-----------------------------
COASTAL FINANCIAL CORPORATION
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DECEMBER 21, 2001
Dear Shareholder:
You are cordially invited to attend the annual meeting of Shareholders of
Coastal Financial Corporation. The meeting will be held at the Ocean Reef Resort
(the former Myrtle Beach Martinique Resort Hotel), 7100 N. Ocean Boulevard,
Myrtle Beach, South Carolina, on Wednesday January 30, 2002 at 2:00 p.m.,
Eastern Standard Time.
The notice of Annual Meeting and Proxy Statement appearing on the following
pages describe the formal business to be transacted at the meeting. During the
meeting, we will also report on the operations of the Corporation. Directors and
Officers of the Corporation, as well as a representative of KPMG LLP, the
Corporation's independent auditors, will be present to respond to appropriate
questions of Shareholders.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person and regardless of the number of shares
you own. To make sure your shares are represented, we urge you to complete and
mail the enclosed proxy card. If you attend the meeting, you may vote in person
even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
Michael C. Gerald
President and
Chief Executive Officer
COASTAL FINANCIAL CORPORATION
2619 OAK STREET
MYRTLE BEACH, SOUTH CAROLINA 29577
(843) 205-2000
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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The annual meeting of shareholders of Coastal Financial Corporation
("Corporation") will be held at the Ocean Reef Resort (the former Myrtle Beach
Martinique Resort Hotel), 7100 N. Ocean Boulevard, Myrtle Beach, South Carolina
on Wednesday, January 30, 2002, at 2:00 p.m., Eastern Standard Time, for the
following purposes:
1. To elect two directors of the Corporation;
2. To transact any other business that may properly come before the
meeting.
NOTE:The Board of Directors is not aware of any other business to come
before the meeting.
Shareholders of record at the close of business on November 30, 2001 are
entitled to receive notice of the meeting and to vote at the meeting and any
adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited by
the Board of Directors, and mail it promptly in the enclosed envelope. The proxy
will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
Susan J. Cooke
Secretary
Myrtle Beach, South Carolina
December 21, 2001
IMPORTANT: The prompt return of proxies will save the Company the expense of
further requests for proxies in order to ensure a quorum. A self-addressed
envelope is enclosed for your convenience. No postage is required if mailed in
the United States.
PROXY STATEMENT
OF
COASTAL FINANCIAL CORPORATION
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ANNUAL MEETING OF SHAREHOLDERS
January 30, 2002
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Coastal Financial Corporation ("Coastal
Financial" or "Corporation") to be used at the Annual Meeting of Shareholders of
the Corporation. The Corporation is the holding company for Coastal Federal
Savings Bank. The annual meeting will be held at the Ocean Reef Resort (the
former Myrtle Beach Martinique Resort Hotel), 7100 N. Ocean Boulevard, Myrtle
Beach, South Carolina, on Wednesday January 30, 2002 at 2:00 p.m., Eastern
Standard Time. This Proxy Statement and the enclosed proxy card are being first
mailed on or about December 21, 2001 to Shareholders of record.
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VOTING AND PROXY PROCEDURE
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Who Can Vote at the Meeting
You are entitled to vote your Coastal Financial Corporation common stock if
the records of the Corporation showed that you held your shares as of the close
of business on November 30, 2001. As of the close of business on that date, a
total of 10,643,646 shares of Coastal Financial Corporation common stock were
outstanding. Each share of common stock has one vote. As provided in the
Corporation's Articles of Incorporation, record holders of the Corporation's
common stock who beneficially own, either directly or indirectly, in excess of
10% of the Company's outstanding shares are not entitled to any vote with
respect to the shares held in excess of the 10% limit.
Attending the Meeting
If you are a beneficial owner of Coastal Financial common stock held by a
broker, bank or other nominee (i.e., in "street name"), you will need proof of
ownership to be admitted to the meeting. A recent brokerage statement or letter
from a bank or broker are examples of proof of ownership. If you want to vote
your shares of Coastal Financial common stock held in street name in person at
the meeting, you will have to get a written proxy in your name from the broker,
bank or other nominee which holds your shares.
