-----------------------------
COASTAL FINANCIAL CORPORATION
-----------------------------
DECEMBER 17, 2004
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 Tuesday January 25, 2005 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 Tuesday, January 25, 2005, 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, 2004 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
Corporate Secretary
Myrtle Beach, South Carolina
December 17, 2004
IMPORTANT: The prompt return of proxies will save the Corporation 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 25, 2005
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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
Bank. 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 Tuesday January 25, 2005 at 2:00 p.m., Eastern Standard Time. This Proxy
Statement and the enclosed proxy card are being first mailed on or about
December 17, 2004 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 common stock if the records
of the Corporation show that you held your shares as of the close of business on
November 30, 2004. As of the close of business on that date, a total of
15,935,823 shares of Coastal Financial's common stock were outstanding. Each
share of common stock has one vote. As provided in the Corporation's Certificate
of Incorporation, record holders of the Corporation's common stock who
beneficially own, either directly or indirectly, in excess of 10% of the
Corporation'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 meeting will be held only if there is a quorum. A quorum exists if a
majority of the outstanding shares of common stock entitled to vote is
represented for the transaction of business at the meeting. 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.
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
up to the maximum number of directors to be elected at the meeting. The maximum
number of directors to be elected at the meeting is two. Votes that are withheld
and broker non-votes will have no effect on the outcome of the election.
1
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 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 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 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 meeting,
deliver a later dated proxy, or attend the meeting and vote your shares in
person. Attendance at the 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. Please see the
instruction form provided by your broker, bank or other nominee that accompanies
this proxy statement for further information regarding telephone and Internet
voting. If you wish to change your voting instructions after you have returned
your voting instruction form to your broker or bank, you must contact your
broker or bank.
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CORPORATE GOVERNANCE
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The Corporation periodically reviews its corporate governance policies and
procedures to ensure that the Corporation meets the highest standards of ethical
conduct, reports results with accuracy and transparency and maintains full
compliance with the laws, rules and regulations that govern its operations. As
part of this periodic review, the Board of Directors reviews and adopts best
corporate governance policies and practices for the Corporation.
Code of Business Conduct
The Corporation has adopted a Code of Business Conduct that is designed to
ensure that the Corporation's directors, executive officers and Associates meet
the highest standards of ethical conduct. The Code of Business Conduct requires
that the Corporation's directors, executive officers and Associates avoid
conflicts of interest, comply with all laws and other legal requirements,
conduct business in an honest and ethical manner and otherwise act with
integrity and in the Corporation's best interest. Under the terms of the Code of
Business Conduct, directors, executive officers and Associates are required to
report any conduct that they believe in good faith to be an actual or apparent
violation of the Code of Business Conduct.
As a mechanism to encourage compliance with the Code of Business Conduct,
the Corporation has established procedures to receive, retain and treat
complaints received regarding accounting, internal accounting controls or
auditing matters. These procedures ensure that individuals may submit concerns
regarding questionable accounting or auditing matters in a confidential and
anonymous manner. The Code of Business Conduct also prohibits the Corporation
from retaliating against any director, executive officer or Associate who
reports actual or apparent violations of the Code of Business Conduct.
2
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STOCK OWNERSHIP
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The following table provides information, as of November 30, 2004, about
the shares of Coastal Financial common stock that may be considered to be
beneficially owned by each person known to the Corporation to beneficially own
more than 5% of its outstanding common stock, each Named Executive Officer (as
defined in footnote 3 to the table), each director or nominee for director of
the Corporation and by all directors and executive officers of the Corporation
as a group. Unless otherwise indicated, each of the named individuals has sole
voting power and sole investment power with respect to the shares shown. A
person may be considered to beneficially own any share of common stock over
which he or she has, directly or indirectly, sole or shared voting or investing
power.
3
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 148,176 240,610 2.40
Executive Officer and Director
Jimmy R. Graham, Executive Vice
President 119,050 165,386 1.77
Jerry L. Rexroad, Executive Vice 28,878 (4) 164,251 1.20
President and Chief Financial
Officer
Steven J. Sherry, Executive Vice 12,156 56,538 0.43
President
Phillip G. Stalvey, Executive Vice 43,739 133,096 1.10
President
Directors of the Corporation
(Excluding Named Executive Officers)
E. Lawton Benton 532,791 (5) 0 3.34
James C. Benton 82,094 (6) 7,320 0.56
G. David Bishop 599,809 (7) 4,392 3.79
J. Robert Calliham 165 (8) 0 0.00
James T. Clemmons 338,701 (9) 18,705 2.24
James P. Creel 827,315 (10) 38,159 5.42
James H. Dusenbury 50,503 (11) 11,712 0.39
Frank A. Thompson, II 14,699 (12) 21,616 0.23
Executive Officers and
Directors as a Group (13 persons) 2,798,076 861,785 21.79
- ---------------------
4
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, 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, 2004. 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 15,935,823 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 Securities and Exchange Commission regulations, 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 5,611 shares owned by Jerry L. Rexroad; 19,219 shares owned by
Robin E. Rexroad; 4,048 shares in the Coastal Financial 401-K Plan for
Jerry L. Rexroad.
