EXHIBIT 10.3
SALARY CONTINUATION PLAN
For The Consideration
Of
GREER STATE BANK
GREER, SC
Bank Compensation Strategies, Inc.
3600 West 80th Street
Suite 200
Minneapolis, Minnesota 55431
(612) 893-6767
Fax (612) 893-6797
SUMMARY OF BENEFIT PLAN DESIGN
SALARY CONTINUATION PLAN
GREER STATE BANK
Plan benefits:
- Retirement income benefits are provided for selected key decision
makers.
- Family income protection is provided for participant's beneficiary.
- Individual agreements specify:
- Vesting
- Incentives
- Early retirement benefits
- Disability benefits
- Change of control provisions
The following chart summarizes the retirement benefits for each plan
participant.
Retire- Duration Total
ment Annual of Benefits
Executive Age Age Benefit Benefits Paid
- --------- --- ------- ------- --------- --------
D. Hennett 55 65 40,000 15 years 600,000
s. Burdette 55 65 20,000 15 years 300,000
B. Hughes 51 65 20,000 15 years 300,000
B. Harrill 48 65 20,000 15 years 300,000
R. Medlock 40 65 20,000 15 years 300,000
P. Williams 41 65 20,000 15 years 300,000
BENEFIT PLAN LIABILITY
SALARY CONTINUATION PLAN
GREER STATE BANK
Accounting considerations:
- The plan provides postretirement benefits for preretirement services.
- Benefit accruals are required under GAAP (APB 12/FAS 87).
- Present value of benefit payments are recorded at earlier of retirement
or at full eligibility (Vesting).
Based on the recommended benefits, the employer's benefit liability is shown
below.
BENEFIT PLAN LIABILITY
<Table>
<Caption>
Assets Liabilities
------ -----------
Accrued
Benefit Liability
$52,471 year 1
</Table>
BENEFIT PLAN EXPENSE
SALARY CONTINUATION PLAN
GREER STATE BANK
<Table>
<Caption>
ASSETS LIABILITIES
------ -----------
ACCRUED
BENEFIT LIABILITY
$52,471 year 1
</Table>
Based upon the above benefit liability and a 38.00% tax bracket, the resulting
benefit expense is shown below.
<Table>
<Caption>
Plan Cumulative After-Tax
Year Benefit Expense
- ---- --------------------
1 32,532
2 67,764
3 105,921
4 147,245
5 191,998
10 478,046
15 727,316
20 951,782
</Table>
COMBINED PLAN ACCOUNTING
SALARY CONTINUATION PLAN
GREER STATE BANK Corp tax rate: 38.00%
<Table>
<Caption>
TOTAL
ANNUAL ANNUAL ACCRUED AFTER-TAX PLAN EXPENSE
PLAN BENEFIT BENEFIT BENEFIT ----------------------------
YEAR NAME PAYMENTS PAYMENTS LIABILITY ANNUAL CUMULATIVE
- ---- ---- -------- -------- --------- ------ ----------
1 0 52,471 32,532 32,533
2 0 109,298 35,232 67,765
3 0 170,841 38,157 105,922
4 0 237,492 41,324 147,245
5 0 309,675 44,753 191,999
6 0 387,849 48,468 240,467
7 0 472,511 52,491 292,957
8 0 564,201 56,847 349,805
9 0 663,500 61,566 411,371
10 0 771,042 66,676 478,046
11 D. Hennett 40,000
S. Burdette 20,000 60,000 789,654 48,740 526,786
12 60,000 809,812 49,698 576,484
13 60,000 831,642 50,735 627,218
14 60,000 855,284 51,858 679,077
15 B. Hughes 20,000 80,000 853,090 48,239 727,316
16 80,000 850,713 48,127 775,443
17 80,000 848,139 48,004 823,447
18 B. Harrill 20,000 100,000 819,574 44,289 867,736
19 100,000 788,637 42,819 910,555
20 100,000 755,133 41,227 951,783
21 100,000 718,847 39,503 991,286
22 100,000 679,550 37,636 1,028,922
23 100,000 636,992 35,614 1,064,535
24 100,000 590,901 33,424 1,097,959
25 P. Williams 20,000 120,000 517,729 29,034 1,126,993
26 R. Medlock 20,000 80,000 477,701 24,782 1,151,775
27 80,000 434,350 22,723 1,174,498
28 80,000 387,402 20,492 1,194,990
29 80,000 336,556 18,076 1,213,066
30 60,000 302,241 15,924 1,228,990
31 60,000 265,077 14,158 1,243,148
32 60,000 224,829 12,246 1,255,394
33 40,000 201,990 10,640 1,266,034
34 40,000 177,255 9,464 1,275,499
35 40,000 150,467 8,192 1,283,690
36 40,000 121,456 6,813 1,290,503
37 40,000 90,037 5,320 1,295,824
38 40,000 56,011 3,703 1,299,527
39 40,000 19,160 1,952 1,301,479
40 20,000 0 521 1,302,001
</Table>
FINANCING STRATEGY
SALARY CONTINUATION PLAN
GREER STATE BANK
This financing strategy recommendation will:
- Cover contingent benefit liabilities in the event of death prior to
retirement.
