SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_________________.
Commission File Number 0-25933
SOUTHCOAST FINANCIAL CORPORATION
(Exact Name of Small Business Issuer as Specified in the Charter)
Incorporated in the State of South Carolina
I.R.S. Employer Identification Number 58-2384011
530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
(Address of Principal Executive Offices)
(843) 884-0504
(registrant's Telephone Number, including Area Code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock - No Par Value
1,047,987 Shares Outstanding on September 30, 1999
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks ........................................................... $ 1,560,363 $ 1,211,451
Federal funds sold ................................................................ 1,410,000 4,220,000
Investment securities available for sale .......................................... 4,683,264 2,732,978
Loans, net of allowance of $805,000 and $325,000 .................................. 35,768,157 10,821,975
Property and equipment - net ...................................................... 3,799,774 1,243,133
Other assets ...................................................................... 885,297 453,207
------------ ------------
Total assets .................................................................. $ 48,106,855 $ 20,682,744
============ ============
LIABILITIES
Deposits
Noninterest-bearing ............................................................. $ 3,695,082 $ 2,114,621
Interest bearing ................................................................ 29,538,018 7,444,869
------------ ------------
Total deposits ................................................................ 33,233,100 9,559,490
Federal Home Loan Bank borrowings ................................................. 4,900,000 950,000
Other liabilities .................................................................... 271,180 98,670
------------ ------------
Total liabilities ............................................................. 38,404,280 10,608,160
------------ ------------
SHAREHOLDERS' EQUITY
Common stock (no par value; 20,000,000 shares authorized;
1,047,987 shares outstanding at September 30, 1999. $5.00 par
value; 20,000,000 shares authorized; 952,713 shares
outstanding at December 31, 1998) ............................................... 10,520,053 4,763,565
Paid-in capital ................................................................... - 5,756,488
Retained deficit .................................................................. (734,022) (451,147)
Accumulated other comprehensive income (loss) ..................................... (83,456) 5,678
------------ ------------
Total shareholders' equity .................................................... 9,702,575 10,074,584
------------ ------------
Total liabilities and shareholders' equity .................................... $ 48,106,855 $ 20,682,744
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months Nine months
ended ended ended
June 30, 1999 Sept. 30, 1999 Sept. 30, 1999
------------- -------------- --------------
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees ................................................. $ 608,935 $ 816,752 $ 1,791,833
Investment securities ................................................. 65,335 80,146 192,624
Federal funds sold .................................................... 35,715 22,855 107,318
----------- ---------- -----------
Total interest income ............................................. 709,985 919,753 2,091,775
INTEREST EXPENSE
Deposits and borrowings ............................................... 257,878 370,709 768,129
----------- ---------- -----------
Net interest income ............................................... 452,107 549,044 1,323,646
PROVISION FOR POSSIBLE LOAN LOSSES ....................................... 225,000 30,000 480,000
----------- ---------- -----------
Net interest income after provision for loan losses ............... 227,107 519,044 843,646
----------- ---------- -----------
NONINTEREST INCOME
Service fees on deposit accounts ...................................... 24,025 22,981 65,283
Fees on loans sold .................................................... 15,274 11,719 42,163
Other ................................................................. 12,816 21,104 58,530
----------- ---------- -----------
Total non interest income ......................................... 52,115 55,804 165,976
----------- ---------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits ........................................ 324,211 336,725 913,089
Occupancy ............................................................. 16,103 14,669 44,756
Furniture and equipment ............................................... 35,189 47,864 115,630
Advertising and public relations ...................................... 21,232 24,460 63,315
Professional fees ..................................................... 44,150 35,568 95,433
Travel and entertainment .............................................. 24,374 30,406 69,821
Telephone, postage and supplies ....................................... 29,719 51,945 104,721
Other operating ....................................................... 12,316 11,716 33,030
----------- ---------- -----------
Total non interest expenses ....................................... 507,294 553,353 1,439,795
----------- ---------- -----------
Income (loss) before income taxes ................................. (228,072) 21,495 (430,171)
INCOME TAX (BENEFIT) .................................................... (78,472) 7,172 (147,296)
----------- ---------- -----------
Net income (loss) ................................................. $ (149,600) $ 14,323 $ (282,875)
=========== ========== ===========
NET INCOME (LOSS) PER COMMON SHARE ...................................... $ (.14) $ .01 $ (.27)
=========== ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ...................................... 1,047,987 1,047,987 1,047,987
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Total
other share-
Common stock Paid-in Retained comprehensive holders'
Shares Amount capital deficit income equity
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 ..................... - $ - $ - $ - $ - $ -
Net loss .................................. - - - (306,802) - (306,802)
Other comprehensive income, net
of tax:
Unrealized holding gains on
securities available for sale ......... - - - - - -
Reclassification adjustments for
gains included in net loss ............ - - - - - -
Comprehensive income (loss) ............... - - - - - -
Sale of stock (net of offering
costs of $912,503) ...................... 952,713 4,763,565 5,756,488 - - 10,520,053
--------- ----------- ----------- --------- ------------ ------------