(5) Includes 532,785 shares owned by RCEE, Inc. of which Mr. Benton is Vice
President; 6 shares owned by Edward Lawton Benton.
(6) Includes 82,044 shares owned by Mr. Benton; 50 shares owned by Emma Ann
Lawton Benton. Does not include any shares owned by RCEE, Inc. of which Mr.
Benton is no longer President or has any beneficial ownership of these
shares of stock.
(7) Includes 44,616 shares owned by G. David Bishop; 221,933 shares owned by G.
J. Bishop Trust, G. David Bishop, Trustee; 84,700 shares owned by Mary Ann
Bishop; 248,560 shares owned by Bishop Investment Company.
(8) Includes 165 shares owned by James R. Calliham.
(9) Includes 29,439 shares owned by J. T. Clemmons; 49,333 shares owned by
Helen W. Clemmons; 2,665 shares owned by J. T. Clemmons - IRA; 314 shares
owned by Helen W. Clemmons - IRA; 256,950 shares owned by Nipaw, LLC.
(10) Includes 594,313 shares owned by Creel Outdoor Advertising, Inc.; 147,117
shares owned by Creel Outdoor Advertising, Inc. Profit Sharing Plan; 33,128
shares owned by Carolyn W. Creel; 990 shares owned by Carolyn W. Creel &
James P. Creel, Jr.; 990 shares owned by Carolyn W. Creel & C. Alicia
Creel;7,386 shares owned by Carolyn W. Creel, James P. Creel, Jr. & Alicia
Creel Bame; 30,014 shares owned by James P. Creel; 728 shares owned by
Alicia Creel Bame & Carolyn W. Creel; 12,649 shares owned by Sun Graphics,
Inc., Carolyn W. Creel, President.
(11) Includes 21,391 shares owned by James H. Dusenbury; 29,112 shares owned by
James H. Dusenbury - IRA
(12) Includes 2,351 shares owned by Frank A. Thompson, II; 8,784 shares owned by
Frank A. Thompson, II - SEP; 1,480 shares owned by Frank A. Thompson II -
IRA; 2,084 shares owned by Sharon Thompson - IRA.
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PROPOSAL 1 - ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Corporation's Board of Directors consists of nine members. Eight 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 meeting to serve for a three-year term, or until their respective successors
have been elected and qualified. The nominees are James P. Creel and E. Lawton
Benton, each of whom currently is a director of the Corporation and Coastal
Federal 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.
James C. Benton's term as a director expires at the meeting. The Nominating
Committee has not nominated Mr. Benton for re-election because he has reached
the mandatory retirement age established by the Corporation's Bylaws. Mr. Benton
will retire from the Board of Directors effective as of the date of the meeting.
The board of Directors intends to adopt an amendment to the Bylaws, effective as
of the date of the meeting, to reduce the size of the Board to eight members in
order to eliminate the vacancy that will be created by Mr. Benton's retirement.
5
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, 2004. The indicated period for service as a
director includes service as a director of Coastal Federal Bank.
Nominees for Election as Directors
The directors standing for election are:
James P. Creel. Mr. Creel is President of Creel Corporation. Age 65.
Director since 1990.
E. Lawton Benton. Mr. Benton is President of C. L. Benton & Sons, Inc. Age
44. Director since June 2004.
Directors Continuing in Office
The following directors have terms ending in 2006.
G. David Bishop. Mr. Bishop is Managing Director of White Harvest Trading
Co., LLC. Age 51. Director since 1991.
James T. Clemmons. Mr. Clemmons is the retired President of Coastal Federal
Bank. Age 66. Director since 1979.
Frank A. Thompson, II. Mr. Thompson is the President of Peoples
Underwriters, Inc. Age 47. Director since 1999.
The following directors have terms ending in 2007.
J. Robert Calliham. Mr. Calliham is the President and Chief Executive
Officer of Smith, Sapp, Bookhout, Crumpler & Calliham, P.A. Age 51.
Director since June 2004.
James H. Dusenbury. Mr. Dusenbury is a retired attorney/Dusenbury and
Clarkson Law Firm. He has been associated with the Bank since 1965 serving
in the capacity of general counsel, Director and Advisory Director. Age 69.
Director since 1997.
Michael C. Gerald. Mr. Gerald is the President and Chief Executive Officer
of the Corporation and Coastal Federal Bank. Age 55. Director since 1986.
6
Meetings and Committees of the Board of Directors
The Boards of Directors of the Corporation and Coastal Federal Bank conduct
their business through meetings of the Boards and through their committees.
During the fiscal year ended September 30, 2004, the Board of Directors of the
Corporation held seventeen (17) meetings and the Board of Directors of Coastal
Federal Bank held forty-two (42) meetings.
The Executive Committee of the Board of Directors, consisting of Directors
J. Benton, Clemmons, Creel and Gerald, meets as necessary between meetings of
the full Board of Directors. The Executive Committee met one (1) time during the
fiscal year ended September 30, 2004.
The Board of Directors of the Company has an Audit Committee, consisting of
Directors J. Benton, Bishop, Clemmons, Creel, Dusenbury and Thompson, which is
responsible for developing and monitoring the Company's audit program. No
current member of the Audit Committee qualifies as an "audit committee financial
expert" as defined under the rules of the Securities and Exchange Commission.
