**EXHIBIT (10)(xi)**

 

**DIRECTOR DEFERRAL PLAN**

 

**AGREEMENT**

 

**THIS AGREEMENT**, made and entered into this 27th day of June, 2003, by and between Home Savings Bank of Albemarle, SSB, a Bank organized and existing under the laws of the State of North Carolina, (hereinafter referred to as the “Bank”),and R. Ronald Swanner, a Director of the Bank, (hereinafter referred to as the “Director”). 

 

**WHEREAS**, the Director has been in the service of the Bank for several years and has now and for years faithfully served the Bank. It is theconsensus of the Board of Directors of the Bank (hereinafter referred to as the “Board”) that the Director’s services have been of exceptional merit, in excess of the compensation paid and an invaluable contribution to the profits andposition of the Bank in its field of activity. The Board further believes that the Director’s experience, knowledge of corporate affairs, reputation and industry contacts are of such value and his continued services are so essential to theBank’s future growth and profits that it would suffer severe financial loss should the Director terminate the Director’s services. 

 

**ACCORDINGLY**, the Board has adopted the Bank Director Deferral Plan (hereinafter referred to as the “Director Plan”) and it is the desireof the Bank and the Director to enter into this Agreement under which the Bank will agree to make certain payments to the Director upon the Director’s retirement or to the Director’s beneficiary(ies) in the event of the Director’sdeath pursuant to the Director Plan; 

 

**FURTHERMORE**, it isthe intent of the parties hereto that this Director Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Director, and be considered a non-qualified benefit plan for purposes of theEmployee Retirement Income Security Act of 1974, as amended (“ERISA”). The Director is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan; and 

 

**WHEREAS**, the Bank and the Director are parties to a Retirement PaymentAgreement dated October of 1985 between Home Savings Bank of Albemarle, SSB and R. Ronald Swanner that provides for the payment of certain benefits. This Director Deferral Plan Agreement and the benefits provided hereunder shall replace andsupercede the existing Retirement Payment Agreement and the benefits provided thereby; 

 

**NOW THEREFORE**, in consideration of services the Director has performed in the past and those to be performed in the future, and based upon the mutual promises and covenants herein contained, the Bank and theDirector agree as follows: 

 

 

 

The Effective Date of the Director Plan shall be February 18, 2003. 

 B.Plan Year: 
 

Any reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation, the term “PlanYear” shall mean the period from the Effective Date to December 31 of the year of the Effective Date. 

 
 C.Retirement Date: 
 

Retirement Date shall mean retirement from service with the Bank which becomes effective on the first day of the calendar month following the month inwhich the Director reaches the Director’s seventieth (70th) birthday or such later date as the Director mayactually retire. 

 
 D.Termination of Service: 
 

Termination of Service shall mean voluntary resignation of service by the Director or the Bank’s discharge of the Director without cause, prior tothe Retirement Date (Subparagraph I [C]). 

 
 E.********Index Retirement Benefit: 
 

The Index Retirement Benefit for the Director for each plan year shall be equal to the excess (if any) of the Index (Subparagraph I [F]) for that PlanYear over the Opportunity Cost (Subparagraph I [G]) for that Plan Year, divided by a factor equal to .85 minus the marginal tax rate. 

 
 F.Index: 
 

The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contract(s) described hereinafter as defined by FASBTechnical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on the Effective Date hereof. 

 

Insurance Company:
 Mass Mutual Life Insurance Company
Policy Form:
 Flexible Premium Adjustable Life
Policy Name:
 Strategic Life Director
Insured’s Age and Sex:
 55, Male
Riders:
 None
Ratings:
 None
Option:
 Level
Face Amount:
 $61,101
Premiums Paid:
 $27,900
Number of Premium Payments:
 Single
Assumed Purchase Date:
 February 18, 2003

Insurance Company:
 New York Life Insurance Company
Policy Form:
 Flexible Premium Adjustable Life
Policy Name:
 Strategic Life Director
Insured’s Age and Sex:
 55, Male
Riders:
 None
Ratings:
 None
Option:
 Level
Face Amount:
 $100,000
Premiums Paid:
 $27,000
Number of Premium Payments:
 Single
Assumed Purchase Date:
 February 18, 2003
 

If such contracts oflife insurance are actually purchased by the Bank, then the actual policies as of the dates they were purchased shall be used in calculations under this Director Plan. If such contracts of life insurance are not purchased or are subsequentlysurrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased or had not subsequently surrendered or lapsed. Said illustrations shall be received from the respective insurancecompanies and will indicate the increase in policy values for purposes of calculating the amount of the Index. 

