CAROLINA FIRST CORPORATION
1994 ANNUAL REPORT
CORPORATE PROFILE
Carolina First Corporation, headquartered in Greenville, South Carolina, is
one of the largest independent bank holding companies in South Carolina with
assets of over $1 billion and 46 banking offices throughout the state. Since its
inception in 1986, Carolina First has experienced exceptional growth coupled
with outstanding credit quality. Carolina First is a high growth franchise based
on the "super community bank" strategy serving individuals and small- to medium-
sized businesses. Carolina First intends to be South Carolina's bank.
Its two subsidiaries are Carolina First Bank (CFB), a state-chartered
commercial bank, and Carolina First Mortgage Company (CFMC), a mortgage banking
operation. CFB is the largest South Carolina-based commercial bank, and CFMC is
the fifth largest mortgage loan servicer in South Carolina. Through its
subsidiaries, Carolina First provides a full range of banking services,
including mortgage, trust and investment services, designed to meet
substantially all the financial needs of its customers.
CONTENTS
Financial Highlights............................................ 2
Letter to Shareholders.......................................... 3
Strategies and Markets ......................................... 7
Management's Discussion and Analysis............................ 8
Report of Management............................................24
Report of Independent Public Accountants........................24
Consolidated Financial Statements...............................25
Notes to Consolidated Financial Statements......................29
Directory.......................................................43
Shareholder Information.........................................47
FINANCIAL HIGHLIGHTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
FIVE-YEAR
Years Ended December 31, COMPOUND
1994 1993 1992 1991 1990 GROWTH RATE
INCOME STATEMENT
Net interest income................. $41,627 $26,943 $17,819 $12,866 $10,241 39.0%
Provision for loan losses........... 950 909 1,453 1,423 790 1.8
Noninterest income, excluding
securities transactions............ 7,624 5,590 2,939 1,622 1,099 51.1
Securities transactions............. 234 662 517 664 (4) 68.9
Noninterest expenses................ 50,453 25,178 16,145 11,607 8,927 49.5
Net income (loss) (1)............... (1,869) 4,935 2,517 1,680 1,045
PER COMMON SHARE DATA (2)
Net income (loss)................... $(0.95) $ 0.90 $ 0.57 $ 0.51 $0.32
Book value (December 31)............ 8.58 10.27 9.91 9.72 9.28
Market price (December 31).......... 14.00 12.38 11.56 7.34 7.61
Cash dividends paid................. 0.20 - - - -
FINANCIAL RATIOS
Return on average assets(3)......... (0.19)% 0.71% 0.53% 0.43% 0.32%
Return on average equity(3)......... (2.34) 8.50 6.29 5.39 3.54
Net interest margin................. 4.89 4.31 4.06 3.63 3.37
ASSET QUALITY RATIOS
Nonperforming assets as a percentage
of loans and foreclosed property... 0.25% 0.28% 0.49% 0.45% 0.69%
Net loan charge-offs as a percentage
of average loans................... 0.11 0.26 0.31 0.18 0.17
Allowance for loan losses to
nonperforming loans................ 312 1,019 489 442 200
FIVE-YEAR
December 31, COMPOUND
1994 1993 1992 1991 1990 GROWTH RATE
BALANCE SHEET
Total assets..................... 1,120,097 $816,421 $ 529,063 $447,314 $ 345,745 28.0%
Loans-net of unearned income..... 865,869 565,158 396,557 338,701 275,315 30.0
Allowance for loan losses........ 5,267 5,688 4,263 3,727 2,403 20.9
Nonperforming assets............. 2,204 1,579 1,946 1,538 1,901 (3.1)
Securities....................... 117,059 114,726 78,300 56,241 40,184 22.4
Total earning assets............. 983,928 734,346 477,323 407,708 317,501 26.2
Total deposits................... 925,448 724,585 476,268 407,371 299,933 26.3
Shareholders' equity............. 79,041 62,869 44,225 31,875 30,235 22.3
OPERATIONS DATA
Banking offices.................. 46 37 16 15 9
Full-time equivalent employees... 499 430 228 204 131
(1) After fourth quarter 1994 restructuring charges of $9,415 (after-tax).
(2) Per share data have been restated to reflect 5% stock dividends.
(3) After fourth quarter 1994 restructuring charges. Excluding these charges,
the return on average assets was 0.78%, and the return on average equity was
9.47%.
2
TO OUR SHAREHOLDERS
(Photo of Mack I. Whittle, Jr. appears here)
MACK I. WHITTLE, JR.
