<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _______________
Commission File No. 1-11819
HAYWOOD BANCSHARES, INC.
-------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1918006
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
370 North Main Street, Waynesville, North Carolina 28786
- -------------------------------------------------- -----------------------
(Address of principal office) (Zip Code)
Registrant's telephone number, including area code: (828) 456-9092
--------------
Securities registered under Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
-------------- ------------------------------------
Common Stock, par value American Stock Exchange
$1.00 per share
Securities registered under Section 12(g) of the Act: None
----
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing sale price of $14.375 on March 24, 1999 on the American
Stock Exchange, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, at March 24, 1999, was $12,342,806 (858,630
shares at $14.375 per share). Solely for purposes of this computation, it is
assumed that directors, officers and 5% stockholders are affiliates.
As of March 24, 1999, there were issued and outstanding 1,250,356 shares of the
Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Proxy Statement for the 1999 Annual Meeting of
Stockholders. (Part III)
<PAGE>
PART I
Item 1. Business
- -----------------
General
The Company. Haywood Bancshares, Inc. (the "Company") is a registered
bank holding company incorporated in North Carolina in 1995. The Company was
formed for the purpose of serving as the holding company for Haywood Savings
Bank, Inc., SSB ("Haywood Savings" or the "Bank"), a North Carolina chartered
savings bank. On June 30, 1995, the holding company reorganization was
consummated when the Company acquired all of the outstanding stock of Haywood
Savings and the stockholders of Haywood Savings became stockholders of the
Company. The Company's primary activities consist of holding the stock of
Haywood Savings and operating the business of the Bank. Accordingly, the
information set forth in this report, including financial statements and related
data, relates primarily to Haywood Savings.
The principal executive offices of the Company are located at 370
North Main Street, Waynesville, North Carolina 28786 and its main telephone
number is (828) 456-9092.
Haywood Savings. The Bank began operations as a North Carolina
chartered savings and loan association in 1919 and converted from mutual to
stock form on December 18, 1987. The Bank is a member of the Federal Home Loan
Bank ("FHLB") System and its deposits have been federally insured since 1948.
Effective November 30, 1992, Haywood Savings converted from a North
Carolina savings and loan association to a North Carolina savings bank. The
conversion to a savings bank was undertaken primarily to reduce the regulatory
and compliance burden imposed previously on the Bank by the overlapping and
duplicative federal regulatory system governing state-chartered savings
associations. As a result of the conversion, the Bank is now only subject to
examination and supervision by one federal regulator rather than two. As a
savings bank, the Bank's deposit accounts continue to be insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC").
Haywood Savings is primarily engaged in the business of accepting
deposits from the general public and investing such funds primarily in loans
secured by residential real estate and, to a lesser extent, in investment
securities. The Bank also makes second mortgage, home improvement and
commercial real estate loans, and home equity lines of credit.
In 1982, the Bank acquired Cherokee Savings and Loan Association in a
transaction accounted for as a purchase. At the time of the acquisition,
Cherokee Savings and Loan Association had approximately $6 million in assets and
one office in Murphy, North Carolina. As a result of the acquisition, Haywood
Savings had $675,000 in goodwill on its balance sheet as of December 31, 1998,
which is being amortized over a remaining period of approximately 13 years at a
rate of $52,500 per year.
Haywood Savings conducts its business through its home office in
Waynesville, North Carolina, and through three branch offices located in Sylva,
Andrews and Murphy, North Carolina. The Bank's principal executive offices are
located at 370 North Main Street, Waynesville, North Carolina 28786; telephone
number (828) 456-9092.
Primary Market Area
Haywood Savings' primary market area consists of Haywood, Cherokee and
Jackson Counties and adjacent counties in western North Carolina near the Great
Smoky Mountains, where its offices are located. Management estimates that
approximately 80% of the Bank's savings deposits are derived from residents of
Haywood, Cherokee and Jackson Counties and approximately 95% of its loans are
secured by properties in this area.
2
<PAGE>
Lending Activities
General. Haywood Savings' principal lending activities have historically
consisted of the origination of conventional first mortgage loans (i.e., loans
that have neither been insured nor partially guaranteed by a government agency)
for the construction or purchase of single-family properties. The Bank has also
originated loans secured by commercial real estate. The Bank also makes mobile
home loans if the mobile home meets strict construction standards and is affixed
to real property which can be included in a mortgage so that the Bank has both a
real estate mortgage and a lien on the title to the mobile home. Although the
Bank is authorized to make or purchase loans on a nationwide basis, the Bank's
lending has generally been confined to loans secured by properties within its
primary market areas in western North Carolina with most loans secured by
properties in Haywood, Cherokee and Jackson Counties.
At December 31, 1998, the Bank's net loan portfolio totaled $110.8 million
representing 73% of its total assets. On that date, 83.39% of gross outstanding
loans consisted of loans secured by first mortgages on residential real estate.
The balance of the Bank's loan portfolio consisted of commercial real estate
loans, construction loans, home improvement loans, home equity lines of credit
and loans secured by deposit accounts.
Loan Portfolio Analysis. Set forth below is selected data relating to the
composition of the Bank's loan portfolio by type of loan and type of security on
the dates indicated. Other than as disclosed below, there were no
concentrations of loans which exceeded 10% of total loans at December 31, 1998.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------------- ----------------------
$ % $ % $ %
------------- ------------ ------------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans
Interim construction loans.......... $ 6,716,000 5.81% $ 6,953,200 5.87% $ 6,729,300 5.92%
Loans on existing property(1)....... 105,142,885 90.89 107,835,389 91.02 103,312,198 90.87
Participation loans purchased....... 407,060 0.35 478,240 0.40 417,329 0.37
Loans secured by deposit accounts.... 750,954 0.65 580,639 0.49 701,428 0.61
Home improvement loans............... 189,016 0.16 164,827 0.14 145,651 0.13
Home equity lines of credit.......... 2,478,517 2.14 2,467,831 2.08 2,388,470 2.10
------------ ----------- ------------ ----------- ------------ ------
115,684,432 100.00% 118,480,126 100.00% 113,694,376 100.00%
=========== =========== ======
Less:
Loans in process.................... (3,530,853) (3,049,214) (3,142,363)
Allowance for loan losses........... (758,547) (738,547) (718,547)
Allowance for uncollected interest.. (53,081) (34,537) (37,375)
Deferred loan fees.................. (548,960) (507,472) (451,685)
------------ ------------ ------------
Total.............................. $110,792,991 $114,150,356 $109,344,406
============ ============ ============
Type of Security:
Residential real estate.............. $ 96,475,140 83.39% $ 99,597,227 84.06% $ 97,343,634 85.62%
Commercial real estate............... 15,790,805 13.65 15,669,602 13.23 13,115,193 11.54
Deposit accounts..................... 750,954 .65 580,639 0.49 701,428 0.61
Other................................ 2,667,533 2.31 2,632,658 2.22 2,534,121 2.23
------------ ----------- ------------ ----------- ------------ ------
Total.............................. 115,684,432 100.00% 118,480,126 100.00% 113,694,376 100.00%
=========== =========== ======
Less:
Loans in process.................... (3,530,853) (3,049,214) (3,142,363)
Allowance for loan losses........... (758,547) (738,547) (718,547)
Allowance for uncollected interest.. (53,081) (34,537) (37,375)
Deferred loan fees.................. (548,960) (507,472) (451,685)
------------ ------------ ------------
Total.............................. $110,792,991 $114,150,356 $109,344,406
============ ============ ============
</TABLE>
- -------------------------
(1) Includes construction loans converted to permanent loans.
3
<PAGE>
Loan Maturity Schedule and Rate Sensitivity. The following table sets
forth certain information at December 31, 1998 regarding the dollar amount of
loans maturing in the Bank's portfolio based on their contractual terms to
maturity. Demand loans having no stated schedule of repayments and no stated
maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
Due Due Within Due
Within One to After
One Year Five Years Five Years Total
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Real estate loans.......... $62,854,000 $ 9,279,000 $26,294,000 $ 92,427,000
Construction loans (1)..... 3,185,000 -- -- 3,185,000
Commercial loans........... 266,000 2,311,000 13,214,000 15,791,000
Loans secured by deposits.. 751,000 -- -- 751,000
----------- ----------- ----------- ------------
$67,056,000 $11,590,000 $33,508,000 $112,154,000
=========== =========== =========== ============
- -------------------------
</TABLE>
(1) Amount shown net of loans in process.
The next table sets forth the dollar amount of all loans due after one year
from December 31, 1998 which have predetermined interest rates and the amount of
such loans which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
Predetermined rates............................. $15,874,000
Adjustable or floating rates.................... 29,224,000
-----------
Total.......................................... $45,098,000
===========
</TABLE>
Residential Lending. The Bank offers adjustable-rate mortgage loans
("ARMs") on residential properties which generally provide for interest rate
adjustments on an annual basis. The interest rates on these loans are generally
tied to the National Average Contract Interest Rate for Major Lenders on
Previously Occupied Homes ("National Average Index"), an index prepared by the
Federal Housing Finance Board ("FHFB") with specified minimum and maximum
interest rate adjustments. The Bank has not used discounted introductory rates
on its ARMs and the Bank's ARMs do not provide for negative amortization. At
December 31, 1998, approximately $56.1 million, or 58%, of Haywood Savings'
mortgage loans consisted of ARMs. Most ARMs are subject to a maximum annual
change in rates of two percentage points each year and a maximum interest rate
from 12-15%. Fixed-rate loans are offered for a maximum term of 20 years.
These loans are originated on Federal National Mortgage Association
("FNMA")/Federal Home Loan Mortgage Corporation ("FHLMC") documentation in order
to facilitate their resale in the secondary market. The Bank has also
participated in loan swaps with FHLMC, swapping fixed-rate loans for FHLMC
Participation Certificates which are marketable and have a lower risk-weight
under the FDIC's risk-based capital regulations. See "Regulation -- Capital
Requirements."
Haywood Savings' conventional first mortgage loans customarily include due-
on-sale clauses giving Haywood Savings the right to declare a loan immediately
due and payable in the event, among other things, that the borrower sells or
otherwise disposes of the property subject to the mortgage and the loan is not
repaid. Haywood Savings has actively enforced due-on-sale clauses in its
mortgage contracts for the purpose of increasing its loan portfolio yield, often
through the authorization of assumptions of existing loans at market rates of
interest.
4
<PAGE>
Residential loans made by the Bank on single-family properties have been
predominantly originated in amounts up to 80% of appraised value, although loans
may be made up to 95% of appraised value for owner-occupied residences. The
Bank requires private mortgage insurance on all conventional loans with loan-to-
value ratios in excess of 80%. The initial contractual loan payment period for
residential mortgage loans does not exceed 20 years on fixed rate loans and 30
years on adjustable rate loans. Borrowers may refinance or prepay loans at
their option without penalty. The federal banking agencies, including the FDIC,
have adopted regulations that establish loan-to-value ratio requirements for
specific categories of real estate loans.
Construction Lending. The Bank also originates loans for the construction
of single-family homes and commercial properties. These loans are originated as
construction loans with a term of six months with provision for conversion of
the construction loan into a permanent loan upon completion of construction.
Essentially all of the Bank's construction loans convert into permanent loans.
Permanent loans are made at fixed or adjustable rates, which adjust annually,
and have terms not to exceed 20 years on fixed rate loans and 30 years on
adjustable rate loans. At December 31, 1998, the Bank had $3.2 million of
construction loans outstanding (net of loans in process balances).
Construction loans are generally at a rate adjusting annually. These
loans, which are made to qualified builders, are generally limited to 80% of the
appraised value of the property upon completion. Construction loan funds are
periodically disbursed but only for phases of construction completed. The Bank
does not require construction borrowers to obtain takeout commitments for
permanent financing. As a general matter, the Bank will not make a residential
construction loan with a principal amount in excess of $250,000.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved occupied real estate. The
Bank's risk of loss on a construction loan is dependent 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 proves to be inaccurate, the
Bank may be required to advance funds beyond the amount originally committed to
permit completion of the development. If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project with a value which is insufficient to assure full repayment.
The Bank's underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, the Bank considers the
reputation of the borrower and the contractor, the amount of the borrower's
equity in the project, independent valuations and reviews of cost estimates,
pre-construction sale and leasing information, and cash flow projections of the
borrower. To reduce the risks inherent in construction lending, the Bank also
requires, where appropriate, personal guarantees of the principals of the
borrower.
Commercial Real Estate Lending. At December 31, 1998, the Bank's
commercial real estate portfolio totaled $15.8 million, or 13.65%, of the Bank's
gross loan portfolio. At December 31, 1998, the Bank's largest commercial real
estate loan consisted of a $1.9 million loan secured by the Waynesville Plaza
Shopping Center in Waynesville, North Carolina. The Bank does not anticipate a
significant increase in commercial real estate loan originations in the near
future. The Bank generally requires all commercial real estate loans to have a
loan-to-value ratio no greater than 80%. Commercial real estate loans are
generally made with provision for annual rate adjustments and for terms not to
exceed 20 years.
Commercial real estate lending entails significant additional risks,
compared to residential property lending. Commercial real estate loans
typically involve large loan balances to single borrowers or groups of related
borrowers. The payment experience of such loans is typically dependent upon the
successful operation of the real estate project. These risks can be
significantly affected by supply and demand conditions in the market for office,
retail or industrial space and as such may be subject, to a greater extent, to
adverse conditions in the economy. In dealing with these risks, the Bank
reviews the financial condition of the borrower, limits the size of such loans
and generally lends on the security of property located within its primary
market area.
5
<PAGE>
Under North Carolina law, with certain limited exceptions, loans and
extensions of credit by a savings bank to a person outstanding at one time
generally shall not exceed the greater of (i) 15% of net worth and (ii)
$500,000. At December 31, 1998, the largest amount lent by the Bank to one
borrower was $1.75 million, which was approximately 8.12% of the Bank's
stockholders' equity at that date.
Consumer Lending. The Bank's consumer loan portfolio consists of home
equity lines of credit which the Bank began making in 1991, home improvement
loans and loans secured by deposit accounts. The Bank does not make consumer
installment loans. At December 31, 1998, consumer loans totaled $3.4 million or
approximately 2.95% of the gross loan portfolio and included $750,954 in loans
secured by deposit accounts in the Bank.
Home equity loans are extended in the form of lines of credit with interest
on outstanding balances indexed to the prime rate. The maximum loan term is 15
years and all outstanding indebtedness against the security property may not
exceed 80% of appraised value. Home equity loans are initially being marketed
to existing mortgage customers. As of December 31, 1998, $2.5 million in home
equity loans were outstanding, which was approximately 2.14% of the loan
portfolio.
Loan Solicitation and Processing. The Bank actively solicits mortgage loan
applications from existing customers, local real estate agents, builders, real
estate developers, and various other persons. Upon receipt of a loan
application from a prospective borrower, a credit report is ordered to verify
specific information relating to the loan applicant's employment, income and
credit standing. This information may be further verified by personal contacts
with other reference sources. An appraisal of the real estate intended to
secure the proposed loan is undertaken by a staff appraiser who is accompanied
by a member of the Board of Directors. As soon as the required information has
been obtained and the appraisal completed, the loan is submitted to a loan
committee, composed of Directors Ammons, Burgin and Stovall and seven
alternates, which has the authority to approve loans up to $150,000, with all
loans in excess of that amount being subject to approval by the full Board of
Directors. All borrowers are required to obtain fire and casualty insurance in
an amount equal to the value of the structures located on the property.
Loan commitments are typically made for periods of up to 60 days from the
date of approval of the application and a fee equal to 1% of loan principal is
charged if a letter of commitment is issued to be used to obtain funds for
construction from a source other than the Bank.
Loan Originations, Purchases and Sales. In general, Haywood Savings
originates residential loans solely for retention in its own loan portfolio.
However, occasionally the Bank originates loans on terms and conditions which
make them eligible for sale in the secondary market. The Bank generally
continues to collect payments on and otherwise service any loans sold for which
it is allowed by the loan purchaser to retain a portion of the loan payment. At
December 31, 1998, the Bank was servicing loans for others aggregating $132,000.
A portion of the Bank's loan originations consists of construction loans.
For the years ended December 31, 1996, 1997 and 1998, the Bank originated
construction loans in the amount of $6.0 million, $9.1 million and $7.1 million,
respectively. The majority of the construction loans are for the construction
of residential real estate and are made on an adjustable-rate basis.
6
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Loans originated:
Conventional real estate loans:
Construction loans.................. $ 7,051,000 $ 9,054,250 $ 5,986,844
(Increase) decrease in undisbursed
loans in process.................. 481,640 93,150 (479,106)
Loans on existing property.......... 3,877,320 5,809,775 9,946,660
Loans refinanced.................... 6,751,625 7,540,200 5,668,300
Other loans........................... 12,039,775 8,041,350 4,466,200
----------- ----------- -----------
Total loans originated (net)...... $30,201,360 $30,538,725 $25,588,898
=========== =========== ===========
</TABLE>
Loan originations decreased by $337,000, or 1.10%, during 1998 as a result
of decreases in originations of construction loans, refinancings and loans on
existing property. These decreases were offset by increased originations of
other loans. Overall, the loan portfolio decreased by approximately
$3.4 illion, or 2.94%.
Loan Origination Fees and Other Fees. In addition to interest earned on
loans and fees for making loan commitments, the Bank receives loan origination
fees for originating loans. Loan fees are a percentage of the principal amount
of the mortgage loan which are charged to the borrower for creation of the loan.
In accordance with generally accepted accounting principles, loan origination
fees and certain origination expenses are deferred and amortized over the life
of the loan.
The Bank also receives other fees and charges relating to existing loans,
which include late charges and fees collected in connection with a change in
borrower or other loan modifications. These fees and charges, however, have not
constituted a material source of income to the Bank.
Non-Performing Assets and Allowance for Loan Losses. The Bank provides for
loan losses on the allowance method. Additions to the allowance for loan losses
are provided by charges to operations based on inherent loss considerations
within the loan portfolio and various other factors which, in management's
judgment, warrant current recognition in estimating possible losses. Such
factors considered include collateral values, growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, delinquency trends, and economic conditions. Management evaluates
available information periodically and the allowance is adjusted accordingly.
While management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ from the
assumptions used in making the evaluations. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Loans are reviewed on a regular basis and an allowance for uncollected
interest is established when, in the opinion of management, the collection of
additional interest is doubtful. An allowance for uncollected interest is
established for residential mortgage loans when either principal or interest is
90 days or more past due. Consumer loans generally are charged off when the
loan becomes over 120 days delinquent. An allowance for uncollected interest is
established with respect to commercial business and real estate loans when the
loan is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
7
<PAGE>
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 such time as it is
sold. When such property is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair market value (net of estimated
selling costs). Any write-down of the property reduces the amount recorded as
real estate acquired.
The following table sets forth information with respect to the Bank's non-
performing assets for the periods indicated. During the periods presented, the
Bank had no loans accounted for as troubled debt restructurings.
<TABLE>
<CAPTION>
At December 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Non-accrual loans....................... $ 841 $ 583 $ 814
Accruing loans which are contractually
past due 90 days or more............... -- -- --
----- ----- ------
Total non-accruing loans and accruing
loans past due 90 days or more......... $ 841 $ 583 $ 814
===== ===== ======
Percentage of total loans............... .75% 0.51% 0.74%
===== ===== ======
Other non-performing assets (1)......... $ 7 $ 246 $1,790
===== ===== ======
- -------------------------
</TABLE>
(1) Other non-performing assets represent property acquired through foreclosure
or repossession. See Note 4 of Notes to Consolidated Financial Statements
for a description of the Company's accounting policies related to
acquisition of such property.
Non-accrual loans increased by $258,000, or 44%, in 1998. Nonaccrual loans
are comprised of 23 loans, of which the majority are single family residential
loans. Other non-performing assets decreased during 1998 primarily due to the
sale of two outparcels to the Waynesville Plaza Shopping Center with a book
value of approximately $210,000. The Corporation recognized a gain on the sale
of approximately $403,000. The remaining other non-performing assets at
December 31, 1998 consists of $7,000 of single-family residences.
The Bank had non-accrual loans of approximately $841,000 at December 31,
1998. Had these loans performed in accordance with their contractual terms,
approximately $53,000 in additional interest income would been recorded during
1998. Interest income of $25,000 was recognized in connection with non-accrual
loans during 1998.
At December 31, 1998, there were no loans which were not classified as non-
accrual, past due 90 days or more or restructured, but where known information
about possible credit problems of borrowers caused management to have serious
doubts as to the ability of the borrowers to comply with present loan repayment
terms and may result in disclosure as non-accrual, 90 days past due or
restructured.
8
<PAGE>
The following table sets forth an analysis of the allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year............... $738,547 $718,547 $703,547
Loans charged-off:
Real estate:
Residential.............................. -- -- --
Non-residential.......................... -- -- --
Construction............................. -- -- --
Consumer and other........................ -- -- --
-------- -------- --------
Total charge-offs.......................... -- -- --
-------- -------- --------
Recoveries:
Real estate:
Residential.............................. -- -- --
Non-residential.......................... -- -- --
Construction............................. -- -- --
Consumer and other........................ -- -- --
-------- -------- --------
Total recoveries........................... -- -- --
-------- -------- --------
Net loans charged-off...................... -- -- --
-------- -------- --------
Provision for possible loan losses......... 20,000 20,000 15,000
-------- -------- --------
Balance at end of year..................... $758,547 $738,547 $718,547
======== ======== ========
Ratio of net charge-offs to average loans
outstanding during the fiscal year........ -- % -- % -- %
======== ======== ========
</TABLE>
The following table breaks down the allowance for loan losses by loan
category for the periods indicated. Management believes that the allowance can
be allocated by category only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------------- --------------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------------- ------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Residential....................... $227,564 78.05% $385,522 78.19% $375,082 79.70%
Non-residential................... 227,564 13.65 184,637 13.23 179,637 11.54
Construction...................... 151,709 5.35 131,461 5.87 127,901 5.92
Equity lines of credit............ 75,855 2.14 36,927 2.08 35,927 2.10
Consumer installment and other...... 75,855 0.81 -- 0.63 -- 0.74
-------- ------ -------- ------ -------- ------
Total allowance for loan losses.. $758,547 100.00% $738,547 100.00% $718,547 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
9
<PAGE>
Management considers loans to be impaired when based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to contractual terms of the loan agreement. Factors that
influence management's judgments include, but are not limited to, loan payment
pattern, source of repayment, and value of collateral. A loan would not be
considered impaired if an insignificant delay in loan payment occurs and
management expects to collect all amounts due. The major sources for
identification of loans to be evaluated for impairment include past due and
nonaccrual reports, internally generated lists of loans of certain risk grades,
and regulatory reports of examination. Impaired loans are measured using either
the discounted expected cash flow method or the value of collateral method.
When the ultimate collectibility of an impaired loan's principal is in doubt,
wholly or partially, all cash receipts are applied to principal. Large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment (such as residential mortgage and consumer installment loans) are
excluded from impairment evaluation and their allowance for loan losses is
calculated in accordance with the allowance for loan losses policy described
above.
At December 31, 1998, the Bank had no loans considered to be impaired under
Statement 114.
Investment Activities
Investment Securities. Haywood Savings is permitted to invest in certain
securities. Investment decisions are made by authorized officers of the Bank
within policies established by the Bank's Board of Directors. At December 31,
1998, the Bank's investment securities portfolio had a net book value of
$30.0 million and a quoted market value of $29.8 million and consisted of United
States Government agency obligations, mortgage-backed securities and
collateralized mortgage obligations. Purchases of securities are funded either
through the sale or maturity of other securities or from cash flow arising in
the ordinary course of business. Under North Carolina law, savings banks are
required to maintain cash and readily marketable investments in an amount that
may be established by the Administrator of the North Carolina Savings
Institution Division (the "Administrator") but which may not be less than 10% of
the Bank's assets. The Bank was in compliance with the current 10% liquidity
requirement at December 31, 1998.
Mortgage-Backed Securities and Collateralized Mortgage Obligations. The
Bank maintains a significant portfolio of mortgage-backed securities in the form
of Government National Mortgage Association ("GNMA") and FHLMC participation or
pass-through certificates. GNMA certificates are guaranteed as to principal and
interest by the full faith and credit of the United States, while FHLMC
certificates are guaranteed by that agency only. Mortgage-backed securities
generally entitle the Bank to receive a pro rata portion of the cash flows from
an identified pool of mortgages. The Company has also invested in
collateralized mortgage obligations ("CMOs") which are securities issued by
special purpose entities generally collateralized by pools of mortgage-backed
securities. The cash flows from such pools are segmented and paid in accordance
with a predetermined priority to various classes of securities issued by the
entity. Although mortgage-backed securities generally yield less than the loans
for which they are exchanged, they present substantially lower credit risk and
are more liquid than the individual mortgage loans and may be used to
collateralize obligations of the Bank. Because the Bank receives regular
payments of principal and interest from its mortgage-backed securities, these
investments provide more consistent cash flows than investments in other debt
securities which generally only pay principal at maturity.
10
<PAGE>
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates within a range and have similar maturities. The underlying pool
of mortgages can be composed of either fixed-rate or ARM loans. As a result,
the interest rate risk characteristics of the underlying pool of mortgages,
i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on
to the certificate holder. The life of a mortgage-backed pass-through security
is equal to the life of the underlying mortgages.
Mortgage-backed securities, however, expose the Bank to certain unique
risks. In a declining rate environment, accelerated prepayments of loans
underlying these securities expose the Bank to the risk that it will be unable
to obtain comparable yields upon reinvestment of the proceeds. In the event the
mortgage-backed security has been funded with an interest-bearing liability with
a maturity comparable to the original estimated life of the mortgage-backed
security, the Bank's interest rate spread could be adversely affected.
Conversely, in a rising interest rate environment, the Bank may experience a
lower than estimated rate of repayment on the underlying mortgages, effectively
extending the estimated life of the mortgage-backed security and exposing the
Bank to the risk that it may be required to fund the asset with a liability
bearing a higher rate of interest.
The following table sets forth the carrying value of the Bank's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
(Dollars in thousands)
Investment securities available for sale:
U.S. government and agency securities.............. $ 4,247 $ 5,012 $ --
Collateralized mortgage obligations:
FHLMC certificates............................... 10,510 10,794 --
FNMA certificates................................ 4,709 -- --
------- ------- -------
Total investment securities available for sale.. 19,466 15,806 --
------- ------- -------
Investment securities held-to-maturity:
U.S. government and agency securities.............. 9,823 10,437 10,894
Mortgage-backed securities:
FHLMC certificates................................ 335 520 674
GNMA certificates................................. 145 286 $ 395
------- ------- -------
Total investment securities held to maturity.... 10,303 11,243 $11,963
------- ------- -------
Total investment securities..................... $29,769 $27,049 $11,963
======= ======= =======
</TABLE>
11
<PAGE>
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's investment portfolio at December
31, 1998.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years
------------------ ------------------ ------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities
available for sale:
U.S. government and
agency securities................ $ -- --% $ 4,247 6.08% $ -- --%
Collateralized mortgage
obligations:
FHLMC certificates............. -- -- -- -- -- --
FNMA certificates.............. -- -- -- -- -- --
-------- ------- ------- ---- -------- -------
Total investment
securities
available for
sale...................... -- -- 4,247 6.08 -- --
-------- ------- ------- ---- -------- -------
Investment securities
held-to-maturity:
U.S. government and
agency
securities....................... 437 7.66% 9,386 5.62% -- --
Mortgage-backed
securities:
FHLMC certificates............. -- -- -- -- 335 8.50
GNMA certificates.............. -- -- -- -- 13 9.00
-------- ------- ------- ---- -------- -------
Total investment
securities
held to maturity.......... 437 7.66 9,386 5.62 348 8.52
-------- ------- ------- ---- -------- -------
Total investment
securities................. $437 7.66% $13,633 5.76% $348 8.52%
======== ======= ======= ==== ======== =======
<CAPTION>
Over Ten Years Total Investments
------------------- --------------------------
Carrying Market Carrying Market Average
Value Value Value Value Yield
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Investment securities
available for sale:
U.S. government and
agency
securities........................... $ -- $ --% $ 4,247 $ 4,247 6.08%
Collateralized mortgage
obligations:
FHLMC certificates................. 10,510 6.64 10,510 10,510 6.64
FNMA certificates.................. 4,709 5.93 4,709 4,709 5.93
------- ------- ------- ------- ----
Total investment
securities
available for
sale.......................... 15,219 6.42 19,466 19,466 6.34%
------- ------- ------- ------- ----
Investment securities
held-to-maturity:
U.S. government and
agency
securities........................... -- -- 9,823 9,822 5.71
Mortgage-backed
securities:
FHLMC certificates................. -- -- 335 348 8.50
GNMA certificates.................. 132 8.84 145 162 8.85
------- ------- ------- ------- ----
Total investment
securities
held to maturity.............. 132 8.84 10,303 10,332 5.85
------- ------- ------- ------- ----
Total investment
securities..................... $15,351 6.44% $29,769 $29,798 6.17%
======= ======= ======= ======= ====
</TABLE>
12
<PAGE>
The Bank classifies investment securities into one of three categories:
Held-to-maturity - includes investment securities which the Bank has the
positive intent and ability to hold to maturity. Held-to-maturity securities
are carried at amortized cost, adjusted for amortization of premiums and
accretion of discounts using the interest method.
Trading securities - includes investment securities purchased and held
principally for the purpose of selling in the near future. Trading securities
are carried at fair value with realized and unrealized gains and losses included
in income.
Available-for-sale - includes investment securities not classified as held-
to-maturity or trading. Available-for-sale securities, if acquired, will be
carried at fair value. Realized gains and losses, based on the amortized cost
of the specific security, will be included in income. Unrealized gains and
losses will be recorded, net of related income tax effects, in a separate
component of stockholders' equity until realized.
The classification of investment securities as held-to-maturity, trading or
available for sale is determined at the date of purchase.
Mortgage Servicing Rights. The Company has made a $3.0 million commitment
to be a limited partner in Dovenmuehle Mortgage Company L.P. ("DMCLP") Tranche
VIII Servicing Division of Dovenmuehle Mortgage Inc. ("DMI"). DMI provides
mortgage servicing for a national portfolio of residential, multi-family and
commercial mortgage loans. These loans are owned or securitized by national
mortgage agencies, and by a variety of private banks, thrifts, insurance
companies and other loan investors. DMI formed DMCLP as a funding vehicle to
purchase portfolios of the FNMA and the FHLMC nonrecourse residential servicing.
DMI provides the mortgage servicing for these portfolios for a fixed fee. Under
this structure, investors in DMCLP invest in separate tranches, each of which
has its own identified servicing rights and each of which may be owned by one or
a group of investors. The equity investors in each tranche benefit from a
financial return based solely on the performance of the mortgage servicing
rights purchased for the tranche. The tranche will be liquidated no later than
the seventh anniversary of the closing of the Offering.
Servicing rights represent the right to service loans for which the
servicer generally receives a fee based on the outstanding principal of the loan
being serviced. The costs of acquiring servicing rights are capitalized and
amortized over the estimated life of the servicing right. Investments in
mortgage servicing rights may be subject to certain volatility because the
carrying values of such assets must be periodically evaluated in relation to
future estimated servicing revenues. As interest rates decline, prepayment
rates tend to accelerate, thereby decreasing the average life of the servicing
portfolio and adversely impacting its servicing-related earnings primarily due
to increased amortization of the servicing assets, a decreased rate of interest
earned on custodial balances, and increased interest costs incurred on payoffs.
In June 1998, the Company determined that its investment was impaired when
it received notification of such impairment from an affiliate of DMI, supported
by an independent appraisal. In determining the impairment charges for the year
ended December 31, 1998, the Company relied on appraisal reports prepared by
United Financial, Inc. ("UFI"). At December 31, 1998, the principal amount of
the loans in the Tranche VIII servicing portfolio was $1.95 billion. The UFI
appraisal report indicated an economic value of approximately $27.5 million for
the portfolio at that date using a discounted cash flow analysis and a fair
market value of approximately $24.6 million based on estimated market prices for
similar servicing rights. Because UFI's economic value method relied on certain
assumptions related
13
<PAGE>
to DMI's portfolio retention program, the Company used the fair market value to
calculate the value of its interest in Tranche VIII. As indicated in the
appraisal reports, the assumed interest rate on 30-year Treasury bonds had
declined to 5.08% at December 31, 1998. This significant decline in interest
rates led to an increase in refinancing activities with a corresponding negative
impact on the value of the underlying mortgage servicing rights. During the
year ended December 31, 1998, the Company recognized impairment valuation
adjustments totaling approximately $2,161,000. Total loss of DMI recognized by
the Company on the equity method of accounting was $2,158,000 as compared to net
earnings of $136,000 for fiscal year 1997.
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, Haywood Savings derives
funds from loan principal repayments, interest payments and periodic borrowings.
Loan repayments are a relatively stable source of funds, while deposit inflows
and outflows are significantly influenced by general interest rates and money
market conditions. Borrowings may be used on a short-term basis to compensate
for reductions in the availability of funds from other sources. They may also
be used on a longer term basis for general business purposes.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including NOW accounts, money market accounts, regular
savings accounts, term certificate accounts (including "Mini Jumbo" and "Jumbo"
certificates in denominations of $50,000 and $100,000 or more, respectively) and
retirement savings plans. The Bank solicits jumbo certificates from individuals
and corporations located in its market area. The Bank does not obtain funds
through brokers, nor does it solicit funds outside the State of North Carolina.
The Bank has emphasized the attraction of one-year certificate of deposits
through competitive pricing of these types of accounts. In addition, the Bank
has attempted to develop and price deposit accounts in order to appeal to
retirees in the Bank's market area. During fiscal year 1998, the Bank
experienced an increase in jumbo certificate accounts and savings and NOW
accounts. Management attributes the inflow in these accounts to paying
competitive rates on such accounts as compared to the marketplace.
14
<PAGE>
Deposits in the Bank at December 31, 1998 were represented by the various
types of deposits described below.