BALANCE, SEPTEMBER 30,1998 .................. 952,713 4,763,565 5,756,488 (306,802) - 10,213,251
========= =========== =========== ========= ============ ============
BALANCE, JANUARY 1, 1999 ..................... 952,713 4,763,565 5,756,488 (451,147) 5,678 10,074,584
Net loss .................................. - - - (282,875) - (282,875)
Other comprehensive income, net
of tax:
Unrealized holding losses on
securities available for sale ......... - - - - (89,134) (89,134)
Reclassification adjustments for
gains included in net loss ............ - - - - - -
------------
Comprehensive income (loss) ............... - - - - - (372,009)
11 for ten stock split .................... 95,274 476,370 (476,370) - - -
Par value conversion ...................... - 5,280,118 (5,280,118) - - -
--------- ----------- ----------- --------- ------------ ------------
BALANCE, September 30, 1999 .................. 1,047,987 $10,520,053 $ - $(734,022) $ (83,456) $ 9,702,575
========= =========== =========== ========= ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30
(Unaudited)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES 1999 1998
---- ----
<S> <C> <C>
Net loss ...................................................................... $ (282,875) $ (306,802)
Adjustments to reconcile net loss to net cash provided
by operating activities
Deferred income ........................................................... (184,611) -
Provision for possible loan losses ........................................ 480,000 100,000
Depreciation and amortization ............................................. 61,687 13,853
Increase in other assets .................................................. (211,165) (234,202)
Increase in other liabilities ............................................. 173,510 84,384
------------ ------------
Net cash provided by operating activities ........................ 36,546 (342,767)
------------ ------------
INVESTING ACTIVITIES
Decrease (increase) in federal funds sold ..................................... 2,810,000 (9,250,000)
Purchase of investment securities available for sale .......................... (2,057,314) (1,000,078)
Net increase in loans ......................................................... (25,426,182) (2,774,195)
Purchase of property and equipment ............................................ (2,637,748) (1,047,283)
------------ ------------
Net cash used for investing activities ........................... (27,311,244) (14,071,556)
------------ ------------
FINANCING ACTIVITIES
Increase in Federal Home Loan Bank borrowing .................................. 3,950,000 -
Sale of stock, net ............................................................ - 10,520,053
Net increase in deposits ...................................................... 23,673,610 4,108,395
------------ ------------
Net cash provided by financing activities ........................ 27,623,610 14,628,448
------------ ------------
Increase in cash and due from banks .............................. 348,912 214,125
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD ....................................... 1,211,451 -
------------ ------------
CASH AND DUE FROM BANKS, END OF PERIOD ............................................. $ 1,560,363 $ 214,125
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and item 310 (b) of
Regulation S-B of the Securities and Exchange Commission. Accordingly they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Because the
business operations did not commence until the third quarter of 1998, no
statements of income for 1998 are presented.
NOTE 2 - ORGANIZATION
Southcoast Financial Corporation (the "Company") is a South Carolina
corporation organized in 1999 for the purpose of being a holding company for
Southcoast Community Bank (the "Bank"). On April 29, 1999, pursuant to a Plan of
Exchange approved by the shareholders, all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company. The
Company presently engages in no business other than that of owning the Bank and
has no employees.
NOTE 3 - NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average
number of common shares outstanding in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". The Company does not have
any instruments which are dilutive; therefore, only basic net income per share
of common stock is presented.
In March, 1999, the Company declared an eleven-for-ten stock split of
the Company's common stock. The weighted average number of shares and all other
share data have been restated for all periods presented to reflect this stock
split.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and related notes appearing in the Form 10-SB of
Southcoast Financial Corporation. It will concentrate on the nine months of
operations ending September 30,1999. The Bank commenced operations on July 20,
1998 and was in business for a portion of the third quarter of 1998. Where
appropriate, comparisons to second quarter of 1999 have been made. Results of
operations for the period ending September 30, 1999 are not necessarily
indicative of the results to be attained for any other period. The following
information may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on earning
assets and the interest paid for funds acquired to support those assets. Net
interest income, the principal source of the Company's earnings, was
$1,323,646 for the nine months ended September 30, 1999. For the three months
ended September 30, 1999 net interest income was $549,044 compared to
$452,107 for the three months ended June 30, 1999.
Changes that affect net interest income are changes in the average rate
earned on interest earning assets, changes in the average rate paid on
interest bearing liabilities, and changes in the volume of interest earning
assets and interest bearing liabilities.
Average earning assets for the quarter ending September 30, 1999 increased to
$38.5 million or 25.8 percent from the $30.6 million reported for the quarter
ending June 30, 1999. The increase was mainly attributable to the increase in
loans supported by a $8.2 million increase in interest bearing liabilities
which resulted from favorable economic conditions in the Charleston, South
Carolina market and the Company's marketing efforts.
The following table represents changes in the Company's net interest income
which are primarily a result of changes in volume and rates of its interest
earnings assets and interest bearing liabilities. The increase in net
interest income is due to increased volume of earnings assets and interest
bearing liabilities coupled with a 10 basis point increase in the Company's
net interest spread. The net interest spread is the difference between the
yield on earning assets minus the average rate of interest bearing
liabilities.