PRESIDENT & CHIEF EXECUTIVE OFFICER
When Carolina First opened its first branch, we set out to build the premier
bank in South Carolina. We planned on creating a bank that would one day top a
billion dollars in assets. Eight short years later, I am proud to report that
Carolina First has exceeded the billion dollar threshold.
At December 31, 1994, total assets were $1.1 billion, an increase of 37%
over 1993. Our five-year compound growth rate for total assets was 28%, one of
the highest growth rates of any financial institution in the Southeast. We
reported a net loss for 1994 of $1.9 million, or a loss of $0.95 per common
share. However, the net loss for 1994 resulted from one-time restructuring
charges of $9.4 million (after-tax). Without this restructuring charge, we met
our 1994 earnings goals which contributed to a five-year compound growth rate of
52%.
The year 1994 produced other important milestones for Carolina First. We
instituted a quarterly cash dividend of $0.05 per share to common shareholders
while maintaining our 5% common stock dividend. As of the first quarter of
1995, the Board of Directors has increased the quarterly cash dividend to $0.06
per share, reflecting our confidence in the future. The market price of
Carolina First's common stock rose 13% during 1994, and our market
capitalization now tops $100 million. We continued our expansion into new South
Carolina markets by opening four new offices, acquiring seven branches, and
announcing two mergers.
We recently announced a restructuring that merged Carolina First Savings
Bank into Carolina First Bank, securitized our credit card loans, and wrote
down related intangible assets. Fourth quarter net income included a one-time
charge for this restructuring of $9.4 million (after-tax), which offset all
operating earnings for 1994 and resulted in a net loss of $1.9 million. Despite
the one-time impact on income this year, we expect the restructuring to
increase future pre-tax income by approximately $2.8 million a year, through
increased operational efficiency, lower amortization costs, and the
reinvestment of the cash currently invested in our credit card portfolio.
Carolina First's accomplishments this year, and for the past eight years,
are attributable to our commitment to excellence in all aspects of our business.
I'd like to take this opportunity to discuss three of the most important areas:
leading South Carolina, focusing on fundamentals, and remaining poised to meet
the future.
EIGHT SHORT YEARS LATER,
I AM PROUD TO REPORT THAT
CAROLINA FIRST HAS EXCEEDED
THE BILLION DOLLAR THRESHOLD.
3
LEADING SOUTH CAROLINA
To Carolina First, leadership is defined by our commitment to our customers,
our communities, our employees, and our shareholders. We are the leading South
Carolina-based commercial bank, serving 30 communities in 14 counties from 46
banking offices throughout the state. As the "local" bank, we understand the
unique needs of the individuals and businesses that we serve, yet we offer the
expertise, services, and products of the largest financial institution.
Our philosophy of community service is distinct from those out-of-state
banks doing business in South Carolina. A fundamental element of our strategy is
to reinvest local funds into South Carolina communities, thereby promoting local
economic growth. Carolina First Bank's "outstanding" rating under federal
community reinvestment regulations reflects our ability to meet the credit needs
of our local communities, including low and moderate income neighborhoods. By
investing in our communities, Carolina First makes South Carolina a better place
to live and do business.
We could not have achieved our leadership position without the skills and
contributions of our over 500 employees. We have always prided ourselves on
employing outstanding individuals who are also skilled bankers. We also have
capitalized on the opportunities presented by the acquisitions of South Carolina
banks by out-of-state banks in attracting experienced and respected bankers who
understand South Carolina markets. As we have grown and expanded our presence
throughout the state, we have created jobs in South Carolina, for South
Carolinians.
In achieving a leadership role, we also have looked to our communities for
guidance. We have assembled a truly statewide board of directors, which
reflects the diversity of perspectives and skills that make South Carolina such
a vibrant place. The business and community leaders on our corporate board,
bank board, and local advisory boards lead us in our continued pursuit to be
the premier bank in South Carolina.
FOCUSING ON FUNDAMENTALS
Carolina First's focus on the fundamentals of banking - asset quality,
capital strength, net interest income, fee income growth, operating efficiencies
- has given us the opportunity to report favorable results to our shareholders
year after year.
Carolina First continued this attention to the basics in 1994. First, we
maintained our tradition of high asset quality. At December 31, 1994,
nonperforming assets as a percentage of loans and foreclosed property were a low
0.25%. We
A FUNDAMENTAL ELEMENT OF OUR
STRATEGY IS TO REINVEST LOCAL FUNDS
INTO SOUTH CAROLINA COMMUNITIES,
THEREBY PROMOTING ECONOMIC GROWTH.