<TABLE>
<CAPTION>
Average
Interest Minimum Minimum Percentage of
Rate Term Category Amount Balances Total Deposits
- ------- ----------- -------------------------------- ------------ ------------ ---------------
<C> <S> <C> <C> <C> <C>
-- % none Commercial checking none $ 241,823 0.21%
1.84 none NOW accounts none 10,338,966 8.86
2.17 none Super NOW accounts none 1,556,956 1.33
2.95 none Optional savings accounts none 12,742,414 0.91
5.24 none Full-paid savings accounts none 7,000 0.01
3.20 none 90-day savings accounts none 841,799 0.72
2.95 none Money market deposit accounts $ 2,500 6,335,664 5.43
3.50 none Optional public funds none 122,394 0.11
Certificates of Deposit
--------------------------------
4.70 91 day 91-day certificate 500 3,168,833 2.71
5.17 6 months 6-month money market certificate 500 19,866,263 17.01
5.52 1 year 1-year certificate 500 24,078,092 20.62
5.84 18 months 18-month certificate 500 4,242,417 3.63
5.73 30 months 30-month certificate 500 8,169,875 7.00
5.70 18 months IRA certificates 500 4,778,342 4.09
6.50 2 years 6-1/2% certificates 500 519 --
6.75 30 months 6-3/4% certificates 500 4,486 --
7.50 4 years 7-1/2% certificates 500 232,272 0.20
7.75 6 years 7-3/4% certificates 500 23,667 0.02
8.00 8 years 8% certificates 500 195,400 0.17
5.04 6 months 6-month Mini-Jumbo certificates 50,000 106,563 0.09
5.42 12 months 12-month Mini-Jumbo certificates 50,000 24,733 0.02
5.23 90 days Jumbo certificates 100,000 15,245,006 13.06
5.76 various Public Funds various 116,784 0.10
5.42 various Negotiated CDs various 842,776 0.72
6.42 15 months Negotiated CDs various 2,031,126 1.74
6.21 24 months Negotiated CDs various 1,447,203 1.24
------------ -----
$116,761,373 100.00%
============ ======
</TABLE>
15
<PAGE>
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by the Bank between
the dates indicated.
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
Balance at From Balance at From Balance at
December 31, % December 31, December 31, % December 31, December 31, %
1998 Deposits 1997 1997 Deposits 1996 1996 Deposits
------------ --------- ------------- ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial checking........ $ 241,823 0.21% $ 42,653 $ 199,170 0.17% $ 2,644 $ 196,526 0.18%
NOW checking accounts...... 10,338,966 8.86 623,838 9,715,128 8.19 499,990 9,215,138 8.58
Super NOW checking accounts 1,556,956 1.33 238,652 1,318,304 1.11 394,177 924,127 0.86
Passbook and regular
savings................... 13,713,607 11.74 746,575 12,967,032 10.93 (578,110) 13,545,142 12.62
Money market deposit
accounts.................. 6,335,664 5.43 (140,714) 6,476,378 5.46 (3,514) 6,479,892 6.04
Fixed-rate certificate
accounts.................. 456,344 0.39 (2,251) 458,595 0.39 7,946 450,649 0.41
Money market certificates.. 19,866,263 17.01 (1,556,293) 21,422,556 18.05 (2,951,725) 24,374,281 22.71
Jumbo certificates......... 15,245,006 13.06 1,271,167 13,973,839 11.77 2,844,474 11,129,365 10.37
Other certificates......... 49,006,744 41.97 (3,132,710) 52,139,454 43.93 11,111,195 41,028,259 38.23
------------ ------ ----------- ------------ ------ ----------- ------------ ------
$116,761,373 100.00% $(1,909,083) $118,670,456 100.00% $11,327,077 $107,343,379 100.00%
============ ====== =========== ============ ====== =========== ============ ======
</TABLE>
16
<PAGE>
The following table sets forth the time deposits in the Bank classified by
rates as of the dates indicated.
At December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
4.01 - 6.00%............ $80,639,684 $82,695,686 $74,849,368
6.01 - 8.00%............ 3,934,673 5,298,758 2,133,186
----------- ----------- -----------
Total................ $84,574,357 $87,994,444 $76,982,554
=========== =========== ===========
</TABLE>
The following table sets forth the amount and maturities of time deposits
at December 31, 1998.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------
Less Than After
Rate One Year 1-5 Years 5 Years Total
- --------------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
4.01-6.00%.............. $58,724,000 $21,916,000 $ -- $80,640,000
6.01-8.00%.............. 2,024,000 1,459,000 451,000 3,934,000
----------- ----------- -------- -----------
Total................. $60,748,000 $23,375,000 $451,000 $84,574,000
=========== =========== ======== ===========
</TABLE>
The following table sets forth the deposit account activities of the Bank
for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Deposits............................................ $ 132,954,649 $ 141,756,284 $ 120,887,730
Withdrawals......................................... (139,068,594) (134,947,031) (125,756,781)
------------- ------------- -------------
Net increase (decrease) before interest credited.. (6,113,945) 6,809,253 (4,869,051)
Interest credited................................... 4,204,862 4,517,824 3,449,175
------------- ------------- -------------
Net increase (decrease) in deposits............... $ (1,909,083) $ 11,327,077 $ (1,419,876)
============= ============= =============
</TABLE>
The decrease in the Bank's deposits during fiscal year 1998 occurred
primarily in certificates of deposit (other than jumbo). Management attributes
the decrease to a migration from traditional deposits.
Borrowings. Savings deposits are the primary source of funds for the
Bank's lending activities and other general business activities. Haywood
Savings does, however, periodically use borrowed money to supplement its supply
of lendable funds and for other operational purposes.
The Bank has established a $2.0 million line of credit with First Union
National Bank with an interest rate equal to First Union National Bank's prime
rate. The Bank is required to pay off this line of credit at some point during
each year and to leave it unused for a period of 60 days. At December 31,
1998, the Bank had no borrowings outstanding under this line of credit.
17
<PAGE>
Competition
Haywood Savings faces strong competition both in attracting and making real
estate and other loans. Its most direct competition for deposits has
historically come from other savings and loan associations, commercial banks and
credit unions, many of which have substantially greater resources than the Bank.
Particularly in times of high interest rates, the Bank faces additional
significant competition for investors' funds from short-term money market
securities and other corporate and government securities.
Haywood Savings' competition for real estate loans comes principally from
other savings and loan associations, commercial banks, mortgage banking
companies, insurance companies and other institutional lenders. The Bank
competes for loans principally through the interest rates and loan fees it
charges and the efficiency and quality of services it provides borrowers and
their real estate brokers. It competes for savings by offering a variety of
savings accounts at competitive rates and convenient branch locations.
Subsidiaries
In 1984, the Bank formed Great Smokies Financial Corporation ("Great
Smokies"), a wholly-owned subsidiary service corporation organized under North
Carolina law. Great Smokies' primary activity had been to build houses on
properties which the Bank had acquired through foreclosure. In addition, Great
Smokies holds second mortgage loans on properties on which the Bank has
foreclosed in order to facilitate the sale of the property by the Bank.
In 1988, Haywood Savings purchased a small insurance agency for $36,000,
now named Great Smokies Insurance Agency, Inc. The agency acts as an insurance
broker for property and casualty insurance. During 1998, Great Smokies
Insurance Agency earned approximately $187,000 in commissions on policies sold.
As a North Carolina-chartered savings bank, the Bank is authorized to
invest up to 10% of its assets in subsidiary or service corporations engaged in
activities that are permissible to subsidiaries of federal savings associations.
After December 19, 1992, subsidiaries of state-chartered savings banks
generally, however, may not engage as principal in any activity that is not
permissible for a subsidiary of a national banks unless the FDIC determines that
the activities do not pose a significant risk to the appropriate insurance fund
and the bank complies with all applicable capital requirements. Under
regulations adopted by the FDIC to clarify the foregoing restriction, a
subsidiary acting as agent for the sale of insurance would not be considered
engaged as principal in an activity that is not permissible for a subsidiary of
a national bank. Accordingly, neither of the Bank's subsidiaries would be
considered engaged as principal in an activity that is not permissible for a
subsidiary of a national bank.
Regulation
General. As a North Carolina chartered savings bank with deposits insured
by the SAIF, the Bank is extensively regulated by the Administrator of the
Savings Institutions Division of the State of North Carolina (the
"Administrator") and the FDIC. As a bank holding company, the Company is also
subject to extensive regulation under federal and state law. These laws and
regulations are intended primarily for the protection of depositors and of the
FDIC.
The following discussion of statutes and regulations affecting North
Carolina-chartered savings banks and bank holding companies does not purport to
be complete. To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. The operations of the Company
and the Bank may be affected by legislative changes and by the policies of
various regulatory authorities. The Company and the Bank are unable to predict
the nature or the extent of the effects on their business and earnings that
fiscal or monetary policies or new federal or state legislation or regulation
may have in the future.
18
<PAGE>
Regulation of the Company. The Company is a bank holding company subject
to regulation by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended (the "BHCA"). The Company is also a savings institution
holding company subject to supervision by the Administrator under North Carolina
law. As a result, the activities of the Company are subject to certain
limitations, which are described below. In addition, as a bank holding company,
the Company is required to file annual and quarterly reports with the Federal
Reserve Board and to furnish such additional information as the Federal Reserve
Board may require pursuant to the BHCA. The Company is also subject to regular
examination by the Federal Reserve Board.
With certain exceptions, the BHCA prohibits a bank holding company from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of a company that is not a bank or a bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking. The
activities of the Company are subject to these legal and regulatory limitations
under the BHCA and the related Federal Reserve Board regulations.
Notwithstanding the Federal Reserve Board's prior approval of specific
nonbanking activities, the Federal Reserve Board has the power to order a
holding company or its subsidiaries to terminate any activity, or to terminate
its ownership or control of any subsidiary, when it has reasonable cause to
believe that the continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that holding company. In addition to the above
restrictions under the BHCA, the Company's investments are limited under North
Carolina law to those investments permitted for North Carolina savings banks.
Under the BHCA, a bank holding company must obtain the prior approval of
the Federal Reserve Board before (1) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company. Satisfactory financial
condition, particularly with regard to capital adequacy, and satisfactory
Community Reinvestment Act ("CRA") ratings generally are prerequisites to
obtaining federal regulatory approval to make acquisitions.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") allows the Federal
Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Riegle-Neal Act also prohibits the Federal Reserve Board from
approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Riegle-Neal
Act does not affect the authority of states to limit the percentage of total
insured deposits in the state which may be held or controlled by a bank or bank
holding company to the extent such limitation does not discriminate against out-
of-state banks or bank holding companies. Individual states may also waive the
30% state-wide concentration limit contained in the Riegle-Neal Act.
The federal banking agencies are authorized to approve interstate merger
transactions without regard to whether such transaction is prohibited by the law
of any state, unless the home state of one of the banks has opted out of the
Riegle-Neal Act by adopting a law which applies equally to all out-of-state
banks and expressly prohibits merger transactions involving out-of-state banks.
Interstate acquisitions of branches are permitted only if the law of the state
in which the branch is located permits such acquisitions. Interstate mergers
and branch acquisitions are also subject to the nationwide and statewide insured
deposit concentration amounts described above.
19
<PAGE>
The Riegle-Neal Act authorizes the OCC and FDIC to approve interstate
branching de novo by national and state banks, respectively, only in states
which specifically allow for such branching. The Riegle-Neal Act also required
the appropriate federal banking agencies to prescribe regulations which
prohibited any out-of-state bank from using the interstate branching authority
primarily for the purpose of deposit production. These regulations include
guidelines to ensure that interstate branches operated by an out-of-state bank
in a host state are reasonably helping to meet the credit needs of the
communities which they serve. Under North Carolina law, a North Carolina
savings bank may establish a branch in any other state in accordance with the
laws of such other state.
Under the BHCA, any company must obtain approval of the Federal Reserve
Board prior to acquiring control of the Company or the Bank. For purposes of
the BHCA, "control" is defined as ownership of more than 25% of any class of
voting securities of the Company or the Bank, the ability to control the
election of a majority of the directors, or the exercise of a controlling
influence over management or policies of the Company or the Bank. In addition,
the Change in Bank Control Act and the related regulations of the Federal
Reserve Board require any person or persons acting in concert (except for
companies required to make application under the BHCA), to file a written notice
with the Federal Reserve Board before such person or persons may acquire control
of the Company or the Bank. The Change in Bank Control Act defines "control" as
the power, directly or indirectly, to vote 25% or more of any voting securities
or to direct the management or policies of a bank holding company or an insured
bank. Furthermore, no person or company may acquire control of the Company or
the Bank without the prior written approval of the Administrator. The
definition of "control" for this purpose is the same as the definition under the
Change in Bank Control Act.
The Federal Reserve Board has adopted guidelines regarding the capital
adequacy of bank holding companies, which require bank holding companies to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See "-- Capital Requirements."
Holding Company Dividends and Stock Repurchases. The Federal Reserve Board
has the power to prohibit dividends by bank holding companies if their actions
constitute unsafe or unsound practices. The Federal Reserve Board has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the Federal Reserve Board's view that a bank holding company
should pay cash dividends only to the extent that the company's net income for
the past year is sufficient to cover both the cash dividends and a rate of
earnings retention that is consistent with the company's capital needs, asset
quality, and overall financial condition. The Federal Reserve Board also
indicated that it would be inappropriate for a bank holding company experiencing
serious financial problems to borrow funds to pay dividends. Under the prompt
corrective action regulations adopted by the Federal Reserve Board pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
the Federal Reserve Board may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized." See "-- Prompt Corrective Regulatory Action."
As a bank holding company, the Company is required to give the Federal
Reserve Board prior written notice of any purchase or redemption of its
outstanding equity securities if the gross consideration for the purchase or
redemption, when combined with the net consideration paid for all such purchases
or redemptions during the preceding 12 months, is equal to 10% or more of the
Company's consolidated net worth. The Federal Reserve Board may disapprove such
a purchase or redemption if it determines that the proposal would violate any
law, regulation, Federal Reserve Board order, directive, or any condition
imposed by, or written agreement with, the Federal Reserve Board. This
requirement does not apply to bank holding companies that are "well-
capitalized," received one of the two highest examination ratings at their last
examination and are not the subject of any unresolved supervisory issues.
Bank Regulation. As a state-chartered savings bank which is not a member
of the Federal Reserve System (a "state non-member bank"), the Bank is subject
to the primary federal supervision of the FDIC under the Federal Deposit
Insurance Act (the "FDIA"). The Bank also is subject to comprehensive
regulation and supervision by the Administrator. The prior approval of the FDIC
and of the Administrator is required for the Bank to establish or relocate a
branch office or to engage in any merger, consolidation or significant purchase
of assets. In addition, the Bank is subject to numerous federal and state laws
and regulations that set forth specific restrictions and procedural requirements
20
<PAGE>
with respect to the establishment of branches, investments, interest rates on
loans, credit practices, the disclosure of credit terms and discrimination in
credit transactions.
The FDIC and the Administrator regularly examine the operations and
condition of the Bank, including but not limited to capital adequacy, reserves,
loans, investments and management practices. These examinations are for the
protection of the Bank's depositors and the SAIF and not its stockholders. In
addition, the Bank is required to furnish quarterly and annual reports to the
FDIC as well as annual reports to the Administrator. The FDIC's enforcement
authority includes the power to remove officers and directors and the authority
to issue orders to prevent a bank from engaging in unsafe or unsound practices
or violating laws or regulations governing its business. Any North Carolina
savings bank that does not operate in accordance with the regulations, policies
and directives of the Administrator may be subject to sanctions for non-
compliance. The Administrator may under certain circumstances suspend or
remove, directors or officers who have violated the law, conducted the bank's
business in a manner which is unsafe, unsound or contrary to the depositors'
interests, or been negligent in the performance of their duties.
The CRA requires that, in connection with examinations of financial
institutions within their jurisdiction, the Federal Reserve Board and the FDIC
evaluate the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those banks. These factors are
also considered by the Federal Reserve Board and the FDIC in evaluating mergers,
acquisitions and applications to open a branch or facility.
North Carolina savings banks are authorized to operate branches through the
State of North Carolina. Branch approvals are subject to statutory standards
relating to safety and soundness, competition, public convenience and CRA
performance.
Capital Requirements. The Federal Reserve Board and the FDIC have
established guidelines with respect to the maintenance of appropriate levels of
capital by bank holding companies with consolidated assets of $150 million or
more and state non-member banks, respectively. For bank holding companies with
less than $150 million in consolidated assets, the Federal Reserve Board
applies the guidelines on a bank-only basis unless the bank holding company has
publicly held debt securities or is engaged in non-bank activities involving
significant leverage. The regulations impose two sets of capital adequacy
requirements: minimum leverage rules, which require bank holding companies and
state non-member banks to maintain a specified minimum ratio of capital to total
assets, and risk-based capital rules, which require the maintenance of specified
minimum ratios of capital to "risk-weighted" assets. The regulations of the
FDIC and the Federal Reserve Board require bank holding companies and state non-
member banks, respectively, to maintain a minimum leverage ratio of "Tier 1
capital" to total assets of 3.0%. Tier 1 capital is the sum of common
stockholders' equity, certain perpetual preferred stock (which must be
noncumulative with respect to banks), including any related surplus, and
minority interests in consolidated subsidiaries; minus all intangible assets
(other than certain purchased mortgage servicing rights and purchased credit
card receivables), identified losses and investments in certain subsidiaries.
As a SAIF-insured, state-chartered bank, the Bank must also deduct from Tier 1
capital an amount equal to its investments in, and extensions of credit to,
subsidiaries engaged in activities that are not permissible for national banks,
other than debt and equity investments in subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities or in
subsidiary depository institutions or their holding companies. Although setting
a minimum 3.0% leverage ratio, the capital regulations state that only the
strongest bank holding companies and banks, with composite examination ratings
of 1 under the rating system used by the federal bank regulators, would be
permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank
or bank holding companies experiencing or anticipating significant growth would
be expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve Board has indicated that whenever appropriate, and in particular
when a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier 1
capital to total assets in making an overall assessment of capital.
21
<PAGE>
In addition to the leverage ratio, the regulations of the Federal Reserve
Board and the FDIC require bank holding companies and state-chartered nonmember
banks to maintain a minimum ratio of qualifying total capital to risk-weighted
assets of at least 8.0% of which at least four percentage points must be Tier 1
capital. Qualifying total capital consists of Tier 1 capital plus Tier 2 or
supplementary capital items which include allowances for loan losses in an
amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and
preferred stock with a maturity of 20 years or more and certain other capital
instruments. The includable amount of Tier 2 capital cannot exceed the
institution's Tier 1 capital. Qualifying total capital is further reduced by
the amount of the bank's investments in banking and finance subsidiaries that
are not consolidated for regulatory capital purposes, reciprocal cross-holdings
of capital securities issued by other banks and certain other deductions. The
risk-based capital regulations assign balance sheet assets and the credit
equivalent amounts of certain off-balance sheet items to one of four broad risk
weight categories. The aggregate dollar amount of each category is multiplied by
the risk weight assigned to that category based principally on the degree of
credit risk associated with the obligor. The sum of these weighted values
equals the bank holding company or the bank's risk-weighted assets.
As of December 31, 1998, the Bank's level of Tier 1 Capital was well in
excess of the minimum required by the FDIC capital regulations.
The federal bank regulators, including the Federal Reserve Board and the
FDIC, have proposed to revise their risk-based capital requirements to ensure
that such requirements provide for explicit consideration of interest rate risk.
Under the proposed rule, a bank's interest rate risk exposure would be
quantified using either the measurement system set forth in the proposal or the
bank's internal model for measuring such exposure, if such model is determined
to be adequate by the bank's examiner. If the dollar amount of a bank's
interest rate risk exposure, as measured under either measurement system,
exceeds 1% of the bank's total assets, the bank would be required under the
proposed rule to hold additional capital equal to the dollar amount of the
excess. Management of the Bank has not determined what effect, if any, the
FDIC's proposed interest rate risk component would have on the Bank's capital if
adopted as proposed. The FDIC has adopted a regulation that provides that the
FDIC may take into account whether a bank has significant risks from
concentrations of credit or nontraditional activities in determining the
adequacy of its capital. The Bank has not been advised that it will be required
to maintain any additional capital under this regulation. The proposed interest
rate risk component would not apply to bank holding companies on a consolidated
basis.
Under North Carolina law, savings banks must maintain a net worth of not
less than 5% of assets. In computing its compliance with this requirement, the
savings bank must deduct intangible assets from both net worth and assets. In
connection with the approval by the Administrator of the Bank's holding company
reorganization, the Company executed a Capital Maintenance Agreement, pursuant
to which the Company agreed to infuse additional capital into the Bank in the
event the Bank's net worth fell below the minimum net worth requirement under
North Carolina law. The Bank was in compliance with the North Carolina net
worth requirement at December 31, 1998.
Prompt Corrective Regulatory Action. FDICIA requires the federal banking
regulators to take prompt corrective action if an insured depository institution
fails to satisfy certain minimum capital requirements including a leverage
limit, a risk-based capital requirement, and any other measure of capital deemed
appropriate by the federal banking regulators for measuring the capital adequacy
of an insured depository institution. All institutions, regardless of their
capital levels, are restricted from making any capital distribution or paying
any management fees that would cause the institution to fail to satisfy the
minimum levels for any of its capital requirements. An institution that failed
to meet the minimum level for any relevant capital measure (an "undercapitalized
institution") may be: (i) subject to increased monitoring by the appropriate
federal banking regulator; (ii) required to submit an acceptable capital
restoration plan within 45 days; (iii) subject to asset growth limits; and (iv)
required to obtain prior regulatory approval for acquisitions, branching and new
lines of businesses. The capital restoration plan must include a guarantee by
the institution's holding company that the institution will comply with the plan
until it has been adequately capitalized on average for four consecutive
quarters, under which the holding company would be liable up to the lesser of 5%
of the institution's total assets or the amount necessary to bring the
institution into capital compliance as of the date it failed to comply with its
capital restoration plan. A "significantly undercapitalized" institution, as
well as any undercapitalized
22
<PAGE>
institution that did not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities, possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution. Any company controlling the
institution could also be required to divest the institution or the institution
could be required to divest subsidiaries. The senior executive officers of a
significantly undercapitalized institution may not receive bonuses or increases
in compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. If an
institution's ratio of tangible capital to total assets falls below a level
established by the appropriate federal banking regulator, the institution will
be deemed "critically undercapitalized" and subject to conservatorship or
receivership within specified periods of time.
Under the regulations implementing the prompt corrective action provision
of FDICIA, the federal banking regulators measure a depository institution's
capital adequacy on the basis of the institution's total risk-based capital
ratio (the ratio of its qualifying total capital to risk-weighted assets), Tier
1 risk-based capital ratio (the ratio of its Tier 1 capital to risk-weighted
assets) and leverage ratio (the ratio of its Tier 1 capital to adjusted total
assets). A savings bank that is not subject to an order or written directive to
meet or maintain a specific capital level will be deemed "well capitalized" if
it also has: (i) a total risk-based capital ratio of 10% or greater; (ii) a Tier
1 risk-based capital ratio of 6.0% or greater; and (iii) a leverage ratio of
5.0% or greater. An "adequately capitalized" institution is an institution that
does not meet the definition of well capitalized and has: (i) a total risk-based
capital ratio of 8.0% or greater; (ii) a Tier 1 capital risk-based ratio of 4.0%
or greater; and (iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if
the institution has a composite 1 CAMELS rating). An "undercapitalized
institution" is an institution that has (i) a total risk-based capital ratio
less than 8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or
(iii) a leverage ratio of less than 4.0% (or 3.0% if the institution has a
composite 1 CAMELS rating). A "significantly undercapitalized" institution is
defined as an institution that has: (i) a total risk-based capital ratio of less
than 6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or
(iii) leverage ratio of less than 3.0%. A "critically undercapitalized"
institution is defined as an institution that has a ratio of "tangible equity"
to total assets of less than 2.0%.
Dividend Limitations. The Bank may not pay dividends on its capital stock
if its regulatory capital would thereby be reduced below the amount then
required for the liquidation account established for the benefit of certain
depositors of the Bank at the time of its conversion to stock form.
Earnings of the Bank appropriated to bad debt reserves and deducted for
Federal income tax purposes are not available for payment of cash dividends or
other distributions to stockholders without payment of taxes at the then current
tax rate by the Bank on the amount of earnings removed from the reserves for
such distributions. The Bank intends to make full use of this favorable tax
treatment and does not contemplate use of any earnings in a manner which would
limit the Bank's bad debt deduction or create federal tax liabilities.
Under FDIC regulations, the Bank is prohibited from making any capital
distributions if after making the distribution, the Bank would have: (i) a total
risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital
ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.
The Company is subject to limitations on dividends imposed by the Federal
Reserve Board. See "-- Holding Company Dividends and Stock Repurchases."
Deposit Insurance. The Bank is required to pay assessments to the FDIC
based on a percent of its insured deposits for insurance of its deposits by the
SAIF. Under the Federal Deposit Insurance Act, the FDIC is required to set
semi-annual assessments for SAIF-insured institutions to maintain the designated
reserve ratio of the SAIF at 1.25% of estimated deposits or at a higher
percentage of estimated insured deposits that the FDIC determines to be
justified for that year by circumstances raising a significant risk of
substantial future losses to the SAIF.
23
<PAGE>
Under the risk-based deposit insurance system adopted by the FDIC, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria used under the prompt
corrective action regulations. Within each capital group, institutions are
assigned to one of three subgroups on the basis of supervisory evaluations by
the institution's primary supervisory authority and such other information as
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance fund.
The FDIC has adopted a new assessment schedule for SAIF deposit insurance
pursuant to which the assessment rate for well-capitalized institutions with the
highest supervisory ratings would be reduced to zero and institutions in the
lowest risk assessment classification will be assessed at the rate of 0.27% of
insured deposits. Until December 31, 1999, however, SAIF member institutions
will be required to pay assessments to the FDIC at the rate of 6.5 basis points
to help fund interest payments on certain bonds issued by FICO an agency of the
federal government established to finance takeovers of insolvent thrifts.
During this period, BIF members will be assessed for these obligations at the
rate of 1.3 basis points. After December 31, 1999, both BIF and SAIF members
will be assessed at the same rate for FICO payments.
Restrictions on Certain Activities. Under FDICIA, state-chartered banks
with deposits insured by the FDIC are generally prohibited from acquiring or
retaining any equity investment of a type or in an amount that is not
permissible for a national bank. The foregoing limitation, however, does not
prohibit FDIC-insured state banks from acquiring or retaining an equity
investment in a subsidiary in which the bank is a majority owner. State-
chartered banks are also prohibited from engaging as principal in any type of
activity that is not permissible for a national bank and subsidiaries of state-
chartered, FDIC-insured state banks may not engage as principal in any type of
activity that is not permissible for a subsidiary of a national bank unless in
either case the FDIC determines that the activity would pose no significant risk
to the appropriate deposit insurance fund and the bank is, and continues to be,
in compliance with applicable capital standards.
The FDIC has adopted regulations to clarify the foregoing restrictions on
activities of FDIC-insured state-chartered banks and their subsidiaries. Under
the regulations, the term activity refers to the authorized conduct of business
by an insured state bank and includes acquiring or retaining any investment
other than an equity investment. A bank or subsidiary is considered acting as
principal when conducted other than as an agent for a customer, as trustee, or
in a brokerage, custodial, advisory or administrative capacity. An activity
permissible for a national bank includes any activity expressly authorized for
national banks by statute or recognized as permissible in regulations, official
circulars or bulletins or in any order or written interpretation issued by the
Office of the Comptroller of the Currency ("OCC"). In its regulations, the FDIC
indicates that it will not permit state banks to directly engage in commercial
ventures or directly or indirectly engage in any insurance underwriting activity
other than to the extent such activities are permissible for a national bank or
a national bank subsidiary or except for certain other limited forms of
insurance underwriting permitted under the regulations. Under the regulations,
the FDIC permits state banks that meet applicable minimum capital requirements
to engage as principal in certain activities that are not permissible to
national banks including guaranteeing obligations of others, activities which
the Federal Reserve Board has found by regulation or order to be closely related
to banking and certain securities activities conducted through subsidiaries.
Safety and Soundness Standards. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each Federal banking agency is required to establish safety and soundness
standards for institutions under its authority. The guidelines adopted by the
FDIC require depository institutions to maintain internal controls and
information systems and internal audit systems that are appropriate for the
size, nature and scope of the institution's business. The guidelines also
establish certain basic standards for loan documentation, credit underwriting,
interest rate risk exposure, and asset growth. The guidelines further provide
that depository institutions should maintain safeguards to prevent the payment
of compensation, fees and benefits that are
24
<PAGE>
excessive or that could lead to material financial loss, and should take into
account factors such as comparable compensation practices at comparable
institutions. If the appropriate federal banking agency determines that a
depository institution is not in compliance with the safety and soundness
guidelines, it may require the institution to submit an acceptable plan to
achieve compliance with the guidelines. A depository institution must submit an
acceptable compliance plan to its primary federal regulator within 30 days of
receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions. Management
believes that the Bank already meets substantially all the standards adopted in
the interagency guidelines, and therefore does not believe that implementation
of these regulatory standards will materially affect the operations of the Bank.
Additionally under FDICIA, as amended by the CDRI Act, the federal banking
agencies are required to establish standards relating to the asset quality and
earnings that the agencies determine to be appropriate. On July 10, 1995, the
federal banking agencies, including the FDIC and the Federal Reserve Board,
issued proposed guidelines relating to asset quality and earnings. Under the
proposed guidelines, an FDIC insured depository institution should maintain
systems, commensurate with its size and the nature and scope of its operations,
to identify problem assets and prevent deterioration in those assets as well as
to evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves. Management believes that the asset
quality and earnings standards, in the form proposed by the banking agencies,
would not have a material effect on the operations of the Bank.
Transactions with Affiliates. The affiliate transaction restrictions
contained in Sections 23A and 23B of the Federal Reserve Act apply to
transactions between the Bank and the Company or the Bank's other affiliates.
Generally, Sections 23A and 23B (i) limit the extent to which the savings bank
or its subsidiaries may engage in "covered transactions" with any one affiliate
to an amount equal to 10% of such institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus and (ii) require that all
such transactions be on terms substantially the same, or at least as favorable,
to the institution or subsidiary as those provided to a non-affiliate. A bank
holding company and its subsidiaries, as well as any company under common
control with a bank, are considered "affiliates" of the Bank under Sections 23A
and 23B. The term "covered transaction" includes the making of loans, purchase
of assets, issuance of a guarantee and similar other types of transactions. In
addition to the restrictions imposed by Sections 23A and 23B, the Bank may not
(i) loan or otherwise extend credit to an affiliate, except for any affiliate
which engages only in activities which are permissible for bank holding
companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or
similar obligations of any affiliate, except for affiliates which are
subsidiaries of the Bank.
Federal Home Loan Bank System. The Bank is a member of the FHLB System,
which consists of 12 district FHLBs subject to supervision and regulation by the
Federal Housing Finance Board ("FHFB"). The FHLBs provide a central credit
facility primarily for member institutions. As a member of the FHLB of Atlanta,
the Bank is required to acquire and hold shares of capital stock in the FHLB of
Atlanta in an amount at least equal to 1% of the aggregate unpaid principal of
its home mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB of
Atlanta, whichever is greater. The Bank was in compliance with this requirement
with investment in FHLB of Atlanta stock at December 31, 1998, of $1.4 million.
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, all FDIC-insured depository institutions must maintain average daily
reserves against their transaction accounts equal to 3% on the first $46.5
million of transaction accounts plus 10% on the remainder. This percentage is
subject to adjustment by the Federal Reserve Board. Because required reserves
must be maintained in the form of vault cash or in a non-interest bearing
account at a Federal Reserve Bank, the effect of the reserve requirement is to
reduce the amount of the institution's interest-earning assets. As of December
31, 1998, the Bank met its reserve requirements.
25
<PAGE>
Federal and State Taxation
Federal Taxation. Thrift institutions are subject to provisions of the
Internal Revenue Code of 1986, as amended (the "Code") in the same general
manner as other corporations. Prior to recent legislation, institutions such as
the Bank which met certain definitional tests and other conditions prescribed by
the Code benefitted from certain favorable provisions regarding their deductions
from taxable income for annual additions to their bad debt reserve. For
purposes of the bad debt reserve deduction, loans were separated into
"qualifying real property loans," which generally are loans secured by certain
interests in real property, and "nonqualifying loans," which are all other
loans. The bad debt reserve deduction with respect to nonqualifying loans must
be based on actual loss experience. The amount of the bad debt reserve
deduction with respect to qualifying real property loans could be based upon (a)
actual loss experience or (b) a percentage of taxable income before such
deduction.
The Bank, which files its federal income tax returns on a calendar year
basis, could generally elected to use the method which resulted in the greatest
deduction for federal income tax purposes, which generally was the percentage of
taxable income method.
Earnings appropriated to an institution's bad debt reserve and claimed as a
tax deduction were not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless such amount was included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.
Legislation enacted in 1996 repealed the percentage of taxable income
method of calculating the bad debt reserve. Savings associations, like the
Bank, which had previously used that method are required to recapture into
taxable income post-1987 reserves in excess of the reserves calculated under the
experience method over a six-year period beginning with the first taxable year
beginning after December 31, 1995. The start of such recapture may be delayed
until the third taxable year beginning after December 31, 1995 if the dollar
amount of the institution's residential loan originations in each year is not
less than the average dollar amount of residential loan originated in each of
the six most recent years disregarding the years with the highest and lowest
originations during such period. For purposes of this test, residential loan
originations would not include refinancings and home equity loans. The Bank has
provided deferred taxes for the amount of the recapture.
Beginning with the first taxable year beginning after December 31, 1995,
savings institutions, such as the Bank, will be treated the same as commercial
banks. Institutions with $500 million or more in assets will only be able to
take a tax deduction when a loan is actually charged off. Institutions with
less than $500 million in assets will still be permitted to make deductible bad
debt additions to reserves, but only using the experience method.
The Bank's income tax returns for 1995 and subsequent years are subject to
final determination by the taxing authorities.
State Income Taxation. Under North Carolina law, the Company is subject to
an annual corporate income tax of 7.25% of its federal taxable income as
computed under the Code, subject to certain prescribed adjustments. In addition
to the state income tax, Haywood Savings is also subject to an annual state
franchise tax.
The Bank's state income tax returns have not been audited for the past five
years.
For further information regarding federal and state taxes payable by the
Bank, see Note 9 of Notes to Consolidated Financial Statements.
26
<PAGE>
Employees
As of December 31, 1998, the Bank had 34 full-time and three part-time
employees. The employees are not represented by a collective bargaining
agreement. The Bank believes its employee relations are good.
