Item 1. Business
General
The Company is a North Carolina corporation organized in December 1995 at the direction of Home Federal Savings and Loan Association (the "Association") to acquire all of the capital stock that the Association issued in its conversion from the mutual to stock form of ownership (the "Conversion").
On April 3, 1996, the Association completed the Conversion and became a wholly owned subsidiary of the Company. The Company is a unitary savings and loan holding company which, under existing laws, generally is not restricted in the types of business activities in which it may engage provided that the Association retains a specified amount of its assets in housing-related investments. The Company conducts no significant business or operations of its own other than holding all of the outstanding stock of the Association, investing the Company's portion of the net proceeds obtained in the conversion, and lending funds to an employee stock ownership plan formed by the Association.
The Association, a federally chartered stock savings association headquartered in Fayetteville, North Carolina, was chartered in 1916 under the name Home Building and Loan Association. The Association is subject to examination and comprehensive regulation by the Office of Thrift Supervision ("OTS") and its deposits have been federally insured by the Savings Association Insurance Fund ("SAIF") and its predecessor, the Federal Savings and Loan Insurance Corporation, since 1935. The Association is a member of and owns capital stock in the FHLB of Atlanta, which is one of the 12 regional banks in the FHLB System.
Competition
The Association's primary market area consists of Cumberland and Robeson Counties, North Carolina and the Association is one of many financial institutions serving its market area. The competition for deposit products comes from other insured financial institutions such as commercial banks, thrift institutions and credit unions in the Association's market area. Deposit competition also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition varies depending upon market conditions and comes from other insured financial institutions such as commercial banks, thrift institutions and credit unions.
Lending Activities
Analysis of Loan Portfolio. Set forth below is selected data relating to the composition of the Association's loan portfolio by the type of loan.
Loan Maturity Tables
The following table sets forth the estimated maturity of the Association's loan portfolio at September 30, 1998. The table does not include prepayments or scheduled principal repayments. Prepayments and scheduled principal repayments on loans totalled approximately $20.7 million for the year ended September 30, 1998. Due after Due within 1 through Due after 1 year 5 years 5 years Total ------ ------- ------- ----- (In thousands)
Residential 1- to 4-family.. $ 116 $3,504 $105,119 $108,739 Residential multi-family.... -- 16 7,611 7,627 Non-residential real estate. 36 1,925 12,494 14,455 Construction................ -- -- 2,845 2,845 Installment account loans... 649 -- -- 649 ----- ------ ------- ------- $ 801 $5,445 $128,069 $134,315 ===== ===== ======= =======
The following table sets forth the dollar amount of all loans due after September 30, 1999, which have pre-determined interest rates and which have floating or adjustable interest rates.
Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) Residential 1- to 4-family.... $74,538 $34,085 $108,623 Residential multi-family...... 1,209 6,418 7,627 Non-residential real estate... 5,693 8,726 14,419 Construction.................. 2,845 -- 2,845 ------ ------ ------- Total....................... $84,285 $49,229 $133,514 ====== ====== =======
One- to Four-Family Residential Loans. The Association's primary lending activity consists of the origination of one- to four-family residential mortgage loans secured by property located in the Association's primary market area. The Association generally originates one- to four-family residential mortgage loans in amounts up to 80% of the lesser of the appraised value or selling price of the mortgaged property. With private mortgage insurance obtained for the borrower, the maximum loan to value ratio is increased to 90%. However, with lending amounts of over $240,000, the maximum loan to value ratio is reduced to 70%. The maximum loan amount for such loans is handled on a case-by-case basis. The Association does not originate loans with initial interest rates which are deeply discounted ("teaser rates"). Mortgage loans originated and held by the Association in its portfolio generally include due-on-sale clauses which provide the Association with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Association's consent. The Association originates and retains both fixed and adjustable-rate mortgage loans.
The Association requires for all adjustable-rate mortgage loans that the borrower qualify at 2% above the interest rate at loan origination. The Association's adjustable-rate loans provide for limitations on annual interest rate adjustments of up to 2% with a maximum adjustment over the term of the loan of 6%. Adjustable-rate loans typically reprice every year, and provide for terms of up to 30 years with
most loans having terms of between 15 and 30 years. The Association sets the maximum loan term based on a dollar amount.
