UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1997
( ) 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: 0-19684
COASTAL FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
State of Delaware 57-0925911
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2619 N. OAK STREET, MYRTLE BEACH, S. C. 29577
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 448-5151
Indicate by check mark whether the registrant (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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of (December 31, 1997).
Common Stock $.01 Par Value Per Share 4,674,325 Shares
- --------------------------------------------------------------------------------
(Class) (Outstanding)
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I- Consolidated Financial Information
Item
1. Consolidated Financial Statements (unaudited):
Consolidated Statements of Financial Condition
as of September 30, 1997 and December 31, 1997
Consolidated Statements of Operations for the three
months ended December 31, 1996 and 1997
Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and 1997
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
3. Quantitative and Qualitative Disclosures about
Market Risk
Part II - Other Information
Item
1. Legal Proceedings
2. Changes in Securities and use of proceeds
3. Default Upon Senior Securities
4. Submission of Matters to a Vote of Securities Holders
5. Other information
6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1997 1997
--------- ---------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
ASSETS:
Cash & amounts due from banks ..................... $ 12,852 $ 18,397
Short-term interest-bearing deposits .............. 559 2,175
Investment securities available for sale .......... 26,171 30,915
Mortgage-backed securities available for sale ..... 23,023 72,982
Loans receivable (net of allowance for
loan losses of $4,902 at September 30,
1997 and $5,072 at December 31, 1997) .......... 403,570 411,519
Loans receivable held for sale .................... 8,359 6,806
Real estate acquired through foreclosure .......... 250 254
Office property and equipment, net ................ 7,561 7,864
Federal Home Loan Bank stock, at cost ............. 5,618 6,518
Accrued interest receivable on loans .............. 2,814 2,674
Accrued interest receivable on investments ........ 452 809
Other assets and deferred charges ................. 2,774 2,953
--------- ---------
$ 494,003 $ 563,866
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits .......................................... $ 347,116 $ 343,748
Securities sold under agreements to
repurchase ..................................... 2,666 45,496
Advances from Federal Home Loan Bank .............. 101,478 130,358
Other borrowings .................................. 2,193 2,665
Drafts outstanding ................................ 1,018 1,265
Advances by borrowers for property taxes
and insurance ................................... 1,409 495
Accrued interest payable .......................... 952 1,071
Other liabilities ................................. 4,780 5,080
--------- ---------
Total liabilities ............................... 461,612 530,178
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
September 30, December 31,
1997 1997
--------- ---------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
authorized and unissued ........................ -- --
Common stock, $.01 par value, 5,000,000
shares authorized; 4,646,534 shares at
September 30, 1997 and 4,674,325 shares
at December 31, 1997 issued and outstanding .... 46 46
Additional paid-in capital ........................ 8,698 8,730
Retained earnings ................................. 23,402 24,453
Treasury stock, at cost (9,760 shares) ............ (182) --
Unrealized gain on securities available
for sale, net of income taxes ................... 427 459
--------- ---------
Total stockholders' equity ...................... 32,391 33,688
--------- ---------
$ 494,003 $ 563,866
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Interest income:
Loans receivable ............................ $ 8,121 $ 8,977
Investment securities ........................ 289 468
Mortgage-backed securities .................. 488 652
Other ....................................... 99 80
----------- -----------
Total interest income ....................... 8,997 10,177
----------- -----------
Interest expense:
Deposits .................................... 3,342 3,602
Securities sold under agreement to
repurchase ................................ 25 333
Advances from Federal Home Loan Bank ........ 1,352 1,476
Other borrowings ............................ 91 36
----------- -----------
Total interest expense ....................... 4,810 5,447
----------- -----------
Net interest income ......................... 4,187 4,730
Provision for loan losses ...................... 230 190
----------- -----------
Net interest income after provision
for loan losses ........................... 3,957 4,540
----------- -----------
Other income:
Fees and service charges .................... 426 483
Loss from real estate owned ................. (55) (20)
Income from real estate held for investment . 327 218
Gain on sale of loans receivable, net ....... 228 357
Gain on sale of securities available for sale 18 16
Other income ................................ 419 461
----------- -----------
1,363 1,515
----------- -----------
General and administrative expenses:
Salaries and employee benefits .............. 1,688 1,884
Net occupancy, furniture and fixtures
and data processing expense ............... 760 789
FDIC insurance premium ...................... 129 52
Other expenses .............................. 731 753
----------- -----------
3,308 3,478
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Earnings before income taxes ................... 2,012 2,577
Income taxes ................................... 734 950
----------- -----------
Net income ..................................... $ 1,278 $ 1,627
=========== ===========
Earnings per common share
Basic ........................................ $ .28 $ .35
=========== ===========
Diluted ...................................... $ .26 $ .33
=========== ===========
Common Shares Outstanding ...................... 4,603,000 4,674,000
=========== ===========
Weighted average common equivalent
shares outstanding ........................... 4,841,000 4,911,000
=========== ===========
Dividends per share ............................ $ .0825 $ .09
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................. $ 1,278 $ 1,627
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Income from real estate
held for investment .................... (327) (218)
Depreciation ............................ 213 239
Provision for loan losses ............... 230 190
Origination of loans receivable
held for sale ......................... (10,904) (12,661)
Proceeds from sales of loans receivable
held for sale ......................... 11,647 14,214
(Increase) decrease in:
Other assets and deferred charges ........ (82) (179)
Accrued interest receivable .............. (24) (217)
Increase (decrease) in:
Accrued interest payable ................. (27) 119
Other liabilities ......................... (746) 300
-------- --------
Net cash provided by
operating activities .............. 1,258 3,414
-------- --------
Cash flows from investing activities:
Purchases of investment securities
available for sale ...................... (1,502) (8,808)
Proceeds from sales of investment
securities available for sale ........... -- 1,000
Proceeds from maturities of investment
securities available for sale ............ 4,356 3,113
Purchases of mortgage-backed securities
available for sale ...................... (2,411) (58,306)
Proceeds from sales of mortgage-backed
securities available for sale ........... -- 7,151
Origination of loans receivable, net ......... (32,145) (50,946)
Purchase of loans receivable ................. -- (2,068)
Principal collected on loans receivable
and mortgage-backed securities, net ..... 28,050 46,088
Proceeds from sale of real estate
acquired through foreclosure, net ....... 65 4
Purchases of office properties and
equipment ................................ (343) (542)
Purchases (sales)of FHLB stock, net .......... 683 (900)
Other investing activities, net .............. 51 --
-------- --------
Net cash used in
investing activities .............. (3,196) (64,214)
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997 (CONTINUED)
1996 1997
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Increase (decrease) in deposits, net .... $ 8,618 $ (3,368)
Increase (decrease) in securities sold
under agreement to repurchase, net ..... (618) 42,830
Proceeds from FHLB advances ............. 21,000 82,080
Repayment of FHLB advances .............. (34,650) (53,200)
Proceeds from other borrowings .......... 1,587 472
Decrease in advance payments by borrowers
for property taxes and insurance ..... (1,005) (914)
Decrease in drafts outstanding, net ..... (1,163) 247
Dividend to stockholders ................ (380) (416)
Other financing activities, net ......... 1,129 230
-------- --------
Net cash (used in) provided by .......... (5,482) 67,961
-------- --------
financing activities
Net increase (decrease)
in cash and cash equivalents ........... (7,420) 7,161
-------- --------
Cash and cash equivalents at beginning
of the period ........................... 20,861 13,411
-------- --------
Cash and cash equivalents at end
of the period ........................... $ 13,441 $ 20,572
======== ========
Supplemental information:
Interest paid ........................... $ 4,837 $ 10,058
======== ========
Income taxes paid ....................... $ 20 $ 216
======== ========
Supplemental schedule of non-cash investing
and financing transactions:
Transfer of mortgage loans to real estate
acquired through foreclosure ......... $ -- $ 8
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Other Equity
-------- -------- -------- -------- -------- --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1996 .............. $ 46 $ 8,698 $ 20,015 $ (1,185) $ 107 $ 27,681
Exercise of stock
options ............... -- -- (786) 1,003 -- 217
Cash paid for fractional
shares ................ -- -- (18) -- -- (18)
Cash dividends .......... -- -- (1,600) -- -- (1,600)
Unrealized gain on
securities available
for sale, net of
income taxes .......... -- -- -- -- 320 320
Net income .............. -- -- 5,791 -- -- 5,791
-------- -------- -------- -------- -------- --------
Balance at September
30, 1997 .............. $ 46 $ 8,698 $ 23,402 $ (182) $ 427 $ 32,391
Exercise of stock
options ............... -- 32 (160) 182 -- 54
Cash dividends .......... -- -- (416) -- -- (416)
Change in unrealized gain
on securities available
for sale, net of
income taxes .......... -- -- -- -- 32 32
Net income .............. -- -- 1,627 -- -- 1,627
-------- -------- -------- -------- -------- --------
Balance at December
31, 1997 ............. $ 46 $ 8,730 $ 24,453 $ -- $ 459 $ 33,688
======== ======== ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, cash flows and changes in stockholders' equity in
conformity with generally accepted accounting principles. All adjustments,
consisting only of normal recurring accruals, which in the opinion of management
are necessary for fair presentation of the interim financial statements, have
been included. The results of operations for the three month period ended
December 31, 1997 are not necessarily indicative of the results which may be
expected for the entire fiscal year. These consolidated financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and related notes for the year ended September 30, 1997, included in
the Company's 1997 Annual Report to Stockholders. The principal business of the
Company is conducted by its wholly-owned subsidiary, Coastal Federal Savings
Bank ("the Bank"). The information presented hereon, therefore, relates
primarily to the Bank.