 

In either case, references to the life insurance contract are merely for purposes of calculating a benefit. The Bank has no obligation to purchase suchlife insurance and, if purchased, the Director and the Director’s beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured generalcreditor of the Bank. 

 
 G.Opportunity Cost: 
 

The Opportunity Cost for any Plan Year shall be calculated by taking the sum of the amount of premiums for the life insurance policies described in thedefinition of “Index” plus the amount of any after-tax benefits paid to the Director pursuant to the Director Plan (Paragraph II hereinafter) plus the amount of all previous years’ after-tax Opportunity Cost, and multiplying that sumby the greater of either: (i) the average after tax yield of a one-year Treasury bill; or (ii) the Bank’s annualized after tax cost of funds as calculated from the Bank’s third quarter call report. 

 
 H.********Change of Control: 
 

Change of Control means the cumulative transfer of more than fifty percent (50%) of the voting stock of the Bank from the Effective Date of this DirectorPlan. For the purposes of this Director Plan, transfers on account of deaths or gifts, transfers between family members or transfers made to a qualified retirement plan maintained by the Bank shall not be considered in determining whether there hasbeen a Change of Control. 

 
 I.Normal Retirement Age: 
 

Normal Retirement Age shall mean the date on which the Director attains age seventy (70). 

 J.Benefit Accounting: 
 

The Bank shall account for the benefit provided herein using the regulatory accounting principles of the Bank’s primary federal regulator. The Bankshall establish an accrued liability retirement account for the Director into which appropriate reserves shall be accrued. On the date of this Agreement, said account shall have a balance of Fifteen Thousand Eight Hundred Eighty Six and00/100th Dollars ($15,886.00). 

 
**II.****BENEFITS**
 
 A.Retirement Benefits: 
 

Subject to Subparagraph II (D), hereinafter, should the Director continue to serve the Bank until “Normal Retirement Age” defined inSubparagraph I (I), the Director shall be entitled to receive an annual benefit equal to the amount set forth in Exhibit “A-1”. Said payments shall be made monthly (1/12th of the annual benefit) and shall commence thirty (30) days following the Director’s retirement and shall continue until the Director attains ageseventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinbelow, the Index Retirement Benefit (Subparagraph I [E]) shall be paid to the Director until theDirector’s death at which time said benefit shall cease. Each Plan Year, said benefits shall be a maximum of Twelve Thousand and 00/100th Dollars ($12,000.00) annually. 

 
 (i)Index Retirement Benefit Adjustment: 
 

The Index Retirement Benefit payment as set forth hereinabove for the first Plan Year subsequent to the Director attaining age seventy-seven (77) shallbe adjusted according to a number equal to the aggregate of the Index Retirement Benefit (Subparagraph I [E]) for each Plan Year from the Effective Date of this agreement until the Plan Year subsequent to the Director attaining age seventy-seven(77) over the aggregate of the benefit payments the Director actually received under the terms of this Director Plan through that date. For example, if the Director retires at age sixty-five (65) and the aggregate annual benefits received by theDirector until the Plan Year the Director attains age seventy-seven (77) were $900,000.00, and the aggregate Index Retirement Benefits for each Plan Year from the Effective Date of this agreement to the Plan Year the Director’s attainsage seventy-seven (77) were $1,000,000.00 then the Director’s Index Retirement Benefit in the first Plan Year said payment is payable to the Director would be increased by $100,000.00. If said number is a deficit, then the IndexRetirement Benefit for the Plan Year when the Director attains age seventy-seven (77) and each subsequent Plan Year’s benefit (if necessary) shall be reduced until the entire deficit has been recovered by the Bank. For each year thereafter, theIndex Retirement Benefit payment shall be paid as set forth in Subparagraph I (E). For example, if the Director retires at age sixty-five (65) and the aggregate annual benefits to be received by the Director until the Plan Year the Director attainsage seventy-seven (77) were $1,000,000.00, and the aggregate Index Retirement Benefits for each Plan year from the Effective Date of this agreement to the Plan Year the Director attains age seventy-seven (77) were $900,000.00 and theDirector’s Index Retirement Benefit was $90,000.00 in the first year, then the Director would not receive any Index Retirement Benefit in the first year, and the second years’ Index Retirement benefit would be reduced by$10,000.00. 