Vote Required
The Annual Meeting will be held if a majority of the outstanding shares of
common stock entitled to vote is represented at the meeting, constituting a
quorum for the transaction of business. If you return valid proxy instructions
or attend the meeting in person, your shares will be counted for purposes of
determining whether there is a quorum, even if you abstain from voting. Broker
non-votes also will be counted for purposes of determining the existence of a
quorum. A broker non-vote occurs when a broker, bank or other nominee holding
shares for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received voting instructions from the beneficial owner.
1
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
must be elected by a plurality of the votes cast at the annual meeting. This
means that the nominees receiving the greatest number of votes will be elected.
Votes that are withheld and broker non-votes will have no effect on the outcome
of the election.
Voting by Proxy
This Proxy Statement is being sent to you by the Board of Directors of
Coastal Financial for the purpose of requesting that you allow your shares of
Coastal Financial common stock to be represented at the annual meeting by the
persons named in the enclosed proxy card. All shares of Coastal Financial common
stock represented at the meeting by properly executed and dated proxies will be
voted in accordance with the instructions indicated on the proxy card. If you
sign, date and return a proxy card without giving voting instructions, your
shares will be voted as recommended by the Corporation's Board of Directors.
If any matters not described in this proxy statement are properly presented
at the annual meeting, the persons named in the proxy card will use their own
judgment to determine how to vote your shares. This includes a motion to adjourn
or postpone the meeting in order to solicit additional proxies. If the Annual
Meeting is postponed or adjourned, your Coastal Financial common stock may be
voted by the persons named in the proxy card on the new meeting date as well,
unless you have revoked your proxy. The Corporation does not know of any other
matters to be presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Corporation in writing before your shares have been voted at the annual meeting,
deliver a later dated proxy, or attend the meeting and vote your shares in
person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your Coastal Financial common stock is held in street name, you will
receive instructions from your broker, bank or other nominee that you must
follow in order to have your shares voted. Your broker may allow you to deliver
your voting instructions via the telephone or the Internet.
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STOCK OWNERSHIP
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The following table provides information as of November 30, 2001 with
respect to persons known to the Corporation to be the beneficial owners of more
than 5% of the Company's outstanding common stock. A person may be considered to
beneficially own any share of common stock over which he or she has, directly or
indirectly, sole or share voting or investing power.
Percent of
Number of Common Stock
Name and Address Shares Owned (1) Outstanding
Ammons Holdings, Inc. 600,592 5.65
1200 S. Ocean Blvd.
Myrtle Beach, SC 29577
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(1) Share ownership based on Corporation's Shareholder list as of November 30,
2001.
2
The following table provides information about the shares of Coastal
Financial Corporation common stock that may be considered to be owned by each
named executive officer, director or nominee for director of the Company and by
all directors and executive officers of the Company as a group as of November
30, 2001. Unless otherwise indicated, each of the named individuals has sole
voting power and sole investment power with respect to the shares shown.
Number of Shares
Number of That May Be Acquired Percent of
Shares Owned Within 60 Days By Common Stock
(Excluding Options) (1) Exercising Options Outstanding (2)
----------------------- ------------------ ---------------
Named Executive Officers (3)
Michael C. Gerald, President, Chief 101,564 135,026 2.20
Executive Officer and Director
Jimmy R. Graham, Executive Vice
President 85,711 87,293 1.62
Jerry L. Rexroad, Executive Vice
President and Chief Financial 32,712 (4) 127,022 1.49
Officer
Steven J. Sherry, Executive Vice
President 704 16,878 0.17
Phillip G. Stalvey, Executive Vice
President 63,168 79,175 1.33
Directors of the Corporation
(Excluding Named Executive Officers)
James C. Benton 398,911 (5) 14,764 3.89
G. David Bishop 269,933 (6) 18,064 2.71
James T. Clemmons 265,445 (7) 13,814 2.62
James P. Creel 575,993 (8) 21,911 5.61
James H. Dusenbury 47,955 (9) 21,911 0.66
Frank A. Thompson, II 9,055 (10) 6,765 0.15
All Executive Officers and
Directors as a Group (11 persons) 1,851,691 542,623 21.41
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3
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person is deemed to be the
beneficial owner, for purposes of this table, of any shares of the
Corporation's Common Stock if he or she has voting and/or investment power
with respect to such security or has a right to acquire, through the
exercise of outstanding options or otherwise, beneficial ownership at any
time within 60 days from November 30, 2000. The table includes certain
shares owned by spouses, other immediate family members in trust, shares
held in retirement accounts or funds for the benefit of the named
individuals, and other forms of ownership, over which shares the named
persons possess voting and/or investment power.
