SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
COASTAL FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
<PAGE>
COASTAL FINANCIAL CORPORATION
December 12, 1997
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Coastal Financial Corporation to be held at the Myrtle Beach
Martinique, 7100 N. Ocean Boulevard, Myrtle Beach, South Carolina, on Monday,
January 26, 1998, at 2:00 p.m., Eastern Standard Time.
The attached Notice of Annual Meeting of Shareholders and Proxy
Statement describe the formal business to be transacted at the meeting. During
the meeting, we will also report on the operations of the Corporation. Directors
and Officers of the Corporation, as well as a representative of KPMG Peat
Marwick LLP, the Corporation's independent auditors, will be present to respond
to any questions Shareholders may have.
To ensure proper representation of your shares at the meeting, please
sign, date and return the enclosed proxy card in the enclosed postage-prepaid
envelope as soon as possible, even if you currently plan to attend the meeting.
This will not prevent you from voting in person, but will assure that your vote
is counted if you are unable to attend the meeting.
Sincerely,
/s/Michael C. Gerald
--------------------
Michael C. Gerald
President and
Chief Executive Officer
<PAGE>
COASTAL FINANCIAL CORPORATION
2619 Oak Street
Myrtle Beach, South Carolina 29577-3129
(803) 448-5151
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 26, 1998
- --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
("Meeting") of Coastal Financial Corporation ("Corporation") will be held at the
Myrtle Beach Martinique, 7100 N. Ocean Boulevard, Myrtle Beach, South Carolina,
on Monday, January 26, 1998, at 2:00 p.m., Eastern Standard Time.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Corporation;
2. To approve an amendment to the Corporation's
Certificate of Incorporation; and
3. Such other matters as may properly come before the
Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come before
the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above, or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Pursuant to the Bylaws, the Board of
Directors has fixed the close of business on November 30, 1997 as the record
date for the determination of the Shareholders entitled to notice of and to vote
at the Meeting and any adjournments thereof.
You are requested to fill in and sign the enclosed form of Proxy which
is solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. The Proxy will not be used if you attend the Meeting and vote in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/SUSAN J. COOKE
-----------------
SUSAN J. COOKE
SECRETARY
Myrtle Beach, South Carolina
December 12, 1997
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE CORPORATION THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
<PAGE>
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PROXY STATEMENT
OF
COASTAL FINANCIAL CORPORATION
2619 Oak Street
Myrtle Beach, South Carolina 29577-3129
(803) 448-5151
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ANNUAL MEETING OF SHAREHOLDERS
January 26, 1998
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This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Coastal Financial Corporation ("Coastal
Financial" or the "Corporation") to be used at the Annual Meeting of
Shareholders of the Corporation ("Meeting"). The Meeting will be held at the
Myrtle Beach Martinique, 7100 N. Ocean Boulevard, Myrtle Beach, South Carolina,
on Monday, January 26, 1998, at 2:00 p.m., Eastern Standard Time. The
accompanying Notice of Annual Meeting of Shareholders and this Proxy Statement
are being first mailed to Shareholders on or about December 12, 1997.
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REVOCATION OF PROXIES
- --------------------------------------------------------------------------------
Shareholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and all adjournments thereof. Proxies may be revoked by written
notice delivered in person or mailed to the Secretary of the Corporation at 2619
Oak Street, Myrtle Beach, South Carolina 29577-3129, or by filing a later proxy
prior to a vote being taken on the proposals at the Meeting. A proxy will not be
voted if a Shareholder attends the Meeting and votes in person. Proxies
solicited by the Board of Directors of Coastal Financial will be voted in
accordance with the directions given therein. Where no instructions are
indicated, proxies will be voted for the nominees for directors set forth herein
and for the approval of the amendment to the Corporation's Certificate of
Incorporation.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
Shareholders of record as of the close of business on November 30,
1997, are entitled to one vote for each share of common stock ("Common Stock")
of the Corporation then held. Shareholders are not permitted to cumulate their
votes for the election of Directors. As of November 30, 1997, the Corporation
had 4,646,534 shares of Common Stock issued and outstanding.
The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Common Stock entitled to vote is necessary
to constitute a quorum at the Meeting. The three directors to be elected at the
Meeting will be elected by a plurality of the votes cast by the shareholders
present in person or by proxy and entitled to vote. With regard to the election
of directors, votes may be cast for or withheld from each nominee. Votes that
<PAGE>
are withheld will have no effect on the outcome of the election because
directors will be elected by a plurality of votes cast. Abstentations will be
counted as present for purposes of determining the existence of a quorum
regarding the proposal on which the abstentation is noted. Abstentations,
therefore, on the Corporation's proposal to approve an amendment to the
Corporation's Certificate of Incorporation will have the effect of a vote
against such proposal. Broker non-votes will be counted for purposes of
determining the existence of a quorum, but will not be counted for determining
the number of votes cast with respect to a proposal and, accordingly, will have
no effect on the outcome of such proposal.