However, the Board of Directors has identified J. Robert Calliham, who was
appointed to the Board in June 2004, as qualified to serve as an "audit
committee financial expert" and who satisfies the standards of independence for
audit committee members as defined in the listing standards of The Nasdaq Stock
Market, Inc. Mr. Calliham has agreed to serve as the "audit committee financial
expert" and the Board of Directors intends to appoint him to the Audit Committee
and designate him as the "audit committee financial expert" promptly after the
meeting. 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 Bank's officers
regarding financial reporting policies and practices. The Audit Committee met
six (6) times during the fiscal year ended September 30, 2004.
The Compensation and Benefits Committee, consisting of Directors J. Benton,
Clemmons and Creel, is responsible for all matters regarding the Corporation's
and Coastal Federal Bank's employee compensation and benefit programs. This
committee met one (1) time during the fiscal year ended September 30, 2004.
Directors J. Benton, Bishop, Clemmons, Creel, Dusenbury, and Thompson act
as a nominating committee for selecting the nominees for election as directors.
The nominating committee met once in its capacity as the nominating committee
during the fiscal year ended September 30, 2004. 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 Bank 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 receive $1,000 annually.
Non-Associate directors who are members of the Coastal Federal Bank's Loan
Committee receive $50 per committee meeting.
2000 Stock Option and Incentive 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 27, 2004, each Director
received stock options to purchase 4,392 shares of the Corporation's common
stock at an exercise price of $14.38 per share, the market value of common stock
on that date. The number of shares and per share amounts have been adjusted for
a 10% stock dividend payable on March 24, 2004 and a 10% stock dividend payable
on August 27, 2004. The options fully vest on the first anniversary after the
date of grant.
7
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EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Summary Compensation Table
The following information is furnished for the Chief Executive Officer and
the four other Named Executive Officers.
============================================================================================================
SUMMARY COMPENSATION TABLE (1)
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Annual Compensation
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Long-Term
Compensation
-----------------------------------
Awards
- ------------------------------------------------------------------------------------------------------------
Securities
Name and Year Salary Bonus Other Annual Underlying All Other
Principal ($)(1) ($)(2) Compensation Options Compensation
Position ($)(3) (4) ($)(5)
- ------------------------------------------------------------------------------------------------------------
Michael C. Gerald, 2004 248,000 252,982 18,375 28,770 13,000
President, Chief 2003 236,250 193,351 19,625 29,354 6,000
Executive Officer 2002 225,000 204,915 19,250 26,832 11,000
& Director
Jimmy R. Graham, 2004 144,000 143,615 -0- 19,765 11,632
Executive Vice 2003 136,500 108,840 -0- 21,230 9,242
President 2002 130,000 116,217 -0- 18,302 10,834
Jerry L. Rexroad, 2004 195,000 187,094 4,270 19,765 12,474
Executive Vice 2003 185,000 140,850 5,900 21,230 8,857
President & Chief 2002 175,000 148,917 4,750 18,302 10,620
Financial Officer
Steven J. Sherry, 2004 152,750 150,732 -0- 19,765 12,133
Executive Vice 2003 145,000 114,450 -0- 21,230 10,954
President 2002 139,000 122,757 -0- 18,302 8,915
Phillip G. Stalvey, 2004 181,500 176,114 850 19,765 12,290
Executive Vice 2003 172,000 132,270 1,700 21,230 8,947
President 2002 162,500 139,833 1,450 18,302 10,911
============================================================================================================
- --------------
(1) All compensation, including fringe benefits, are paid by Coastal Federal
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
$50,000 or 10% of salary and bonus.
(4) Reflects adjustments for 10% stock dividends paid on June 24, 2003,
September 26, 2003, March 24, 2004, and August 27, 2004.
(5) Consists of employer contributions to the 401k Profit Sharing Plan & Trust
of Coastal Financial.
8
Option Grants Table
The following table sets forth the stock options granted under the 2000
Stock Option Plan to the individuals named in the Summary Compensation Table
during the fiscal year ended September 30, 2004. Also listed are the
hypothetical gains or "options spreads" that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term.
===========================================================================================================
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates
Number of Percentage of of Stock Price Appreciation
Securities Total For Option Term (2)
Underlying Options
Options Granted to Exercise or
-----------------------------
Granted (1) Associates Base Price
In Fiscal Per Share Expiration
Name (#) Year ($/Sh) (1) Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------
Michael C. Gerald 24,378 8.21 13.86 2013 212,519 538,587
4,392 1.48 14.38 2014 39,726 100,679
Jimmy R. Graham 19,765 6.66 13.86 2013 172,305 436,671
Jerry L. Rexroad 19,765 6.66 13.86 2013 172,305 436,671
Phillip G. Stalvey 19,765 6.66 13.86 2013 172,305 436,671
Steven J. Sherry 19,765 6.66 13.86 2013 172,305 436,671
===========================================================================================================
(1) Options granted and price per share have been adjusted for 10% stock
dividends paid on March 24, 2004 and August 27, 2004. These options are subject
to a term of ten years with a vesting schedule of 20% per year over a five-year
period beginning November 24, 2004, except for Mr. Gerald's grant of 4,392
options; which has a ten year term with a vesting schedule of 100% after one
year beginning January 27, 2005.