(2) LOANS RECEIVABLE, NET
Loans receivable, net consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1997
(Unaudited)
(In thousands)
<S> <C> <C>
First mortgage loans:
Single family to 4 family units ............. $ 237,964 $ 250,755
Other, primarily commercial
real estate ................................ 97,680 94,292
Construction loans .......................... 34,216 30,624
Consumer and commercial loans:
Installment consumer loans .................. 24,378 23,090
Mobile home loans ........................... 1,291 1,220
Deposit account loans ....................... 1,336 1,387
Equity lines of credit ...................... 15,294 16,219
Commercial and other loans .................. 10,939 10,745
--------- ---------
423,098 428,332
Less:
Allowance for loan losses ................... 4,902 5,072
Deferred loan fees (costs) .................. (458) (564)
Undisbursed portion of loans in process ..... 15,084 12,305
--------- ---------
$ 403,570 $ 411,519
========= =========
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The changes in the allowance for loan losses consist of the following for the
three months ended:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
Beginning allowances ..................... $ 4,172 $ 4,902
Provision for loan losses ................ 230 190
Allowance on acquired loans .............. -- 29
Loan recoveries .......................... 29 2
Loan charge-offs ......................... (54) (51)
------- -------
Ending allowance ......................... $ 4,377 $ 5,072
======= =======
</TABLE>
(3) DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1997
---------------------- ---------------------
Weighted Weighted
Amount Rate Amount Rate
-------- ---- -------- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Transaction accounts ....... $167,014 3.10% $170,815 3.34%
Passbook accounts .......... 39,445 2.62 36,904 2.51
Certificate accounts ....... 140,657 5.58 136,029 5.66
-------- ---- -------- ----
$347,116 4.02% $343,748 4.17%
======== ==== ======== ====
</TABLE>
(4) ADVANCES FROM FEDERAL HOME LOAN BANK
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Advances from Federal Home Loan Bank ("FHLB") consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1997
---------------------- ---------------------
Weighted Weighted
Amount Rate Amount Rate
-------- ---- -------- ----
(Unaudited)
(In thousands)
Maturing within:
<S> <C> <C> <C> <C>
1 year ..................... $ 23,620 6.15 % $ 28,484 6.32%
2 years .................... 28,435 6.06 23,951 5.61
3 years .................... 6,761 6.45 5,861 6.47
4 years .................... 7,646 6.49 8,846 5.99
5 years and thereafter ..... 35,016 6.79 63,216 5.31
-------- ---- -------- ----
$101,478 5.86% $130,358 5.68%
======== ==== ======== ====
</TABLE>
At September 30, 1997, and December 31, 1997, the Bank had pledged first
mortgage loans with unpaid balances of approximately $213.9 million and $205.8
million, respectively, as collateral for FHLB advances. At September 30, 1997,
included in the five years and thereafter maturity were $25.0 million subject to
call provisions. At December 31, 1997, included in the five years and thereafter
maturity were $50.0 million were subject to call provisions. Call provisions are
more likely to be exercised by the FHLB when rates rise.
(5) EARNINGS PER SHARE
Diluted earnings per share for the three month periods ended December 31, 1996
and 1997, are computed by dividing net earnings by the weighted average common
equivalent shares outstanding during the respective periods. Common share
equivalents include dilutive common stock option share equivalents determined by
using the treasury stock method. All share and per share data have been
retroactively restated for all common stock dividends.
(6) COMMON STOCK DIVIDENDS
On May 30, 1995, the Company declared a 5% common stock dividend aggregating
102,003 shares. On January 9, 1996 and June 20, 1996, the Company declared a
five for four stock splits in the form of a 25% stock dividends, aggregating
approximately 542,000 and 687,000 shares, respectively. On April 30, 1997, the
Company declared a four for three stock split in the form of a 33% stock
dividend, aggregating approximately 1,160,000 shares. All share and per share
data has been retroactively restated to give effect to the common stock
dividends.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1997 TO DECEMBER
31, 1997
FORWARD LOOKING STATEMENTS
This report may contain certain "forward-looking statements" within the meaning
of Section 27A of the Securities Exchange Act of 1934, as amended, that
represent the Company's expectations or beliefs concerning future events. Such
forward-looking statements are about matters that are inherently subject to
risks and uncertainties. Factors that could influence the matters discussed in
certain forward-looking statements include the timing and amount of revenues
that may be recognized by the Company, continuation of current revenue and
expense trends (including trends affecting charge-offs), absence of unforeseen
changes in the Company's markets, legal and regulatory changes, and general
changes in economy (particularly in the markets served by the Company).
GENERAL
The Company reported $1.6 million in net earnings for the three months ended
December 31, 1997, compared to net earnings of $1.3 million for the three months
ended December 31, 1996. Net interest income increased $543,000 primarily as a
result of an increase in interest income of $1.2 million which was offset by an
increase in interest expense of $637,000. Provision for loan losses decreased
from $230,000 for the three months ended December 31, 1996, to $190,000 for the
three months ended December 31, 1997. Other income increased from $1.4 million
for the three months ended December 31, 1996, to $1.5 million for the three
months ended December 31, 1997. General and administrative expenses increased
from $3.3 million for the three months ended December 31, 1996, to $3.5 million
for the three months ended December 31, 1997.
Liquid assets, consisting of cash, interest-bearing deposits, and investment
securities available for sale, increased from $62.6 million at September 30,
1997, to $124.5 million at December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
In accordance with Office of Thrift Supervision (OTS) regulations, the Company
is required to maintain specific levels of cash and "liquid" investments in
qualifying types of United States Treasury and Federal Agency Securities and
other investments generally having maturities of five years or less. The
required level of such investments is calculated on a "liquidity base"
consisting of net withdrawable accounts and short-term borrowings, and is equal
to 4% of such amount.
Historically, the Company has maintained its liquidity at levels believed by
management to be adequate to meet the requirements of normal operations,
potential deposit out-flows and strong loan demand and still allow for optimal
investment of funds and return on assets.
The principal sources of funds for the Company are cash flows from operations,
consisting mainly of mortgage, consumer and commercial loan payments, retail
customer deposits, advances from the FHLB, and loan sales.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
The principal use of cash flows is the origination of loans receivable and
purchase of securities. The Company originated loans receivable of $43.0 million
for the three months ended December 31, 1996, compared to $63.6 million for the
three months ended December 31, 1997. The majority of these loan originations
were financed through loan and mortgage-backed securities principal repayments
which amounted to $28.1 million and $46.1 million for the three month periods
ended December 31, 1996 and 1997, respectively. In addition, the Company sells
certain loans in the secondary market to finance future loan originations.
Generally, these loans have consisted only of mortgage loans which have been
originated in the current period. For the three month period ended December 31,
1996, the Company sold $11.6 million in mortgage loans compared to $12.7 million
sold for the three month period ended December 31, 1997.
For the three month period ended December 31, 1996, the Company purchased $3.9
million in investment and mortgage-backed securities. For the three month period
ended December 31, 1997, the Company purchased $67.1 million in investment and
mortgage-backed securities. The investment securities purchased generally had
maturities less than five years. The mortgage-backed securities purchased were
primarily secured by one year ARMs. These purchases were funded primarily with
reverse repurchase agreements and FHLB advances.
The Bank experienced a decrease of $3.4 million in deposits for the three month
period ended December 31, 1997, primarily as a result of decreased certificate
of deposit accounts. During fiscal 1997, the Company funded a portion of its
loan growth and increase in securities available for sale with advances from the
FHLB and reverse repurchase agreements.
At December 31, 1997, the Company had commitments to originate $3.9 million in
mortgage loans, and $30.7 million in undisbursed lines of credit, which the
Company expects to fund from normal operations.
At December 31, 1997, the Company had $105.3 million of certificates of deposits
which were due to mature within one year. Based upon previous experience, the
Company believes that a major portion of these certificates will be renewed.
Additionally, at December 31, 1997, the Company had pledged first mortgage loans
in the amount of $205.8 million to the FHLB which could support approximately
$24.0 million in additional advances.