- Generate additional tax-favored earnings to offset the benefit expenses.
- Comply with regulatory parameters as defined by OCC Bulletin 96-51.
ASSET/LIABILITY MANAGEMENT
ASSETS LIABILITIES
Taxable Asset
(5.25% taxable)
$1,100,000 Accrued
Benefit Liability
Other Assets
(6.00% no current tax)
PRO FORMA BALANCE SHEET
SALARY CONTINUATION PLAN
GREER STATE BANK
This pro forma balance sheet illustrates changes that would result from
implementation of the recommended financing strategy. This schedule is based
upon the bank's call report data as of March 31, 1997.
<Table>
<Caption>
03/31/97 --PLAN ACTIVITY-- 03/31/97
ACTUAL DEBIT CREDIT PRO FORMA
---------- --------- --------- ----------
ASSETS
Cash and Due from Bank 2,610,000 2,610,000
Securities 27,714,000 1,100,000(1) 26,614,000
Loans 61,584,000 61,584,000
Less: Reserve (471,000) (471,000)
---------- ----------
Net Loans 61,113,000 61,113,000
Other Assets 3,996,000 1,100,000(2) 5,096,000
---------- ----------
Total Assets 95,433,000 95,433,000
========== ==========
LIABILITIES AND CAPITAL
Deposits 79,797,000 79,797,000
Fed Funds Purchased 700,000 700,000
Other Liabilities 6,249,000 6,249,000
---------- ----------
Total Liabilities 86,746,000 86,746,000
Common Stock 3,131,000 3,131,000
Surplus 4,520,000 4,520,000
Undivided Profits 1,036,000 0(3) 1,036,000
---------- ----------
Total Equity Capital 8,687,000 8,687,000
---------- ----------
Total Liabilities
and Capital 95,433,000 95,433,000
========== ==========
===================================================================================
</Table>
1. Allocation to insurance assets
2. Recognition of insurance asset cash values
3. No loads or surrender charges
FINANCING STRATEGY DETAIL
SALARY CONTINUATION PLAN
GREER STATE BANK
The financing vehicles for the benefit program are summarized as follows:
<Table>
Single Premiums 1,100,000
Net Life Insurance Coverage 1,825,000
---------
Total Death Benefits 2,925,000
=========
</Table>
<Table>
<Caption>
Net Life Total
Ins Single Insurance Death
Executive Age Co. Premiums Coverage Benefits
- --------- --- --- -------- --------- --------
D. Hennett 55 WCL 355,000 445,000 800,000
S. Burdette 55 CHB 175,000 275,000 450,000
B. Hughes 51 WCL 185,000 275,000 460,000
B. Harrill 48 CHB 165,000 275,000 440,000
R. Medlock 40 TMG 110,000 280,000 390,000
P. Williams 41 TMG 110,000 275,000 385,000
--------- --------- ---------
1,100,000 1,825,000 2,925,000
========= ========= =========
</Table>
FINANCING STRATEGY EARNING COMPARISON
SALARY CONTINUATION PLAN
GREER STATE BANK
Asset Allocation: $1,100,000
<Table>
<Caption>
5.25% 6.00% Financing
Taxable Insurance Strategy
Asset Asset Gain (Loss)
------- --------- -----------
Income 57,751 65,320
Tax (38.00%) (21,945) 0
------- ---------
35,806 65,320
Insurance Costs:
Load (.0%) 0 0
Mortality Charges 0 (7,490)
------- -------- -----------
YEAR 1 NET EARNINGS 35,806 57,830 22,024
======= ======== ===========
Cumulative Impact:
Over 2 Years 72,777 118,561 45,784
Over 3 Years 110,950 182,275 71,325
Over 4 Years 150,367 249,141 98,774
Over 5 Years 191,067 319,403 128,336
Over 10 Years 415,318 726,885 311,567
Over 15 Years 678,522 1,252,940 574,418
Over 20 Years 987,442 1,918,430 930,988
Additional Death Benefit 0 1,857,264 1,857,264
RESULTS OF BENEFIT AND FINANCING DECISIONS
SALARY CONTINUATION PLAN
GREER STATE BANK
----------------------------
ASSET/LIABILITY MANAGEMENT
----------------------------
<Table>
<Caption>
ASSETS LIABILITIES
- --------------------------------------------------------------------------------
|
Taxable Asset | Accrued
(5.25% taxable) | Benefit Liability
|
|
$1,100,000 | $52,471 year 1
|
|
Other Assets |
(6.00% no current tax) |
</Table>
<Table>
<Caption>
FINANCING CUMULATIVE CUMULATIVE
PLAN STRATEGY - AFTER-TAX = NET PLAN
YEAR GAIN (LOSS) BENEFIT EXPENSE GAIN (LOSS)
