main Street, Anderson, South Carolina, four branch offices
located in Anderson, South Carolina, and one office located in Seneca, South
Carolina. The telephone number of the Main Office is 864-225-0241.
2
<PAGE>
SELECTED FINANCIAL INFORMATION
------------------------------
The following tables set forth certain information concerning the consolidated
financial position and results of operations of the Company at the dates and for
the periods indicated. This information is qualified in its entirety by
reference to the detailed information contained in the Consolidated Financial
Statements and noted thereto presented elsewhere in this report.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----- ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets $372,151 $362,529 $256,993 $209,827 $178,304
Cash and interest-bearing deposits 15,546 21,197 13,499 13,585 6,630
Investment in limited partnership (1) 1,575 825 5,004 - -
Investment securities available for 16,244 23,301 11,326 2,494 800
sale
Mortgage-backed securities available
for sale 58,385 73,933 35,863 43,125 46,344
Loans receivable, net 255,488 219,896 178,772 140,758 116,539
Deposits 221,257 207,791 201,002 160,244 148,709
Borrowings 93,254 76,174 15,000 16,000 8,000
Stockholders equity 52,751 74,407 30,602 29,091 18,232
</TABLE>
<TABLE>
<CAPTION>
For The Years Ended September 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income 26,228 $ 23,937 $ 18,396 $ 14,921 $ 13,543
Interest expense 13,438 12,256 9,496 7,425 8,761
-------- -------- -------- -------- --------
Net interest income 12,790 11,681 8,900 7,496 4,782
Provision for loan losses 481 606 655 349 362
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 12,309 11,075 8,245 7,147 4,420
Other income 5,148 3,761 1,855 1,927 3,231
Loss reserve (recapture) on limited (750) 4,500 0 0 0
partnership
General and administrative expenses 9,318 8,525 7,446 6,894 5,540
-------- -------- -------- -------- --------
Income before income taxes 8,889 1,811 2,654 2,180 2,111
Income taxes 2,916 549 926 756 194
-------- -------- -------- -------- --------
Net income $ 5,973 $ 1,262 $ 1,728 $ 1,424 $ 1,917
======== ======== ======== ======== ========
</TABLE>
Footnotes on second following page
3
<PAGE>
Selected Financial Information (Continued)
- ------------------------------------------
<TABLE>
<CAPTION>
For The Years Ended September 30,
------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (2):
Basic earnings per share $ 1.76 $ 0.30 $ 0.41 $ 0.33 $ 0.45
Diluted earnings per share $ 1.67 $ 0.29 $ 0.40 0.33 0.45
Weighted average shares outstanding
Basic 3,386,851 4,199,237 4,174,528 4,290,580 4,289,035
Diluted 3,570,156 4,406,381 4,322,815 4,315,880 4,296,081
Dividends per share (3) $ 0.54 $ 0.48 $ 0.47 $ 0.42 $ 0.37
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Number of:
Real estate loans outstanding 4,848 3,121 2,645 2,653 2,846
Deposit accounts 35,388 32,361 31,504 26,135 21,490
Full-service offices 6 6 6 5 5
</TABLE>
Footnotes on following page
4
<PAGE>
KEY OPERATING RATIOS
<TABLE>
<CAPTION>
At or For The Years Ended September 30,
-----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Performance Ratios
Return on average assets (net income
divided by average assets) 1.61% 0.39% 0.72% 0.75% 0.92%
Return on average equity (net income
divided by average equity) 10.18 2.41 5.78 7.40 11.88
Average equity to average assets 15.78 16.04 12.54 10.16 7.77
Interest rate spread (difference
between yield on interest-earning
assets and average cost of
interest-
bearing liabilities for the 3.26 3.35 3.57 3.85 3.61
period (4)
Net interest margin (net interest
income as a percentage of average
interest-earning assets for the
period (4) 3.72 3.85 3.96 4.16 2.90
Dividend Payout Ratio (3) 29.72 165.58 117.39 126.32 82.68
Non-interest expense to average
assets 2.51 2.61 3.20 3.72 2.74
Average interest-earning assets to
average interest-bearing 111.62 112.57 109.36 107.69 86.56
liabilities
Asset Quality Ratios:
Allowance for loan losses to total
loans at end of period 1.01 1.07 1.04 1.08 1.08
Net charge-offs to average outstanding
loans during the period 0.12 0.05 0.18 0.07 0.04
Ratio of non-performing assets to
total assets 0.70 0.34 0.20 0.38 0.33
Capital Ratios:
Average equity to average assets 15.78 16.04 12.54 10.16 7.77
</TABLE>
________________________________________________________________________________
(1) Represents a 20.625% equity investment in a limited partnership that
invests in mortgage servicing rights. See Note 3 of Notes to Consolidated
Financial Statements.
(2) Per share data has been restated for 1998, 1997, 1996, and 1995 to reflect
the stock exchange ratio of 2.85164 shares of common stock of the Company
for one share of Savings Bank common stock established in connection with
the Conversion and Reorganization.
(3) Takes into account dividends waived by the MHC for the fiscal years ended
September 30, 1997, 1996, and 1995, which owned 800,000 shares of Savings
Bank stock. See Note 20 of Notes to Consolidated Financial Statements. The
dividend payout ratio is based only on dividends paid to public
stockholders of the Savings Bank, excluding the shares owned by the MHC.
The dividend payout ratio was 143.4%, 55.19%, 22.40%, 6.53%, and 3.71% for
the fiscal years ended September 30, 1998, 1997, 1996, and 1995,
respectively.
(4) Excludes income on mutual funds totaling approximately $1.7 million in
fiscal 1995, which was reported as gains on sale and included in other
income.
5
<PAGE>
December 17, 1999
Dear Shareholders:
I am very pleased with our results for the year. Our net income was $5.5 million
in 1999 versus $4.4 million in 1998, before the effect of the reserve for our
investment in a limited partnership, an increase of 25%. Net income per share in
1999 was $1.61 versus $1.05 in 1998 before establishing a reserve for our
investment in a limited partnership.
Return on equity in 1999 was 9.32% versus 8.4% in 1998 before the reserve was
established. Return on assets was 1.47% in 1999 versus 1.36% in 1998.
In the third quarter of this year, we increased our quarterly dividend from
$0.12 per share to $0.15 per share. The increase in net income in 1999 and the
Company's average equity to average asset ratio of 15.78% lead to this increase
in dividends.
In 1999, we repurchased 1.2 million shares of our stock at an average cost of
$20.15 per share at a total cost of $24.3 million. The repurchase of our stock
reduces our capital to a level more consistent with the investment opportunities
in our marketplace.
We are excited about our future and are proud of our accomplishments in 1999. We
anxiously look forward to the new millennium and the opportunity to serve our
community and returning to our shareholders better than average returns.
Sincerely,
/s/ Robert W. Orr
Robert W. "Lujack" Orr
President/CEO
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
This discussion and analysis contains certain "forward-looking statements"
within the meaning of the federal securities laws. These forward-looking
statements include, but are not limited to, estimates and expectation of future
performance with respect to the financial condition and results of operations of
the Company and other factors. These forward-looking statements are not
guarantees of future performance and are subject to various factors that would
cause actual results to differ materially from these forward-looking statements.
These factors include, but are not limited to, changes in general economic and
market conditions and the legal and regulatory environment in which the Company
and the Savings Bank operate and the development of an interest rate environment
that adversely affects the Company's interest rate spread or other income
anticipated from the Company's operations.
Market Area
- -----------
The Company considers Anderson and Oconee Counties, South Carolina, as its
primary market area. Additional loan origination demand is generated from
customers living in contiguous counties. The Company also purchases loans
secured by properties in South Carolina located outside its primary market area.
Anderson County is included in the Greenville/Spartanburg metropolitan
statistical area. The Cities of Greenville and Spartanburg are located 30 and 60
miles northeast of Anderson, respectively, and Atlanta, the closest major city,
is 120 miles to the southwest. Much of Anderson County is rural and roughly half
of the land area is used for agricultural purposes. Anderson County has
benefited from the growth of the Greenville metropolitan area and is
experiencing significant residential and commercial development along Interstate
85, a major transportation route that crosses through Anderson County. Major
area employers include Anderson Area Medical Center, Robert Bosch Corporation,
BASF Corporation, Owens-Corning Fiberglas, and Michelin Tire. Oconee is a
smaller but rapidly growing county located west of Anderson County.
Comparison of Financial Condition at September 30, 1999 and 1998
- ----------------------------------------------------------------
General
- -------
Total assets increased $9.7 million to $372.2 million at September 30, 1999,
from $362.5 million at September 30, 1998, as a result of an increase in loans
receivable. Loans receivable increased 16.2% or $35.6 million to $255.5 million
at September 30, 1999, from $219.9 million at September 30, 1998. The increase
in loans receivable resulted from growth in first mortgage residential,
construction, commercial real estate, and commercial and consumer loans. During
fiscal 1999, the Company purchased $21.8 million of first mortgage residential
loans located primarily in Greenville County, South Carolina, which is
contiguous to Anderson County, South Carolina. The Company also purchased $4.6
million of commercial real estate loans located in Greenville, South Carolina.
Mortgage-backed securities available-for-sale decreased 21.0% or $15.5 million
to $58.4 million from $73.9 million. The Company purchased $2.0 million of fixed
rate collateralized mortgage
7
<PAGE>
Comparison of Financial Condition at September 30, 1999 and 1998, Continued
- ---------------------------------------------------------------------------
General, Continued
- ------------------
obligations (CMO's) during the year. The CMO's principal reduction from payments
was $22.2 million during the year. At September 30, 1999, the Company owned
$21.6 million of CMO's with an average yield of 7.05% with maturity ranges from
2000 to 2029. At September 30, 1999, the Company owned $36.8 million of fixed
and adjustable rate mortgage-backed securities with an average yield of 6.83%.
Investment securities available for sale decreased 30.5% or $7.1 million to
$16.2 million from $23.3 million. The Company sold $3.2 million of a state
municipal bond issue, $3.2 million of a bank preferred stock, and $1.0 million
of a trust preferred bond.
The Company's net investment in a limited partnership increased $750,000 to $1.6
million at September 30, 1999, from $825,000 at September 30, 1998. In 1998, the
Company established a $4.5 million loss reserve in a limited partnership that
invests in mortgage servicing rights tied to a national portfolio of residential
mortgage loans. Recent increases in market interest rates have enhanced the
appraised value of the limited partnership. In 1999, the Company reversed
$750,000 of the reserve established in 1998 due to the increase in the appraised
value. No assurances can be given that the establishment of future loss reserves
will not be needed.
Cash and cash equivalents decreased 26.9% or $5.7 million to $15.5 million at
September 30, 1999, from $21.2 million at September 30, 1998. At September 30,
1999, $8.5 million was invested in the FHLB Daily Interest Account yielding
5.50%.
Real estate held for development increased $200,000 to $2.1 million at September
30, 1999 from $1.9 million at September 30, 1998. The Company is presently
developing two single family residential subdivisions and two commercial real
estate development projects.
Cash surrender value of life insurance was $7.9 million at September 30, 1999,
an increase of $200,000 from $7.5 million at September 30, 1998. During 1998,
the Company purchased life insurance policies as part of the Supplemental
Executive Retirement Agreements maintained on certain key officers of the
Company.
Deposits increased 6.5% or $13.5 million to $221.3 million at September 30,
1999, from $207.8 million at September 30, 1998. Non-interest bearing checking
accounts increased 3.3% or $500,000 to $15.7 million at September 30, 1999, from
$15.2 million at September 30, 1998. Interest bearing checking accounts
increased 20.9% or $7.5 million to $43.3 million at September 30, 1999, from
$35.8 million at September 30, 1998, as the Company continues to offer checking
products that are more aggressively priced than those offered by competitors.
Statement savings accounts increased 4.8% or $1.2 million to $26.4 million at
September 30, 1999 from $25.2 million at September 30, 1998. Certificates of
deposit increased 3.3% or $4.3 million to $135.9 million at September 30, 1999
from $131.6 million at September 30, 1998.
Borrowings through reverse repurchase agreements were $20.3 million at September
30, 1999 and $20.2 million at September 30, 1998. The Company pledged $22.4
million of mortgage-backed
8
<PAGE>
Comparison of Financial Condition at September 30, 1999 and 1998, Continued
- ---------------------------------------------------------------------------
General, Continued
- ------------------
securities as collateral for these borrowings. The Company has borrowed $10.0
million at a rate of 5.49% with a call date of November 5, 1999, with a maturity
of November 6, 2000, and $10.0 million at a rate of 5.59% with a call date of
November 13, 1999, with a maturity of November 13, 2002.
Advances from the Federal Home Loan Bank increased $17.0 million to $73.0
million at September 30, 1999, from $56.0 million at September 30, 1998. The
advances were used to fund loans originated and loans purchased from Mortgage
First Service Corporation, a subsidiary of the Savings Bank.
Stockholders equity decreased $21.6 million to $52.8 million at September 30,
1999 from $74.4 million at September 30, 1998. Retained earnings was increased
by net income of $6.0 million which was offset by dividends paid in the amount
of $1.8 million. Common stock repurchased through the common stock repurchase
programs is recorded on the Company's balance sheet as Treasury Stock, a contra-
equity account. During 1999, the Company repurchased 1,208,494 shares at an
average cost of $20.15 per share and a total cost of $24.3 million. Accumulated
other comprehensive income net decreased $2.2 million to ($2.0) million at
September 30, 1999, from $180,000 at September 30, 1998, due to a decrease in
the market value of the investment securities available for sale and mortgage-
backed securities available for sale resulting from an increase in interest
rates in the securities markets. The Company currently has no plans to sell
investment securities in the current market conditions and does not anticipate
future earnings will be impacted by the unrealized losses in the investment
portfolio.
Deferred compensation for Management Recognition Plan (MRP) increased $1.5
million to ($2.2) million at September 30, 1999 from $700,000 at September 30,
1998, due to the transfer of 91,252 shares of common stock valued at $1.8
million from Treasury Stock. The MRP was approved at the January 27, 1999
stockholders' meeting.
Comparison of Operating Results for the Years Ended September 30, 1999 and 1998
- -------------------------------------------------------------------------------
Net Income
- ----------
Net income increased $4.7 million to $6.0 million or $1.76 basic earnings per
share and $1.67 diluted earnings per share in 1999, compared to $1.3 million or
$0.30 basic earnings per share and $0.29 diluted earnings per share in 1998. In
1999, the stock repurchase increased basic earnings per share by $0.37 and
diluted earnings per share by $0.34. Net income in 1998 was adversely affected
by the establishment of $4.5 million pre-tax loss reserve on the limited
partnership and net income in 1999 was positively affected by the $750,000
recapture of the reserve established in 1998 due to the increase in the
appraised value of the limited partnership.