As a condition of deposit insurance, current Federal Deposit Insurance
Corporation(FDIC) regulations require that the Bank calculate and maintain a
minimum regulatory capital requirement on a quarterly basis and satisfy such
requirement as of the calculation date and throughout the quarter. The Bank's
capital is approximately $33.7 million at December 31, 1997, exceeding tangible
and core capital requirements by $25.3 million and $16.9 million, respectively.
At December 31, 1997, the Bank's risk-based capital of approximately $37.4
million exceeded its current risk-based capital requirement by $10.4 million.
(For further information see Regulatory Matters).
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1997
GENERAL
Net income increased from $1.3 million for the three months ended December 31,
1996, to $1.6 million for three months ended December 31, 1997, or 27.3%. Net
interest income increased $543,000 primarily as a result of an increase of $1.2
million in interest income offset by a $637,000 increase in interest expense.
Provision for loan losses decreased from $230,000 for three months ended
December 31, 1996, to $190,000 for the three months ended December 31, 1997.
Other income increased $152,000 primarily as a result of increased income from
gain on sale of loans.
INTEREST INCOME
Interest income for the three months ended December 31, 1997, increased to $10.2
million as compared to $9.0 million for the three months ended December 31,
1996. The earning asset yield for the three months ended December 31, 1997, was
8.41% compared to a yield of 8.39% for the three months ended December 31, 1996.
The average yield on loans receivable for the three months ended December 31,
1997, was 8.71% compared to 8.57% for the three months ended December 31, 1996.
The increase in yield primarily resulted from repricing of teaser rate
adjustable-rate mortgage loans originated in 1996. The yield on investments
decreased to 6.72% for the three months ended December 31, 1997, from 6.76% for
the three months ended December 31, 1996. Total average interest-earning assets
were $487.3 million for the quarter ended December 31, 1997, as compared to
$431.6 million for the quarter ended December 31, 1996. The increase in average
interest-earning assets is due to an increase in average loans receivable of
approximately $33.2 million, investment securities of $10.8 million and
mortgage-backed securities of $13.1 million.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities was $5.4 million for the three
months ended December 31, 1997, as compared to $4.8 million for December 31,
1996. The average cost of deposits for the three months ended December 31, 1997,
was 4.18% compared to 4.17% for the three months ended December 31, 1996. The
cost on interest-bearing liabilities was 4.61% for the three months ended
December 31, 1997, as compared to 4.59% for the three months ended December 31,
1996. The cost of FHLB advances and reverse repurchase agreements was 5.82% and
5.77%, respectively, for the three months ended December 31, 1997. For the three
months ended December 31, 1996, the cost was 6.07% and 5.36% respectively. Total
average interest-bearing liabilities increased from $417.5 million at December
31, 1996 to $470.3 million at December 31, 1997. The increase in average
interest bearing liabilities is due to an increase in average deposits of
approximatley $24.4 million, FHLB advances of $12.4 million and reverse
repurchase agreements of $16.2 million.
NET INTEREST INCOME
Net interest income was $4.7 million for the three months ended December 31,
1997, as compared to $4.2 million for the three months ended December 31, 1996.
The net interest margin remained constant at 3.80% for the three months ended
December 31, 1996 and 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased from $230,000 for the period ended
December 31, 1996, to $190,000 for the three months ended December 31, 1997. For
the three months ended December 31, 1997, net charge-offs were $49,000 compared
to net charge-offs of $25,000 for the three months ended December 31, 1996. The
allowance for loan losses as a percentage of total loans was 1.22% at December
31, 1997, compared to 1.19% at September 30, 1997. Loans delinquent 90 days or
more were .75% of total loans at December 31, 1997, compared to .06% at
September 30, 1997. The allowance for loan losses was 184% of loans delinquent
more than 90 days at December 31, 1997, as compared to 1,906% at September 30,
1997. Non performing loans included two significant loans with balances of
approximately $2.3 million dollars. The Bank has initiated foreclosure
proceedings on both properties. At the present time, management does not know if
or when the loans will become performing. However, the Bank does not expect any
material losses or charge-offs in regard to the loans. Management believes that
the current level of allowances is adequate considering the Company's current
loss experience and delinquency trends, among other criteria.
OTHER INCOME
For the three months ended December 31, 1997, other income increased 11.2% to
$1.5 million compared to $1.4 million for the three months ended December 31,
1996. Fees and service charges were $483,000 for the quarter ended December 31,
1997, compared to $426,000 for the quarter ended December 31, 1996. Gain on sale
of loans was $357,000 for the quarter ended December 31, 1997, compared to
$228,000 for the quarter ended December 31, 1996, as a result of increased
volume in the Company's mortgage subsidiary. These were partially offset by a
decrease in income from real estate held for investment of $109,000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $3.3 million for the three
months ended December 31, 1996, to $3.5 million for the three months ended
December 31, 1997. Salaries and employee benefits increased from $1.7 million
for the three months ended December 31, 1996, to $1.9 million for the three
months ended December 31, 1997 primarily due to increased personnel in lending.
Net occupancy, furniture and fixtures and data processing expenses increased
$29,000 when comparing the two periods. FDIC insurance premiums were $129,000
for the quarter ended December 31, 1996, compared to $52,000 for the quarter
ended December 31, 1997 as a result of the recapitalization of the SAIF during
1996. As a result of the recapitalization the Company's deposit insurance
premiums decreased from .23% of insured deposits to .065% of insured deposits.
Other expenses were $753,000 for the quarter ended December 31, 1997, compared
to $731,000 for the quarter ended December 31, 1996.
INCOME TAXES
Income taxes increased from $734,000 for the three months ended December 31,
1996, to $950,000 for the three months ended December 31, 1997, as a result of
increased income before taxes.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
REGULATORY MATTERS
Under the FDICIA prompt corrective action provisions applicable to banks, to be
categorized as "Well Capitalized", the institution must maintain a total
risk-based capital ratio as set forth in the following table and not be subject
to a capital directive order.
<TABLE>
<CAPTION>
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
---------------------- --------------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
(Dollar In Thousands)
As of December 31, 1997:
Total Capital: $37,361 11.09% $26,956 8.00% $33,695 10.00%
(To Risk Weighted Assets)
Tier 1 Capital: $33,747 10.02% $N/A N/A% $20,217 6.00%
(To Risk Weighted Assets)
Tier 1 Capital: $33,747 5.98% $16,916 3.00% $28,193 5.00%
(To Total Assets)
Tangible Capital: $33,747 5.98% $8,458 1.50% $N/A N/A%
(To Total Assets)
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which is
effective for both interim and annual periods ending after December 15, 1997.
This statement supersedes Accounting Principles Board Opinion No. 15, Earnings
per Share. The purpose of this statement is to simplify current reporting and
make U.S. reporting comparable to international standards. The statement
requires dual presentation of basic and diluted EPS by entities with complex
capital structures (as defined by the statement). The Company adopted this
standard in fiscal 1998 which did not have a material affect on EPS.
Also, in February 1997, the FASB issued SFAS No. 129, Disclosure of information
about Capital Structure, which is effective for financial statements for periods
ending after December 15, 1997. This statement applies to both public and
nonpublic entities. The new statement requires no change for entities subject to
the existing requirements. The Company anticipates that adoption of the standard
will not have a material affect on the Company.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
(Statement 130). Statement 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Enterprises are required to classify items of "other
comprehensive income" by their nature in the financial statement and display the
balance of other comprehensive income separately in the equity section of a
statement of financial position. Statement 130 is effective for both interim and
annual periods beginning after December 15, 1997. Earlier application is
permitted. Comparative financial statements provided for earlier periods are
required to be reclassified to reflect the provisions of this statement. The
Company will adopt Statement 130 effective September 30, 1998.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131). Statement 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. Statement 131 is effective for
financial statements for periods beginning after December 15, 1997. Earlier
application is encouraged. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impractical to do
so. Statement 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application shall be reported in financial statements for
interim periods in the second year of application. It is not anticipated that
this standard will materially effect the Company.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
EFFECT ON INFLATION AND CHANGING PRICES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and results of operations in terms of
historical dollars, without consideration of change in the relative purchasing
power over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of inflation. Interest
rates do not necessarily change in the same magnitude as the price of goods and
services.
YEAR 2000 COMPLIANCE
The Company began working on year 2000 compliance issues in early 1997. Its data
processor is currently approximately 65% complete with their programming.