4
complemented this soundness with a strong capital base. In April, we raised
$21 million in new equity through a successful public offering of 920,000 shares
of our Series 1994 preferred stock. And we carefully managed our lending and
deposit strategies to achieve a net interest margin of 4.89% for the year, our
best performance yet.
We also sought during 1994 to position ourselves to increase fee income in
the future. Our mortgage bank subsidiary, Carolina First Mortgage Company,
services a mortgage loan portfolio of $800 million, making it the fifth largest
mortgage loan servicer in South Carolina. Our mortgage servicing volume is now
large enough to realize the economies of scale available in the servicing
business. Our trust department has expanded, both in the markets we serve and
the products we offer. With 11 new branches in 1994, a 45% increase in
customers, and greater market penetration in the communities we serve, we
expect increased fee income from our service charges.
Another fundamental goal is maximizing operating efficiency. Our corporate
restructuring is designed to do that. Our projection is that the restructuring
will increase pre-tax earnings by approximately $2.8 million per year. Part of
this increase is expected to come from consolidation of our two banking
subsidiaries into one entity. The result will be substantial regulatory and
administrative cost savings. The restructuring also initiated a program of
credit card securitization that permits Carolina First to continue to receive
income while allowing us to invest the cash received in loans in our markets.
POISED TO MEET THE FUTURE
Our aggressive expansion over the last few years has made Carolina First the
largest South Carolina-based commercial bank. We have a significant presence in
three of the four largest banking markets in South Carolina and entered the
fourth in 1994 with the acquisition of our first Charleston branch at the
Citadel Mall. One of our principal goals in 1995 is to expand our presence in
the Charleston market, and thereby achieve a strong position in these four
markets. We continue to grow in other markets as well. Our acquisitions of Aiken
County National Bank, with two offices in Aiken, and Midlands National Bank,
with branches in Newberry, Prosperity, and Chapin, are expected to be completed
in the first half of 1995 and will bring Carolina First to these new South
Carolina communities. Customers in these markets, and others like them
throughout the state, appreciate and value the unique benefits of dealing with a
South Carolina-based financial institution.
Carolina First is also investing in technology that will help it become and
remain the premier bank in South Carolina. We are committed to offering our
customers the innovation and technological know-how of the big banks, but with
none of
OUR CORPORATE RESTRUCTURING
IS DESIGNED TO... MAXIMIZE
OPERATING EFFICIENCY.
5
the bureaucracy and rigidity. For instance, we electronically process new
accounts and allow our customers to access their accounts 24 hours a day, seven
days a week. In 1995, we will launch an innovative new product - automated loan
machines. This product is extremely customer-friendly and is designed to make
our services more accessible and convenient. These future-oriented investments
are positioning us for our next stages of growth.
We are also pleased by the increased attention Carolina First has received
from the investment community. Currently, seven brokerage firms make a market
in our stock, and two firms have recently written favorable research reports.
Our trading volumes have also increased dramatically; during 1994, over 1.6
million shares were traded. This increased attention by investors is good news
for our shareholders and is reflected in our stock price. If you had invested
$100 when we opened in 1986, your investment would have grown to $190 at
December 31, 1994, after adjusting for our six 5% stock dividends and four
quarterly cash dividends.
Through our emphasis on leadership, fundamentals, and the future, Carolina
First is building its business for the long term. Our continued excellence in
these areas gives Carolina First excellent prospects for 1995 and the years to
come. The commitment and support of our shareholders, customers, employees, and
directors have brought us a long way from our first branch on Haywood Road, and
will take us much farther.
(Signature of Mack I. Whittle, Jr. appears here)
Mack I. Whittle, Jr.
President and Chief Executive Officer
WE ARE COMMITTED TO OFFERING
OUR CUSTOMERS THE INNOVATION
AND TECHNOLOGICAL KNOW-HOW OF
THE BIG BANKS, BUT WITH NONE OF
THE BUREAUCRACY AND RIGIDITY.
6
STRATEGIES AND MARKETS
Strategic focus. It works. Since our inception in 1986, our focus has
remained unchanged - to be South Carolina's premier bank. Carolina First strives
to be the premier bank in customer service, in employee satisfaction, and in
enhancing shareholder value. We are uniquely in tune with South Carolinians, in
a way that the out-of-state banks do not match.