Adjustable-rate mortgage loans decrease the risks associated with changes in interest rates by more closely reflecting these changes, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the adjustable-rate mortgage loan documents, thereby potentially limiting their effectiveness during periods of rising interest rates. These risks have not had an adverse effect on the Association.
Non-Residential Loans. The non-residential real estate loan portfolio consists primarily of loans secured by commercial real estate and church property. Loans secured by church real estate, loans secured by rental property and loans secured by commercial property may be made in amounts up to 70% of the appraised value. Non-residential lending entails significant additional risks when compared with one- to four-family residential lending. For example, non-residential loans typically involve larger loan balances to single borrowers or groups of related borrowers, the payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and supply and demand conditions in the market for commercial office, retail and warehouse space.
Multi-Family Residential Loans. The Association makes multi-family loans, including loans on apartment complexes. These loans have a maximum loan to value ratio of 70%. Multi-family loans generally provide higher interest rates than can be obtained from single-family mortgage loans. Multifamily lending, however, entails significant additional risks when compared with one- to four-family residential lending. For example, multi-family loans typically involve larger loan balances to single borrowers or groups of related borrowers, the payment experience on such loans typically is dependent on the successful operation of the real estate project, and these risks can be significantly impacted by supply and demand conditions in the market for multi-family residential units.
Construction Loans. Construction loans are made on a long term basis and are classified as construction/permanent loans. Approximately 90% of the Association's construction loan portfolio are for the construction of single-family residential property and are made to the individuals who will be the owners and occupants upon completion of construction. These construction loans usually require no principal payments during the first 6-12 months, after which the payments are set at an amount that will amortize over the term of the permanent loan. The terms, including interest rate, of single family residential construction loans are the same as those for a loan to purchase or refinance a previously constructed single family residence. The maximum loan to value ratio for other construction loans is dependent on the type of property that will be constructed. The Association also makes construction loans to builders and construction loans on non-residential properties.
Construction lending is generally considered to involve a higher degree of credit risk than long-term financing of residential properties. The Association'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 of construction. If the estimate of construction cost and the marketability of the property upon completion of the project prove to be inaccurate, the Association may be compelled to advance additional funds to complete construction. Furthermore, if the estimate of value proves to be inaccurate, the Association may be confronted at or prior to the maturity of the loan, with a property with a value that is insufficient to assure full repayment.
Installment Account Loans. The Association's installment account loans consist of home equity loans secured by second mortgages on single family loans in the Association's market area and savings account loans. Home equity loans generally are limited to 80% of the appraised value of the residence.
Savings account loans are only made when secured by a savings account in the Association (share loans) and generally have rates that adjust with the rate on the underlying account and are typically between two and six percent above the rate on the underlying savings account. Share loans are offered subject to a 90% loan to collateral value limit.
Loan Approval Authority and Underwriting. All loans of up to $125,000 in amount must be approved by one or more loan committees. Loans for amounts over $125,000 must be approved by the Board of Directors of the Association.
Upon receipt of a completed loan application from a prospective borrower, a credit report is generally ordered, income and certain other information is verified and, if necessary, additional financial information is requested. An appraisal of the real estate intended to be used as security for the proposed loan is obtained. Appraisals are obtained from independent fee appraisers. For real estate loans the Association requires either title insurance or a title opinion. Borrowers must also obtain fire and casualty insurance (for loans on property located in a flood zone, flood insurance is required) prior to the closing of the loan. For loans where private mortgage insurance is required by the Association, the borrower must also provide an escrow amount for taxes and fire insurance.
Loan Commitments. The Association issues written commitments to prospective borrowers on all approved real estate loans. Generally, the commitment requires acceptance within 30 days of the date of issuance. At September 30, 1998, the Association had $1.9 million of commitments to cover originations and $1.4 million in undisbursed funds for loans in process. Management believes that virtually all of the Association's commitments will be funded.