Testing will begin in May 1998 and the Company expects to be in full compliance
by December 31, 1999. Internal software applications and hardware compliance
issues will be resolved by December 31, 1998, to allow testing in early 1999. In
February 1998, the Company engaged a national consulting firm to assist in the
identification and testing of year 2000 issues. The Company believes it has
adequate resources and funds to address the year 2000 issues. The Company is
also in the process of addressing any loan relationships it believes could be
materially effected by year 2000 issues. The Company currently expects the
expenses related to addressing the year 2000 issues to be between $100,000 to
$200,000 and expects additional hardware and software capital expenditures of
approximately $100,000. However, no assurance can be given that such expenses
and capital expenditures will not exceed these expected amounts.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1997, no material changes have occurred in market risk
disclosures included in the Company's form 10K for the year ended September 30,
1997.
<PAGE>
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings
The Bank is a defendant in one significant lawsuit as summarized below.
The action commenced on December 1, 1997, and the Plaintiffs are seeking
approximately $1.5 million in actual damages as well as punitive damages. The
cause of action is breach of fiduciary duties, negligence, fraud, civil
conspiracy and breach of contract arising out of a lending relationship. At this
date, the Bank does not know if or when the action will go to trial. The Bank
will vigorously defend this suit and does not anticipate any settlement
discussions.
Item 2. Changes In Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
<PAGE>
PART II. OTHER INFORMATION - CONTINUED
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 (a) Certificate of Incorporation of Coastal Financial
Corporation**
3 (b) Bylaws of Coastal Financial Corporation**
10 (a) Employment Agreement with Michael C. Gerald***
(b) Employment Agreement with Jerry L. Rexroad***
(c) Employment Agreement with Phillip G. Stalvey*****
(d) Employment Agreement with Allen W. Griffin***
(e) Employment Agreement with Jimmy R. Graham***
(f) Employment Agreement with Richard L. Granger***
(g) Employment Agreement with Robert S. O'Harra***
(h) 1990 Stock Option Plan***
(i) Directors Performance Plan****
(j) Loan Agreement with Bankers Bank
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last quarter of the
fiscal year coverd by this report.
- -------------
* Incorporated by reference from the Annual Report to Stockholders for
the fiscal year ended September 30, 1997, attached as an exhibit
hereto.
** Incorporated by reference to Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on November 26, 1990.
*** Incorporated by reference to 1995 Form 10K filed with the Securities
and Exchange Commission on December 29, 1995.
**** Incorporated by reference to the proxy statement for the 1996 Annual
Meeting of Stockholders.
***** Incorporated by reference to 1997 Form 10K filed with the Securities
and Exchange Commission on January 2, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COASTAL FINANCIAL CORPORATION
Date February 13, 1998 /s/Michael C. Gerald
--------------------
Michael C. Gerald
President and Chief Executive Officer
Date February 13, 1998 /s/Jerry L. Rexroad
-------------------
Jerry L. Rexroad
Executive Vice President and
Chief Financial Officer
EXHIBIT 10(j)
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered
into as of the 30th day of January, 1998, by and between THE BANKERS BANK, a
banking corporation organized under the laws of Georgia (the "Lender"), and
COASTAL FINANCIAL CORPORATION, a Delaware corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower wishes to obtain from the Lender a loan
in the principal amount of up to $16,000,000, and the Lender, on the terms and
conditions hereinafter set forth, is willing to lend such sum to the Borrower;
NOW, THEREFORE, for and in consideration of the premises, and
the mutual agreements, warranties and representations herein made, the Lender
and the Borrower agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Bank" means Coastal Federal Savings Bank, a federal savings bank
formed under the laws of the United States, regulated by the Office of Thrift
Supervision, and authorized to do business in South Carolina and North Carolina.
1.2 "Bank Stock" means all of the issued and outstanding capital stock
of the Bank owned by Borrower.
1.3 "Bank Subsidiaries" means each and every banking Subsidiary of the
Borrower, now or hereafter in existence, including, but not limited to, Coastal
Federal Savings Bank.
1.4 "Capital" means all capital or all components of capital, other
than any allowance for loan and lease losses that would otherwise be included
and net of any intangible assets, as defined from time to time by the primary
federal regulator of the Borrower, the Bank, or each of the other Bank
Subsidiaries (as the case may be).
1.5 "CFM Loan" means the Borrower's $5,000,000 line of credit with
Union Planters, Memphis, Tennessee, which is used to fund mortgage loans
originated by Coastal Federal Mortgage, Inc., a wholly-owned subsidiary of the
Borrower.
1.6 "Collateral" means and includes all property assigned or pledged to
the Lender or in which the Lender has been granted a security interest or to
which the Lender has been granted security title under this Agreement or the
other Financing Documents or any other agreement, instrument, or document and
the proceeds thereof.
1.7 "Core Capital" shall have the definition set forth in 12 C.F.R.
Section 567.5(a), as amended from time to time.
1.8 "ERISA" means the Employee Retirement Income Security Act of 1974,
P.L. No. 93-406, as amended from time to time.
1.9 "Event of Default" shall have the meaning set forth in Article VII
hereof.
<PAGE>
1.10 "Financing Documents" means and includes this Agreement, the Note,
the Pledge Agreement, and all other associated loan and collateral documents
including, without limitation, all guaranties, suretyship agreements, stock
powers, security agreements, security deeds, subordination agreements, exhibits,
schedules, attachments, financing statements, notices, consents, waivers,
opinions, letters, reports, records, assignments, documents, instruments,
information and other writings related thereto, or furnished by the Borrower to
the Lender in connection therewith or in connection with any of the Collateral,
and any amendments, extensions, renewals, modifications or substitutions thereof
or therefor.
1.11 "Lender" shall include transferees, assignees and successors of
the Lender, and all rights of the Lender under the Financing Documents shall
inure to the benefit of its transferees, successors and assigns. All obligations
of the Borrower under the Financing Documents shall bind its heirs, legal
representatives, successors, and assigns.
1.12 "LIBOR" means the one month London Interbank Offered Rate
designated in the Money Rates Section of the Eastern Edition of the Wall Street
Journal.
1.13 "Liabilities" means all indebtedness, liabilities, and obligations
of the Borrower or any Subsidiary thereof of any nature whatsoever which the
Lender may now or hereafter have, own or hold, and which are now or hereafter
owing to the Lender regardless of however and whenever created, arising or
evidenced, whether now, heretofore or hereafter incurred, whether now,
heretofore or hereafter due and payable, whether alone or together with another
or others, whether direct or indirect, primary or secondary, absolute or
contingent, or joint or several, and whether as principal, maker, endorser,
guarantor, surety or otherwise, and also regardless of whether such Liabilities
are from time to time reduced and thereafter increased or entirely extinguished
and thereafter reincurred, including without limitation the Note and any
amendments, extensions, renewals, modifications or substitutions thereof or
therefor.
1.14 "Loan" shall have the meaning set forth in Section 2.1 hereof.
1.15 "Material Adverse Change" means any act, omission, event or
circumstance that would entail loss, liability, damage, or expense equal to or
in excess of $500,000 in any single act, omission, event or circumstance, or
$1,000,000 in the aggregate, for which amount Borrower has not previously
provided a reserve or specific allocation.
1.16 "Note" shall have the meaning set forth in Section 2.2 hereof.
1.17 "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
1.18 "Pledge Agreement" shall have the meaning set forth in Section
2.4(a) hereof.
1.19 "Subsidiary" means each of the Bank Subsidiaries and each other
corporation for which the Borrower has the power, directly or indirectly, to
direct its management or policies or to vote 25% or more of any class of its
voting securities.
<PAGE>
1.20 "Total Risk-Based Capital Ratio" means the total risk-based
capital ratio as defined by the capital maintenance regulations of the primary
federal bank regulatory agency of the relevant Bank Subsidiary.
1.21 All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in effect from time to time.
ARTICLE II - THE LOAN
2.1 Subject to the terms and conditions of this Agreement, the Lender
agrees to lend to the Borrower the principal sum of up to $16,000,000 (the
"Loan") in a series of advances as requested from time to time by the Borrower
in a period beginning on the date of this Agreement and ending on the date 24
months after the date of this Agreement. Each such advance will reduce the
remaining commitment to lend hereunder and repayments of advances shall not
permit the Borrower to receive an additional advance of such funds.
2.2 The Loan shall be evidenced by a grid promissory note, in form and
substance satisfactory to the Lender, duly executed and delivered by the
Borrower in favor of the Lender. This grid promissory note and any amendment(s),
extension(s), renewal(s), modification(s) or substitution(s) thereof or therefor
which is in effect at any particular time is hereinafter called the "Note." The
Note shall provide that:
(a) The Loan shall bear interest at a rate per annum, calculated
on the basis of a 360-day year and actual days elapsed, equal to LIBOR plus 200
basis points. This rate will be adjusted based on the LIBOR rate published on
the first business day of each calendar month.
(b) Accrued interest shall be payable quarterly in arrears on the
last day of each quarter, commencing March 31, 1998, and continuing to be due on
the last day of each quarter (March 31, June 30, September 30, or December 31)
thereafter until the Loan is paid in full. Interest shall also be due and
payable when the Loan shall become due (whether at maturity, by reason of
acceleration or otherwise).