Our "super community bank" strategy offers the best of both worlds by
combining the best features of small community banks with those of large
regional banks. Like small community banks, Carolina First has personalized
customer service, local market knowledge, and decentralized decision-making.
Yet, we also have the broad product lines and back-office efficiencies equal to
those of larger regional banks. This winning strategy allows us to really know
our customers and provide customized financial services to quickly meet their
needs.
South Carolina is a great place to do business. Our strengths are low
unemployment, a strong manufacturing base, superior market access, a high level
of foreign investments, and the geographical advantages of the coastal areas and
the mountains. At Carolina First, we concentrate on meeting the banking needs
of individuals and small- to medium-sized businesses in South Carolina.
South Carolina is not only our home, it is also an attractive banking
environment. Over 70% of South Carolina banks' assets are controlled by out-of-
state financial institutions. Our markets present a remarkable opportunity for
an emerging independent bank like Carolina First. We have seized this
opportunity to become the largest independent commercial bank in South Carolina.
(A map of South Carolina appears here showing the 14 South Carolina
counties served by Carolina First.)
CAROLINA FIRST NOW SERVES 30 COMMUNITIES IN 14 SOUTH CAROLINA COUNTIES FROM 46
BANKING OFFICES. AS WE GROW, WE REMAIN TRUE TO OUR FOUNDING VISION.
WE'RE OUT TO BE SOUTH CAROLINA'S PREMIER BANK.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION IS PRESENTED TO ASSIST IN UNDERSTANDING THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CAROLINA FIRST CORPORATION
("CAROLINA FIRST") AND ITS SUBSIDIARIES, CAROLINA FIRST BANK (THE "BANK"),
CAROLINA FIRST SAVINGS BANK (THE "SAVINGS BANK") AND CAROLINA FIRST MORTGAGE
COMPANY (THE "MORTGAGE COMPANY"). THROUGH ITS SUBSIDIARIES, CAROLINA FIRST
PROVIDES A FULL RANGE OF BANKING SERVICES, INCLUDING MORTGAGE, TRUST AND
INVESTMENT SERVICES, DESIGNED TO MEET SUBSTANTIALLY ALL OF THE FINANCIAL NEEDS
OF ITS CUSTOMERS.
OVERVIEW
Carolina First, which commenced banking operations in December 1986,
currently conducts business through 46 locations in South Carolina. At December
31, 1994, Carolina First had approximately $1.1 billion in assets, $865.9
million in loans, $925.4 million in deposits and $79.0 million in shareholders'
equity. At December 31, 1994, Carolina First's nonperforming assets (which
include nonaccruing loans and restructured loans) totaled 0.25% of total loans
and foreclosed property.
Carolina First was formed principally in response to perceived opportunities
resulting from the takeovers of several South Carolina-based banks by large
southeastern regional bank holding companies. A significant number of Carolina
First's executive officers and management personnel were previously employed by
certain of the larger South Carolina-based banks that were acquired by these
southeastern regional institutions. Consequently, these officers and management
personnel have significant customer relationships and commercial banking
experience that have contributed to Carolina First's loan and deposit growth.
Carolina First targets individuals and small- to medium-sized businesses in
South Carolina that require a full range of quality banking services.
Carolina First currently serves three principal market areas: the Greenville
metropolitan area and surrounding counties (located in the Upstate region of
South Carolina); the Columbia metropolitan area and surrounding counties
(located in the Midlands region of South Carolina); and Georgetown and Horry
counties (located in the Coastal region of South Carolina). Carolina First's
principal market
(A bar graph appears here. The plot points are listed below.)
Year End Assets
($ in millions)
1990 1991 1992 1993 1994
$346 $447 $529 $816 $1,120
5-Year Compound Growth Rate 28.0%
8
areas represent three of the four largest Metropolitan Statistical Areas in
the state. In April 1994, Carolina First entered the Charleston market, the
second largest Metropolitan Statistical Area in the state, with the purchase of
the insured deposits of Citadel Federal Savings and Loan Association ("Citadel
Federal"). Carolina First also has branch locations in other counties in South
Carolina.
In 1993, Carolina First formed the Mortgage Company. The Mortgage Company's
principal activities include the origination and servicing of one-to-four family
residential mortgage loans through eight offices in South Carolina. At December
31, 1994, the Mortgage Company was servicing approximately 10,351 loans having
an aggregate principal balance of approximately $800 million.