Net Interest Income
- -------------------
Net interest income increased 9.4% or $1.1 million to $12.8 million in 1998 from
$11.7 million. Interest income on loans increased 11.0% or $1.9 million to
$19.2 million from $17.3 million as the average loans receivable increased to
$235.3 million in 1999 from $198.4 in 1998, an increase of 18.6%. Interest
income on mortgage-backed securities increased 14.3% or $600,000 to $4.8
9
<PAGE>
Comparison of Operating Results for the Years Ended September 30, 1999 and 1998,
- --------------------------------------------------------------------------------
Continued
- ---------
Net Interest Income, Continued
- ------------------------------
million in 1999 from $4.2 million in 1998 as the average balance of mortgage-
backed securities increased 12.3% or $8.1 million to $74.0 million in 1999 from
$65.9 million in 1998. Interest income on other investments decreased $300,000
to $2.2 million in 1999 from $2.5 million in 1998 as the average balance of
investment securities, interest-bearing deposits, and other earning assets
decreased $4.1 million to $34.8 million in 1999 from $38.9 million in 1998.
Interest Expense
- ----------------
Interest expense on deposits was $8.9 million in 1999 and in 1998, as the
average deposits increased 8.2% or $16.8 million to $221.4 million in 1999 from
$204.6 million in 1998 and the weighted average cost of deposits decreased to
4.03% in 1999 from 4.35% in 1998. Interest expense on borrowings increased
32.4% or $1.1 million to $4.5 million in 1999 from $3.4 million in 1998 as the
average borrowings increased to $87.0 million in 1999 from $64.7 million in
1998.
Provision For Loan Losses
- -------------------------
Provisions for loan losses are charges to earnings to bring the total allowance
for loan losses to a level considered adequate by management based upon
management's best estimate of inherent loan losses. In determining the adequacy
of the allowance for loan loses, management evaluates various factors including
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, loss experience, delinquency trends and economic conditions. Management
evaluates the carrying value of loans periodically, and the allowance for loan
losses is adjusted accordingly.
The provision for loan losses decreased 21% to $481,000 for the year ended
September 30, 1999 from $606,500 for the year ended September 30, 1998. Loan
charge-offs for 1999 were $275,600 compared to $174,000 in 1998 and recoveries
were $38,200 in 1999 compared to $55,000 in 1998.
The allowance for loan losses to total loans was 1.01% at September 30, 1999 and
1.07% at September 30, 1998.
Non-performing assets at September 30, 1999 were $2.4 million compared to $1.2
million at September 30, 1998. Of this $1.2 million increase, approximately 70%
is related to a single commercial real estate loan.
Other Income
- ------------
Other income increased $1.3 million or 34.2% to $5.1 million in 1999 from $3.8
million in 1998. Loan and deposit account service charges increased $1.2
million to $3.5 million in 1999 from $2.3 million in 1998 as a result of an
increase in checking accounts and fees. Loss on sale of investments was
$146,000 in 1999 compared to a gain of $177,000 in 1998. Gain of sale of real
estate held for development increased $240,000 to $355,000 in 1999 from $115,000
in 1998. Earnings on bank owned life insurance increased $344,000 to $436,000
in 1999 compared to
10
<PAGE>
Comparison of Operating Results for the Years Ended September 30, 1999 and 1998,
- --------------------------------------------------------------------------------
Continued
- ---------
Other Income, Continued
- -----------------------
$92,000 in 1998 as the average balance of cash surrender value of life insurance
was $7.7 million in 1999 and $1.9 million in 1998.
Other income decreased $155,000 to $863,000 in 1999 from $1,018,000 in 1998.
Earnings on the investment in the limited partnership was $0 in 1999 compared to
earnings of $140,000 in 1998.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased $800,000 or 9.4% to $9.3 million
in 1999 from $8.5 million in 1998. Salaries and employee benefits increased
$500,000 or 11.6% to $4.8 million in 1999 from $4.3 million in 1998 due to the
expense of the Management Recognition and Development Plan. Occupancy expense
increased $78,000 due to non-recurring property expenses associated with repairs
of one office. Furniture and equipment expense increased $71,000 or 7.0% to
$1,082,000 in 1999 from $1,011,000 in 1998 due to the purchase of additional
equipment related to technology investments. The FDIC insurance premiums
decreased $8,000 to $124,000 in 1999 from $132,000 in 1998. Advertising
decreased $32,000 or 13% to $215,000 in 1999 from $247,000 in 1998. Data
processing increased $129,000 or 29.1% to $572,000 in 1999 from $443,000 in 1998
due to expenses incurred with Year 2000 considerations, expenses associated with
the increasing number of checks processed, and ATM and debit card transactions.
Office supplies decreased $19,000 or 5.8% to $310,000 in 1998 from $329,000 in
1998 due to the elimination and consolidation of data processing forms. Profit
improvement program expenses increased $45,000 to $488,000 or 10.2% in 1999 or
$443,000 in 1998 due to consultant fees for sales training, staff realignment
and product fee enhancement. Other operating expenses increased $72,000 or 6.5%
to $1.2 million in 1999 from $1.1 million in 1998 due to increases in postage,
directors and officers' liability insurance and expenses establishing the
Company's dividend reinvestment program.
Income Taxes
- ------------
Income taxes increased $2.4 million to $2.9 million or an effective tax rate of
32.8% for 1999 from $549,000, or an effective tax rate of 30.3% in 1998 due
primarily to an increase in income before taxes of $7.1 million to $8.9 million
in 1999 from $1.8 million in 1998.
Comparison of Operating Results for the Years Ended September 30, 1998 and 1997
- -------------------------------------------------------------------------------
Net Income
- ----------
Net income decreased $400,000 to $1.3 million or $0.30 basic earnings per share
and $0.29 diluted earnings per share in 1998 from $1.7 million or $0.40 basic
and diluted earnings per share in 1997.
11
<PAGE>
Comparison of Operating Results for the Years Ended September 30, 1998 and 1997,
- --------------------------------------------------------------------------------
Continued
- ---------
Net Income, Continued
- ---------------------
Net income was adversely affected by the establishment of the $4.5 million pre-
tax loss reserve on the limited partnership in 1998.
Net Interest Income
- -------------------
Net interest income increased 31.5% or $2.8 million to $11.7 million in 1998
from $8.9 million. Interest income on loans increased 20.1% or $2.9 million to
$17.3 million from $14.4 million as the average loans receivable increased to
$198.4 million in 1998 from $165.0 in 1997, an increase of 20.2%. Interest
income on mortgage-backed securities increased 27.3% or $900,000 to $4.2 million
in 1998 from $3.3 million in 1997 as the average balance of mortgage-backed
securities increased 35.6% or $17.3 million to $65.9 million in 1998 from $48.6
million in 1997. Interest income on other investments increased $1.8 million to
$2.5 million in 1998 from $700,000 in 1997 as the average balance of investment
securities, interest-bearing deposits, and other earning assets increased $27.8
million to $38.9 million in 1998 from $11.1 million in 1997.
Interest Expense
- ----------------
Interest expense on deposits increased 9.9% or $800,000 to $8.9 million in 1998
from $8.1 million in 1997 as the average deposits increased 12.7% or $23.1
million to $204.6 million in 1998 from $181.5 million in 1997. The weighted
average cost of deposits decreased to 4.35% in 1998 from 4.47% in 1997.
Interest expense on borrowings increased 142.9% or $2 million to $3.4 million in
1998 from $1.4 million in 1997 as the average borrowings increased to $64.7
million in 1998 from $23.9 million in 1997.
Provision For Loan Losses
- -------------------------
The provision for loan losses decreased 7.4% to $606,500 for the year ended
September 30, 1998, from $655,000 for the year ended September 30, 1997. Loan
charge-offs for 1998 were $174,000 compared to $332,000 in 1997 and recoveries
were $55,000 in 1998 compared to $29,000 in 1997. The reduced charge-offs in
1998, combined with the recoveries, allowed the Company to decrease the loan
loss provision in 1998. Despite the decrease in the provision for loan losses,
the allowance for loan losses to total loans increased to 1.07% at September 30,
1998, from 1.04% at September 30, 1997.
Other Income
- ------------
Other income increased $1.9 million or 102.7% to $3.8 million in 1998 from $1.9
million in 1997. Loan and deposit account service charges increased $770,000 to
$2.3 million in 1998 from $1.5 million in 1997 as a result of an increase in the
number of checking accounts and fees from the use of debit cards and ATM's.
Gain on sale of investments was $177,000 in 1998 compared to a loss
12
<PAGE>
Comparison of Operating Results for the Years Ended September 30, 1998 and 1997,
- --------------------------------------------------------------------------------
Continued
- ---------
Other Income, Continued
- -----------------------
of $308,000 in 1997. Gain of sale of real estate held for development decreased
$184,000 to $115,000 in 1998 from $299,000 in 1997 due to a decrease in sale of
real estate held for
development. Other income increased $614,000 to $1.1 million in 1998 compared
to $497,000 in 1997, due to the increase in earnings from the Mortgage First
Service Corporation, increase in income from the United Service Corporation of
Anderson, Inc., and income earned on bank owned life insurance.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased $1.0 million or 13.3% to $8.5
million in 1998 from $7.5 million in 1997. Salaries and employee benefits
increased $400,000 or 10.3% to $4.3 million in 1998 from $3.9 million in 1997
due to the opening of the Perpetual Square office in Anderson, South Carolina,
and the expense of the Management Recognition and Development Plan. Occupancy
expense increased $22,000 or 4.5% due primarily from the opening of the
Perpetual Square office. Furniture and equipment expense increased $265,000 or
35.5% to $1.0 million in 1998 from $746,000 in 1997 due to the purchase of
additional equipment related to technology investments and equipping the
Perpetual Square office. The FDIC insurance premiums decreased $20,000 to
$132,000 in 1998 from $152,000 in 1997. Advertising decreased $105,000 or 29.8%
to $247,000 in 1998 to $352,000 in 1997, as a result of the elimination of the
Free Checking Campaign. Data processing increased $143,000 or 47.7% to $443,000
in 1998 from $300,000 in 1997 due to the new Perpetual Square office, expenses
associated with the increasing number of checks processed, and ATM and debit
card transactions. Office supplies decreased $58,000 or 15.0% to $329,000 in
1998 from $387,000 in 1997 due to the elimination and consolidation of data
processing forms. Profit improvement program expenses increased $324,000 to
$443,000 in 1998 from $119,00 in 1997 due to consultant fees for sales training,
staff realignment and product fee enhancement. Other operating expenses
increased $139,000 or 14.2% to $1.1 million in 1998 from $977,000 in 1997 due to
the opening of the Perpetual Square Office.
Income Taxes
- ------------
Income taxes decreased 40.7% or $377,000 to $549,000 or an effective tax rate of
30.3% for 1998 from $926,000, or an effective tax rate of 35% in 1997 due
primarily to a decrease in income before taxes of $843,000 or 31.8% to
$1,811,000 in 1998 from $2,654,000 in 1997.
13
<PAGE>
Average Balance Sheets
The following table sets forth, for the periods indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spread,
ratio of interest-earning assets to interest-bearing liabilities and net
interest margin. Average balances have been calculated using daily balances.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Average Interest Average Interest Average Interest
and and and
Balance Dividends Yield/Cost Balance Dividends Yield/Cost Balance Dividends Yield/Cost
--------- --------- ---------- --------- --------- ---------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Mortgage loans $ 161,229 12,389 7.68% $ 139,497 $ 11,401 8.17% $ 118,030 $ 9,790 8.29%
Commercial real estate loans 38,888 3,605 9.27% 28,943 2,961 10.23% 23,098 2,102 9.10
Commercial other 11,681 1,047 8.96% 9,400 857 9.12% 6,114 592 9.68
Consumer loans 23,531 2,153 9.15% 20,525 2,056 10.02% 17,755 1,922 10.82
--------- --------- --------- --------- --------- ---------
Total loans 235,329 19,194 8.16% 198,365 17,275 8.71% 164,997 14,406 8.73
Mortgage-backed securities and CMO's 74,004 4,824 6.51% 65,866 4,205 6.38% 48,638 3,303 6.79
Investment securities 20,649 1,415 6.85% 20,013 1,383 6.91% 5,271 339 6.43
Interest-bearing deposits 10,671 533 5.00% 16,546 899 5.43% 4,485 251 5.60
Other earning assets 3,507 262 7.47% 2,375 175 7.37% 1,311 97 7.40
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 344,160 26,228 7.62% 303,165 23,937 7.90% 224,702 18,396 8.19
Non-interest-earning assets:
Office properties and equipment,
Net 6,072 6,555 5,645
Real estate, Net 192 135 56
Other non-interest-earning assets 21,383 16,369 8,072
--------- --------- ---------
Total assets $ 371,807 $ 326,224 $ 238,475
========= ========= =========
Interest-bearing liabilities:
Savings 25,618 634 2.47% 25,569 637 2.49% 22,923 590 2.57
Negotiable order of withdrawal
("NOW") accounts 60,321 1,092 1.81% 44,420 643 1.45% 35,196 548 1.56
Certificates of deposit 135,421 7,194 5.31% 134,574 7,622 5.66% 123,407 6,980 5.56
--------- --------- --------- --------- --------- ---------
Total deposits 221,360 8,920 4.03% 204,563 8,902 4.35% 181,526 8,118 4.47
Other interest-bearing liabilities 86,965 4,518 5.20% 64,739 3,354 5.18% 23,951 1,378 5.75
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 308,325 13,438 4.36% 269,302 12,256 4.55% 205,477 9,496 4.62
--------- --------- --------- ---------
Non-interest-bearing liabilities:
Non-interest-bearing deposits 1,224 247 397
Other liabilities 3,573 4,345 2,693
--------- --------- ---------
Total liabilities 313,122 273,894 3,090
Stockholders' equity 58,685 52,330 29,908
--------- --------- ---------
Total liabilities and stock-
holders' equity $ 371,807 $ 326,224 $ 238,475
========= ========= =========
</TABLE>
Average Balance Sheets Continued
14
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Average Interest Average Interest Average Interest
and and and
Balance Dividends Yield/Cost Balance Dividends Yield/Cost Balance Dividends Yield/Cost
--------- --------- ---------- --------- --------- ---------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income 12,790 $ 11,681 $ 8,900
========= ========= =========
Interest rate spread 3.26% 3.35% 3.57%
========== ========== ==========
Net interest margin 3.72% 3.85% 3.96%
========== ========== ==========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 111.62% 112.57% 109.36%
========== ========== ==========
</TABLE>
(1) Excludes interest on loans 90 days or more past due.