7
<PAGE>
<TABLE>
<CAPTION>
Three months ended Three months ended Nine months ended
June 30, 1999 September 30, 1999 September 30, 1999
----------------------------- --------------------------------- -------------------------------
ASSETS Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
balance expense rate balance expense rate balance expense rate
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold ........ $ 2,910,713 $ 35,715 4.91% $ 1,839,262 $ 22,855 4.97% $ 2,973,461 $ 107,318 4.81%
Investments ............... 4,632,690 65,335 5.64 4,646,234 80,146 6.90 4,215,322 192,624 6.09
----------- -------- ----------- ----------- ----------- ----------
Total investments and
federal funds sold ..... 7,543,403 101,050 5.36 6,485,496 103,001 6.35 7,188,783 299,942 5.56
Loans ..................... 23,014,557 608,935 10.58 31,968,913 816,752 10.22 22,949,769 1,791,833 10.41
----------- -------- ----------- ----------- ----------- ----------
Total earning assets ...... 30,557,960 709,985 9.29 38,454,409 919,753 9.57 30,138,552 2,091,775 9.25
Other assets .............. 3,370,376 4,533,611 3,327,468
----------- ----------- -----------
Total assets .............. $33,928,336 $42,988,020 $33,466,020
=========== =========== ===========
Interest bearing deposits $19,313,760 $233,794 4.84 $24,962,825 $ 313,747 5.03 $18,450,878 $ 680,869 4.92
FHLB advances ............. 1,873,656 24,084 5.14 4,388,849 56,962 5.19 2,233,810 87,260 5.21
----------- -------- ----------- ----------- ----------- ----------
Total interest bearing
liabilities ............ 21,187,416 257,878 4.87 29,351,674 370,709 5.05 20,684,688 768,129 4.95
Non-interest bearing
liabilities ............ 2,839,435 3,846,897 2,863,374
----------- -------- ----------- ----------- ----------- ----------
Total liabilities ......... 24,026,851 257,878 4.29 33,198,571 370,709 4.47 23,548,062 768,129 4.35
Equity .................... 9,901,485 9,789,449 9,917,958
----------- ----------- -----------
Total liabilities and
Equity ................. $33,928,336 $42,988,020 $33,466,020
=========== =========== ===========
Net interest income/
margin ................. $452,107 5.92 $ 549,044 5.71 $1,323,646 5.86
======== =========== ==========
Net interest spread ....... 4.42 4.52 4.30
</TABLE>
As reflected above, for the three months ended September 30, 1999 the average
yield on earning assets amounts amounted to 9.57 percent, while the average cost
of interest-bearing liabilities was 5.05 percent. For the three months ended
June 30, 1999 the average yield on earning assets was 9.29 percent and the
average cost of interest-bearing liabilities was 4.87 percent. The increase in
the yield on earning assets is attributable to the increased volume of loans,
which gives the Company a greater return than the other types of earning assets.
The net interest margin is computed by subtracting interest expense from
interest income and dividing the resulting figure by average interest-earning
assets. The net interest margin for the three months ended September 30, 1999
was 5.71 percent compared to 5.92 percent for the three months ended June 30,
1999. The decrease in the net-interest margin is attributable to the increase in
interest bearing liabilities which resulted in an increase in the cost of total
liabilities to support earning assets. The cost of total liabilities was 4.47
percent for the three months ended September 30, 1999 compared to 4.29 percent
for the three months ended June 30, 1999. For the nine months ended September
30, 1999, the net interest margin was 5.86 percent.
The following table represents changes in the Company's net interest income
which are primarily a result of changes in the volume and rates of its
interest-earning assets and interest-bearing liabilities.
8
<PAGE>
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
For the three months ended September 30, 1999
versus three months ended June 30, 1999
---------------------------------------
Volume Rate Net change
------ ---- ----------
<S> <C> <C> <C>
Federal fund sold ................................................. $ (13,147) $ 287 $ (12,860)
Investments ....................................................... 191 14,620 14,811
--------- -------- ---------
Total investments and federal funds sold .......................... (12,956) 14,907 1,951
Total loans ....................................................... 236,921 (29,104) 207,817
--------- -------- ---------
Total earning assets .............................................. 223,965 (14,197) 209,768
Total interest-bearing liabilities ................................ 99,369 13,462 112,831
--------- -------- ---------
Net interest income ............................................... $ 124,596 $(27,659) $ 96,937
========= ======== =========
</TABLE>
RESULTS OF OPERATIONS
The Company's net loss for the nine months ended September 30, 1999 was
$282,875 or $.27 per share. For the three months ended September 30, 1999 the
net income was $14,323 or $.01 per share compared to a net loss of $149,600
or $.14 per share for the three months ended June 30, 1999. The amount of the
Company's provision for loan losses in the third quarter was $30,000 which
was substantially less than the amount of the provision in previous quarters.
Since opening the bank in July 1998, management has sought to have an
allowance for loan losses that was adequate to cover the level of loss that
management believed to be inherent in the portfolio as a whole taking into
account the relative size of the allowance and the size of the Company's
largest loans. In the third quarter of 1999, management concluded that the
allowance for loan losses was large enough to allow for the risk of loss of
one or two of the Company's larger loans and still reflect the risk of loss
in the loan portfolio as a whole. Consequently, the Company made a provision
for loan losses for third quarter of 1999 that was less than in prior
quarters. Had it been kept at the level of prior quarters, the Company would
have reported a net operating loss for the third quarter of 1999.
Non-interest income for the nine months ended September 30, 1999 was
$165,976. For the three months ended September 30, 1999 the noninterest
income was $55,804 compared to $52,115 for the three months ended June 30,
1999.
Non-interest expenses for the nine months ended September 30, 1999 were
$1,439,795, of this total $1,074,475 represents salaries and benefits,
occupancy cost and furniture and equipment expenses. For the three months
ended September 30, 1999, total non-interest expenses amounted to $553,353
compared to $507,294 for the three months ended June 30, 1999. The slight
increase in expenses in the third quarter is primarily related to expenses
associated with the opening of the Savannah Highway branch.
9
<PAGE>
LIQUIDITY
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of liabilities.
The Company manages both assets and liabilities to achieve appropriate levels
of liquidity. Cash and short-term investments are the Company's primary
sources of asset liquidity. These funds provide a cushion against short-term
fluctuations in cash flow from both deposits and loans. The investment
portfolio is the Company's principal source of secondary asset liquidity.
However, the availability of this source of funds is influenced by market
conditions. Individual and commercial deposits and borrowings from the
Federal Home Loan Bank are the Company's primary source of funds for credit
activities. The Company also has a $3 million line of credit with the Bankers
Bank of Atlanta. Management believes that the Company's liquidity sources are
adequate to meet its operating needs.
LOANS
Commercial financial and agricultural loans made up 16 percent of the total
loan portfolio as of September 30, 1999, totaling $5.8 million. Loans secured
by real estate for construction and land development totaled $3.4 million or
9 percent of the total loan portfolio while all other loans secured by real
estate totaled $25.9 million or 71 percent of the total loan portfolio as of
September30, 1999. Installment loans and other consumer loans to individuals
comprised $1.5 million or 4 percent of the total loan portfolio. The
allowance for loan losses was 2.20 percent of loans as of September 30, 1999
compared to 2.92 percent as of December 31, 1998. In management's opinion,
the allowance for loan losses is adequate. At September 30, 1999, the Company
had no loans that were 90 days or more past due or non-accruing.