GROWTH STRATEGY AND ACQUISITIONS
Since its inception in 1986, Carolina First has pursued a strategy of
growth through internal expansion and through the acquisition of branch
locations and financial institutions in selected market areas. Carolina First
has emphasized internal growth through the acquisition of market share from the
large out-of-state bank holding companies. It attempts to acquire market share
by providing quality banking services and personal service to individuals and
business customers. The following discussion highlights Carolina First's
acquisition activity during 1994.
On April 29, 1994, the Bank purchased the insured deposits of Citadel
Federal from the Resolution Trust Corporation, as receiver for Citadel Federal.
This acquisition resulted in the acquisition of one branch office in Charleston,
South Carolina, with deposits of approximately $5.8 million, on which a premium
of approximately $533,000 was paid.
On May 2, 1994, Carolina First acquired six branches from Republic National
Bank. The acquired branches are located in Columbia, Edgefield, Johnston,
Bennettsville, Lake City and McColl. In addition, Carolina First acquired the
deposits and select loans from Republic National Bank's main office branch in
Columbia, which was not acquired. With this transaction, Carolina First
acquired loans of approximately $37.5 million and deposits of approximately
$135.3 million, on which a premium of approximately $5.4 million was paid.
On October 13, 1994, the Bank entered into an agreement with Aiken County
National Bank ("Aiken County National") for the merger of Aiken County National
into the Bank. The Bank will acquire all the outstanding common shares of Aiken
County National in exchange for approximately 453,000 shares of Carolina First's
common stock. At year end 1994, Aiken County National had assets of
approximately $42 million, loans of $29 million and deposits of $38 million.
The agreement requires that the merger be accounted for as a pooling of
interests.
9
On November 14, 1994, the Bank entered into an agreement with Midlands
National Bank ("Midlands") for the merger of Midlands into the Bank. The Bank
will acquire all the outstanding common shares of Midlands in exchange for
approximately 584,000 shares of Carolina First's common stock. At year end
1994, Midlands had assets of $43 million, loans of $28 million and deposits of
$39 million. The agreement requires that the merger be accounted for as a
pooling of interests.
EQUITY OFFERING AND DIVIDENDS
On April 15, 1994, Carolina First issued 920,000 shares of 7.32%
Noncumulative Convertible Preferred Stock Series 1994 ("Series 1994 Preferred
Stock"), which raised approximately $21.4 million in equity.
In the first quarter of 1994, Carolina First instituted a quarterly cash
dividend to common shareholders of $0.05 per share. As of the first quarter of
1995, the Board of Directors increased the quarterly cash dividend to $0.06 per
share. On May 16, 1994, Carolina First issued a 5% common stock dividend to
common shareholders of record as of April 29, 1994. This is the sixth
consecutive year that Carolina First has issued a 5% common stock dividend.
RESTRUCTURING CHARGES
During the fourth quarter of 1994, Carolina First announced a restructuring
that initiated a program of credit card securitization, wrote down related
intangible assets and merged the Savings Bank into the Bank. One-time
restructuring and nonrecurring charges related to this plan amounted to $12.2
million pre-tax ($9.4 million after-tax). Management expects the restructuring
to increase future pre-tax income by approximately $2.8 million a year, through
increased operational efficiency, lower amortization costs, and the reinvestment
of the cash currently invested in the credit card portfolio.
In connection with the program of credit card securitization, Carolina First
recorded charges of $12.2 million pre-tax, primarily from the write down of
intangible assets and charges associated with the origination of credit card
accounts. On January 24, 1995, Carolina First completed the securitization of
approximately $100 million in credit card loans. The securitization transferred
the credit card loans to a trust in return for a payment equal to the principal
balance of the credit cards. Carolina First purchased a 30% interest in the
trust, and the remainder was sold to an investor. Through this securitization,
Carolina First retains an interest in the earnings from the securitized loans
and at the same time has approximately $70 million in additional funds to make
loans in its banking markets.
On February 3, 1995, Carolina First completed the merger of the Savings Bank
into the Bank. Management
10
believes that there may be significant economic and managerial benefits from
this combination including the elimination of duplicative administration, the
consolidation of regulators, reduced regulatory burdens and increased management
focus. As part of the merger, Carolina First incurred income taxes of $1.0
million due to the different tax treatment accorded the allowance for loan
losses at the Savings Bank.