15
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); (iii) changes in
rate/volume (change in rate by change in volume); and (iv) the net change (the
sum of the prior columns).
<TABLE>
<CAPTION>
Years Ended September 30, 1999 Years Ended September 30, 1998
Compared to September 30, 1998, Compared to September 30, 1997,
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------- ----------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ------ ------ ------- ------ ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $1,776 ($682) ($106) $ 988 $1,781 ($144) ($26) $ 1,611
Commercial real estate 1,018 (278) (96) 644 532 261 66 859
Commercial other 208 (15) (3) 190 318 (35) (18) 265
Consumer loans 301 (178) (26) 97 300 (143) (23) 134
------ ------ ------ ------- ------ ------ ------ -------
Total loans 3,303 (1,153) (231) 1,919 2,931 (61) (1) 2,869
Mortgage-backed securities and CMO's 519 89 11 619 1,170 (198) (70) 902
Investment securities 44 (11) (1) 32 948 25 70 1,043
Interest-earning deposits (319) (72) 26 (365) 675 (7) (20) 648
Other interest-earning assets 83 2 1 86 79 - - 79
------ ------ ------ ------- ------ ------ ------ -------
Total net change in income on
interest-earning assets 3,630 (1,145) (194) 2,291 5,803 (241) (21) 5,541
------ ------ ------ ------- ------ ------ ------ -------
Interest-bearing liabilities:
Savings accounts 1 (4) - (3) 68 (19) (2) 47
NOW accounts 230 161 58 449 144 (39) (10) 95
Certificates of deposit 48 (473) (3) (428) 631 10 1 642
------ ------ ------ ------- ------ ------ ------ -------
Total deposits 279 (316) 55 18 843 (48) (11) 784
------ ------ ------ ------- ------ ------ ------ -------
Other interest-bearing liabilities 1,151 10 3 1,164 2,347 (137) (234) 1,976
------ ------ ------ ------- ------ ------ ------ -------
Total net change in expense on
interest-bearing liabilities 1,430 (306) 58 1,182 3,190 (185) (245) 2,760
------ ------ ------ ------- ------ ------ ------ -------
Net change in net interest income $2,200 ($839) ($252) $ 1,109 $2,613 ($56) $ 224 $ 2,781
====== ====== ====== ======= ====== ====== ====== =======
</TABLE>
16
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are deposits, repayment of loan
principal, and repayment of mortgage backed securities and CMOs, and, to a
lesser extent, maturities of investment securities, and short-term investments
and operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions, and competition. The
Company attempts to price its deposits to meet its asset/liability objectives
consistent with local market conditions. Excess balances are invested in
overnight funds. In addition, the Company is eligible to borrow funds from the
FHLB of Atlanta and has $20.9 million of available credit based on eligible
collateral as of September 30, 1999. Under OTS regulations, a member thrift
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U. S. government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage of its net withdrawable accounts plus short-term borrowings. This
liquidity requirement, which is currently 4.0%, may be changed from time to time
by the OTS to any amount within the range of 4.0% to 10.0%, depending upon
economic conditions and the savings flow of member associations. Monetary
penalties may be imposed for failure to meet liquidity requirements. The
liquidity of the Company at September 30, 1999, was 17.23%.
At September 30, 1999, the Bank exceeded the OTS' capital requirements. See
Note 12 to the financial statements for discussion of these capital
requirements.
The primary investing activity of the Company is lending. During the year ended
September 30, 1999, the Company originated $93.5 million of loans and sold $7.5
million. The Company also purchased $30.6 million of loans. The retained
originations were primarily funded by increases in deposits, principal
repayments of loans and mortgage-backed securities and CMO's, FHLB Advances, and
securities sold under agreements to repurchase.
Liquidity management is both a short and long-term responsibility of the
Company's management. The Company adjusts its investments in liquid assets
based upon management's assessment of (i) expected loan demand, (ii) projected
loan sales, (iii) expected deposit flows, (iv) yields available on interest-
bearing deposits, and (v) liquidity of its asset/liability management program.
Excess liquidity is generally invested in interest-bearing overnight deposits
and other short-term government and agency obligations. If the Company requires
funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB and collateral eligible for repurchase
agreements.
The Company anticipates that it will have sufficient funds available through
normal loan repayments to meet current loan commitments. At September 30, 1999,
the Company had outstanding commitments to originate loans of approximately
$10.6 million. The Company plans to spend approximately $400,000 in capital
expenditures in fiscal year 2000.
Certificates of deposit scheduled to mature in one year or less at September 30,
1999, totaled $117.7 million. Based upon management's experience and
familiarity with the customers involved and the Company's pricing policy
relative to that of its perceived competitors, management believes that a
significant portion of such deposits will remain with the Company.
The Company plans to repurchase up to 250,299 shares of its common stock during
the first six months of fiscal year 2000. At approximately $22.00 per share, up
to $5.5 million may be required
17
<PAGE>
Liquidity and Capital Resources, Continued
- ------------------------------------------
to fund the repurchase. The Company intends to fund the repurchase program
through liquidation of some of its interest earning assets.
Year 2000 Considerations
- ------------------------
The Company is a user of computers, computer software and equipment utilizing
embedded microprocessors that will be effected by the year 2000 issue. The year
2000 issue exists because many computer systems and applications use two-digit
date fields to designate a year. As the century date change occurs, date-
sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.
The Company's Year 2000 Committee consists of the Information Services Steering
Committee, consisting of a representative of each user department. The
committee coordinator makes a quarterly or, as major events are completed,
progress report to the Board of Directors. The committee has developed and is
implementing a comprehensive plan to make all information and non-information
technology assets Year 2000 compliant. The plan is comprised of the following
phases:
1. Awareness - Educational initiatives on Year 2000 issues and concerns. This
phase is ongoing, especially as it relates to informing customers of the
Company's Year 2000 preparedness. Additional emphasis has been placed on
customer awareness during the fourth quarter of 1999 as the end of the year
approaches. A company newsletter has been mailed to all customers,
explaining the company's Y2K plan. Literature has been placed in the lobbies
of all branches covering Y2K issues. Statement stuffers have been included
in customer statements and banners have been placed at each branch
reflecting the company's Y2K readiness.
2. Assessment - Inventory of all technology assets and identification of third-
party vendors and service providers. This phase was completed as of
September 30, 1997.
3. Renovation - Review of vendor and service providers responses to the
Company's Year 2000 inquiries and development of a follow-up plan and
timeline. This phase was completed as of December 31, 1998.
4. Validation - The Company has successfully completed the validation phase of
the Y2K plan. Testing was completed on mission critical systems as of
December 10, 1998. Baseline, future date and user acceptance tests were
performed at a test site, using six critical dates, covering all
applications used by the Company. Third party vendors were identified
through software inventory and department interviews conducted by the Year
2000 coordinator. These applications were successfully tested and validated
as of June 25, 1999. Tests were performed on site using Y2K compliant
hardware and software. System dates were rolled to the dates deemed critical
by the Company. Other parties whose Year 2000 compliance may effect the
Company include the Federal Home Loan Bank of Atlanta, brokerage firms, the
Company's ATM network provider, and the Company's pension plan
administrator. These third parties have indicated their compliance. Where
testing was not possible, the Company relied on certifications from vendors
and service providers. The responses from all system vendors and other
company's are monitored and tracked by computer.
18
<PAGE>
Year 2000 Considerations, Continued
- -----------------------------------
5. Implementation - Replacement or repair of non-compliant technology. The
Company has completed the readiness phase of the Y2K plan. All hardware and
software the savings bank utilizes has been upgraded or replaced to be Y2K
compliant. The readiness phase was completed by June 30, 1999, meeting
Federal Financial Institutions Examination Council guidelines.
The Company estimated its total cost to replace computer equipment, software
programs or other equipment that were not Year 2000 compliant to be
approximately $150,000, of which $118,139 has been incurred as of September 30,
1999. System maintenance or modification costs are charged to expense as
incurred, while the cost of new hardware, software or other equipment is
capitalized and amortized over their estimated useful lives. The Company does
not separately track the internal costs and time that its own employees spend on
year 2000 issues, which are principally payroll costs.
Because the Company depends substantially on its computer systems and those of
third parties, the failure of these systems to be Year 2000 compliant could
cause substantial disruption of the Company's business and could have a material
adverse financial impact on the Company. Failure to resolve Year 2000 issues
presents the following risks to the Company which the Company believes is the
most reasonably likely worst - case scenario:
1. The Company could lose customers to other financial institutions, resulting
in a loss of revenue, if the Company's in-house computer system is unable to
properly process customer transactions;
2. Governmental agencies, such as the Federal Home Loan Bank, and correspondent
institutions could fail to provide funds to the Company, which could
materially impair the Company's liquidity and affect the Company's ability
to fund loans, and deposit withdrawals;
3. Concern on the part of depositors that Year 2000 issues could impair access
to their deposit account balances could result in the Company experiencing
deposit outflows prior to December 31, 1999; and
4. The Company could incur increased personnel costs if additional staff is
required to perform functions that inoperative systems would have otherwise
performed. Management believes that it is not possible to estimate the
potential lost revenue due to the Year 2000 issue, as the extent and
longevity of any potential problem cannot be predicted.
The Company has formulated a company-wide Y2K business resumption contingency
plan that includes management efforts in the area of cash and liquidity planning
for the time period prior to and immediately following the Year 2000. Business
functions have been prioritized based on the probability of a system failure in
that area and its impact to that function. The plan provides for the majority
of institution functions to be supported at a reduced level in the event of a
Y2K disaster. An alternate power source is in place to support item processing
and data processing functions. An "event planning" timeline has been developed
and is already operational with specific strategies documented for the time
period from December 31, 1999 through January 3, 2000 and beyond.
19
<PAGE>
Year 2000 Considerations, Continued
- -----------------------------------
Because a substantial portion of the Company's loan portfolio consists of loans
to individuals rather than commercial enterprises, management believes that Year
2000 issues will not impair the ability of the Company's borrowers to repay
their debt. An evaluation of the Company's commercial portfolio has been made
and a determination made that in the event of losses from the commercial loans
that could possibly be affected by Year 2000 failure, it would not have a
significant impact on the Company's financial condition at this particular time.
Each commercial borrower completes a Y2K work sheet and business plan
referencing their Year 2000 plan.
The Company has no plans to contract with an independent or outside firm to
conduct an analysis of its Year 2000 exposure. The Company's Year 2000 risk
analysis and exposure are currently being assessed by the internal auditor and
Year 2000 coordinator.
There can be no assurances that the Company's Year 2000 plan will effectively
address the Year 2000 issue, that the Company's estimates of the timing and
costs of completing the plan will ultimately be accurate or that the impact of
any failure of the Company or its third-party vendors and service providers to
be Year 2000 compliant will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Market Risk and Asset and Liability Management
- ----------------------------------------------
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises principally from interest rate risk inherent in
its lending, investment, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Company
manages other risks such as credit quality and liquidity risk in the normal
course of business, management considers interest rate risk to be its most
significant market risk that could potentially have the largest material effect
on the Company's financial condition and results of operations. Other types of
market risks such as foreign currency exchange rate risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
The Company's profitability is affected by fluctuations in market interest
rates. Management's goal is to maintain a reasonable balance between exposure
to interest rate fluctuations and earnings. A sudden and substantial increase
in interest rates may adversely impact the Company's earnings to the extent that
the interest rates on interest-earning assets and interest-bearing liabilities
do not change at the same rate, to the same extent or on the same basis. The
Company monitors the impact of changes in interest rates on its net interest
income using a test that measures the impact on net interest income and net
portfolio value of an immediate change in interest rates in 100 basis point
increments. Net portfolio value is defined as the net present value of assets,
liabilities and off-balance sheet contracts. At September 30, 1999, the
Company's calculations based on the information and assumptions produced for the
analysis, suggested that a 200 basis point increase in rates would decrease net
interest income over a 12-month period by 19.3% and reduce net portfolio value
by 28.4% while a 200 basis point decline in rates would increase net interest
income over a 12-month period by 17.5% and increase net portfolio value by 16.8%
in the same period.
The following table is provided to the Company by the Federal Home Loan Bank
(FHLB) and illustrates the percent change in Net Present Value (NPV) as of
September 30, 1999, based on FHLB assumptions. No effect has been given to any
steps that the Company may take to counteract the effect of the interest rate
movements presented in the table.
20
<PAGE>
Market Risk and Asset and Liability Management, Continued
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Portfolio Value NPV as Percent of
-----------------
Net Interest Income Increase (Decrease) Present Value of Assets
------------------- ------------------- -----------------------
Basis
Basis Points (bp) % Point
Change In Rates Amount Change Amount $ Change % Change NPV Ratio Change
- --------------- ------ ------ ------ -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
300 bp $ 6,244 (30.2) $27,140 $(21,134) (43.8) 7.93% (523)
200 bp 7,222 (19.3) 34,563 (13,711) (28.4) 9.85 (331)
100 bp 8,152 (8.9) 41,884 (6,390) (13.2) 11.65 (150)
0 bp 8.947 48,274
(100 bp) 9,734 8.8 53,239 4,965 10.3 14.27 111
(200 bp) 10,515 17.5 56,397 8,123 16.8 14.94 179
(300 bp) 11,302 26.3 58,796 10,522 21.8 15.43 228
</TABLE>
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Furthermore, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates likely could
deviate significantly from those assumed in calculating the table. Therefore,
the data presented in the table should not be relied upon as necessarily
indicative of actual results.
Effect of Inflation and Changing Prices
- ---------------------------------------
The Consolidated Financial Statements and related financial data presented
herein have been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") which require the measurement of financial position and
operating results in terms of historical dollars, without considering the
changes in relative purchasing power of money over time due to inflation. The
primary impact of inflation on operations of the Company is reflected in
increased operating costs. Unlike most industrial companies, virtually all the
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
21
<PAGE>
Interest Sensitive Asset and Liability Maturity Table
The following table presents the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at September 30, 1999. Certain assumptions about
loan prepayment rates and deposit decay rates, among others, were utilized in
the preparation of the table. There are shortcomings inherent in this method of
analysis. For example, although a financial instrument may have a similar
maturity or remaining term to repricing as another financial instrument, the two
may react differently to changes in market interest rates. In the event of
changes in interest rates, prepayments and withdrawals would likely deviate
significantly from those assumed in the data underlying the table. (Dollar
amounts in the table are in thousands.)