 B.Termination of Service: 
 

Subject to Subparagraph II (E), should a Director suffer a Termination of Service the Director shall be entitled to receive the accrued liability accountbalance. Said payments shall be made monthly (1/12th of the annual benefit) and shall commence thirty (30) daysfollowing the Director’s Normal Retirement Age (Subparagraph I [J] and shall continue until the Director attains age seventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to SubparagraphII (A) (i) hereinabove the Index Retirement Benefit for each Plan Year subsequent to the year in which the Director attains age seventy-seven (77), and including the remaining portion of the Plan Year in which the Director attains age seventy-seven(77), shall be paid to the Director until the Director’s death. 

 
 C.Death:
 

If the Director dies while there is a balance in the Director’s accrued liability retirement account, then the unpaid balance shall be paid in alump sum to the individual or individuals designated in writing by the Director and filed with the Bank. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of theDirector’s estate. If, upon death, the Director shall have received the total balance of the Director’s accrued liability retirement account, then no further benefit shall be due hereunder. In any event, upon the death of the Director, theDirector’s beneficiary shall not be entitled to receive any Index Retirement Benefit. 

 
 D.Discharge for Cause: 
 

Should the Director be Discharged for Cause at any time, all benefits under this Director Plan shall be forfeited. The term “for cause” shallmean any of the following that result in an adverse effect on the Bank: (i) gross negligence or gross neglect; (ii) the commission of a felony or misdemeanor involving moral turpitude, fraud, or dishonesty; (iii) the willful violation of any law,rule, or regulation (other than a traffic violation or similar offense); (iv) an intentional failure to perform stated duties; or (v) a breach of fiduciary duty involving personal profit. If a dispute arises as to discharge “for cause,”such dispute shall be resolved by arbitration as set forth in this Director Plan. 

 
 D.Death Benefit: 
 

Except as set forth above, there is no death benefit provided under this Agreement. 

 
**III.****RESTRICTIONS UPON FUNDING**
 

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Director,the Director’s beneficiary(ies) or any successor in interest to the Director shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertakenby this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disabilitypolicies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Director be deemed to have any lien or right, title or interest in or to anyspecific funding investment or to any assets of the Bank. 

 

Ifthe Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Director, then the Director shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtainsuch insurance or annuities. 

 
**IV.****CHANGE OF CONTROL**
 

Upon a Change of Control (Subparagraph I [H]), if the Director subsequently suffers a Termination of Service (Subparagraph I [D]), then the Director shallbe entitled to receive the amount in the Director’s Accrued Liability Retirement Account as of the date of Termination of Service paid in a lump sum thirty (30) days following said Termination of Service. The Director will also remain eligiblefor all promised death benefits in this Director Plan. In addition, no sale, merger, or consolidation of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations of this Director Plan and agrees to abide byits terms. 

 
**V.****MISCELLANEOUS**
 
 A.Alienability and Assignment Prohibition: 
 

Neither the Director, his/her surviving spouse nor any other beneficiary under this Agreement shall have any power or right to transfer, assign,anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenanceowed by the Director or the Director’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Director or any beneficiary attempts assignment, commutation, hypothecation,transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate. 

 
 B.Binding Obligation of the Bank and any Successor in Interest: 
 

The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until suchbank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Director Plan. This Director Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs andpersonal representatives. 

 C.Amendment or Revocation: 
 

Subject to Paragraph VII, it is agreed by and between the parties hereto that, during the lifetime of the Director, this Director Plan may be amended orrevoked at any time or times, in whole or in part, by the mutual written consent of the Director and the Bank. 

 
 D.Gender: 
 

Whenever in this Director Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neutergender, whenever they should so apply. 

 
 E.Effect on Other Bank Benefit Plans: 
 

Nothing contained in this Director Plan shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension,profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure. 

 
 F.Headings: 
 

Headings and subheadings in this Director Plan are inserted for reference and convenience only and shall not be deemed a part of this Director Plan.

 
 G.Applicable Law: 
 

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. 

 
 M.12 U.S.C. § 1828(k): 
 

Any payments made to the Director pursuant to this Director Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.§ 1828(k) or any regulations promulgated thereunder. 

 
 N.Partial Invalidity: 
 

If any term, provision, covenant, or condition of this Director Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void,or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Director Plan shall remain in full force and effect notwithstanding such partial invalidity. 

 
 J.Supersede and Entire Agreement: 
 

This Agreement shall supersede the Retirement Payment Agreement dated October of 1985, and shall constitute the entire agreement of the partiespertaining to this particular Director Deferral Plan Agreement. 