EARNINGS ANALYSIS
The one-time charge for the corporate restructuring resulted in a net loss
for 1994. Carolina First reported a net loss for 1994 of $1.9 million, or a
loss of $0.95 per common share. The net loss for 1994 includes one-time
restructuring charges of $9.4 million (after-tax). Net income for 1993 was $4.9
million, or $0.90 per common share, and 1992 net income was $2.5 million, or
$0.57 per common share. Increased net interest income, growth in noninterest
income and continued good credit quality were the primary reasons for the growth
in earnings excluding the restructuring charges.
Fully tax equivalent (FTE) net interest income increased $15.0 million, or
55%, due to a higher level of average earning assets and an increased net
interest margin. Increases in average earning assets resulted primarily from
the acquisition of branches and internal growth. The net interest margin
increased to 4.89% from 4.31% in 1993 and 4.06% in 1992.
Noninterest income excluding securities transactions increased to $7.6
million, or 36%, from $5.6 million in 1993 and $2.9 million in 1992. The
increase in noninterest income was attributable to higher service charges on
deposit accounts, the expansion of mortgage servicing and the generation of new
trust business.
Noninterest expenses increased to $50.5 million in 1994 from $25.2 million
in 1993 and $16.1 million in 1992. The 1994 noninterest expenses include one-
time restructuring charges of $12.2 million. Also contributing to the increase
in noninterest expenses were the acquisition of seven branches and the opening
of four branches de novo, a higher level of loan and deposit activity,
amortization of intangibles and higher credit card processing fees.
NET INTEREST INCOME
The largest component of Carolina First's operations is net interest income,
the difference between the interest earned on assets and the interest paid for
the liabilities used to support such assets. Variations in the volume and mix
of assets and liabilities and their relative sensitivity to interest rate
movements determine changes in net interest income. As the primary contributor
to Carolina First's earnings, net interest income constituted 84% of net
revenues (net interest income plus noninterest income) in 1994, compared with
81% in 1993 and 84% in 1992.
11
FTE net interest income adjusts the yield for assets earning tax-exempt
income to a comparable yield on a taxable basis. Carolina First has experienced
a markedly upward trend in FTE net interest income, which increased 55% in 1994,
51% in 1993 and 38% in 1992. FTE net interest income was $42.2 million in 1994,
$27.2 million in 1993 and $18.0 million in 1992. The increase resulted from a
higher level of average earning assets and an improvement in the net interest
margin. The growth in average earning assets, which increased to $861.6 million
in 1994 from $630.8 million in 1993 and $442.5 in 1992, resulted primarily from
internal loan growth and the acquisition of branches. The majority of this
increase was in loans, which averaged $233.6 million higher in 1994 than 1993
and $117.1 million higher in 1993 than 1992.
The net interest margin, defined as net interest income divided by average
earning assets, increased to 4.89% in 1994 from 4.31% in 1993 and 4.06% in
1992. The increase resulted primarily from lower deposit interest rates and a
higher proportion of noninterest-bearing deposits. In addition, the yield on
loans has risen due to increases in the prime interest rate, increased consumer
loan volume from
(Graph appears here with the following plot points:)
Net Interest Margin
(in percentages)
1990 1991 1992 1993 1994
gross yield 10.37% 9.90% 8.66% 7.76% 8.37%
break-even yield* 7.00% 6.27% 4.60% 3.45% 3.48%
net interest margin 7.00-10.37 6.27-9.90 4.60-8.66 3.45-7.76 3.48-8.37
* Interest expense divided by average earning assets
AVERAGE YIELDS AND RATES
(on a fully tax-equivalent basis)
1994 1993 1992 1991 1990
EARNING ASSETS:
Loans................................. 9.03% 8.59% 9.21% 10.36% 10.84%
Securities............................ 5.03 5.07% 6.32% 7.95% 8.37
Short-term Investments................ 3.66 3.08% 3.43% 5.53% 7.76
Total Earning Assets................. 8.37% 7.76% 8.66% 9.90% 10.37%
INTEREST-BEARING LIABILITIES:
Interest-bearing Deposits............. 3.75% 3.79% 4.99% 6.79% 7.77%
Short-term Borrowings................. 3.96 3.05% 5.55% 5.82% 4.95
Long-term Debt........................ 9.50% 9.10% 8.00% 6.93% 9.18
Total Interest-bearing Liabilities... 3.77% 3.78% 5.00% 6.77% 7.72%
NET INTEREST MARGIN..................... 4.89% 4.31% 4.06% 3.63% 3.37%
PRIME INTEREST RATE..................... 7.14% 6.00% 6.26% 8.48% 10.01%
12
the retail branch network and increased credit card loan volume from mail
solicitations.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Management maintains an allowance for loan losses which it believes is
adequate to cover possible losses in the loan portfolio. However, management's
judgment is based upon a number of assumptions about future events which are
believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for loan
losses will not be required.
