UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-17939 CAROLINA FIRST BANCSHARES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-165582 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 402 East Main Street Lincolnton, North Carolina 28092 (Address of principal executive office) (Zip Code) 704-732-2222 (Registrant's telephone number, including area code) N/A (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 2,060,298 SHARES OF COMMON STOCK, PAR VALUE $2.50 PER SHARE, OUTSTANDING AS OF August 13, 1997 CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3 Consolidated Statements of Operations - Three and Six Months Ended June 30, 1997 and 1996 4 Consolidated Statements of Changes in Shareholder's Equity - Six Months Ended June 30, 1997 and 1996 5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 13 PART II. OTHER INFORMATION 14 Signatures 15 CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) - ------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------- ------------- 1997 1996 ------------- ------------- Assets: Cash and due from banks .................................................. $ 21,763,662 $ 16,343,459 Federal funds sold ....................................................... 11,025,000 2,982,000 ------------- ------------- Total cash and cash equivalents ........................................ 32,788,662 19,325,459 Interest bearing deposits in other banks ................................. 645,023 426,766 Investment securities (market value $35,326,916 in 1997 and $39,275,715 in 1996) ....................................... 35,018,311 38,920,273 Securities available for sale (cost of $80,448,652 in 1997 and $48,612,087 in 1996) ......................................... 81,367,179 48,696,412 Loans, net of unearned income ( $411,495 in 1997 and $405,263 in 1996) ..................................................... 324,598,631 309,112,008 Allowance for loan losses .............................................. (4,852,905) (4,488,958) ------------- ------------- Loans, net ............................................................. 319,745,726 304,623,050 Premises and equipment, net .............................................. 10,180,912 9,509,172 Other real estate owned .................................................. 131,781 141,067 Other assets ............................................................. 10,803,784 8,069,092 ------------- ------------- Total Assets ............................................................. $ 490,681,378 $ 429,711,291 ============= ============= Liabilities and Shareholders' Equity Deposits: Demand ................................................................ $ 49,853,108 $ 37,858,889 Interest bearing demand accounts ...................................... 109,025,775 93,376,439 Savings ............................................................... 47,022,951 39,445,821 Time, $100,000 and over ............................................... 44,591,253 40,355,803 Other time ............................................................ 193,903,152 173,966,334 ------------- ------------- Total deposits ........................................................ 444,396,239 385,003,286 Repurchase agreements .................................................... 4,253,977 5,862,026 Other liabilities ........................................................ 4,227,597 3,844,123 ------------- ------------- Total Liabilities ........................................................ 452,877,813 394,709,435 Shareholders' Equity: Common stock, $2.50 par value; authorized --- 5,000,000 shares; issued and outstanding - 2,059,029 shares in 1997, and 2,052,971 shares in 1996 .................................... 5,147,572 5,132,428 Additional paid-in capital ............................................. 16,493,345 16,442,810 Retained earnings ...................................................... 15,821,255 13,378,236 Net unrealized loss on available for sale securities ................... 341,393 48,382 ------------- ------------- Total Shareholders' Equity ............................................. 37,803,565 35,001,856 Commitments and Contingent Liabilities ................................... -- -- Total Liabilities and Shareholders' Equity ............................... $ 490,681,378 $ 429,711,291 ============= ============= Book Value Per Share ..................................................... $ 18.36 $ 17.05 ============= ============= 3 CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Quarter Ended Six Months Ended June 30, June 30, -------------------------------------------------------------------------- 1997 1996 1997 1996 -------------------------------------------------------------------------- Interest Income: Interest and fees on loans .................... $ 7,632,399 $ 6,716,202 $14,918,895 $12,972,363 Interest and dividends on securities: Taxable income ............................ 1,401,246 1,131,596 2,597,790 2,257,431 Non-taxable income ........................ 121,867 159,919 249,758 308,184 Interest on federal funds sold ................ 136,401 27,571 225,415 76,015 Other interest income ......................... 17,419 13,952 26,757 26,771 ----------- ----------- ----------- ----------- Total interest income ...................... 9,309,332 8,049,240 18,018,615 15,640,764 Interest Expense: Interest on deposits .......................... 4,076,045 3,423,766 7,874,328 6,826,246 Interest on notes payable ..................... 