(2) Based on 10,643,646 shares of Common Stock of the Corporation outstanding
and entitled to vote at the Meeting, plus the number of shares that may be
acquired within 60 days by each individual (or group of individuals) by
exercising options.
(3) Under SEC regulation, the term "named executive officer" is defined to
include the chief executive officer regardless of compensation level, and
the four most highly compensated executive officers, other than the chief
executive officer, whose total annual salary and bonus for the last
completed fiscal year exceeded $100,000.
(4) Includes 3,585 shares owned by Jerry L. Rexroad; 2,634 shares owned by
Jerry L. Rexroad - IRA; 156 shares owned jointly by Jerry L. Rexroad &
Robin E. Rexroad; 23,638 shares owned by Robin E. Rexroad; 2,699 shares in
the Coastal Financial Corporation's 401-K Plan for Jerry L. Rexroad.
(5) Includes 363,900 shares owned by RCEE, Inc. of which Mr. Benton is
President; 34,975 shares owned by Mr. Benton; 36 shares owned by Emma Ann
Lawton Benton.
(6) Includes 21,550 shares owned by G. David Bishop; 167,949 shares owned by G.
J. Bishop Trust, G. David Bishop, Trustee; 80,434 shares owned by Mary Ann
Bishop.
(7) Includes 164,257 shares owned by J. T. Clemmons; 98,242 shares owned by
Helen W. Clemmons; 2,730 shares owned by J. T. Clemmons - IRA; 216 shares
owned by Helen W. Clemmons - IRA.
(8) Includes 427,482 shares owned by Creel Outdoor Advertising, Inc.; 95,304
shares owned by Creel Outdoor Advertising, Inc. Profit Sharing Plan; 8,079
shares owned by C. Alicia Creel; 22,496 shares owned by Carolyn W. Creel;
678 shares owned by Carolyn W. Creel & James P. Creel; 678 shares owned by
Carolyn W. Creel & C. Alicia Creel; 5,046 shares owned by Carolyn W. Creel,
James P. Creel, Jr. & Alicia Creel Bame; 7,536 shares owned by James P.
Creel; 499 shares owned by Alicia Creel Bame & Carolyn W. Creel; 8,195
shares owned by Sun Graphics, Inc., Carolyn W. Creel, President.
(9) Includes 148 shares owned by James H. Dusenbury; 30,249 shares owned by
James H. Dusenbury - IRA; 14,793 shares owned by Brenda J. Dusenbury - IRA;
2,765 shares owned by Brenda J. Dusenbury & Heather K. Welch.
(10) Includes 1,068 shares owned by Frank A. Thompson, II; 5,550 shares owned by
Frank A. Thompson, II - SEP; 1,012 shares owned by Frank A. Thompson - IRA;
1,425 shares owned by Sharon Thompson - IRA.
4
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PROPOSAL 1 - ELECTION OF DIRECTORS
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The Corporation's Board of Directors consists of seven members. Six of them
are independent directors and one is a member of management. The Board is
divided into three classes with three-year staggered terms, with approximately
one-third of the directors elected each year. Two directors will be elected at
the annual meeting to serve for a three-year term, or until their respective
successors have been elected and qualified. The nominees are James C. Benton and
James P. Creel, both of whom are currently directors of the Corporation and
Coastal Federal Savings Bank.
It is intended that the proxies solicited by the Board of Directors will be
voted for the election of the nominees named above. If any nominee is unable to
serve, the persons named in the proxy card would vote your shares to approve the
election of any substitute proposed by the Board of Directors. Alternatively,
the Board of Directors may adopt a resolution to reduce the size of the Board.
At this time, the Board of Directors knows of no reason why any nominee might be
unable to serve.
The Board of Directors recommends a vote "FOR" the election of all of the
nominees.
Information regarding the nominees and the directors continuing in office
is provided below. Unless otherwise stated, each individual has held his current
occupation for the last five years. The age indicated in each individual's
biography is as of September 30, 2001. The indicated period for service as a
director includes service as a director of Coastal Federal Savings Bank.
Nominees for Election as Directors
The directors standing for election are:
James C. Benton. Mr. Benton is President of C. L. Benton & Sons, Inc. Age
69. Director since 1979.
James P. Creel. Mr. Creel is President of Creel Corporation. Age 62.