(c) The entire outstanding balance of the Loan, together with all
accrued and unpaid interest, shall be due and payable on January 30, 2008.
(d) No penalty or premium shall be imposed for the prepayment in
whole or in part of the principal balance of the Loan. Any prepayment in full
shall be accompanied by the payment in full of all accrued but unpaid interest
on the Loan through the prepayment date, whether or not such interest is
otherwise due and payable.
(e) In the event of conflict between the terms of this Section
2.2 and those of the Note, the Note shall control.
2.3 The proceeds of the Loan shall be used by the Borrower to refinance
existing debt of Borrower in the principal amount of $1,500,000 plus accrued
interest and fees due and to provide funds for capital management and future
expansion.
<PAGE>
2.4 To secure the repayment of the Loan:
(a) The Borrower shall execute and deliver to the Lender a stock
pledge agreement (the "Pledge Agreement") in form and substance satisfactory to
the Lender, and pursuant to which the Borrower shall grant to the Lender a
security interest in the Bank Stock. On or before the day the Loan is made, the
Borrower shall deliver to the Lender the certificate(s) representing the Bank
Stock together with stock transfer powers for the same in form and substance
satisfactory to the Lender. If at any time prior to repayment in full of the
Loan the Borrower acquires any additional shares of the Bank Stock, the Borrower
shall promptly deliver certificates evidencing such shares of the Bank Stock to
the Lender and such additional shares shall be added to the collateral already
pledged to the Lender under the Pledge Agreement, and the Lender shall have a
security interest in such additional shares.
(b) If at any time prior to repayment in full of the Loan the
aggregate book value (as determined in accordance with generally accepted
accounting principles) of the shares of Bank Stock under pledge to the Lender
becomes less than $32,000,000, the Borrower shall promptly deliver to the Lender
on demand additional collateral of a type and value acceptable to the Lender
(and the Lender's judgment in valuing same shall be conclusive) so that the sum
of the value of such additional collateral plus the aggregate book value of the
Bank Stock then under pledge is equal to or in excess of $32,000,000. In
connection with the Borrower's delivery of any additional collateral under this
Section 2.4(b), the Borrower will execute any and all security documents as the
Lender may request to evidence and perfect the Lender's rights in such
additional collateral.
2.5 In connection with the Loan, the Borrower also will deliver to the
Lender the resolutions and other agreements or instruments specified in Section
6.5 hereof and such other documents as may be reasonably required by the Lender.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that each of the
following is true, correct, complete and accurate in all respects:
3.1 The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and is qualified to do
business in all jurisdictions where such qualification is necessary, except
where the failure to so qualify would not have a material adverse effect on the
Borrower or its business. The Borrower is registered as a unitary thrift holding
company with the Office of Thrift Supervision.
3.2 The Bank is a federal savings bank formed under the laws of the
United States, regulated by the Office of Thrift Supervision, and authorized to
do business in South Carolina and North Carolina. The Bank has 40,000,000 shares
of common stock, par value $1.00 per share, authorized, of which 1,000 are
issued and outstanding, and 10,000,000 shares of preferred stock authorized,
none of which are issued and outstanding. The Borrower owns all of the
outstanding capital stock of the Bank, and there are no outstanding options,
warrants or other rights which can be converted into shares of capital stock of
the Bank (other than those, if any, issued in favor of the Borrower). The Bank
has all requisite corporate power and authority and possesses all licenses,
permits and authorizations necessary for it to own its properties and conduct
its business as presently conducted.
<PAGE>
3.3 Each financial statement of the Borrower or any Subsidiary which
has been delivered to the Lender presents fairly the financial condition of the
Borrower or such Subsidiary as of the date indicated therein and the results of
its operations for the period(s) shown therein. There has been no material
adverse change, either existing or threatened, in the financial condition or
operations of the Borrower or any Subsidiary since the date of such financial
statement.
3.4 The Borrower has full power and authority to make, execute and
perform each of the Financing Documents in accordance with the respective terms
thereof. The execution and performance by the Borrower of each and every one of
the Financing Documents has been duly authorized by all requisite action, and
each and every one of them constitutes the legal, valid and binding obligation
of the Borrower enforceable in accordance with its respective terms.
3.5 Execution, delivery, and performance by the Borrower of each and
every one of the Financing Documents does not violate any provision of law or
regulations applicable to Borrower and will not result in a breach of or
constitute a default under any agreement, indenture or other instrument to which
the Borrower or any Subsidiary is a party or which the Borrower or any
Subsidiary is bound.
3.6 Except for the security interest created by the Pledge Agreement,
the Borrower owns the Bank Stock free and clear of all liens, charges and
encumbrances. The Bank Stock is duly issued, fully paid and non-assessable, and
the Borrower has the unencumbered right to pledge the Bank Stock.
3.7 There is no claim, action, suit, arbitration, investigation,
condemnation or other proceeding at law or in equity, or by or before any
federal, state, local or other governmental agency, or by or before any other
agency or arbitrator, nor is there any judgment, order, writ, injunction or
decree of any court pending, or to the knowledge of Borrower, anticipated or
threatened against the Borrower or any Subsidiary or against any of their
properties or assets, which might have a material adverse effect on the
Borrower, any Subsidiary, or their respective properties or assets, or which
might call into question the validity or enforceability of any of the Financing
Documents, or which might involve the alleged violation by the Borrower or any
Subsidiary of any material federal, state, local or other law, rule or
regulation.
3.8 All of the Borrower's outstanding capital stock has been validly
issued, fully paid and is non-assessable. The Borrower is not in material
violation of any applicable federal, state, local, or other securities laws and
regulations with respect to the issuance of any of its capital stock or any
other of its securities.
3.9 The Borrower and each Subsidiary have accurately prepared and
timely filed (or caused to be filed) in all material respects all required
federal, state, local, or other tax returns and have paid (except as otherwise
permitted by Section 4.4 hereof) all governmental taxes and other charges
imposed upon it or on any of its properties or assets. The Borrower does not
know of any proposed additional tax assessment against it or any Subsidiary.
3.10 No consent, approval, order, authorization, designation,
registration, declaration, or filing with or of any federal, state, local, or
other governmental authority or public body on the part of the Borrower or any
<PAGE>
Subsidiary is required in connection with the Borrower's execution, delivery or
performance of any of the Financing Documents; or if required, all such
prerequisites have been, or as of the date the Loan is advanced will be, fully
satisfied.
3.11 Neither the Borrower nor any Subsidiary has incurred any material
accumulated funding deficiency within the meaning of ERISA, or has incurred any
material liability to the Pension Benefit Guaranty Corporation established under
ERISA (or any successor thereto under such Act) in connection with any employee
benefit plan established or maintained by the Borrower or any Subsidiary.
3.12 None of the transactions contemplated in this Agreement
(including, without limitation, the use of the proceeds of the Loan) will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations G, T, U, and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Parts 207, 220, 221, and 224. None of the proceeds of
the Loan hereunder will be used to purchase or carry (or refinance any borrowing
the proceeds of which were used to purchase or carry) any "margin stock" within
the meaning of Regulation U.
ARTICLE IV - AFFIRMATIVE COVENANTS
For so long as this Agreement is in effect, and unless the Lender
expressly consents in writing otherwise or to the contrary, the Borrower hereby
expressly covenants and agrees as follows:
4.1 Upon the reasonable request of the Lender, the Borrower and each
Subsidiary shall make available its officers to the Lender to discuss the
financial affairs of the Borrower or such Subsidiary, at such times and
intervals as the Lender may reasonably request, and the Borrower and each
Subsidiary shall promptly confirm or furnish in reasonable detail whatever
information relative to the Borrower or such Subsidiary as the Lender's
authorized representative, auditor or counsel may reasonably request.