52,890 82,845 113,613 112,211 ----------- ----------- ----------- ----------- Total interest expense ..................... 4,128,935 3,506,611 7,987,941 6,938,457 ----------- ----------- ----------- ----------- Net Interest Income ........................... 5,180,397 4,542,629 10,030,674 8,702,307 Provision for Loan Losses ..................... 212,733 306,000 498,333 537,000 ----------- ----------- ----------- ----------- Net Credit Income ............................. 4,967,664 4,236,629 9,532,341 8,165,307 Other Income: Charges on deposit accounts ................... 591,266 519,277 1,149,417 998,596 Insurance commissions ......................... 228,739 118,879 401,316 233,558 Other service fees and commissions ............................... 289,602 177,748 493,808 369,236 Mortgage banking income ....................... 115,498 85,768 224,083 205,689 Securities gains (losses), net ................ 10,365 (870) 10,889 8,641 Other income .................................. 204,662 150,147 368,782 225,062 ----------- ----------- ----------- ----------- Total other income ......................... 1,440,132 1,050,949 2,648,295 2,040,782 Operating Expenses: Salaries and benefits ......................... 2,195,298 1,826,800 4,172,972 3,603,991 Occupancy and equipment ....................... 524,204 380,229 950,792 770,590 Federal and other insurance premiums .................................. 33,284 74,057 63,429 145,709 Office supplies ............................... 171,605 90,194 285,686 192,975 Data processing ............................... 115,788 97,313 218,336 188,355 Other expenses ................................ 1,108,627 908,814 2,036,742 1,655,613 ----------- ----------- ----------- ----------- Total operating expenses ................... 4,148,806 3,377,407 7,727,957 6,557,233 ----------- ----------- ----------- ----------- Income Before Income Taxes .................... 2,258,990 1,910,171 4,452,679 3,648,856 Income Taxes .................................. 759,774 696,963 1,516,050 1,316,199 ----------- ----------- ----------- ----------- Net Income .................................... $ 1,499,216 $ 1,213,208 $ 2,936,629 $ 2,332,657 =========== =========== =========== =========== Net Income Per Common Share ................... $ 0.71 $ 0.58 $ 1.40 $ 1.12 =========== =========== =========== =========== Cash Dividend Per Common Share ................ $ 0.12 $ 0.10 $ 0.24 $ 0.19 =========== =========== =========== =========== 4 CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) COMMON STOCK ADDITIONAL -------------------------- PAID-IN RETAINED VALUATION SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS RESERVE EQUITY ------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 .......... 1,632,458 $ 4,081,145 $ 17,377,333 $ 9,585,436 $ 79,065 $ 31,122,979 EXERCISE OF STOCK OPTIONS ........... 5,912 14,781 40,836 55,617 CASH DIVIDEND ($.19 PER SHARE) ...... (392,882) (392,882) RETIREMENT OF STOCK ................. (2,193) (5,483) (62,668) (68,151) DIVIDEND REINVESTMENT PLAN .......... 2,592 6,480 72,732 79,212 CHANGE IN UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE ... (301,909) (301,909) NET INCOME .......................... 2,332,657 2,332,657 ------------ ------------ ------------ ------------ ------------ ----------- BALANCE, JUNE 30, 1996 .............. 1,638,769 4,096,923 17,428,233 11,525,211 (222,844) 32,827,523 BALANCE, DECEMBER 31, 1996 .......... 2,052,971 5,132,428 16,442,810 13,378,236 48,382 35,001,856 EXERCISE OF STOCK OPTIONS ........... 6,970 17,425 79,309 96,734 CASH DIVIDEND ($.24 PER SHARE) ...... (493,610) (493,610) RETIREMENT OF STOCK ................. (912) (2,281) (28,774) (31,055) DIVIDEND REINVESTMENT PLAN CHANGE IN UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE ... 293,011 293,011 NET INCOME .......................... 2,936,629 2,936,629 ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, JUNE 30, 1997 .............. 2,059,029 $ 5,147,572 $ 16,493,345 $ 15,821,255 $ 341,393 $ 37,803,565 ============ ============ ============ ============ ============ ============ 5 CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES - --------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) - --------------------------------------------------------------- June 30, June 30, --------------- ---------------- 1997 1996 --------------- ---------------- Operating Activities: Net Income ............................................................................... $ 2,936,629 $ 2,332,657 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................................................ 605,300 370,217 Accretion and amortization of securities discounts and premiums, net .................................................................. (80,519) 154,179 Provision for loan losses ............................................................ 498,333 537,000 Deferred taxes (benefit) ............................................................. (634,148) (345,186) Gains on sales of securities available for sale ...................................... (13,684) (900) Gains on calls and maturities of securities held to maturity ......................... -- (8,490) Losses on calls and maturities of securities held to maturity ........................ 98 750 Losses (gains) on sales of equipment, net ............................................ (4,810) (4,097) Gains on sales of real estate, net ................................................... (64,013) (46,701) Net increase in core deposit intangibles ............................................. (2,541,876) -- Decrease in other assets ............................................................. 371,276 54,791 Increase (decrease) in other liabilities ............................................. 393,153 (69,494) ------------ ------------ Net cash provided by operating activities ......................................... 1,465,739 2,974,726 ------------ ------------ Investing Activities: Proceeds from maturities of securities available for sale ................................ 12,816,008 3,091,510 Proceeds from sales of securities available for sale ..................................... 42,215 3,500,000 Purchases of securities available for sale ............................................... (45,121,806) (10,836,689) Proceeds from calls and maturities of securities held to maturity ........................ 4,870,019 12,763,776 Purchases of securities held to maturity ................................................. (988,125) (5,074,375) Purchases and maturities of certificates of deposit, net ................................. (218,257) (33,365) Originations of loans, net ............................................................... (15,659,009) (30,754,157) Proceeds from sale of real estate ........................................................ 106,299 270,175 Proceeds from sales of premises and equipment ............................................ 41,384 9,852 Capital expenditures ..................................................................... (1,238,558) (736,915) ------------ ------------ Net cash used in investing activities ............................................... (45,349,830) (27,800,188) ------------ ------------ Financing Activities: Increase in time deposits, net ........................................................... 24,172,268 13,215,558 Net increase in other deposits, net ...................................................... 35,220,685 5,843,354 Net increase (decrease) in borrowed funds ................................................ (1,608,049) 4,083,750 Repayment of notes payable ............................................................... (9,679) (9,153) Repurchase of stock ...................................................................... (31,055) (68,151) Payment of cash dividends and fractional shares .......................................... (493,610) (392,882) Issuance of stock ........................................................................ 96,734 134,829 ------------ ------------ Net cash provided by financing activities ........................................... 57,347,294 22,807,305 ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents ..................................... 13,463,203 (2,018,157) Cash and Cash Equivalents, Beginning of Year ............................................. 19,325,459 15,391,366 ============ ============ Cash and Cash Equivalents, End of Year ................................................... $ 32,788,662 $ 13,373,209 ============ ============ Supplemental disclosures of cash flow information: Interest paid ....................................................................... $ 7,803,269 $ 6,844,203 Income taxes paid ................................................................... 2,161,706 1,696,157 Supplemental disclosure on noncash investing and financing activities: Decrease in net unrealized loss ..................................................... 293,011 (301,909) Assets transferred to other real estate ............................................. 38,000 255,649 Transferred from investment securities to securities available for sale ............. -- -- Disclosure of accounting policy: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, due from banks and federal funds sold. See accompanying notes to consolidated financial statements. 6 CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. In the opinion of Management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of Carolina First BancShares, Inc. and Subsidiary Companies as of June 30, 1997 and December 31, 1996 the results of operations for the three and six-month periods ended June 30, 1997 and 1996, and cash flows for the six-month periods ended June 30, 1997 and 1996. The accounting policies followed by the Company are set forth in Note 1 to the Company's audited financial statements for the year ended December 31, 1996. 2. The consolidated financial statements include the accounts of the holding company, and its wholly owned subsidiaries, Cabarrus Bank of North Carolina, ("Cabarrus Bank"), and Lincoln Bank of North Carolina, ("Lincoln Bank"). Jointly, Lincoln Bank and Cabarrus Bank own a mortgage company, Carolina First Mortgage Corporation and a financial services company, Carolina First Financial Services Corporation. All significant intercompany items and transactions have been eliminated in consolidation. 3. The results of operations for the three-month and six-month periods ended June 30, 1997 and 1996, are not necessarily indicative of the results that might be expected for the full year ending December 31, 1997 and 1996. 4. The Company's Board of Directors declared a 25% stock dividend payable August 23, 1996. The market value of the common stock was $27.60 at August 23, 1996. Earnings per share for the periods presented have been computed after giving retroactive effect to the stock dividend. The Company's Board of Directors declared a 2 for 1 stock split payable August 22, 1997. Earnings per share in this filing have not been adjusted for this stock split. 