(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.
9
Option Exercise And Fiscal Year End Option Value Table
The following table shows stock option exercises by the individuals named
in the Summary Compensation Table during the fiscal year ended September 30,
2004. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable options as of September 30, 2004. 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's 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 FY-End
Acquired Dollar
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------
Michael C. Gerald 29,186 400,067 197,713/78,258 1,656,826/367,929
Jimmy R. Graham 17,673 226,895 154,899/61,818 1,360,929/317,751
Jerry L. Rexroad 37,472 487,516 147,824/61,818 1,248,000/317,751
Phillip G. Stalvey 21,374 243,884 112,607/61,818 894,915/317,751
Steven J. Sherry 9,300 80,054 36,053/61,818 240,806/317,733
============================================================================================================
Employment Agreements
Coastal Federal Bank and the Corporation entered into employment agreements
with Messrs. Gerald, Graham, Rexroad, Sherry and Stalvey effective as of
December 3, 2004. The agreements with Messrs. Gerald, Rexroad and Stalvey have a
term of three years and the agreements with Messrs. Graham and Sherry have a
one-year term. The agreements are renewed automatically on a daily basis for an
additional day beyond their current expiration dates, unless one of the parties
gives at least sixty days' notice of non-renewal. The agreements provide for
annual base salaries of $260,400 for Mr. Gerald, $151,200 for Mr. Graham,
$204,750 for Mr. Rexroad, $160,387 for Mr. Sherry, and $190,575 for Mr. Stalvey.
The agreements address certain payments to be made upon an executive's
death, disability, retirement, voluntary termination or termination with just
cause (as defined in the agreement). Upon an executive's death, his estate
receives any compensation due him through the last day of the calendar month of
his death. If the executive becomes disabled for more than one hundred eighty
days, he will continue to receive seventy-five percent of his monthly base
salary through the earliest of the date of his death, his sixty-fifth birthday
or the third anniversary of his termination date (first anniversary of
termination for Messrs. Graham and Sherry). Upon retirement or other voluntary
termination of employment, the executive receives any compensation and vested
employee benefits payable through his termination date. If the Corporation or
Coastal Federal Bank terminates the executive's employment for just cause, the
executive receives no further compensation or benefits following his termination
date.
The executives also receive payments upon a termination by the Corporation
or Coastal Federal Bank without just cause or upon a voluntary termination
without good reason. Good reason, as defined under the agreement, includes the
following: a material reduction in responsibility or authority or a change in
reporting relationship; assignment of duties inconsistent with the executive's
skills and experience; a reduction in salary or benefits (other than a general
reduction affecting all benefit plan participants) or, following a change in
control, a reduction in salary or benefits from those provided prior to the
change in control; a termination of incentive and benefit plans resulting in a
material reduction in their aggregate value to the executive or the required
relocation of the executive's principal business office or place of residence by
more than 35 miles from their current locations. Good reason for termination
also includes a voluntary termination of employment for any reason during the
10
period beginning three months prior to a change in control and ending twelve
months after a change in control. Upon termination without just cause or with
good reason, the executive receives base salary and cash bonus, continued
employer contributions under employee benefit plans and health and welfare
benefits for the remaining term of the agreement.
The executives receive a change in control benefit under their agreements
if they are terminated without just cause or voluntarily terminate employment
with good reason during the period beginning three months prior to a change in
control and ending twelve months after a change in control. The change in
control benefit equals three times (one times in the case of Messrs. Graham and
Sherry) the sum of the executive's current base salary and his highest cash
bonus paid or accrued during the three fiscal years preceding the change in
control. The executives also receive continued employer contributions to
employee benefit plans and continued health and welfare coverage for a period of
thirty-six months (twelve months in the case of Messrs. Graham and Sherry)
following termination of employment in connection with a change in control.
The Corporation and Coastal Federal Bank have agreed to provide a tax
"gross-up" payment to indemnify the executives in the event any change in
control payments they receive under the agreements are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code on excess parachute
payments, as determined pursuant to Section 280G of the Internal Revenue Code.
The Corporation and Coastal Federal Bank have also agreed to provide standard
legal indemnification and liability insurance, in accordance with applicable
laws and regulations.
For a period of one year following a termination of employment without just
cause or with good reason in the ordinary course of business, the executives
agree not to serve as officers, directors or employees of competing financial
institutions or interfere with the Corporation's or Coastal Federal Bank's
existing employment relationships.
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 Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this proxy statement, in whole or in part, the following
Report of the Compensation and Benefits Committee, the Stock Performance Graph
and the Audit Committee Report 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 Bank. The
Committee is also responsible for evaluating the performance of the Chief
Executive Officer of the Corporation and recommending appropriate compensation
levels. The Chief Executive Officer evaluates the performance of executive
officers of the Corporation and recommends individual compensation levels to the
Compensation and Benefits Committee.