4.2 The Borrower shall promptly furnish to the Lender:
(a) not later than 120 days after and as of the end of each
fiscal year, audited consolidated and consolidating financial statements of the
Borrower, to include a balance sheet and statements of income, changes in
stockholders' equity and cash flows, all in reasonable detail, prepared in
accordance with generally accepted accounting principles and certified by KPMG
Peat Marwick, L.L.P. or another independent accounting firm acceptable to the
Lender;
(b) not later than 45 days after and as of the end of each of the
first three quarters of each fiscal year, unaudited consolidated financial
statements of the Borrower, to include a balance sheet and statements of income,
changes in stockholders' equity and cash flows, all in reasonable detail,
prepared in accordance with generally accepted accounting principles (subject to
changes resulting from normal year-end adjustments), and certified by the chief
financial officer of the Borrower;
(c) not later than 45 days after and as of the end of each of the
first three quarters of each year, copies of the Report of Condition and the
Report of Income and Dividends of each of the Bank Subsidiaries as filed with
the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or
other primary federal bank regulatory agency (as the case may be);
<PAGE>
(d) not later than 30 days after and as of the end of each
quarter of each year, a statement of the Borrower's chief financial officer
describing in reasonable detail the status of compliance with each of the
covenants set forth in Articles IV and V hereof, and, in the event of
non-compliance with any of such covenants, also setting forth in reasonable
detail the action which the Borrower proposes to take with respect thereto;
(e) as soon as available, copies of all proxy materials,
financial statements and reports (if any) which the Borrower sends to its
stockholders and copies of all regular, periodic and special reports and all
registration statements which the Borrower files with the Securities and
Exchange Commission or any state securities commission or regulatory agency;
(f) immediately after the occurrence of a material adverse change
in the business, properties, condition, management or prospects, financial or
otherwise, of the Borrower or any Subsidiary, including, without limitation,
imposition of any formal or informal letter agreement, memorandum of
understanding, cease and desist order, or other similar regulatory action
involving the Borrower or any Subsidiary, a statement of the Borrower's chief
executive officer or chief financial officer setting forth in reasonable detail
such change and the action which the Borrower or any Subsidiary proposes to take
with respect thereto; and
(g) from time to time upon request of the Lender, such other
information relating to the operations, business, condition, management,
properties and prospects of the Borrower or any Subsidiary as the Lender may
reasonably request.
4.3 The Borrower shall permit the Lender's appropriate officers to
inspect the financial books and records of Borrower and each Subsidiary, to
perform a review of the loan portfolio of each Bank Subsidiary as reasonably
deemed necessary, and to review regulatory reports to the extent permitted by
the Borrower's and each Subsidiary's regulatory authorities.
4.4 The Borrower and each Subsidiary shall punctually pay and discharge
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or upon any of its property, as well as all claims of any kind,
which if unpaid, might by law become a lien or charge upon its property, except
taxes, assessments, charges, levies or claims which are in good faith being
timely litigated or otherwise properly contested by the Borrower or the
Subsidiary and as to which the contestant has established an adequate reserve on
its books.
4.5 The Borrower and each Subsidiary shall comply in all material
respects with the requirements of all provisions of constitutions, statutes,
rules, regulations and orders of governmental bodies or regulatory agencies
applicable to it, and all orders and decrees of all courts and arbitrators in
proceedings or actions to which it is a party or by which it is bound.
4.6 The Borrower shall immediately report to the Lender any significant
change in Borrower's management or any change of greater than 1% of Borrower's
total outstanding shares in the beneficial ownership of the Borrower's common
stock by any officer, director or 5% or greater stockholder of the Borrower.
4.7 The Borrower shall purchase a minimum of $50,000 in the stock of
Community Financial Services, Inc., Atlanta, Georgia.
<PAGE>
ARTICLE V - NEGATIVE COVENANTS
For so long as this Agreement is in effect, and unless the Lender
expressly consents in writing otherwise or to the contrary, the Borrower hereby
expressly covenants and agrees to the following negative covenants:
5.1 The Borrower shall not permit the book value (as determined in
accordance with generally accepted accounting principles) of the shares of Bank
Stock under pledge to the Lender as of the end of any fiscal quarter during the
term of this Agreement to be less than $32,000,000.
5.2 The Borrower shall not permit the Total Risk-Based Capital Ratio of
the Borrower or any of the Bank Subsidiaries as of the end of any fiscal year
during the term of this Agreement to be less than 9.0%.
5.3 The Borrower shall not, and shall not permit any of the Bank
Subsidiaries to, fail to comply with any minimum capital requirement imposed by
any of their federal and state regulators.
5.4 The Borrower shall not permit the earnings of the Bank
Subsidiaries, on an annualized basis as of the end of each calendar quarter
during the term of this Agreement, to be less than adequate on a prospective
basis to pay to the Borrower in the immediately succeeding calendar year legally
permissible dividends in amounts sufficient to fund the payments of principal
and interest on the Loan required under the Note and this Agreement during such
year, except to the extent that new funds available for debt service in an
amount sufficient to cover the prospective deficiency are made available to the
Borrower in a manner that does not violate any covenant in this Agreement or any
other Financing Document.
5.5 Neither the Borrower nor any Bank Subsidiary shall receive a
composite CAMELS rating from any of its regulators other than a "1" or "2".
5.6 Neither the Borrower nor any Bank Subsidiary shall permit its Core
Capital to be less than 5.0% of total assets.
5.7 The Borrower shall neither declare nor pay any dividend nor make
any distribution on any shares of stock of the Borrower or to its stockholders
(other than dividends or distributions payable in shares of stock of the
Borrower), nor shall the Borrower retire, redeem, purchase or otherwise acquire
for value, directly or indirectly, any shares of the capital stock of the
Borrower (nor permit any Subsidiary to do so) if an Event of Default has
occurred or if such declaration, payment, distribution, retirement, purchase,
redemption or other acquisition would result in an Event of Default hereunder or
an event which, with the giving of notice or passage of time (or both), would
constitute such an Event of Default.
5.8 Other than the CFM Loan, the Borrower shall not, nor permit any
Bank Subsidiary to, incur, create, assume or permit to exist any indebtedness or
liability for borrowed money in excess of $250,000 other than to the Lender, the
Borrower or a wholly-owned Subsidiary of the Borrower, without prior Lender
approval, except that this covenant shall not apply to deposits, repurchase
agreements, reverse repurchase agreements, reverse dollar roll repos,
overdrafts, borrowing of federal funds, FHLB advances, and other banking
transactions entered into by a Bank Subsidiary in the ordinary course of its
business.
<PAGE>
5.9 The Borrower shall not in any manner, directly or indirectly,
become a guarantor of any obligation of, or an endorser of, or otherwise assume
or become liable upon any notes, obligations, or other indebtedness of any other
Person (other than a Subsidiary) except in connection with the normal and
ordinary course of business.
5.10 Without the prior written consent of the Lender, which consent
will not be unreasonably withheld, the Borrower shall not, nor permit any Bank
Subsidiary to, transfer all or substantially all of its assets to, consolidate
with or merge with any other Person or acquire all or substantially all of the
properties or capital stock of any other Person, or create any Subsidiary or
enter into any partnership or joint venture.
5.11 Without the prior written consent of the Lender, which consent
will not be unreasonably withheld, the Borrower shall not, nor permit any
Subsidiary to, change or amend its articles or certificate of incorporation or
association or its bylaws.
5.12 Without the prior written consent of the Lender, which consent
will not be unreasonably withheld, the Borrower shall not permit any Subsidiary
(either directly or indirectly by the issuance of rights or options for, or
securities convertible into, such shares) to issue, sell or otherwise dispose of
any shares of any class of its stock (other than directors' qualifying shares)
except to the Borrower or a wholly-owned Subsidiary of the Borrower.
5.13 Without the prior written consent of the Lender, which consent
will not be unreasonably withheld, the Borrower shall not sell or otherwise
dispose of, or part with control of, any securities or indebtedness of any
Subsidiary, and the Borrower shall not pledge, hypothecate, assign, transfer or
grant a security interest in any of the capital stock or other securities of any
of its Subsidiaries.
5.14 Neither the Borrower nor any Subsidiary shall incur or suffer to
exist any material accumulated funding deficiency within the meaning of ERISA or
incur any material liability to the Pension Benefit Guaranty Corporation
established under ERISA (or any successor thereto under ERISA).
5.15 The Borrower shall not, nor permit any Bank Subsidiary to,
voluntarily change its president, chief executive officer or chief financial
officer without giving prompt written notice to the Lender.
ARTICLE VI - CONDITIONS PRECEDENT
All of the Lender's obligations under this Agreement, including without
limitation any obligation to make any advance of the Loan to the Borrower, are
subject to the prior fulfillment of each of the following conditions, and the
Borrower shall use its best efforts to cause each of the following conditions to
be so fulfilled:
6.1 All representations and warranties of the Borrower contained in
this Agreement and in each and every one of the other Financing Documents shall
be true, correct, complete and accurate in all material respects on and as of
the date of each advance of the Loan.
6.2 The Borrower and each Subsidiary shall have duly and properly
performed in all material respects all covenants, agreements, and obligations
required by the terms of this Agreement or any of the other Financing Documents
to be performed by the Borrower or the Subsidiary.
<PAGE>
6.3 The Borrower shall not have taken or permitted to be taken any
actions which would conflict with any of the provisions of Article V hereof.
6.4 Since the date of this Agreement no material adverse change shall
have occurred in the Borrower's or any Subsidiary's condition (financial or
otherwise), or in the business, properties, assets, liabilities, prospects, or
management of the Borrower or any Subsidiary.