- -------------------------------------------------------------------------
1 22,024 37,926 (15,902)
2 45,784 74,088 (28,304)
3 71,325 113,175 (41,850)
4 98,774 155,429 (56,655)
5 128,336 201,112 (72,776)
10 311,567 491,810 (180,243)
15 574,418 745,730 (171,312)
20 930,988 974,846 (43,858)
</Table>
EARNINGS IMPACT OF ALTERNATIVE DECISIONS
SALARY CONTINUATION PLAN
GREER STATE BANK
ASSET ALLOCATION: $1,100,000
<Table>
<Caption>
No Benefit Benefit and
Decision Decision Only Financing Decision
---------------------------------------------------
5.25% 5.25% 6.00%
Taxable Taxable Insurance
Asset Asset Asset
---------------------------------------------------
Income 57,750 57,750 65,320
Tax (38.00%) (21,945) (21,945) 0
------- ------- ---------
35,805 35,805 65,320
Insurance Costs:
Load ( .0%) 0 0 0
Mortality Charges 0 0 (7,490)
------- ------- ---------
Year 1 Net Income 35,805 35,805 57,830
Benefit Plan Expense, Net
Year 1 Accrual 0 (32,532) (32,532)
Yr 1 Implementation Fees 0 (5,394) (5,394)
------- ------- ---------
YEAR 1 EARNINGS IMPACT 35,805 (2,121) 19,904
======= ======= =========
CUMULATIVE IMPACT:
Over 2 years 72,777 (1,311) 44,473
Over 3 years 110,950 (2,225) 69,100
Over 4 years 150,367 (5,062) 93,712
Over 5 years 191,067 (10,045) 118,291
Over 10 years 415,318 (76,492) 235,075
Over 15 years 678,522 (67,208) 507,210
Over 20 years 987,442 12,596 943,584
- -----------------------------------------------------------------------------------
ADDITIONAL DEATH BENEFIT 0 0 1,857,264
- -----------------------------------------------------------------------------------
</Table>
DETAILED BENEFIT PLAN FINANCIAL DATA
SALARY CONTINUATION PLAN
GREER STATE BANK
This section of the recommendation sets forth the estimated income and expenses
associated with the implementation of the benefit plan and the related
financing strategy. Included in this section are summary data for all plan
participants and detailed data for the individual plan participants.
In order to facilitate your review and understanding of the financial data,
the following is an explanation of the key terms used:
INTEREST ON POLICY EQUITY VALUE-
The gross income earned on the insurance policy asset based on current
policy interest rates.
AFTER TAX OPPORTUNITY COST-
By purchasing the insurance asset that we have recommended, the
employer would either liquidate an existing earning asset or pass up
the opportunity to invest the funds elsewhere. This calculation
measures the after-tax effect of this lost income or "opportunity
cost." This cost is compounded annually.
LOAD, SURRENDER CHARGES AND MORTALITY COST-
All of the expenses of providing and maintaining the insurance
coverage, which are charged against the policy equity value.
SALARY CONTINUATION EXPENSES-
Fees paid to establish and service the plan.
The expense accruals for the salary continuation benefit plan use the
interest method calculation.
INCOME TAXES-
The estimated current and deferred tax savings on the salary
continuation benefit plan.
NET PLAN GAIN (LOSS)-
The estimated annual net gain or loss of providing the benefit plan.
CUMULATIVE NET PLAN GAIN (LOSS)-
The cumulative total of the annual net plan gain or loss.
The specific assumptions used in preparing the illustrations are as follows:
<Table>
Interest rate on policy equity value................. 6.00%
(Weighted average)
Opportunity cost rate................................ 5.25%
Corporate tax rate................................... 38.00%
Discount rate for accruals........................... 8.00
</Table>
* The results illustrated throughout are based on the above assumptions. The
results will differ over time as assumed rates fluctuate. BCS does not
practice law or public accounting. Specific legal and accounting questions
should be referred to your professional advisors.
(c) Copyright 1997, BCS Inc.