CAPITAL RESOURCES
The capital base for the Company decreased by $372,009 for the nine months of
1999, due to operating losses and unrealized losses carried on securities.
The Company's equity to asset ratio was 20.2 percent as of September 30, 1999
compared to 48.7 percent as of December 31, 1998.
The Federal Deposit Insurance Corporation has issued guidelines for
risk-based capital requirements. As of September 30, 1999, the Company
exceeds the capital requirement levels that are to be maintained.
Capital Ratios
<TABLE>
<CAPTION>
Well Capitalized Adequately Capitalized
Actual Requirement Requirement
------ ----------- -----------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets .......... $10,099 34.43% $2,933 10.00% $2,347 8.00%
Tier 1 capital to risk weighted assets ......... 9,727 33.16 1,706 6.00 1,173 4.00
Tier 1 capital to average assets ............... 9,727 22.64 2,148 5.00 1,718 4.00
</TABLE>
10
<PAGE>
YEAR 2000 READINESS DISCLOSURE
Many computer-based information systems in use today exclude the century as
part of the date definition, which could cause inaccurate calculations after
December 31, 1999. The "Year 2000 Problem" had been recognized at the time
company management was deciding which vendor packages to use in its daily
operations. Management obtained representations from all of its vendors that
the hardware/software was Year 2000 compliant. However, despite these
representations, management has completed extensive testing of all of its
computer hardware and software which has confirmed Year 2000 compliance. The
estimated total cost of the testing was $20,000. The Company does not
anticipate incurring any additional expenses to become Year 2000 compliant.
Year 2000 problems encountered by customers and vendors of goods and services
other than computer and data processing systems could adversely affect the
Company. Management has developed contingency plans to deal with the types
and extent of possible problems it can foresee. Contingency plans include the
identification of alternate sources of computer hardware and software as well
as plans for carrying on essential business functions without the use of
computers. Based on the information it has obtained and reviewed, management
of the Company does not believe that the most reasonably likely worst-case
scenario the Company would encounter would be materially worse than a
substantial inconvenience. Nevertheless, Year 2000 problems could have a
material adverse effect on the Company, the dollar amount of which cannot be
accurately quantified at this time because of inherent variables and
uncertainties.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company are primarily monetary in nature. Therefore,
interest rates have a more significant impact on the Company's performance
than do the effects of changes in the general rate of inflation and changes
in prices. In addition, interest rates do not necessarily move in the same
magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive
assets and liabilities in order to protect against wide rate fluctuations,
including those resulting from inflation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instrument
and Hedging Activities". All derivatives are to be measured at fair value and
recognized in the balance sheets as assets or liabilities. This statement's
effective date was delayed by the issuance of SFAS 137 (Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - an amendment of the FASB Statement No. 133)
and is effective for fiscal years and quarters beginning after June 15, 2000.
Because the Company does not use derivative transactions at this time,
management does not expect this standard to have a significant effect on the
Company.
11
<PAGE>
In October 1998, the FASB issued SFAS 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise. The new statement establishes accounting
and reporting standards for certain activities of mortgage banking
enterprises. The statement is effective for the first quarter beginning after
December 15, 1998. The statement will have no effect on the financial
statements of the Company.
In February 1999, the FASB issued SFAS 135, " Rescission of FASB Statement
No. 75 and Technical Corrections". The FASB provides technical corrections
for previously issued statements and rescinds SFAS 75, which provides
guidance related to pension of state and local governmental units. SFAS 135
is effective for the fiscal years ending after February 15, 1999. This
statement will have no effect on the financial statements of the Company.
In June 1999, the FASB issued SFAS 136," Transfers of Assets to a Not-for
-Profit Organization or Charitable Trust that Raises or Holds Contributions
for Others" is effective for fiscal periods beginning after December 15,
1999. This statement establishes standards for transactions in which an
entity makes a contribution by transferring assets to a not-for -profit
organization or a charitable trust and then requires these contributions to
be used in specified manner. This statement will have no effect on the
financial statements of the Company.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit No.
From Item 601 of
Regulation S-B Description
---------------------------- ------------------------------
3.1* Articles of Incorporation
3.2* Bylaws
10.1 Stock Option Plan
27 Financial Data Schedule
b) Reports on form 8-K. None.
- -------------------
*Incorporated by reference to Form 10-SB filed April 30, 1999.
13
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Southcoast Financial Corporation
--------------------------------
Name of Company
s/L. Wayne Pearson
By:--------------------------------------- Date: November 15, 1999
President and Chief Executive Officer
s/Robert M. Scott
By:--------------------------------------- Date: November 15, 1999
Executive Vice President and
Chief Financial Officer
Exhibit A
Southcoast Financial Corporation
1999 STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the Southcoast Financial
Corporation 1999 Stock Option Plan (the "Plan"). The purpose of the Plan is to
attract and retain the best available personnel for positions of substantial
responsibility and to provide additional incentive to directors, officers and
key employees of Southcoast Financial Corporation (the "Company"), or any
present or future parent or subsidiary of the Company, and to promote the
success of the business. The Plan is intended to provide for the grant of
"Incentive Stock Options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and Non-qualified Stock Options,
options that do not so qualify. Each and every one of the provisions of the Plan
relating to Incentive Stock Options shall be interpreted to conform to the
requirements of Section 422 of the Code.
2. Definitions. As used herein, the following definitions shall apply.
(a) "Award" means the grant by the Board or the Committee of an Incentive
Stock Option or a Non-qualified Stock Option, or any combination thereof, as
provided in the Plan.