6.5 Prior to the advance of the Loan, the Borrower shall have delivered
to the Lender the following described documents:
(a) This Agreement duly executed by the Borrower;
(b) The Note duly executed by the Borrower;
(c) The Pledge Agreement duly executed by the Borrower;
(d) A Certificate of the Borrower's Secretary or Assistant
Secretary, in form and substance satisfactory to the Lender, with respect to the
corporate documents of the Borrower and the Bank, the resolutions of the
Borrower's directors authorizing the execution of this Agreement and the other
Financing Documents, and such other matters as the Lender may reasonably
require;
(e) A copy of the Borrower's certificate or articles of
incorporation certified by the Secretary of State of the state of its
incorporation;
(f) A certificate of the Secretary of State of the state of the
Borrower's incorporation certifying that the Borrower is a corporation duly
organized and in good standing under the laws of such state;
(g) A copy of the Bank's certificate or articles of incorporation
or association certified by its chartering authority;
(h) An opinion of legal counsel, in form and substance
satisfactory to the Lender, with respect to the Borrower's and the Bank's
organization and authority, the enforceability of this Agreement and the
Financing Documents, and such other matters as the Lender may reasonably
require;
(i) Stock powers covering all of the Bank Stock; and
(j) Such other documents, instruments and agreements as may be
reasonably required by the Lender or the Lender's counsel in connection with the
Loan hereunder.
6.6 No Event of Default or event which, with the giving of notice or
passage of time (or both), would constitute an Event of Default under the terms
of this Agreement, shall have occurred.
6.7 Prior to the advance of any amount of the Loan in excess of
$5,000,000, the Lender shall have received commitments from its
respondent/correspondent banks to purchase at least $11,000,000 in
participations in the Loan.
<PAGE>
ARTICLE VII - EVENTS OF DEFAULT
The occurrence of any one or more of the following events will
constitute an event of default (herein called an "Event of Default") by the
Borrower under this Agreement:
7.1 After notice from Lender of amount payable, failure of the Borrower
punctually to make payment of any amount payable, whether principal or interest
or other amount, on any of the Liabilities, whether at maturity, or at a date
fixed for any prepayment or partial prepayment, or by acceleration or otherwise.
7.2 If any statement, representation, or warranty of the Borrower made
in this Agreement or in any of the other Financing Documents or at any time
furnished by or on behalf of the Borrower to the Lender proves to have been
untrue, incorrect, misleading, or incomplete in any material respect as of the
date made.
7.3 Failure of the Borrower punctually and fully to perform, observe,
discharge or comply with any of the covenants set forth in Article V hereof,
which failure is not cured within 30 days after notice from the Lender to the
Borrower.
7.4 Failure of the Borrower punctually and fully to perform, observe,
discharge or comply with any of the other covenants set forth in this Agreement,
which failure is not cured within 30 days after notice from the Lender to the
Borrower.
7.5 The occurrence of a default, an event of default, or an Event of
Default under any of the other Financing Documents or under any other agreement
to which the Borrower and the Lender are parties or under any other instrument
executed by the Borrower in favor of the Lender.
7.6 If the Borrower or any Subsidiary becomes insolvent or makes an
assignment for the benefit of creditors; or if any action is brought by the
Borrower or any Subsidiary seeking dissolution of the Borrower or such
Subsidiary or liquidation of its assets or seeking the appointment of a trustee,
interim trustee, receiver, or other custodian for any of its property; or if the
Borrower or any Subsidiary commences a voluntary case under the Federal
Bankruptcy Code; or if any reorganization or arrangement proceeding is
instituted by the Borrower or any Subsidiary for the settlement, readjustment,
composition or extension of any of its debts upon any terms; or if any action or
petition is otherwise brought by the Borrower or any Subsidiary seeking similar
relief or alleging that it is insolvent or unable to pay its debts as they
mature.
7.7 If any action is brought against the Borrower or any Subsidiary
seeking dissolution of the Borrower or such Subsidiary or liquidation of any of
its assets or seeking the appointment of a trustee, interim trustee, receiver or
other custodian for any of its property, and such action is consented to or
acquiesced in by the Borrower or such Subsidiary or is not dismissed within 30
days of the date upon which it was instituted; or if any proceeding under the
Federal Bankruptcy Code is instituted against the Borrower or any Subsidiary and
(i) an order for relief is entered in such proceeding or (ii) such proceeding is
consented to or acquiesced in by the Borrower or such Subsidiary or is not
dismissed within 30 days of the date upon which it was instituted; or if any
reorganization or arrangement proceeding is instituted against the Borrower or
any Subsidiary for the settlement, readjustment, composition, or extension of
any of its debts upon any terms, and such proceeding is consented to or
<PAGE>
acquiesced in by the Borrower or such Subsidiary or is not dismissed within 30
days of the date upon which it was instituted; or if any action or petition is
otherwise brought against the Borrower or any Subsidiary seeking similar relief
or alleging that it is insolvent, unable to pay its debts as they mature, or
generally not paying its debts as they become due, and such action or petition
is consented to or acquiesced in by the Borrower or such Subsidiary or is not
dismissed within 30 days of the date upon which it was brought.
7.8 If the Borrower or any Subsidiary is in default on indebtedness to
another Person or an event has occurred which, with the giving of notice or
passage of time, or both, will cause the Borrower or any Subsidiary to be in
default on indebtedness to another Person, and the amount of such indebtedness
exceeds $500,000 or the acceleration of the maturity of such indebtedness would
have a material adverse effect upon the Borrower or such Subsidiary.
7.9 Any other Material Adverse Change occurs in the Borrower's
financial condition or means or ability to pay the Liabilities.
7.10 If any cease and desist order has been entered against Borrower or
any Subsidiary by any federal or state bank or bank holding company regulatory
agency or body, or if the Borrower or any Subsidiary enters into any form of
memorandum of understanding, plan of corrective action, or letter agreement with
any such federal or state bank or bank holding company regulatory agency or body
concerning a material aspect of its business, or if any other regulatory
enforcement action is taken against Borrower or any Subsidiary relating to the
capitalization, management or material operation of the Borrower or any
Subsidiary.
7.11 If Borrower or any Subsidiary is indicted or convicted or pleads
guilty or nolo contendere to any charge that Borrower or such Subsidiary has
violated the Federal Money Laundering Control Act, the Controlled Substances
Act, the Currency and Foreign Transactions Reporting Act or any other federal,
state or local drug, controlled substances, money laundering, currency
reporting, racketeering, or racketeering-influenced-and-corrupt-organization
statute or regulations, or any other similar federal, state or local forfeiture
statute (including without limitation 18 U.S.C. ss. 1963).
7.12 If any Person (other than a Person who controls Borrower as of the
date of this Agreement) or group of Persons acting in concert (other than a
group of Persons which controls Borrower as of the date of this Agreement) shall
at any time after the date of the Agreement acquire control of the Borrower, as
such term is defined by the Change in Bank Control Act of 1978, as amended, 12
U.S.C. ss. 1817(j), and the rules and regulations adopted thereunder.
7.13 If the Borrower ceases to own 100% of the issued and outstanding
capital stock of, or to control, the Bank, or ceases to control any of the Bank
Subsidiaries.
ARTICLE VII - REMEDIES UPON DEFAULT
8.1 Upon the occurrence of an Event of Default:
(a) Any of the Liabilities may (notwithstanding any provisions
contained therein or herein to the contrary), at the option of the Lender and
without presentment,emand, notice or protest of any kind (all of which are
expressly waived by the Borrower in this Agreement), be declared due and
payable, whereupon they immediately will become due and payable;
<PAGE>
(b) The Lender may also, at its option, and without notice or
demand of any kind, exercise from time to time any and all rights and remedies
available to it under this Agreement or under any of the other Financing
Documents, as well as exercise from time to time any and all rights and remedies
available to a secured party when a debtor is in default under a security
agreement as provided in the Uniform Commercial Code of Georgia, or available to
the Lender under any other applicable law or in equity, including without
limitation the right to any deficiency remaining after disposition of the
Collateral; and
(c) The Borrower shall pay all of the reasonable costs and
expenses incurred by the Lender in enforcing its rights under this Agreement and
the other Financing Documents. In the event any claim under this Agreement or
under any of the other Financing Documents is referred to an attorney for
collection, or collected by or through an attorney at law, the Borrower will be
liable to the Lender for all expenses incurred by it in seeking to collect the
Liabilities or to enforce its rights hereunder, in the other Financing Documents
or in the Collateral, including, without limitation, reasonable attorneys' fees.
8.2 Any proceeds from disposition of any of the Collateral may be
applied by the Lender first to the payment of all expenses and costs incurred by
the Lender in collecting such Liabilities, in enforcing the rights of the Lender
under each and every one of the Financing Documents and in collecting, retaking,
holding, preparing the Collateral for and advertising the sale or other
disposition of and realizing upon the Collateral, including, without limitation,
reasonable attorneys' fees as well as all other legal expenses and court costs.