The allowance for loan losses is established through charges in the form of
a provision for loan losses and purchased loan adjustments. Loan losses and
recoveries are charged or credited directly to the allowance. The amount
charged to the provision for loan losses by Carolina First is based on
management's judgment as to the amount required to maintain an allowance
adequate to provide for potential losses in Carolina First's loan portfolio.
The level of this allowance is dependent upon the total amount of past due
loans, general economic conditions and management's assessment of potential
losses.
During 1994, 1993 and 1992, Carolina First expensed $950,000, $909,000 and
$1,453,000, respectively, through its provision for loan losses. Net loan
charge-offs, excluding credit card loans, decreased to $779,000 in 1994, from
$1.3 million in 1993 and $1.2 million in 1992. During 1994, net loan charge-
offs as a percentage of average loans remained low at 0.11%, compared with 0.26%
for 1993 and 0.31% for 1992.
At December 31, 1994, the allowance for loan losses totaled $5.3 million, or
0.7% of total loans excluding loans held for sale, a decline from $5.7 million,
or 1.0% of total loans, at the end of 1993. Continued reductions in
nonperforming asset levels enabled Carolina First to reduce the allowance for
loan losses compared with the prior years' levels. Nonperforming assets as a
percentage of loans and foreclosed property were 0.25% and 0.28% at December 31,
1994 and 1993, respectively. At December 31, 1994, the allowance for loan losses
was 312% of nonperforming loans. Carolina First's asset quality measures
compare favorably to its FDIC peer group.
NONINTEREST INCOME
Noninterest income, excluding securities transactions, increased $2.0
million, or 36%, to $7.6 million in 1994, up from $5.6 million in 1993 and $2.9
million in 1992. This increase resulted principally from service charges on
deposit accounts, fees for trust services and mortgage banking servicing income.
Carolina First realized gains on the sale of securities of $234,000, $662,000
and $517,000 in 1994, 1993 and 1992, respectively.
13
Service charges on deposit accounts, the largest contributor to noninterest
income, rose $1.2 million, or 47%, to $3.7 million in 1994, an increase from
$2.5 million in 1993 and $1.5 million in 1992. The increase in service charges
is attributable to acquiring branches and new deposit accounts, increasing fee
charges and improving collection rates. In 1994, average deposits increased
38%, and the number of deposit accounts rose 44%.
Mortgage banking income was $1.6 million in 1994, $1.8 million in 1993 and
$1.3 million in 1992. Mortgage banking income includes origination fees,
profits from the sale of loans and servicing fees (which started in 1993).
Origination fees totaled $1.0 million in 1994, compared with $1.1 million in
1993 and $778,000 in 1992. During 1994, 1,062 mortgage loans totaling $108
million were originated, similar to originations of 1,063 loans for $103 million
in 1993. The increase in the level of interest rates during 1994 made the
origination of mortgage loans more competitive resulting in a slightly lower
origination fee per loan.
Until the third quarter of 1992, mortgage loans were originated primarily
for the account of correspondent financial institutions, with Carolina First
retaining an origination fee. Beginning in the third quarter of 1992, Carolina
First expanded the activities of its mortgage loan operations and began self-
funding the loans through the Savings Bank prior to sale in the secondary
market. Mortgage loans totaling approximately $55 million, $80 million and $16
million were sold in 1994, 1993 and 1992, respectively. Income from this
activity totaled $112,000 in 1994, $509,000 in 1993 and $496,000 in 1992.
The Mortgage Company's mortgage servicing operations consist of servicing
loans that are owned by the Bank and subservicing loans, to which the right to
service is owned by the Bank and other non-affiliated financial institutions.
Mortgage loans serviced are all one-to-four family residential mortgage loans.
At December 31, 1994, 10,351 loans with an aggregate principal amount of $800
million were being serviced or subserviced by the Mortgage Company. Servicing
income from non-affiliated companies, net of the related amortization, was
$578,000 in 1994 and $76,000 in 1993.
Fees for trust services in 1994 increased to $919,000, up 70% from the
$542,000 earned in 1993. Fees for trust services in 1992 were $305,000. Fees
for trust services increased as a result of the generation of new trust business
and additional assets under management, particularly in investment management
and custody accounts. Assets under management of the trust department increased
to approximately $214 million at December 31, 1994, up significantly from $129
million at year end 1993 and $55 million at year end 1992.