Persons and groups who beneficially own in excess of 5% of the
Corporation's Common Stock are required to file certain reports with the
Securities and Exchange Commission ("SEC") regarding such ownership pursuant to
the Securities and Exchange Act of 1934, as amended ("1934 Act"). Based upon
such reports, the following table sets forth, as of November 30, 1997, certain
information as to those persons who were beneficial owners of more than 5% of
the outstanding shares of Common Stock. Management knows of no persons other
than those set forth below who owned more than 5% of the outstanding shares of
Common Stock beneficially owned by each director of the Corporation, the "named
executive officers" of the Corporation, and all executive officers and directors
of the Corporation as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Common Stock
Beneficial Owner Ownership (1) Outstanding
- ---------------- ------------- -----------
<S> <C> <C>
Beneficial Owners of More Than 5%
(Excluding Directors of the Corporation)
Sea Mist Associates Corporation (2) 251,119 5.40%
Named Executive Officers(3)
Michael C. Gerald, President, Chief
Executive Officer and Director 132,0992.85
Jimmy R. Graham, Executive Vice President 78,649 1.70
Allen W. Griffin, Executive Vice President 28,407 0.62
Jerry L. Rexroad, Executive Vice President
and Chief Financial Officer 29,780 (4) 0.64
Phillip G. Stalvey, Executive Vice President 34,481 0.75
Directors of the Corporation
(Excluding Named Executive Officers)
G. David Bishop 235,428 (5) 5.05
J.T. Clemmons 114,174 2.46
James H. Dusenbury 31,126 0.67
Samuel A. Smart 27,764 0.60
James C. Benton 229,180 (6) 4.94
Harold D. Clardy 52,983 1.14
James P. Creel 253,367 (7) 5.46
Wilson B. Springs 138,019 2.97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
All Executive Officers and
Directors as a
Group (13 persons) 1,385,457 (8) 29.82%
- --------------------------
</TABLE>
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person is deemed to be the
beneficial owner, for purposes of this table, of any shares of the
Corporation's Common Stock if he or she has voting and/or investment power
with respect to such security or has a right to acquire, through the
exercise of outstanding options or otherwise, beneficial ownership at any
time within 60 days from November 30, 1997. The table includes certain
shares owned by spouses, other immediate family members in trust, shares
held in retirement accounts or funds for the benefit of the named
individuals, and other forms of ownership, over which shares the named
persons possess voting and/or investment power.
(2) Includes 2,008 shares owned by Neil Ammons, owner.
(3) Under SEC regulation, the term "executive officer" is defined to include
the chief executive officer, regardless of compensation level, and the four
most highly compensated executive officers, other than the chief executive
officer, whose total annual salary and bonus for the last completed fiscal
year exceeded $100,000.
(4) Includes 1,666 shares owned by Jerry L. Rexroad - IRA; 6,075 shares owned
by Jerry L. Rexroad & Robin E. Rexroad Jt Ten; 373 shares by Robin E.
Rexroad; and 1,489 shares of 401-K Plan for Jerry L. Rexroad.
(5) Includes 51,640 shares owned by G. David Bishop; 74,793 shares for Bishop
Investment Company; 107,329 shares for George Bishop Trust; and 1,666
non-incentive stock options exercisable within 90 days of November 30,
1997.
(6) Includes 215,986 shares owned by RCEE,Inc. of which Mr. Benton is
President; 11,528 shares owned by Mr. Benton and 1,666 non-incentive stock
options exercisable with 90 days of November 30, 1997.
(7) Includes 192,629 shares owned by Creel Outdoor Advertising, Inc.; 38,265
shares owned by Creel Outdoor Advertising, Inc. Profit Sharing Plan; 294
owned by Carolyn W. Creel & James P. Creel, Jt Ten; 294 shares owned by
Carolyn W. Creel & C. Alicia Creel Jt Ten; 9,741 shares owned by Carolyn W.
Creel; and 3,504 shares owned by Sun Graphics, Inc., Carolyn W. Creel,
President; 2,186 shares owned by Carolyn W. Creel and C. Alicia Creel and
James P. Creel, Jr., Jt Ten; 4,788 shares owned by James P. Creel and 1,666
non-incentive stock options exercisable within 90 days of November 30,
1997.
(8) Includes 189,314 shares subject to stock options exercisable within 60 days
from November 30, 1997, (Mr. Gerald 91,691 shares; Mr. Graham 34,181
shares; Mr. Griffin 19,873 shares; Mr. Rexroad 19,177 shares; Mr. Stalvey
12,730 shares; Mr. Bishop 1,666 shares; Mr. Clemmons 1,666 shares; Mr.
Smart 1,666 shares; Mr. Benton 1,666 shares; Mr. Clardy 1,666 shares; Mr.