(b) "Company" shall mean Southcoast Financial Corporation, or any
successor corporation thereto.
(c) "Board" shall mean the Board of Directors of the Company, or any
successor or parent corporation thereto.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with paragraph 5(a) of the Plan.
(f) "Common Stock" shall mean common stock, no par value per share, of the
Company, or any successor or parent corporation thereto.
(g) "Continuous Employment" or "Continuous Status as an Employee" shall
mean the absence of any interruption or termination of employment with the
Company or any present or future Parent or Subsidiary of the Company.
Employment shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Company
(provided, however, in the case of Incentive Stock Options, no such leave may
extend beyond 90 days unless reemployment rights are guaranteed by law), or
in the case of transfers between payroll locations of the Company or between
the Company and any of its Parent, its Subsidiaries or a successor.
(h) "Director" shall mean a member of the Board of the Company, or any
successor or parent corporation thereto.
(i) "Effective Date" shall mean the date specified in Section 15 hereof.
(j) "Employee" shall mean any person employed by the Company or any
present or future Parent or Subsidiary of the Company.
<PAGE>
(k) "Incentive Stock Option" or "ISO" shall mean an option to purchase
Shares granted by the Committee pursuant to Section 8 hereof which is subject
to the limitations and restrictions of Section 8 hereof and is intended to
qualify under Section 422 of the Code.
(l) "Non-qualified Stock Option" shall mean an option to purchase Shares
granted pursuant to Section 9 hereof, which option is not intended to qualify
under Section 422 of the Code.
(m) "Option" shall mean an Incentive or Non-qualified Stock Option granted
pursuant to this Plan providing the holder of such Option with the right to
purchase Common Stock.
(n) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(o) "Optionee" shall mean any person who receives an Option or Award
pursuant to the Plan.
(p) "Parent" shall mean any present or future corporation which would be a
"parent corporation" as defined in Subsections 424(e) and (g) of the Code.
(q) "Participant" means any officer or key employee of the Company or any
Parent or Subsidiary of the Company or any other person providing a service
to the Company who is selected by the Board or the Committee to receive an
Award, or who by the express terms of the Plan is granted an Award.
(r) "Plan" shall mean Southcoast Financial Corporation 1999 Stock Option
Plan.
(s) "Share" shall mean one share of the Common Stock.
(t) "Subsidiary" shall mean any present or future corporation which would
be a "subsidiary corporation" as defined in Subsections 424(f) and (g) of the
Code.
3. Shares Subject to the Plan. Except as otherwise required by the provisions
of Section 13 hereof, the aggregate number of Shares with respect to which
Awards may be made pursuant to the Plan shall be 50,000. Such Shares shall be
authorized but unissued shares of the Common Stock. Shares of Common Stock
subject to Options which for any reason are terminated unexercised or expire
shall again be available for issuance under the Plan.
4. Six Month Holding Period.
A total of six months must elapse between the date of the grant of an Option
and the date of the sale of Common Stock received through the exercise of an
Option.
5. Administration of the Plan.
(a) Composition of the Committee. The Plan shall be administered by the
Board or a Committee appointed by the Board, which shall serve at the
pleasure of the Board. Such Committee shall be constituted solely of two or
more Directors who are not currently officers or employees of the Company or
any of its subsidiaries, and who qualify to administer the Plan as
contemplated by Rule 16b-3 under the Securities Exchange Act of 1934, or any
successor rule.
(b) Powers of the Committee. The Board or the Committee is authorized (but
only to the extent not contrary to the express provisions of the Plan or, in
the case of the Committee, to
2
<PAGE>
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan. The Committee also
shall have and may exercise such other power and authority as may be delegated
to it by the Board from time to time. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the members present at any
meeting at which a quorum is present shall be deemed the action of the
Committee. In no event may the Board or the Committee revoke outstanding Awards
without the consent of the Participant.
The Chairman of the Board of Directors of the Company and such other officers
as shall be designated by the Board or the Committee are hereby authorized to
execute instruments evidencing Awards on behalf of the Company and to cause them
to be delivered to the participants.
(c) Effect of Board's or Committee's Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be
final and conclusive on all persons affected thereby.
6. Eligibility. Awards may be granted to directors, officers, key employees
and other persons. The Board or the Committee shall from time to time determine
the directors, officers, key employees and other persons who shall be granted
Awards under the Plan, the number to be granted to each such director, officer,
key employee and other persons under the Plan, and whether Awards granted to
each such Participant under the Plan shall be Incentive and/or Non-qualified
Stock Options (provided, however, Incentive Stock Options may only be granted to
persons who are employees, including officers, of the Company). In selecting
participants and in determining the number of Shares of Common Stock to be
granted to each such Participant pursuant to each Award granted under the Plan,
the Board or the Committee may consider the nature of the services rendered by
each such Participant, each such Participant's current and potential
contribution to the Company and such other factors as the Board or the Committee
may, in its sole discretion, deem relevant. Directors, officers, key employees
or other persons who have been granted an Award may, if otherwise eligible, be
granted additional Awards.