Director since 1990.
Directors Continuing in Office
The following directors have terms ending in 2003.
James T. Clemmons. Mr. Clemmons is retired President of Coastal Federal
Savings Bank. Age 62. Director since 1979.
Frank A. Thompson, II. Mr. Thompson is President of Peoples Underwriters,
Inc. Age 43. Director since 1999.
G. David Bishop. Mr. Bishop is President of Waccamaw Community Foundation.
Age 47. Director since 1991.
The following directors have terms ending in 2004.
Michael C. Gerald. Mr. Gerald is the President and Chief Executive Officer
of the Corporation and Coastal Federal Savings Bank. Age 52. Director since
1986.
James H. Dusenbury. Mr. Dusenbury is retired attorney/Dusenbury Law Firm.
Age 66. Mr. Dusenbury has been associated with the bank since 1965 serving in
the capacity of general counsel and Advisory Director. Director since 1996.
5
Meetings and Committees of the Board of Directors
The Boards of Directors of the Corporation and Coastal Federal Savings Bank
conduct their business through meetings of the Boards and through their
committees. During the fiscal year ended September 30, 2001, the Board of
Directors of the Corporation held fourteen (14) meetings and the Board of
Directors of Coastal Federal Savings Bank held twenty-two (22) meetings. No
director of the Corporation or Coastal Federal Savings Bank attended fewer than
75% of the total meetings of the Boards and committees on which such Board
member served during this period.
The Executive Committee of the Board of Directors, consisting of Directors
Benton, Clemmons, Creel and Gerald, meets as necessary between meetings of the
full Board of Directors. The Executive Committee met three times during the
fiscal year ended September 30, 2001.
The Board of Directors of the Company has an Audit Committee, consisting of
Directors Bishop, Clemmons, Creel, Dusenbury and Thompson, which is responsible
for developing and monitoring the Company's audit program. The Audit Committee
selects the Corporation's outside auditors and meets with them to discuss the
results of the annual audit and any related matters. The Audit Committee also
receives and reviews the reports and findings and other information presented to
them by Coastal Federal Savings Bank's officers regarding financial reporting
policies and practices. The Audit Committee met four (4) times during the fiscal
year ended September 30, 2001.
The Board of Directors of the Corporation acts as a nominating committee
for selecting the nominees for election as directors. The Board of Directors met
once in its capacity as the nominating committee during the year ended September
30, 2001. The Corporation's Bylaws provide for Shareholder nomination of
directors. See "Stockholder Proposals and Nominations".
Directors' Compensation
Members of the Board of Directors of Coastal Federal receive a fee of
$12,000 annually, except for the Chairman of the Board, who receives $19,500
annually. Members of the Board of Directors of Coastal Financial receive $2,500
annually. Honorary Directors of Coastal Financial ___ Corporation receive $1,000
annually. Directors who are members of the Bank's Executive Committee, which
meets on an as-needed basis, are not compensated. Non-Associate directors who
are members of the Bank's Loan Committee receive $50 per committee meeting.
Total fees paid to Directors of Coastal Financial Corporation and its
subsidiaries during the fiscal year ended September 30, 2001 were $137,800.
2000 Stock Option Plan. At the 2000 Annual Meeting, the Corporation's
Shareholders approved the 2000 Stock Option Plan. All Directors participate in
the 2000 Stock Option Plan. On January 24, 2001, each Director received stock
options to purchase 3,300 shares of the Corporation's common stock at an
exercise price of $7.17 per share, the market value of common stock on that
date.
6
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EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Summary Compensation Table
The following information is furnished for the Chief Executive Officer and
the four other most highly compensated executive officers.