<TABLE>
<CAPTION>
After 3
Average Within One 1 Year to Years to Beyond Fair
-------
Rate Year 3 Years 5 Years 5 Years Total Value
---- ---- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Loans receivable, net of loans in process
and deferred loan fees 7.90% $ 134,986 $ 83,142 $ 26,068 $11,292 $ 255,488 $ 255,972
Investment securities 6.85% 1,008 - - 15,228 16,236 16,236
Mortgage-backed securities 6.97% 22,795 12,003 8,141 15,446 58,385 58,385
FHLB stock 7.50% 3,650 - - - - 3,650
FHLB overnight interest-bearing deposits 5.50% 8,523 - - - - 8,523
Interest-sensitive liabilities:
Interest bearing checking accounts 2.18% 11,671 15,561 2,593 29,160 58,985 58,437
Savings accounts 3.66% 8,347 18,040 - - 26,387 26,353
Certificates of deposits 5.20% 117,723 16,890 1,273 - 135,886 136,019
Advances from the FHLB 4.90% 60,000 13,000 - - 73,000 72,901
Securities sold under agreement 5.54% 20,254 - - - 20,254 20,254
Off balance sheet items:
Commitments to extend credit 7.42% 10,645 - - - 10,645 10,645
Unused lines of credit 9.07% 27,003 - - - 27,003 27,003
Loans in process 8.18% 16,204 - - - 16,204 16,204
</TABLE>
22
<PAGE>
[LETTERHEAD OF ELLIOTT, DAVIS & COMPANY, LLP]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
SouthBanc Shares, Inc. and Subsidiary
Anderson, South Carolina
We have audited the accompanying consolidated balance sheets of SouthBanc
Shares, Inc. and Subsidiary as of September 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1999. 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 audits to obtain
reasonable assurance about whether the 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 consolidated financial position of
SouthBanc Shares, Inc. and Subsidiary as of September 30, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999 in conformity with generally
accepted accounting principles.
/s/ Elliott, Davis & Company, LLP
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
November 12, 1999
23
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 15,546,360 $ 21,197,419
Investment securities available for sale 16,243,703 23,300,684
Federal Home Loan Bank stock, at cost 3,650,000 3,289,200
Mortgage-backed securities available for sale 58,384,541 73,933,292
Loans receivable 255,488,141 219,896,116
Investment in limited partnership 1,575,373 825,373
Real estate acquired in settlement of loans 229,900 88,965
Real estate held for development 2,095,903 1,909,394
Premises and equipment 5,722,230 6,350,491
Accrued interest receivable
Loans receivable 1,860,838 1,697,058
Mortgage-backed and other securities 453,968 527,823
Cash surrender value of life insurance 7,865,743 7,473,136
Other 3,034,571 2,039,982
------------ ------------
Total Assets $372,151,271 $362,528,933
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits 221,257,085 $207,790,775
Advances from the Federal Home Loan Bank 73,000,000 56,000,000
Securities sold under agreements to repurchase 20,254,436 20,173,933
Advance payments by borrowers for property taxes and insurance 438,484 333,681
Accrued interest payable 1,356,578 1,418,770
Accrued expenses and other liabilities 3,094,136 2,404,448
------------ ------------
Total Liabilities 319,400,719 288,121,607
------------ ------------
Commitments and contingencies - Note 18
Stockholders' Equity
- --------------------
Preferred stock ($0.01 par value; authorized 250,000 shares;
none issued or outstanding at September 30, 1999 and 1998) - -
Common stock ($0.01 par value; authorized 7,500,000
shares; issued and outstanding 4,322,030 and 4,306,410
shares at September 30, 1999 and 1998, respectively.) 43,220 43,064
Additional paid-in capital 57,741,324 57,470,324
Retained earnings, restricted 22,351,722 18,154,380
Treasury stock - at cost (1,117,242 shares) (22,515,585)
Accumulated other comprehensive income(loss), net (2,028,033) 180,009
Indirect guarantee of ESOP debt (622,247) (711,140)
Deferred compensation for Management
Recognition Plan (2,219,849) (729,311)
------------ ------------
Total Stockholders' Equity 52,750,552 74,407,326
============ ============
Total Liabilities and Stockholders' Equity $372,151,271 $362,528,933
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
For The Years Ended September 30,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans $19,193,986 $17,275,097 $14,406,160
Mortgage-backed securities 4,824,104 4,204,475 3,302,541
Other investments 2,210,086 2,457,233 687,736
----------- ----------- -----------
Total interest income 26,228,176 23,936,805 18,396,437
----------- ----------- -----------
Interest expense:
Interest on deposits:
Transaction accounts 1,091,659 642,545 547,795
Passbook accounts 633,809 637,206 590,738
Certificate accounts 7,194,190 7,622,013 6,979,888
----------- ----------- -----------
Total interest on deposits 8,919,658 8,901,764 8,118,421
Interest on borrowings 4,518,201 3,353,810 1,377,960
----------- ----------- -----------
Total interest expense 13,437,859 12,255,574 9,496,381
----------- ----------- -----------
Net interest income 12,790,317 11,681,231 8,900,056
Provision for loan losses 481,000 606,500 655,000
----------- ----------- -----------
Net interest income after provision for
loan losses 12,309,317 11,074,731 8,245,056
----------- ----------- -----------
Other income:
Loan and deposit account service charges 3,520,334 2,295,710 1,526,208
Gain (loss) on sale of investments (146,281) 177,388 (307,534)
Gain on sale of real estate acquired in
settlement of loans 31,958 45,570 19,894
Gain on sale of loans, net 88,070 20,797 12,509
Gain on sale of real estate held for
development 355,018 114,716 298,731
Loss on sale of premises and equipment (204) (4,161) (191,894)
Earnings on bank owned life insurance 436,181 92,343 -
Other 862,906 1,018,249 497,042
----------- ----------- -----------
Total other income 5,147,982 3,760,612 1,854,956
----------- ----------- -----------
Provision for (recapture of) losses on limited partnership (750,000) 4,500,000 -
----------- ----------- -----------
General and administrative expenses:
Salaries and employee benefits 4,752,741 4,294,678 3,926,888
Occupancy 587,364 509,465 486,776
Furniture and equipment expense 1,082,470 1,011,422 746,182
FDIC insurance premiums 123,872 132,163 151,903
Advertising 215,084 247,081 351,694
Data processing 571,690 442,664 299,951
Office supplies 309,524 328,981 386,525
Profit improvement program 487,915 442,556 119,208
Other 1,188,123 1,115,594 976,719
----------- ----------- -----------
Total general and administrative expenses 9,318,783 8,524,604 7,445,846
----------- ----------- -----------
Income before income taxes 8,888,516 1,810,739 2,654,166
Income taxes 2,915,738 548,696 925,803
----------- ----------- -----------
Net income $ 5,972,778 $ 1,262,043 $ 1,728,363
=========== =========== ===========
Basic earnings per common share $ 1.76 $ 0.30 $ 0.41
=========== =========== ===========
Diluted earnings per common share $ 1.67 $ 0.29 $ 0.40
=========== =========== ===========
Weighted average shares outstanding:
Basic 3,386,851 4,199,237 4,174,528
=========== =========== ===========
Diluted 3,570,156 4,406,381 4,322,815
=========== =========== ===========
Cash dividends per common share $ 0.53 $ 0.35 $ 0.23
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Additional Retained Comprehensive
Common Common Paid-in Earnings Income (Loss),
Shares Stock Capital Restricted Net
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 1,504,601 $ 1,504,601 $11,696,679 $17,607,269 $ (816,855)
Net Income - - - 1,728,363 -
Other comprehensive income:
Unrealized gain on securities, net - - - - 802,306
Reclassification adjustment for
losses realized in net income, net - - - - 202,972
Comprehensive income - - - - -
Exercise of stock options 4,272 4,272 38,448 - -
Reduction of ESOP debt - - - - -
ESOP compensation expense - - 32,152 - -
Purchase of common stock for MRP - - - - -
Earned portion of MRP - - - - -
Dividends on common stock - - - (953,866) -
Offering expenses for the sale of
common stock - - (115,362) - -
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 1,508,873 1,508,873 11,651,917 18,381,766 188,423
Net income - - - 1,262,043 -
Other comprehensive income:
Unrealized gain on securities, net - - - - 108,662
Reclassification adjustment for
gains realized in net income, net - - - - (117,076)
Comprehensive income - - - - -
Exercise of stock options 1,317 1,317 31,937 - -
Reduction of ESOP debt - - - - -
ESOP compensation expense - - 187,592 - -
Purchase of common stock for MRP - - - - -
Earned portion of MRP - - - - -
Dividends on common stock - - - (1,489,429) -
Sale of common stock (less offering
expenses of $1,494,488) 2,281,312 22,813 44,108,939 - -
Shares issued in reorganization and
par value adjustments 514,908 (1,489,939) 1,489,939 - -
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 4,306,410 43,064 57,470,324 18,154,380 180,009
<CAPTION>
Indirect
Guarantee Deferred
of Compensation
Treasury ESOP for
Stock Debt MRP Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 - $ (900,900) $ - $29,090,794
-----------
Net Income - - - 1,728,363
Other comprehensive income:
Unrealized gain on securities, net - - - 802,306
Reclassification adjustment for
losses realized in net income, net - - - 202,972
-----------
Comprehensive income - - - 2,733,641
Exercise of stock options - - - 42,720
Reduction of ESOP debt - 96,876 - 96,876
ESOP compensation expense - - - 32,152
Purchase of common stock for MRP - - (404,093) (404,093)
Earned portion of MRP - - 78,881 78,881
Dividends on common stock - - - (953,866)
Offering expenses for the sale of
common stock - - - (115,362)
----------- ----------- ----------- -----------
Balance at September 30, 1997 - (804,024) (325,212) 30,601,743
-----------
Net income - - - 1,262,043
Other comprehensive income:
Unrealized gain on securities, net - - - 108,662
Reclassification adjustment for
gains realized in net income, net - - - (117,076)
-----------
Comprehensive income - - - 1,253,629
Exercise of stock options - - - 33,254
Reduction of ESOP debt - 92,884 - 92,884
ESOP compensation expense - - - 187,592
Purchase of common stock for MRP - - (616,558) (616,558)
Earned portion of MRP - - 212,459 212,459
Dividends on common stock - - - (1,489,429)
Sale of common stock (less offering
expenses of $1,494,488) - - - 44,131,752
Shares issued in reorganization and
par value adjustments - - -
----------- ----------- ----------- -----------
Balance at September 30, 1998 - (711,140) (729,311) 74,407,326
-----------
</TABLE>
26
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Additional Retained Comprehensive
Common Common Paid-in Earnings Income (Loss),
Shares Stock Capital Restricted Net
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income - - - 5,972,778 -
Other comprehensive income - - - - -
Unrealized loss on securities, net - - - - (2,304,587)
Reclassification adjustment for - - - -
losses realized in net income, net - - - - 96,545
Comprehensive income - - - - -
Exercise of stock options 15,620 156 68,057 - -
Reduction of ESOP debt - - - - -
ESOP compensation expense - - 180,130 - -
Earned portion of MRP - - - - -
Dividends on common stock - - - (1,775,436) -
Transfer from Treasury Stock to MRP - 22,813 -
Purchase of Treasury Stock - - - - -
------------- ------------ ------------ ------------ ------------
Balance at September 30, 1999 $ 4,322,030 $ 43,220 $ 57,741,324 $ 22,351,722 ($2,028,033)
============= ============ ============ ============ ============
<CAPTION>
Indirect
Guarantee Deferred
of Compensation
Treasury ESOP for
Stock Debt MRP Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income - - - 5,972,778
Other comprehensive income - - -
Unrealized loss on securities, net - - - (2,304,587)
Reclassification adjustment for - - -
losses realized in net income, net - - - 96,545
-----------
Comprehensive income - - - 3,764,736
Exercise of stock options - - - 68,213
Reduction of ESOP debt - 88,893 - 88,893
ESOP compensation expense - - - 180,130
Earned portion of MRP - - 362,790 362,790
Dividends on common stock - - - (1,775,436)
Transfer from Treasury Stock to MRP 1,830,515 - (1,853,328) -
Purchase of Treasury Stock (24,346,100) - - (24,346,100)
------------- ------------ ------------ ------------
Balance at September 30, 1999 ($22,515,585) ($622,247) ($2,219,849) $52,750,552
============= ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Years Ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,972,778 $ 1,262,043 $ 1,728,363
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 877,133 843,389 647,848
Accretion, Net (918,562) (768,076) (136,529)
Provision for loan losses 481,000 606,500 655,000
Loss (earnings) on investment in limited partnership - (140,413) (184,960)
Provision for (recapture of) losses on limited
partnership (750,000) 4,500,000 -
(Gain) loss on sale of investments, net 146,281 (177,388) 307,534
Gain on sale of real estate (31,958) (45,570) (19,894)
Gain on sale of loans, net (88,070) (20,797) (12,509)
Gain on sale of real estate held for development (355,018) (114,716) -
Loss on sale of premises and equipment 204 4,161 191,894
Deferred compensation 542,920 395,941 111,033
Increase in accrued interest receivable and other
assets (1,084,514) (2,126,635) (46,895)
Increase (decrease) in other liabilities 627,496 (986,822) 5,848,313
------------ ------------- --------------
Net cash provided by operating activities 5,419,690 3,231,617 9,089,198
------------ ------------- --------------
Cash flows from investing activities:
Increase in loans receivable, net (13,414,267) (21,497,351) (12,676,474)
Purchases of loans receivable (30,624,420) (54,055,109) (31,960,810)
Purchase of mortgage-backed securities (35,405,460) (80,440,920) (18,760,688)
Purchases of investment securities (7,342,712) (26,071,961) (11,181,806)
Purchase of investments in limited partnership - (181,125) (4,818,875)
Purchase of life insurance - (7,390,000) -
Purchases of FHLB stock (2,160,800) (2,442,100) (1,306,300)
Purchase of premises and equipment (249,576) (924,376) (2,281,841)
Sales of loans receivable 7,476,562 28,516,313 5,746,769
Proceeds from redemption of FHLB stock 1,800,000 802,900 650,000
Principal repayments on mortgage-backed securities 32,408,342 19,316,915 4,412,449
Proceeds from maturities of investment securities 500,000 14,710,657 2,550,000
Proceeds from sale of mortgage-backed securities,
available for sale 16,777,939 22,844,186 22,570,776
Proceeds from sale of investment securities,
available for sale 13,839,255 430,298 -
Proceeds from the sale of premises and equipment 500 20,800 -
Proceeds from sale of real estate owned 468,193 282,325 95,186
Proceeds from sale of real estate held for development 924,044 1,213,625 1,149,353
Capital improvements of real estate held for development (755,535) (724,265) (2,027,247)
------------ ------------- --------------
Net cash used in investing activities (15,757,935) (105,589,188) (47,839,508)
------------ ------------- --------------
</TABLE>
Continued
28
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Years Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in deposit accounts $ 13,466,310 $ 6,759,773 $ 40,963,515
Proceeds from FHLB advances 89,000,000 153,813,120 68,000,000
Repayment of FHLB advances (72,000,000) (112,813,120) (69,000,000)
Proceeds from securities sold under agreements to
repurchase 80,503 20,173,933 -
Proceeds from the sale of stock subscriptions - 45,659,494 -
Payment of stock offering costs (1,494,488) (72,642)
Purchase of Treasury Stock (24,346,100) - -
Proceeds from exercise of stock options 68,213 33,254 42,720
Purchase of stock for MRP - (616,558) (404,093)
Repayments of ESOP loan 88,893 92,884 96,876
Dividends paid on common stock (1,775,436) (1,489,429) (953,866)
Increase (decrease) in advance payments by borrowers
for property taxes and insurance 104,803 (63,205) (7,436)
------------ ------------- ------------
Net cash provided by financing activities 4,687,186 110,055,658 38,665,074
Net increase (decrease) in cash and cash equivalents (5,651,059) 7,698,087 (85,236)
Cash and cash equivalents, beginning of year 21,197,419 13,499,332 13,584,568
------------ ------------- ------------
Cash and cash equivalents, end of year $ 15,546,360 $ 21,197,419 $ 13,499,332
============ ============= ============
Supplemental disclosures:
Cash paid during the year for
Interest $ 13,500,051 $ 12,199,287 $ 9,537,349
============ ============= ============
Taxes $ 2,862,964 $ 1,668,726 $ 641,000
============ ============= ============
Noncash investing activities:
Additions to real estate acquired in settlement of loans $ 577,170 $ 158,609 $ 233,748
============ ============= ============
Loans receivable exchanged for mortgage-backed
securities $ - $ 5,167,985 $ -
============ ============= ============
Change in unrealized net gain (loss) on securities
available for sale, net of tax $ (2,208,042) $ (8,414) $ 1,005,278
============ ============= ============
Increase (decrease) in Employee Stock
Ownership Plan debt guaranteed by the
Bank $ 88,893 $ (92,884) $ (96,876)
============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
SouthBanc Shares, Inc.