Loans to One Borrower. Regulations limit loans to one borrower in an amount equal to 15% of unimpaired capital and unimpaired surplus of the Association. The Association is authorized to lend up to an additional 10% of unimpaired capital and unimpaired surplus if the loan is fully secured by readily marketable collateral. Savings associations are authorized to make loans to one borrower, for any purpose, in an amount up to $500,000. The Association's maximum loan to one borrower limit was approximately $6.8 million at September 30, 1998. At September 30, 1998, the Association's largest amount of loans to one borrower was 53 loans aggregating $1.6 million. All of the loans to this borrower are current.
Non-Performing and Problem Assets
Loan Delinquencies. The Association's collection procedures provide that when a mortgage loan is 30 days past due, a notice of nonpayment is sent. If payment is still delinquent after 45 days, the customer will receive a letter and/or telephone call and may receive a visit from a representative of the Association. If the delinquency continues, similar subsequent efforts are made to eliminate the delinquency. If the loan continues in a delinquent status for 60 days past due and no repayment plan is in effect, a notice of right to cure default is mailed to the customer giving 30 additional days to bring the account current before foreclosure is commenced.
Loans are reviewed on a monthly basis and are generally placed on a non-accrual status when the loan becomes more than 90 days delinquent ("non-performing loans") or when, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income by the establishment of a reserve for uncollected interest. Such interest, when ultimately collected, is credited to income in the period received.
Non-Performing Assets. The following table sets forth information regarding non-performing loans and real estate owned. As of the dates indicated, the Association had no loans categorized as troubled debt restructuring within the meaning of SFAS 15.
Interest income foregone on loans accounted for on a non-accrual basis under the original terms of such loans was immaterial for the year ended September 30, 1998. Amounts actually included in the Association's interest income for non-accrual loans for the year ended September 30, 1998, were likewise immaterial.
Classified Assets. OTS regulations provide for a classification system for problem assets of insured institutions which covers all problem assets. Under this classification system, problem assets of insured institutions are classified as "substandard," "doubtful," or "loss." An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as loss are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets may be designated "special mention" because of potential weaknesses that do not currently warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as loss, it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which may order the establishment of additional general or specific loss allowances. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital.
In accordance with its classification of assets policy, the Association regularly reviews the problem assets in its portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management's review of its assets, at September 30, 1998, the Association had $230,000 of assets classified as substandard.
Foreclosed Real Estate. Real estate acquired by the Association as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. Real estate acquired in settlement of loans is initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value, minus estimated cost to sell.
Allowances for Loan Losses. It is management's policy to provide for losses on unidentified loans in its loan portfolio. A provision for loan losses is charged to operations based on management's evaluation of the potential losses that may be incurred in the Association's loan portfolio. Such evaluation, which includes a review of all loans of which full collectibility of interest and principal may not be reasonably assured, considers the Association's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and current economic conditions.
The following table sets forth the allocation of the allowance by category, which management believes can be allocated only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of future loss and does not restrict the use of the allowance to absorb losses in any category.
The following table sets forth information with respect to the Association's allowance for loan losses at the dates and for the periods indicated:
Year ended September 30, ------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in thousands)
Allowance balances (at beginning of period). $ 255 $ 235 $ 225 Provision (credit) for loan losses: One- to four-family residential........... -- 8 (4) Multi-family residential.................. -- 18 (3) Non-residential real estate............... -- (11) 9 Construction.............................. -- 5 8 Installment loans......................... -- -- -- Net (charge-offs) recoveries: -- One- to four-family....................... -- -- -- Multi-family.............................. -- -- -- Non-residential real estate............... -- -- -- Construction.............................. -- -- -- Installment loans......................... -- -- -- ---- ---- ---- Allowance balance (at end of period)....... $ 255 $ 255 $ 235 ==== ==== ==== Allowance for loan losses as a percent of total loans outstanding................ 0.19% 0.19% 0.19%
Investment Activities
General. The Association is required under federal regulations to maintain a minimum amount of liquid assets which may be invested in specified short-term securities and certain other investments and has generally maintained a liquidity portfolio well in excess of regulatory requirements. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management's judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of future yield levels, as well as management's projections as to the short-term demand for funds to be used in the Association's loan origination and other activities.