- ------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE (1)
- ------------------------------------------------------------------------------------------------------
Annual Compensation
- ------------------------------------------------------------------------------------------------------
Long-Term
Compensation
---------------
Awards
---------------
- ------------------------------------------------------------------------------------------------------
Securities
Year Salary Bonus Other Annual Underlying All Other
Name and ($)(1) ($)(2) Compensation Options/ Compensation
Principal ($)(3) (#)(4) ($)(5)
Position
- ------------------------------------------------------------------------------------------------------
Michael C. Gerald, 2001 212,000 141,366 18,950 21,105 7,820
President, Chief 2000 200,000 145,500 18,700 21,267 7,500
Executive Officer 1999 185,000 135,899 17,000 29,782 8,202
& Director
Jimmy R. Graham, 2001 122,430 78,862 -0- 16,027 6,818
Executive Vice 2000 115,500 82,740 100 16,023 7,500
President 1999 110,000 79,550 -0- 17,325 9,011
Jerry L. Rexroad, 2001 166,920 102,887 4,700 16,027 8,659
Executive Vice 2000 156,000 106,230 4,950 16,023 8,700
President & Chief 1999 145,600 100,198 5,250 21,945 0,234
Financial Officer
Steven J. Sherry, 2001 133,350 84,759 -0- 16,027 4,055
Executive Vice 2000 127,000 86,660 -0- 16,023 4,654
President 1999 120,000 85,350 -0- 12,993 7,759
Phillip G. Stalvey, 2001 151,200 94,398 1,600 16,027
Executive Vice 2000 140,000 96,950 1,600 16,023 7,099
President 1999 131,250 91,875 1,850 21,945 7,500
9,321
- --------------
(1) All compensation, including fringe benefits, are paid by the Bank.
(2) Reflects bonuses awarded for the fiscal year which were paid in subsequent
fiscal year.
(3) Reflects directors' fees received during the fiscal year for service on the
Board of Directors of the Corporation and/or its Subsidiaries. Does not
include perquisites which did not exceed, in the aggregate, the lesser of
$50,000 or 10% of salary and bonus.
(4) Option Grants have been adjusted for the 5% stock dividend December 1,
1999, the 10% stock dividend March 28, 2000, and the 3 for 2 stock split
August 14, 2001.
(5) Includes employer contributions to the 401K Profit Sharing Plan & Trust of
Coastal Financial Corporation and amounts paid to Jerry Rexroad for unused
vacation in the amount of $1,355 in accordance with the Corporation's
Compensation plan to all Associates.
7
Option Grants Table
The following table sets forth the qualified stock options granted under the
2000 Stock Option and Incentive Plan to the individuals named in the Summary
Compensation Table during the fiscal year ended September 30, 2001. Also listed
are the hypothetical gains or "options spreads" that would exist for the
respective options. These gains are based on assumed rates of annual compound
stock price appreciation of 5% and 10% from the date the options were granted
over the full option term.
==================================================================================================================
INDIVIDUAL GRANTS
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Potential Realizable Value
at Assumed Annual Rates
Number of Percentage of of Stock Price Appreciation
Securities Total For Option Term (2)
Underlying Options/
Options/ Granted to Exercise or
------------------------------
Granted (1) Associates Base Price
In Fiscal Per Share Expiration
Name (#) Year ($/Sh) (1) Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------
Michael C. Gerald 17,805 8.41% 6.08 2010 68,080 172,529
3,300 1.56% 7.16 2011 14,859 37,657
Jimmy R. Graham 16,027 7.57% 6.08 2010 61,970 157,045
Jerry L. Rexroad 16,027 7.57% 6.08 2010 61,970 157,045
Phillip G. Stalvey 16,027 7.57% 6.08 2010 61,970 157,045
Steven J. Sherry 16,027 7.57% 6.08 2010 61,970 157,045
==================================================================================================================
(1) Shares granted and exercise prices have been adjusted for the 3 for 2 Stock
Split effective August 14, 2001.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises depend on the future performance
of Coastal Financial's Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.
8
Option Exercise Table
The following table shows stock option exercises by the individuals named in the
Summary Compensation Table during the fiscal year ended September 30, 2001. In
addition, this table includes the number of shares covered by both exercisable
and non-exercisable options as of September 30, 2001. Also reported are the
values for "in-the-money" options, which represent the positive spread between
the exercise price of any such existing options and the year-end price of
Coastal Financial Corporation Common Stock.
====================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------------
Dollar Value of
Number of Unexercised
Unexercised In-the-Money
Number of Options at Options at
Shares FY-End (1) FY-End
Acquired Dollar
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
Michael C. Gerald -0- -0- 131,638/62,274 405,535/112,375
Jimmy R. Graham -0- -0- 83,740/50,887 236,540/93,614
Jerry L. Rexroad 6,841 $49,832 123,469/52,735 478,924/93,614
Phillip G. Stalvey 2,500 $12,695 76,162/52,735 175,175/93,614
Steven J. Sherry -0- -0- 16,878/40,665 25,623/81,400
====================================================================================================================
(1) Number of unexercised options at FY-End have been adjusted for the three
for two stock split paid August 14, 2001.