Creel 1,666 shares and Mr. Springs 1,666 shares.)
<PAGE>
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PROPOSAL 1 - ELECTION OF DIRECTORS
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The Corporation's Board of Directors is composed of nine members. The
Board of Directors of Coastal Federal Savings Bank ("Coastal Federal" or the
"Bank"), the Corporation's wholly owned subsidiary, also has nine members.
A former member of the Bank's Board of Directors, William J. Sigmon,
Sr., serves as a Director Emeritus of the Bank.
The Corporation's Certificate of Incorporation provides that directors
are to be elected for terms of three years with approximately one-third elected
annually. Three directors will be elected at the Meeting to serve for a
three-year period. Or until their respective successors have been elected and
qualified. The Nominating Committee has nominated for election as directors
Harold D. Clardy, James H. Dusenbury and Michael C. Gerald, each to serve for a
three-year term. All nominees are currently members of the Board.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend or the Board of Directors may amend the Bylaws and
reduce the size of the Board. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
The Board of Directors recommends a vote "FOR" all of the nominees for
directors of the Corporation.
<PAGE>
The following table sets forth certain information regarding the
nominees for election as directors and the directors who will continue in office
after the Meeting. There are no family relationships among or between the
directors listed below.
<TABLE>
<CAPTION>
Year First Elected Year
Principal or Nominated Term
Name Age Occupation Director Expires
---- --- ---------- -------- -------
(1) (2) (3) (4)
<S> <C> <C> <C> <C>
Board Nominees
Harold D. Clardy 70 President - Chapin Company 1975 2001
James H. Dusenbury 62 Attorney - Dusenbury, 1996 2001
Hendrix & Little
Michael C. Gerald 48 President and Chief Executive 1986 2001
Executive Officer
Directors Continuing in Office
James C. Benton 65 President - C.L. Benton 1979 1999
Sons, Inc
G. David Bishop 44 Chairman of the Board - WCI 1991 2000
Management Group, Inc.
J. T. Clemmons 59 Retired - Coastal Federal 1979 2000
James P. Creel 58 President - Creel Corporation 1990 1999
Samuel A. Smart 68 Retired - United States 1983 2000
Department of Defense
Wilson B. Springs 69 Owner - H.B. Springs Company 1967 1999
- ----------
</TABLE>
(1) As of September 30, 1997.
(2) The listed individuals have held these occupations or positions for at
least the last five years.
(3) Includes prior service on the Board of Directors of Coastal Federal for Mr.
Bishop, Mr. Clemmons, and Mr. Smart.
(4) Assuming re-election at the Meeting for Mr. Clardy, Mr. Dusenbury, and Mr.
Gerald.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The Board of Directors of the Corporation conducts its business through
meetings of the Board and through its committees. During the fiscal year ended
September 30, 1997, the Board of Directors of the Corporation held eleven
meetings. Coastal Federal has its own Board of Directors which conducts its
business through its own committees. During the fiscal year ended September 30,
1997, the Board of Directors for Coastal Federal held twenty-nine meetings. No
director of the Corporation or Coastal Federal attended fewer than 75% of the
total meetings of the Board and committee meetings on which such Board member
served during this period for either the Corporation or Coastal Federal.
<PAGE>
Coastal Financial's Board of Directors presently has three standing
committees: Executive, Audit, and Compensation and Benefits Committee. The
following describes the duties, responsibilities and current membership of these
committees.
The Corporation's Executive Committee meets when called by management
and is empowered to act for the Board of Directors between regular Board
meetings. The Executive Committee met four times in 1997. Its current members
are Messrs. Benton, Clardy, Clemmons (Chairman), Creel, Gerald and Springs.
The Corporation's Audit Committee has the primary function of
evaluating audit and compliance performance, handling relations with the
Corporation's independent auditors and establishing policies and procedures
relating to internal auditing functions and controls. Directors Dusenbury,
Chairman, Clardy, Smart, Springs and Creel serve on the committee with Directors
Benton and Bishop as alternates. The Corporation's Audit Committee met one time
during the 1997 fiscal year and the Bank's Audit Committee met four times during
the 1997 fiscal year.
The Corporation's Compensation and Benefits Committee meets as called
by management to review personnel policies and salary and benefit programs.
During 1997 the Compensation and Benefits Committee had one meeting. The members
of the Compensation and Benefits Committee are Messrs.
Benton, Clardy, Clemmons, Creel, Gerald and Springs.
Article II, Section 14 of the Corporation's Bylaws provides that the
Board of Directors shall act as a nominating committee for selecting the
nominees for election as directors. Such section of the Bylaws also provides as
follows: "No nominations for directors except those made by the nominating
committee shall be voted upon at the annual meeting unless other nominations by
Shareholders are made in writing and delivered to the Secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation."