Executive Officers of the Registrant
At December 31, 1998, the executive officers of the Company were as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Larry R. Ammons 54 President and Managing Officer
Jack T. Nichols 58 Treasurer and Chief Financial Officer
</TABLE>
Larry R. Ammons has been employed by the Bank in various positions since
1972. In 1976, he was elected Executive Vice President and Managing Officer,
and in 1987 became President of the Company upon its incorporation. Mr. Ammons
is responsible for the daily operations of the Company and the Bank under
policies and procedures established by the Board of Directors.
Jack T. Nichols has been employed by the Bank since 1966 and currently
serves as Chief Financial Officer, Treasurer and Controller.
Item 2. Properties
- -------------------
The following table sets forth the location of the Bank's office properties
(including furniture, fixtures and equipment), as well as additional information
relating to these offices at December 31, 1998. All such properties are owned
by the Bank.
<TABLE>
<CAPTION>
Year Net Book
Office Location Constructed Value
- --------------- ----------- --------
<S> <C> <C>
Main Office................ 1974 $881,444
370 North Main Street
Waynesville, NC 28786
Sylva Branch............... 1981 161,467
6 Grindstaff Cover Road
Sylva, NC 28779
Murphy Branch.............. 1984 302,667
251 King Street
Murphy, NC 28906
Andrews Branch............. 1986 193,792
741 Main Street
Andrews, NC 28901
</TABLE>
The Bank utilizes an in-house data processing system for accounting and
record-keeping purposes.
27
<PAGE>
The total net book value of all the Bank's property and equipment at
December 31, 1998 was $1.6 million. For further information, see Note 5 of
Notes to the Consolidated Financial Statements.
Item 3. Legal Proceedings
- --------------------------
From time to time the Company and/or the Bank is a party to legal
proceedings in the ordinary course of business. At December 31, 1998, none of
the Company or any of its subsidiaries is engaged in any legal proceedings of a
material nature.
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 December 31, 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------
Matters
- -------
The Company's common stock trades on the American Stock Exchange under the
symbol "HBS." The following table sets forth for each quarter during the past
two fiscal years the high and low closing sales prices for the common stock on
the American Stock Exchange as well as dividends declared on the common stock in
each quarter.
<TABLE>
<CAPTION>
Dividends
High Low Declared
--------- ------ --------
<S> <C> <C> <C>
1998
----
First Quarter $22.50 $20.75 $0.15
Second Quarter 23.00 22.25 0.15
Third Quarter 22.00 17.75 0.15
Fourth Quarter 17.75 15.75 0.16
1997
----
First Quarter $18.25 $16.68 $0.14
Second Quarter 17.13 15.75 0.14
Third Quarter 21.68 17.06 0.14
Fourth Quarter 22.50 20.50 0.15
</TABLE>
At December 31, 1998 there were 1,250,356 shares of common stock
outstanding and 427 stockholders of record.
28
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following tables set forth certain information concerning the financial
position and results of operations of the Company at the dates and for the
periods indicted:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Summary of Financial Condition
- ------------------------------
Cash and cash equivalents (1).................. $ 4,044 $ 4,195 $ 1,327 $ 2,725 $ 1,708
Investment securities - available for sale..... 19,466 15,806 -- -- --
Investment securities - held-to-maturity....... 10,303 11,243 11,963 18,520 23,998
Loans, net..................................... 110,793 114,150 109,344 104,019 99,879
Goodwill....................................... 675 728 780 832 885
Investment in mortgage servicing rights........ 978 3,027 1,728 -- --
All other assets............................... 4,697 4,331 5,759 5,973 5,961
-------- -------- -------- -------- --------
Total assets................................. $150,956 $153,480 $130,901 $132,069 $132,431
======== ======== ======== ======== ========
Deposits....................................... $116,762 $118,670 $107,343 $108,763 $110,205
Borrowings..................................... 10,500 10,500 1,200 -- --
All other liabilities.......................... 2,147 2,136 1,831 1,900 1,818
Stockholders' equity........................... 21,547 22,174 20,527 21,406 20,408
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity... $150,956 $153,480 $130,901 $132,069 $132,431
======== ======== ======== ======== ========
Summary of Operations
- ---------------------
Interest income................................ $ 11,086 $ 10,846 $ 9,867 $ 10,043 $ 9,479
Interest expense............................... (6,061) (6,152) (5,036) (5,217) (4,156)
-------- -------- -------- -------- --------
Net interest income.......................... 5,025 4,694 4,831 4,826 5,323
Provision for loan losses...................... (20) (20) (15) (20) (60)
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses................................ 5,005 4,674 4,816 4,806 5,263
Total other income (loss), net (2)............. (1,345) 1,426 661 512 421
Total general and administrative expenses (3).. (3,247) (3,058) (3,812) (3,144) (2,975)
-------- -------- -------- -------- --------
Income before income taxes..................... 413 3,042 1,665 2,174 2,709
Income taxes................................... (155) (1,166) (571) (813) (1,004)
-------- -------- -------- -------- --------
Net income..................................... $ 258 $ 1,876 $ 1,094 $ 1,361 $ 1,705
======== ======== ======== ======== ========
Per share data:
Net income - basic........................... $0.21 $1.52 $0.89 $ 1.11 $ 1.34
Net income - diluted......................... 0.21 1.52 0.87 1.08 1.30
-------- -------- -------- -------- --------
Cash dividends declared...................... $0.61 $0.57 $0.53 $ 0.49 $ 0.45
======== ======== ======== ======== ========
Book value................................... $17.23 $17.73 $16.94 $ 16.63 $ 15.93
======== ======== ======== ======== ========
- -------------------------
</TABLE>
(1) Includes cash on hand and in banks, interest-bearing balances in other
banks, and federal funds sold.
(2) Includes gains on the sale of real estate acquired in settlement of loans
of $427,000 in 1998 and $679,000 in 1997 and an impairment loss on
investment in mortgage servicing rights of $2,161,000 in 1998.
(3) For the year ending December 31, 1997, includes a special assessment paid
to the FDIC in the amount of $720,000.
29
<PAGE>
Key Operating Ratios
The table below sets forth certain performance ratios of the Company for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Return on average assets (net income divided
by average total assets).................... 0.17% 1.26% 0.83% 1.02% 1.25%
Return on average equity (net income divided
by average equity).......................... 1.18 9.12 5.43 6.49 8.50
Equity to assets ratio (average equity
divided by average total assets)............ 14.48 13.78 15.24 15.72 14.75
Dividend payout ratio (dividends declared
per share divided by net income per share).. 290.48 37.50 59.55 44.14 33.58
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The purpose of this discussion and analysis is to provide the reader with a
description of the financial condition and results of operations of the Company
and Haywood Savings. The discussion and analysis of financial condition and
results of operation should be read in conjunction with the audited consolidated
financial statements and accompanying notes included in this report.
This discussion may contain statements that could be deemed forward-looking
statements within the meaning of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995, which statements are
inherently subject to risks and uncertainties. Forward-looking statements are
statements that include projections, predictions, expectations or beliefs about
future events or results. Words such as "expect," "believe," "estimate,"
"plan," or "project," are intended to identify these forward-looking statements.
These forward-looking statements are based on estimates, beliefs and assumptions
made by management and are not guarantees of future performance. Factors that
could influence the accuracy of such forward-looking statements include, but are
not limited to, the changes in political and economic conditions, interest rate
movements, competitive product and pricing pressures within the Company's
markets, technological change and changes in legal, regulatory and tax policies.
Asset/Liability Management. The Bank's net interest income is dependent
primarily upon the difference or spread between the average yield earned on
loans, investment securities and the average rate paid on deposits, as well as
the relative amounts of such assets and liabilities. Haywood Savings, as other
financial institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
Key components of a successful asset/liability management strategy are the
monitoring and managing of interest rate sensitivity of both the interest-
earning asset and interest-bearing liability portfolios. Financial institutions
are subject to interest rate risk to the degree that their interest-bearing
liabilities (consisting primarily of customer deposits) mature or reprice more
or less frequently, or on a different basis, than their interest-earning assets
(generally consisting of intermediate or long-term loans and investment
securities). The regular evaluation of the sensitivity of net interest income
to changes in interest rates is an integral part of the Company's interest rate
risk management.
The Bank has employed various strategies intended to minimize the adverse
effect of interest rate risk on future operations by providing a better match
between the interest rate sensitivity of its assets and liabilities. In
particular, the Bank's strategies are intended to stabilize net interest income
for the long-term by protecting its interest rate spread
30
<PAGE>
against increases in interest rates. Such strategies include the origination for
portfolio of one-year, adjustable-rate loans and the origination of other types
of adjustable-rate and short-term loans with greater interest rate sensitivities
than long-term, fixed-rate loans. Management intends to continue employing these
strategies to minimize the potential negative impact on earnings due to interest
rate fluctuations.
Gap Analysis
The term "interest rate sensitivity" refers to those assets and liabilities
which reprice periodically in response to fluctuations in market rates and
yields. Thrift institutions have historically operated in a mismatched position
with interest-sensitive liabilities greatly exceeding interest-sensitive assets.
The Bank is attempting, through the use of adjustable rate mortgages and short-
term investments, to achieve a better match of the maturities of its assets and
liabilities.
Increases in the Bank's adjustable-rate mortgage loan portfolio and
construction loans reflects management's strategy of reducing the Bank's gap
between interest-bearing liabilities and interest-earning assets that mature (or
reprice) in similar time periods.
The following table sets forth the Bank's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities as of December 31, 1998
based on their contractual terms to repricing or maturity.
<TABLE>
<CAPTION>
Six Months Over One
Less Than Through Through Over Five
Six Months One Year Five Years Years Total
----------- --------- ----------- ---------- ---------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities(1)...... $ 2,956 $ -- $ 13,633 $17,126 $ 33,715
Fixed-rate loans.............. 1,980 160 4,242 33,328 39,710
Adjustable-rate loans......... 16,022 48,534 7,286 -- 71,842
-------- -------- -------- ------- --------
Total....................... 20,958 48,694 25,161 50,454 145,267
-------- -------- -------- ------- --------
Interest-bearing liabilities:
Deposits...................... 61,256 31,438 23,375 451 116,520
Borrowings.................... 10,500 -- -- -- 10,500
-------- -------- -------- ------- --------
Total....................... $ 71,756 $ 31,438 $ 23,375 $ 451 $127,020
======== ======== ======== ======= ========
Interest sensitivity gap....... (50,798) 17,256 1,786 50,003 18,247
Cumulative difference between
interest-earning assets and
interest-bearing liabilities.. $(50,798) $(33,542) $(31,756) $18,247 $ 18,247
======== ======== ======== ======= ========
Cumulative difference between
interest-earning assets and
interest-bearing liabilities
as a percent of total assets.. (33.65)% (22.22)% (21.04)% 12.09% 12.09%
======== ======== ======== ======= ========
- -------------------------
</TABLE>
(1) Includes investment securities and Federal Home Loan Bank stock, interest
bearing balances in other banks, federal funds sold and other investments.
31
<PAGE>
Average Balance, Interest and Average Yields and Rates
The following table sets forth certain information relating to the Bank's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and the average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average daily balance of assets or liabilities, respectively, for the
periods indicated. The average balances of loans and mortgage-backed securities
include loans on non-accrual status for each period. The table also presents
information for the periods indicated with respect to the Company's "net
interest margin," which is its net interest income divided by the average
balance of interest-earning assets, and is a statistic which financial
institutions have traditionally used as an indicator of profitability. Net
interest margin is affected by the interest rate spread (the difference between
the weighted average yield earned on interest-earning assets and weighted
average rate paid on interest-bearing liabilities) and by the relative amounts
of interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1998 1997
----------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net............... $113,566,535 $ 9,062,275 7.98% $112,728,628 $ 9,101,733 8.07%
Investment securities.... 28,172,268 1,806,811 6.41 23,089,913 1,541,134 6.67
Interest-bearing
balances in
other banks............. 568,278 32,676 5.75 426,423 20,736 4.86
Other interest-earning
assets.................. 2,872,071 184,081 6.41 2,743,162 182,657 6.66
------------ ----------- ------------ -----------
Total
interest-earning
assets............... 145,179,152 11,085,843 7.64 138,988,126 10,846,260 7.80
----------- -----------
Noninterest-earning assets. 5,867,862 10,189,874
------------ ------------
Total assets.......... $151,047,014 $149,178,000
============ ============
Interest-bearing
liabilities:
Deposits................. $116,730,558 $ 5,465,072 4.68% $115,581,893 $ 5,633,453 4.87%
Other borrowed money..... 10,534,409 596,126 5.66 8,873,650 519,101 5.85
------------ ----------- ------------ -----------
Total
interest-bearing
liabilities.......... 127,264,967 6,061,198 4.76 124,455,543 6,152,554 4.94
----------- -----------
Noninterest-bearing
liabilities............... 1,906,153 4,160,109
------------ ------------
Total liabilities..... 129,171,120 128,615,652
Stockholders' equity....... 21,875,894 20,562,348
------------ ------------
Total liabilities and
stockholders'
equity.............. $151,047,014 $149,178,000
============ ============
Net interest income........ $ 5,024,645 $ 4,693,706
=========== ===========
Interest rate spread....... 2.88% 2.86%
==== ====
Net interest margin........ 3.46% 3.38%
==== ====
<CAPTION>
Year Ended December 31,
----------------------------------------
1996
----------------------------------------
Average
Average Yield/
Balance Interest Cost
------------ ---------- -----
<S> <C> <C> <C>
Interest-earning assets:
Loans, net............... $107,296,135 $8,760,804 8.17%
Investment securities.... 16,412,777 940,568 5.73
Interest-bearing
balances in
other banks............. 337,926 19,876 5.88
Other interest-earning
assets.................. 2,228,336 145,549 6.53
------------ ----------
Total
interest-earning
assets............... 126,275,174 9,866,797 7.81
----------
Noninterest-earning assets. 5,839,576
------------
Total assets.......... $132,114,750
============
Interest-bearing
liabilities:
Deposits................. $110,111,811 5,018,715 4.56%
Other borrowed money..... 209,685 17,299 8.25
------------ ----------
Total
interest-bearing
liabilities.......... 110,321,496 5,036,014 4.56
----------
Noninterest-bearing
liabilities............... 1,661,097
------------
Total liabilities..... 111,982,593
Stockholders' equity....... 20,132,157
------------
Total liabilities and
stockholders'
equity.............. $132,114,750
============
Net interest income........ $4,830,783
==========
Interest rate spread....... 3.25%
====
Net interest margin........ 3.83%
====
</TABLE>
32
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in volume
(changes in volume, multiplied by old rate); (2) changes in rate (changes in
rate, multiplied by old volume); and (3) changes in rate-volume (changes in rate
multiplied by the change in volume.) The change in interest income or expense
attributable to the combination of rate variance and volume variance is included
in the table, but such amount has also been allocated between, and included in
the amounts shown as, changes due to rate and changes due to volume. The change
due to rate/volume variance has been allocated equally between the amounts due
solely to rate variance and solely to volume variance.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
-------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
-------------------------------- -------------------------------
Rate Volume Total Rate Volume Total
---------- -------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans.......................... $(106,717) $ 67,259 $ (39,458) $(100,166) $441,095 $ 340,929
Investment securities.......... (66,910) 332,587 265,677 186,411 414,155 600,566
Interest-bearing balances in
other banks.................. 4,413 7,527 11,940 (3,894) 4,754 860
Other interest-earning assets.. (6,999) 8,423 1,424 3,154 33,954 37,108
--------- -------- --------- --------- -------- ----------
Total interest income....... (176,213) 415,796 239,583 85,505 893,958 979,463
Interest expense:
Deposits....................... (223,264) 54,883 (168,381) 356,773 257,965 614,738
Borrowings..................... (18,542) 95,567 77,025 (112,337) 614,139 501,802
--------- -------- --------- --------- -------- ----------
Total interest expense........ (241,806) 150,450 (91,356) 244,436 872,104 1,116,540
--------- -------- --------- --------- -------- ----------
Net interest income............. $ 65,593 $265,346 $ 330,939 $(158,931) $ 21,854 $ (137,077)
========= ======== ========= ========= ======== ==========
</TABLE>
General
The Company realized net earnings in 1998 of $258,000, or $0.21 basic net
income per share, resulting in a return of 0.17% on average assets and 1.18% on
average equity. Net income for 1997 was $1,875,518, or $1.52 basic net income
per share, which resulted in a return of 1.26% on average assets and 9.12% on
average equity.
Comparison of Financial Condition at December 31, 1998 and 1997
Total assets decreased by $2.5 million, or 1.6%, from $153.5 million
at December 31, 1997 to $151.0 million at December 31, 1998. A significant
portion of the decrease is due to an approximately $2.2 million impairment
valuation adjustment to investment in mortgage servicing rights. As discussed
above, the impairment and subsequent write-down of the mortgage servicing rights
is due to significant prepayments of the underlying mortgage loans due to a
decline in mortgage loan interest rates. The mortgage servicing rights were
written down to their fair value based on an appraisal prepared by an
independent third party.
In addition, loans receivable decreased by $3.4 million or 2.9% to
$110.8 million at December 31, 1998 compared to $114.2 million at December 31,
1997. The decrease is mainly in single family residential mortgage loans due to
competitive pressures in the Company's marketplace created in part by the
falling interest rate environment during 1998.
The Company invested excess funds from loan run-off in investment
securities available for sale, which increased from $15.8 million at December
31, 1997 to $19.5 million at December 31, 1998.
33
<PAGE>
Deposits decreased $1.9 million or 1.6% to $116.8 million at December
31, 1998 from $118.7 million at December 31, 1997. This is mainly due to a
decrease in certificate of deposit accounts of approximately $3.4 million
resulting from competitive pressures in the marketplace for such deposits. The
decrease in certificates of deposits was offset in part by increases in
interest-bearing demand accounts of approximately $1.5 million. The increase in
interest-bearing demand accounts is due to the Company offering competitive
interest rates on such accounts as compared to the marketplace.
Stockholders' equity decreased approximately $626,000 from 1997 to
1998. This is due to the decreased level of earnings in 1998 coupled with the
increase in cash dividends declared. Net income for the year ended December 31,
1998 was $258,000 and cash dividends declared were $763,000 or $.61 per share.
This compares to net income of $1.9 million in 1997 and cash dividends of
$714,000 or $.57 per share. Also attributing to the decrease is an unrealized
loss on securities available for sale of $162,000 at December 31, 1998 compared
to an unrealized gain on securities available for sale of $57,000 at December
31, 1997.
Results of Operations
The Company's results of operations depend primarily on net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. Operations are
also affected by non-interest income, such as income from customer service
charges, loan servicing fee income, and other sources of income. The Company's
principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, federal deposit insurance premiums, data
processing expenses, office occupancy costs, and income taxes.
Comparison of Operating Results 1998 Versus 1997
Summary. Net income for the year ended December 31, 1998 decreased to
$258,000, or $.21 basic net income per share, from $1,876,000, or $1.52 basic
net income per share, in 1997. The decrease in net income is due to a
$2,158,000 loss on investment in mortgage servicing rights. This loss was
partially offset by a $403,000 pre-tax gain on the sale of two outparcels to the
Waynesville Plaza Shopping Center, which the Company had been holding as real
estate acquired in settlement of loans. In addition, net interest income
increased by $331,000 and general and administrative expenses increased by
$188,000.
Net Interest Income. Total interest income in 1998 was $11.1 million,
a $240,000, or 2.2%, increase from 1997. The primary reason for the change was
an increase in the balance of average interest earning assets of approximately
$6.2 million. This was due to an increase in average investment securities of
$5.1 million and average loans of $838,000. The growth in average interest
earning assets was offset by a decrease in average yield on interest-earning
assets from 7.80% in 1997 to 7.64% in 1998. The average yield on loans
receivable decreased 9 basis points to 7.98% in 1998 from 8.07% in 1997 due to
the falling rate environment during 1998 and competitive pressures in the
marketplace. In addition, the average yield on investment securities decreased
from 6.67% in 1997 to 6.41% in 1998.
Total interest expense decreased $91,000, or 1.48%, in 1998 due a
decrease in the average cost of funds on the Company's deposit base from 4.87%
in 1997 to 4.68% in 1998. This was offset in part by an increase in the average
balance of interest bearing liabilities of $2.8 million. The increase in the
average balance is due to a $1.7 million increase in average borrowings and a
$1.1 million increase in average deposits. The increase in borrowings is due to
$10.5 million in advances from the Federal Home Loan Bank borrowed during the
first quarter of 1997.
The overall net effect of these changes was a $331,000, or 7.1%,
increase in net interest income in 1998 compared to 1997. The interest rate
spread increased slightly to 2.88% in 1998 from 2.86% in 1997. Net interest
income as a percentage of average interest-earning assets was 3.46% in 1998
compared to 3.38% in 1997.
Provisions for Loan Losses. The provision for loan losses is charged
to earnings to maintain the total allowance for loan losses at a level
considered adequate to absorb estimated probable losses inherent in the loan
portfolio based on existing loan levels and types of loans outstanding,
nonperforming loans, prior loan loss experience,
34
<PAGE>
general economic conditions and other factors. Provisions for loan losses
totaled $20,000 in both 1998 and 1997. The Company had no charge-offs and no
recoveries in either 1998 or 1997.
Other Income. Other income decreased $2.8 million or 194% in 1998
compared to 1997 due to an approximately $2,161,000 impairment valuation
adjustment to an equity investment in a mortgage servicing partnership. The
underlying mortgage servicing rights were written down to their fair value based
on an independent appraisal. The impairment and subsequent write-down of the
mortgage servicing rights is due to significant prepayments of the underlying
mortgage loans due to a decline in mortgage loan interest rates. Total loss on
mortgage servicing rights was $2,158,000 in 1998 compared to income of $136,000
in 1997.
The investment in mortgage servicing rights is evaluated periodically
by management for impairment and no assurance can be given that additional
impairment valuation adjustments will not be required in the future. For
additional information, see footnote (6) to the consolidated financial
statements.
Also attributing to the change in other income was a decrease in net
gains on sales of real estate acquired in settlement of loans of approximately
$252,000 and a decrease in income from real estate operations, net of
approximately $266,000. In 1997, the Company sold the Waynesville Plaza
Shopping Center for a pre-tax gain of approximately $679,000, and as a result,
no longer receives rental and other income associated with operating the
shopping center. In 1998, the Company sold two outparcels to the Waynesville
Plaza Shopping Center for a pre-tax gain of approximately $403,000.
General and Administrative Expenses. General and administrative
expenses increased $188,000, or 6.2%. The increase is mainly due to an increase
in salaries and employee benefits of $162,000. This is due to normal salary
increases and increases in deferred compensation expense due to a change in the
discount rate from 8% to 7%. Other changes in general and administrative
expenses were due to normal increases arising from growth in the Company's
operation and inflationary factors.
Income Taxes. The Company's effective income tax rate was 37.5% in
1998 compared to 38.3% in 1997. The decrease in the effective tax rate in 1998
is largely attributable to a decrease in state income taxes.
Comparison of Financial Condition and Operating Results 1997 Versus 1996
Summary. Net income was $1,875,518, or $1.52 basic net income per
share, in 1997 compared to net income of $1,093,796, or $.89 basic net income
per share, in 1996 which represents a 71% increase. The Company's net income
was affected by certain non-recurring items in both 1997 and 1996. In 1997, the
Company recognized a $679,000 pre-tax gain on the sale of Waynesville Plaza
Shopping Center, which the Company has been holding as real estate acquired in
settlement of loans. By contrast in 1996, the Company recognized a one-time
$720,000 pre-tax expense for its portion of a special assessment imposed by the
FDIC to recapitalize the SAIF.
Net Interest Income. Total interest income increased $979,000, or
9.9%, to $10.8 million in 1997 from $9.9 million in 1996. The increase in
interest income is principally due to an increase in the average balance of
interest earning assets of approximately $12.7 million. The average yield on
interest earning assets decreased slightly from 7.81% in 1996 to 7.80% in 1997.
Total interest expense increased $1,117,000, or 22.2%, in 1997, due to
an increase in both the average balance of interest bearing liabilities and the
average cost of funds. The average balance of interest bearing liabilities
increased from $110.3 million in 1996 to $124.5 million in 1997, while the cost
of funds increased from 4.56% in 1996 to 4.94% in 1997. The increase in the
average balance is mainly due to the Company borrowing $10.5 million in advances
from the FHLB of Atlanta during the first quarter of 1997. In addition, average
deposits increased approximately $5.5 million. The increase in the cost of
funds is due to the rates paid on FHLB advances and an increase in rates on
certificate of deposit accounts due to competitive pressures in the marketplace.
35
<PAGE>
The overall net effect of these changes was a $137,000, or 2.84%,
increase in net interest income in 1997 compared to 1996. The interest rate
spread decreased to 2.86% in 1997 from 3.25% in 1996. Net interest income as a
percentage of average interest-earning assets was 3.38% in 1997 compared to
3.83% in 1996.
Provisions for Loan Losses. During 1997 and 1996, management recorded
provisions for loan losses of $20,000 and $15,000, respectively. The increase
in the provision for loan losses in 1997 was due to the growth in the Company's
loan portfolio. The Company had no charge-offs and no recoveries in either 1997
or 1996. As discussed above, management determines the provision for loan
losses based on their review of the loan portfolio and their estimate of the
allowance for loan losses required to absorb estimated probable losses inherent
in the loan portfolio.
Other Income. Other income increased $766,000 or 115.9% in 1997
compared to the same period in 1996 primarily as a result of the sale of the
Waynesville Plaza Shopping Center for a gain of approximately $679,000. As a
result of the sale, the Company will no longer receive rental and other income
attributable to its operation of the shopping center. In addition, the Company
recognized income of $136,000 on mortgage servicing rights compared to no such
income during 1996.
General and Administrative Expenses. General and administrative
expenses decreased $754,000, or 19.8% in 1997. The decrease is primarily due to
a one-time cost of approximately $720,000 pre-tax pertaining to a special
assessment by the FDIC on all SAIF insured financial institutions to
recapitalize the SAIF which was recorded in 1996. Federal and other insurance
premiums decreased $844,000 to $86,000 as a result of this special assessment in
the prior year. As a result of the recapitalization of the SAIF, the FDIC
reduced Haywood Savings' annual assessment rate for deposit insurance from 0.23%
of insured deposits to zero effective October 1, 1996 and Haywood Savings
received a refund of a previously paid deposit insurance premium of
approximately $63,000 in December 1996. Until December 31, 1999, however,
Haywood Savings and all other SAIF insured institutions will be required to pay
assessments to the FDIC at the rate of 6.5 basis points to help fund interest
payments on certain bonds issued by the Financing Corporation ("FICO"), an
agency of the federal government established to finance takeovers of insolvent
thrifts.
Income Taxes. The Company's effective income tax rate was 38.3% in
1997 compared to 34.3% in 1996. The increase in the effective tax rate is due
to part to an increase in state income taxes due to a decrease in the level of
investment securities that are exempt for state tax purposes.
Asset Quality
The Company's loan portfolio consists primarily of lower risk single
family, 1-4 unit, residential loans. At December 31, 1998, the Company had
approximately $841,000 of loans in nonaccrual status as compared to $583,000 at
December 31, 1997. At December 31, 1998 and 1997, the Company had no loans that
were considered to be impaired. There were no loans contractually past due 90
days or more and still accruing at December 31, 1998 and 1997. In the opinion
of management, there are no other loans which cause management to have serious
doubts as to the ability of such borrowers to comply with the present repayment
terms which could result in becoming classified as problem assets. During 1998,
1997 and 1996, the Company had no loan charge-offs. The Company's year-end
allowance for loan losses was $759,000, or .68% of outstanding loans. This
compares to .64% and .65% for 1997 and 1996, respectively.
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses inherent in the loan portfolio.
The adequacy of the allowance for loan losses and the related provision are
based upon management's evaluation of the risk characteristics of the loan
portfolio under current economic conditions with consideration given to such
factors as financial condition of the borrower, collateral values, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, and delinquency trends. Management believes that
the allowance for loan losses is adequate. While management uses all available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. Various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
36
<PAGE>
At December 31, 1998, the Company had real estate acquired in
settlement of loans of approximately $7,000 as compared to $246,000 at December
31, 1997. During 1998, the Company sold two outparcels to the Waynesville Plaza
Shopping Center, with book values of approximately $210,000 for gains of
approximately $403,000. Real estate acquired in settlement of loans consists of
single family residences at December 31, 1998.
Year 2000 Readiness Disclosure
The Company recognizes and is addressing the potentially severe
implications of the "Year 2000 Issue." The Year 2000 Issue is a general term
used to describe the various problems that may result from the improper
processing of dates and date-sensitive calculations as the Year 2000 approaches.
This issue is caused by the fact that many of the world's existing computer
programs use only two digits to identify the year in the date field of a
program. These programs were designed and developed without considering the
impact of the upcoming change in the century and could experience serious
malfunctions when the last two digits of the year change to "00" as a result of
identifying a year designated "00" as the year 1900 rather than the year 2000.
This misidentification could prevent the Company from being able to engage in
normal business operations, including, among other things, miscalculating
interest accruals and the inability to process customer transactions.
The Company's Board of Directors has approved a Year 2000 Plan that
was developed in accordance with guidelines set forth by the Federal Financial
Institutions Examination Council. This plan has three primary phases related to
internal Year 2000 compliance.
The first phase of the Company's efforts to address the Year 2000
Issue was to inventory all known Company processes that could reasonably be
expected to be impacted by the Year 2000 Issue and their related vendors, if
applicable. This phase is complete, although it is periodically updated as
necessary.
The Company's second phase in addressing the Year 2000 Issue was to
contact all third party vendors, request documentation regarding their Year 2000
compliance efforts, and analyze the responses. This was a significant phase
because the Company does not perform in-house programming, and thus is dependent
on external vendors to ensure and modify, if necessary, the hardware, software,
or service it provides to the Company to be Year 2000 compliant. This phase is
now complete and the Company has followed up on any issues or concerns
identified from the responses received.
The next phase for the Company under the plan is to complete a
comprehensive testing of all known processes. The most significant phases of
testing is the testing of the Company's mainframe computer system, teller
terminals and core software applications. The Company installed a new mainframe
computer system and teller terminals in September 1998 that are Year 2000
compliant. Both systems were tested in September 1998. Upgrades of the core
software applications currently used by the Company were received from the
software vendor in September and were represented to be Year 2000 compliant by
the vendor. These applications were successfully loaded on the Company's
hardware system in September and Year 2000 testing was also completed
immediately after installation.
Another part of the Company's Year 2000 plan is to assess the Year
2000 readiness of its significant borrowers and depositors. Through the use of
questionnaires and personal contacts, the Company is in the process of assessing
the Year 2000 readiness of significant borrowers and depositors of the Company.
Since the majority of the loans are to individuals and secured by one to four
family residences, this step is not expected to require a significant amount of
time or resources.
The Company had previously estimated the total costs to address the
Year 2000 Issue to be $180,000. Approximately $117,500 of these costs related
to the installation of the mainframe computer system and were capitalized in
accordance with the Company's capitalization policy. Year 2000 project costs
incurred and expensed during the year ended December 31, 1998 were approximately
$149,000. Funding of the Year 2000 project costs will come from normal
operating cash flows, however, the expenses associated with the Year 2000 Issue
will directly reduce otherwise reported net income for the Company.
37
<PAGE>
Management of the Company believes that the potential effects of the
Company's internal operations of the Year 2000 Issue can and will be addressed
prior to the Year 2000. However, if required modifications or conversions are
not made or are not completed on a timely basis prior to the Year 2000, the Year
2000 Issue could disrupt normal business operations. The most reasonably likely
worst case Year 2000 scenarios foreseeable at this time would include the
Company temporarily not being able to process, in some combination, various
types of customer transactions. This could affect the ability of the Company
to, among other things, originate new loans, post loan payments, accept deposits
or allow immediate withdrawals, and, depending on the amount of time such a
scenario lasted, could have a material adverse effect on the Company. Because
of the serious implications of these scenarios, the primary emphasis of the
Company's Year 2000 plan is to correct, with complete replacement, if necessary,
any systems or processes whose Year 2000 test results are not satisfactory prior
to the Year 2000. Nevertheless, should one of the most reasonably likely worst
case scenarios occur in the Year 2000, the Company is also in the process of
formalizing a contingency plan that would allow for limited transactions,
including the ability to make certain deposit withdrawals, until the Year 2000
problems are fixed.
The costs of the Year 2000 project and the date on which the Company
plans to complete Year 2000 compliance are based on management's best estimates,
which were derived using numerous assumptions of future events such as the
availability of certain resources (including internal and external resources),
third party vendor plans and other factors. However, there can be no guarantee
that these estimates will be achieved at the cost disclosed or within the time
frame indicated, and actual results could differ materially from these plans.
Factors that might affect the timely and efficient completion of the Company's
Year 2000 project include, but are not limited to, vendors' abilities to
adequately correct or convert software and the effect on the Company's ability
to test its systems, the availability and cost of personnel trained in the Year
2000 area, the ability to identify and correct all relevant computer programs
and similar uncertainties.
Liquidity and Asset Liability Management
The Company's asset-liability management policy is to maintain and
enhance the net interest income and provide adequate liquidity to meet
continuing loan demand, withdrawal requirements, and pay for normal operating
expenses. Liquidity is provided by the ability to attract deposits, short-term
investment strategy, loan repayments, and current earnings.
At December 31, 1998, the Company had approximately $33.8 million in
cash, interest-bearing balances in other banks, federal funds sold, and
investment securities. Management believes that the level of liquidity at
December 31, 1998 is adequate and in compliance with regulatory requirements.
A primary objective in interest rate management is the avoidance of
wide fluctuations in net interest income due to interest rate movements.
Management conducts, on a regular basis, various analyses to determine the gap
representing the difference between repricing assets and repricing liabilities.
At December 31, 1998, the Company's balance sheet is liability sensitive,
meaning that in a given period there will be more liabilities than assets
subject to immediate repricing as market rates change. Because immediately rate
sensitive interest bearing liabilities exceed rate sensitive assets, the
earnings position could improve in a declining rate environment and could
deteriorate in a rising rate environment, depending on the correlation of rate
changes in these two categories. At December 31, 1998 total rate sensitive
liabilities maturing or repricing within one year were $103.2 million compared
to rate sensitive assets maturing or repricing in one year of $69.7 million for
a cumulative gap of $33.5 million. It should be noted that interest-sensitivity
of the balance sheet as of a specific date is not necessarily indicative of the
Company's position on other dates.