The Compensation and Benefits Committee believes that a compensation plan
for executive offices, including the Chief Executive Officer, 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,
including the Chief Executive Officer, 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, including the Chief
Executive Officer, and Associates of Coastal Financial may participate, has been
designed to align their interest 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 Corporation's return on average
Shareholders' equity.
The Corporation's Executive Bonus Plan, which includes the Chief Executive
Officer, 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 14%.
Non-recurring items and non-operational items, such as gain (losses) on
investments securities and early prepayment penalties on Federal Home Loan Bank
advances, as determined by the Corporation's Board of Directors, are excluded
from net income in computing the Corporation's return on average Shareholders'
equity ("Return on Equity"). The Corporation's Return on Equity, adjusted as
discussed above, in fiscal 2004 was 20.38%. This compares to a Return on Equity,
11
adjusted as discussed above, in fiscal 2003 of 19.45%. 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 the Chief Executive Officer and executives performance
consistent with performance that benefits Shareholders. Awards of stock options
are intended to provide the Chief Executive Officer and other executives with
increased motivation and incentive to exert their best effort 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 the Chief Executive Officer and other 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 the Chief Executive Officer and to each other
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.
Compensation of the Chief Executive Officer. During the fiscal year ended
September 30, 2004, the base compensation of Michael C. Gerald, President and
Chief Executive Officer of the Corporation, was $248,000. In addition, he
received a performance bonus, based on the above referenced criteria, of
$252,982 and other compensation totaling $17,000 as set forth in the Summary
Compensation Table appearing earlier in this proxy statement. This resulted in
total compensation of $517,982. In addition, Mr. Gerald received 28,770 stock
options during the fiscal year ended September 30, 2004. The Compensation and
Benefits Committee believes that Mr. Gerald's compensation is appropriate based
upon his performance in managing the Corporation and the Corporation's financial
performance during the 2004 fiscal year.
The Compensation and James C. Benton J. T. Clemmons
- ---------------------
Benefits Committee James P. Creel
- ------------------
Compensation Committee Interlocks and Insider Participation. There are no
interlocks or insider participation with respect to the Compensation and
Benefits Committee of the Board of Directors of the Corporation.
12
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 in each of the Corporation's Shares common stock, the Nasdaq
Bank Index and the Nasdaq Composite Index on September 30, 1999.
- ----------------------------------------------------------------------------------------------
PERFORMANCE COMPARISON DATA
FIVE YEARS ENDED 09/30/2004
- ----------------------------------------------------------------------------------------------
9/30/1999 9/30/2000 9/30/2001 9/30/2002 9/30/2003 9/30/2004
--------- --------- --------- --------- --------- ---------
Corporation 100.00 64.04 122.31 168.28 210.56 263.29
NASDAQ Bank Index 100.00 106.18 116.89 123.05 153.29 180.98
NASDAQ Composite Index 100.00 133.05 54.37 42.83 65.25 69.32
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's executive officers and directors, and persons who own more
than 10% of any registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities Exchange
Commission. 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 common stock during the
fiscal year ended September 30, 2004, except as follows: Executive officer Jerry
L. Rexroad did not timely file a report for the sale of 3,000 shares that
occurred during November 2003. This sale was subsequently reported in December
2003. Directors E. Lawton Benton and J. Robert Calliham did not timely file a
report for beneficial ownership upon becoming Directors in June 2004. These
ownerships were subsequently reported in June 2004. Also, Directors James C.
Benton, G. David Bishop, James T. Clemmons, James P. Creel, James H. Dusenbury,
Michael C. Gerald and Frank A. Thompson, II did not timely file a report for a
grant of 3,630 stock options each that occurred during January 2004. These
grants were subsequently reported in February 2004.
13
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TRANSACTIONS WITH MANAGEMENT
- --------------------------------------------------------------------------------
The Sarbanes-Oxley Act of 2002 generally prohibits loans by Coastal Federal
Bank to its executive officers and directors. However, the Sarbanes-Oxley Act
contains a specific exemption from such prohibition for loans by Coastal Federal
Bank to its executive officers and directors in compliance with federal banking
regulations. 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 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
- --------------------------------------------------------------------------------
The Audit Committee of the Corporation's Board of Directors is comprised of
six directors and operates under a written charter adopted by the Board of
Directors. The Board of Directors has determined that each Audit Committee
member is independent in accordance with the listing standards of the Nasdaq
Stock Market, Inc.
The Corporation's management is responsible for the Corporation's internal
control over financial reporting. The independent auditors are responsible for
performing an independent audit of the Corporation's consolidated financial
statements and issuing an opinion on the conformity of those financial
statements with generally accepted accounting principals. The Audit Committee
oversees the Corporation's internal control over financial reporting on behalf
of the Board of Directors.
In this context, the Audit Committee has met and held discussions with
management and the independent auditors. Management has represented to the Audit
Committee that the Corporation's consolidated financial statements were prepared
in accordance with generally accepted accounting principles and the Audit
Committee has reviewed and discussed the consolidated financial statements with
management and the independent auditors. The Audit Committee has discussed with
the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication With Audit Committees), including the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of the disclosures in
the financial statements.