Employment Agreement
Coastal Federal entered into an employment agreement with Mr. Gerald upon
the completion of the Bank's conversion from mutual to stock form. Effective
September 30, 2001 such employment agreement has a term of three years and
provides for an annual base salary of $225,000 subject to annual adjustment by
the Board of Directors. Additionally, on each anniversary of the commencement
date of the agreement, the term of such agreement is extended for an additional
year unless a notice is received from either the Bank or Mr. Gerald and subject
to the review and approval of the Board of Directors. The agreement also
provides for severance payments if employment is terminated following a change
of control. These payments, which will be made promptly after any change of
control, will be equal to 2.99 times the average annual compensation paid to Mr.
Gerald during the five years immediately preceding the change in control.
Coastal Federal entered into an employment agreement with Mr. Rexroad
effective March 21, 1995. Effective September 30, 2001 such employment agreement
has a term of three years and provides for an annual base salary of $175,000
subject to annual adjustment by the Board of Directors. Additionally, on each
anniversary of the commencement date of the agreement, the term of such
agreement is extended for an additional year unless a notice is received from
either the Bank or Mr. Rexroad and subject to the review and approval of the
Board of Directors. The agreement also provides for severance payments if
employment is terminated following a change of control. These payments, which
will be made promptly after any change of control, will be equal to 2.99 times
the average annual compensation paid to Mr. Rexroad during the five years
immediately preceding the change in control.
9
Coastal Federal entered into an employment agreement with Mr. Stalvey
effective October 21, 1997. Effective September 30, 2001, such employment
agreement has a term of three years and provides for an annual base salary of
$162,500 subject to annual adjustment by the Board of Directors. Additionally,
on each anniversary of the commencement date of the agreement, the term of such
agreement is extended for an additional year unless a notice is received from
either the Bank or Mr. Stalvey and subject to the review and approval of the
Board of Directors. The agreement also provides for severance payments if
employment is terminated following a change of control. These payments, which
will be made promptly after any change of control, will be equal to 2.99 times
the average annual compensation paid to Mr. Stalvey during the five years
immediately preceding the change in control.
Coastal Federal entered into an employment agreement with Mr. Graham
effective October 27, 1998. Effective September 30, 2001, such employment
agreement has a term of one year and provides for an annual base salary of
$130,000. Additionally, on each anniversary of the commencement date of the
agreement, the term of such agreement is extended for an additional year unless
a notice is received from either the Bank or Mr. Graham and subject to the
review and approval of the Board of Directors. The agreement also provides for
severance payments if employment is terminated following a change of control.
These payments, which will be made promptly after any change of control, will be
equal to 1.00 times the average annual compensation paid to Mr. Graham during
the five years immediately preceding the change in control.
Coastal Federal entered into an employment agreement with Mr. Sherry
effective October 27, 1998. Such employment agreement has a term of one year and
provides for an annual base salary of $139,000. Additionally, on each
anniversary of the commencement date of the agreement, the term of such
agreement is extended for an additional year unless a notice is received from
either the Bank or Mr. Sherry and subject to the review and approval of the
Board of Directors. The agreement also provides for severance payments if
employment is terminated following a change of control. These payments, which
will be made promptly after any change of control, will be equal to 1.00 times
the average annual compensation paid to Mr. Sherry during the five years
immediately preceding the change in control.
The term "control" is defined in the agreement described above as, among
other things, any time during the period of employment when a change of control
is deemed to have occurred under regulations of the Office of Thrift Supervision
("OTS") or a change in the composition of more than a majority of the Board of
Directors of the Corporation.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the 1934 Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following Report of the Compensation and
Benefits Committee and Performance Graph shall not be incorporated by reference
into any such filings.
Report of the Compensation and Benefits Committee. The Compensation and Benefits
Committee of the Board of Directors of the Corporation is responsible for
establishing, implementing and monitoring all compensation policies of the
Corporation and its primary operating subsidiary, Coastal Federal. The Committee
is also responsible for evaluating the performance of the Chief Executive
Officer of the Corporation and recommending appropriate compensation levels. The
Chief Executive Officer evaluates the performance of executive officers of the
Corporation and recommends individual compensation levels to the Compensation
and Benefits Committee.