Committed Resources
The Company had loan commitments, including undisbursed proceeds on
loans in process and preapproved but unused lines of credit for home equity
loans, of approximately $5,089,000 outstanding at December 31, 1998. Of this
amount, $3,019,000 represent adjustable rate commitments and $2,070,000
represent fixed rate commitments.
38
<PAGE>
These commitments were primarily for construction and conventional residential
lending and will be funded primarily from loan principal repayments and other
normal sources of liquidity.
Capital Resources
As a North Carolina-chartered savings bank, Haywood Savings is subject
to the capital requirements of the FDIC and the N.C. Administrator of Savings
Institutions ("the Administrator"). The FDIC requires Haywood Savings to
maintain minimum ratios of Tier I capital to total risk-weighted assets and
total capital to risk-weighted assets of 4% and 8%, respectively. To be "well
capitalized," the FDIC requires ratios of Tier I capital to total risk-weighted
assets and total capital to risk-weighted assets of 6% and 10%, respectively.
Tier I capital consists of total stockholders' equity calculated in accordance
with generally accepted accounting principles less intangible assets, and total
capital is comprised of Tier I capital plus certain adjustments, the only one of
which is applicable to Haywood Savings is the allowance for loan losses. Risk-
weighted assets reflect Haywood Savings' on- and off-balance sheet exposures
after such exposures have been adjusted for their relative risk levels using
formulas set forth in FDIC regulations. Haywood Savings is also subject to a
leverage capital requirement, which calls for a minimum ratio of Tier I capital
(as defined above) to quarterly average total assets of 3%, and a ratio of 5% to
be "well capitalized." The Administrator requires a net worth equal to at least
5% of assets. At December 31, 1998, Haywood Savings was in compliance with the
capital requirements of both the FDIC and the Administrator and is deemed to be
"well capitalized."
Effects of Inflation
The major portions of a bank's assets and liabilities are monetary in
nature. As a result of this distinct asset and liability structure, performance
may be more significantly influenced by changes in interest rates than by
inflation. Although inflation has a lesser influence on a bank's performance,
operating expenses may be affected in that personnel expenses, supply costs, and
outside services tend to increase during periods of inflation. Also, inflation
affects the level of interest rates prevailing at any one time.
Accounting Issues
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company plans to adopt SFAS No. 133 in 2000
without any impact on its financial statements as the Company does not have any
derivative financial instruments and is not involved in any hedging activities.
In October 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise" (SFAS No. 134). SFAS No. 134 establishes
accounting and reporting standards for certain mortgage banking activities.
SFAS No. 134 is effective for financial statements for the first fiscal quarter
beginning after December 15, 1998. The Company plans to adopt SFAS No. 134 in
1999 without any impact on its financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
This item is not applicable to the Registrant which qualifies as a "small
business issuer."
39
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Index to Consolidated Financial Statements
of Haywood Bancshares, Inc. and Subsidiary
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 41
Consolidated Statements of Financial Condition as of December 31, 1998 and 1997 42
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996 43
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996 44
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 45 - 46
Notes to Consolidated Financial Statements for the years ended December 31,
1998, 1997 and 1996 47
</TABLE>
40
<PAGE>
Independent Auditors' Report
The Board of Directors
Haywood Bancshares, Inc.
Waynesville, North Carolina:
We have audited the consolidated statement of financial condition of Haywood
Bancshares, Inc. and subsidiary (the Corporation) as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Haywood Bancshares,
Inc. and subsidiary at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Charlotte, North Carolina
February 26, 1999
41
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 1,525,035 1,736,787
Interest-bearing balances in other banks 805,357 418,967
Federal funds sold 1,713,611 2,039,247
Investment securities (note 2):
Available for sale (cost of $19,711,642 and $15,719,503
at December 31, 1998 and 1997, respectively) 19,466,200 15,805,611
Held-to-maturity (market value of $10,332,472 and
$11,303,051 at December 31, 1998 and 1997, respectively) 10,302,987 11,242,929
Loans (net of allowance for loan losses of $758,547 and
$738,547 at December 31, 1998 and 1997, respectively) (note 3) 110,792,991 114,150,356
Real estate acquired in settlement of loans (note 4) 7,192 246,078
Federal Home Loan Bank stock, at cost 1,427,300 1,427,300
Premises and equipment (note 5) 1,565,173 1,551,510
Investment in mortgage servicing rights (note 6) 977,720 3,027,116
Goodwill 675,030 727,530
Other assets (note 8) 1,697,128 1,106,143
------------- -------------
Total assets $ 150,955,724 $ 153,479,574
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposit accounts:
Noninterest-bearing $ 241,823 $ 199,170
Interest-bearing, including $15,245,006 in 1998 and
$13,973,839 in 1997 of time deposits for $100,000
or more (note 7) 116,519,550 118,471,286
------------- -------------
Total deposits 116,761,373 118,670,456
FHLB advances (note 15) 10,500,000 10,500,000
Accrued expenses and other liabilities (notes 8 and 9) 2,146,919 2,135,586
------------- -------------
Total liabilities 129,408,292 131,306,042
------------- -------------
Stockholders' equity (notes 11, 12 and 13):
Serial preferred stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $1.00 par value, 10,000,000 shares authorized;
issued and outstanding 1,250,356 shares in 1998 and 1997 1,250,356 1,250,356
Additional paid-in capital 3,521,612 3,437,275
Retained income, substantially restricted 16,937,456 17,487,686
Accumulated other comprehensive income:
Unrealized gain on investment securities available for sale,
net of tax (161,992) 56,831
Less obligation in connection with funds used to acquire
common shares by ESOP -- (58,616)
------------- -------------
Total stockholders' equity 21,547,432 22,173,532
Commitments (note 3)
------------- -------------
$ 150,955,724 $ 153,479,574
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Interest income:
Loans $ 9,062,275 $ 9,101,733 $ 8,760,804
Investment securities 1,806,811 1,541,134 940,568
Interest-bearing balances in other banks 32,676 20,736 19,876
Federal funds sold 77,913 79,178 35,948
Other 106,168 103,479 109,601
--------------- ------------- -------------
Total interest income 11,085,843 10,846,260 9,866,797
--------------- ------------- -------------
Interest expense:
Deposits, including $563,091 in 1998, $577,599 in
1997, and $434,257 in 1996 on time deposits for
$100,000 or more 5,465,072 5,633,453 5,018,715
FHLB advances (note 15) 594,073 511,246 --
Other (note 14) 2,053 7,855 17,299
--------------- ------------- -------------
Total interest expense 6,061,198 6,152,554 5,036,014
--------------- ------------- -------------
Net interest income 5,024,645 4,693,706 4,830,783
Provision for loan losses (note 3) 20,000 20,000 15,000
--------------- ------------- -------------
Net interest income after provision for
loan losses 5,004,645 4,673,706 4,815,783
--------------- ------------- -------------
Other income (loss):
Insurance income, net 186,828 179,901 168,063
Rental income 50,244 49,132 50,835
Service charges on deposits 60,826 70,818 66,064
Gain on sale of investment securities available
for sale 6,418 -- --
Gain on sale of real estate acquired in settlement
of loans (note 4) 426,872 679,349 12,695
Real estate operations, net (note 4) 2,795 269,061 335,598
Income (loss) from mortgage servicing rights (2,158,071) 135,791 --
Other income 79,104 42,179 27,421
--------------- ------------- -------------
Total other income (loss) (1,344,984) 1,426,231 660,676
--------------- ------------- -------------
General and administrative expenses:
Salaries and employee benefits (notes 9 and 13) 1,895,291 1,733,344 1,673,844
Occupancy and equipment 335,569 346,302 369,390
Federal and other insurance premiums (note 10) 81,543 85,876 930,297
Amortization of goodwill 52,500 52,500 52,500
Other expenses 881,460 839,897 785,632
--------------- ------------- -------------
Total general and administrative expenses 3,246,363 3,057,919 3,811,663
--------------- ------------- -------------
Income before income taxes 413,298 3,042,018 1,664,796
Income taxes (note 8) 155,000 1,166,500 571,000
--------------- ------------- -------------
Net income $ 258,298 $ 1,875,518 $ 1,093,796
=============== ============= =============
Per share amounts (note 11):
Net income - basic $ 0.21 $ 1.52 $ 0.89
=============== ============= =============
Net income - diluted $ 0.21 $ 1.52 $ 0.87
=============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Obligation Stockholders'
Stock Capital Income Income of ESOP Equity
---------- ------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1,287,372 $ 4,652,561 $ 15,825,090 $ -- $ (358,754) $ 21,406,269
Comprehensive income:
Net income -- -- 1,093,796 -- -- 1,093,796
-----------
Total comprehensive income 1,093,796
Repurchase of common stock (92,216) (1,569,097) -- -- -- (1,661,313)
Cash dividends declared on common stock,
$.53 per share -- -- (649,222) -- -- (649,222)
Stock options exercised 16,700 70,988 -- -- -- 87,688
Principal repayment of ESOP debt -- -- -- -- 157,346 157,346
Release and allocation of ESOP shares -- 63,554 (23,443) -- -- 40,111
Tax benefit on stock options exercised -- -- 52,219 -- -- 52,219
---------- ------------ ------------ ------------ ----------- -----------
Balance at December 31, 1996 1,211,856 3,218,006 16,298,440 -- (201,408) 20,526,894
Comprehensive income:
Net income -- -- 1,875,518 -- -- 1,875,518
Other comprehensive income - unrealized
gain on securities available for sale, net
of income taxes $29,277 -- -- -- 56,831 -- 56,831
-----------
Total comprehensive income 1,932,349
Repurchase of common stock (5,500) (82,157) -- -- -- (87,657)
Cash dividends declared on common stock,
$.57 per share -- -- (713,684) -- -- (713,684)
Stock options exercised 44,000 194,750 -- -- -- 238,750
Principal repayment of ESOP debt -- -- -- -- 142,792 142,792
Release and allocation of ESOP shares -- 106,676 (39,052) -- -- 67,624
Tax benefit on stock options exercised -- -- 66,464 -- -- 66,464
---------- ------------ ------------ ------------ ----------- -----------
Balance at December 31, 1997 1,250,356 3,437,275 17,487,686 56,831 (58,616) 22,173,532
Comprehensive income:
Net income -- -- 258,298 -- -- 258,298
Other comprehensive income - unrealized
gain on securities available for sale, net
of income taxes of $112,727 -- -- -- (218,823) -- (218,823)
-----------
Total comprehensive income 39,475
Cash dividends declared on common stock,
$.61 per share -- -- (762,716) -- -- (762,716)
Principal repayment of ESOP debt -- -- -- 58,616 58,616
Release and allocation of ESOP shares -- 84,337 (45,812) -- -- 38,525
---------- ------------ ----------- ------------ ----------- -----------
Balance at December 31, 1998 $1,250,356 $ 3,521,612 $16,937,456 $ (161,992) $ -- $21,547,432
========== ============ =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 258,298 1,875,518 1,093,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 20,000 20,000 15,000
Depreciation and amortization, net 193,573 170,512 142,156
Amortization of goodwill 52,500 52,500 52,500
Loss (income) from mortgage servicing rights 2,158,071 (135,791) --
Increase (decrease) in allowance for
uncollected interest 18,544 2,838 (51,014)
Net gain on sale of investment securities
available for sale (6,418) -- --
Net gain on sale of fixed assets -- (5,439) --
Net gain on sale of real estate acquired in
settlement of loans (426,872) (679,349) (12,695)
Increase in other assets (478,258) (254,366) (81,637)
Increase in accrued expenses and other
liabilities 57,445 494,878 139,365
Increase in deferred loan fees, net 41,488 55,790 56,927
Net noncash expense recorded for ESOP 38,525 67,624 40,111
-------------- -------------- --------------
Net cash provided by operating
activities 1,926,896 1,664,715 1,394,509
-------------- -------------- --------------
Cash flows from investing activities:
Purchases of investment securities held to maturity (11,685,676) (5,400,000) (4,800,000)
Purchases of investment securities available for sale (12,856,066) (16,726,273) --
Proceeds from sale of investment securities
available for sale 3,505,866 -- --
Proceeds from maturities/calls of investment
securities available for sale 5,250,077 1,000,000 --
Proceeds from maturities/calls of investment
securities held to maturity 12,300,000 5,857,142 11,005,901
Principal collected on investment securities held to
maturity 325,618 263,351 350,384
Principal collected on ivestment securities
available for sale 55,388 -- --
Origination of loans, net 3,240,897 (4,913,071) (5,298,164)
Proceeds from sales of real estate acquired in
settlement of loans 702,194 2,251,951 57,075
Purchases of premises and equipment (148,222) (65,426) (23,710)
Proceeds from sales of premises and equipment -- 16,000 --
Purchase of mortgage servicing rights (108,675) (1,163,250) (1,728,075)
Proceeds from redemption of FHLB stock -- -- 84,900
-------------- -------------- --------------
Net cash provided by (used in)
investing activities 581,401 (18,879,576) (351,689)
-------------- -------------- --------------
</TABLE>
(Continued)
45
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ (1,909,083) 11,327,077 (1,419,876)
Cash dividends paid (750,212) (694,811) (647,900)
Proceeds from issuance of common stock upon
exercise of stock options -- 238,750 87,688
Proceeds from note payable -- -- 2,200,000
Repayment of note payable -- (1,200,000) (1,000,000)
Proceeds from FHLB advances -- 10,500,000 --
Repurchase of common stock -- (87,657) (1,661,313)
-------------- ------------- -------------
Net cash provided by (used in)
financing activities (2,659,295) 20,083,359 (2,441,401)
-------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents (150,998) 2,868,498 (1,398,581)
Cash and cash equivalents, beginning of year 4,195,001 1,326,503 2,725,084
============== ============= =============
Cash and cash equivalents, end of year $ 4,044,003 4,195,001 1,326,503
============== ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6,098,358 6,156,200 5,052,824
Income taxes 300,896 1,016,540 597,937
============== ============= =============
Supplemental schedule of noncash investing and
financing activities:
Loans transferred to real estate acquired in
settlement of loans $ 36,436 28,493 --
Dividends payable 200,057 187,553 168,680
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
The following is a description of the more significant accounting and
reporting policies Haywood Bancshares, Inc. (the Corporation) and its
subsidiary, Haywood Savings Bank, Inc., SSB (Haywood Savings) follow in
preparing and presenting their consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Corporation, Haywood Savings and its wholly owned
subsidiaries, Great Smokies Financial Corporation, Inc. and Great
Smokies Insurance Agency, Inc. Haywood Savings subsidiaries' principal
business activities are the sale of real estate held for investment
and the sale of insurance products in an agency capacity,
respectively. For purposes of the consolidated financial statements,
all significant intercompany accounts and transactions have been
eliminated. The Corporation's chief operating decision maker reviews
the results of operations of the Corporation and its subsidiaries as a
single enterprise.
(b) Basis of Presentation
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the
date of the financial statements, as well as the amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
In certain instances, amounts previously reported in the 1997 and 1996
consolidated financial statements have been reclassified to present
them in the format selected for 1998. Such reclassifications have no
effect on the net income or stockholders' equity as previously
reported.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks, interest-
bearing balances in other banks, and federal funds sold. Generally,
federal funds are sold for one-day periods.
(d) Investment Securities
Investment securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held to maturity and
reported at amortized cost. Investment securities held for current
resale are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings.
Investment securities not classified either as securities held to
maturity or trading securities are classified as available for sale
and reported at fair value, with unrealized gains and losses (net of
the related tax effect) excluded from earnings and reported as a
separate component of stockholders' equity. The classification of
investment securities as held to maturity, trading, or available for
sale is determined at the date of purchase.
47 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Realized gains and losses from sales of securities are determined
based upon the specific identification method. Premiums and discounts
are amortized as an adjustment to yield over the remaining lives of
the securities using the level-yield method.
As a state chartered savings bank, liquidity (consisting of cash and
readily marketable securities) must be at least 10% of Haywood
Savings' assets. Haywood Savings was in compliance with such
regulation at December 31, 1998.
(e) Allowance for Loan Losses
The Corporation provides for loan losses on the allowance method.
Additions to the allowance for loan losses are provided by charges to
operations based on inherent loss considerations within the loan
portfolio and various other factors which, in management's judgment,
warrant current recognition in estimating possible losses. Such
factors considered include collateral values, growth and composition
of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, delinquency trends, and economic
conditions.
Management evaluates available information periodically and the
allowance is adjusted accordingly. While management uses the best
information available to make evaluations, future adjustments to the
allowance may be necessary if conditions differ from the assumptions
used in making the evaluations. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses. Such
agencies may require the Corporation to recognize additions to the
allowance based on their judgments about information available to them
at the time of their examination.
(f) Real Estate Acquired in Settlement of Loans
Real estate acquired in settlement of loans is initially recorded at
the lower of cost or net fair value (less estimated costs to sell). If
cost exceeds net fair value, the asset is written down to net fair
value with the difference being charged against the allowance for loan
losses. Subsequent to foreclosure, such assets are carried at the
lower of cost or net fair value with any additional write downs being
charged as real estate losses.
(g) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives
of the related assets principally on a straight-line basis. Estimated
lives are ten to forty years for buildings, building components and
improvements; five to ten years for furniture, fixtures, and
equipment; and four years for automobiles.
Maintenance and repairs are charged to expense as incurred and
improvements are capitalized. The costs and accumulated depreciation
relating to premises and equipment retired or otherwise disposed of
are eliminated from the accounts and any resulting gains or losses are
credited or charged to income.
48 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(h) Goodwill
Goodwill, representing the excess cost of investment over the fair
value of net assets acquired, is being amortized by charges to
operations over a remaining period of approximately 13 years at
December 31, 1998 using the straight-line method.
(i) Loans
Loans are carried at their principal amount outstanding plus any
accrued interest. The Corporation provides an allowance for
uncollected interest on accrued interest for loans 90 days or more
past due. This allowance is a reduction of loans for financial
statement reporting because such accrued interest is included in the
related loan balances.
Management considers loans to be impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to contractual terms of the loan
agreement. Factors that influence management's judgments include, but
are not limited to, loan payment pattern, source of repayment, and
value of collateral. A loan would not be considered impaired if an
insignificant delay in loan payment occurs and management expects to
collect all amounts due. The major sources for identification of loans
to be evaluated for impairment include past due and nonaccrual
reports, internally generated lists of loans of certain risk grades,
and regulatory reports of examination. Impaired loans are measured
using either the discounted expected cash flow method or the value of
collateral method. When the ultimate collectibility of an impaired
loan's principal is in doubt, wholly or partially, all cash receipts
are applied to principal. Large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment (such as
residential mortgage) are excluded from impairment evaluations, and
their allowance for loan losses is calculated in accordance with the
allowance for loan losses policy described above.
(j) Loan Origination Fees and Costs
The Corporation defers loan origination fees and certain direct loan
origination costs. Net deferred fees are being amortized to loan
interest income over the actual life of the loan using a level yield
method.
(k) Pension Plan
The Corporation adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits, an amendment of Statements No. 87, 88 and
106" ("SFAS No. 132"), during 1998. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement
benefits, requires additional information on changes in the benefit
obligations and fair values of plan assets and eliminates certain
disclosures previously required. The methods of measurement and
recognition for such plans remain unchanged. In accordance with the
provisions of SFAS No. 132, disclosures for earlier periods provided
for comparative purposes have been restated to reflect the provisions
of this Statement.
49 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(l) Stock Options
On January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," which requires either the (i) fair
value of employee stock-based compensation plans be recorded as a
component of compensation expense in the statement of income as of the
date of grant of awards related to such plans, or (ii) the impact of
such fair value on net income and earnings per share be disclosed on a
pro forma basis on a footnote to financial statements for awards
granted after December 15, 1994, if the accounting for such awards
continues to be in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB Opinion 25).
The Corporation has elected to continue to apply the provisions of APB
Opinion 25.
(m) Income Taxes
The Corporation accounts for income taxes using the asset and
liability method, the objective of which is to establish deferred tax
assets and liabilities for the temporary differences between the
financial reporting basis and the respective income tax basis of the
Corporation's assets and liabilities using enacted rates expected to
be in effect when such amounts are realized or settled.
(n) Comprehensive Income
On January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components
in a full set of financial statements. Comprehensive income consists
of net income and net unrealized gains (losses) on securities and is
presented in the statements of stockholders' equity and comprehensive
income. The Statement requires only additional disclosures in the
consolidated financial statements; it does not affect the
Corporation's financial position or results of operations. Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
The Corporation's other comprehensive income for the years ended
December 31, 1998 and 1997 and accumulated other comprehensive income
as of December 31, 1998 and 1997 are comprised solely of unrealized
gains and losses on certain investments in debt and equity
50 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
securities. The Corporation did not have any other comprehensive
income for the year ended December 31, 1996. Other comprehensive
income for the years ended December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Unrealized holding gains (losses) arising during period $(214,844) 56,831
Less: reclassification adjustment for realized gains,
net of tax 3,979 --
--------- --------
Unrealized gains (losses) on securities, net of
applicable income taxes $(218,823) 56,831
========= ========
</TABLE>
(o) Net Income Per Share
The Corporation adopted the provisions for SFAS No. 128, "Earnings per
Share," during 1997. The Statement establishes standards for computing
and presenting earnings per share (EPS). SFAS No. 128 simplifies the
standards for computing EPS previously found in APB Opinion No. 15,
"Earnings Per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a basic
EPS. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. In accordance with SFAS
No. 128, all prior period EPS data has been restated.
(p) Disclosures Regarding Segments
The Corporation adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" in 1998. SFAS No. 131
establishes standards for the way that public businesses report
information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
The Corporation adopted SFAS No. 131 without any impact on their
consolidated financial statements as the chief operating decision
maker reviews the results of operations of the Corporation and its
subsidiaries as a single enterprise.
51 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(2) Investment Securities
The following is a summary of the investment securities portfolios by
major classification:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Book Value Gains Losses Market Value
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
December 31, 1998
Investment securities available for sale:
U.S. government and agency securities $ 4,248,875 3,704 (5,625) 4,246,954
Collateralized mortgage obligations:
FHLMC certificates, at variable rates,
maturing from 2023 to 2027 10,688,852 -- (178,538) 10,510,314
FNMA certificates, at variable rates,
maturing in 2028 4,773,915 -- (64,983) 4,708,932
------------- ------------ ------------ --------------
Total investment securities
available for sale $19,711,642 3,704 (249,146) 19,466,200
============= ============ ============ ==============
Investment securities held-to-maturity:
U.S. government and agency securities $9,822,634 14,625 (15,238) 9,822,021
Mortgage-backed securities:
FHLMC certificates, 8.50%, maturity
from 2005 to 2009 335,143 12,823 -- 347,966
GNMA certificates, 8.50% to 9.00%,
maturing from 2009 to 2017 145,210 17,275 -- 162,485
------------- ------------ ------------ --------------
Total investment securities
held to maturity $10,302,987 44,723 (15,238) 10,332,472
============= ============ ============ ==============
</TABLE>
52 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Book Value Gains Losses Market Value
------------- -------------- ------------ --------------
December 31, 1997
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government and agency securities $ 5,000,574 11,458 (234) 5,011,798
Collateralized mortgage obligations:
FHLMC certificates, at variable rates,
maturing from 2023 to 2024 10,718,929 75,013 (129) 10,793,813
------------- ------------ ------------ --------------
Total investment securities
available for sale $ 15,719,503 86,471 (363) 15,805,611
============= ============ ============ ==============
Investment securities held-to-maturity:
U.S. government and agency securities $ 10,436,957 25,263 (13,010) 10,449,210
Mortgage-backed securities:
FHLMC certificates, 8.50%, maturity
from 2005 to 2009 520,098 24,699 -- 544,797
GNMA certificates, 8.50% to 9.00%,
maturing from 2009 to 2017 285,874 23,170 -- 309,044
------------- ------------ ------------ --------------
Total investment securities
held to maturity $ 11,242,929 73,132 (13,010) 11,303,051
============= ============ ============ ==============
</TABLE>
Gross gains from sales of investment securities available for sale totaled
$6,418 in 1998. There were no sales of investment securities available for
sale or held-to-maturity during 1997 and 1996.
The aggregate amortized cost and approximate market value of the available
for sale and held-to-maturity securities portfolios at December 31, 1998,
by remaining contractual maturity are as follows:
<TABLE>
<CAPTION>
Available for Sale Held-to-Maturity
------------------------------ -----------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
U.S. government and agency securities:
Due in one year or less $ -- -- 436,957 437,399
Due after one year through five years 4,248,875 4,246,954 9,385,677 9,384,622
Mortgage-backed securities -- -- 480,353 510,451
Collateralized mortgage obligations 15,462,767 15,219,246 -- --
------------- ------------- ------------------ -------------
Total $ 19,711,642 19,466,200 10,302,987 10,332,472
============= ============= ================== =============
</TABLE>
53 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(3) Loans
Loans consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Loans secured by first mortgages on real estate:
Conventional, primarily one to four family $ 89,352,080 92,165,787
Commercial 15,790,805 15,669,602
Construction 6,716,000 6,953,200
Participation loans purchased 407,060 478,240
---------------- ----------------
112,265,945 115,266,829
Home equity lines of credit 2,478,517 2,467,831
Loans secured by deposit accounts 750,954 580,639
Home improvement loans 189,016 164,827
---------------- ----------------
115,684,432 118,480,126
Undisbursed proceeds on loans in process (3,530,853) (3,049,214)
Deferred loan fees (548,960) (507,472)
Allowance for loan losses (758,547) (738,547)
Allowance for uncollected interest (53,081) (34,537)
---------------- ----------------
$ 110,792,991 114,150,356
================ ================
</TABLE>
The Corporation grants residential, residential and non-residential
construction, and commercial real estate loans to customers throughout its
general market area of Haywood, Cherokee, and Jackson counties of western
North Carolina. As reflected in the summary of loans at December 31, 1998,
the largest component of the Corporation's loan portfolio consists of
lower-risk single-family, 1-4 unit, residential loans. The higher risk
component of the loan portfolio consists of real estate construction loans
and commercial real estate loans for which repayment is more dependent on
current real estate markets and general economic conditions. Management
actively monitors the higher risk portion of the portfolio and provides
increased provision for loan losses when considered necessary.
54 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The following summarizes the activity in the allowance for loan losses for
the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year $ 738,547 718,547 703,547
Provision for loan losses 20,000 20,000 15,000
Less loan charge-offs -- -- --
---------------- ---------------- ----------------
Balance at end of year $ 758,547 738,547 718,547
================ ================ ================
</TABLE>
The Corporation had nonaccrual loans of approximately $841,000, $583,000
and $814,000 at December 31, 1998, 1997 and 1996, respectively. Had these
loans performed in accordance with their contractual terms, approximately
$53,000 , $37,000 and $57,000 of interest income would have been recorded
during the years ended December 31, 1998, 1997, and 1996, respectively.
Interest income of approximately $25,000, $22,000, and $30,000 was recorded
in connection with loans classified as nonaccrual in 1998, 1997 and 1996,
respectively.
At December 31, 1998 and 1997, the Corporation has no loans considered to
be impaired under SFAS No. 114.
At December 31, 1998, the Corporation had adjustable rate loan commitments
outstanding aggregating $1,789,000, and fixed rate loan commitments
outstanding aggregating $1,435,000. In addition, the Corporation has
committed to participate in 45 "affordable housing" fixed rate construction
projects in the aggregate sum of $635,000. Also, preapproved but unused
variable rate lines of credit for home equity loans approximate $1,230,000
at December 31, 1998. In the opinion of management, these loan commitments,
including undisbursed proceeds on loans in process reflected above,
represent no more than normal lending risk to the Corporation and will be
funded from normal sources of liquidity.
Loans serviced for others approximated $132,000, $283,000, and $401,000 at
December 31, 1998, 1997, and 1996, respectively.
The following is a reconciliation of aggregate loans outstanding to
executive officers, directors, and their immediate families for the year
ended December 31, 1998, for such loan amounts aggregating in excess of
$60,000.
<TABLE>
<S> <C>
Balance at beginning of year $ 1,588,000
New loans 243,000
Principal repayments (236,000)
-----------------
Balance at end of year $ 1,595,000
=================
</TABLE>
55 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(4) Real Estate Acquired in Settlement of Loans
Real estate acquired in settlement of loans, net of related allowance for
real estate losses, consists of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Commercial real estate $ -- 210,393
Other, primarily single family residence 7,192 35,685
----------------- -----------------
$ 7,192 246,078
================= =================
</TABLE>
In 1998, the Corporation sold commercial real estate consisting of
outparcels to the Waynesville Shopping Center with a book value of
approximately $210,000 and recognized a gain of approximately $403,000 on
the sale. The Corporation sold commercial real estate (Waynesville Plaza
Shopping Center) with a book value of approximately $1,573,000 during 1997
and recognized a gain of approximately $679,000 on the sale.
Net rental income related to the operations of real estate acquired in
settlement of loans was approximately $3,000, $269,000, and $348,000 in
1998, 1997, and 1996, respectively.
(5) Premises and Equipment
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
---------------- ---------------- ----------------
<S> <C> <C> <C>
December 31, 1998:
Land and land improvements $ 368,064 -- 368,064
Office buildings and improvements 2,528,570 1,573,268 955,302
Furniture, fixtures and equipment 1,558,568 1,342,564 216,004
Automobiles 35,188 9,385 25,803
---------------- ---------------- ----------------
$ 4,490,390 2,925,217 1,565,173
================ ================ ================
December 31, 1997:
Land and land improvements $ 368,064 -- 368,064
Office buildings and improvements 2,517,311 1,509,233 1,008,078
Furniture, fixtures and equipment 1,421,605 1,279,078 142,527
Automobiles 35,188 2,347 32,841
---------------- ---------------- ----------------
$ 4,342,168 2,790,658 1,551,510
================ ================ ================
</TABLE>
56 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(6) Investment in Mortgage Servicing Rights
During 1996, the Corporation made a $3,000,000 commitment to be a limited
partner in Dovenmuehle Mortgage Company L.P. ("DMCLP") Tranche VIII
Servicing Division of Dovenmuehle Mortgage Inc. ("DMI"). DMI provides
mortgage servicing for a national portfolio of residential, multi-family
and commercial mortgage loans. These loans are owned or securitized by
national mortgage agencies, and by a variety of private banks, thrifts,
insurance companies and other loan investors. DMI formed DMCLP as a funding
vehicle to purchase portfolios of the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation nonrecourse residential
servicing. DMI provides the mortgage servicing for these portfolios. Under
this structure investors in DMCLP invest in separate tranches, each of
which has its own identified servicing rights and each of which may be
owned by one or a group of investors. The equity investors in each tranche
benefit from a financial return based solely on the performance of the
mortgage servicing rights purchased for the tranche. The Corporation has
funded all of its $3,000,000 commitment.
The investment is accounted for under the equity method. Management
periodically evaluates the fair value of the mortgage servicing rights
owned by DMCLP using appraisals prepared by a third party and adjusts the
carrying value of their investment when there is impairment.
During the year ended December 31, 1998, the Corporation recognized an
impairment valuation adjustment totaling approximately $2,161,000. The
impairment and write-down of the mortgage servicing rights is due to
significant prepayments of the underlying mortgage loans due to a decline
in mortgage loan interest rates. Total earnings (loss) of DMCLP recognized
by the Corporation on the equity method of accounting were $(2,158,000) and
$136,000 for the years ended December 31, 1998 and 1997, respectively.
(7) Time Deposits
Maturities of time deposits are as follows:
<TABLE>
<S> <C>
1999 $ 60,748,000
2000 21,231,000
2001 2,307,000
2002 167,000
2003 121,000
----------------
Total $ 84,574,000
================
</TABLE>
57 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(8) Income Taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Current expense:
Federal $ 541,934 848,658 596,781
State 74,066 115,842 54,219
---------- --------- ----------
616,000 964,500 651,000
---------- --------- ----------
Deferred expense (benefit):
Federal (332,993) 163,829 (65,781)
State (128,007) 38,171 (14,219)
---------- --------- ----------
(461,000) 202,000 (80,000)
---------- --------- ----------
$ 155,000 1,166,500 571,000
========== ========= ==========
</TABLE>
The statutory income tax amounts are reconciled with the effective income
tax amounts as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Tax at federal rate (34%) $ 140,521 1,034,286 566,031
Differences:
State income taxes, net of federal
income tax benefit (35,601) 101,649 26,400
Other, net 50,080 30,565 (21,431)
---------- --------- ----------
$ 155,000 1,166,500 571,000
========== ========= ==========
Effective tax rates 37.5% 38.3% 34.3%
========== ========= ==========
</TABLE>
58 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax assets (liabilities) at December
31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Unrealized gain on available sale
for securities $ 83,450 --
Allowance for loan losses 294,202 286,445
Deferred compensation 446,800 362,786
Net loan fees, deferred for
financial reporting 55,174 73,565
Accrued pension liability 143,183 139,528
Investment in partnership, tax
basis in excess of book 440,356 --
Other 10,394 29,729
----------- -----------
Total gross deferred tax assets 1,473,559 892,053
Less valuation allowance -- --
----------- -----------
Net deferred tax assets 1,473,559 892,053
----------- -----------
Deferred tax liabilities:
Unrealized gain on available-for-sale
securities -- (29,277)
Tax bad debt reserve (699,208) (605,554)
Depreciable basis of fixed assets (135,858) (132,568)
Mortgage-backed securities,
book basis in excess of tax -- (44,535)
FHLB stock, book basis in excess of tax (232,200) (232,200)
Other (27,843) (43,196)
----------- -----------
Total gross deferred tax liabilities (1,095,109) (1,087,330)
----------- -----------
Net deferred tax asset (liability) $ 378,450 (195,277)
=========== ===========
</TABLE>
59 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
A portion of the change in the net deferred tax asset (liability) relates
to unrealized loss (gain) on available-for-sale securities. The related
current period deferred tax benefits of $112,727 has been recorded directly
to stockholders' equity. The balance of the change in the net deferred tax
asset (liability) results from the current period deferred tax benefit of
$461,000.
There was no valuation allowance during 1998 or 1997. It is management's
contention that realization of the deferred tax assets is more likely than
not, based upon the history of taxable income and estimates of future
taxable income.
Retained income at December 31, 1998 and 1997 includes approximately $1.07
million (tax effect) representing pre-1988 bad debt reserve base year
reserve amounts for which no deferred income tax liability has been
provided since these reserves are not expected to reverse and may never
reverse. Circumstances that would require an accrual of a portion or all of
this unrecorded tax liability are failure to meet the definition of a bank,
dividend payments in excess of current year or accumulated tax earnings and
profits or other distributions in dissolution, liquidation or redemption of
the Corporation's stock.