In addition, the Audit Committee has received the written disclosures and
the letter from the independent auditors required by the Independence Standards
Board Standard No. 1 (Independence Discussions With Audit Committees) and has
discussed with the independent auditors their independence from the Corporation
and its management. In concluding that the auditors are independent, the Audit
Committee considered, among other factors, whether the non-audit services
provided by the auditors were compatible with its independence.
The Audit Committee discussed with the Corporation's independent auditors
the overall scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examination, their evaluation of the Corporation's internal
control over financial reporting, and the overall quality of the Corporation's
financial reporting process.
In performing all of these functions, the Audit Committee acts only in an
oversight capacity. In its oversight role, the Audit Committee relies on the
work and assurances of the Corporation's management, which has the primary
responsibility for financial statements and reports, and of the independent
auditors who, in their report, express an opinion on the conformity of the
Corporation's financial statements to generally accepted accounting principles.
14
The Audit Committee's oversight does not provide it with an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or policies, or appropriate internal control over financial
reporting designed to assure compliance with accounting standards and applicable
laws and regulations. Furthermore, the Audit Committee's considerations and
discussions with management and the independent auditors do not assure that the
Corporation's financial statements are presented in accordance with generally
accepted accounting principles, that the audit of the Corporation's financial
statements has been carried out in accordance with the standards of the Public
Company Accounting Oversight Board (United States) or that the Corporation's
independent auditors are in fact "independent."
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the Corporation's audited consolidated financial statements be included in
the Corporation's Annual Report on Form 10-K for the year ended September 30,
2004 for filing with the Securities and Exchange Commission. The Audit Committee
has appointed the selection of KPMG LLP as the Corporation's independent
auditors for the fiscal year ending September 30, 2005.
Members of the Audit Committee:
James H. Dusenbury - Chairman
James C. Benton
G. David Bishop
J.T. Clemmons
James P. Creel
Frank A. Thompson II
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AUDITING AND RELATED FEES
- --------------------------------------------------------------------------------
Independent Auditors
KPMG LLP was the Corporation's independent auditor for the year 2004 fiscal
year. The Audit Committee has appointed KPMG LLP to be the Corporation's
independent auditor for the 2005 fiscal year. A representative of KPMG LLP is
expected to be present at the annual meeting to respond to appropriate questions
from stockholders and will have the opportunity to make a statement should he or
she desire to do so.
Audit Fees
The following table sets forth the fees billed to the Company for the
fiscal years ended September 30, 2004 and 2003 by KPMG LLP:
2004 2003
---- ----
Audit fees (1) $92,000 $86,500
Audit related fees (2) 27,500 13,000
Tax fees 32,875 29,000
All other fees -0- -0-
(1) Audit fees consisted primarily of audit of the Company's annual
financial statements of Coastal Financial Corporation and for the
reviews of the financial statements included in the Company's
quarterly reports on Form 10-Q.
(2) Audit related fees consisted of fees related to FDICIA and a S-8
filing in 2004 and FDICIA 2003.
The Audit Committee believes that the provision of non-audit services by
KPMG LLP is compatible with maintaining KPMG LLP's independence.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
15
The Audit Committee is responsible for appointing and overseeing the work
of the independent auditors and setting the independent auditors' compensation.
In accordance with its charter, the Audit Committee approves, in advance, all
audit and permissible non-audit services to be performed by the independent
auditors. This approval process ensures that the external auditor does not
provide any non-audit services to the Corporation that are prohibited by law or
regulation.
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NOMINATING/CORPORATE GOVERNANCE COMMITTEE PROCEDURES
- --------------------------------------------------------------------------------
General
It is the policy of the Nominating/Corporate Governance Committee of the
Board of Directors of the Corporation to consider director candidates
recommended by Shareholders who appear to be qualified to serve on the
Corporation's Board of Directors. The Nominating/Corporate Governance Committee
may choose not to consider an unsolicited recommendation if no vacancy exists on
the Board of Directors and the Nominating/Corporate Governance Committee does
not perceive a need to increase the size of the Board of Directors. In order to
avoid the unnecessary use of the Nominating/Corporate Governance Committee's
resources, the Nominating/Corporate Governance Committee will consider only
those director candidates recommended in accordance with the procedures set
forth below. The Nominating/Corporate Governance Committee acts under a written
charter adopted by the Board of Directors on June 1, 2004, a copy of which is
attached as Appendix A.
Procedures To Be Followed By Shareholders
To submit a recommendation of a director candidate to the
Nominating/Corporate Governance Committee, a Shareholder should submit the
following information in writing, addressed to the Chairman of the
Nominating/Corporate Governance Committee, care of the Corporate Secretary, at
the main office of the Corporation:
1. The name of the person recommended as a director candidate;
2. All information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended;
3. The written consent of the person being recommended as a director
candidate to being named in the proxy statement as a nominee and to
serving as a director if elected;
4. As to the shareholder making the recommendation, the name and address,
as they appear on the Corporation's books, of such shareholder;
provided, however, that if the shareholder is not a registered holder
of the Corporation's common stock, the shareholder should submit his
or her name and address along with a current written statement from
the record holder of the shares that reflects ownership of the
Company's common stock; and
5. A statement disclosing whether such shareholder is acting with or on
behalf of any other person and, if applicable, the identity of such
person.