Article II, Section 15 further provides that any new business to be
taken up at the annual meeting shall be stated in writing and filed with the
Secretary of the Corporation in accordance with the provisions of the
Corporation's Certificate of Incorporation. Article XI of the Certificate of
Incorporation provides that notice of a Shareholder's intent to make a
nomination or present new business at the meeting ("Shareholder notice") must be
given not less than thirty days nor more than sixty days prior to any such
meeting; provided however, that if less than thirty-one days' notice of the
meeting is given to Shareholders by the Corporation, a Shareholder's notice
shall be delivered or mailed, as prescribed, to the Secretary of the Corporation
not later than the close of the tenth day following the day on which notice is
mailed to Shareholders. If properly made, such nominations shall be considered
by Shareholders at such meeting. The Board of Directors of the Corporation held
one meeting in its capacity as the nominating committee during the fiscal year
ended September 30, 1997.
<PAGE>
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DIRECTORS' COMPENSATION
- --------------------------------------------------------------------------------
Members of the Board of Directors of Coastal Federal receive a fee of
$9,000 annually except for the Chairman of the Board who receives $19,000
annually. Since October 1, 1992, members of the Board of Directors of Coastal
Financial have received $100 each quarter. Directors who are members of the
Bank's Executive Committee, which meets on an as-needed basis, are not
compensated. Non-Associate directors who are members of the Bank's Loan
Committee receive $50 per committee meeting. Director's fees have remained at
the same level since October 13, 1991. Total fees paid to Directors, Advisory
Director and Director Emeritus of Coastal Financial Corporation and its
subsidiaries during the fiscal year ended September 30, 1997 were $128,700.
1996 Directors Performance Plan. At the 1996 Annual Meeting, the
Corporation's Shareholders approved the 1996 Directors Performance Plan (the
"Plan"). Beginning with the adjournment of that Meeting and at the adjournment
of the annual meetings for each of the succeeding years during the term of the
Plan, in which the Return on Equity of Coastal Financial for the fiscal year
preceding the annual meeting as reported by Coastal Financial Corporation in its
earnings release for such prior fiscal year is greater than 16.5%, an option
grant will be awarded. If Return on Equity is greater than 16.5%, 17.5% or
19.0%, each Director of Coastal Financial who was also serving in such capacity
as of September 30 of the preceding year will be granted an option to purchase
833, 1,666 or 2,399 shares of Coastal Financial Common Stock, respectively,
subject to adjustment as provided in the Plan and provided that no Director may
receive grants of options for shares of Coastal Financial Common Stock under the
Plan in excess of 9,998. In computing Return on Equity, net income is adjusted
for any unusual items greater than $250,000, such as changes in accounting
methods. All such unusual items will be determined by the Compensation
Committee.
Coastal Financial reported for the 1997 fiscal year a return on average
equity of 19.36%. Therefore, after the Annual meeting to be held on January 26,
1997, 2,399 shares will be granted to each Director.
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Summary Compensation Table
The following Summary Compensation Table sets forth certain information
concerning compensation to all executive officers whose total annual salary and
bonus for 1997 exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
Annual Compensation Long-Term Compensation
--------------------------------------- ---------------------------------
Awards Payouts
---------------------- ---------
Restricted Securities LTIP
Stock Underlying Payouts All Other
Name and Directors' Award(s) Options/ ($) Compensa-
Principal Salary Bonus Fees ($) SARs (h) tion
Position Year ($)(1)(2) ($)(3) ($)(4) (f) (#)(g) ($)(5)
-------- ---- --------- ------ ------ --- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael C. Gerald, 1997 150,000.00 101,250.00 13,600.00 - 12,079 - -
President, Chief 1996 150,000.00 95,000.00 13,400.00 - - - 8,064.00
Executive Officer 1995 125,000.00 30,000.00 12,900.00 - 15,625 - 1,761.00
& Director
Jerry L. Rexroad, 1997 125,000.00 86,750.00 4,200.00 - 10,413 - -
Executive Vice 1996 120,000.00 74,000.00 4,000.00 - - - 7,328.00
President & Chief 1995 46,875.49 22,500.00 - - 32,812 - 23,502.0
Financial Officer
Phillip G. Stalvey, 1997 95,000.00 69,350.00 2,000.00 - 10,413 - -
Executive Vice 1996 90,000.00 62,600.00 1,000.00 - - - 4,280.00
President 1995 75,000.00 22,500.00 100.00 - 7,812 - 702.00
Jimmy R. Graham, 1997 85,000.00 63,550.00 200.00 - 10,413 - -
Executive Vice 1996 80,000.00 57,200.00 - - - - 4,976.00
President 1995 76,444.00 22,500.00 100.00 - 7,812 - 1,107.00
Allen W. Griffin, 1997 85,000.00 38,900.00 - - 10,413 - -
Executive Vice 1996 80,000.00 57,200.00 - - - - 4,975.00
President 1995 75,000.00 22,500.00 - - 7,812 - 1,054.00
- --------------
</TABLE>
(1) All compensation, including fringe benefits, are paid by the Bank.