7. Term of the Plan. The Plan shall continue in effect for a term of ten
years from the Effective Date, unless sooner terminated pursuant to Section 18
hereof. No Option shall be granted under the Plan after ten years from the
Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock Options
may be granted only to Participants who are Employees. Each Incentive Stock
Option granted pursuant to the Plan shall be evidenced by a written agreement,
executed by the Company and the Optionee, which states the number of shares of
common stock subject to the Options granted thereby and the period of
exercisability of the Options, and in such form as the Board or the Committee
shall from time to time approve. Each and every Incentive Stock Option granted
pursuant to the Plan shall comply with, and be subject to, the following terms
and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive Stock Option granted
under the Plan may be exercised shall not, as to any particular
Incentive Stock Option, be less than the fair market value of the
Common Stock at the time such Incentive Stock Option is granted. For
such purposes, if the Common Stock is traded otherwise than on a
national securities exchange at the time of the granting of an Option,
then the price per Share of the Optioned Stock shall be not less than
the mean between the bid and asked price on the date the Incentive
Stock Option is granted or, if there is no bid and asked price on said
date, then on the next prior business day on which there was a bid and
asked price. If no such bid and asked price is available, then the
price per Share shall be determined by the
3
<PAGE>
Board or the Committee. If the Common Stock is listed on a national
securities exchange at the time of the granting of an Incentive Stock
Option, then the price per Share shall be not less than the average of
the highest and lowest selling price on such exchange on the date such
Incentive Stock Option is granted or, if there were no sales on said
date, then the price shall be not less than the mean between the bid
and asked price on such date.
(ii) In the case of an Employee who owns Common Stock representing
more than ten percent (10%) of the outstanding Common Stock at the time
the Incentive Stock Option is granted, the Incentive Stock Option price
shall not be less than one hundred and ten percent (110%) of the fair
market value of the Common Stock at the time the Incentive Stock Option
is granted.
(b) Payment. Full payment for each Share of Common Stock purchased upon
the exercise of any Incentive Stock Option granted under the Plan shall be
made at the time of exercise of each such Incentive Stock Option and shall be
paid in cash. No Shares of Common Stock shall be issued until full payment
therefor has been received by the Company, and no Optionee shall have any of
the rights of a stockholder of the Company until Shares of Common Stock are
issued to him.
(c) Term of Incentive Stock Option. The term of each Incentive Stock
option granted pursuant to the Plan shall be not more ten (10) years from the
date each such Incentive Stock Option is granted, provided that in the case
of an Employee who owns stock representing more than ten percent (10%) of the
Common Stock outstanding at the time the Incentive Stock Option is granted,
the term of the Incentive Stock Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in Section 10 hereof,
no Incentive Stock Option may be exercised unless the Optionee shall have
been in the Continuous Employment of the Company at all times during the
period beginning with the date of grant of any such Incentive Stock Option
and ending on the date three months prior to the date of exercise of any such
Incentive Stock Option. The Board or the Committee may at the time of grant
impose additional conditions upon the right of an Optionee to exercise any
Incentive Stock Option granted hereunder which are not inconsistent with the
terms of the Plan or the requirements for qualification as an Incentive Stock
Option under Section 422 of the Code.
(e) Limitation on Options to be Exercised. The aggregate fair market value
(determined as of the date the Option is granted) of the Shares with respect
to which Incentive Stock Options are exercisable for the first time by each
Employee during any calendar year (under all Incentive Stock Option plans, as
defined in Section 422 of the Code, of the Company or any present or future
Parent or Subsidiary of the Company) shall not exceed $100,000.
Notwithstanding the prior provisions of this Section 8(e), the Board or the
Committee may grant Options in excess of the foregoing limitations, provided
said Options shall be clearly and specifically designated as not being
Incentive Stock Options, as defined in Section 422 of the Code.
(f) Transferability. Any Incentive Stock Option granted pursuant to the
Plan shall be exercised during an Optionee's lifetime only by the Optionee to
whom it was granted and shall not be assignable or transferable otherwise
than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-qualified Stock Options. Each Non-qualified
Stock Option granted pursuant to the Plan shall be evidenced by a written
agreement, executed by the Company and the Optionee, which states the number of
shares of common stock subject to the Options granted thereby and the period of
exercisability of the Options, and in such form as the Board or the Committee
shall from time to time approve. Each and every Non-qualified Stock Option
granted pursuant to the Plan shall comply with and be subject to the following
terms and conditions.
4
<PAGE>
(a) Option Price. The exercise price per Share of Common Stock for each
Nonqualified Stock Option granted pursuant to the Plan shall be at such price
as the Board or the Committee may determine in its sole discretion.
(b) Payment. Full payment for each Share of Common Stock purchased upon
the exercise of any Non-qualified Stock Option granted under the Plan shall
be made at the time of exercise of each such Non-qualified Stock Option and
shall be paid in cash. No Shares of Common Stock shall be issued until full
payment therefor has been received by the Company and no Optionee shall have
any of the rights of a stockholder of the Company until the Shares of Common
Stock are issued to him.
(c) Term. The term of each Non-qualified Stock Option granted pursuant to
the Plan shall be not more than ten (10) years from the date each such
Non-qualified Stock Option is granted.
(d) Exercise Generally. The Board or the Committee may impose additional
conditions upon the right of any Participant to exercise any Non-qualified
Stock Option granted hereunder which are not inconsistent with the terms of
the Plan.
(e) Cashless Exercise. An Optionee who has held a Non-qualified Stock
Option for at least six months may engage in the "cashless exercise" of the
Option. In a cashless exercise, an Optionee gives the Company written notice
of the exercise of the Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Company to pay the Option
price and any applicable withholding taxes. If the Optionee does not sell the
Optioned Stock through a registered broker-dealer or equivalent third party,
he can give the Company written notice of the exercise of the Option and the
third party purchaser of the Optioned Stock shall pay the Option price plus
any applicable withholding taxes to the Company.
(f) Transferability. Any Non-qualified Stock Option granted pursuant to
the Plan shall be exercised during an Optionee's lifetime only by the
Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death on Incentive
Stock Options.
(a) Termination of Employment. In the event that any Optionee's employment
with the Company shall terminate for any reason, other than Permanent and
Total Disability (as such term is defined in Section 22 (e) (3) of the Code)
or death, all of any such Optionee's Incentive Stock Options, and all of any
such Optionee's rights to purchase or receive Shares of Common Stock pursuant
thereto, shall automatically terminate on the earlier of (i) the respective
expiration dates of any such Incentive Stock Options or (ii) the expiration
of not more than three months after the date of such termination of
employment, but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of such termination of
employment.