10
The Compensation and Benefits Committee believes that a compensation plan
for executive officers should take into account management skills, long-term
performance results and Shareholder returns. Compensation policies must be
maintained to promote: 1) the attraction and retention of highly qualified
executives; 2) motivation of executives that is related to the performance of
the individual and the Corporation; 3) current and long-term performance; and 4)
a financial interest in the success of the Corporation similar to the interest
of its Shareholders.
The Corporation's current compensation plan involves a combination of
salary and bonus to reward short-term performance and grants of stock options to
encourage long-term performance. The salary levels of the executive officers are
designed to be competitive within the financial services industry. Compensation
surveys are utilized to determine appropriate salary adjustments. A 401(k) plan,
in which all executive officers and Associates of Coastal Financial may
participate, has been designed to align their interests with those of the
Shareholders of the Corporation. Matching contributions to the 401(k) plan are
paid based upon the attainment of established levels of Return on Average
Shareholders' Equity ("Return on Equity"). The Corporation's Executive Bonus
Plan provides for the payment of a bonus on a graduated scale if the
Corporation's consolidated Return on Average Equity, excluding accumulated
unrealized gains or losses on the securities portfolio, equals or exceeds 13.5%.
Non-recurring items and non-operational items, such as gain (losses) on
investments securities and early prepayment penalties on FHLB advances, as
determined by the Corporation's Board of Directors, are excluded from net
income. The Corporation's Return on Equity in fiscal 2001 was 17.75%. This
compares to a Return on Equity in fiscal 2000 of 19.31%. The Executive Bonus
Plan escalates upon the attainment of higher levels of Return on Equity. Stock
options are the Corporation's primary long-term compensation program designed to
reward executive performance consistent with performance that benefits
Shareholders. Awards of stock options are intended to provide executives with
increased motivation and incentive to exert their best efforts on behalf of the
Corporation by enlarging their personal stake in its success through the
opportunity to increase their stock ownership in the Corporation. Options issued
to executives are at a price equal to the closing price of the Corporation's
stock on the date of grant in order to ensure that any value derived from the
grant is realized by Shareholders generally. The amount of options granted to an
Executive Officer is based upon the Corporation's performance, the officer's
performance and relative responsibilities within the Corporation. Options
generally vest over a period of five years.
During the fiscal year ended September 30, 2001, the base compensation of
Michael C. Gerald, President and Chief Executive Officer of the Corporation was
$212,000. For fiscal 2002 Mr. Gerald's base compensation was increased to
$225,000.
Based upon the factors discussed above, the Compensation and Benefits
Committee continues to believe that Mr. Gerald's compensation package as Chief
Executive Officer and President of the Corporation appropriately reflects the
Company's short term and long term performance goals.
The Compensation and James C. Benton J. T. Clemmons
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Benefits Committee James P. Creel
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Compensation Committee Interlocks and Insider Participation. There are no
interlocks or insider participation with respect to the Compensation and
Benefits Committee of the Board of Directors of the Corporation.
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Performance Graph. The following graph compares the Corporation's cumulative
Shareholder return on its Common Stock with the return on the Nasdaq Composite
Index and a peer group, the Nasdaq Bank Index. All cumulative returns assume the
investment of $100.00 in each of the Corporation's Shares, the Nasdaq Bank Index
and the Nasdaq Composite Index on September 30, 1996.
[GRAPHIC - PERFORMANCE GRAPH PLOTTED POINTS LISTED BELOW]
PLEASE PROVIDE PLOTTED POINTS
EDGAR CANNOT PRINT OUT GRAPHS
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and directors, and persons who own more than
10% of any registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the SEC. Executive officers,
directors and greater than 10% stockholders are required by regulation to
furnish the Corporation with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of the reports it has received and
written representation provided to the Corporation from the individuals required
to file the reports, the Corporation believes that each of the Corporation's
executive officers and directors has complied with applicable reporting
requirements for transactions in Coastal Financial Corporation common stock
during the fiscal year ended September 30, 2001.