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
In September 1997, SouthBanc Shares, Inc. ("Company"), a Delaware
Corporation, was formed at the direction of Perpetual Bank, A Federal
Savings Bank, ("Bank") to become the holding company for the Bank in
connection with the conversion of the Bank's parent mutual holding company,
SouthBanc Shares, M.H.C. ("MHC"), to a stock form of organization. The
conversion and reorganization was consummated on April 14, 1998. The
Company exchanged 2.85164 shares of its common stock for each outstanding
share of common stock held by stockholders of the Bank other than the MHC.
The additional 2,281,312 shares of common stock were sold at $20.00 per
share for gross proceeds of $45,626,240, less offering cost of $1,494,488
resulting in net proceeds of $44,131,752.
Consolidation
-------------
The accompanying consolidated financial statements include the accounts of
the Company, the Bank and its wholly owned subsidiaries, United Service
Corporation of Anderson, Inc. ("USC"), which primarily engages in real
estate development, and Mortgage First Service Corporation, which holds an
equity investment in a mortgage banking company (collectively the Company).
USC has a wholly-owned subsidiary, United Investment Services, Inc., which
primarily engages in brokerage service. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Loans Receivable
----------------
Loans receivable are stated at their unpaid principal balances less the
allowance for loan losses, and net of deferred loan origination fees and
discounts. The Company provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to the allowance. 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
losses. Such factors considered by management include the market value of
the underlying collateral, growth and composition of the loan portfolios,
the relationship of the allowance for loan losses to outstanding loans,
loss experience, 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 economic conditions differ substantially from the assumptions used in
making evaluations. Allowances for loan losses are subject to periodic
evaluation by various regulatory authorities and may be subject to
adjustment upon their examination.
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting
by Creditors for Impairment of a Loan," requires that creditors value all
specifically reviewed loans for which it is probable that the creditors
will be unable to collect all amounts due according to the terms of the
loan agreement at either the present value of expected cash flows
discounted at the loan's effective interest rate, or if more practical, the
market price or value of the collateral. If the resulting value of the
impaired loan is less than the recorded balance, the
30
<PAGE>
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
Loans Receivable, Continued
---------------------------
impairment must be recognized by creating a valuation allowance for the
difference and recognizing a corresponding bad debt expense. SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," amends SFAS No. 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan and requires
additional disclosures about how a creditor recognizes interest income
related to impaired loans. The Company adopted the provisions of SFAS No.
114 and No. 118 effective October 1, 1995. The adoption of these standards
required no increase to the reserve for loan losses and had no impact on
net income.
Interest income on loans and lease financing is recorded on the accrual
basis. Accrual of interest on loans (including loans impaired under SFAS
No. 114) generally is discontinued when the loan is 90 days past due and
management deems that collection of additional interest is doubtful.
Interest received on nonaccrual loans and impaired loans is generally
applied against principal or may be reported as interest income depending
on management's judgment as to the collectibility of principal. When
borrowers with loans on a nonaccrual status demonstrate their ability to
repay their loans in accordance with the contractual terms of the notes,
the loans are returned to accrual status.
The Company provides an allowance for uncollectible interest based on an
experience method of anticipated collections. This allowance is netted
against accrued interest receivable for financial statement reporting
purposes.
Loan fees and direct incremental costs of originating loans are deferred
and amortized over the contractual life of the related loan. The
amortization of the net fees or costs are recognized as a yield adjustment
using the interest method.
Investment and Mortgage-Backed Securities
------------------------------------------
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities. These investments are classified in three
categories and are accounted for as follows: (a) debt securities that the
Company has the positive intent and ability to hold to maturity are
classified as held for investment and reported at amortized cost; (b) debt
and equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in
earnings; and (c) debt and equity securities not classified as either held
for investment securities or trading securities are classified as available
for sale securities and reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a component of accumulated
other comprehensive income in stockholders' equity. The Company has no
securities classified as held for investment or trading. SFAS No. 115 may
cause fluctuations in stockholders' equity based on changes in values of
debt and equity securities classified as available for sale.
Securities classified as available for sale will be considered in the
Company's asset/liability management strategies and may be sold in response
to changes in interest rates, liquidity
31
<PAGE>
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
Investment and Mortgage-Backed Securities, Continued
----------------------------------------------------
needs and/or significant prepayment risk. The cost of investment securities
sold is determined by the "identified certificate" method.
Declines in the fair value of individual securities below their cost that
are deemed by management to be other than temporary result in write-downs
of the individual securities to their fair value. The write-downs are
included in earnings as realized losses.
Investment In Limited Partnership
---------------------------------
Investment in limited partnership represents an equity investment in a
limited partnership in which the Company owned more than 20% but not in
excess of 50% of the limited partnership and is accounted for under the
equity method. Accordingly, the Company records 20.625% of the
partnership's profits and losses in the consolidated statement of income.
Real Estate Acquired in Settlement of Loans
-------------------------------------------
Real estate acquired in settlement of loans represents real estate acquired
through foreclosure and is initially recorded at estimated fair value.
Subsequent to acquisition, real estate acquired in settlement of loans is
stated at the lower of cost or fair value, less estimated selling costs.
Costs related to holding these properties are charged to operations. Market
values of real estate acquired in settlement of loans are reviewed
regularly and allowances for losses are established when the carrying
values of real estate acquired in settlement of loans exceeds fair value
less costs to sell.
Premises and Equipment
----------------------
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated primarily on the straight-line method over the
estimated useful lives of the respective assets, five to forty years.
Securities Sold Under Agreements to Repurchase
----------------------------------------------
The Company enters into sales of securities under agreements to repurchase.
Fixed-coupon reverse repurchase agreements are treated as financings, with
the obligation to repurchase securities sold being reflected as a liability
and the securities underlying the agreements remaining as an asset. The
securities are delivered by appropriate entry by the Company's safekeeping
agent to the counterparties' accounts. The dealers may have sold, loaned or
otherwise disposed of such securities to other parties in the normal course
of their operations, and have agreed to resell to the Company substantially
identical securities at the maturities of the agreements.
32
<PAGE>
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
Income Taxes
------------
The provision for income taxes is based upon income and expense reported
for financial statement purposes after adjustment for permanent differences
such as tax-exempt interest income.
When income and expenses are recognized in different periods for financial
reporting purposes than for income tax purposes, deferred taxes are
provided in recognition of these temporary differences. The Company
computes its income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes," which requires the use of the liability method to record
income taxes. The liability method calculates the effect of tax rates
expected to be in place when the related temporary differences reverse.
Subsequent changes in tax rates will require adjustment to these deferred
tax assets and liabilities.
Stock Based Compensation
------------------------
The Company has adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock Based Compensation." The statement permits the
Company to continue accounting for stock based compensation as set forth in
Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock
Issued to Employees," provided the Company discloses the pro forma effect
on net income and earnings per share of adopting the full provisions of
SFAS No. 123. Accordingly, the Company continues to account for stock based
compensation under APB Opinion 25 and has provided the required pro forma
disclosures.
Earnings Per Share
------------------
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding. Diluted earnings per share is similar to
the computation of basic earnings per share except that the denominator is
increased to include the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued.
The dilutive effect of options outstanding under the Company's stock option
plan is reflected in diluted earnings per share by application of the
treasury stock method.
Risks and Uncertainties
-----------------------
In the normal course of its business, the Company encounters two
significant types of risk: economic and regulatory. There are three main
components of economic risk: interest rate risk, credit risk and market
risk. The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on
different bases, than its interest earning assets. Credit risk is the risk
of default on the Company's loan portfolio that results from the borrowers'
inability or unwillingness to make contractually required payments. Credit
risk also applies to investment securities and mortgage-backed securities
should the issuer of the security be unable to make principal and interest
payments. Market risk reflects changes in the value of collateral
underlying loans receivable, the valuation of real estate held by the
Company and the valuation of investment securities.
33
<PAGE>
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
Risks and Uncertainties, Continued
----------------------------------
The Company is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period.
The Company also undergoes periodic examinations by the regulatory
agencies, which may subject it to further changes with respect to asset
valuations, amounts of required loss allowances and operating restrictions
resulting from the regulators' judgments based on information available to
them at the time of their examination.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
dates of the balance sheets and revenues and expenses for the periods
covered. Actual results could differ significantly from those estimates and
assumptions.
Recently Issued Accounting Standards
------------------------------------
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." All derivatives are to be measured at
fair value and recognized in the balance sheet as assets or liabilities.
This statement's effective date was delayed by the issuance of SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS 133," and is effective for fiscal years and
quarters beginning after June 15, 2000. The Company does not expect that
the adoption of SFAS No. 133 will have a material impact on the
presentation of the Company's financial results or financial position.
In February 1999, the FASB issued SFAS No. 135, "Rescission of SFAS 75 and
Technical Corrections." This statement provides technical corrections for
previously issued statements and rescinds SFAS No. 75, which provides
guidance related to pension plans of state and local governmental units.
SFAS No. 135 is effective for fiscal years ending after February 15, 1999.
The adoption of SFAS 135 did not have a material impact on the presentation
of the Company's financial results or financial position.
In June 1999, the FASB issued SFAS No. 136, "Transfers of Assets to a Not-
for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement establishes standards for
transactions in which an entity makes a contribution by transferring assets
to a not-for-profit organization or a charitable trust and then requires
these contributions to be used in specified manner. SFAS No. 136 is
effective for fiscal periods beginning after December 15, 1999. The Company
does not expect that the adoption of SFAS No. 136 will have a material
impact on the presentation of the Company's financial results or financial
position.
Reclassification
----------------
Certain reclassifications of accounts reported for previous periods have
been made in these consolidated financial statements. Such
reclassifications had no effect on stockholders' equity or the net income
as previously reported.
34
<PAGE>
(2) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consisted of the following at September 30,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Working funds $ 3,949,305 $ 3,518,448
Noninterest-earning demand deposits 3,074,324 3,709,229
Interest-earning overnight deposits 8,522,731 13,969,742
----------- -----------
$15,546,360 $21,197,419
=========== ===========
</TABLE>
(3) Investment In Limited Partnership
---------------------------------
At September 30, 1999, the Company's investment in the limited partnership
consisted of a 20.625% interest in Dovenmuehle Mortgage Company Limited
Partnership which invests in mortgage servicing rights. The Company
committed and invested $5.0 million in Dovenmuehle in December 1996. The
Company has no obligation to contribute additional amounts to the limited
partnership and has no additional or potential future liability to the
limited partnership in excess of the commitment amount. External market
appraisals of the limited partnership are reviewed quarterly. Based on
review of these independent valuations, reserves have been recorded to
report the investment at its approximate fair value. In 1998, the Company
established a $4.5 million loss reserve for the limited partnership
investment due to declines in market interest rates which impaired the
valuation of the mortgage servicing rights. In 1999, the Company decreased
the loss reserve $750,000 due to increases in market interest rates which
improved the valuation of the mortgage servicing rights. The investment was
valued at $1,575,373 and $825,373 at September 30, 1999 and 1998,
respectively. The investment may be subject to future declines in value
depending upon performance and market conditions.