(2) Does not include amounts payable pursuant to an employment agreement in
event of a "change in control" of the Corporation. See "Employment
Agreements."
(3) Reflects bonuses awarded for the fiscal year which were paid in subsequent
fiscal year.
(4) Reflects directors' fees received during the fiscal year for the
Corporation and its Subsidiaries. Does not include perquisites which did
not exceed the lesser of $50,000 or 10% of salary and bonus.
(5) Includes employer contributions to the 401K Profit Sharing Plan & Trust of
Coastal Financial Corporation, except, in 1995 for Mr. Rexroad, also
includes moving and temporary living expenses of $23,087.00. Also includes
amounts paid for unused vacation in accordance with the Corporation's
Compensation plan to all Associates.
<PAGE>
Option Grants
The following table set forth the incentive stock options granted under
the Stock Option and Incentive Plan to the Corporation's named Executive
Officers during the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
Percentage of Potential Realizable Value
Number of Total at Assumed Annual Rates
Securities Options/ of Stock Price Appreciation
Underlying SARs For Option Term (1)
Options/ Granted to
SARs Associates Exercise or ----------------------------
Granted in Fiscal Base Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Michael C. Gerald 12,079 9.50% $ 15.02 2007 $114,092 $289,131
Jimmy R. Graham 10,413 8.19% 14.96 2007 97,977 248,297
Allen W. Griffin 10,413 8.19% 14.96 2007 97,977 248,297
Jerry L. Rexroad 10,413 8.19% 14.96 2007 97,977 248,297
Phillip G. Stalvey 10,413 8.19% 14.96 2007 97,977 248,297
- ---------------
</TABLE>
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of Coastal Financial Corporation's Common Stock and overall
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved.
Option Exercise Table
The following table sets forth all option exercises under the Stock Option and
Incentive Plan by the Corporation's named Executive Officers during the fiscal
year ended September 30, 1997. Also listed are the hypothetical gains or
"options spreads" that would exist for the respective options. These gains are
based on assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the options were granted over the full option term.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
Value of
Number of Unexercised
Shares Unexercised In-the-Money
Acquired Options at Options at
on Value FY-End (#) FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
Michael C. Gerald 1,000 22,080 89,609/24,576 1,887,308/266,910
Jimmy R. Graham 12,000 234,960 32,099/16,661 666,552/111,438
Allen W. Griffin 5,773 107,569 21,291/16,661 400,859/111,438
Jerry L. Rexroad 1,000 14,660 17,095/36,056 250,613/458,381
Phillip G. Stalvey 2,750 53,936 10,648/16,661 187,360/111,438
</TABLE>
Pension Plan Table
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan (as discussed herein) upon retirement at
age 65 to a participant electing to receive his or her retirement benefit in the
standard form of benefit, assuming various specified levels of Retirement Plan
compensation and various specified years of credited service.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
High - 5 10 Years 20 Years 30 Years 40 Years
Average Benefit Benefit Benefit Benefit
Compensation Service Service Service Service
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 50,000 $ 7,500 $ 15,000 $ 22,500 $ 30,000
100,000 15,000 30,000 45,000 60,000
150,000 22,500 45,000 67,500 90,000
200,000 30,000 60,000 90,000 120,000
250,000 37,500 75,000 112,500 122,295 *
</TABLE>
* For calendar year 1997, the maximum retirement benefit permitted under the
Internal Revenue Code of 1986 ("Code"), as amended was $122,295. This
amount is subject to future adjustment by the Internal Revenue Service.
<PAGE>
The Revenue Reconciliation Act of 1993 reduced the amount of an
Associate's compensation that may be taken into account for qualified retirement
plan purposes. For plan years beginning in 1994, a qualified retirement plan can
only take into account $160,000 of compensation.
The Bank maintains a noncontributory defined benefit pension plan for
the benefit of all Associates who have completed at least one year of service
and attained age 21. Benefits under the plan are based on length of service and
salary, which is defined to include a participant's total taxable compensation
as reported to the Internal Revenue Service on Form W-2. Participants are 100%
percent vested in their accrued benefits after five years of service.
At the normal retirement age under the plan, age 65, a participant
would receive an annual benefit equal to 1.5% times the participant's years of
credited service times the average of the participant's highest five years'
salary. The normal form of benefit under the plan is a monthly annuity payable
for the life of the participant with a death benefit payable at the
participant's death. Optional forms of benefit include a lump sum payment and
various alternative annuity payments. The plan also provides for proportionately
reduced benefits in the event of a participant's early retirement prior to
attaining age 65. Benefits under the plan are not subject to reduction from
Social Security or other offset amounts. At September 30, 1997, Messrs. Gerald,
Stalvey, Graham, Griffin and Rexroad had 22.0 years, 14.75 years, 19.50 years,
10.00 years and 1.42 service under the pension plan, respectively.