The Corporation has historically been permitted under the Internal Revenue
Code to deduct an annual addition to the tax reserve for bad debts based on
8% of taxable income (the "percentage of taxable income method") or actual
loan loss experience (the "experience method"). For the period ending
December 31, 1996, Haywood Savings was required to change its overall tax
method of accounting for bad debts to either the experience method or the
specific charge-off method to comply with tax legislation enacted in 1996.
Beginning in 1996, the legislation requires the recapture of any tax
reserves in excess of pre-1988 base year amounts over approximately eight
years.
The Corporation's income tax returns for 1995 and subsequent years are
subject to final determination by the taxing authorities.
60 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(9) Pension and Deferred Compensation Plans
The Corporation has a defined benefit pension plan covering substantially
all of its employees. Based upon actuarial computations at December 31,
1998 and 1997, the plan's funded status and amounts recognized in the
Corporation's consolidated statements of financial condition at December
31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $1,012,084 932,566
Service cost 67,774 63,799
Interest cost 70,668 67,040
Actuarial gain (loss) -- 27,502
Benefit payments (5,162) (78,823)
---------- ----------
Benefit obligation at December 31 $1,145,364 1,012,084
========== ==========
Change in plan assets:
Fair value of plan assets at January 1 $ 553,970 509,630
Actual return on plan assets 40,722 44,934
Employer contributions 73,398 78,229
Benefit payments (5,162) (78,823)
---------- ----------
Fair value of plan assets
at December 31 $ 662,928 553,970
========== ==========
Funded status:
As of end of year $ (482,436) (458,114)
Unrecognized transition (asset) obligation 36,418 40,970
Unrecognized prior service cost 80,934 87,159
Unrecognized net (gain) loss (4,764) (5,468)
---------- ----------
Accrued pension expense $ (369,848) (335,453)
========== ==========
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 67,774 63,799 69,243
Interest cost on projected benefit obligation 70,668 67,040 71,801
Actual return on plan assets (8,885) (45,700) (44,541)
Net amortization and deferral (20,574) 18,175 12,811
-------- ------- --------
Net periodic pension cost included
in salaries and employee benefits $108,983 103,314 109,314
======== ======= =======
</TABLE>
61 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Assumptions used in computing the actuarial present value of the
Corporation's projected benefit obligation were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.5% 7.5%
Rate of increase in compensation level of employees 5.5% 5.5% 5.5%
Expected long-term rate of return on pension plan assets 7.5% 7.5% 7.5%
</TABLE>
The Corporation has a retirement plan for non-employee directors. The plan
states that the Corporation will annually pay directors, based on a vesting
schedule, for up to ten years following retirement, an amount equal to the
directors' fees paid during the year immediately preceding the retirement
date. The Corporation recorded expense of approximately $126,000 in 1998
and $51,000 in 1997 and 1996, respectively, related to this plan. The
assumed weighted average discount rate used to measure the projected
benefit obligation was 7% in 1998 and 8% in 1997 and 1996.
Certain directors of the Corporation have elected to forego current
payments for directors' fees and to participate in a deferred compensation
plan. Expense for service cost for benefits earned during 1998, 1997, and
1996 was approximately $118,000, $53,000, and $49,000, respectively. The
assumed weighted average discount rate used to measure the projected
benefit obligation was 7% in 1998 and 8% in 1997 and 1996.
Also, effective since 1991, certain employees of the Corporation have been
provided with supplemental income agreements for the purpose of additional
retirement benefits. Expense for service cost for benefits earned during
1998, 1997, and 1996 was approximately $22,000, $34,000, and $24,000,
respectively. The assumed weighted average discount rate used to measure
the projected benefit obligation was 7% in 1998 and 8% in 1997 and 1996.
(10) Federal Deposit Insurance Expense
Eligible deposit accounts are insured up to $100,000 by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). Federal deposit insurance expense amounted to
approximately $71,000, $71,000, and $908,000 for the years ended December
31, 1998, 1996 and 1995, respectively.
On September 30, 1996, Congress passed legislation allowing a special
assessment to be levied by the FDIC to recapitalize the SAIF. The special
assessment was based on the level of SAIF assessable deposits a financial
institution had as of March 31, 1995 subject to a 20% reduction for certain
qualifying deposits. Haywood Savings' special assessment totaled
approximately $720,000 and is included in the 1996 federal deposit
insurance expense above. On December 11, 1996, the FDIC approved a final
rule retroactive to October 1, 1996 which lowered rates on assessments paid
to the
62 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
SAIF. Haywood Savings received a refund of approximately $63,000, which
reduced federal deposit insurance expense and is also included above.
(11) Stockholders' Equity
(a) Earnings per Share
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period.
Diluted net income per share reflects the potential dilution that
could occur if the Corporation's dilutive stock options were
exercised. Shares owned by the employee stock ownership plan (ESOP)
that are unallocated and not committed to be released are not included
in either basic or diluted weighted average shares outstanding. ESOP
shares that are committed to be released are included in both basic
and diluted weighted average shares outstanding. The numerator of the
basic net income per share computation is the same as the numerator of
the diluted net income per share computation for all periods
presented. A reconciliation of the denominators for the EPS
computations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Basic EPS denominator: weighted average
number of common shares outstanding 1,248,153 1,233,408 1,226,850
Dilutive effect arising from assumed exercise
of stock options -- -- 32,745
------------- ------------- -------------
Diluted EPS denominator 1,248,153 1,233,408 1,259,595
============= ============= =============
</TABLE>
(b) Regulatory Matters
The Corporation may not pay cash dividends on its common stock if
its regulatory capital would be reduced below the amount required for
the liquidation account established for the benefit of certain
depositors of Haywood Savings at the time of its 1987 conversion to
stock ownership.
The Corporation repurchased 5,500 shares of common stock at $15.94 per
share in May 1997 in connection with the stock repurchase program
announced on August 8, 1995, which permits repurchases of up to 10% of
the 1,287,372 shares outstanding at the program's inception. The
Corporation retires all repurchased shares under this program. The
Corporation repurchased 86,516 shares of common stock under such plan
at $18 per share in April and May 1996, and 5,700 shares of common
stock at $18.25 per share in July of 1996.
As a North Carolina-chartered savings bank, Haywood Savings is
subject to the capital requirements of the FDIC and the N.C.
Administrator of Savings Institutions ("the Administrator"). The FDIC
requires Haywood Savings to maintain minimum ratios of Tier I
63 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
capital to total risk-weighted assets and total capital to risk-weighted
assets of 4% and 8%, respectively. To be "well capitalized," the FDIC
requires ratios of Tier I capital to total risk-weighted assets and total
capital to risk-weighted assets of 6% and 10%, respectively. Tier I capital
consists of total stockholders' equity calculated in accordance with
generally accepted accounting principles less intangible assets, and total
capital is comprised of Tier I capital plus certain adjustments, the only
one of which is applicable to Haywood Savings is the allowance for loan
losses. Risk-weighted assets reflect Haywood Savings' on- and off-balance
sheet exposures after such exposures have been adjusted for their relative
risk levels using formulas set forth in FDIC regulations. Haywood Savings
is also subject to a leverage capital requirement, which calls for a
minimum ratio of Tier I capital (as defined above) to quarterly average
total assets of 3%, and a ratio of 5% to be "well capitalized." The
Administrator requires a net worth equal to at least 5% of assets.
At December 31, 1998 and 1997, Haywood Savings was in compliance with all
of the aforementioned capital requirements as summarized below.
At December 31, 1998, the FDIC categorized Haywood Savings as "well
capitalized" under the regulatory framework for prompt corrective action.
There are no events or conditions since the notification that management
believes have changed Haywood Savings' category.
<TABLE>
<CAPTION>
At December 31,
1998 1997
------------ ------------
Risk-based capital ratios:
<S> <C> <C>
Tier I capital as a percent of risk-weighted assets 27.17% 26.38%
Minimum required Tier I capital 4.00% 4.00%
Total capital as a percent of risk-weighted assets 28.16% 27.30%
Minimum required total capital 8.00% 8.00%
Leverage capital ratios:
Tier I capital as a percent of fourth quarter average assets 13.83% 13.72%
Minimum required Tier I leverage capital 3.00% 3.00%
North Carolina regulatory capital:
Total capital as a percent of fourth quarter average assets 14.33% 14.20%
Minimum required North Carolina capital 5.00% 5.00%
</TABLE>
(12) Stock Options and Incentive Plan
The Corporation has a Stock Option and Incentive Plan. An aggregate number
of shares, amounting to 126,208 or 10% of the stock issued in the
conversion, was reserved for future issuance by the Corporation for stock
options to be granted to certain directors, officers, and employees under
the plan. The plan provides for incentive options for officers and
employees and non-incentive options and stock
64
(Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
appreciation rights for directors, officers, and employees. The plan is
administered by a three member committee of the board of directors
(Committee).
Incentive stock options granted under the Stock Option and Incentive Plan
may be granted only to full-time officers and employees at the fair market
value of the stock on the date of grant. Non-incentive stock options were
granted to non-employee members of the board of directors at an exercise
price equal to the actual offering price of the common stock issued in
conjunction with Haywood Savings' conversion from a mutual to a stock
association in 1987. Both types of options are exercisable upon issuance
and for a ten year period thereafter. Incentive stock options are generally
forfeited at or within 3 months following termination of employment.
Forfeiture of non-incentive stock options is at the sole discretion of the
Committee.
All incentive and non-incentive stock options granted to date were granted
on January 11, 1988. During 1997, the 30,000 remaining incentive stock
options were exercised at an option price of $5.63 per share and the 14,000
remaining non-incentive stock options were exercised at $5.00 per share.
The Stock Option and Incentive Plan expired in January 1998.
Upon adoption of SFAS No. 123, the Corporation elected to continue to
measure compensation cost using APB 25. The Corporation made no grants of
stock options during the years ended December 31, 1998, 1997 or 1996, and
therefore no pro forma disclosures have been made as prescribed by SFAS No.
123.
(13) Employee Stock Ownership Plan
The Corporation has an employee stock ownership plan (ESOP) whereby 126,000
shares, or approximately 10% of the stock issued in conjunction with
Haywood Savings' 1987 conversion from a mutual to a stock association, were
purchased for future issuance to employees. Additionally, in 1994, the Plan
purchased 49,000 shares of common stock at $12.00 per share for future
issuance to employees.
Contributions to the plan are made by the Corporation on a discretionary
basis, and are allocated to each eligible employee based on his/her salary
in relation to total compensation expense. At retirement or termination of
employment each employee will receive an amount equal to his/her vested
interest in previous contributions in the form of Corporation common stock.
The original purchase of 126,000 shares was funded by a loan with an
original amount of $630,000 from a North Carolina bank. All of these shares
have been released to employees and the loan was paid off in 1994. The
purchase of 49,000 shares was also funded by a loan from a North Carolina
bank with an original amount of $588,000. Such loan was repaid in full
during 1998. At December 31, 1998, all shares have been released.
65
(Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
In accordance with Statement of Position 93-6, the Corporation records
compensation expense for shares released to employees, as a result of
contributions by the Corporation or dividends paid on unreleased shares in
the ESOP, equal to the fair value of the shares. For the three years ended
December 31, 1998, the Corporation recorded ESOP related expenses of
approximately $104,000, $100,000, and $121,000, respectively.
(14) Line of Credit
The Corporation has established a $2,000,000 line of credit with a North
Carolina bank with an interest rate equal to prime. The Corporation is
required to pay off this line of credit at some point during each year and
to leave it unused for a period of 60 days. At December 31, 1998 and 1997,
the Corporation had no outstanding borrowings against this line. Interest
expense associated with borrowings under this line of credit during 1998,
1997 and 1996 totaled approximately $2,100, $8,000 and $17,000,
respectively.
(15) FHLB Advances
At December 31, 1998 and 1997, the Corporation had advances of $10,500,000
from the FHLB. These advances bear interest at variable rates (5.62% at
December 31, 1998) and mature on February 24, 1999.
The Corporation has entered into a blanket floating lien agreement with the
FHLB as collateral for these advances. According to this agreement, the
Corporation maintains, free of other encumbrances, its residential first
mortgage loan portfolio with unpaid principal balances at least equal to,
when discounted at 75% of the unpaid principal balances, 100% of the total
FHLB advances.
(16) Fair Value of Financial Instruments
The Corporation is required under Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
to disclose in its financial statements the fair value of all financial
instruments, including assets and liabilities both on- and off-balance
sheet, for which it is practicable to estimate such fair value. Fair value
estimates, methods, and assumptions for the Corporation are set forth below
and are subject to the following limitations.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Corporation's entire holdings of a
particular financial instrument. Because no market exists for a portion of
the Corporation's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and
other factors.
66
(Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
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. Significant assets and
liabilities that are not considered financial assets or liabilities include
deferred tax assets and premises and equipment. 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.
The Corporation's fair value methods and assumptions are as follows:
. Cash on hand and in banks, interest-bearing balances in other banks,
federal funds sold, Federal Home Loan Bank Stock, accrued interest
receivable, and accrued interest payable -- the carrying value is a
reasonable estimate of fair value.
. Investment securities -- fair value is based on available quoted market
prices or quoted market prices for similar securities if a quoted market
price is not available.
. Loans -- the carrying value for variable rate loans is a reasonable
estimate of fair value due to contractual interest rates based on prime.
Fair value for fixed rate loans is estimated based upon discounted
future cash flows using discount rates comparable to rates currently
offered for such loans.
. Deposit accounts -- the fair value of certificates of deposit is
estimated using 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.
. FHLB Advances -- the fair value approximates the carrying value due to
the variable nature of such borrowings.
. Commitments to extend credit and standby letters of credit -- the large
majority of the Corporation's loan commitments are at variable rates
and, therefore, are subject to minimal interest rate risk exposure.
67
(Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Based on the limitations, methods, and assumptions noted above, the estimated
fair values of the Corporation's financial instruments at December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998
------------------------------------
Carrying
Amount Fair Value
---------------- ----------------
Financial assets:
<S> <C> <C>
Cash on hand and in banks $ 1,525,035 1,525,035
Interest-bearing balances in other banks 805,357 805,357
Federal funds sold 1,713,611 1,713,611
Investment securities -- available for sale 19,466,200 19,466,200
Investment securities -- held-to-maturity 10,302,987 10,332,472
Loans 110,792,991 112,191,000
Federal Home Loan Bank stock 1,427,300 1,427,300
Accrued interest receivable 250,652 250,652
============== ===========
Financial liabilities:
Deposit accounts $ 116,761,373 117,114,000
Accrued interest payable 254,311 254,311
FHLB advances 10,500,000 10,500,000
============== ===========
1997
------------------------------------
Carrying
Amount Fair Value
---------------- ----------------
<S> <C> <C>
Financial assets:
Cash on hand and in banks $ 1,736,787 1,736,787
Interest-bearing balances in other banks 418,967 418,967
Federal funds sold 2,039,247 2,039,247
Investment securities -- available for sale 15,805,611 15,805,611
Investment securities -- held-to-maturity 11,242,929 11,303,051
Loans 114,150,356 114,774,000
Federal Home Loan Bank stock 1,427,300 1,427,300
Accrued interest receivable 288,037 288,037
============= ===========
Financial liabilities:
Deposit accounts $ 118,670,456 118,834,000
Accrued interest payable 292,064 292,064
Borrowings 10,500,000 10,500,000
============= ===========
</TABLE>
(Continued)
68
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(17) Selected Quarterly Financial Information (unaudited)
Selected quarterly financial information for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
(in thousands, except per share)
First Second Third Fourth
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 2,806 2,790 2,744 2,746
Interest expense 1,537 1,536 1,521 1,467
-------------- --------------- --------------- --------------
Net interest income 1,269 1,254 1,223 1,279
Provision for loan losses 5 5 5 5
-------------- --------------- --------------- --------------
Net interest income after provision
for loan losses 1,264 1,249 1,218 1,274
Other income (loss) 533 (1,103) (1,093) 318
General and administrative expenses 755 795 802 895
-------------- --------------- --------------- --------------
Income before income taxes 1,042 (649) (677) 697
Income taxes (benefit) 407 (258) (226) 232
-------------- --------------- --------------- --------------
Net income (loss) $ 635 (391) (451) 465
============== =============== =============== ==============
Net income (loss) per share basic $ .51 (.31) (.36) .37
============== =============== =============== ==============
Net income (loss) per share diluted $ .51 (.31) (.36) .37
============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
(in thousands, except per share)
First Second Third Fourth
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 2,441 2,761 2,762 2,882
Interest expense 1,339 1,546 1,610 1,657
-------------- --------------- --------------- --------------
Net interest income 1,102 1,215 1,152 1,225
Provision for loan losses 5 5 5 5
-------------- --------------- --------------- --------------
Net interest income after provision
for loan losses 1,097 1,210 1,147 1,220
Other income 219 226 851 130
General and administrative expenses 812 781 780 685
-------------- --------------- --------------- --------------
Income before income taxes 504 655 1,218 665
Income taxes 194 239 391 342
-------------- --------------- --------------- --------------
Net income $ 310 416 827 323
============== =============== =============== ==============
Net income per share basic $ .26 .33 .67 .26
============== =============== =============== ==============
Net income per share diluted $ .26 .33 .67 .26
============== =============== =============== ==============
</TABLE>
69 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(18) Haywood Bancshares, Inc. (Parent Company)
The principal asset of the Parent Company is its investment in Haywood
Savings, and its principal source of income is dividends from Haywood
Savings. Certain regulatory and other requirements restrict the lending of
funds by Haywood Savings to the Parent Company and the amount of dividends
which can be paid to the Parent Company. In addition, certain regulatory
agencies may prohibit the payment of dividends by Haywood Savings if it
determines that such payment would constitute an unsafe or unsound
practice. At December 31, 1998, Haywood Savings had no available undivided
profits for payment of dividends without obtaining prior regulatory
approval.
The Parent Company's balance sheet data as of December 31, 1998 and 1997
and related income and cash flow statement data for the three years ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
Balance sheet data 1998 1997
---------------- ----------------
<S> <C> <C>
Investment in subsidiaries $ 21,547,432 22,173,532
Receivable from subsidiaries 200,057 187,554
---------------- ----------------
$ 21,747,489 22,361,086
================ ================
Accrued liabilities $ 200,057 187,554
Shareholders' equity 21,547,432 22,173,532
---------------- ----------------
$ 21,747,489 22,361,086
================ ================
</TABLE>
70 (Continued)
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Years ended December 31,
Income statement data 1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Dividends from subsidiaries $ 750,212 694,811 647,900
Equity (loss) in undistributed net income
of subsidiaries (491,914) 1,180,707 445,896
Net income $ 258,298 1,875,518 1,093,796
================ ================ ================
Cash flow statement data
Cash flows from operating activities:
Net income $ 258,298 1,875,518 1,093,796
Increase in receivable from subsidiaries (12,503) (18,873) (1,322)
Increase in accrued liabilities 12,503 18,873 1,322
(Increase) decrease in investment in subsidiaries 491,914 (1,180,707) (445,896)
---------------- ---------------- ----------------
Net cash provided by operating activities 750,212 694,811 647,900
---------------- ---------------- ----------------
Cash flows from financing activities:
Cash dividends paid (750,212) (694,811) (647,900)
---------------- ---------------- ----------------
Net cash used by financing activities (750,212) (694,811) (647,900)
---------------- ---------------- ----------------
Net increase (decrease) in cash -- -- --
Cash at beginning of year -- -- --
Cash at end of year $ -- -- --
================ ================ ================
</TABLE>
71
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
(a) Directors of the Registrant
The information contained under the section captioned "Proposal I --
Election of Directors" in the Company's proxy statement for its 1999 Annual
Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.
(b) Executive Officers of the Registrant
The information contained under the section captioned "Item 1. Business --
Executive Officers of the Registrant" is incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" and "-- Director 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 "Voting Securities and Principal Holders
Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the sections captioned "Proposal I -- Election of Directors" in the
Proxy Statement.
(c) Changes in Control
Management of the Company knows of no 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 required by this item is incorporated herein by reference
to the section captioned "Certain Transactions" in the Proxy Statement.
72
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Contents. The following documents are filed as part of this Annual
--------
Report on Form 10-K.
(1) Consolidated Financial Statements
Independent Auditors' Report
Consolidated Statements of Financial Condition as of December 31, 1998
and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements for the years ended
December 31, 1998, 1997 and 1996
(2) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the required information is included in the consolidated
financial statements and related notes thereto.
(3) Exhibits. The following is a list of exhibits filed as part of this
--------
Annual Report on Form 10-K and is also the Exhibit Index.
<TABLE>
<CAPTION>
No. Description
----- -----------
<S> <C>
* 3.1 Articles of Incorporation of Haywood Bancshares, Inc.
* 3.2 Bylaws of Haywood Bancshares, Inc.
++ 10.1 Employment Agreement of Larry R. Ammons
++ 10.2 Employment Agreement of Jack T. Nichols
++** 10.3 Haywood Bancshares, Inc., 1988 Stock Option and Incentive Plan
++ 10.4 Retirement Payment Agreements between Larry R. Ammons and the
Bank, as amended
10.5 Retirement Payment Agreements between Philip S. Dooly and the
Bank
10.6 Retirement Payment Agreement between G.D. Stovall, Jr. and the
Bank
10.7 Retirement Payment Agreement between R. Neal Ensley and the Bank
10.8 Retirement Payment Agreement between R. Bruce Norman and the
Bank
10.9 Retirement Payment Agreements, between Joseph E. Taylor, Jr. and
the Bank
10.10 Retirement Payment Agreements between C. Leon Turner and the Bank
++* 10.11 Supplemental Income Agreement between Larry R. Ammons and the
Bank, dated October 1, 1989, as amended
++* 10.12 Supplemental Income Agreement between Jack T. Nichols and the
Bank, dated October 1, 1989, as amended
++* 10.13 Haywood Savings Bank, Inc., SSB Retirement Plan for
Non-Employee Directors, as amended
* 10.14 Capital Maintenance Agreement
21 Subsidiaries of the Registrant
23 Consent of KPMG LLP
27 Financial Data Schedule (EDGAR Only)
- -------------------------
</TABLE>
* Incorporated by reference to similarly numbered exhibits to the Company's
Registration Statement on Form S-4 (File No. 33-90186).
** Incorporated by reference to Exhibit 99.1 to the Company's Post-Effective
Amendment No. 1 on Form S-8 to Registration Statement on Form S-4
(File No. 33-90186).
*** Incorporated by reference to similarly numbered exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
++ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
73
<PAGE>
(b) Reports on Form 8-K. The Registrant did not file any Current Reports
-------------------
on Form 8-K during the last quarter of the fiscal year ending December 31, 1998.
(c) Exhibits. The exhibits required by Item 601 of Regulation S-K are
--------
either filed as part of this Annual Report on Form 10-K or incorporated by
reference herein.
(d) Financial Statements and Schedules Excluded from Annual Report. There
--------------------------------------------------------------
are no other financial statements and financial statement schedules which were
excluded from the Annual Report to Stockholders pursuant to Rule 14a-3(b)(1)
which are required to be included herein.
74
<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.
HAYWOOD BANCSHARES, INC.
Date: March 22, 1999 By: /s/ Larry R. Ammons
-------------------
Larry R. Ammons
President
Pursuant to the requirement 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/ Larry R. Ammons By: /s/ R. Bruce Norman
------------------- -------------------
Larry R. Ammons R. Bruce Norman
President and a Director Director
(Principal Executive Officer)
Date: March 22, 1999 Date: March 22, 1999
By: /s/ Jack T. Nichols By: /s/ C. Jeff Reece, Jr.
------------------- ----------------------
Jack T. Nichols C. Jeff Reece, Jr.
Chief Financial Officer Director
(Principal Financial and Accounting Officer
Date: March 22, 1999 Date: March 22, 1999
By: /s/ Glenn W. Brown By: /s/ G. D. Stovall, Jr.
------------------ ----------------------
Glenn W. Brown G. D. Stovall, Jr.
Director Director
Date: March 22, 1999 Date: March 22, 1999
By: /s/ William P. Burgin By: /s/ Joseph E. Taylor, Jr.
--------------------- -------------------------
William P. Burgin Joseph E. Taylor, Jr.
Director Director
Date: March 22, 1999 Date: March 22, 1999
By: /s/ Philip S. Dooly By: /s/ C. Leon Turner
------------------- ------------------
Philip S. Dooly C. Leon Turner
Director Director
Date: March 22, 1999 Date: March 22, 1999
By: /s/ R. Neal Ensley
------------------
R. Neal Ensley
Director
Date: March 22, 1999
75
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, entered into this 9/th/ day of January, 1996, between
HAYWOOD SAVINGS BANK, INC., SSB (the "Bank") and HAYWOOD BANCSHARES, INC. (the
"Company"), with their principal offices in Waynesville, North Carolina, and
LARRY R. AMMONS (the "Executive"), an individual residing in the State of North
Carolina, hereby replaces the Employment Agreement between the Bank and
Executive as first dated January 1, 1989.
WHEREAS, the Bank and the Company wish to be assured of the services of
Executive for the period provided in this Agreement, and Executive is willing to
serve in their employ on a full-time basis for said period; and
WHEREAS, the Board of Directors of the Bank (the "Bank Board") and the
Board of Directors of the Company (the "Company Board") have determined that the
best interests of the Bank and the Company would be served by providing the
Executive with protection and special benefits following any change of control
of the Bank or the Company;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
<PAGE>
1. Employment. The Bank and the Company agree to continue Executive in
----------
their employ, and Executive agrees to remain in their employ, for the period
stated in paragraph 3 hereof and upon the other terms and conditions herein
provided.
2. Position and Responsibilities. The Bank employs Executive and
-----------------------------
Executive agrees to serve as President and Managing Officer of the Bank for the
term and on the conditions hereinafter set forth. Executive agrees to perform
such services not inconsistent with his position as shall from time to time be
assigned to him by the Bank Board.
3. Term and Duties.
---------------
(a) Term of Employment. The period of Executive's employment under
------------------
this Agreement shall be deemed to have commenced as of January 1, 1995, and
shall continue for a period of sixty (60) full calendar months thereafter and
any extensions thereafter. The said period of employment shall automatically be
extended for twelve full calendar months without further action by the parties
on January 1, 1996, and for an additional twelve full calendar months on each
succeeding January 1 thereafter, unless either party shall have served written
notice upon the other prior to January 1, 1996, or prior to January 1 of each
succeeding year, as the case may be, of its intention that this Agreement shall
terminate at the end of the sixty-month period that begins with the January 1
preceding such date of written notice.
2
<PAGE>
(b) Duties. During the period of his employment hereunder and
------
except for illnesses, reasonable vacation periods, and reasonable leaves of
absence, Executive shall devote his business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, that
with the approval of the Bank Board, the 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 material conflict of interest with the Bank or any of its
subsidiaries or affiliates or divisions, or unfavorably affect the performance
of Executive's duties pursuant to this Agreement, or will not violate any
applicable statute or regulation.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Compensation. The Bank agrees to pay the Executive during the
------------
term of this Agreement a salary at the rate of $110,000 per annum; provided,
that the rate of such salary shall be reviewed by the Bank Board not less often
than annually and any increase in salary will take into account the Bank's
current financial condition, results of operations and the Bank Board's
evaluation of the performance of the Executive. Such rate of salary, or
increased rate of salary, if any, as the case may be, may be further increased
(but not decreased) from time to time in such amounts as the Bank Board in its
discretion may decide. Such salary shall be payable in accordance with the
customary payroll practices of the Bank, but in no event less frequently than
monthly, and any bonus shall be payable in the manner specified by the Bank
Board at the time
3
<PAGE>
any such bonus is awarded. Any such bonus shall take into account the Bank's
current financial condition, results of operations, and the Bank Board's
evaluation of the performance of the Executive.
(b) Reimbursement of Expenses. The Bank shall pay or reimburse
-------------------------
Executive for all reasonable travel and other expenses incurred by Executive in
the performance of his services under this Agreement.
(c) Consideration from Company: Joint and Several Liability. In lieu
-------------------------------------------------------
of paying the Executive a base salary during the term of this Agreement, the
Company hereby agrees that to the extent permitted by law, it shall be jointly
and severally liable with the Bank for the payment of all amounts due under this
Agreement. Nevertheless, the Company Board may in its discretion at any time
during the term of this Agreement direct the Company to pay the Employee a base
salary for the remaining term of this Agreement. If the Company Board directs
such payment, the Company Board shall thereafter review, not less often than
annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
5. Participation in Benefit Plans. Except as otherwise provided in
------------------------------
Sections 8(e) and 8(f) of the Agreement, the payments provided in paragraphs 4,
7, and 8 hereof are in addition to but not as a reduction of all other benefits
to which Executive may be, or may become, entitled
4
<PAGE>
under any group hospitalization, health, dental care, or sick leave plan, life
or other insurance or death benefit plan, or workmen's compensation, disability
or social security, travel or accident insurance, or executive contingent
compensation plan, including, without limitation, capital accumulation and
termination pay programs, restricted or stock purchase plan, stock option plan,
retirement income, qualified pension plan, supplemental pension plan (excess
benefit plan), or other present or future group employee benefit plan or program
of the Bank or of the Company for which executives are or shall become eligible,
and Executive shall be eligible to receive during the period of his employment
under this Agreement, and during any subsequent period for which he shall be
entitled to receive payments from the Bank or from the Company under paragraph 7
or paragraph 8 of this Agreement, all benefits and emoluments for which
executives are eligible under every such plan or program to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
6. Vacation and Sick Leave. At such reasonable times as the Bank Board
-----------------------
shall in its discretion permit, Executive shall be entitled, without loss of
pay, to absent himself voluntarily from the performance of his employment under
this Agreement, all such voluntary absences to count as vacation time; provided
that:
(a) Executive shall be entitled to an annual vacation in accordance
with the policies as periodically established by the Bank Board for senior
management officials of the Bank, which shall in no event be less than three
weeks per annum.
5
<PAGE>
(b) Executive shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take a vacation; nor
shall he be entitled to accumulate unused vacation from one fiscal year to the
next, except to the extent authorized by the Bank Board for senior management
officials of the Bank.
(c) In addition to the aforesaid paid vacations, Executive shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Bank Board in its discretion
may determine. Further, the Bank Board shall be entitled to grant to Executive
a leave or leaves of absence with or without pay at such time or times and upon
such terms and conditions as the Bank Board in its discretion may determine.
(d) In addition, Executive shall be entitled to an annual sick leave
as established by the Bank Board for senior management officials of the Bank,
but in no event in an amount less than that provided for pursuant to the policy
currently in effect as of the date of this Agreement. In the event any sick
leave time shall not have been used during any year, such leave shall accrue to
subsequent years only to the extent authorized by the Bank Board. Upon
termination of his employment, Executive shall not be entitled to receive any
additional compensation from the Bank for unused sick leave.
6
<PAGE>
7. Benefits Payable Upon Disability.
--------------------------------
(a) Primary Disability Benefits. In the event of the Disability (as
---------------------------
hereinafter defined) of Executive, the Bank shall continue to pay Executive the
monthly compensation provided in paragraph 4 hereof during the period of his
disability provided, however, that in the event Executive is disabled for a
continuous period exceeding eighteen (18) calendar months, the Bank may, at its
election, terminate the Agreement, in which event Executive shall be entitled to
receive the benefits described in paragraph 7(b).
As used in this Agreement, the term "disability" shall mean the
complete inability of Executive to perform his duties under this Agreement as
determined by an independent physician selected with the approval of the Bank
and Executive.
(b) Secondary Disability Benefits. The Bank shall pay to the
-----------------------------
Executive a monthly disability benefit equal to sixty (60) percent of his
monthly salary at the time he became disabled. Payment of such disability
benefit shall commence on the last day of the month following the month for
which the final payment under paragraph 7(a) was made and cease with the earlier
of (i) the payment for the month in which the Executive dies or (ii) the payment
for the month preceding the month in which occurs Executive's normal retirement
date under the Bank's pension plan.
7
<PAGE>
(c) Disability Benefit Offset. Any amounts payable under paragraph
-------------------------
7(a) or 7(b) shall be reduced by any amounts paid to the Executive under any
other disability program maintained by the Bank; however, such payments shall
not be reduced by the amount of any payments pursuant to social security and
workmen's compensation.
(d) Services During Disability. During the period Executive is
--------------------------
entitled to receive payments under paragraphs 7(a) and (b), the Executive shall,
to the extent that he is physically and mentally able to do so, furnish
information and assistance to the Bank, and, in addition, upon reasonable
request in writing on behalf of the Bank Board, or an executive officer
designated by such Board, from time to time, make himself available to the Bank
to undertake reasonable assignments consistent with his physical and mental
health. During such period of service, Executive shall be responsible and report
to, and be subject to the supervision of, the Bank Board or an executive officer
designated by the Bank Board, as to the method and manner in which he shall
perform such assignments, subject always to the provisions of this paragraph
7(d), and shall keep such Board, or such executive officer, appropriately
informed of his progress in each such assignment.
8. Payments to Executive Upon Termination of Employment.
----------------------------------------------------
(a) Event of Termination. Upon the occurrence of an Event of
--------------------
Termination (as hereinafter defined) during the period of Executive's employment
under this Agreement, the
8
<PAGE>
provisions of this paragraph 8 shall apply. As used in this Agreement, an "Event
of Termination" shall mean the termination by the Bank of Executive's employment
hereunder for any reason other than "cause" or retirement at or after the normal
retirement age under a qualified pension plan maintained by the Bank or
termination pursuant to paragraph 7(a). A termination for "cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, 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 minor offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
In the event of termination for cause the Executive shall have no right to
receive compensation or other benefits for any period after such termination.
(b) Event of Termination Without Change of Control. Upon the
----------------------------------------------
occurrence of an Event of Termination other than after a Change of Control (as
hereinafter defined), the Bank shall pay to the Executive monthly, or in the
event of his subsequent death, to his designated beneficiary or beneficiaries,
or to his estate, as the case may be, as severance pay or liquidated damages, or
both, during the period below described a sum equal to the highest monthly rate
of salary paid to the Executive at any time under this Agreement. Such payments
shall commence on the last day of the month following the date of said event of
termination and shall continue until the date this Agreement would have expired
but for said occurrence, with such occurrence being viewed as a determination by
the Bank not to extend the Agreement as provided for in paragraph 3 of this
Agreement.