**VI.****ERISA PROVISION**
 
 A.Named Fiduciary and Plan Administrator: 
 

The “Named Fiduciary and Plan Administrator” of this Director Plan shall be Home Savings Bank of Albemarle, SSB until its resignation orremoval by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Director Plan. The Named Fiduciary may delegate to others certain aspects of the management andoperation responsibilities of the Director Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. 

 
 B.Claims Procedure and Arbitration: 
 

In the event a dispute arises over benefits under this Director Plan and benefits are not paid to the Director (or to the Director’sbeneficiary(ies) in the case of the Director’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within.sixty (60) days fromthe date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specificreasons for such denial, reference to the provisions of this Director Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps tobe taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. 

 

If claimants desire a second review they shall notify the Named Fiduciaryand Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Director Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In their solediscretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision andshall include reference to specific provisions of the Plan Agreement upon which the decision is based. 

 

If claimants continue to dispute the benefit denial based upon completed performance of this Director Plan or the meaning and effect of the terms andconditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate under any generally recognized set ofarbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted to it for determination.

 

Where a dispute arises as to the Bank’s discharge ofthe Director “for cause,” such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. 

**VII.****TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS**
 

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations willcontinue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Director Plan, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change ofControl (Subparagraph I [J]), this paragraph shall become null and void effective immediately upon said Change of Control. 

 

**IN WITNESS WHEREOF**, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forthhereinabove, and that upon execution, each has received a conforming copy. 

 
  **HOME SAVINGS BANK OF ALBEMARLE, SSB**  
Albemarle, North Carolina

 
 
By:
 
 

Witness
 
Title
  
 
   
/s/ R. Ronald Swanner

Witness
   
R. Ronald Swanner

**BENEFICIARY DESIGNATION FORM FOR THE**

**DIRECTOR DEFERRAL PLAN AGREEMENT**

 
**I.****PRIMARY DESIGNATION**
*(You may refer to thebeneficiary designation information prior to completion.)*

 
 **A.****Person(s) as a Primary Designation:**
(Please indicate the percentage for each beneficiary.) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                              

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                      

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                             

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                      

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 
 **B.****Estate as a Primary Designation:**
 

My Primary Beneficiary is The Estate of                                                             as set forth in the last will and testament dated the      day of                    ,              and any codicils thereto. 

 
 **C.****Trust as a Primary Designation:**
 

Name of the Trust:                                                                                                                                                                      

 

Execution Date of theTrust:      /      /             

 

Name of the Trustee:                                                                                                                                                                  

 

Beneficiary(ies) of the Trust (please indicatethe percentage for each beneficiary): 

 

______________________________________________________________________________________________________ 

 

______________________________________________________________________________________________________ 

 

Is this an Irrevocable Life Insurance Trust?             Yes              No 

(If yes and this designation is for a Split Dollar agreement, an Assignment of Rights form should be completed.) 

 
**II.****SECONDARY (CONTINGENT) DESIGNATION**
 
 **A.****Person(s) as a Secondary (Contingent) Designation:**
(Please indicate the percentage for each beneficiary.) 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                      

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                      

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                        

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 

Name                                                                                            Relationship                                                         /             % 

 

Address:                                                                                                                                                                                      

                                                    (Street)                                                                (City)                                (State)                    (Zip) 

 
 **B.****Estate as a Secondary (Contingent) Designation:**
 

My Secondary Beneficiary is The Estate of                                                             as set forth in my last will and testament dated the      day of                    ,              and any codicils thereto. 

 
 **C.****Trust as a Secondary (Contingent) Designation:**
 

Name of the Trust:                                                                                                                                                                      

 

Execution Date of theTrust:      /      /             

 

Name of the Trustee:                                                                                                                                                                  

 

Beneficiary(ies) of the Trust (please indicatethe percentage for each beneficiary): 

 

______________________________________________________________________________________________________ 

 

______________________________________________________________________________________________________ 

 

All sums payable under the Director Deferral Plan Agreement by reason of mydeath shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participantnotifies the bank in writing. 

 

 
  
R. Ronald Swanner
  Date

EXHIBIT “A-1” 

 

**End of**

**Year Age:**
  
**Benefit**

**Amount**

70
  $12,000
71
  $12,000
72
  $12,000
73
  $12,000
74
  $12,000
75
  $12,000
76
  $12,000