Employment Agreements
Coastal Federal entered into an employment agreement with Mr. Gerald
upon the completion of the Bank's conversion from mutual to stock form.
Effective September 28, 1997, such employment agreement has an initial term of
three years and provides for an annual base salary of $165,000 subject to annual
adjustment by the Board of Directors. Additionally, on the anniversary of the
commencement date of the agreement, the term of such agreement is extended for
an additional year unless a notice is received from either the Bank or Mr.
Gerald and subject to the review and approval of the Board of Directors. The
agreement also provides for severance payments if employment is terminated
following a change of control. These payments, which will be made promptly after
any change of control, will be equal to 2.99 times the average annual
compensation paid to Mr. Gerald during the five years immediately preceding the
change in control.
Coastal Federal entered into an employment agreement with Mr. Rexroad
effective March 21, 1995. Effective September 28, 1997, such employment
agreement has an initial term of three years and provides for an annual base
salary of $140,000 subject to annual adjustment by the Board of Directors.
Additionally, on the anniversary of the commencement date of the agreement, the
term of such agreement is extended for an additional year unless a notice is
received from either the Bank or Mr. Rexroad and subject to the review and
approval of the Board of Directors. The agreement also provides for severance
payments if employment is terminated following a change of control. These
payments, which will be made promptly after any change of control, will be equal
to 2.99 times the average annual compensation paid to Mr. Rexroad during the
five years immediately preceding the change in control.
<PAGE>
Coastal Federal entered into an employment agreement with Mr. Stalvey
effective October 21, 1997. Such employment agreement has an initial term of
three years and provides for an annual base salary of $125,000 subject to annual
adjustment by the Board of Directors. Additionally, on the anniversary of the
commencement date of the agreement, the term of such agreement is extended for
an additional year unless a notice is received from either the Bank or Mr.
Stalvey and subject to the review and approval of the Board of Directors. The
agreement also provides for severance payments if employment is terminated
following a change of control. These payments, which will be made promptly after
any change of control, will be equal to 2.99 times the average annual
compensation paid to Mr. Stalvey during the five years immediately preceding the
change in control.
Coastal Federal entered into employment agreements with Messrs. Graham
and Griffin effective October 1, 1992. Such employment agreements have an
initial term of one year. Additionally, on the anniversary of the commencement
date of the agreements, the term of such agreements is extended for an
additional year unless a notice is received from either the Bank or Messrs.
Graham or Griffin and subject to the review and approval of the Board of
Directors. The agreement also provides for severance payments if employment is
terminated following a change of control. These payments, which will be made
promptly after any change of control, will be equal to 1.00 times the average
annual compensation paid to Messrs. Graham or Griffin during the five years
immediately preceding the change in control.
The term "control" is defined in the agreement described above as,
among other things, any time during the period of employment when a change of
control is deemed to have occurred under regulations of the Office of Thrift
Supervision ("OTS") or a change in the composition of more than a majority of
the Board of Directors of the Corporation. Based upon the compensation levels of
Messrs. Gerald, Rexroad, Stalvey, Graham and Griffin, the aggregate payment
which would have been payable under the terms of the agreement had a change in
control occurred on September 30, 1997 was approximately $XXXXXXX, $XXXXXXX,
$XXXXXXX, $XXXXXXXX and $XXXXXXX, respectively.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the 1934 Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and Performance Graph shall
not be incorporated by reference into any such filings.
Report of the Compensation and Benefits Committee. The Compensation and
Benefits Committee of the Board of Directors of the Corporation is responsible
for establishing, implementing and monitoring all compensation policies of the
Corporation and its primary operating subsidiary, Coastal Federal. The Committee
is also responsible for evaluating the performance of the Chief Executive
Officer of the Corporation and recommending appropriate compensation levels. The
Chief Executive Officer evaluates the performance of executive officers of the
Corporation and recommends individual compensation levels to the Compensation
and Benefits Committee.
The Compensation and Benefits Committee believes that a compensation
plan for executive officers should take into account management skills,
long-term performance results and shareholder returns. Compensation policies
must be maintained to promote: 1) the attraction and retention of highly
qualified executives; 2) motivation of executives that is related to the
performance of the individual and the Corporation; 3) current and long-term
performance; and 4) a financial interest in the success of the Corporation
similar to the interest of its shareholders.