Investment Portfolio. The following table sets forth the carrying value of the Company's and the Association's investment securities, interest-earning deposits, federal funds sold and nonmarketable equity investments at the dates indicated. At September 30, 1998, the market value of the investment securities that are held-to-maturity was $9.0 million.
At September 30, ---------------------------------------- 1998 1997 1996 ----------- ----------- -------- (In thousands) Investment securities: U.S. Treasury securities.......... $ -- $ -- $ 2,999 U.S. Agency securities............ 9,000 13,500 12,000 ------ ------ ------ Total investment securities..... 9,000 13,500 14,999 Interest earning deposits......... 27,818 29,414 33,108 Federal Funds sold................ 1,473 3,118 2,125 Federal Home Loan Bank stock...... 1,145 1,127 1,127 Central Service Corporation stock. -- 44 44 -------- -------- ------- Total............................ $ 39,436 $ 47,203 $ 51,403 ====== ====== ======
The following table sets forth information regarding the scheduled maturities, carrying value and weighted average yields for the Association's investment securities at September 30, 1998.
(1) Nonmarketable equity security; substantially all required to be maintained and assumed to mature in periods greater than 10 years.
Sources of Funds
General. Deposits are the major external source of the Association's funds for lending and other investment purposes. The Association derives funds from amortization and prepayment of loans and, to a much lesser extent, maturities of investment securities, borrowings, mortgage-backed securities and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally from within the Association's primary market area through the offering of a selection of deposit instruments including regular savings accounts, money market accounts, and term certificate accounts. The Association also offers IRA accounts. Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit, and the interest rate, among other factors. At September 30, 1998, the Association had no brokered accounts.
Certificates of Deposit. The following table indicates the amount of the Association's certificates of deposit of $100,000 or more by time remaining until maturity as of September 30, 1998.
Certificates of Deposits ----------- Maturity Period (In thousands) - ---------------
Within three months.......... $ 2,786 Three through six months..... 2,797 Six through twelve months.... 2,550 Over twelve months........... 3,228 ------- $ 11,361 =======
Borrowings
The Association may obtain advances from the FHLB of Atlanta to supplement its supply of lendable funds. Advances from the FHLB of Atlanta are typically secured by a pledge of the Association's stock in the FHLB of Atlanta and a portion of the Association's first mortgage loans and certain other assets. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The Association, if the need arises, may also access the discount window of the Board of Governors of the Federal Reserve System ("Federal Reserve Board") to supplement its supply of lendable funds and to meet deposit withdrawal requirements. At September 30, 1998, the Association had no borrowings from the FHLB of Atlanta.
Employees
At September 30, 1998, the Association had 28 full-time and 4 part-time employees. None of the Association's employees are represented by a collective bargaining group. The Association believes that its relationship with its employees is good.
Regulation
Set forth below is a brief description of certain laws which related to the regulation of the Company and the Association. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, should such subsidiaries be formed, which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. This regulation and oversight is intended primarily for the protection of the depositors of the Association and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions, provided the Association satisfies the Qualified Thrift Lender ("QTL") test. If the Company acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Company and any of its subsidiaries (other than the Association or any other SAIF-insured savings association) would become subject to restrictions applicable to bank holding companies unless such other associations each also qualify as a QTL and were acquired in a supervisory acquisition. See "- Regulation of the Association - Qualified Thrift Lender Test."
Regulation of the Association
General. Set forth below is a brief description of certain laws that relate to the regulation of the Association. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulation. As a federally chartered, SAIF-insured savings association, the Association is subject to extensive regulation by the OTS and the FDIC. Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Association is also subject to certain reserve requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Association and prepares reports for the consideration of the Association's Board of Directors on any deficiencies that are found in the Association's operations. The Association's relationship with its depositors and borrowers is also regulated to a great extent by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of the Association's mortgage documents.
