EX-10.3 SALARY CONTINUATION PLAN

Contract Categories: Human Resources - Salary Continuation Agreements
EX-10.3 5 g81556exv10w3.txt EX-10.3 SALARY CONTINUATION PLAN 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 ###-###-#### Fax ###-###-#### 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
Assets Liabilities ------ ----------- Accrued Benefit Liability $52,471 year 1
BENEFIT PLAN EXPENSE SALARY CONTINUATION PLAN GREER STATE BANK
ASSETS LIABILITIES ------ ----------- ACCRUED BENEFIT LIABILITY $52,471 year 1
Based upon the above benefit liability and a 38.00% tax bracket, the resulting benefit expense is shown below.
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
COMBINED PLAN ACCOUNTING SALARY CONTINUATION PLAN GREER STATE BANK Corp tax rate: 38.00%
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
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.
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 ========== ========== ===================================================================================
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: Single Premiums 1,100,000 Net Life Insurance Coverage 1,825,000 --------- Total Death Benefits 2,925,000 =========
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 ========= ========= =========
FINANCING STRATEGY EARNING COMPARISON SALARY CONTINUATION PLAN GREER STATE BANK Asset Allocation: $1,100,000
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 ----------------------------
ASSETS LIABILITIES - -------------------------------------------------------------------------------- | Taxable Asset | Accrued (5.25% taxable) | Benefit Liability | | $1,100,000 | $52,471 year 1 | | Other Assets | (6.00% no current tax) |
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)
EARNINGS IMPACT OF ALTERNATIVE DECISIONS SALARY CONTINUATION PLAN GREER STATE BANK ASSET ALLOCATION: $1,100,000
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 - -----------------------------------------------------------------------------------
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: 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
* 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.