9
<PAGE>
(c) Event of Termination After Change of Control. If after a
--------------------------------------------
"Change of Control" (as hereinafter defined), the Bank or the Company shall
terminate the employment of the Executive during the period of employment under
this Agreement, for any reason other than "cause" as defined in paragraph 8(a),
retirement at or after the normal retirement age under a qualified pension plan
maintained by the Bank or a termination pursuant to paragraph 7(a), or otherwise
change the present capacity or circumstances in which the Executive is employed
as set forth in paragraph 2 of this Agreement or cause a reduction in the
Executive's responsibilities or authority or compensation or other benefits
provided under this Agreement without the Executive's written consent, then the
Bank shall pay to the Executive and provide the Executive, or to his
beneficiaries, dependents and estate, as the case may be, with the following:
(i) The Bank shall promptly pay to the Executive an amount equal
to the difference between (i) the product of 2.99 times his "base amount" as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations promulgated thereunder, and (ii) the sum of any
other parachute payments (as defined under Section 280G(b)(2) of the Code) that
the Executive receives on account of the change in control. Said sum shall be
paid in one lump sum within ten (10) days of such termination.
(ii) During the period of thirty-six (36) calendar months
beginning with the Event of Termination, the Executive, his dependents,
beneficiaries and estate shall continue to
10
<PAGE>
be covered under all employee benefit plans of the Bank, including, without
limitation, the Bank's pension plan, life insurance and health insurance as if
the Executive was still employed during such period under this Agreement.
(iii) If and to the extent that benefits or service credit for
benefits provided by paragraph 8(c)(ii) shall not be payable or provided under
any such plans to the Executive, his dependents, beneficiaries and estate, by
reason of his no longer being an employee of the Bank, the Bank shall itself pay
or provide for payment of such benefits and service credit for benefits to the
Executive, his dependents, beneficiaries and estate. Any such payment relating
to retirement shall commence on a date selected by the Executive which must be a
date on which payments under the Bank's qualified pension plan or successor plan
may commence.
(iv) If the Executive elects to have benefits commence prior to
the normal retirement age under the qualified pension plan or any successor plan
maintained by the Bank and thereby incurs an actuarial reduction in his monthly
benefits under such plan, the Bank shall itself pay or provide for payment to
the Executive of the difference between the amount that would have been paid if
the benefits commenced at normal retirement age and the actuarially reduced
amount paid upon the early commencement of benefits.
(v) The Bank shall pay all legal fees and expenses which the
Executive may incur as a result of the Bank or the Company contesting the
validity or enforceability of this
11
<PAGE>
Agreement and the Executive shall be entitled to receive interest thereon for
the period of any delay in payment from the date such payment was due at the
rate determined by adding two hundred basis points to the six month Treasury
Bill rate.
(vi) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise nor shall any amounts received from other employment or otherwise by
the Executive offset in any manner the obligations of the Bank hereunder.
(d) Change of Control. "Change of Control" shall mean (i) the
-----------------
execution of an agreement for the sale of all, or a material portion, of the
assets of the Company or the Bank; (ii) the execution of an agreement for a
merger or recapitalization whereby the Company or the Bank is not the surviving
entity; and (iii) the acquisition of the "beneficial ownership" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of twenty-five
(25) percent or more of the voting securities of the Company or the Bank by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934. For purposes of this subparagraph only, the
term "person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
12
<PAGE>
(e) Suspension and Special Regulatory Rules.
---------------------------------------
(i) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank and the Company under
this Agreement shall terminate, as of the effective date of the order, but
vested rights of the parties shall not be affected.
(ii) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(iii) All obligations under this Agreement shall terminate, except
to the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (i) by the Administrator of the Savings Institution
Division of the Department of Economic and Community Development of the State of
North Carolina (the "Administrator") or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Administrator, or his or her designee, at
the time that the Administrator, or his or her designee approves a supervisory
merger to resolve problems related
13
<PAGE>
to operation of the Bank or when the Bank is determined by the Administrator to
be in an unsafe or unsound condition. Such action shall not affect any vested
rights of the parties.
(iv) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Executive from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank shall (i) pay the Employee all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
(v) Any payments made to the Employee pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(f) Power of the Board of Directors to Terminate the Executive or of
-----------------------------------------------------------------
the Executive to Terminate Employment. The Bank Board may terminate the
- -------------------------------------
Executive at any time; in the event of such termination the provisions of this
paragraph 8 shall fully apply. The Executive may terminate his service under
this Agreement at any time upon three (3) months
14
<PAGE>
written notice to the Bank without prejudice to any other benefits as to which
the Executive is vested.
9. Source of Payments. All payments provided in paragraphs 4, 7 and 8
------------------
shall be paid in cash from the general funds of the Bank or the Company, and no
special or separate fund shall be established and no other segregation of assets
shall be made to assure payment. Executive shall have no right, title, or
interest whatever in or to any investments which the Bank or the Company may
make to aid in meeting their obligations hereunder.
10. Confidential Information. Executive shall not, to the detriment of
------------------------
the Bank, knowingly disclose or reveal to any unauthorized person any
confidential information relating to the Bank, its subsidiaries or affiliates,
or to any of the businesses operated by them, and Executive confirms that such
information constitutes the exclusive property of the Bank. Executive shall not
otherwise knowingly act or conduct himself (i) to the material detriment of the
Bank, its subsidiaries, or affiliates, or (ii) in a manner which is inimical or
contrary to the interests thereof.
11. Federal Income Tax Withholding. The Bank may withhold from any
------------------------------
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
15
<PAGE>
12. Effect of Prior Agreements. 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
(including, but not limited to their agreement dated January 1, 1989).
13. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
----------------------------------------
shall preclude the Bank or the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to another
corporation which assumes this Agreement and all obligations and undertakings of
the Bank and the Company hereunder. Upon such a consolidation, merger, or
transfer of assets and assumption, the terms "the Bank" and "the Company" as
used herein shall continue in full force and effect.
14. General Provisions.
------------------
(a) Nonassignability. Neither this Agreement nor any right or
----------------
interest hereunder shall be assignable by Executive, his beneficiaries, or legal
representatives without the Bank's prior written consent; provided, however,
that nothing in this paragraph 14(a) shall preclude (i) Executive from
designating a beneficiary to receive any benefits payable hereunder upon his
death, or (ii) the executors, administrators, or other legal representatives of
Executive or his estate from assigning any rights hereunder to the person or
persons entitled thereto.
16
<PAGE>
(b) No Attachment. 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 of assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
(c) Binding Agreement. This Agreement shall be binding upon, and
-----------------
inure to the benefit of, Executive, the Bank, and the Company and their
respective permitted successors and assigns.
15. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. This Agreement may not be modified or
----------------------
amended except by an instrument in writing signed by the parties hereto.
(b) Waiver. No term or condition of this Agreement shall be deemed to
------
have been waived, nor shall there be an 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 waiver shall
operate only as to the specific term or condition waived and shall not
constitute
17
<PAGE>
a waiver of such term or condition for the future or as to any act
other than the specifically waived.
16. Severability. If, for any reason, any provision of this Agreement is
------------
held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall to the full
extent consistent with law continue in full force and effect. If any provision
of this Agreement shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision and together with all other provisions of this
Agreement, shall to the full extent consistent with law continue in full force
and effect. If this Agreement is held invalid or cannot be enforced, then to
the full extent permitted by law, any prior agreement between the Bank (or any
predecessor thereof) and Executive shall be deemed reinstated as if this
Agreement had not been executed.
17. Headings. The headings of 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.
18. Governing Law. This Agreement has been executed and delivered in the
-------------
State of North Carolina, and its validity, interpretation, performance, and
enforcement shall be governed under the laws of said State, except to the extent
Federal law is governing.
18
<PAGE>
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to
be executed and their seals to be affixed hereunto by a member of their
respective Boards of Directors duly authorized, and Executive has signed this
Agreement, all as of the day and year first above written.
ATTEST: HAYWOOD SAVINGS BANK, INC. SSB
/s/ Johnnie Sue Caldwell BY: /s/ G. D. Stovall, Jr.
- ------------------------------------ ----------------------------
ATTEST: HAYWOOD BANCSHARES, INC.
/s/ Johnnie Sue Caldwell BY: /s/ G. D. Stovall, Jr.
- ------------------------------------ ----------------------------
WITNESS: LARRY R. AMMONS, EXECUTIVE
/s/ Johnnie Sue Caldwell BY: /s/ Larry R. Ammons
- ------------------------------------ ----------------------------
19
<PAGE>
HAYWOOD BANCSHARES, INC.
HAYWOOD SAVINGS BANK, INC., SSB
__________________________________________
1998 Amendment to
Employment Agreement With Larry R. Ammons
__________________________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") and Haywood
Bancshares, Inc. (the "Company") have entered into an Employment Agreement (the
"Employment Agreement") with Larry R. Ammons (the "Executive"); and
WHEREAS, the Boards of Directors of the Bank and the Company and the
Executive have determined that it is in their mutual best interests to amend the
Employment Agreement in the manner set forth herein.
NOW, THEREFORE, the Employment Agreement is hereby amended as follows,
pursuant to Paragraph 15(a) thereof:
1. Paragraph 8(c)(i) of the Employment Agreement shall be amended by
inserting the following new paragraph at the end thereof to provide as follows:
Notwithstanding the foregoing, any amount due under this paragraph
8(c) (i) shall be paid in the manner selected by the Executive in a duly
executed election in the form attached hereto as Exhibit "A"; provided that
such an election will be honored and given effect only if it is properly
made and delivered to the Bank more than 90 days before the date on which a
Change in Control closes. Deferred amounts shall bear interest, from the
date on which they would otherwise be paid in a lump sum until the date
paid, at a rate equal to 120% of the applicable federal rate, compounded
semiannually, as determined under Code Section 1274(d) and the regulations
thereunder.
2. Paragraph 8 of the Employment Agreement shall be further amended by
inserting a new Paragraph 8(g) immediately following current Paragraph 8(f) to
provide as follows:
(g) Post-termination Health Insurance. If the Executive's employment
with the Bank or the Company terminates for any reason other than for
cause, the Executive shall be entitled to purchase from the Bank, at his
own expense which shall not exceed applicable COBRA rates, family medical
insurance under any group health plan that the Bank or the Company
maintains for its employees. This right shall be (i) in addition to, and
not in lieu of, any other rights that the Executive has under this
Agreement, and (ii) shall continue until the Executive first becomes
entitled to Medicare coverage.
20
<PAGE>
3. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the Employment Agreement other than
as stated above.
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the
Employment Agreement.
Date of Execution: 21 April , 1998
----------
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
/s/ Paul W. Trantham By /s/ William P. Burgin
- ------------------------------- -----------------------------
Its Chairman of the Board
ATTEST: HAYWOOD BANCSHARES, INC.
/s/ Paul W.Trantham By /s/ William P. Burgin
- ------------------------------- -----------------------------
Its Chairman of the Board
WITNESS: EXECUTIVE
/s/ Paul W. Trantham /s/ Larry R. Ammons
- ------------------------------- -------------------------------
Larry R. Ammons
21
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, entered into this 9/th/ day of January, 1996, between
------
HAYWOOD SAVINGS BANK, INC., SSB (the "Bank") and HAYWOOD BANCSHARES, INC. (the
"Company"), with their principal offices in Waynesville, North Carolina, and
JACK T. NICHOLS (the "Executive"), an individual residing in the State of North
Carolina, hereby replaces the Employment Agreement between the Bank and
Executive as first dated January 1, 1989.
WHEREAS, the Bank and the Company wish to be assured of the services of
Executive for the period provided in this Agreement, and Executive is willing to
serve in their employ on a full-time basis for said period; and
WHEREAS, the Board of Directors of the Bank (the "Bank Board") and the
Board of Directors of the Company (the "Company Board") have determined that the
best interests of the Bank and the Company would be served by providing the
Executive with protection and special benefits following any change of control
of the Bank or the Company;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1
<PAGE>
1. Employment. The Bank and the Company agree to continue Executive
----------
in their employ, and Executive agrees to remain in their employ, for the period
stated in paragraph 3 hereof and upon the other terms and conditions herein
provided.
2. Position and Responsibilities. The Bank employs Executive and
-----------------------------
Executive agrees to serve as Chief Financial Officer of the Bank for the term
and on the conditions hereinafter set forth. Executive agrees to perform such
services not inconsistent with his position as shall from time to time be
assigned to him by the Bank Board.
3. Term and Duties.
---------------
(a) Term of Employment. The period of Executive's employment under
------------------
this Agreement shall be deemed to have commenced as of January 1, 1995, and
shall continue for a period of sixty (60) full calendar months thereafter and
any extensions thereafter. The said period of employment shall automatically be
extended for twelve full calendar months without further action by the parties
on January 1, 1996, and for an additional twelve full calendar months on each
succeeding January 1 thereafter, unless either party shall have served written
notice upon the other prior to January 1, 1996, or prior to January 1 of each
succeeding year, as the case may be, of its intention that this Agreement shall
terminate at the end of the sixty-month period that begins with the January 1
preceding such date of written notice.
2
<PAGE>
(b) Duties. During the period of his employment hereunder and
------
except for illnesses, reasonable vacation periods, and reasonable leaves of
absence, Executive shall devote his business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, that
with the approval of the Bank Board, the 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 material conflict of interest with the Bank or any of its
subsidiaries or affiliates or divisions, or unfavorably affect the performance
of Executive's duties pursuant to this Agreement, or will not violate any
applicable statute or regulation.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Compensation. The Bank agrees to pay the Executive during the
------------
term of this Agreement a salary at the rate of $63,500.00 per annum; provided,
that the rate of such salary shall be reviewed by the Bank Board not less often
than annually and any increase in salary will take into account the Bank's
current financial condition, results of operations and the Bank Board's
evaluation of the performance of the Executive. Such rate of salary, or
increased rate of salary, if any, as the case may be, may be further increased
(but not decreased) from time to time in such amounts as the Bank Board in its
discretion may decide. Such salary shall be payable in accordance with the
customary payroll practices of the Bank, but in no event less frequently than
monthly, and any bonus shall be payable in the manner specified by the Bank
Board at the time
3
<PAGE>
any such bonus is awarded. Any such bonus shall take into account the Bank's
current financial condition, results of operations, and the Bank Board's
evaluation of the performance of the Executive.
(b) Reimbursement of Expenses. The Bank shall pay or reimburse
-------------------------
Executive for all reasonable travel and other expenses incurred by Executive in
the performance of his services under this Agreement.
(c) Consideration from Company: Joint and Several Liability. In lieu
-------------------------------------------------------
of paying the Executive a base salary during the term of this Agreement, the
Company hereby agrees that to the extent permitted by law, it shall be jointly
and severally liable with the Bank for the payment of all amounts due under this
Agreement. Nevertheless, the Company Board may in its discretion at any time
during the term of this Agreement direct the Company to pay the Employee a base
salary for the remaining term of this Agreement. If the Company Board directs
such payment, the Company Board shall thereafter review, not less often than
annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
5. Participation in Benefit Plans. Except as otherwise provided in
------------------------------
Sections 8(e) and 8(f) of the Agreement, the payments provided in paragraphs 4,
7, and 8 hereof are in addition to but not as a reduction of all other benefits
to which Executive may be, or may become, entitled under any group
hospitalization, health, dental care, or sick leave plan, life or other
insurance or
4
<PAGE>
death benefit plan, or workmen's compensation, disability or social security,
travel or accident insurance, or executive contingent compensation plan,
including, without limitation, capital accumulation and termination pay
programs, restricted or stock purchase plan, stock option plan, retirement
income, qualified pension plan, supplemental pension plan (excess benefit plan),
or other present or future group employee benefit plan or program of the Bank or
of the Company for which executives are or shall become eligible, and Executive
shall be eligible to receive during the period of his employment under this
Agreement, and during any subsequent period for which he shall be entitled to
receive payments from the Bank or from the Company under paragraph 7 or
paragraph 8 of this Agreement, all benefits and emoluments for which executives
are eligible under every such plan or program to the extent permissible under
the general terms and provisions of such plans or programs and in accordance
with the provisions thereof.
6. Vacation and Sick Leave. At such reasonable times as the Bank Board
-----------------------
shall in its discretion permit, Executive shall be entitled, without loss of
pay, to absent himself voluntarily from the performance of his employment under
this Agreement, all such voluntary absences to count as vacation time; provided
that:
(a) Executive shall be entitled to an annual vacation in accordance
with the policies as periodically established by the Bank Board for senior
management officials of the Bank, which shall in no event be less than three
weeks per annum.
5
<PAGE>
(b) Executive shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take a vacation; nor
shall he be entitled to accumulate unused vacation from one fiscal year to the
next, except to the extent authorized by the Bank Board for senior management
officials of the Bank .
(c) In addition to the aforesaid paid vacations, Executive shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Bank Board in its discretion
may determine. Further, the Bank Board shall be entitled to grant to Executive
a leave or leaves of absence with or without pay at such time or times and upon
such terms and conditions as the Bank Board in its discretion may determine.
(d) In addition, Executive shall be entitled to an annual sick leave
as established by the Bank Board for senior management officials of the Bank,
but in no event in an amount less than that provided for pursuant to the policy
currently in effect as of the date of this Agreement. In the event any sick
leave time shall not have been used during any year, such leave shall accrue to
subsequent years only to the extent authorized by the Bank Board. Upon
termination of his employment, Executive shall not be entitled to receive any
additional compensation from the Bank for unused sick leave.
6
<PAGE>
7. Benefits Payable Upon Disability.
--------------------------------
(a) Primary Disability Benefits. In the event of the Disability (as
---------------------------
hereinafter defined) of Executive, the Bank shall continue to pay Executive the
monthly compensation provided in paragraph 4 hereof during the period of his
disability provided, however, that in the event Executive is disabled for a
continuous period exceeding eighteen (18) calendar months, the Bank may, at its
election, terminate the Agreement, in which event Executive shall be entitled to
receive the benefits described in paragraph 7(b).
As used in this Agreement, the term "disability" shall mean the
complete inability of Executive to perform his duties under this Agreement as
determined by an independent physician selected with the approval of the Bank
and Executive.
(b) Secondary Disability Benefits. The Bank shall pay to the
-----------------------------
Executive a monthly disability benefit equal to sixty (60) percent of his
monthly salary at the time he became disabled. Payment of such disability
benefit shall commence on the last day of the month following the month for
which the final payment under paragraph 7(a) was made and cease with the earlier
of (i) the payment for the month in which the Executive dies or (ii) the payment
for the month preceding the month in which occurs Executive's normal retirement
date under the Bank's pension plan.
7
<PAGE>
(c) Disability Benefit Offset. Any amounts payable under
-------------------------
paragraph 7(a) or 7(b) shall be reduced by any amounts paid to the Executive
under any other disability program maintained by the Bank; however, such
payments shall not be reduced by the amount of any payments pursuant to social
security and workmen's compensation.
(d) Services During Disability. During the period Executive is
--------------------------
entitled to receive payments under paragraphs 7(a) and (b), the Executive shall,
to the extent that he is physically and mentally able to do so, furnish
information and assistance to the Bank, and, in addition, upon reasonable
request in writing on behalf of the Bank Board, or an executive officer
designated by such Board, from time to time, make himself available to the Bank
to undertake reasonable assignments consistent with his physical and mental
health. During such period of service, Executive shall be responsible and report
to, and be subject to the supervision of, the Bank Board or an executive officer
designated by the Bank Board, as to the method and manner in which he shall
perform such assignments, subject always to the provisions of this paragraph
7(d), and shall keep such Board, or such executive officer, appropriately
informed of his progress in each such assignment.
8. Payments to Executive Upon Termination of Employment.
----------------------------------------------------
(a) Event of Termination. Upon the occurrence of an Event of
--------------------
Termination (as hereinafter defined) during the period of Executive's employment
under this Agreement, the
8
<PAGE>
provisions of this paragraph 8 shall apply. As used in this Agreement, an "Event
of Termination" shall mean the termination by the Bank of Executive's employment
hereunder for any reason other than "cause" or retirement at or after the normal
retirement age under a qualified pension plan maintained by the Bank or
termination pursuant to paragraph 7(a). A termination for "cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, 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 minor offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
In the event of termination for cause the Executive shall have no right to
receive compensation or other benefits for any period after such termination.
(b) Event of Termination Without Change of Control. Upon the
----------------------------------------------
occurrence of an Event of Termination other than after a Change of Control (as
hereinafter defined), the Bank shall pay to the Executive monthly, or in the
event of his subsequent death, to his designated beneficiary or beneficiaries,
or to his estate, as the case may be, as severance pay or liquidated damages, or
both, during the period below described a sum equal to the highest monthly rate
of salary paid to the Executive at any time under this Agreement. Such payments
shall commence on the last day of the month following the date of said event of
termination and shall continue until the date this Agreement would have expired
but for said occurrence, with such occurrence being viewed as a determination by
the Bank not to extend the Agreement as provided for in paragraph 3 of this
Agreement.
9
<PAGE>
(c) Event of Termination After Change of Control. If after a
--------------------------------------------
"Change of Control" (as hereinafter defined), the Bank or the Company shall
terminate the employment of the Executive during the period of employment under
this Agreement, for any reason other than "cause" as defined in paragraph 8(a),
retirement at or after the normal retirement age under a qualified pension plan
maintained by the Bank or a termination pursuant to paragraph 7(a), or otherwise
change the present capacity or circumstances in which the Executive is employed
as set forth in paragraph 2 of this Agreement or cause a reduction in the
Executive's responsibilities or authority or compensation or other benefits
provided under this Agreement without the Executive's written consent, then the
Bank shall pay to the Executive and provide the Executive, or to his
beneficiaries, dependents and estate, as the case may be, with the following:
(i) The Bank shall promptly pay to the Executive an amount
equal to the difference between (i) the product of 2.99 times his "base amount"
as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") and regulations promulgated thereunder, and (ii) the sum of
any other parachute payments (as defined under Section 280G(b)(2) of the Code)
that the Executive receives on account of the change in control. Said sum shall
be paid in one lump sum within ten (10) days of such termination.
(ii) During the period of thirty-six (36) calendar months
beginning with the Event of Termination, the Executive, his dependents,
beneficiaries and estate shall continue to be covered under all employee benefit
plans of the Bank, including, without limitation, the Bank's
10
<PAGE>
pension plan, life insurance and health insurance as if the Executive was still
employed during such period under this Agreement.
(iii) If and to the extent that benefits or service credit for
benefits provided by paragraph 8(c)(ii) shall not be payable or provided under
any such plans to the Executive, his dependents, beneficiaries and estate, by
reason of his no longer being an employee of the Bank, the Bank shall itself pay
or provide for payment of such benefits and service credit for benefits to the
Executive, his dependents, beneficiaries and estate. Any such payment relating
to retirement shall commence on a date selected by the Executive which must be a
date on which payments under the Bank's qualified pension plan or successor plan
may commence.
(iv) If the Executive elects to have benefits commence prior to
the normal retirement age under the qualified pension plan or any successor plan
maintained by the Bank and thereby incurs an actuarial reduction in his monthly
benefits under such plan, the Bank shall itself pay or provide for payment to
the Executive of the difference between the amount that would have been paid if
the benefits commenced at normal retirement age and the actuarially reduced
amount paid upon the early commencement of benefits.
(v) The Bank shall pay all legal fees and expenses which the
Executive may incur as a result of the Bank or the Company contesting the
validity or enforceability of this Agreement and the Executive shall be entitled
to receive interest thereon for the period of any delay
11
<PAGE>
in payment from the date such payment was due at the rate determined by adding
two hundred basis points to the six month Treasury Bill rate.
(vi) The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise nor shall any amounts received from other employment or otherwise by
the Executive offset in any manner the obligations of the Bank hereunder.
(d) Change of Control. "Change of Control" shall mean
-----------------
(i) the execution of an agreement for the sale of all, or a material portion, of
the assets of the Company or the Bank; (ii) the execution of an agreement for a
merger or recapitalization whereby the Company or the Bank is not the surviving
entity; and (iii) the acquisition of the "beneficial ownership" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of twenty-five
(25) percent or more of the voting securities of the Company or the Bank by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934. For purposes of this subparagraph only, the
term "person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
12
<PAGE>
(e) Suspension and Special Regulatory Rules.
---------------------------------------
(i) If the Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank and the Company under
this Agreement shall terminate, as of the effective date of the order, but
vested rights of the parties shall not be affected.
(ii) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(iii) All obligations under this Agreement shall terminate,
except to the extent that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Administrator of the Savings
Institution Division of the Department of Economic and Community Development of
the State of North Carolina (the "Administrator") or his or her designee, at the
time that the Federal Deposit Insurance Corporation ("FDIC") enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of FDIA; or (ii) by the Administrator, or his or her
designee, at the time that the Administrator, or his or her designee approves a
supervisory merger to resolve problems related to operation of the Bank or when
13
<PAGE>
the Bank is determined by the Administrator to be in an unsafe or unsound
condition. Such action shall not affect any vested rights of the parties.
(iv) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Executive from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank shall (i) pay the Employee all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
(v) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(f) Power of the Board of Directors to Terminate the Executive or of
----------------------------------------------------------------
the Executive to Terminate Employment. The Bank Board may terminate the
- --------------------------------------
Executive at any time; in the event of such termination the provisions of this
paragraph 8 shall fully apply. The Executive may terminate his service under
this Agreement at any time upon three (3) months written notice to the Bank
without prejudice to any other benefits as to which the Executive is vested.
14
<PAGE>
9. Source of Payments. All payments provided in paragraphs 4, 7 and 8
------------------
shall be paid in cash from the general funds of the Bank or the Company, and no
special or separate fund shall be established and no other segregation of assets
shall be made to assure payment. Executive shall have no right, title, or
interest whatever in or to any investments which the Bank or the Company may
make to aid in meeting their obligations hereunder.
10. Confidential Information. Executive shall not, to the detriment of
------------------------
the Bank, knowingly disclose or reveal to any unauthorized person any
confidential information relating to the Bank, its subsidiaries or affiliates,
or to any of the businesses operated by them, and Executive confirms that such
information constitutes the exclusive property of the Bank. Executive shall not
otherwise knowingly act or conduct himself (i) to the material detriment of the
Bank, its subsidiaries, or affiliates, or (ii) in a manner which is inimical or
contrary to the interests thereof.
11. Federal Income Tax Withholding. The Bank may withhold from any
------------------------------
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
12. Effect of Prior Agreements. 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
(including, but not limited to their agreement dated January 1, 1989).
15
<PAGE>
13. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
----------------------------------------
shall preclude the Bank or the Company from consolidating or merging into or
with, or transferring all or
substantially all of its assets to another corporation which assumes this
Agreement and all obligations and undertakings of the Bank and the Company
hereunder. Upon such a consolidation, merger, or transfer of assets and
assumption, the terms "the Bank" and "the Company" as used herein shall continue
in full force and effect.
14. General Provisions.
------------------
(a) Nonassignability. Neither this Agreement nor any right or
----------------
interest hereunder shall be assignable by Executive, his beneficiaries, or legal
representatives without the Bank's prior written consent; provided, however,
that nothing in this paragraph 14(a) shall preclude (i) Executive from
designating a beneficiary to receive any benefits payable hereunder upon his
death, or (ii) the executors, administrators, or other legal representatives of
Executive or his estate from assigning any rights hereunder to the person or
persons entitled thereto.
(b) No Attachment. 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 of assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
16
<PAGE>
(c) Binding Agreement. This Agreement shall be binding upon, and
-----------------
inure to the benefit of, Executive, the Bank, and the Company and their
respective permitted successors and assigns.
15. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. This Agreement may not be modified or
----------------------
amended except by an instrument in writing signed by the parties hereto.
(b) Waiver. No term or condition of this Agreement shall be deemed
------
to have been waived, nor shall there be an 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 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 or as to any act
other than the specifically waived.
(c) Severability. If, for any reason, any provision of this
------------
Agreement is held invalid, such invalidity shall not affect any other provision
of this Agreement not held so invalid, and each such other provision shall to
the full extent consistent with law continue in full force and effect. If any
provision of this Agreement shall be held invalid in part, such invalidity shall
17
<PAGE>
in no way affect the rest of such provision and together with all other
provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect. If this Agreement is
held invalid or cannot be enforced, then to the full extent permitted by law,
any prior agreement between the Bank (or any predecessor thereof) and Executive
shall be deemed reinstated as if this Agreement had not been executed.
17. Headings. The headings of 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.
18. Governing Law. This Agreement has been executed and delivered in the
-------------
State of North Carolina, and its validity, interpretation, performance, and
enforcement shall be governed under the laws of said State, except to the extent
Federal law is governing.
18
<PAGE>
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to
be executed and their seals to be affixed hereunto by a member of their
respective Boards of Directors duly authorized, and Executive has signed this
Agreement, all as of the day and year first above written.
ATTEST: HAYWOOD SAVINGS BANK, INC. SSB
/s/ Johnnie Sue Caldwell BY: G.D. Stovall, Jr.
- ----------------------------------------- ------------------------------
ATTEST: HAYWOOD BANCSHARES, INC.
/s/ Johnnie Sue Caldwell BY: /s/ Johnnie Sue Caldwell
---------------------------------------- ------------------------------
WITNESS: JACK T. NICHOLS, EXECUTIVE
/s/ Larry R. Ammons BY: /s/ Jack T. Nichols
---------------------------------------- ------------------------------
19
<PAGE>
HAYWOOD BANCSHARES, INC.
HAYWOOD SAVINGS BANK, INC., SSB
-------------------------------
1998 Amendment to
Employment Agreement with Jack T. Nichols
-----------------------------------------
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") and Haywood
Bancshares, Inc. (the "Company") have entered into an Employment Agreement (the
"Employment Agreement") with Jack T. Nichols (the "Executive"); and
WHEREAS, the Boards of Directors of the Bank and the Company and the
Executive have determined that it is in their mutual best interests to amend the
Employment Agreement in the manner set forth herein.
NOW, THEREFORE, the Employment Agreement is hereby amended as follows,
pursuant to Paragraph 15(a) thereof:
1. Paragraph 8(c)(i) of the Employment Agreement shall be amended by
inserting the following new paragraph at the end thereof to provide as follows:
Notwithstanding the foregoing, any amount due under this paragraph
8(c) (i) shall be paid in the manner selected by the Executive in a duly
executed election in the form attached hereto as Exhibit "A"; provided that
such an election will be honored and given effect only if it is properly
made and delivered to the Bank more than 90 days before the date on which a
Change in Control closes. Deferred amounts shall bear interest, from the
date on which they would otherwise be paid in a lump sum until the date
paid, at a rate equal to 120% of the applicable federal rate, compounded
semiannually, as determined under Code Section 1274(d) and the regulations
thereunder.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the Employment Agreement other than
as stated above.
20
<PAGE>
Employment Agreement
1998 Agreement
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the
Agreement.
Date of Execution: 21 April , 1998
----------------
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
/s/ Paul W. Trantham By /s/ William P. Burgin
- ------------------------------------ --------------------------------
Its Chairman of the Board
ATTEST: HAYWOOD BANCSHARES, INC.
/s/ Paul W. Trantham By /s/ William P. Burgin
- ------------------------------------ --------------------------------
Its Chairman of the Board
WITNESS: EXECUTIVE
/s/ Paul W. Trantham /s/ Jack T. Nichols
- ------------------------------------ ------------------------------
Jack T. Nichols
21
<PAGE>
Exhibit 10.4
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF August, 1987 between Haywood Savings
--- ------------ ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Larry R. Ammons of Waynesville, North Carolina (hereinafter referred to as the
- --------------- ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $350 per month for five years from the date of the execution of
---- ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $2,870 per month for a continuous period of 120 months. In
------ ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of 6
percent per annum compound interest ann shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of eight percent per
annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $2,870 per month
------
for a continuous period of 120 months to such beneficiary or beneficiaries as
---
the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of 7 1/2 percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of 6 percent per annum compound
<PAGE>
interest and shall be paid in a single sum to the executor or administrator of
the estate of the last named beneficiary to die. In the absence of any such
beneficiary designation, any amount remaining unpaid at the Director's death
shall be commuted on the basis of 6 percent per annum compound interest and
shall be paid in a single sum to the executor or administrator of the Director's
estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of 7 1/2 percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
<PAGE>
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: Haywood Savings and Loan Association
/s/ Johnnie Sue Buchanan By: /s/ Robert H. Francis (Seal)
- ------------------------ ------------------------
Chairman
WITNESS:Jay W. Hargelte /s/ Larry R. Ammons (Seal)
--------------- ------------------------
The Director
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment to
Agreement dated August 1, 1987
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated August 1, 1987, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to
Section 5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_______________________ By_____________________________
Its____________________________
WITNESS: DIRECTOR
_______________________ _____________________________________
<PAGE>
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF April, 1991 between Haywood Savings
--- ----------- ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Larry R. Ammons of Waynesville, North Carolina (hereinafter referred to as the
- --------------- ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $125.00 per month for five years from the date of the execution of
------ ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $846 per month for a continuous period of 120 months. In
---- ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of eight percent per
annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $846 per month for
----
a continuous period of 120 months to such beneficiary or beneficiaries as the
---
Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of eight percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of eight percent per annum compound interest and shall be paid in a
single sum to the executor or administrator of the estate of the last named
beneficiary to die. In the absence of any such beneficiary designation, any
amount remaining unpaid at the Director's death shall be commuted on the basis
of eight percent per annum compound interest and shall be paid in a single sum
to the executor or administrator of the Director's estate.
<PAGE>
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of eight percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this Section 4.
<PAGE>
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that neither
the Director, nor his beneficiary shall have any right to commute, sell,
assign, transfer or otherwise convey the right to receive any payments
hereunder, which payments and the right hereto are expressly declared to be
nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: HAYWOOD SAVINGS AND LOAN ASSOCIATION, INC. (Association)
------------------------------------------
BY: /s/ Robert H. Francis (Seal)
---------------------------------------
Chairman
/s/ Larry R. Ammons (Seal)
---------------------------------------
The Director
WITNESS: _______________________________________________
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
-------
Savings and Loan Association incorporated in Waynesville, North Carolina, I
- ---------------------------- ----------- --------------
designate the following:
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
---- ------------- ------- ------------
PRIMARY
- -------
501 Blink Bonny
Cristina C. Ammons 8/10/42 Waynesville, N.C. 28786 wife
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CONTINGENT, If Any:
- ----------
First Union National Bank, Trustee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or Administrator of your Estate).