<PAGE>
The Corporation's current compensation plan involves a combination of
salary and bonus to reward short-term performance and grants of stock options to
encourage long-term performance. The salary levels of the executive officers are
designed to be competitive within the financial services industry. Compensation
surveys are utilized to determine appropriate salary adjustments. A 401(k) plan,
in which all executive officers and Associates of Coastal Financial participate
has been designed to align their interests with those of the Shareholders of the
Corporation. Matching contributions to the 401(k) plan are paid based upon the
attainment of established levels of Return on Average Shareholders' Equity
("Return on Equity"). The Corporation's Executive Bonus Plan provides for the
payment of a bonus on a graduated scale if the Corporation's consolidated Return
on Average Equity equals or exceeds 15.0%. excluding any unusual items as
determined by the Corporation's Board of Directors. The Corporation's Return on
Equity in fiscal 1997 was 19.36%. This compares to a Return on Equity in fiscal
1996 of 17.6%, excluding the after tax charge of $1.0 million for the
recapitalization of the SAIF insurance fund. The Executive Bonus Plan escalates
upon the attainment of higher levels of Return on Equity. Stock options are the
Corporation's primary long-term compensation program designed to reward
executive performance consistent with performance that benefits Shareholders.
Awards of stock options are intended to provide executives with increased
motivation and incentive to exert their best efforts on behalf of the
Corporation by enlarging their personal stake in its success through the
opportunity to increase their stock ownership in the Corporation. Options issued
to executives are at a price equal to the closing price of the Corporation's
stock on the date of grant in order to ensure that any value derived from the
grant is realized by Shareholders generally. The amount of options granted to an
Executive Officer is based upon the Corporation's performance, the officer's
performance and relative responsibilities within the Corporation.
Options generally vest over a period of five years.
During the fiscal year ended September 30, 1997, the base compensation
of Michael C. Gerald, President and Chief Executive Officer of the Corporation
was $150,000. For fiscal 1998 Mr. Gerald's compensation was increased to
$165,000. At Mr. Gerald's request he did not receive an increase in fiscal 1996.
During fiscal 1997, the Corporation's earnings increased 23%.
Based upon the factors discussed above, the Compensation and Benefits
Committee continues to believe that Mr. Gerald's compensation package as Chief
Executive Officer and President of the Corporation appropriately reflects the
Company's short term and long term performance goals.
The Compensation and James C. Benton J. T. Clemmons Wilson B. Springs
Benefits Committee Harold D. Clardy James P. Creel
Compensation Committee Interlocks and Insider Participation. There are
no interlocks or insider participation with respect to the Compensation and
Benefits Committee of the Board of Directors of the Corporation.
<PAGE>
Performance Graph. The following graph compares the Corporation's
cumulative Shareholder return on its Common Stock with the return on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
Composite Index and a peer group, the NASDAQ's Bank Index. Total return assumes
the reinvestment of all dividends.
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]
9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
Corporation 100.00 251.17 314.59 315.90 496.15 798.46
NASDAQ Bank Index 100.00 134.98 141.99 179.04 228.47 380.58
NASDAQ Composite Index 100.00 130.98 132.05 182.40 216.45 297.07
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TRANSACTIONS WITH MANAGEMENT
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The loans shown in the following table were made in the ordinary course
of business and were made on substantially the same terms, except for the waiver
of fees, as those of comparable transactions and do not involve more than the
normal risk of collectibility or contain other unfavorable features.
At September 30, 1997, Coastal Federal had $ 1.1 million outstanding in
loans to executive officers and directors, or approximately 4% of Shareholders'
equity.
Director James H. Dusenbury is a partner in the law firm of Dusenbury,
Hendrix & Little located in Myrtle Beach, South Carolina. Mr. Dusenbury serves
as the Bank's General Counsel. During the year ended September 30, 1997,
Dusenbury, Hendrix & Little received approximately $13,215 for legal services
rendered to the Bank.
<PAGE>
Set forth below is certain information relating to loans made to
executive officers and directors of the Bank and their Associates whose total
aggregate loan balances exceeded $60,000 at any time during the fiscal year
ended September 30, 1997.