35
<PAGE>
(3) Investment In Limited Partnership
---------------------------------
The table below contains the summarized financial information of
Dovenmuehle (unaudited):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
Condensed Operations Statement 1999 1998
---- ----
<S> <C> <C>
Service Fees $ 6,046,437 $ 7,585,911
Other Income 1,580,909 1,778,192
----------- -------------
Total Income $ 7,627,346 $ 9,364,103
Servicing Expense 1,593,516 1,937,430
Purchased Mortgage Servicing Rights
Amortization 1,404,648 21,088,038
Other Expense 1,957,950 2,065,079
----------- -------------
Total Expense 4,956,114 25,090,547
----------- -------------
Net Gain (Loss) $ 2,671,232 ($15,726,444)
=========== =============
AT SEPTEMBER 30,
----------------
Condensed Balance Sheet 1999 1998
---- ----
Cash $ 259,120 $ 577,341
Accounts Receivable 960,644 1,626,123
Purchased Mortgage Servicing Rights 25,881,063 27,220,384
Other Assets 321,562 397,726
Organizational Costs 40,302 40,882
----------- -------------
Total Assets $27,462,691 $ 29,862,456
=========== =============
Accounts Payable $ 813,499 $ 1,464,496
Long Term Debt 14,560,000 18,980,000
Shareholders' Equity 12,089,192 9,417,960
----------- -------------
Total Liabilities and Shareholders'
Equity $27,462,691 $ 29,862,456
=========== =============
</TABLE>
36
<PAGE>
(4) Investment and Mortgage-Backed Securities Available for Sale
------------------------------------------------------------
The Company had securities available for sale as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
September 30, 1999
------------------
Investment securities:
FHLB Zero Coupon Bond $ 6,158,388 $ - $ 507,946 $ 5,650,442
U.S. Treasury Note 1,009,129 - 1,004 1,008,125
Stock Mutual Fund 1,043,000 - - 1,043,000
Equity Investments 150,000 - 43,125 106,875
Municipal Bond 3,289,905 - 502,065 2,787,840
Agency Callable Bond 2,000,000 - - 2,000,000
Trust Preferred Bonds 4,022,800 - 375,379 3,647,421
----------- ---------- ---------- -----------
$17,673,222 $ - $1,429,519 $16,243,703
=========== ========== ========== ===========
Mortgage-backed securities:
FHLMC and FNMA
fixed rate $10,259,848 $ 28,445 $ 211,409 $10,076,884
GNMA Fixed Rate 27,490,755 - 1,036,099 26,454,656
FNMA Adjustable Rate 280,539 - 3,306 277,233
Private label collateralized
mortgage obligations
(CMOs) 11,439,739 24,442 9,972 11,454,209
Agency CMOs 10,556,918 - 435,359 10,121,559
----------- ---------- ---------- -----------
$60,027,799 $ 52,887 $1,696,145 $58,384,541
=========== ========== ========== ===========
</TABLE>
37
<PAGE>
(4) Investment and Mortgage-Backed Securities Available for Sale, Continued
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
September 30, 1998
------------------
Investment securities:
FHLB Zero Coupon Bond $ 5,706,038 $122,905 $ 30,393 $ 5,798,550
U.S. Treasury Note 500,000 940 - 500,940
Stock Mutual Fund 993,695 - - 993,695
Equity Investments 1,732,524 - 86,274 1,646,250
Municipal Bond 6,128,961 22,679 - 6,151,640
Bank Preferred Stock 3,152,581 27,419 - 3,180,000
Trust Preferred Bonds 5,028,292 20,000 18,683 5,029,609
----------- -------- -------- -----------
$23,242,091 $193,943 $135,350 $23,300,684
=========== ======== ======== ===========
Mortgage-backed securities:
FHLMC and FNMA
fixed rate $14,695,509 $163,306 $ - $14,858,815
GNMA Fixed Rate 4,697,785 7,137 - 4,704,922
GNMA Adjustable Rate 12,075,269 106,180 - 12,181,449
FNMA Adjustable Rate 357,267 - 11,508 345,759
Private label collateralized
mortgage obligations
(CMOs) 16,706,471 66,367 22,737 16,750,101
Agency CMOs 25,186,843 67,158 161,755 25,092,246
----------- -------- -------- -----------
$73,719,144 $410,148 $196,000 $73,933,292
=========== ======== ======== ===========
</TABLE>
The amounts of scheduled maturities of investments and mortgage-backed
securities at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Less than one year $ 1,009,129 $ 1,008,125
One year to ten years 169,086 176,113
Ten to twenty years 17,778,093 16,613,881
Twenty to twenty-five years 18,170,727 17,976,033
Twenty-five to thirty years 39,373,563 37,696,794
No stated maturity 1,200,423 1,157,298
----------- -----------
$77,701,021 $74,628,244
=========== ===========
</TABLE>
The amortized cost and fair value of investment and mortgage-backed
securities available for sale at September 30, 1999 by contractual
maturity are shown above. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
repay obligations with or without call or prepayment penalties.
38
<PAGE>
(4) Investment and Mortgage-Backed Securities Available for Sale, Continued
-----------------------------------------------------------------------
At September 30, 1999 and 1998, $656,035 and $300,000, respectively, of
securities were pledged as collateral for certain deposits.
Proceeds from sales of securities available for sale and the related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
For The Years Ended September 30,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales of securities $30,617,194 $23,274,484 $22,570,776
Gross realized gains 449,953 226,884 7,866
Gross realized losses 596,234 49,496 315,400
</TABLE>
(5) Loans Receivable
----------------
Loans receivable at September 30, 1999, and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
First mortgage loans, substantially all
one to four family $131,952,534 $118,624,939
Construction 41,141,117 33,746,675
Commercial real estate 48,107,184 35,069,154
Loan participations purchased 11,572,799 12,492,101
Home improvement loans 1,453,977 2,122,370
Commercial loans 15,441,282 11,155,726
Consumer loans 20,692,077 19,134,765
Loans secured by deposits 1,377,831 1,583,465
------------ ------------
271,738,801 233,929,195
Less:
Deferred loan fees, net 317,371 272,752
Allowance for loan losses 2,617,662 2,374,044
Undisbursed loans in process 13,315,627 11,386,283
------------ ------------
Loans receivable, net $255,488,141 $219,896,116
============ ============
</TABLE>
Changes in the allowance for loan losses for the years ended September 30,
1999, 1998, and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $2,374,044 $1,886,243 $1,534,773
Provision for loan losses 481,000 606,500 655,000
Charge-offs (275,583) (174,183) (332,194)
Recoveries 38,201 55,484 28,664
---------- ---------- ----------
Balance, end of year $2,617,662 $2,374,044 $1,886,243
========== ========== ==========
</TABLE>
Loans serviced for others amounted to approximately $59,990,000,
$74,877,000, and $62,148,000 at September 30, 1999, 1998, and 1997,
respectively.
At September 30, 1999 and 1998, the Company had $-0- in loans receivable,
which were ninety days or more delinquent and accruing interest.
39
<PAGE>
(5) Loans Receivable (Continued)
----------------------------
At September 30, 1999, 1998 and 1997, the Company had approximately
$2,357,000, $1,175,000, and $403,000, respectively, in non-accrual loans.
The amount of interest income that would have been recognized had these
loans performed according to their contractual terms amounted to
approximately $209,000, $110,000, and $19,000, during the years ended
September 30, 1999, 1998, and 1997, respectively. The actual interest
income recognized on these loans amounted to approximately $103,000,
$26,000, and $11,000 during the years ended September 30, 1999, 1998, and
1997, respectively.
At September 30, 1999, 1998, and 1997, the carrying value of loans that are
considered to be impaired under SFAS No. 114 totaled approximately
$2,587,000, $1,264,000, and $517,000, respectively. Impairments on these
loans are included in loan losses. The average balance of impaired loans
was $2,111,000, $1,339,000, and $512,000, for years ended September 30,
1999, 1998 and 1997, respectively. Interest income recognized on impaired
loans was $103,087, $26,489, and $68,414, for years ended September 30,
1999, 1998 and 1997, respectively.
Activity in loans to officers, directors and other related parties for the
years ended September 30, 1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 917,014 $925,503 $ 975,762
New loans 572,000 88,000 143,923
Repayments (243,989) (96,489) (194,182)
---------- -------- ---------
Balance at end of year $1,245,025 $917,014 $ 925,503
========== ======== =========
</TABLE>
The Company primarily grants residential loans to customers in Anderson
County, South Carolina, and the surrounding communities. The Company's
ability to collect these balances depends substantially upon the economic
conditions and real estate market in the region. The Company does not have
any concentrations of loans to any one borrower. The Company has increased
its commercial and consumer loan portfolios which may entail greater risk
than residential mortgage loans.
(6) Real Estate
-----------
Real estate is summarized at September 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Real estate held for development $2,095,903 $1,909,394
Real estate acquired in settlement of loans 229,900 88,965
---------- ----------
$2,325,803 $1,998,359
========== ==========
</TABLE>
Real estate held for development is comprised of four projects. At
September 30, 1999, the net investment in two single family residential
subdivisions was $1,262,966 compared to $978,928 at September 30, 1998, and
the net investment in two commercial real estate
40
<PAGE>
(6) Real Estate, Continued
----------------------
development projects at September 30, 1999 was $832,937 compared to
$930,466 at September 30, 1998.
(7) Premises and Equipment
----------------------
Premises and equipment are summarized at September 30, 1999 and 1998 as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 871,242 $ 871,242
Office and other buildings 3,750,102 3,716,123
Furniture, fixtures and equipment 5,436,934 5,174,312
----------- -----------
10,058,278 9,761,677
Less accumulated depreciation (4,336,048) (3,411,186)
----------- -----------
$ 5,722,230 $ 6,350,491
=========== ===========
</TABLE>
Depreciation expense was $877,133, $843,389, and $647,848 for the years
ended September 30, 1999, 1998, and 1997, respectively.
(8) Deposits
--------
Deposits outstanding by type of account and range of interest rates at
September 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- -------------------------------
Range of Range of
Interest Interest
Balance Rates Balance Rates
------- ----- ------- -----
<S> <C> <C> <C> <C>
Non-interest bearing checking accounts $ 15,729,029 - $ 15,198,169 -
Interest-bearing checking accounts 43,255,605 1.21% - 3.49% 35,795,875 1.21% - 5.01%
Passbook accounts 26,386,582 2.12% - 4.59% 25,203,536 2.12% - 3.04%
------------ ------------
85,371,216 76,197,580
Certificate accounts 135,885,869 2.28% - 8.00% 131,593,195 2.50% - 8.00%
------------ ------------
$221,257,085 $207,790,775
============ ============
Weighted average interest rate 4.08% 4.35%
==== ====
</TABLE>
41
<PAGE>
(8) Deposits, Continued
-------------------
The amounts of scheduled maturities of certificate accounts at September
30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Maturing within one year $117,722,833 $ 96,866,360
Maturing one through three years 16,889,586 34,348,026
Maturing after three years 1,273,450 378,809
------------ ------------
$135,885,869 $131,593,195
============ ============
</TABLE>
At September 30, 1999, 1998 and 1997, the aggregate amounts of time
deposits of $100,000 or more amounted to $20,175,089, $17,412,810, and
$18,540,473, and, respectively. Interest paid on time deposits greater than
$100,000 was $864,223, $988,989, and $1,083,484 for the years ended
September 30, 1999, 1998 and 1997, respectively.
(9) Advances from the FHLB
----------------------
Advances from the FHLB at September 30, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
September 30, 1999
------------------
Maturity Date Call Date Interest Rate Balance
------------- --------- ------------- -------
<S> <C> <C> <C>
Daily Advance 5.75% $20,000,000
January 2002 October 1999 5.78% 5,000,000
January 2002 October 1999 4.83% 10,000,000
July 2008 October 1999 4.78% 25,000,000
June 2009 June 2001 5.30% 13,000,000
-----------
$73,000,000
===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------
Maturity Date Call Date Interest Rate Balance
------------- --------- ------------- -------
<S> <C> <C> <C>
Daily Advance 6.00% $16,000,000
January 2002 January 1999 5.78% 5,000,000
January 2008 January 1999 4.83% 10,000,000
July 2008 October 1998 4.78% 25,000,000
-----------
$56,000,000
===========
</TABLE>
At September 30, 1999, the Company had $73,000,000 in outstanding FHLB
advances and, based upon eligible collateral, additional available credit
of $20,900,000.
42
<PAGE>
(9) Advances from the FHLB, Continued
---------------------------------
The Company, as a member institution of the FHLB of Atlanta, is required to
own capital stock in the FHLB of Atlanta based generally on the Company's
balances of residential mortgage loans and FHLB Advances. No ready market
exists for the FHLB stock, and it has no quoted market value. Redemption of
this stock has historically been at par value. As collateral for its
Advances, the Company has pledged qualifying residential mortgage loans
totaling $148.4 million at September 30, 1999, and all of its FHLB stock.
(10) Securities Sold Under Agreements to Repurchase
----------------------------------------------
The Company had $20,254,436 and $20,173,933 borrowed under agreements to
repurchase at September 30, 1999 and 1998, respectively. The amortized cost
of the securities underlying the agreements to repurchase at September 30,
1999 and 1998 was $22,630,102 and $22,916,463, respectively. The maximum
amount outstanding at any month end during fiscal 1999 and 1998 was
$20,366,481 and $20,185,183, respectively. The average amount of
outstanding agreements for fiscal 1999 and 1998 was approximately
$20,244,801 and $17,912,000, respectively.
(11) Income Taxes
------------
Income taxes for the years ended September 30, 1999, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $2,383,738 $ 994,696 $544,803
Deferred 532,000 (446,000) 381,000
---------- --------- --------
Total $2,915,738 $ 548,696 $925,803
========== ========= ========
</TABLE>
Income tax expense differs from the amount computed at the federal
statutory rate of 34% for the years ended September 30, 1999, 1998 and
1997, as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes at federal rate $3,022,095 $ 615,651 $902,416
Differences resulting from:
State taxes, net of
federal benefit 41,000 29,000 81,000
Decrease in beginning of year
valuation allowance (48,000) (120,000) (81,000)
Income from unconsolidated
subsidiary (48,000) (50,000) -
Non-deductible compensation 123,000 71,000 -
Tax exempt interest (113,000) (34,000) -
Tax exempt earnings on life
insurance policies (133,000) (28,000) -
Non-deductible ESOP expense 62,000 64,000 -
Other 9,643 1,045 23,387
---------- ---------- --------
$2,915,738 $ 548,696 $925,803
========== ========== ========
Effective income tax rate 32.8% 30.3% 34.9%
==== ==== ====
</TABLE>
43
<PAGE>
(11) Income Taxes, Continued
-----------------------
At September 30, 1998, the Company has state net operating loss
carryforwards of approximately $37,000,000. These carryforwards expire in
various amounts beginning in fiscal year 2000 through 2011.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Loan loss allowances deferred for tax purposes $ 901,000 $ 901,000
State loss carryforwards 2,220,000 2,401,000
Unrealized loss on securities available for sale 1,045,000 -
Limited partnership book expenses in excess
of tax deductions 745,000 1,333,000
Other 300,000 286,000
----------- -----------
Total gross deferred tax assets 5,211,000 4,921,000
Less valuation allowances, primarily for tax
loss carryforwards (2,352,000) (2,400,000)
----------- -----------
Net deferred tax assets 2,859,000 2,521,000
----------- -----------
Deferred tax liabilities:
Depreciation for tax purposes in excess of such
amount for financial reporting purposes 119,000 177,000
Tax bad debt reserve in excess of base year 307,000 307,000
Unrealized gain on securities available for sale - 86,000
Loan fee income adjustments for tax purposes - 22,000
Other 14,000 109,000
----------- -----------
Total gross deferred tax liabilities 440,000 701,000
----------- -----------
Net deferred tax asset (included in
other assets) $ 2,419,000 $ 1,820,000
=========== ===========
</TABLE>
A portion of the change in the deferred tax asset relates to unrealized
losses on securities available for sale. In fiscal 1999, the related
deferred tax benefit of $1,131,000 has been recorded directly to
stockholders' equity. The balance of the change in the net deferred tax
asset results from the current period deferred tax expense of $532,000. In
fiscal 1998, the deferred taxes related to the unrealized gains on
securities available for sale of $11,000 has been recorded directly to
stockholders' equity with the balance of the change in the net deferred tax
asset resulting from the 1998 deferred tax benefit of $446,000.