The Association must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
Insurance of Deposit Accounts. The Association's deposit accounts are insured by the SAIF to a maximum of $100,000 for each insured member (as defined by law and regulation). Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator.
Prior to January 1, 1997, as a member of the SAIF, the Association paid an insurance premium to the FDIC equal to a minimum of 0.23% of its total deposits. The FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures commercial bank deposits. In 1996, the annual insurance premium for most BIF members was lowered to $2,000. The lower insurance premiums for BIF members placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a one-time special assessment on SAIF members such as the Association of approximately .657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit insurance assessment for SAIF members was reduced to .064% of deposits on an annual basis through the end of 1999. During this same period, BIF members will be assessed approximately .013% of deposits. After 1999, assessments for BIF and SAIF members should be the same. It is expected that these continuing assessments for both SAIF and BIF members will be used to repay outstanding Financing Corporation bond obligations. As a result of these changes, beginning January 1, 1997, the rate of deposit insurance assessed the Association declined by approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to at least 4% of total adjusted assets, and (3) a risk-based capital requirement equal to 8.0% of total risk-weighted assets. The Association met these capital standards at September 30, 1998.
Dividend and Other Capital Distribution Limitations. OTS regulations require the Association to give the OTS 30 days advance notice of any proposed declaration of dividends to the Company, and the OTS has the authority under its supervisory powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, based primarily on an institution's capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution ("Tier 1 institution") and has not been advised by the OTS that it is in need of more than the normal supervision can, after prior notice but without the approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net income to date during the calendar year plus the amount that would reduce by one-half its "surplus capital ratio" (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year, or (ii) 75% of its net income over the most recent four quarter period. Any additional capital distributions require prior regulatory approval. As of September 30, 1998, the Association was a Tier 1 institution. In the event the Association's capital fell below its fully phased-in requirement or the OTS notified it that it was in need of more than normal supervision, the Association's ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted
by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice.
Qualified Thrift Lender Test. Savings institutions must meet a QTL test. If the Association maintains an appropriate level of Qualified Thrift Investments (primarily residential mortgages and related investments, including certain mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy full borrowing privileges from the FHLB of Atlanta. The required percentage of QTIs is 65% of portfolio assets (defined as all assets minus intangible assets, property used by the institution in conducting its business and liquid assets equal to 20% of total assets). Certain assets are subject to a percentage limitation of 20% of portfolio assets. In addition, savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. As of September 30, 1998, the Association was in compliance with its QTL requirement with 92.17% of its assets invested in QTIs.
Federal Home Loan Bank System. The Association is a member of the FHLB of Atlanta, which is one of 12 regional FHLBs that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, the Association is required to purchase and maintain stock in the FHLB of Atlanta in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the OTS. At September 30, 1998, the Association was in compliance with these Federal Reserve Board requirements.
Executive Officers of the Company Who Are Not Directors
Name and Title Age as of September 30, 1998 -------------- ----------------------------
Allen Lloyd 45 Vice President and Secretary
Jerry L. Robertson 56 Vice President and Treasurer
Anthony Strickland 52 Vice President
Allen Lloyd has been the Secretary of the Association since 1983 and has held the same position with the Company since December 1995. Mr. Lloyd was elected Vice President of the Association and the Company in 1998.
Jerry L. Robertson has been Vice President and Treasurer of the Association since 1983 and has held the same position with the Company since December 1995.
Anthony Strickland has been Vice President of the Association since 1982 and has held the same position with the Company since December 1995. Mr. Strickland became an executive officer on April 3, 1997.
Item 2.
Item 2. Properties
The Association operates from its main office and one loan office located in Fayetteville, North Carolina and one full service branch office located in Lumberton, North Carolina.
Item 3.
Item 3. Legal Proceedings
There are various claims and lawsuits in which the Company or the Association are periodically involved, such as claims to enforce liens, condemnation proceedings on properties in which the Association holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the Association's business. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information contained under the section captioned "Common Stock Information" in the Company's Annual Report to Stockholders for the fiscal year ended September 30, 1998 (the "Annual Report"), is incorporated herein by reference. In addition, there are 4,083,219 shares of Common Stock outstanding which were held by approximately 2,100 holders on September 30, 1998.