7 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis sets forth the major factors which affected the Company's results of operations and financial condition reflected in the unaudited financial statements for the three and six-month periods ended June 30, 1997 and 1996. General Net income for the quarter ended June 30, 1997, was $1,499,216, or $.71 per share, compared to net income of $1,213,208, or $.58 per share, for the same period in 1996. Net income for the six-month period ended June 30, 1997, was $2,936,629, or $1.40 per share, compared to net income of $2,332,657, or $1.12 per share, for the same period in 1996. Net Interest Income/Margins Net interest income of $10,030,674 during the first six-months of 1997 resulted from a net interest margin of 4.89% on average earning assets of $413.9 million. This compares with a net interest margin of 4.93% on average earning assets of $355.7 million generating net interest income of $8,702,307 for the same period in 1996. The interest rate earned on loans is being reduced as competition increases for market share of quality loans. The Company has, however, been able to sustain the strong net interest margin as average interest bearing liabilities have decreased as a percentage of total liabilities and capital. This is the result of both increased capital and increases in noninterest bearing deposits. Interest rates have remained relatively stable and thus the change in the net interest margin is more a function of competition than changes in interest rates. Each increase in the prime lending rate initially increases the Company's net interest income since a large number of loans are tied to the prime lending rate and are directly and immediately effected. However, with the passage of time, interest sensitive liabilities will increase and the Company's interest margins should stabilize. The increase in loan demand experienced by the Company positively affects the net interest margin, as noted by the large volume related increase, and is an indicator of the continued strong local economy. The increase in net interest income consists of a small decrease of $50,000 relative to rate and an increase of $1,379,000 relative to volume. Management reviews asset/liability volumes and rates on a weekly basis. As Carolina First's loans have continued to grow, the funds have been obtained primarily through customer deposits and the maturing of investment securities. Deposit and loan rates are adjusted as market conditions and Company needs allow. Analysis of average balances and interest rates for the six-months ended June 30, 1997 and 1996, is presented on pages 12 and 13 of this report. Such analysis is presented on a fully-taxable equivalent basis at the federal statutory rate of 34 %. 8 Loan Loss Allowance/Provision The allowance for loan losses represents management's determination as to an adequate amount in relation to the risk of future losses inherent in the loan portfolio. In evaluating the allowance and its adequacy, management considers the bank's loan loss experience, the amount of past due and non-performing loans, current and anticipated economic conditions and other appropriate information. While it is the Company's policy to charge-off in the current period the loans in which a loss is considered probable, there are additional risks for future losses which cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks are continually changing in response to facts beyond the control of the Company, such as the state of the economy, management's judgment as to the adequacy of the provision is approximate and imprecise. It is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as methodology used to calculate the allowance for loan losses and the size of the loan loss allowance in comparison to a group of peer banks identified by the regulatory agencies. In assessing the adequacy of the allowance, management relies predominantly on its ongoing review of the loan portfolio, which is undertaken to both ascertain whether there are probable losses which must be charged-off and to assess the risk characteristics of the portfolio in the aggregate. This review considers the judgments of management, and also those of bank regulatory agencies that review the loan portfolio as part of their regular bank examination process. There are no loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that the Company reasonably expects will materially impact future operating results, liquidity, or capital resources. The Company has no concentrations or credit risks by type of credit or industry group within its loan or investment portfolio. On a monthly basis, the Company reviews the adequacy of its allowance for loan losses. The loan review staff prepares a listing of loans believed to be deserving of a closer review by management. These loans are rated as to the presumed collectibility, and a statistical loss factor is assigned to each category of loans that directly relates to the associated risk. In addition to these specific allowances, an additional component of the allowance is computed by applying a factor based on historical loss experience to all loans by type that are not listed on the above referenced schedule. Finally, an additional factor is assigned to the entire portfolio to cover unexpected losses from any borrower that