In order for a director candidate to be considered for nomination at the
company's annual meeting of shareholder, the recommendation must be received by
the Nominating/Corporate Governance Committee at least 120 calendars days prior
to the date the Company's proxy statement was released to shareholders in
connection with the previous year's annual meeting, advanced by one year.
Minimum Qualifications
The Nominating/Corporate Governance Committee has adopted a set of criteria
that it considers when it selects individuals to be nominated for election to
the Board of Directors. A candidate must meet any qualification requirements set
forth in any Board or committee governing documents.
16
The Nominating/Corporate Governance Committee will consider the following
criteria in selecting nominees; financial, regulatory and business experience;
familiarity with and participation in the local community; integrity, honesty
and reputation; dedication to the Corporation and its Shareholders;
independence; and any other relevant, including age, diversity, size of the
Board of Directors and regulatory disclosure obligations.
In addition prior to nominating an existing director for re-election to the
Board of Directors, the Nominating/Corporate Governance Committee will consider
and review an existing director's Board and committee attendance and
performance; length of Board service; experience, skills and contributions that
the existing director brings to the Board; and independence.
Process For Identifying and Evaluating Nominees
The process that the Nominating/Corporate Governance Committee follows when
it identifies and evaluates individuals to be nominated for election to the
Board of Directors is as follows:
Identification. For purposes of identifying nominees for the Board of
Directors, the Nominating/Corporate Governance Committee relies on personal
contacts of the committee members and other members of the Board of Directors,
as well as their knowledge of members of the communities served by Coastal
Financial. The Nominating/Corporate Governance committee also will consider
director candidates recommended by shareholders in accordance with the policy
and procedures set forth above. The Nominating/Corporate Governance Committee
has not previously used an independent search firm to identify nominees.
Evaluation. In evaluating potential nominees, the Nominating/Corporate
Governance Committee determines whether the candidate is eligible and qualified
for service on the Board of Directors by evaluating the candidate under the
selection criteria set for the above. In addition, the Nominating/Corporate
Governance Committee will conduct a check of the individual's background and
interview the candidate.
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BOARD POLICIES REGARDING SHAREHOLDER COMMUNICATIONS AND ATTENDANCE AT
ANNUAL MEETINGS
- --------------------------------------------------------------------------------
The Corporation encourages shareholder communications to the Board of
Directors and/or individual directors. Shareholders who wish to communicate with
the Board of Directors or an individual director should send their communication
to the care of Susan J. Cooke, Corporate Secretary, Coastal Financial
Corporation, 2619 Oak Street, Myrtle Beach, South Carolina 29577. Communications
regarding financial or accounting policies should be sent to the attention of
the Chairman of the Audit Committee. All other communications should be sent to
the attention of the Chairman of the Nominating/Corporate Governance Committee.
Directors are expected to prepare themselves for and to attend all Board
meeting, the Annual Meeting of Shareholders and the meetings of the committees
on which they serve, with the understanding that on occasion a director may be
unable to attend a meeting. All of the Corporation's directors attended the
Corporation's 2004 Annual Meeting of Shareholders.
- --------------------------------------------------------------------------------
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 20, 2005. 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 Corporate 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.
17
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MISCELLANEOUS
- --------------------------------------------------------------------------------
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 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 Corporation's Annual Report to Shareholders has been mailed to
shareholders of record as of the close of business on November 30, 2004. Any
shareholder who has not received a copy of the Annual Report may obtain a copy
by writing to the Corporate Secretary of the Corporation. The Annual Report is
not to be treated as part of the proxy solicitation material or as having been
incorporated in this proxy statement by reference.
A copy of the Corporation's Form 10-K, without exhibits, for the fiscal
year ended September 30, 2004, 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, 2004 upon written request to the Corporate
Secretary, Coastal Financial Corporation, Myrtle Beach, South Carolina 29577.
BY ORDER OF THE BOARD OF DIRECTORS
Susan J. Cooke
Corporate Secretary
Myrtle Beach, South Carolina
December 17, 2004
18
Appendix A
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
COASTAL FINANCIAL CORPORATION
-----------------------------
CHARTER
-------
I. PURPOSE
The primary objectives of the Nominating/Corporate Governance Committee
(the Committee) of Coastal Financial Corporation (the Corporation) are to: (A)
identify individuals qualified to become Board members, (B) recommend to the
Board of Directors and/or Shareholders nominees for election to the Board for
the next annual meeting of Shareholders and (C) develop and recommend to the
Board a set of corporate governance principles applicable to the Corporation.
The Committee will take particular care to ensure that the nomination process is
performed in accordance with the Corporation's Bylaws.
II. COMPOSITION
The Committee will consist of at least three directors, each of whom shall
be independent as determined under applicable regulatory requirements, including
Nasdaq's qualitative listing requirements. Committee members shall be elected by
the Board at the annual organizational meeting of the Board of Directors.