(b) Disability. In the event that any Optionee's employment with the
Company shall terminate as the result of the permanent and Total Disability
of such Optionee, such Optionee may exercise any Incentive Stock Options
granted to him pursuant to the Plan at any time prior to the earlier of (i)
the respective expiration dates of any such Incentive Stock Options or (ii)
the date which is one year after the date of such termination of employment,
but only if, and to the extent that, the Optionee was entitled to exercise
any such Incentive Stock Options at the date of such termination of
employment.
(c) Death. In the event of the death of an Optionee, any Incentive Stock
Options granted to such Optionee may be exercised by the person or persons to
whom the Optionee's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the Optionee's
estate during the period of administration) at any time prior to the earlier
of (i) the respective
5
<PAGE>
expiration dates of any such Incentive Stock Options or (ii) the date which
is one year after the date of death of such Optionee but only if, and to the
extent that, the Optionee was entitled to exercise any such Incentive Stock
Options at the date of death. For purposes of this Section 10(c), any
Incentive Stock Option held by an Optionee shall be considered exercisable at
the date of his death if the only unsatisfied condition precedent to the
exercisability of such Incentive Stock Option at the date of death is the
passage of a specified period of time. At the discretion of the Board or the
Committee, upon exercise of such Options the Optionee may receive Shares or
cash or combination thereof. If cash shall be paid in lieu of Shares, such
cash shall be equal to the difference between the fair market value of such
Shares and the exercise price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes of Sections
10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any Optionee
shall be considered exercisable at the date of termination of his employment
if any such Incentive Stock Option would have been exercisable at such date
of termination of employment.
(e) Termination of Incentive Stock Options. To the extent that any
Incentive Stock Option granted under the Plan to any Optionee whose
employment with the Company terminates shall not have been exercised within
the applicable period set forth in this Section 10, any such Incentive Stock
Option, and all rights to purchase or receive Shares of Common Stock pursuant
thereto, as the case may be, shall terminate on the last day of the
applicable period.
11. Effect of Termination of Employment, Disability or Death on Non-qualified
Stock Options. The terms and conditions of Non-qualified Stock Options relating
to the effect of the termination of an Optionee's employment, disability of an
Optionee or his death shall be such terms and conditions as the Board or the
Committee shall, in its sole discretion, determine at the time of termination,
unless specifically provided for by the terms of the Agreement at the time of
grant of the Award.
12. Right of Repurchase and Restrictions on Disposition. The Board or the
Committee, in its sole discretion, may include at the time of award, as a term
of any Incentive Stock Option or Non-qualified Stock Option, the right (the
"Repurchase Right") but not the obligation, to repurchase all or any amount of
the Shares acquired by an Optionee pursuant to the exercise of any such Options.
The intent of the Repurchase Right is to encourage the continued employment of
the Optionee. The Repurchase Right shall provide for, among other things, a
specified duration of the Repurchase Right, a specified price per Share to be
paid upon the exercise of the Repurchase Right and a restriction on the
disposition of the Shares by the Optionee during the period of the Repurchase
Right. The Repurchase Right may permit the Company to transfer or assign such
right to another party. The Company may exercise the Repurchase Right only to
the extent permitted by applicable law.
13. Recapitalization, Merger, Consolidation, Change in Control and Similar
Transactions.
(a) Adjustment. The aggregate number of Shares of Common Stock for which
Options may be granted hereunder, the number of Shares of Common Stock
covered by each outstanding Option, and the exercise price per Share of
Common Stock of each such Option, shall all be proportionately adjusted for
any increase or decrease in the number of issued and outstanding Shares of
Common Stock resulting from a subdivision or consolidation of Shares (whether
by reason of merger, consolidation, recapitalization, reclassification,
splitup, spin-off, stock split, combination of shares, or otherwise) or the
payment of a stock dividend (but only on the Common Stock) or any other
increase or decrease in the number of such Shares of Common Stock effected
without the receipt of consideration by the Company (other than Shares held
by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become immediately
exercisable in the event of a change in control or imminent change in control
of the Company. In the event of such
6
<PAGE>
a change in control or imminent change in control, the Optionee shall, at the
discretion of the Board or the Committee, be entitled to receive cash in an
amount equal to the fair market value of the Common Stock subject to any
Incentive or Non-qualified Stock Option over the Option Price of such Shares,
in exchange for the surrender of such Options by the Optionee on that date.
For purposes of this Section 13, "change in control" shall mean: (i) the
execution of an agreement for the sale of all, or a material portion, of the
assets of the Company; (ii) the execution of an agreement for a merger or
recapitalization of the Company or any merger or recapitalization whereby the
Company is not the surviving entity; (iii) a change of control of the
Company, as otherwise defined or determined by the State Board of Financial
Institutions pursuant to the laws of the State of South Carolina, or
regulations promulgated by it; or (iv) the acquisition, directly or
indirectly, of the beneficial ownership (within the meaning of that term as
it is used in Section 13(d) of the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder) of 25% or more of the
outstanding voting securities of the Company by any person, trust, entity or
group. This limitation shall not apply to the purchase of shares by
underwriters in connection with a public offering of Company stock, or the
purchase of shares of up to 25% of any class of securities of the Company by
a tax qualified employee stock benefit plan of the Company or to a
transaction which forms a holding company for the Company, if the
shareholders of the Company own substantially the same proportionate
interests of the stock of the holding company immeiately after the
transaction except for changes caused by the exercise of dissenter's rights.
The term "person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically
listed herein. For purposes of this Section 13, "imminent change in control"
shall refer to any offer or announcement, oral or written, by any person or
persons acting as a group, to acquire control of the Company. Whether there
is an imminent change in control shall be determined by the Board or the
Committee. The decision of the Board or the Committee as to whether a change
in control or imminent change in control has occurred shall be conclusive and
binding.