Name of Spouse if not given above:
-------------------------------------------
/s/ Larry R. Ammons
- --------------------------------- ---------------------------------------------
Witness Signature of Director
26 June 1991
---------------------------------------------
Date
Note: The original should be retained by the Association, one copy by the
Director, and one copy forwarded to Smith/Broadhurst, Inc.
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment
to Agreement dated April 1, 1991
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated April 1, 1991, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to
Section 5. F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
Retirement Payment Amendment
1998 Amendment
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_________________________ By_________________________________
Its______________________________
WITNESS: DIRECTOR
________________________ ___________________________________
<PAGE>
Exhibit 10.5
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF August, 1987 between Haywood Savings
--- ------------ ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Philip S. Dooly of Andrews, North Carolina (hereinafter referred to as the
- --------------- ------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $175 per month for five years from the date of the execution of
---- ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $754.00 per month for a continuous period of 120 months. In
------- ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of 6
percent per annum compound interest and shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of 6 percent per annum
compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $754.00 per month
--------
for a continuous period of 120 months to such beneficiary or beneficiaries as
---
the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of 7 1/2 percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of 6 percent per annum compound
<PAGE>
interest and shall be paid in a single sum to the executor or administrator of
the estate of the last named beneficiary to die. In the absence of any such
beneficiary designation, any amount remaining unpaid at the Director's death
shall be commuted on the basis of 6 percent per annum compound interest and
shall be paid in a single sum to the executor or administrator of the Director's
estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of 7 1/2 percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
<PAGE>
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: Haywood Savings and Loan Association
/s/ Johnnie Sue Buchanan By: /s/ Larry R. Ammons (Seal)
- ------------------------ -------------------------
President
WITNESS:Jay W. Hargelte /s/ Philip S. Dooly (Seal)
--------------- ---------------------
The Director
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment to
Agreement dated August 1, 1987
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated August 1, 1987, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to
Section 5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_____________________________ By____________________________________
Its_________________________________
WITNESS: DIRECTOR
____________________________ ______________________________________
<PAGE>
Exhibit 10.6
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF October, 1989 between Haywood
--- ------------- -------
Savings and Loan Association, a domestic Corporation having its principal office
- ----------------------------
in Waynesville, North Carolina (hereinafter referred to as the Association) and
----------- --------------
George D. Stovall, Jr. of Waynesville, North Carolina (hereinafter referred to
- ---------------------- ----------- --------------
as the Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $350 per month for five years from the date of the execution of
---- ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $1370.00 per month for a continuous period of 120 months.
-------- ---
In the event that the Director should die after becoming entitled to receive
said monthly installments but before any or all of said installments have been
paid, the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of 7
1/2 percent per annum compound interest and shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of 7 1/2 percent per
annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $1,370.00 per
---------
month for a continuous period of 120 months to such beneficiary or beneficiaries
---
as the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of 7 1/2 percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of 7 1/2 percent per annum
<PAGE>
compound interest and shall be paid in a single sum to the executor or
administrator of the estate of the last named beneficiary to die. In the absence
of any such beneficiary designation, any amount remaining unpaid at the
Director's death shall be commuted on the basis of 7 1/2 percent per annum
compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of 7 1/2 percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
<PAGE>
C. Payment of the retirement benefit under this Agreement may be terminated
by the Association, if the Director fails to comply with either of the
conditions set forth in paragraph (A) and (B) of this Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: Haywood Savings and Loan Association
/s/ Johnnie Sue Buchanan By: /s/ Larry R. Ammons (Seal)
- ------------------------ -------------------------
President
WITNESS:Jay W. Hargelte /s/ Philip S. Dooly (Seal)
--------------- --------------------------
The Director
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment to
Agreement dated August 1, 1987
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated August 1, 1987, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to
Section 5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_____________________________ By_________________________________
Its______________________________
WITNESS: DIRECTOR
_____________________________ ___________________________________
<PAGE>
Exhibit 10.7
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF May, 1991 between Haywood Savings
--- --------- ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and R.
- ----------- -------------- --
Neal Ensley of Waynesville, North Carolina (hereinafter referred to as the
- ----------- ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $350.00 per month for five years from the date of the execution of
------ ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $1,733 per month for a continuous period of 120 months. In
------ ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of eight percent per
annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $1,733 per month
------
for a continuous period of 120 months to such beneficiary or beneficiaries as
---
the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of eight percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of eight percent per annum compound interest and shall be paid in a
single sum to the executor or administrator of the estate of the last named
beneficiary to die. In the absence of any such beneficiary designation, any
amount remaining
<PAGE>
unpaid at the Director's death shall be commuted on the basis of eight percent
per annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of eight percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FORM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this Section 4.
<PAGE>
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: HAYWOOD SAVINGS AND LOAN ASSOCIATION, INC. (Association)
------------------------------------------
BY: /s/ Larry R. Ammons (Seal)
--------------------------------------
President
/s/ R. Neal Ensley (Seal)
--------------------------------------
The Director
WITNESS: _______________________________________________
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
-------
Savings and Loan Association incorporated in Waynesville, North Carolina, I
- ---------------------------- ----------- --------------
designate the following:
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
---- ------------- ----------------------- ------------
PRIMARY
- -------
316 Monte Vista Drive
Barbara F. Ensley 4/5/41 Waynesville, N.C. 28786 wife
- ------------------------- ------------- ----------------------- ------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTINGENT, If Any:
- -----------
316 Monte Vista Drive
Ann Elizabeth Ensley 11-10-72 Waynesville, N.C. 28766 Daughter
- ------------------------- ------------- ----------------------- ------------
- -------------------------------------------------------------------------------
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or Administrator of your Estate).
Name of Spouse if not given above: Given above
----------------------------------
/s/ R. Neal Ensley
- --------------------------------- ----------------------------------
Witness Signature of Director
June 24, 1991
---------------------------------
Date
Note: The original should be retained by the Association, one copy by the
Director, and one copy forwarded to Smith/Broadhurst, Inc.
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment
to Agreement dated April 1, 1991
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated April 1, 1991, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to
Section 5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
Retirement Payment Amendment
1998 Amendment
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_____________________________ By_______________________________
Its____________________________
WITNESS: DIRECTOR
_____________________________ _________________________________
<PAGE>
Exhibit 10.8
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF May, 1992 between Haywood Savings
--- --------- ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and R.
- ----------- -------------- --
Bruce Norman of Waynesville, North Carolina (hereinafter referred to as the
- ------------ ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $350.00 per month for five years from the date of the execution of
------ ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $1,145 per month for a continuous period of 120 months. In
------ ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of
eight percent per annum compound interest and shall be paid in a single sum to
the executor or administrator of the estate of the last named beneficiary to
die. In the absence of any such beneficiary designation, any amount remaining
unpaid at the Director's death shall be commuted on the basis of eight percent
per annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $1,145 per month
------
for a continuous period of 120 months to such beneficiary or beneficiaries as
---
the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of eight percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of eight percent per annum compound interest and shall be paid in a
single sum to the executor or administrator of the estate of the last
<PAGE>
named beneficiary to die. In the absence of any such beneficiary designation,
any amount remaining unpaid at the Director's death shall be commuted on the
basis of eight percent per annum compound interest and shall be paid in a single
sum to the executor or administrator of the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of eight percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
C. Payment of the retirement benefit under this Agreement may be
terminated by the
<PAGE>
Association, if the Director fails to comply with either of the conditions
set forth in paragraph (A) and (B) of this Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: HAYWOOD SAVINGS AND LOAN ASSOCIATION, INC. (Association)
__________________________________________
BY: /s/ Larry R. Ammons
_______________________________________ (Seal)
President
/s/ R. Bruce Norman
_______________________________________ (Seal)
The Director
WITNESS: /s/ Joy W. Hargette
_______________________
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
-------
Savings and Loan Association incorporated in Waynesville, North Carolina, I
- ---------------------------- ----------- --------------
designate the following:
<TABLE>
<CAPTION>
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
- ----------------------- ------------- ----------------------- ------------
PRIMARY
- -----------------------
<S> <C> <C> <C>
184 Big Cove Circle
Jane D. Norman 09-02-41 Waynesville, N.C. 28786 wife
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
CONTINGENT, If Any:
- -----------------------
184 Big Cove Circle
Michele Norman 03-13-62 Waynesville, N.C. 28766 Daughter
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or Administrator of your Estate).
Name of Spouse if not given above: N/A
_____________________________
/s/ R. Bruce Norman
______________________________ _____________________________
Witness Signature of Director
July 2, 1992
_____________________________
Date
Note: The original should be retained by the Association, one copy by the
Director, and one copy forwarded to Smith/Broadhurst, Inc.
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment
to Agreement dated April 1, 1991
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated April 1, 1991, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to Section 5.
F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
Retirement Payment Amendment
1998 Amendment
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
____________________________ By____________________________
Its ________________________
WITNESS: DIRECTOR
____________________________ ______________________________
<PAGE>
Exhibit 10.9
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF August, 1987 between Haywood Savings
--- ------------ ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Joseph E.Taylor of Waynesville, North Carolina (hereinafter referred to as the
- --------------- ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $350 per month for five years from the date of the execution of
---- ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $1,757 per month for a continuous period of 120 months. In
------ ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of 6
percent per annum compound interest and shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of 6 percent per annum
compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $1,757.00 per month
---------
for a continuous period of 120 months to such beneficiary or beneficiaries as
---
the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of 7 1/2 percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of 6 percent per annum
<PAGE>
compound interest and shall be paid in a single sum to the executor or
administrator of the estate of the last named beneficiary to die. In the absence
of any such beneficiary designation, any amount remaining unpaid at the
Director's death shall be commuted on the basis of 6 percent per annum compound
interest and shall be paid in a single sum to the executor or administrator of
the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of 7 1/2 percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
2
<PAGE>
C. Payment of the retirement benefit under this Agreement may be terminated
by the Association, if the Director fails to comply with either of the
conditions set forth in paragraph (A) and (B) of this Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: Haywood Savings and Loan Association
/s/ Johnnie Sue Buchanan By: /s/ Larry R. Ammons (Seal)
- --------------------------- -------------------------
President
WITNESS:Jay W. Hargelte /s/ Joseph E. Taylor, Jr. (Seal)
------------------- --------------------------
The Director
4
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment to
Agreement dated August 1, 1987
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated August 1, 1987, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to
Section 5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
5
<PAGE>
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_____________________________ By_____________________________________
Its__________________________________
WITNESS: DIRECTOR
_____________________________ _______________________________________
6
<PAGE>
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF April, 1991 between Haywood Savings
--- ----------- ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Joseph E. Taylor, Jr. of Waynesville, North Carolina (hereinafter referred to as
- --------------------- ----------- --------------
the Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $125.00 per month for five years from the date of the execution of
------ ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $536 per month for a continuous period of 120 months. In
---- ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of
eight percent per annum compound interest and shall be paid in a single sum to
the executor or administrator of the estate of the last named beneficiary to
die. In the absence of any such beneficiary designation, any amount remaining
unpaid at the Director's death shall be commuted on the basis of eight percent
per annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $536 per month for
----
a continuous period of 120 months to such beneficiary or beneficiaries as the
---
Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of eight percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of eight percent per annum compound interest and shall be paid in a
single sum to the executor or administrator of the estate of the last
7
<PAGE>
named beneficiary to die. In the absence of any such beneficiary designation,
any amount remaining unpaid at the Director's death shall be commuted on the
basis of eight percent per annum compound interest and shall be paid in a single
sum to the executor or administrator of the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from the
----
execution date of the Agreement, the Director's benefits shall be limited
to his waived Director fees plus interest at the rate of eight percent per
annum compounded annually and shall be paid in a single sum as soon as
practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two years or
----
more from the execution date of this Agreement, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th birthday, or
----
his prior death, to a percentage of the retirement benefits stated in
Section 1 of this Agreement as determined by the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
<S> <C>
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association without
first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to render
consulting services to the Association upon request by an officer of the
Association, but such requests shall not be made more frequently than once
each moth. The Director shall not be considered to have breached this
condition if he is unable to consult because of his mental or physical
disability.
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this Section 4.
8
<PAGE>
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to commute,
sell, assign, transfer or otherwise convey the right to receive any
payments hereunder, which payments and the right hereto are expressly
declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of, and
in addition to, any other employment agreements that may exist from time to
time between the parties hereto, concerning any other compensation payable
by the Association to the Director whether as salary, bonus, or otherwise.
This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Association to discharge the Director or restrict the right of
the Director to terminate his Directorship.
C. The rights of the Director under this Agreement and of any beneficiary
of the Director shall be solely those of an unsecured creditor of the
Association. Any asset acquired by the Association in connection with the
liabilities assumed by it hereunder, shall not be deemed to be held under
any trust for the benefit of the Director or his beneficiaries or to be
considered security for the performance of the obligations of the
Association but shall be, and remain, a general, unpledged, unrestricted
asset of the Association.
D. The Association hereby reserves the right to accelerate the payments
specified in Sections 1, 2 and 3 above without the consent of the Director,
his estate, beneficiaries, or any other person claiming through or under
him.
E. The Association agrees that it will not merge or consolidate with any
other Association or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing Association or other organization shall expressly assume the
rights and obligations of the Association herein set forth. The
Association further agrees that it will not cease its business activities
or terminate its existence, other than as set forth in this Section,
without having made adequate provision for the fulfilling of its
obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
9
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: HAYWOOD SAVINGS AND LOAN ASSOCIATION, INC. (Association)
------------------------------------------
BY: /s/ Larry R. Ammons (Seal)
---------------------------------------
President
/s/ Joseph E. Taylor, Jr. (Seal)
---------------------------------------
The Director
WITNESS: /s/ Johnnie Sue Caldwell
------------------------------------------
10
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
-------
Savings and Loan Association incorporated in Waynesville, North Carolina, I
- ---------------------------- ----------- --------------
designate the following:
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
---- ------------- ------- ------------
PRIMARY
- -------
P.O. Box 267
Carolyn S. Taylor Jan 19, 1944 Waynesville, N.C.
28786 wife
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
CONTINGENT, If Any:
- ----------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or Administrator of your Estate).
Name of Spouse if not given above: Given above
-----------------------------------------
/s/ Joseph E. Taylor, Jr.
- -------------------------------- -----------------------------------------
Witness Signature of Director
June 24, 1991
-----------------------------------------
Date
Note: The original should be retained by the Association, one copy by the
Director, and one copy forwarded to Smith/Broadhurst, Inc.
11
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment
to Agreement dated April 1, 1991
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated April 1, 1991, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to Section 5.
F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
12
<PAGE>
Retirment Payment Amendment
1998 Amendment
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
_____________________________ By____________________________________
Its_________________________________
WITNESS: DIRECTOR
_____________________________ ______________________________________
13
<PAGE>
Exhibit 10.10
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF August, 1987 between Haywood Savings
--- ------------ ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Conrad L. Turner of Waynesville, North Carolina (hereinafter referred to as the
- ---------------- ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $350 per month for five years from the date of the execution of
---- ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $2,115.00 per month for a continuous period of 120 months.
--------- ---
In the event that the Director should die after becoming entitled to receive
said monthly installments but before any or all of said installments have been
paid, the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of 6
percent per annum compound interest and shall be paid in a single sum to the
executor or administrator of the estate of the last named beneficiary to die.
In the absence of any such beneficiary designation, any amount remaining unpaid
at the Director's death shall be commuted on the basis of 6 percent per annum
compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $2,115.00 per month
---------
for a continuous period of 120 months to such beneficiary or beneficiaries as
---
the Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of 7 1/2 percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of 6 percent per annum
<PAGE>
compound interest and shall be paid in a single sum to the executor or
administrator of the estate of the last named beneficiary to die. In the absence
of any such beneficiary designation, any amount remaining unpaid at the
Director's death shall be commuted on the basis of 6 percent per annum compound
interest and shall be paid in a single sum to the executor or administrator of
the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, prior to two years from
----
the execution date of the Agreement, the Director's benefits shall be
limited to his waived Director fees plus interest at the rate of 7 1/2
percent per annum compounded annually and shall be paid in a single sum
as soon as practical following the termination of his Directorship.
B. If the Director terminates his Directorship, for reasons other than
death or the attainment of his 65th birthday, at the end of two
----
years or more from the execution date of this Agreement, he or his
beneficiary, as applicable, shall be entitled upon the attainment of
his 65th birthday, or his prior death, to a percentage of the
----
retirement benefits stated in Section 1 of this Agreement as determined
by the following table:
<TABLE>
<S> <C>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the Director
under Section 1 of this Agreement, the Director shall not engage in
business activities which are in competition with the Association
without first obtaining the written consent of the Association.
B. During the period the retirement payment is payable to the Director
under Section 1 of the Agreement, the Director shall be available to
render consulting services to the Association upon request by an
officer of the Association, but such requests shall not be made more
frequently than once each moth. The Director shall not be considered to
have breached this condition if he is unable to consult because of his
mental or physical disability.
<PAGE>
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with
either of the conditions set forth in paragraph (A) and (B) of this
Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to
commute, sell, assign, transfer or otherwise convey the right to
receive any payments hereunder, which payments and the right hereto are
expressly declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of,
and in addition to, any other employment agreements that may exist from
time to time between the parties hereto, concerning any other
compensation payable by the Association to the Director whether as
salary, bonus, or otherwise. This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor
shall any provision hereof restrict the right of the Association to
discharge the Director or restrict the right of the Director to
terminate his Directorship.
C. The rights of the Director under this Agreement and of any
beneficiary of the Director shall be solely those of an unsecured
creditor of the Association. Any asset acquired by the Association in
connection with the liabilities assumed by it hereunder, shall not be
deemed to be held under any trust for the benefit of the Director or
his beneficiaries or to be considered security for the performance of
the obligations of the Association but shall be, and remain, a general,
unpledged, unrestricted asset of the Association.
D. The Association hereby reserves the right to accelerate the
payments specified in Sections 1, 2 and 3 above without the consent of
the Director, his estate, beneficiaries, or any other person claiming
through or under him.
E. The Association agrees that it will not merge or consolidate with
any other Association or organization, or permit its business
activities to be taken over by any other organization unless and until
the succeeding or continuing Association or other organization shall
expressly assume the rights and obligations of the Association herein
set forth. The Association further agrees that it will not cease its
business activities or terminate its existence, other than as set forth
in this Section, without having made adequate provision for the
fulfilling of its obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of
the State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: Haywood Savings and Loan Association
/s/ Johnnie Sue Buchanan By: /s/ Larry R. Ammons (Seal)
________________________ _________________________
President
WITNESS: Jay W. Hargelte /s/ Conrad L. Turner (Seal)
_______________ _________________________
The Director
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment to
Agreement dated August 1, 1987
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated August 1, 1987, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to Section
5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
___________________________ By___________________________________
Its_______________________________
WITNESS: DIRECTOR
___________________________ _____________________________________
<PAGE>
RETIREMENT PAYMENT AGREEMENT
AGREEMENT ENTERED INTO AS OF THE 1ST DAY OF April, 1991 between Haywood Savings
--- ----------- ---------------
and Loan Association, a domestic Corporation having its principal office in
- --------------------
Waynesville, North Carolina (hereinafter referred to as the Association) and
- ----------- --------------
Conrad L. Turner of Waynesville, North Carolina (hereinafter referred to as the
- ---------------- ----------- --------------
Director).
WITNESSETH:
WHEREAS, the Director is rendering valuable service and it is the desire of the
Association to have the benefit of his continued loyalty and service and also to
assist him in providing for the contingencies of retirement and death; and,
WHEREAS, the Director hereby agrees to waive fees paid to him as a Director in
the amount of $125.00 per month for five years from the date of the execution of
------ ----
this agreement;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Retirement Benefit: Should the Director still be in the Directorship
------------------
of the Association upon attainment of his 65th birthday, the Association will
----
commence to pay him $486 per month for a continuous period of 120 months. In
---- ---
the event that the Director should die after becoming entitled to receive said
monthly installments but before any or all of said installments have been paid,
the Association will pay or will continue to pay said installments to such
beneficiary or beneficiaries as the Director has directed by filing with the
Association a notice in writing. In the event of the death of the last named
beneficiary before all the unpaid payments have been made, the balance of any
amount which remains unpaid at said death shall be commuted on the basis of
eight percent per annum compound interest and shall be paid in a single sum to
the executor or administrator of the estate of the last named beneficiary to
die. In the absence of any such beneficiary designation, any amount remaining
unpaid at the Director's death shall be commuted on the basis of eight percent
per annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
2. Death Benefit: Should the Director die while in the Directorship of
-------------
the Association and prior to the attainment of his 65th birthday, the
----
Association (beginning at a date to be determined by the Association but within
six months from the date of such death) will commence to pay $486 per month for
----
a continuous period of 120 months to such beneficiary or beneficiaries as the
---
Director has directed by filing with the Association a notice in writing.
Irrespective of the above, however, if the Director dies as a result of suicide
within two years of the execution of this agreement, the death benefit shall not
exceed an amount equal to his waived Directors' fees plus interest at the rate
of eight percent per annum compounded annually. In the event of the death of
the last named beneficiary before all the unpaid payments have been made, the
balance of any amount which remains unpaid at said death shall be commuted on
the basis of eight percent per annum compound interest and shall be paid in a
single sum to the executor or administrator of the estate of the last named
beneficiary to die. In the absence of any such beneficiary designation, any
amount remaining
<PAGE>
unpaid at the Director's death shall be commuted on the basis of eight percent
per annum compound interest and shall be paid in a single sum to the executor or
administrator of the Director's estate.
3. Termination of Directorship:
---------------------------
A. If the Director terminates his Directorship, for reasons other
than death or the attainment of his 65th birthday, prior to two years
----
from the execution date of the Agreement, the Director's benefits
shall be limited to his waived Director fees plus interest at the rate
of eight percent per annum compounded annually and shall be paid in a
single sum as soon as practical following the termination of his
Directorship.
B. If the Director terminates his Directorship, for reasons other
than death or the attainment of his 65th birthday, at the end of two
----
years or more from the execution date of this Agreement, he or his
beneficiary, as applicable, shall be entitled upon the attainment of
his 65th birthday, or his prior death, to a percentage of the
----
retirement benefits stated in Section 1 of this Agreement as
determined by the following table:
<TABLE>
<S> <C>
FULL NUMBER OF YEARS SERVED PERCENTAGE OF RETIREMENT
AS DIRECTOR FROM DATE OF BENEFITS STATED IN SECTION
EXECUTION OF THIS AGREEMENT 1 OF THIS AGREEMENT TO WHICH
UNTIL TERMINATION OF DIRECTORSHIP THE DIRECTOR IS ENTITLED
- ----------------------------------- ----------------------------
2 40%
3 60%
4 80%
5 100%
</TABLE>
4. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the
Director under Section 1 of this Agreement, the Director shall not
engage in business activities which are in competition with the
Association without first obtaining the written consent of the
Association.
B. During the period the retirement payment is payable to the
Director under Section 1 of the Agreement, the Director shall be
available to render consulting services to the Association upon
request by an officer of the Association, but such requests shall not
be made more frequently than once each moth. The Director shall not be
considered to have breached this condition if he is unable to consult
because of his mental or physical disability.
C. Payment of the retirement benefit under this Agreement may be
terminated by the Association, if the Director fails to comply with
either of the conditions set forth in
<PAGE>
paragraph (A) and (B) of this Section 4.
5. General Provisions:
------------------
A. Except as otherwise provided by the Agreement, it is agreed that
neither the Director, nor his beneficiary shall have any right to
commute, sell, assign, transfer or otherwise convey the right to
receive any payments hereunder, which payments and the right hereto
are expressly declared to be nonassignable and nontransferable.
B. The benefits payable under the Agreement shall be independent of,
and in addition to, any other employment agreements that may exist
from time to time between the parties hereto, concerning any other
compensation payable by the Association to the Director whether as
salary, bonus, or otherwise. This Agreement shall not be deemed to
constitute a contract of employment between the parties hereto, nor
shall any provision hereof restrict the right of the Association to
discharge the Director or restrict the right of the Director to
terminate his Directorship.
C. The rights of the Director under this Agreement and of any
beneficiary of the Director shall be solely those of an unsecured
creditor of the Association. Any asset acquired by the Association in
connection with the liabilities assumed by it hereunder, shall not be
deemed to be held under any trust for the benefit of the Director or
his beneficiaries or to be considered security for the performance of
the obligations of the Association but shall be, and remain, a
general, unpledged, unrestricted asset of the Association.
D. The Association hereby reserves the right to accelerate the
payments specified in Sections 1, 2 and 3 above without the consent of
the Director, his estate, beneficiaries, or any other person claiming
through or under him.
E. The Association agrees that it will not merge or consolidate with
any other Association or organization, or permit its business
activities to be taken over by any other organization unless and until
the succeeding or continuing Association or other organization shall
expressly assume the rights and obligations of the Association herein
set forth. The Association further agrees that it will not cease its
business activities or terminate its existence, other than as set
forth in this Section, without having made adequate provision for the
fulfilling of its obligations hereunder.
F. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
G. This Agreement shall be subject to and construed under the laws of
the State of North Carolina.
<PAGE>
IN WITNESS THEREOF, the said Association has caused this Agreement to be
signed in its Corporate name by its duly authorized officer, and impressed with
the Corporate seal, attached by its Secretary, and the said Director has
hereunto set his hand and seal, all on the date and year first above written.
ATTEST: HAYWOOD SAVINGS AND LOAN ASSOCIATION, INC. (Association)
__________________________________________
BY: /s/ Larry R. Ammons
______________________________________ (Seal)
President
/s/ Conrad L. Turner
______________________________________ (Seal)
The Director
WITNESS: /s/ Johnnie Sue Caldwell
_________________________________________
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
-------
Savings and Loan Association incorporated in Waynesville, North Carolina, I
- ---------------------------- ----------- --------------
designate the following:
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
---- ------------- ------- ------------
PRIMARY
- -------
P.O. Box 389
June A. Turner 3/23/40 Waynesville, N.C. 28786 Spouse
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
CONTINGENT, If Any:
- ----------
_________________________________________________________________________
_________________________________________________________________________
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or Administrator of your Estate).
Name of Spouse if not given above: same as above
_______________________________________
/s/ Conrad L. Turner
_________________________________ _______________________________________
Witness Signature of Director
7/15/91
_______________________________________
Date
Note: The original should be retained by the Association, one copy by the
Director, and one copy forwarded to Smith/Broadhurst, Inc.
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PAYMENT AGREEMENT
_______________________________
1998 Amendment
to Agreement dated April 1, 1991
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Retirement Payment Agreement (the "RPA") dated April 1, 1991, with
_____________________ (the "Director"); and
WHEREAS, the Bank's Board of Directors and the Director have determined
that it is in their respective best interests to amend the RPA in the manner set
forth herein.
NOW, THEREFORE, the RPA shall be amended as follows, pursuant to Section
5.F thereof:
1. Section 5 of the RPA shall be amended by adding the following new
paragraph H at the end thereof:
H. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Director in a duly executed election in the form (the "Election Form")
attached hereto as Exhibit "A"; provided that such an election will be
honored and given effect only if it is properly made and delivered to
the Bank more than 90 days before said closing date. Present value
determinations, as well as interest accruals on present value sums
that are paid in installments over a fixed period of years, shall be
calculated at a rate equal to 120% of the applicable federal rate,
compounded semiannually, as determined under Section 1274(d) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
The Director may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the RPA other than stated above.
<PAGE>
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the RPA.
Date of Execution: ____________________________, 1998
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
______________________ By_________________________________
Its______________________________
WITNESS: DIRECTOR
______________________ ___________________________________
<PAGE>
Exhibit 10.11
SUPPLEMENTAL INCOME AGREEMENT
AGREEMENT entered into as of the 1st day of October, 1989, between Haywood
Savings and Loan, a domestic Corporation having its principal office in
Waynesville, North Carolina, (hereinafter referred to as the Company) and Larry
R. Ammons (hereinafter referred to as the Employee).
WITNESSETH:
WHEREAS, the Employee has been an Employee of the Company since 10/15/72, and,
--------
WHEREAS the value of the Employee is such that assurance of his continued
service is essential to the future growth and profits of the Company; and,
WHEREAS, the Company desires to retain the service of the Employee, and realizes
that if the Employee were to terminate his employment it would suffer a
substantial financial loss;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Remuneration: During the period of the Employee's employment with the
------------
Company, the Company will pay the Employee for services to be
rendered:
A. Cash amounts at rates and times mutually agreed upon; and,
B. Additional amounts, payment of which will be deferred
pursuant to the terms hereinafter set forth.
2. Retirement Benefit: Upon the attainment of the first day of the month
------------------
following the Employee's 65th birthday, the Company will commence to
pay the Employee $1,273.16 monthly for a continuous period of fifteen
years. Such initial monthly income shall be increased 5% for each
additional full year of service of the employee, beginning after the
first year from the date of this agreement, except that there will be
no increases in benefits after the attainment of age 65. In the event
the employee should die after becoming entitled to receive said
monthly installments but before any or all of said installments have
been paid, the Company will pay or will continue to pay said
installments to such beneficiaries as the Employee has directed by
filing with the Company a notice in writing. In the event of the
death of the last named beneficiary before all the unpaid payments
have been made, the balance of any amount which remains unpaid at said
death shall be commuted on the basis of eight percent per annum
compounded interest and shall be paid in a single sum to the executor
or administrator of the estate of the last named beneficiary to die.
In the absence of such beneficiary designation, any amount remaining
unpaid at the Employee's death shall be commuted on the basis of eight
percent per annum
<PAGE>
compound interest and shall be paid in a single sum to the executor or
administrator of the Employee's estate.
3. Death Benefit: Should the Employee die prior to the attainment of the
-------------
first day of the month following his birthday, the Company (beginning
at a date to be determined by the Company but within six months from
the date of such death) will commence to pay $1,273.16 monthly for a
continuous period of fifteen years to such beneficiary or
beneficiaries as the Employee has directed by filing with the Company
a notice in writing. Such initial monthly income shall be increased
5% for each additional full year of service of the employee beginning
after the first year from the date of this agreement, except that
there will be no increases in benefits after the attainment of age 65.
Irrespective of the above, however, if the Employee dies as a result
of suicide within two years of the execution of this agreement, no
death benefit shall be payable. In the event of the death of the last
named beneficiary before any amount which remains unpaid at said death
shall be commuted on the basis of eight percent per annum compound
interest and shall be paid in a single sum to the executor or
administrator of the estate of the last named beneficiary to die. In
the absence of any such beneficiary designation, any amount remaining
unpaid at the Employee's death shall be commuted on the basis of eight
percent per annum compound interest and shall be paid in a single sum
to the executor or administrator of the Employee's estate.
4. Termination of Employment:
-------------------------
If the Employee terminates his Employment for reasons other than death
or the attainment of his 65th birthday, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th
birthday, or his prior death, to the retirement benefits stated in
Section 2 of this Agreement multiplied by a fraction the numerator of
which is the number of full years of employment of the employee to his
termination date and the denominator of which is the number of full
years of employment of the employee to his age 65.
5. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the
Employee under Section 2 of this Agreement, the Employee shall not
engage in business activities in Haywood County, North Carolina, which
are in competition with the Company without first obtaining the
written consent of the Company.
B. During the period the retirement payment is payable to the
Employee under Section 2 of the Agreement, the Employee shall be
available to render consulting services to the Company upon request by
an officer of the Company, but such requests shall not be made more
frequently than once each month. The Employee shall not be considered
to have breached this condition if he is unable to consult because of
his mental or physical disability.
<PAGE>
C. Payment of the retirement benefit under this Agreement may be
terminated by the Company, if the Employee fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this
Section 5.
6. General Provisions:
------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Employee, nor his beneficiary shall have any right to
commute, sell, assign, transfer or otherwise convey the right to
receive any payments hereunder, which payments and the right thereto
are expressly declared to be nonassignable and nontransferable.
B. The benefits payable under this Agreement shall be independent of,
and in addition to, any other employment agreements that may exist
from time to time between the parties hereto, concerning any other
compensation payable by the Company to the Employee whether as salary,
bonus, or otherwise. This Agreement shall not be deemed to constitute
a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Company to discharge the
Employee or restrict the right of the Employee to terminate his
employment.
C. The rights of the Employee under this Agreement and of any
beneficiary of the Employee shall be solely those of an unsecured
creditor of the Company. Any asset acquired by the Company in
connection with the liabilities assumed by it hereunder, shall not be
deemed to be held under any trust for the benefit of the Employee or
his beneficiaries or to be considered security for the performances of
the obligations of the Company but shall be, and remain, a general,
unpledged, unrestricted asset of the Company.
D. The Company hereby reserves the right to accelerate the payments
specified in Section 2, 3 and 4 above without the consent of the
employee, his estate, beneficiaries, or any other person claiming
through or under him.
E. The Company agrees that it will not merge or consolidate with any
other Company or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding
or continuing Company or other organization shall expressly assume the
rights and obligations of the Company herein set forth. The Company
further agrees that it will not cease its business activities or
terminate its existence, other than as heretofore set forth in this
Section, without having made adequate provision for the fulfilling of
its obligations hereunder.
F. This agreement shall be binding upon and inure to the benefit of
the parties, their respective legal representatives, and any
"Successor" of the Company, which shall be deemed substituted for the
Company under the terms of this Agreement. As used in this Agreement
the term "Successor" shall include any person, firm, Corporation or
other business entity which at anytime, whether by merger purchase or
otherwise, acquires all or substantially all of the Corporation's
assets or business.
<PAGE>
G. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
H. This Agreement shall be subject to and construed under the laws of
the State of North Carolina.
IN WITNESS THEREOF, the Said Company has caused this Agreement to be signed in
its Corporate name by its duly authorized officer, and impressed with its
corporate seal, attested by its secretary, and the said Employee has hereunto
set his hand and seal, all on the day and year first above written.
By: /s/ Robert H. Francis
________________________________
ATTEST: /s/ Larry R. Ammons
________________________________
The Employee
/s/ Johnnie Sue Caldwell
________________________
WITNESS: /s/ Johnnie Sue Caldwell
________________________
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
Savings and Loan, I designate the following:
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
---- ------------- ------- ------------
PRIMARY:
- -------
501 Blink Bonny
Cristina C. Ammons 8/10/42 Waynesville, N.C. wife
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
CONTINGENT, If Any
- ----------
All children share and share alike
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or the Administrator of your Estate.)