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income
in certain periods, and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the net
deferred tax assets can be supported based upon these criteria except for
the state loss carryforwards. A valuation allowance for the deferred tax
asset has been reflected to reduce the potential deferred tax assets,
primarily for state loss carryforwards, to an amount that more likely than
not can be realized at September 30, 1999 and 1998.
44
<PAGE>
(11) Income Taxes, Continued
-----------------------
Federal legislation has been passed which repeals the "Percentage of
Taxable Income Method" of accounting for savings and loan bad debt reserves
for the first tax year beginning after December 31, 1995 (the fiscal year
ending September 30, 1997 for the Company). This legislation requires all
savings and loan institutions to account for bad debts using either the
specific charge-off method (available to all savings and loans) or the
experience method (available only to savings and loans that qualify as
"small banks", i.e., under $500 million in assets.) The Company currently
uses the experience method of accounting for its bad debt reserves.
The legislation suspends the recapture of bad debt reserves taken through
1987 (i.e., the base year reserve), but requires savings and loans to
recapture or repay bad debt deductions taken after 1987 over a six-year
period. The legislation allows the Company to defer recapture of this
amount for the years ended September 30, 1998 and 1997, suspending the
recapture to begin with the year ended September 30, 1999. The recapture is
then shortened to four years due to the two year deferral. As of September
30, 1999, the bad debt reserve subject to recapture, for which deferred
taxes have previously been provided, totaled approximately $808,000. As
permitted under SFAS 109, no deferred tax liability is provided for
approximately $5,200,000 of such tax bad debt reserves that arose prior to
October 1, 1988.
(12) Capital
-------
The Company is not subject to any regulatory capital requirements. The
Bank's actual capital and ratios as required by the Bank's primary
regulator, the Office of Thrift Supervision (OTS), as well as those
required to be considered well capitalized according to the Prompt
Corrective Action Provisions are presented in the following table. As of
September 30, 1999, the most recent notification from the OTS categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum core capital, Tier I capital and risk-based capital ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
45
<PAGE>
(12) Capital, Continued
------------------
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of September 30, 1999:
- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital (To Total Assets) $41,305 11.4% $ 5,419 1.5% $ - -%
Core Capital (To Total Assets) 41,305 11.4 14,431 4.0 18,039 5.00
Tier I Capital (To Risk-Weighted 41,305 17.9 - - 13,816 6.00
Assets)
Risk-Based Capital (To Risk-Weighted
Assets) 43,817 19.0 18,422 8.0 23,074 10.00
As of September 30, 1998:
- -------------------------
Tangible Capital (To Total Assets) $49,983 14.8% $ 5,075 1.5% $ - -%
Core Capital (To Total Assets) 49,983 14.8 13,533 4.0 16,916 5.00
Tier I Capital (To Risk-Weighted 49,983 23.7 - - 12,661 6.00
Assets)
Risk-Based Capital (To Risk-Weighted
Assets) 50,266 23.8 16,881 8.0 21,101 10.00
</TABLE>
46
<PAGE>
(12) Capital, Continued
------------------
If the Bank were to fail to meet its minimum capital requirements, it would be
required to file a written capital restoration plan with regulatory agencies and
would be subject to various mandatory and discretionary restrictions on its
operations.
The following table reconciles the Company's consolidated stockholders' equity
to its regulatory capital positions at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Stockholders' equity $ 52,750,552 $ 74,407,326
Adjustment for equity of Company not eligible
for computation (10,948,406) (21,672,605)
Adjustments for unrealized (gains) losses on
available for sale securities 1,751,820 (217,984)
Investments in and advances to nonincludable
subsidiaries (2,179,143) (1,920,541)
Disallowed servicing assets (69,557) (613,615)
------------ ------------
Regulatory tangible and core capital 41,305,266 49,982,581
Supplemental capital 2,587,923 2,318,291
Equity Assets to be deducted (76,300) (2,035,031)
------------ ------------
Risk-based capital $ 43,816,889 $ 50,265,841
============ =============
</TABLE>
(13) Employee Benefit Plans
----------------------
The Company has a profit sharing and deferred compensation plan for
substantially all full-time employees. The plan permits eligible
participants to contribute a percentage of their salary up to amounts
permitted by the Internal Revenue Code each year. At the discretion of the
Board of Directors, the Company may match a percentage of each
participant's contribution during the plan year. In addition, the Board of
Directors may from year to year make a discretionary contribution to the
plan. The Company's contribution recorded as expense for the years ended
September 30, 1999, 1998 and 1997, was $138,200, $203,790, and $219,123,
respectively.
Supplemental benefits are provided to certain key officers under
Supplemental Executive Retirement Agreements. These agreements are not
qualified under the Internal Revenue Code, and the benefits are unfunded.
However, certain benefits are informally and indirectly funded by insurance
policies on the lives of the covered officers. The cash surrender values of
the life insurance policies are recorded in the accompanying balance sheets
at $7,865,743 and $7,473,136 at September 30, 1999 and 1998, respectively.
(14) Stock Option Plan
-----------------
The Company has stock option plans through which the Board of Directors may
grant options to directors, officers and employees to purchase the
Company's common stock at prices not less than the market value of the
stock on the option grant date. The granted options become exercisable in
various increments and expire ten years from the grant date.
47
<PAGE>
(14) Stock Option Plan, Continued
----------------------------
The following table summarizes option activity during the years ended September
30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Number of Price Per
Shares Share
------ -----
<S> <C> <C>
Outstanding at September 30, 1996 25,300 $ 3.51
Granted 166,825 8.85
Exercised 12,182 3.51
------- ------
Outstanding at September 30, 1997 179,943 8.47
Granted - -
Exercised 3,753 8.85
------- ------
Outstanding at September 30, 1998 176,190 8.45
Granted 228,131 20.31
Exercised 15,620 4.37
------- ------
Outstanding at September 30, 1999 388,701 $15.58
======= ======
</TABLE>
The Company applies APB Opinion 25 in accounting for the stock option
plans. Accordingly, no compensation expense has been recognized for the
plans. Had compensation cost been recognized for the stock option plans
applying the fair-value-based method as prescribed by SFAS 123, the Bank's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income
----------
As reported $5,972,778 $1,262,043 $1,728,363
Pro forma 5,803,728 1,184,589 1,702,803
Earnings Per Share
------------------
Basic
As reported $ 1.76 $ .30 $ .41
Pro forma 1.71 .28 .41
Diluted
As reported $ 1.67 $ .29 $ .40
Pro forma 1.63 .27 .39
</TABLE>
The effects of applying SFAS 123 may not be representative of the effects
on reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
1999 1997
---- ----
<S> <C> <C>
Dividend yield 2.50 3.25%
Expected volatility 10 % 38
Risk-free interest rate 5.00 % 6.59%
Expected lives 10.0 years 7.5 years
</TABLE>
There were no options granted in 1998.
48
<PAGE>
(15) Management Recognition Plan
---------------------------
The Company has Management Recognition Plans (MRP) through which the Board
of Directors may grant shares of the Company's common stock to management.
During the years ended September 30, 1999, 1998 and 1997, 91,252, 0 and
66,728 shares of common stock were granted to management. The shares vest
in equal increments over a five-year period beginning one year from the
grant date. Compensation expense related to vesting of MRP shares was
$362,790, $212,459 and $78,881 for the years ended September 30, 1999, 1998
and 1997, respectively.
(16) Employee Stock Ownership Plan
-----------------------------
The Company maintains an Employee Stock Ownership Plan (ESOP) for eligible
employees. The ESOP has a loan used to acquire shares of common stock of
the Company. Such stock is pledged as collateral for the loan. In
accordance with the requirements of Statement of Position (SOP) 93-6, the
Company presents the outstanding loan amount as an other liability and as a
reduction of stockholders' equity in the accompanying consolidated balance
sheets. Company contributions to the ESOP, which are at the discretion of
the Board of Directors, are the primary source of funds used by the ESOP to
service the debt. Contributions of $146,814, $158,729 and $169,428 were
charged to operations for the years ended September 30, 1999, 1998 and
1997, respectively. In accordance with SOP 93-6, the Company is required to
record compensation expense or income for the difference between the cost
of the stock to the ESOP at the time of purchase and the market value of
the stock at the time shares are released to ESOP participants.
Compensation expense recorded under the ESOP was $180,130, $187,592, and
$32,152 for the years ended September 30, 1999, 1998 and 1997,
respectively.
49
<PAGE>
(17) Earnings Per Share
------------------
The following is a summary of the earnings per share (EPS) calculation for
the years ended September 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999
----
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS $5,972,778 3,386,851 $ 1.76
=======
Effect of dilutive securities:
Stock options - 91,120
Unearned ESOP Shares - 92,185
---------- ---------
Diluted EPS $5,972,778 3,570,156 $ 1.67
========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
1998
----
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ------------ ---------
<S> <C> <C> <C>
Basic EPS $1,262,043 4,199,237 $ 0.30
=======
Effect of dilutive securities:
Stock options - 101,790
Unearned ESOP Shares - 105,354
---------- ---------
Diluted EPS $1,262,043 4,406,381 $ 0.29
========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
1997
----
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ------------ ---------
<S> <C> <C> <C>
Basic EPS $1,728,363 4,174,528 $ 0.41
=======
Effect of dilutive securities:
Stock options - 29,172
Unearned ESOP Shares - 119,115
---------- ---------
Diluted EPS $1,728,363 4,322,815 $ 0.40
========== ========= =======
</TABLE>
(18) Commitments and Contingencies
-----------------------------
In conjunction with its lending activities, the Company enters into various
commitments to extend credit and issue letters of credit. Loan commitments
(unfunded loans and unused lines of credit) and letters of credit are
issued to accommodate the financing needs of the Bank's customers. Loan
commitments are agreements to lend moneys at a future date, so long as
there are no violations of any conditions established in the agreement.
Letters of credit commit the Company to make payments on behalf of
customers when certain specified events occur.
50
<PAGE>
(18) Commitments and Contingencies, Continued
----------------------------------------
Financial instruments where the contract amount represents the Company's
credit risk at September 30, 1999 and 1998, include loan and letter of
credit commitments of $44,852,000, and $35,815,000, respectively.
These loan and letter of credit commitments are subject to the same credit
policies and reviews as loans on the balance sheet. Collateral, both the
amount and nature, is obtained based upon management's assessment of the
credit risk. Since many of the extensions of credit are expected to expire
without being drawn, the total commitment amounts do not necessarily
represent future cash requirements.
Outstanding commitments on mortgage loans not yet closed amounted to
approximately $9,000,000, and $22,697,000 at September 30, 1999 and 1998,
respectively. Substantially, all of these commitments were at variable
interest rates. Such commitments, which are funded subject to certain
limitations, extend over varying periods of time with the majority being
funded within thirty days. These commitments will be funded with the cash
flow generated from normal operations, as well as possible utilization of
existing credit facilities available to the Company.
(19) Carrying Amounts and Fair Value of Financial Instruments
--------------------------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information, requires disclosure of fair
value information, whether or not recognized in the balance sheets, when it
is practical to estimate the fair value. SFAS No. 107 defines a financial
instrument as cash, evidence of an ownership interest in an entity or
contractual obligations which require the exchange of cash or other
financial instruments. Certain items are specifically excluded from the
disclosure requirements, including the Company's common stock, premises and
equipment, accrued interest receivable and payable, and other assets and
liabilities.
For cash and cash equivalents and FHLB stock, the carrying value is a
reasonable estimate of fair value.
For investment securities available for sale, mortgage-backed securities
and collateralized mortgage obligations, fair value is based on available
quoted market prices or quoted market prices for similar securities if a
quoted market price is not available.
The fair value of the limited partnership is based on an appraised value by
an independent appraiser.
The fair value of fixed rate loans is estimated based upon discounted
future cash flows using discount rates comparable to rates currently
offered for such loans. The discounted future cash flows reflect estimated
maturity dates adjusted for expected prepayments. For adjustable rate
loans, the fair value is equal to the carrying amount due to frequent
repricing.
The fair value of time deposits is estimated by discounting the amounts
payable at the certificate rates currently offered for deposits of similar
remaining maturities. The fair value of all other deposit account types is
the amount payable on demand at year-end.
51
<PAGE>
(19) Carrying Amounts and Fair Value of Financial Instruments, Continued
-------------------------------------------------------------------
For FHLB Advances, fair value is estimated based on discounting amounts
payable at the current rates offered to the Company for debt of the same
remaining maturities.
The fair value of securities sold under agreements to repurchase is equal
to the carrying amount due to their short maturities.
The carrying amounts and calculated fair values of the Company's financial
instruments are as follows at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 15,546,360 $ 15,546,360 $ 21,197,419 $ 21,197,419
Investment in limited partnership 1,575,373 1,575,373 825,373 825,373
Investment securities available
for sale 16,243,703 16,243,703 23,300,684 23,300,684
Federal Home Loan Bank stock 3,650,000 3,650,000 3,289,200 3,289,200
Mortgage-backed securities and
collateralized mortgage
obligations 58,384,541 58,384,541 73,933,292 73,933,292
Loans receivable 255,488,141 255,971,599 219,896,116 220,019,468
Financial liabilities:
Deposits
Demand deposits 85,371,216 84,789,908 76,197,580 76,311,647
Certificate accounts 135,885,869 136,018,943 131,593,195 131,511,270
Advances from the FHLB 73,000,000 72,901,130 56,000,000 55,356,682
Securities sold under agreements
to repurchase 20,254,436 20,254,436 20,173,933 20,173,933
</TABLE>
The Company had $53,900,000 of off-balance sheet financial commitments,
which are commitments to originate loans and unused consumer lines of
credit. Since these obligations are based on current market rates, the
carrying amount is considered to be a reasonable estimate of fair value.