<TABLE>
<CAPTION>
Highest
Balance
Outstanding
Initial During Current Outstanding
Name and Date Opening Interest Rate Fiscal Interest Balance
Position Type of Loan Originated Balance Charged 1997 Rate at 9/30/97
-------- ------------ ---------- ------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
James P. Creel Mortgage 8-25-71 $ 60,000 8.00% $ 21,968.98 8.00% $ 0
Director Mortgage 8-30-93 170,000 7.25 149,570.58 7.25 140,839.86
Equity Line 9-08-89 75,000 10.34 121,345.48 10.08 0
Line of Credit 10-30-92 limit 18.00 1,367.41 18.00 0
1,500
Allen Griffin Line of Credit 12-04-87 limit 100 18.00 0 18.00 0
Executive Vice Line of Credit 6-24-88 limit 500 18.00 462.85 18.00 506.22
President Mortgage 3-03-92 63,900 8.00 59,033.35 8.00 58,095.56
Line of Credit 9-08-95 limit 1,000 18.00 1,004.64 18.00 1,004.64
James H. Dusenbury Commercial 11-03-89 998,955 10.60 828,623.23 8.92 793,151.46
Advisory Director (real estate)
Consumer 8-31-94 75,000 6.50 74,743.30 8.75 0
10-01-96 74,743 9.25 74,743.30 9.25 59,730.48
Wilson B. Springs Mortgage 6-28-78 26,567 9.00 9,140.34 9.00 4,271.20
Director Equity Line 9-21-90 98,127 10.34 100,565.22 10.08 44,277.84
Line of Credit 2-03-94 limit 1,500 18.00 0 18.00 0
G. David Bishop Mortgage 2-23-93 350,000 8.25 125,771.64 8.25 94,226.70
Director Line of Credit 10-16-95 limit 1,500 12.15 0 12.15 0
</TABLE>
<PAGE>
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PROPOSAL 2 - RATIFICATION OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION
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The Board has unanimously approved and proposed for Stockholder
approval an amendment to the Corporation's Certificate of Incorporation to
increase the Corporation's authorized Common Stock from 6,000,000 to 16,000,000
shares. The Corporation's Certificate of Incorporation currently authorizes the
issuance of 5,000,000 shares of Common stock and 1,000,000 shares of preferred
stock. As of November 30, 1997, 4,646,534 shares of the Corporation's Common
Stock were issued and outstanding. If the proposed change in authorized capital
is approved by stockholders, the Corporation will have 5,353,466 shares of
unissued and unreserved shares of Common Stock available for issuance in the
future.
The Board of Directors believes that this proposed amendment is in the
best interests of the Corporation and its Stockholders. The proposed increase in
the number of authorized shares would give the Board the necessary flexibility
to issue Common Stock in connection with stock dividends and splits,
acquisitions, financing and employee benefits and for general corporate purposes
without the expense and delay incidental to obtaining stockholder approval of an
amendment to the Certificate of Incorporation increasing the number of
authorized shares at the time of such action, except as may be required for a
particular issuance by applicable law or by the rules of any stock exchange on
which the Corporation's securities may then be listed.
Although the Board of Directors has no present intention of issuing
additional shares for such purposes, the proposed increase in the number of
authorized shares of Common Stock may enable the Board of Directors to render
more difficult or discourage an attempt by another person or entity to obtain
control of the Corporation. Such additional shares could be issued by the Board
in a public or private sale, merger or similar transaction, increasing the
number of outstanding shares and thereby diluting the equity interest and voting
power of a party attempting to obtain control of the Corporation. The amendment
to the Certificate of Incorporation is not being proposed in response to any
known effort to acquire control of the Corporation.
If the amendment of the Certificate of Incorporation is approved, the
first sentence of Article VI of the Corporation's Certificate of Incorporation
would read as follows:
"The aggregate number of shares of all classes of
capital stock which the Corporation has authority to issue is
16,000,000 of which 15,000,000 are to be shares of common
stock, $.01 par value per share."
The remaining text of Article VI of the Corporation's
Certificate of Incorporation would remain unchanged.
The amendment to the Corporation's Certificate of Incorporation to
increase the number of authorized shares of Common Stock requires the
affirmative vote of a majority of the votes cast by all stockholders entitled to
vote at the Meeting. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION.
<PAGE>
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OTHER MATTERS
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The Board of Directors of the Corporation is not aware of any business
to come before the Meeting other than those matters described in this Proxy
Statement. However, if any other matters should properly come before the
Meeting, it is intended that proxies in the accompanying form will be voted in
respect thereof in accordance with the judgment of the person or persons voting
the proxies.
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FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The cost of solicitation of proxies will be borne by the Corporation.
In addition to solicitations by mail, directors, officers and Associates of the
Corporation may solicit proxies personally or by telephone without additional
compensation.
The Corporation's 1997 Annual Report to Shareholders, including
consolidated financial statements, has been mailed to all Shareholders of record
as of the close of business on November 30, 1997. Any Shareholder who has not
received a copy of such Annual Report may obtain a copy by writing to the
Secretary of the Corporation. Such Annual Report is not to be treated as part of
the proxy solicitation material or as having been incorporated herein by
reference.
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SHAREHOLDERS PROPOSALS
- --------------------------------------------------------------------------------
In order to be eligible for inclusion in the Corporation's proxy
materials for next year's Annual Meeting of Shareholders, any Shareholder
proposal to take action at such meeting must be received at the Corporation's
main office at 2619 Oak Street, Myrtle Beach, South Carolina, no later than
August 25, 1998. Any such proposals shall be subject to the requirements of the
proxy solicitation rules adopted under the 1934 Act, as amended.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Susan J. Cooke
-----------------
SUSAN J. COOKE
SECRETARY
Myrtle Beach, South Carolina
December 12, 1997
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FORM 10-K
A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO SUSAN J. COOKE, SECRETARY, COASTAL FINANCIAL CORPORATION,
2619 OAK STREET, MYRTLE BEACH, SOUTH CAROLINA 29577-3129.
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