Name of Spouse if not given above: ________________________________________
/s/ Johnnie Sue Caldwell /s/ Larry R. Ammons
________________________ ___________________
Witness Signature of Employee
1-26-90
___________________
Date
Note: The original should be retained by the Company and one copy by the
Employee.
<PAGE>
ERISA CLAIMS PROCEDURE
CLAIMS PROCEDURE. In accord with the Employee Retirement Income Security Act
of 1974, the following claims procedure is hereby adopted by the Company as the
claims procedure for this unfunded nonqualified deferred compensation plan; and,
for the purpose of implementing such claims procedure (but not for any other
purpose) Haywood Savings and Loan is hereby designated as the named fiduciary
and plan administrator of this plan:
a. Filing of a Claim for Benefits. A participant or beneficiary of the
plan shall make a claim for the benefits provided by delivering a
written request to the plan administrator.
b. Notification to Claimant of Decision. If a claim is wholly or
partially denied, notice of the decision, meeting the requirements of
paragraph c following shall be furnished to the claimant within a
reasonable period of time after receipt of the claim by the plan
administrator.
c. Content of Notice. The plan administrator shall provide to every
claimant who is denied a claim for benefits written notice setting
forth in a manner calculated to be understood by the claimant, the
following:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent plan provision on which the
denial is based.
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why any such material or information is
necessary; and,
(4) An explanation of the plan's claim review procedure, as set
forth in paragraphs d and e following.
d. Review Procedure. The purpose of the review procedure, set forth in
this paragraph and in paragraph e following, is to provide a procedure
by which a claimant under the plan may have a reasonable opportunity
to appeal a denial of a claim to the named fiduciary for a full and
fair review. To accomplish that purpose, the claimant or his duly
authorized representative:
a. May request a review upon written application to the plan
administrator;
b. May review pertinent plan documents; and
c. May submit issues and comments in writing.
A claimant (or his duly authorized representative) shall request a
review by filing a written application for review with the plan
administrator at any time within sixty (60) days after receipt by the
claimant of written notice of the denial of his claim.
e. Decision on Review. The decision on review of a denied claim shall be
made in the following manner:
a. The decision on review shall be made by the plan
administrator, who may in his discretion hold a hearing on
the denied claim. The plan administrator shall make his
decision promptly, and not later than sixty (60) days after
receipt of the request for review, unless special
circumstances (such as the need to hold a hearing) require
an
<PAGE>
extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not later than
one hundred twenty (120) days after receipt of the request
for review.
b. The decision on review shall be in writing and shall include
specific reasons for the decisions, written in a manner
calculated to be understood by the claimant, and specific
references to the pertinent plan provisions on which the
decision is based.
<PAGE>
AMENDMENT TO SUPPLEMENTAL INCOME AGREEMENT
AMENDMENT entered into as of the 7th day of October, 1994 between Haywood
--------- --------
Savings Bank, SSB (formerly Haywood Savings and Loan Association), a domestic
Corporation having its principal office in Waynesville, North Carolina
(hereinafter referred to as the Company) and Larry Ammons (hereinafter referred
to as the Employee).
WITNESSETH:
WHEREAS the Employee entered into a Supplemental Income Agreement as of the
1/st/ day of October 1989 between Haywood Savings and Loan Association of
Waynesville, North Carolina and Larry Ammons; and
WHEREAS Sections 2 of said agreement set forth certain monthly benefits to be
paid upon the attainment of the Employee's 65/th/ Birthday and Section 3 of said
agreement set forth certain monthly benefits to be paid (beginning at a date to
be determined by the Company but within six months from the employee's death)
should the Employee die prior to the attainment of the first day of the month
following his 65/th/ birthday; and
WHEREAS the amount of the monthly benefit stated was incorrect in that it
erroneously reflected the maximum benefit that would be provided if the Employee
continued his employment to age 65 and received the yearly 5% benefit increases
when it should have reflected the initial monthly benefit before any increases
due to future years of employment; and
WHEREAS Section 5.G of said agreement provide that said agreement may be amended
in whole or in part by a writing signed by both of the parties thereto; and
WHEREAS, it is in the desire of both parties to the agreement to correct this
unintentional error by deleting the incorrect benefit amount of $1,273.16
monthly stipulated in Sections 2 and 3 and replacing it with the correct benefit
amount of $457.00 monthly;
BE IT THEREFORE RESOLVED that the Supplemental Income Agreement be and is hereby
amended by deleting the incorrect benefit amount of $1,273.16 monthly stipulated
in Sections 2 and 3 and replacing it with the correct benefit amount of $457.00
monthly.
All other provisions of the agreement shall remain in full force and effect.
ATTEST: Haywood Savings Bank, SSB
(formerly Haywood Savings and Loan Association)
/s/ Johnnie Sue Caldwell By: /s/ G. D. Stovall, Jr.
________________________ ______________________
Chairman (Seal)
WITNESS:
/s/ Michael E. Stamey /s/ Larry R. Ammons
________________________ ______________________
Employee (Seal)
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
SUPPLEMENTAL INCOME AGREEMENT
_______________________________
1998 Amendment
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Supplemental Income Agreement (the "SIA") dated October 1, 1989, with Larry
Ammons (the "Employee"); and
WHEREAS, the Bank's Board of Directors and the Employee have determined
that it is in their respective best interests to amend the SIA in the manner set
forth herein.
NOW, THEREFORE, the SIA shall be amended as follows, pursuant to Section 6.
G thereof:
1. Section 6 of the SIA shall be amended by adding the following new
paragraph I at the end thereof:
I. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Employee in a duly executed election in the form attached hereto as
Exhibit "A"; provided that such an election will be honored and given
effect only if it is properly made and delivered to the Bank more than
90 days before said closing date. Present value determinations, as
well as interest accruals on present value sums that are paid in
installments over a fixed period of years, shall be calculated at a
rate equal to 120% of the applicable federal rate, compounded
semiannually, as determined under Section 1274(d) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder.
The Employee may specify, on the election form attached as
Exhibit "A", the manner of payment to his beneficiary, and may at any
time or from time to time change the identity or manner of payment to
his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the SIA other than stated above.
<PAGE>
Supplement Income Agreement
1998 Amendment
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the SIA.
Date of Execution: 21 April, 1998
--------
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
/s/ Paul W. Trantham By /s/ William P. Burgin
____________________________ _______________________________________
Its Chairman of the Board
WITNESS: EMPLOYEE
/s/ Larry R. Ammons /s/ Larry R. Ammons
____________________________ _______________________________________
<PAGE>
Exhibit 10.12
SUPPLEMENTAL INCOME AGREEMENT
AGREEMENT entered into as of the 1st day of October, 1989, between Haywood
Savings and Loan, a domestic Corporation having its principal office in
Waynesville, North Carolina, (hereinafter referred to as the Company) and Jack
T. Nichols (hereinafter referred to as the Employee).
WITNESSETH:
WHEREAS, the Employee has been an Employee of the Company since 6-20-66, and,
---------
WHEREAS the value of the Employee is such that assurance of his continued
service is essential to the future growth and profits of the Company; and,
WHEREAS, the Company desires to retain the service of the Employee, and realizes
that if the Employee were to terminate his employment it would suffer a
substantial financial loss;
NOW THEREFORE, in consideration of the premises contained herein, the parties
hereto mutually agree as follows:
1. Remuneration: During the period of the Employee's employment with the
------------
Company, the Company will pay the Employee for services to be
rendered:
A. Cash amounts at rates and times mutually agreed upon; and,
B. Additional amounts, payment of which will be deferred
pursuant to the terms hereinafter set forth.
2. Retirement Benefit: Upon the attainment of the first day of the month
------------------
following the Employee's 65th birthday, the Company will commence to
pay the Employee $770.09 monthly for a continuous period of fifteen
years. Such initial monthly income shall be increased 5% for each
additional full year of service of the employee, beginning after the
first year from the date of this agreement, except that there will be
no increases in benefits after the attainment of age 65. In the event
the employee should die after becoming entitled to receive said
monthly installments but before any or all of said installments have
been paid, the Company will pay or will continue to pay said
installments to such beneficiaries as the Employee has directed by
filing with the Company a notice in writing. In the event of the
death of the last named beneficiary before all the unpaid payments
have been made, the balance of any amount which remains unpaid at said
death shall be commuted on the basis of eight percent per annum
compounded interest and shall be paid in a single sum to the executor
or administrator of the estate of the last named beneficiary to die.
In the absence of such beneficiary designation, any amount remaining
unpaid at the Employee's death shall be commuted on the basis of eight
percent per annum
<PAGE>
compound interest and shall be paid in a single sum to the executor or
administrator of the Employee's estate.
3. Death Benefit: Should the Employee die prior to the attainment of the
-------------
first day of the month following his birthday, the Company (beginning
at a date to be determined by the Company but within six months from
the date of such death) will commence to pay $770.09 monthly for a
continuous period of fifteen years to such beneficiary or
beneficiaries as the Employee has directed by filing with the Company
a notice in writing. Such initial monthly income shall be increased
5% for each additional full year of service of the employee beginning
after the first year from the date of this agreement, except that
there will be no increases in benefits after the attainment of age 65.
Irrespective of the above, however, if the Employee dies as a result
of suicide within two years of the execution of this agreement, no
death benefit shall be payable. In the event of the death of the last
named beneficiary before any amount which remains unpaid at said death
shall be commuted on the basis of eight percent per annum compound
interest and shall be paid in a single sum to the executor or
administrator of the estate of the last named beneficiary to die. In
the absence of any such beneficiary designation, any amount remaining
unpaid at the Employee's death shall be commuted on the basis of eight
percent per annum compound interest and shall be paid in a single sum
to the executor or administrator of the Employee's estate.
4. Termination of Employment:
-------------------------
If the Employee terminates his Employment for reasons other than death
or the attainment of his 65th birthday, he or his beneficiary, as
applicable, shall be entitled upon the attainment of his 65th
birthday, or his prior death, to the retirement benefits stated in
Section 2 of this Agreement multiplied by a fraction the numerator of
which is the number of full years of employment of the employee to his
termination date and the denominator of which is the number of full
years of employment of the employee to his age 65.
5. Forfeiture Provisions:
---------------------
A. During the period the retirement benefit is payable to the
Employee under Section 2 of this Agreement, the Employee shall not
engage in business activities in Haywood County, North Carolina, which
are in competition with the Company without first obtaining the
written consent of the Company.
B. During the period the retirement payment is payable to the
Employee under Section 2 of the Agreement, the Employee shall be
available to render consulting services to the Company upon request by
an officer of the Company, but such requests shall not be made more
frequently than once each month. The Employee shall not be considered
to have breached this condition if he is unable to consult because of
his mental or physical disability.
<PAGE>
C. Payment of the retirement benefit under this Agreement may be
terminated by the Company, if the Employee fails to comply with either
of the conditions set forth in paragraph (A) and (B) of this Section
5.
6. General Provisions:
------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Employee, nor his beneficiary shall have any right to
commute, sell, assign, transfer or otherwise convey the right to
receive any payments hereunder, which payments and the right thereto
are expressly declared to be nonassignable and nontransferable.
B. The benefits payable under this Agreement shall be independent of,
and in addition to, any other employment agreements that may exist
from time to time between the parties hereto, concerning any other
compensation payable by the Company to the Employee whether as salary,
bonus, or otherwise. This Agreement shall not be deemed to constitute
a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Company to discharge the
Employee or restrict the right of the Employee to terminate his
employment.
C. The rights of the Employee under this Agreement and of any
beneficiary of the Employee shall be solely those of an unsecured
creditor of the Company. Any asset acquired by the Company in
connection with the liabilities assumed by it hereunder, shall not be
deemed to be held under any trust for the benefit of the Employee or
his beneficiaries or to be considered security for the performances of
the obligations of the Company but shall be, and remain, a general,
unpledged, unrestricted asset of the Company.
D. The Company hereby reserves the right to accelerate the payments
specified in Section 2, 3 and 4 above without the consent of the
employee, his estate, beneficiaries, or any other person claiming
through or under him.
E. The Company agrees that it will not merge or consolidate with any
other Company or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding
or continuing Company or other organization shall expressly assume the
rights and obligations of the Company herein set forth. The Company
further agrees that it will not cease its business activities or
terminate its existence, other than as heretofore set forth in this
Section, without having made adequate provision for the fulfilling of
its obligations hereunder.
F. This agreement shall be binding upon and inure to the benefit of
the parties, their respective legal representatives, and any
"Successor" of the Company, which shall be deemed substituted for the
Company under the terms of this Agreement. As used in this Agreement
the term "Successor" shall include any person, firm, Corporation or
other business entity which at anytime, whether by merger purchase or
otherwise, acquires all or substantially all of the Corporation's
assets or business.
<PAGE>
G. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
H. This Agreement shall be subject to and construed under the laws of
the State of North Carolina.
IN WITNESS THEREOF, the Said Company has caused this Agreement to be signed in
its Corporate name by its duly authorized officer, and impressed with its
corporate seal, attested by its secretary, and the said Employee has hereunto
set his hand and seal, all on the day and year first above written.
By: /s/ Larry R. Ammons
-------------------------------------
ATTEST: /s/ Jack T. Nichols
-------------------------------------
The Employee
/s/ Johnnie Sue Caldwell
---------------------------
WITNESS: /s/ Johnnie Sue Caldwell
---------------------------
<PAGE>
BENEFICIARY DESIGNATION FORM
As Beneficiary to receive any death benefits payable on my behalf from Haywood
Savings and Loan, I designate the following:
NAME DATE OF BIRTH ADDRESS RELATIONSHIP
--------- ------------- ------- ------------
PRIMARY:
- --------
MaryLou Nichols 8/31/20 916 Dolan Rd. Waynesville, N.C. Parent
- -------------------- ------------- ------------------------------- ---------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTINGENT, If Any
- -----------
Barbara N. Ruads Balaan Rd Sister
- -------------------- ------------- ---------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Note: If more than one primary beneficiary is named, the benefit will be paid
in equal shares to those living. Should the contingent beneficiaries be
eligible to receive the benefits, such benefits will be paid in equal shares to
such living contingent beneficiaries. If none of the designated beneficiaries
are living at such time as the death benefit is payable, such benefit will be
paid to the Executor or the Administrator of your Estate.)
Name of Spouse if not given above:_____________________________________________
/s/ Johnnie Sue Caldwell /s/ Jack T. Nichols
--------------------------------- --------------------------------
Witness Signature of Employee
1-26-90
------------------------------------------
Date
Note: The original should be retained by the Company and one copy by the
Employee.
<PAGE>
ERISA CLAIMS PROCEDURE
CLAIMS PROCEDURE. In accord with the Employee Retirement Income Security Act
of 1974, the following claims procedure is hereby adopted by the Company as the
claims procedure for this unfunded nonqualified deferred compensation plan; and,
for the purpose of implementing such claims procedure (but not for any other
purpose) Haywood Savings and Loan is hereby designated as the named fiduciary
and plan administrator of this plan:
a. Filing of a Claim for Benefits. A participant or beneficiary of the
plan shall make a claim for the benefits provided by delivering a
written request to the plan administrator.
b. Notification to Claimant of Decision. If a claim is wholly or
partially denied, notice of the decision, meeting the requirements of
paragraph c following shall be furnished to the claimant within a
reasonable period of time after receipt of the claim by the plan
administrator.
c. Content of Notice. The plan administrator shall provide to every
claimant who is denied a claim for benefits written notice setting
forth in a manner calculated to be understood by the claimant, the
following:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent plan provision on which the
denial is based.
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why any such material or information is
necessary; and,
(4) An explanation of the plan's claim review procedure, as set
forth in paragraphs d and e following.
d. Review Procedure. The purpose of the review procedure, set forth in
this paragraph and in paragraph e following, is to provide a procedure
by which a claimant under the plan may have a reasonable opportunity
to appeal a denial of a claim to the named fiduciary for a full and
fair review. To accomplish that purpose, the claimant or his duly
authorized representative:
(1) May request a review upon written application to the plan
administrator;
(2) May review pertinent plan documents; and
(3) May submit issues and comments in writing.
A claimant (or his duly authorized representative) shall request a
review by filing a written application for review with the plan
administrator at any time within sixty (60) days after receipt by the
claimant of written notice of the denial of his claim.
e. Decision on Review. The decision on review of a denied claim shall be
made in the following manner:
(1) The decision on review shall be made by the plan
administrator, who may in his discretion hold a hearing on
the denied claim. The plan administrator shall make his
decision promptly, and not later than sixty (60) days after
receipt of the request for review, unless special
circumstances (such as the need to hold a hearing) require
an
<PAGE>
extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not later than
one hundred twenty (120) days after receipt of the request
for review.
(2) The decision on review shall be in writing and shall include
specific reasons for the decisions, written in a manner
calculated to be understood by the claimant, and specific
references to the pertinent plan provisions on which the
decision is based.
<PAGE>
AMENDMENT TO SUPPLEMENTAL INCOME AGREEMENT
AMENDMENT entered into as of the 7th day of October, 1994 between Haywood
--------- --------
Savings Bank, SSB (formerly Haywood Savings and Loan Association), a domestic
Corporation having its principal office in Waynesville, North Carolina
(hereinafter referred to as the Company) and Jack T. Nichols (hereinafter
referred to as the Employee).
WITNESSETH:
WHEREAS the Employee entered into a Supplemental Income Agreement as of the
1/st/ day of October 1989 between Haywood Savings and Loan Association of
Waynesville, North Carolina and Jack T. Nichols; and
WHEREAS Sections 2 of said agreement set forth certain monthly benefits to be
paid upon the attainment of the Employee's 65/th/ Birthday and Section 3 of said
agreement set forth certain monthly benefits to be paid (beginning at a date to
be determined by the Company but within six months from the employee's death)
should the Employee die prior to the attainment of the first day of the month
following his 65/th/ birthday; and
WHEREAS the amount of the monthly benefit stated was incorrect in that it
erroneously reflected the maximum benefit that would be provided if the Employee
continued his employment to age 65 and received the yearly 5% benefit increases
when it should have reflected the initial monthly benefit before any increases
due to future years of employment; and
WHEREAS Section 5.G of said agreement provide that said agreement may be amended
in whole or in part by a writing signed by both of the parties thereto; and
WHEREAS, it is in the desire of both parties to the agreement to correct this
unintentional error by deleting the incorrect benefit amount of $770.09 monthly
stipulated in Sections 2 and 3 and replacing it with the correct benefit amount
of $336.00 monthly;
BE IT THEREFORE RESOLVED that the Supplemental Income Agreement be and is hereby
amended by deleting the incorrect benefit amount of $770.09 monthly stipulated
in Sections 2 and 3 and replacing it with the correct benefit amount of $336.00
monthly.
All other provisions of the agreement shall remain in full force and effect.
ATTEST: Haywood Savings Bank, SSB
(formerly Haywood Savings and Loan Association)
/s/ Johnnie Sue Caldwell By: /s/ Larry R. Ammons
------------------------- ------------------------------------
President (Seal)
WITNESS:
/s/ Judy R. Ballinger /s/ Jack T. Nichols
------------------------- ------------------------------------
Employee (Seal)
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
SUPPLEMENTAL INCOME AGREEMENT
_______________________________
1998 Amendment
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") entered into a
Supplemental Income Agreement (the "SIA") dated October 1, 1989, with Jack T.
Nichols (the "Employee"); and
WHEREAS, the Bank's Board of Directors and the Employee have determined
that it is in their respective best interests to amend the SIA in the manner set
forth herein.
NOW, THEREFORE, the SIA shall be amended as follows, pursuant to Section 6.
G thereof:
1. Section 6 of the SIA shall be amended by adding the following new
paragraph I at the end thereof:
I. Notwithstanding the provisions of paragraphs 2, 3, and 4 hereof,
any benefits that are or become payable after the closing date of a
Change in Control (as defined in the Bank's Retirement Plan for Non-
Employee Directors) shall be paid in the manner selected by the
Employee in a duly executed election in the form attached hereto as
Exhibit "A"; provided that such an election will be honored and given
effect only if it is properly made and delivered to the Bank more than
90 days before said closing date. Present value determinations, as
well as interest accruals on present value sums that are paid in
installments over a fixed period of years, shall be calculated at a
rate equal to 120% of the applicable federal rate, compounded
semiannually, as determined under Section 1274(d) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder.
The Employee may specify, on the election form attached as
Exhibit "A", the manner of payment to his beneficiary, and may at any
time or from time to time change the identity or manner of payment to
his beneficiary.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the SIA other than stated above.
<PAGE>
Supplement Income Agreement
1998 Amendment
Page 2
WHEREFORE, the undersigned hereby approve this 1998 Amendment to the SIA.
Date of Execution: 21 April, 1998
--------
ATTEST: HAYWOOD SAVINGS BANK, INC., SSB
/s/ Paul W. Trantham By /s/ William P. Burgin
- ---------------------------------- ------------------------------------
Its Chairman of the Board
WITNESS: EMPLOYEE
/s/ Larry R. Ammons /s/ Jack T. Nichols
- ---------------------------------- ------------------------------------
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
------------------------------------------
The Board of Directors of Haywood Savings Bank, Inc., SSB has adopted this
Retirement Plan for Non-Employee Directors.
ARTICLE I
Definitions
-----------
"Bank" shall mean Haywood Savings Bank, Inc., SSB.
"Benefits" shall mean, collectively, the benefits payable under Articles II
and III of the Plan.
"Board" shall mean the Board of Directors of the Bank.
"Change in Control" shall mean any one of the following events: (1) the
acquisition of ownership, holding, or power to vote more than 25% of the Bank's
voting stock, (2) the acquisition of control of the election of a majority of
the Bank's Directors, (3) the acquisition and exercise of a controlling
influence over the management or policies of the Bank by any person or by
persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) (except in the case of (1), (2) and (3) hereof,
formation of a holding company shall not constitute a "Change in Control"), or
(4) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board (the "Continuing Directors") cease for any
reason to constitute at least two-thirds thereof, provided that any in dividual
whose election or nomination for election as a member of the Board was approved
by a vote of at least two-thirds of the Continuing Directors then in office
shall be considered a Continuing Director. For purposes of this subparagraph
only, the term "person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein. The decision of the Board as to whether a change in control has
occurred shall be conclusive and binding.
"Director" shall mean a member of the Board.
"Disability" shall have the meaning set forth in, Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended from time to time.
"Effective Date" shall mean January 1, 1994.
"Participant" means a Director who is a non-Employee Director at some time
on or after the Effective Date.
"Plan" shall mean this Haywood Savings Bank, Inc., SSB Retirement Plan for
Non-Employee Directors.
<PAGE>
"Vested Percentage" shall be determined based on the Participant's Years of
Service on the Board.
Years of Service Vested Percentage
---------------- -----------------
Less than 4 20%
5 to 6 40%
7 to 8 60%
9 to 10 80%
More than 10 100%
Notwithstanding the above schedule, a Participant's Vested Percentage shall
be automatically increased to 100% on the first to occur of: (i) the
Participant's death, (ii) the Participant's termination of service on the Board
after attaining age 65, and (iii) the Participant's termination of service on
the Board due to disability, as determined by the Board in its discretion.
"Year of Service" shall mean each period of 12 full calendar months,
whether or not consecutive, during which a Participant serves on the Board and
is not an Employee. Years of Service shall be credited for a Director's full
period of service on the Board, whether before or after the Effective Date, but
shall in no event either exceed 10 or be credited for periods when a Director is
------ --
an Employee.
ARTICLE II
Retirement Benefits
-------------------
For a number of years equal to the number of a Participant's Years of
Service, the Bank shall pay the Participant an amount equal to the product of
his Vested Percentage, and an amount equal to the sum of the total fees paid to
the Participant for service on the Board during the 12 calendar months
immediately preceding the date on which the Participant terminates service on
the Board. The payments due under this Article shall begin on the first day of
the second month following the date of the Participant's termination of service
on the Board, and shall thereafter be made on the annual anniversary dates of
such first payment date. Except as provided in Article III, no Benefits shall
be payable hereunder after the death of the Participant.
ARTICLE III
Death Benefits
--------------
In the event that a Participant dies before collecting any or all of the
Benefits provided under Article II, the Bank shall pay to the Participant's
estate the Benefits otherwise payable to the Participant under Article II, with
such payments being made as though the Participant had both terminated service
on the Board on the date of his death and survived to collect all Benefits
payable under Article II. Such payment of benefits shall commence on the first
day of the second month following the date of the Participant's death, and shall
thereafter be made on the annual
<PAGE>
anniversary dates of such first payment date. No Benefits shall be payable
hereunder to anyone other than the Participant's estate.
ARTICLE IV
Source of Benefits
------------------
Benefits shall constitute an unfunded, unsecured promise by the Bank
to provide such payments in the future, as and to the extent such Benefits
become payable. Benefits shall be paid from the general assets of the Bank, and
no person shall, by virtue of this Plan, have any interest in such assets (other
than as an unsecured creditor of the Bank). In the event that a trust is
established as described herein at Article VII, the trustee of such trust shall
inform the Board annually prior to the commencement of each fiscal year as to
the manner in which such trust assets shall be invested.
ARTICLE V
Assignment
----------
Except as otherwise provided by this Plan, it is agreed that neither
the Participant nor any other person or persons shall have any right to commute,
sell, assign, transfer, encumber and pledge or otherwise convey the right to
receive any Benefits hereunder, which Benefits and the rights thereto are
expressly declared to be nonassignable and nontransferable.
ARTICLE VI
No Retention of Services
------------------------
The Benefits payable under this Plan shall be independent of, and in
addition to, any other compensation payable by the Bank to a Participant,
whether fees, bonus, retirement income under employee benefit plans sponsored or
maintained by the Bank, or otherwise. This Plan shall not be deemed to
constitute a contract of employment between the Bank and any Participant.
ARTICLE VII
Rights of Directors
-------------------
The rights of the Participants under this Plan shall be solely those
of unsecured creditors of the Bank. In the event that the Bank shall establish
an irrevocable trust to be attached as Schedule A hereto ("Trust Plan"), such
assets of the Bank may be held by such trust pursuant to such Trust Plan,
subject to claims by general creditors of the Bank by appropriate judicial
action as provided by such Trust Plan.
ARTICLE VIII
Automatic Cash-Out Upon a Change in Control
-------------------------------------------
The provisions of this Article shall supersede any provisions of this Plan
to the contrary. In the event of a Change in Control while a Participant is
serving on the Board, the Participant's
<PAGE>
Vested Percentage shall become 100%, and the present value of his Benefits shall
be due and payable to the Participant (or his estate, in the event of his death)
in one lump-sum payment within 10 days following such Change in Control. In the
event of a Change in Control after a Participant terminates service on the
Board, the present value of any Benefits not yet paid to the Participant (or
his estate, in the event of his death) shall be due and payable to the
Participant (or his estate, in the event of his death) in one lump-sum payment
within 10 days following such Change in Control.
ARTICLE IX
Reorganization
--------------
The Bank agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organiza tion shall expressly assume the rights and
obligations of the Bank herein set forth. The Bank further agrees that it will
not cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for the fulfillment of its obligation hereunder.
ARTICLE X
Amendment and Termination
-------------------------
The Board may amend or terminate the Plan at any time, provided that no
such amendment or termination shall, without the written consent of an affected
Participant, alter or impair any rights of the Participant under the Plan.
ARTICLE XI
State Law
---------
This Plan shall be construed and governed in all respects under and by the
laws of the State of North Carolina. If any provision of this Plan shall be
held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
ARTICLE XII
Headings
--------
Headings and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan.
ARTICLE XIII
Gender
------
This Plan shall be construed, where required,
so that the masculine gender includes the feminine.
<PAGE>
ARTICLE XIV
Effective Date
--------------
The effective date of this Plan shall be January 1, 1994. Unless
terminated earlier in accordance with Article XI, this Plan shall remain in
effect during the term of service of the Participants and until all Benefits
payable hereunder have been made.
ARTICLE XV
Interpretation of the Plan
--------------------------
The Board shall have sole and absolute discretion to administer,
construe, and interpret the Plan, and the decisions of the Board shall be
conclusive and binding on all affected parties (unless such decisions are
arbitrary and capricious).
ARTICLE XVI
Legal Fees
----------
In the event any dispute shall arise between a Participant and the
Bank as to the terms or interpretation of this Plan, whether instituted by
formal legal proceedings or otherwise, including any action taken by a
Participant to enforce the terms of this Plan or in defending against any action
taken by the Bank, the Bank shall reimburse the Participant for all costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions; provided that the Participant shall return such amounts
to the Bank if he fails to obtain a final judgment by a court of competent
jurisdiction (or a settlement of such dispute, proceedings, or actions)
substantially in his favor. Such reimbursements to a Participant shall be paid
within 10 days of the Participant furnishing to the Bank written evidence, which
may be in the form, among other things, of a cancelled check or receipt, of any
costs or expenses incurred by the Participant. Any such request for
reimbursement by a Participant shall be made no more frequently than at 30 day
intervals.
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
--------------------------
First Amendment
--------------------------
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") maintains the
Haywood Savings Bank, Inc., SSB Retirement Plan For Non-Employee Directors (the
"Plan"); and
WHEREAS, the Board deems it to be in the best interest of the Bank,
its subsidiaries, and their employees to amend the Plan;
NOW, THEREFORE, pursuant to Article X of the Plan, the Plan is hereby
amended as follows, effective January 1, 1994.
1. Article I of the Plan is amended by adding, immediately after the
definition of "Plan," the following definition:
"Present Value" shall be determined in accordance with Section 8-
47 of the General Statutes of North Carolina as in effect on the
date on which Benefits become payable.
2. The Plan is further amended by replacing the phrase "present value"
with the phrase "Present Value" wherever it appears in the Plan.
3. Nothing contained herein shall be held to alter, vary or affect any
of the terms, provisions, or conditions of the Plan other than as stated above.
WHEREFORE, on this _____ day of ______________, 1994, the Bank hereby
executes this First Amendment to the Plan.
HAYWOOD SAVINGS BANK, INC., SSB
By____________________________
Its President
- -------------
Date Attest: _______________________(Seal)
<PAGE>
HAYWOOD SAVINGS BANK, INC., SSB
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
_______________________________
1998 Amendment
_______________________________
WHEREAS, Haywood Savings Bank, Inc., SSB (the "Bank") maintains the Haywood
Savings Bank, Inc., SSB Retirement Plan for Non-Employee Directors (the "Plan");
and
WHEREAS, the Board of Directors of the Bank desires to amend the Plan in
the manner set forth herein, and has determined that the changes being made do
not adversely affect any Plan participants (and therefore may be adopted without
their consent).
NOW, THEREFORE, the Plan shall be amended as follows, pursuant to Article X
thereof:
1. Article VIII of the Plan shall be amended by inserting the following
new paragraphs at the end thereof;
Notwithstanding any inconsistent provision within the preceding
paragraph, any Benefits that have not been paid before a Change in Control
closes shall be paid in the manner selected by the Participant in a duly
executed election in the form (the "Election Form") attached hereto as
Exhibit "A; provided that such an election will be honored and given effect
only if it is made and delivered to the Bank more than 90 days before said
closing date. Present value determinations, as well as interest accruals on
present value sums that are paid in installments over a fixed period of
years, shall be calculated at a rate equal to 120% of the applicable
federal rate, compounded semiannually, as determined under Section 1274(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder.
The Participant may specify on the Election Form, the manner of
payment to his beneficiary, and may at any time or from time to time
change the identity or manner of payment to his beneficiary. Within five
days of a Change in Control, the Bank shall make a payment to the
Participant equal to 130% of any federal excise tax that the Participant
reasonably expects to pay under Section 4999 of the Code.
2. Nothing contained herein shall be held to alter, vary, or affect any
of the terms, provisions, or conditions of the Plan other than stated above.
1
<PAGE>
Retirement Plan for Non-Employee Directors
1998 Amendment
Page 2
WHEREFORE, on this ______ day of __________________, 1998, the Bank hereby
executes this 1998 Amendment to the Plan.
Attest: ___________________ HAYWOOD SAVINGS BANK, INC., SSB
By__________________________
Its President
________________________
Date
2
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Parent
- ------
Haywood Bancshares, Inc.
Percentage State of
Subsidiaries (1) Owned Incorporation
- ---------------- ---------- -------------
Haywood Savings Bank, Inc., SSB 100% North Carolina
Subsidiaries of Haywood Savings Bank, Inc., SSB
- -----------------------------------------------
Great Smokies Financial Corporation 100% North Carolina
Great Smokies Insurance Agency, Inc.(1) 100% North Carolina
- --------------------------
(1) Wholly owned subsidiary of Great Smokies Financial Corporation.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Haywood Bancshares, Inc.
We consent to incorporation by reference in the Registration Statement on Form
S-8 of Haywood Bancshares, Inc. of our report dated February 26, 1999, relating
to the consolidated statements of financial condition of Haywood Bancshares,
Inc. and subsidiary as of December 31, 1998 and 1997 and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three year period ended
December 31, 1998, included in the December 31, 1998 annual report on Form 10-K
of Haywood Bancshares, Inc.
/s/ KPMG LLP
Charlotte, North Carolina
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,525,035
<INT-BEARING-DEPOSITS> 805,357
<FED-FUNDS-SOLD> 1,713,611
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,466,200
<INVESTMENTS-CARRYING> 10,302,987
<INVESTMENTS-MARKET> 10,332,472
<LOANS> 111,551,538
<ALLOWANCE> 758,547
<TOTAL-ASSETS> 150,955,724
<DEPOSITS> 116,761,373
<SHORT-TERM> 10,500,000
<LIABILITIES-OTHER> 2,146,919
<LONG-TERM> 0
0
0
<COMMON> 1,250,356
<OTHER-SE> 20,297,076
<TOTAL-LIABILITIES-AND-EQUITY> 150,955,724
<INTEREST-LOAN> 9,062,275
<INTEREST-INVEST> 1,806,811
<INTEREST-OTHER> 216,757
<INTEREST-TOTAL> 11,085,843
<INTEREST-DEPOSIT> 5,465,072
<INTEREST-EXPENSE> 6,061,198
<INTEREST-INCOME-NET> 5,024,645
<LOAN-LOSSES> 20,000
<SECURITIES-GAINS> 6,418
<EXPENSE-OTHER> 3,246,363
<INCOME-PRETAX> 413,298
<INCOME-PRE-EXTRAORDINARY> 413,298
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,298
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 3.45
<LOANS-NON> 841,000
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 738,547
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<ALLOWANCE-CLOSE> 758,547
<ALLOWANCE-DOMESTIC> 758,547
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