Members shall serve until their successors are appointed. The Committee's
Chairperson shall be designated by the full Board or, if it does not do so, the
Committee members shall elect a Chairperson by vote of a majority of the full
Committee. The Committee may form and delegate authority to subcommittees when
appropriate.
III. MEETINGS
The Committee shall meet at least annually, or more frequently as
circumstances dictate. The Committee Chairperson will preside at each meeting
and, in consultation with the other members of the Committee, will set the
frequency and length of each meeting and the agenda of items to be addressed at
each meeting. The Chairperson of the Committee shall ensure that the agenda for
each meeting is circulated to each Committee member in advance of the meeting.
IV. RESPONSIBILITIES AND DUTIES
The principal responsibilities of the Committee are to recommend to the
Board of Directors:
o The slate of nominees for directorship to be elected by the
Shareholders (as well as any directors to be elected by the Board of
Directors to fill vacancies).
o The directors to be selected for membership on the various board
committees. The Committee will also recommend the appointment of
directors as chairs of board committees, particularly committees that
perform oversight functions, such as the Audit Committee, the Human
Resources/Compensation Committee, and the Nominating/Corporate
Governance Committee.
o The annual election of Leadership.
o The termination of board service for any director not meeting the
standards established by the Board.
A-1
o To develop and recommend to the Board of Directors a corporate
governance policy applicable to the Company.
Other responsibilities of the Committee:
o To ensure independent director control.
o To establish evaluation processes and goals.
o To review regularly the evaluation process.
o To ensure candor, confidentiality and trust.
o To evaluate the Board's effectiveness on an annual basis.
o To access individual director contributions on an annual basis.
In structuring a search for a new director, the Committee will evaluate the
composition of the present Board of Directors, its strengths and
weaknesses, and the kinds of individual backgrounds and expertise that will
be most beneficial to the Board. The committee will consider the present
size of the Corporations, the stage of the Corporation's growth, its
financial condition, the markets, competition, and technological change.
Focusing on the attributes of each member of the current Board, the
Committee will search for candidates, who meet substantially all the
following requisite requirements:
1.) Personal characteristics
a.) Integrity and accountability
b.) Informed judgment
c.) Financial literacy
d.) Mature confidence
e.) High performance standards
2.) Core competencies:
a.) Accounting and finance
b.) Business judgment
c.) Management
d.) Crisis response
e.) Industry knowledge
f.) Regional markets
g.) Leadership
h.) Strategy/vision
3.) Director commitment:
a.) Time and effort
b.) Awareness and ongoing education
c.) Other board commitments
d.) Stock ownership
e.) Changes in professional responsibilities
f.) Length of service
4.) Team and company considerations:
a.) Balancing director contributions
b.) Diversity
c.) Company status
A-2
V. EVALUATION
Annually, the Committee shall conduct a performance evaluation and review
and reassess the adequacy of this charter and recommend any proposed changes to
the Board for approval.
VI. COMMITTEE RESOURCES
The Committee shall have the authority to obtain advice and seek assistance
from internal or external legal or other advisors. The Committee shall have the
sole authority to retain and terminate any search firm to be used to identify
director candidates, including sole authority to approve such search firm's fees
and other retention terms.
A-3
[X]PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE COASTAL FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
JANUARY 25, 2005
The undersigned hereby appoints the official proxy committee, consisting of
all of the members of the Board of Directors of Coastal Financial Corporation,
Myrtle Beach, South Carolina, with full powers of substitution to act as
attorneys and proxies for the undersigned, to vote all shares of Common Stock of
Coastal Financial Corporation which the undersigned is entitled to vote at the
Annual Meeting of Shareholders, to be held at the Ocean Reef Resort (the former
Myrtle Beach Martinique Resort Hotel), 7100 N. Ocean Boulevard, Myrtle Beach,
South Carolina, on Tuesday, January 25, 2005, at 2:00 p.m., Eastern Standard
Time, and at any and all adjournments thereof, as indicated to the right:
With- For All
For hold Except
1. The election as directors of all [_] [_] [_]
nominees listed (except as marked to
the contrary below):
For a Three Year Term: James P. Creel, E. Lawton Benton
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSAL.
THIS PROXY, PROPERLY SIGNED AND DATED, WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL STATED. IF
ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THE
OFFICIAL PROXY COMMITTEE IN ITS BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. THIS PROXY
ALSO CONFERS DISCRETIONARY AUTHORITY ON THE OFFICIAL PROXY COMMITTEE TO VOTE
WITH RESPECT TO THE ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEE IS
UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, AND MATTERS INCIDENT TO THE
CONDUCT OF THE 2005 ANNUAL MEETING.
--------------------------
Please be sure to sign below and | Date
date this Proxy in the box provided. |
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- ----Shareholder sign above-------------------Co-holder (if any) sign above------
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postate paid envelope provided.
COASTAL FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
Should the above signed be present and elect to vote at the Annual Meeting
or at any adjournment thereof and after notification to the Secretary of the
Corporation at the Meeting of the Shareholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The above signed acknowledges receipt from the Corporation, prior to the
execution of this proxy, of a notice of the Annual Meeting, a proxy statement
dated December 10, 2004 and the 2004 Annual Report to Shareholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, only one signature is required.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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