Item 6.
Item 6. Selected Financial Data
The information contained in the section captioned "Selected Financial Data" in the Annual Report is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information contained in the section captioned "Management's Discussion and Analysis" in the Annual Report is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Registrant's financial statements are incorporated by references to the Annual Report listed under Item 14.
Item 9.
Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information contained under the sections captioned "Section 16(a) Beneficial Ownership Reporting Compliance" and "I - Information with Respect to Nominees for Director, Directors Continuing in Office, and Executive Officers - Election of Directors" and " - Biographical Information" in the 1998 Proxy Statement are incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information contained in the section captioned "Director and Executive Officer Compensation" in the 1998 Proxy Statement is incorporated herein by reference.
Item 12.
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 first chart in the section captioned "I - Information with Respect to Nominees for Director, Directors Continuing in Office, and Executive Officers" in the 1998 Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the first chart in the section captioned "I - Information with Respect to Nominees for Director, Directors Continuing in Office, and Executive Officers" in the 1998 Proxy Statement.
(c) Management of the Registrant knows of no arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the section captioned "Certain Relationships and Related Transactions" in the 1998 Proxy Statement.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Listed below are all financial statements and exhibits filed as part of this report.
1. The consolidated statements of financial conditions of Green Street Financial Corp and subsidiary as of September 30, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three year period ended September 30, 1998, together with the related notes and the independent auditors' report of McGladrey & Pullen, LLP, independent certified public accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
The following Exhibits are filed as part of this report:
3(i) Articles of Incorporation of Green Street Financial Corp *
3(ii) Bylaws of Green Street Financial Corp *
10.1 Form of Employment Agreement with H.D. Reaves, Jr., Jerry Robertson and Allen Lloyd * 10.6 Amendment to 1996 Stock Option Plan ** 10.7 Amendment to Restricted Stock Plan and Trust ** 13 Annual Report to Stockholders for the fiscal year ended September 30, 1998 21 Subsidiaries of the Registrant (See Item 1 - Business - General) 23 Consent of McGladrey and Pullen, LLP 27 Financial Data Schedule (electronic filing only)
- --------------------- * Incorporated by reference to the registration statement on Form S-1 (File No. 33-80485) declared effective by the SEC on February 12, 1996. ** Incorporated by reference to the proxy statement for the annual meeting of stockholders on January 28, 1998 and filed with the SEC on December 15, 1997.
(b) No reports were filed under cover of Form 8-K during the fourth quarter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the
GREEN STREET FINANCIAL CORP
By: /s/ H. D. Reaves, Jr. ----------------------------------------------- H. D. Reaves, Jr. President, Chief Executive Officer and Director (Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of December 15, 1998.
/s/ H. D. Reaves, Jr. /s/ John C. Pate - ---------------------------------- -------------------------------------- H. D. Reaves, Jr. John C. Pate President, Chief Executive Officer Senior Vice President and Director and Director (Principal Financial Officer) (Principal Executive Officer)
/s/ Robert O. McCoy, Jr. /s/ Jerry Robertson - ---------------------------------- -------------------------------------- Robert O. McCoy, Jr. Jerry Robertson Chairman of the Board and Director Vice President and Treasurer (Principal Accounting Officer)
/s/ Norwood E. Bryan, Jr. /s/ Henry G.Hutaff, Jr. - ---------------------------------- -------------------------------------- Norwood E. Bryan, Jr. Henry G. Hutaff, Sr. Director Vice Chairman of the Board and Director
/s/ Joseph H. Hollingshed /s/ John H. Grantham - ---------------------------------- -------------------------------------- Joseph H. Hollinshed John M. Grantham Director Senior Vice President and Director
/s/ Robert G. Ray /s/ Henry W. Holt - ---------------------------------- -------------------------------------- Robert G. Ray Henry W. Holt Director Director