Any balance of such proceeds may be applied by the Lender toward the payment of
such of the Liabilities and in such order of application as the Lender may from
time to time elect. The Lender shall pay the surplus, if any, to the Borrower.
The Borrower shall pay the deficiency, if any, to the Lender.
ARTICLE IX - MISCELLANEOUS
9.1 Time is of the essence of this Agreement.
9.2 This Agreement, together with all of the other Financing Documents,
supersedes all prior discussions, understandings and agreements by and between
the Borrower and the Lender with respect to the Loan and the Collateral, and
together they constitute the sole and entire agreement between the parties.
9.3 This Agreement and the security interests and security title
conveyed under the Financing Documents shall remain in full force and effect
until such time as (i) the Liabilities are repaid in full, (ii) the Lender is
under no obligation to make loans or other financial accommodations to the
Borrower, and (iii) either party in writing notifies the other that it is
thereby terminating this Agreement.
9.4 The Lender will not be deemed as a consequence of any act, delay,
failure, omission, or forbearance (including without limitation failure to
exercise its rights of accelerating the maturity of any of the Liabilities or
other indulgences granted from time to time by the Lender) or for any other
reason: (i) to have waived, or to be estopped from exercising, any of its rights
or remedies under this Agreement or under any of the other Financing Documents;
or (ii) to have modified, changed, amended, terminated, rescinded, or superseded
any of the terms of this Agreement or of any of the other Financing Documents
unless such waiver, modification, amendment, change, termination, rescission, or
<PAGE>
supersession is express, in writing and signed by a duly authorized officer of
the Lender. No single or partial exercise by the Lender of any right or remedy
will preclude other or further exercise thereof or preclude the exercise of any
right or remedy, and a waiver expressly made in writing on one occasion will be
effective only in that specific instance and only for the precise purpose for
which given, and will not be construed as a consent to or a waiver of any right
or remedy on any future occasion.
9.5 Except as provided otherwise in this Agreement, all notices and
other communications under this Agreement are to be in writing and are to be
deemed to have been duly given and to be effective upon delivery to the party to
whom they are directed. If sent by U.S. mail, first class, certified, return
receipt requested, postage prepaid, and addressed to the Lender or to the
Borrower at their respective addressees set forth below, such notices, demands
and other communications are to be deemed to have been delivered on the second
business day after being so posted.
If to the Lender: The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339
Attn: Jack Gardner, Vice President
If to the Borrower: Coastal Financial Corporation
2619 North Oak Street
Myrtle Beach, South Carolina 29577
Attn: Michael C. Gerald, President
and Chief Executive Officer
Jerry L. Rexroad, Executive Vice President
and Chief Financial Officer
Either the Lender or the Borrower may, by written notice to the other, designate
a different address for receiving notices under this Agreement; provided,
however, that no such change of address will be effective until written notice
thereof is actually received by the party to whom such change of address is
sent.
9.6 The Borrower may not, without the consent of the Lender, assign or
transfer any of its rights or duties hereunder or under any of the other
Financing Documents.
9.7 The Lender may at any time grant participation in or sell, assign,
transfer or otherwise dispose of, all or any portion of the indebtedness of the
Borrower outstanding pursuant to this Agreement and the Note; provided, however,
that no such participant, nor any of its successors or assigns, may be a direct
competitor of the Borrower. The Borrower hereby agrees that any holder of a
participation in, and any assignee or transferee of, all or any portion of any
amount owed by the Borrower under this Agreement and the Note (i) shall be
entitled to the benefits of the provisions of this Agreement as the Lender
hereunder, and (ii) may exercise any and all rights of the banker's lien,
set-off or counterclaim with respect to any and all amounts owed by the Borrower
to such assignee, transferee or holder as fully as if such assignee, transferee
or holder had made the Loan in the amount of the obligation in which it holds a
participation or which is assigned or transferred to it.
<PAGE>
9.8 All statements, reports, certificates, opinions, and other
documents or information furnished to the Lender under the Financing Documents
shall be supplied by the Borrower without cost to the Lender. Further, the
Borrower shall reimburse the Lender on demand for all out-of-pocket costs and
expenses (including reasonable legal fees and recording costs) incurred by the
Lender in connection with the preparation, establishment, interpretation,
operation, and enforcement of the Financing Documents or the protection or
preservation of any right or claim of the Lender with respect to the Financing
Documents.
9.9 The Borrower will pay all taxes (if any) in connection with this
Agreement, any of the other Financing Documents, any loan made in connection
with this Agreement, or the issuance or ownership of any of the Financing
Documents and in connection with any modification of this loan, this agreement,
or any of the Financing Documents (excluding, however, any taxes imposed upon or
measured by the net income of the Lender), and will save the Lender harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The obligations of the Borrower under this section shall survive
the payment of the Liabilities and the termination of this Agreement.
9.10 In addition to any other amounts payable by Borrower under this
Agreement, Borrower hereby agrees to pay and indemnify Lender from and against
all claims, liabilities, losses, costs, and expenses (including, without
limitation, reasonable attorneys' fees and expenses) which Lender may (other
than as a result of the gross negligence or willful misconduct of Lender), incur
or be subject to as a consequence, directly or indirectly, of (i) any breach by
Borrower of any warranty, term or condition in, or the occurrence of any default
under, this Agreement or any other Financing Document, including all fees or
expenses resulting from the settlement or defense of any claims or liabilities
arising as a result of any such breach or default, (ii) allegations of
participation or interference by Lender in the management, contractual relations
or other affairs of Borrower or any Subsidiary, (iii) allegations that Lender
has joint liability with Borrower or any Subsidiary for any reason, and (iv) any
suit, investigation, or proceeding as to which Lender or such participant is
involved as a consequence, directly or indirectly, of its execution of this
Agreement or any other Financing Document, or any other event or transaction
contemplated by any of the foregoing. The obligations of Borrower under this
Section 9.10 shall survive the termination of this Agreement.
9.11 Upon the occurrence of an Event of Default hereunder, the Lender,
without notice or demand of any kind, may hold and set off against such of the
Liabilities (whether matured or unmatured) as the Lender may elect, any balance
or amount to the credit of the Borrower in any deposit, agency, reserve,
holdback or other account of any nature whatsoever maintained by or on behalf of
the Borrower with the Lender at any of its offices, regardless of whether such
accounts are general or special and regardless of whether such accounts are
individual or joint. Any Person purchasing an interest in debt obligations under
this Agreement held by the Lender may exercise all rights of offset with respect
to such interest as fully as if such Person were a holder of debt obligations
hereunder in the amount of such interest.
9.12 If at any time the Lender upon advice of its counsel shall
determine that any further document shall be required to effect this Agreement
and the transactions and other agreements contemplated thereby, the Borrower
shall, and shall cause its Subsidiaries to, execute and deliver such document
and otherwise carry out the purposes of this Agreement.
<PAGE>
9.13 This Agreement and all of the other Financing Documents have been
made and delivered in the State of Georgia, and the terms, provisions and
performance thereof are in all respects, including without limitation all
matters of construction, interpretation, validity, enforcement, and performance,
to be construed in accordance with and governed by the laws of that State,
including without limitation the Uniform Commercial Code of Georgia, as amended
from time to time. Wherever possible, each provision of this Agreement and of
each and every one of the other Financing Documents is to be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
thereof is prohibited or invalid under such law, such provision is to be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement or of any of the other Financing Documents.
9.14 "Herein," "hereof," and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular article,
paragraph, section or other subdivision.
9.15 The titles of the Articles appear as a matter of convenience only
and shall not affect the interpretation hereof.
9.16 Words importing the singular number shall include the plural
number and vice versa, and pronouns used shall be deemed to cover all genders.
9.17 This Agreement may not be amended, supplemented or otherwise
modified except by an instrument in writing signed by each of the parties
hereto.
<PAGE>
IN WITNESS WHEREOF, the Lender has executed this Agreement,
and the Borrower has executed this Agreement and placed its seal hereon, all as
of the day and year first above written.
BORROWER:
COASTAL FINANCIAL CORPORATION
By: /s/Michael C. Gerald
--------------------
Michael C. Gerald
Title: President and Chief Executive Officer
Attest:
Title:
[CORPORATE SEAL]
LENDER:
THE BANKERS BANK
By: /s/Jack Gardner
Jack Gardner
Title: Vice President
Attest:
Title:
[BANK SEAL]
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 18,397
<INT-BEARING-DEPOSITS> 2,175
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 103,897
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 418,325
<ALLOWANCE> 5,072
<TOTAL-ASSETS> 563,866
<DEPOSITS> 343,748
<SHORT-TERM> 77,910
<LIABILITIES-OTHER> 6,646
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0
0
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<INTEREST-TOTAL> 10,177
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<LOAN-LOSSES> (357)
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</TABLE>