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TRANSACTIONS WITH MANAGEMENT
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Federal regulations require that all loans or extensions of credit to
executive officers and directors of insured financial institutions must be made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons,
except for loans made pursuant to programs generally available to all employees,
and must not involve more than the normal risk of repayment or present other
unfavorable features. Coastal Federal Savings Bank is therefore prohibited from
making any new loans or extensions of credit to executive officers and directors
at different rates or terms than those offered to the general public, except for
loans made pursuant to programs generally available to all employees, and has
adopted a policy to this effect. In addition, loans made to a director or
executive officer in an amount that, when aggregated with the amount of all
other loans to such person and his or her related interests, are in excess of
the greater of $25,000 or 5% of the institution's capital and surplus (up to a
maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors.
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AUDIT COMMITTEE REPORT
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The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of Coastal Financial's independent auditors,
accounting functions and internal controls. The Audit Committee is composed of
five directors, each of whom is independent under the National Association of
Securities Dealers' listing standards. The Audit Committee acts under a written
charter adopted by the Board of Directors.
The Audit Committee reviewed and discussed the annual financial statements
with management and the independent accountants. As part of this process,
management represented to the Audit Committee that the financial statements were
prepared in accordance with generally accepted accounting principles. The Audit
Committee also received and reviewed written disclosures and a letter from the
accountants concerning their independence as required under applicable standards
for auditors of public companies. The Audit Committee discussed with the
accountants the contents of such materials, the accountant's independence and
the additional matters required under Statement on Auditing Standards No. 61.
Based on such review and discussion, the Audit Committee recommended that the
Board of Directors include the audited consolidated financial statements in
Coastal Financial's Annual Report on Form 10-K for the year ended September 30,
2001 for filing with the Securities and Exchange Commission.
Members of the Audit Committee:
G. David Bishop
J.T. Clemmons
James P. Creel
James H. Dusenbury - Chairman
Frank A. Thompson II
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AUDITING AND RELATED FEES
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Audit Fees. For fiscal year 2001, KPMG LLP billed the Corporation an aggregate
of $66,400 for professional services rendered for the audit of the Corporation's
annual financial statements for the year ended September 30, 2001 and reviews of
the financial statements included in the Corporation's Forms 10-Q for that year.
All Other Fees. For fiscal year 2001, KPMG LLP billed the Corporation an
aggregate of $36,200 for preparation of tax returns, tax consulting and other
fees.
The Audit Committee believes that the provision of non-audit services by
KPMG LLP is compatible with maintaining KPMG LLP's independence.
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MISCELLANEOUS
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The Corporation will pay the cost of this proxy solicitation. The
Corporation will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Coastal Financial Corporation common stock. In
addition to soliciting proxies by mail, directors, officers and regular
employees of the Corporation may solicit proxies personally or by telephone.
None of these persons will receive additional compensation for these activities.
The Company's Annual Report to Shareholders has been mailed to shareholders
of record as of the close of business on November 30, 2001. Any shareholder who
has not received a copy of the Annual Report may obtain a copy by writing to the
Secretary of the Corporation. The Annual Report is not to be treated as part of
the proxy solicitation material or as having been incorporated herein by
reference.
A copy of the Corporation's Form 10-K, without exhibits, for the fiscal
year ended September 30, 2001, as filed with the Securities and Exchange
Commission, will be furnished without charge to Shareholders of record as of the
close of business on November 30, 2001 upon written request to Corporate
Secretary, Coastal Financial Corporation, Myrtle Beach, South Carolina.
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SHAREHOLDER PROPOSALS AND NOMINATIONS
- --------------------------------------------------------------------------------
Proposals that Shareholders seek to have included in the proxy statement
for the Corporation's next annual meeting must be received by the Corporation no
later than August 23, 2002. Any such proposals will be subject to the
requirements of the proxy rules adopted by the Securities and Exchange
Commission.
The Company's Bylaws provide that in order for a Shareholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a shareholder must deliver notice of such
nominations and/or proposals to the Secretary not less than 30 nor more than 60
days prior to the date of the annual meeting; provided that if less than 40
days' notice of the annual meeting is given to shareholders, such notice must be
delivered not later than the close of the tenth day following the day on which
notice of the annual meeting was mailed to Shareholders. A copy of the Bylaws
may be obtained from the Corporation.
BY ORDER OF THE BOARD OF DIRECTORS
Susan J. Cooke
Secretary
Myrtle Beach, South Carolina
December 21, 2001
14