(c) Cancellation and Payment for Options in the Event of Extraordinary
Corporate Action. Subject to any required action by the stockholders of the
Company, in the event of any change in control, recapitalization, merger,
consolidation, exchange of shares, spin-off, reorganization, tender offer,
liquidation or other extraordinary corporate action or event, the Board or
the Committee, in its sole discretion, shall have the power, prior or
subsequent to such action or event to:
(i) cancel any or all previously granted Options, provided that
consideration is paid to the Optionee in connection therewith which
consideration is sufficient to put the Optionee in as favorable a
financial position as he would have been if the options had not been
cancelled; and/or
(ii) subject to Section 13(a) and (b) above, make such other
adjustments in connection with the Plan as the Board or the Committee, in
its sole discretion, deems necessary, desirable, appropriate or advisable;
provided, however, that no action shall be taken by the Committee which
would cause Incentive Stock Options granted pursuant to the Plan to fail
to meet the requirements of Section 422 of the Code.
Except as expressly provided in Sections 13(a) and 13(b) hereof, no Optionee
shall have any rights by reason of the occurrence of any of the events described
in this Section 13.
(d) Acceleration. The Board or the Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.
14. Time of Granting Options. The date of grant of an Option under the Plan
shall, for all purposes, be the date on which the Board or the Committee makes
the determination to grant such Option. Notice of the determination of the grant
of an Option shall be given to each individual to whom an Option
7
<PAGE>
is so granted within a reasonable time after the date of such grant in a form
determined by the Board or the Committee.
15. Effective Date. The Plan shall become effective upon adoption by the
Board of Directors. Options may be granted prior to ratification of the Plan by
the stockholders of the Company if the exercise of such Options is subject to
such stockholder ratification.
16. Approval by Stockholders. The Plan shall be approved by stockholders of
the Company within twelve months before or after the date the Plan becomes
effective.
17. Modification of Options. At any time and from time to time, the Board may
or may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on him by the grant of a new
Option at such time, or shall not materially decrease the Optionee's benefits
under the Option without the consent of the holder of the Option, except as
otherwise permitted under Section 18 hereof. Notwithstanding anything herein to
the contrary, the Board or the Committee shall have the authority to cancel
outstanding Options with the consent of the Optionee and to reissue new Options
at a lower exercise price, (provided, however, the exercise price for Incentive
Stock Options shall in no event be less than the then fair market value per
share of Common Stock), in the event that the fair market value per share of
Common Stock at any time prior to the date of exercise of outstanding Options
falls below the exercise price of such Options.
18. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or discontinue the
Plan, except that no action of the Board may increase (other than as provided
in Section 13 hereof) the maximum number of Shares permitted to be optioned
under the Plan, materially increase the benefits accruing to Participants
under the Plan or materially modify the requirements for eligibility for
participation in the Plan unless such action of the Board shall be subject to
approval or ratification by the stockholders of the Company.
(b) Change in Applicable Law. Notwithstanding any other provision
contained in the Plan, in the event of a change in any federal or state law,
rule or regulation which would make the exercise of all or part of any
previously granted Incentive and/or Non-qualified Stock Option unlawful or
subject the Company to any penalty, the Committee may restrict any such
exercise without the consent of the Optionee or other holder thereof in order
to comply with any such law, rule or regulation or to avoid any such penalty.
19. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed.
The inability of the Company to obtain approval from any regulatory body or
authority deemed by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of any liability in
respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Company may require the
person exercising the Option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
8
<PAGE>
20. Reservation of Shares. During the term of the Plan, the Company will
reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Incentive or Non-qualified Stock Option under the Plan. No
trust fund shall be created in connection with the Plan or any grant of any
Incentive or Non-qualified Stock Option hereunder and there shall be no required
funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Company shall have the right to deduct from all
amounts paid in cash with respect to the cashless exercise of Options under the
Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option pursuant to the Plan, the Company shall
have the right to require the Participant or such other person to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares, or, in lieu thereof, to retain, or sell without notice,
a number of such Shares sufficient to cover the amount required to be withheld.
23. Governing Law. The Plan shall be governed by and construed in accordance
with the laws of the State of South Carolina, except to the extent that federal
law shall be deemed to apply.
24. Compliance With Rule 16b-3. With respect to persons to whom options are
granted hereunder who are subject to Section 16 of the Securities Exchange Act
of 1934: (i) this Plan is intended to comply with all applicable conditions of
Rule 16b-3 or its successors, (ii) all transactions involving
insider-participants are subject to such conditions are expressly set forth in
the Plan, and (iii) any provision of the Plan or action by the Plan's
administrators that is contrary to a condition of Rule 16b-3 shall not apply to
insider-participants.
9
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet at September 30, 1999 and the unaudited
Consolidated Statement of Income for the nine months ended September 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,560
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,410
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,683
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 36,573
<ALLOWANCE> 805
<TOTAL-ASSETS> 48,107
<DEPOSITS> 33,233
<SHORT-TERM> 0
<LIABILITIES-OTHER> 271
<LONG-TERM> 4,900
0
0
<COMMON> 10,520
<OTHER-SE> (817)
<TOTAL-LIABILITIES-AND-EQUITY> 48,107
<INTEREST-LOAN> 1,792
<INTEREST-INVEST> 193
<INTEREST-OTHER> 107
<INTEREST-TOTAL> 2,092
<INTEREST-DEPOSIT> 681
<INTEREST-EXPENSE> 768
<INTEREST-INCOME-NET> 1,324
<LOAN-LOSSES> 480
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,440
<INCOME-PRETAX> (430)
<INCOME-PRE-EXTRAORDINARY> (283)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
<YIELD-ACTUAL> 4.30
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 325
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 805
<ALLOWANCE-DOMESTIC> 805
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