may not be identified. This final component reflects the economic conditions of the market areas served. These factors are multiplied by the balances in each category and totaled to determine the required allowance for loan losses. The actual allowance for loan losses (after charge-offs) is compared with the required level to determine if an additional provision should be made in the current period. The allowance for loan losses was $4,852,905 or 1.50% of outstanding loans, at June 30, 1997 and $4,488,958 or 1.45% of outstanding loans, at December 31, 1996. The provision for loan losses charged to operations during the first six months was $498,333 in 1997 and $537,000 in 1996. The decrease in the provision was a result of the Company's comfort level with the loan quality, the level of the allowance for loan losses and the stable growth in the loan portfolio. Charge-offs, net of recoveries, were $134,386 or .04% of average loans outstanding, during the six months ended June 30, 1997, as compared to $83,142 or .03% of average loans outstanding, during the same period in 1996. The ratio of non-accrual loans to total loans was .50% at June 30, 1997, .19% at December 31, 1996, and .20% at June 30, 1996. While this ratio increased from December, it is still significantly less than peer banks. Management believes that reserves and asset values are adequate to facilitate the timely disposition of these assets. 9 Net Non-Interest Income Non-interest income increased 29.77% for the first six months of 1997 as compared to the same period a year earlier. Non-interest income from core operations continues to increase as the Company expands fee income areas such as trust services and credit cards. Also, the additional deposits recently acquired have boosted deposit related income. The Company's financial services company has continued to mature and is contributing favorably to non-interest income as nontraditional banking services are considered by depositors. Non-interest expense increased $1,170,724 or 17.85%, for the six-month period ended June 30, 1997, as compared to the same period a year earlier. Non-interest expense increased in relation to the additional branch acquisitions and branch opening. Specifically, occupancy and supplies were directly effected as well as other expenses which includes the amortization of the premium paid to acquire the deposits. Additionally, the expenses relative to our technology expenditures are apparent in the increase in equipment expense. Insurance premiums on deposits insured by the savings association insurance fund of the Federal Deposit Insurance Corporation were reduced during the fourth quarter of 1996 after a one-time assessment. Financial Condition The Company's total assets at June 30, 1997 and 1996, were $490,681,378 and $394,601,998, respectively, and $429,711,291 at December 31, 1996. Average earning assets for the first six months of 1997 were $413,970,000 versus $355,748,000 for the same period a year earlier, an increase of 16.37%. This growth is the result of the strong local economy and the Company's continued expansion of its customer base. During the second quarter of 1997 the Company opened one new branch and acquired the deposits of three branches. The Company will continue to look for ways to grow in market share. Average loans of $311,003,000 represented 75.13% of average earning assets during the first six months of 1997. During the same period in 1996, average loans totaled $268,052,000, or 75.35% of average earning assets. Gross loans increased to $324,598,631 at June 30, 1997, a 5.01% increase over loans at December 31, 1996. It is anticipated that general loan growth will continue to mirror the economy generally, however, competition for quality loans may adversely effect the net interest margins. Securities averaged $93,697,000 during the six months ended June 30, 1997 versus $84,223,000 for the same period a year ago. The securities portfolio represented 22.63% of earning assets at June 30, 1997 and 23.67% at June 30, 1996. At June 30, 1997, the securities portfolio had unrealized losses of approximately $341,393. A gain of $10,889 was realized during the first half of 1997. Securities held to maturity with a carrying value of approximately $27.5 million were scheduled to mature within the next five years. Of this amount, $9.2 million were scheduled to mature within one year. Securities available for sale with a carrying value of $79.7 million were scheduled to mature within the next five years. Of this amount, $29.3 million were scheduled to mature within one year. The Company currently has the ability and intent to hold its investment securities to maturity. Certain debt securities are designated by management as held for sale and are carried at the lower of cost or market because management may sell them before they mature. 