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 the Company's entire holdings of a particular
financial instrument. Because no active market exists for a significant
portion of the Company's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current
economic conditions, current interest rates and prepayment trends, 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 any of these assumptions used in calculating fair value would
also significantly affect the estimates. Further, the fair value estimates
were calculated as of September 30, 1999 and 1998. Changes in market
interest rates and prepayment assumptions could significantly change the
fair value. Therefore, management believes that the foregoing information
is of
52
<PAGE>
(19) Carrying Amounts and Fair Value of Financial Instruments, Continued
-------------------------------------------------------------------
limited value and has no basis for determining whether the fair value
presented would be indicative of the value which could be negotiated during
an actual sale.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Company has
significant assets and liabilities that are not considered financial assets
or liabilities including deposit franchise value, loan servicing portfolio,
real estate, deferred tax liabilities, premises and equipment, and
goodwill. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of these estimates.
(20) Dividends
---------
On April 14, 1998, the Company completed a conversion and reorganization
from a mutual to a stock form of organization. A special liquidation
account was established by the Bank for the preconversion retained earnings
of approximately $12.9 million. The liquidation account will be maintained
for the benefit of depositors who held a savings or demand account as of
the June 30, 1996 eligibility or the December 31, 1997 supplemental
eligibility record dates who continue to maintain their deposits at the
Bank after the conversion. In the event of a future liquidation (and only
in such an event), each eligible and supplemental eligible account holder
who continues to maintain his or her savings account will be entitled to
receive a distribution from the liquidation account. The total amount of
the liquidation account will be decreased in an amount proportionately
corresponding to decreases in the savings account balances of eligible and
supplemental eligible account holders on each subsequent annual
determination date. Except for payment of dividends by the Bank to the
Company and repurchase of the Company's stock, the existence of the
liquidation account will not restrict the use or application of such net
worth.
The Bank is prohibited from declaring cash dividends on its common stock or
repurchasing its common stock if the effect thereof would cause its net
worth to be reduced below either the amount required for the liquidation
account or its minimum regulatory capital requirement. In addition, the
Company is also prohibited from declaring cash dividends and repurchasing
its own stock without prior regulatory approval in any amount in a calendar
year in excess of 100% of its current year's net income to the date of any
such dividend or repurchase, plus 50% of the excess of its capital at the
beginning of the year over its regulatory capital requirement.
53
<PAGE>
(21) Condensed Financial Information For SouthBanc Shares, Inc.
----------------------------------------------------------
The following are condensed statements of the Company (in thousands):
<TABLE>
<CAPTION>
Condensed Balance Sheets September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 4,976 $ 10,572
Investment securities 4,790 10,837
Investment in bank subsidiary 41,802 52,735
ESOP loan 622 711
Other assets 1,171 110
-------- --------
Total Assets $ 53,361 $ 74,965
======== ========
Liabilities and Stockholders' Equity
Liabilities $ 610 $ 558
Stockholders' Equity 52,751 74,407
-------- --------
Total Liabilities and Stockholders' Equity $ 53,361 $ 74,965
======== ========
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
For The Period From
April 14, 1998
For The Year Ended (Inception) to
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Condensed Statements of Income
Equity in undistributed net income of
bank subsidiary $ 5,394 $ 904
Interest income - investment securities 1,368 576
Other expenses (789) (218)
-------- --------
Net Income $ 5,973 $ 1,262
======== ========
-----------------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows
Cash flow from operating activities:
Net income $ 5,973 $ 1,262
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed net income of bank subsidiary (5,394) (904)
Increase in other assets (1,061) (110)
Increase (decrease) in other liabilities (197) 558
-------- --------
Net cash provided by (used in) operating activities (679) 806
Cash flow from investing activities:
Purchase (sale) of investment securities 6,047 (10,876)
Increase (decrease) in ESOP loan 89 (711)
-------- --------
Net cash provided by (used in) investing activities 6,136 (11,587)
Cash flow from financing activities:
Proceeds from sale of stock - 22,033
Dividends paid (1,775) (1,489)
Purchase of treasury stock (24,346) -
Exercise of stock options 68 33
Dividends received 15,000 776
-------- --------
Net cash provided by (used in) financing
activities (11,053) 21,353
-------- --------
Net increase (decrease) in cash and cash
equivalents (5,596) 10,572
Cash and cash equivalents, beginning of year 10,572 -
-------- --------
Cash and cash equivalents, end of year $ 4,976 $ 10,572
======== ========
-----------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
(22) Quarterly Results of Operations (Unaudited)
Summarized unaudited quarterly operating results for the years ended
September 30, 1999 and 1998 are as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
September 30, 1999:
Interest income $ 6,519 $ 6,494 $ 6,569 $ 6,646
Interest expense 3,333 3,444 3,334 3,327
----------- ----------- ---------- -----------
Net interest income 3,186 3,050 3,235 3,319
Provision for loan losses 80 80 170 151
----------- ----------- ---------- -----------
Net interest income after provision for loan losses 3,106 2,970 3,065 3,168
Noninterest income 1,505 1,207 1,261 1,176
Recapture of losses on limited partnership - - (400) (350)
Noninterest expense 2,119 2,167 2,346 2,687
----------- ----------- ---------- -----------
Income before income taxes 2,492 2,010 2,380 2,007
Income taxes 870 605 783 658
----------- ----------- ---------- -----------
Net income $ 1,622 $ 1,405 $ 1,597 $ 1,349
=========== =========== ========== ===========
Basic earnings per common share $ 0.40 $ 0.43 $ 0.51 $ 0.43
Diluted earnings per common share $ 0.39 $ 0.40 $ 0.48 $ 0.40
Weighted average shares outstanding
Basic 4,061,389 3,288,729 3,137,542 3,121,361
Diluted 4,154,804 3,483,601 3,350,282 3,344,502
September 30, 1998:
- -------------------
Interest income $ 5,073 $ 5,688 $ 6,378 $ 6,798
Interest expense 2,741 3,156 3,073 3,285
----------- ----------- ---------- -----------
Net interest income 2,332 2,532 3,305 3,513
Provision for loan losses 88 175 40 304
----------- ----------- ---------- -----------
Net interest income after provision for loan losses 2,244 2,357 3,265 3,209
Noninterest income 719 949 877 1,216
Provision for losses on limited partnership - - 100 4,400
Noninterest expense 2,000 2,160 2,226 2,139
----------- ----------- ---------- -----------
Income (loss) before income taxes 963 1,146 1,816 (2,114)
Income taxes 328 389 610 (778)
----------- ----------- ---------- -----------
Net income (loss) $ 635 $ 757 $ 1,206 $ (1,336)
=========== =========== ========== ===========
Basic earnings (loss) per common share $ 0.15 $ 0.18 $ 0.28 $ (0.31)
Diluted earnings (loss) per common share $ 0.14 $ 0.17 $ 0.27 $ (0.30)
Weighted average shares outstanding
Basic 4,302,763 4,302,763 4,304,596 4,306,410
Diluted 4,404,281 4,412,576 4,411,353 4,400,474
</TABLE>
55
<PAGE>
(23) Subsequent Event
----------------
On October 15, 1999, the Company announced plans to repurchase up to
250,299 of its outstanding common stock. The repurchase program began
October 20, 1999, and is expected to be completed over the next six months.
As of November 12, 1999, the Company has repurchased 56,500 shares of its
common stock at a cost of $1,230,275.
56
<PAGE>
CORPORATE INFORMATION
Executive and Senior Officers Title
- ----------------------------- -----
Robert W. "Lujack" Orr President/CEO
Thomas C. Hall Senior Vice President
Barry C. Visioli Senior Vice President
Sylvia B. Reed Corporate Secretary
John W. Dawkins Vice President
David L. Peters Vice President
James P. Vickery Vice President
Doris W. Hoover Vice President
Teresa A. Hix Vice President
Quinnette Morrison Vice President
Rose Alice Robinson Vice President
<TABLE>
<CAPTION>
Directors Occupation
- --------- ----------
<S> <C>
Richard C. Ballenger President, City Glass Company and D&B Glass Company, Inc., a
glass company
Martha S. Clamp Certified Public Accountant
F. Stevon Kay President, Hill Electric Company, Inc., an electrical contractor
Jack F. McIntosh Attorney
Robert W. "Lujack" Orr President/CEO, SouthBanc Shares, Inc.
H. A. Pickens, Jr. Retired owner of Harold A. Pickens & Sons, Inc., a commercial
construction contractor
C. G. Seabrook, Jr. Mentor
Jim Gray Watson Retired President Perpetual Bank FSB
</TABLE>
<TABLE>
<CAPTION>
Director Emeriti Occupation
- ---------------- ----------
<S> <C>
Charles W. Fant, Jr. Partner, Fant & Fant Architects, an architectural firm
J. Roy Martin, Jr. Retired Chairman of Martin Roofing Company, a commercial
roofing contractor
Wade A. Watson, Jr. Retired President of Perpetual Bank FSB
</TABLE>
Form 10-K
- ---------
A copy of the Company's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission for the year ended September 30, 1999, may be obtained
without charge by writing to Thomas C. Hall, Chief Financial Officer, 907 North
Main Street, Anderson, South Carolina 29621.
Annual Meeting of Stockholders
- ------------------------------
The Annual Meeting of Stockholders will be held on Thursday, January 20, 2000,
at 10:00 A. M. Eastern Time at the Main Office located at 907 North Main Street,
Anderson, South Carolina.
57
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
SouthBanc Shares' common stock is traded on the Nasdaq National Market under the
symbol "SBAN". As of November 16, 1999, there were approximately 1,450
registered shareholders. The holders of common stock are entitled to receive
dividends when and as declared by the Board of Directors. The payment of
dividends by the Company is within the discretion of the Company's Board of
Directors. The ability of the Company to declare and pay cash dividends depends
primarily on the ability of the Savings Bank to pay cash dividends to the
Company. See Note 20 of the Notes to the Consolidated Financial Statements for
the regulatory restrictions applicable to the Company's ability to pay cash
dividends.
The table below presents the range of high and low per share bid prices and
dividends, adjusted for the effect of the Conversion and Reorganization on April
14, 1998, declared during the quarter. The Company's common stock began trading
on April 15, 1998. Data presented before that date is for the common stock of
the Savings Bank.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
December 31, 1997 $22.97 $17.71 $0.12
March 31, 1998 $23.40 $20.95 $0.12
June 30, 1998 $23.76 $18.50 $0.12
September 30, 1998 $20.75 $15.00 $0.12
December 31, 1998 $20.88 $15.25 $0.12
March 31, 1999 $20.63 $18.38 $0.12
June 30, 1999 $23.25 $18.88 $0.15
September 30, 1999 $25.00 $19.25 $0.15
</TABLE>
58
<PAGE>
Corporate Offices
-----------------
SouthBanc Shares, Inc.
907 North Main Street
Anderson, South Carolina 29621
Perpetual Bank Branch Offices
-----------------------------
Northtowne Branch
3898 Liberty Highway
Anderson, South Carolina 29621
Perpetual Square
2125 North Highway 81
Anderson, South Carolina 29621
Seneca Office
1007 Bypass 123
Seneca, South Carolina 29678
Watson Village
2821 South Main Street
Anderson, South Carolina 29626
Whitehall Office
104 Whitehall Road
Anderson, South Carolina 29625
Independent Auditors
--------------------
Elliott, Davis & Company LLP
Greenville, South Carolina
Special Securities Counsel
--------------------------
Muldoon, Murphy & Faucette LLP
Washington, D. C.
59
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Registrant
- ----------
SouthBanc Shares, Inc.
<TABLE>
<CAPTION>
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
---------------- ------------ ----------------------
<S> <C> <C>
Perpetual Bank, A Federal Savings Bank 100% United States
United Service Corporation of
Anderson, Inc.(b) 100% South Carolina
United Investments Services, Inc.(c) 100% South Carolina
Mortgage First Service Corporation(b) 100% South Carolina
</TABLE>
_________________
(a) The operations of the wholly owned subsidiaries of the Registrant are
included in the Registrant's Consolidated Financial Statements
contained in the Annual Report Attached hereto as Exhibit 13.
(b) Wholly-owned by the Bank.
(c) Wholly-owned by United Service Corporation of Anderson, Inc.
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
EXHIBIT 23.0
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
333-79869 on Form S-8 of SouthBanc Shares, Inc. of our report dated November 12,
1999 appearing in the Annual Report to Stockholders of SouthBanc Shares, Inc.
for the year ended September 30, 1999 incorporated by reference in this Form
10-K.
ELLIOTT, DAVIS & COMPANY, LLP
/s/ ELLIOTT, DAVIS & COMPANY, LLP
Greenville, South Carolina
December 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF SOUTHBANC SHARES, INC. FOR THE YEAR ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,023
<INT-BEARING-DEPOSITS> 8,523
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,628
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 255,488
<ALLOWANCE> 2,618
<TOTAL-ASSETS> 372,151
<DEPOSITS> 221,257
<SHORT-TERM> 80,254
<LIABILITIES-OTHER> 4,889
<LONG-TERM> 13,000
0
0
<COMMON> 35,269
<OTHER-SE> 17,482
<TOTAL-LIABILITIES-AND-EQUITY> 372,151
<INTEREST-LOAN> 19,194
<INTEREST-INVEST> 7,034
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 26,228
<INTEREST-DEPOSIT> 8,920
<INTEREST-EXPENSE> 13,438
<INTEREST-INCOME-NET> 12,790
<LOAN-LOSSES> 481
<SECURITIES-GAINS> (146)
<EXPENSE-OTHER> 9,319
<INCOME-PRETAX> 8,889
<INCOME-PRE-EXTRAORDINARY> 8,889
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,973
<EPS-BASIC> 1.76
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 7.62
<LOANS-NON> 2,357
<LOANS-PAST> 0
<LOANS-TROUBLED> 230
<LOANS-PROBLEM> 41
<ALLOWANCE-OPEN> 2,374
<CHARGE-OFFS> 276
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 2,618
<ALLOWANCE-DOMESTIC> 41
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,577
</TABLE>