10 Average interest bearing liabilities rose 15.23%, to $368,204,000 in the first six months of 1997, from an average of $319,542,000 in the first six months of 1996. Total deposits increased 25.30% from June 30, 1996 to June 30, 1997, and 15.43% from December 31, 1996 to June 30, 1997. The second quarter acquisitions resulted in large deposit growth rates. As the Company capitalizes on these acquisitions and gains market share deposits will continue to increase. The Company continues to maintain capital ratios in excess of regulatory minimum requirements. The current capital standards call for a minimum total capital of 8% of risk-adjusted assets, including 4% Tier I capital, and a minimum leverage ratio of Tier I capital to total tangible assets of at least 4-5%. At June 30, 1997, the Company's ratio of total capital to risk-adjusted assets was 12.03% which includes 10.78% Tier I capital and the Company's ratio of total Tier I capital to total assets, adjusted for the loans loss allowance and intangibles, was 7.72%. Liquidity The liquidity position of the Company's subsidiaries, Lincoln Bank ("Lincoln") and Cabarrus Bank of North Carolina ("Cabarrus"), is primarily dependent upon their need to respond to withdrawals from deposit accounts and upon the liquidity of their assets. Primary liquidity sources include cash and due from banks, federal funds sold, short-term investment securities and loan repayments. At June 30, 1997, the Company had a liquidity ratio of 33.38%. Management believes the liquidity sources are adequate to meet operating needs. Except as discussed above, there are no known trends, events or uncertainties that will have or that are reasonably likely to have a material effect on the Company's liquidity, capital resources or operations. 11 CAROLINA FIRST BANCSHARES, INC. - ----------------------------------------- AVERAGE BALANCE SHEET AS JUNE 30, - ----------------------------------------- (In Thousands) 1997 1996 -------------- ------------- Interest Interest Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate -------------------------------------------------------------------------------- Assets Interest bearing deposits in other banks .... $ 509 $ 15 5.89% 573 $ 27 9.42% Taxable securities .......................... 86,347 2,598 6.02% 72,728 $ 2,257 6.21% Non-taxable securities ...................... 7,350 250 6.80% 11,495 308 5.36% Federal funds sold and securities purchased with agreements to resell ................................... 8,761 237 5.41% 2,900 76 5.24% Loans ....................................... 311,003 14,919 9.59% 268,052 12,972 9.68% -------- -------- -------- ------- Interest earning assets .................. 413,970 18,019 8.71% 355,748 15,640 8.79% -------- ------- Cash and due from banks ..................... $ 15,812 $ 13,186 Other assets ................................ 18,579 16,369 -------- -------- Total assets ................................ $448,361 $385,303 ======== ======== Liabilities and Shareholders' Equity Interest bearing deposits Demand .................................... $ 97,739 $ 1,177 2.41% $ 83,706 $ 973 2.32% Savings ................................... 42,055 528 2.51% 41,066 514 2.50% Time ...................................... 223,233 6,169 5.53% 190,194 5,339 5.61% Other borrowings ............................ 5,177 114 4.40% 4,576 112 4.90% -------- ------- ------- ------ Interest bearing liabilities ............. 368,204 7,988 4.34% 319,542 6,938 4.34% -------- ------- ------- ------ Other liabilities ........................... 43,180 34,883 Shareholders' equity ........................ 36,977 30,878 -------- ------- Total liabilities and shareholders' equity ................................... $448,361 $385,303 ======== ======== Interest rate spread ........................ 4.37% 4.45% ====== ===== Net interest earned and net yield on earning assets .................. $ 10,031 4.89% $ 8,702 4.93% ======== ====== ======= ===== 12 CAROLINA FIRST BANCSHARES, INC. - ---------------------------------------------------- RATE / VOLUME ANALYSIS - ---------------------------------------------------- FOR THE PERIOD ENDED JUNE, 1997 AND 1996 - ---------------------------------------------------- (In Thousands) Increase/(Decrease) due to 1996 Volume Rate 1997 Inc/exp Inc/exp ---------------------------------------------------------------- Interest Income: Loans ................................................... 12,972 2,060 (113) 14,919 Securities - tax - exempt ............................... 308 (141) 83 250 Securities - taxable .................................... 2,257 410 (69) 2,598 Federal funds sold & interest bearing balances in other banks ............................ 103 158 (9) 252 ------ ------ ------ ------ Total Interest Income .............................. 15,640 2,487 (108) 18,019 Interest Expense: Interest Bearing Demand ................................. 973 169 35 1,177 Savings ................................................. 514 12 2 528 Time .................................................... 5,339 913 (83) 6,169 Other Borrowings ........................................ 112 13 (11) 114 ------ ------ ------ ------ Total Interest Expense ............................. 6,938 1,108 (58) 7,988 ------ ------ ------ ------ Net Interest Income ................................ 8,702 1,379 (50) 10,031 ====== ====== ====== ====== 13 PART II - OTHER INFORMATION Item 1 - Legal Proceedings None 2 - Changes in Securities None 3 - Defaults upon Senior Securities None 4 - Submission of Matters to a Vote of Security Holders None 5 - Other Information None 6 - Exhibits and Reports on Form 8-K (a) Exhibits: 27 - Financial Data Schedule (SEC Use Only) (b) Reports on Form 8-K 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAROLINA FIRST BANCSHARES, INC. (Registrant) Date: August 13, 1997 By: /s/ D. Mark Boyd, III ------------------------- ----------------------------------- D. Mark Boyd, III Chairman and Chief Executive Officer Date: August 13, 1997 By: /s/ Jan H.Hollar ------------------------- ---------------------- Jan H. Hollar Principal Accounting Officer 15