14
Sundry income items were $623,000 higher in 1994, primarily because of
higher customer service fees, appraisal fee income and insurance commissions.
These increases are largely attributable to increased lending and deposit
activity. In addition, Carolina First earned approximately $108,000 in 1994 real
estate rental income, the majority of which is not expected to continue. With
the January 1995 completion of the credit card securitization, earnings from the
trust, after payment of interest, servicing fees and charge-offs, are expected
to provide a new source of fee income in 1995.
NONINTEREST EXPENSES
Noninterest expenses were $50.5 million in 1994, $25.2 million in 1993 and
$16.1 million in 1992. Included in 1994 noninterest expenses is a $12.2 million
one-time restructuring charge associated with the credit card securitization and
the write-down of other intangible assets. Excluding the restructuring charges,
1994 noninterest expenses increased 52% over 1993, while 1993 was 56% higher
than 1992. The increased expenditures primarily reflect the costs of additional
personnel to support Carolina First's current and anticipated growth.
Salaries and wages and benefits increased 53% to $17.9 million in 1994 from
$11.7 million in 1993. This increase follows an increase of 62% from $7.2
million in 1992. Full-time equivalent employees rose to 499 at the end of 1994
from 430 and 228 at the end of 1993 and 1992, respectively. Staff increases were
attributable to the addition of 11 banking offices, higher loan and deposit
activity resulting from internal growth and acquisitions, and the expansion of
mortgage banking operations.
The 1994 occupancy and furniture and equipment expenses increased $2.1
million, or 57%, due to the addition of 11 banking offices including a new
Myrtle Beach main office, the opening of a regional headquarters office in
Columbia for the Midlands region of South Carolina, the establishment of the
Mortgage Company and the expansion of administrative offices in Greenville to a
second location.
Sundry expense items increased $4.7 million, or 48%, to $14.5 million in
1994 from $9.8 million in 1993 and $6.4 million in 1992. Three expense items -
federal insurance premiums, intangibles amortization and credit card processing
fees - accounted for approximately 46% of this increase. Federal deposit
insurance premiums increased $507,000, or 36%, in 1994 to $1.9 million. This
increase was primarily due to higher levels of deposits. Intangibles
amortization increased $1.6 million, or 175%, in 1994 to $2.5 million,
principally as a result of intangibles relating to the acquisition of branches,
credit card receivables and the Mortgage Company. Credit card processing fees
increased
15
$597,000, or 66%, to $1.5 million in 1994, principally as a result of credit
card solicitations by Carolina First and the purchase of approximately $16.3
million in credit card receivables in June 1993 and November 1993. With the
securitization of the majority of credit card loans during the first quarter of
1995, management expects credit card processing fees to decrease significantly
in 1995.
Advertising and public relations expenses increased $526,000, or 136%, to
$912,000 in 1994, due to Carolina First's statewide expansion, advertising
campaigns in key markets and special deposit promotions. The remaining increase
in sundry noninterest expenses was primarily attributable to the overhead and
operating expenses associated with higher lending and deposit activities. The
largest sundry noninterest expenses were stationery, supplies and printing,
telephone, postage, and fees.
INCOME TAXES
The provision for income taxes in 1994 was a credit of $49,000. The
provision for income taxes was $2.2 million in 1993 and $1.2 million in 1992.
Income taxes for 1994 include a one-time reduction of $2.8 million from
restructuring charges, partially offset by $1 million of income tax expense in
connection with the merger of the Savings Bank into the Bank.
BALANCE SHEET ANALYSIS
Total assets at December 31, 1994, were $1.1 billion, an increase of $303.7
million, or 37%, from $816.4 million at the end of 1993. Loans increased $300.7
million, or 53%, to $865.9 million at December 31, 1994, compared with $565.2
million at December 31, 1993. Deposits at year end 1994 were $925.4 million, up
28% from $724.6 million at year end 1993. Total shareholders' equity increased
26% to $79.0 million at December 31, 1994, from $62.9 million at the end of
1993. Significant components of balance sheet growth include increases from
internal loan growth, branch acquisitions and the proceeds from the Series 1994
preferred stock offering.
Average total assets in 1994 were $970.0 million, a 40% increase over the
1993 average of $695.1 million. Average earning assets were $861.6 million in
1994, a 37% increase over the 1993 level of $630.8 million. For 1992, average
total assets and average earning assets were $478.3 million and $442.5 million,
respectively.
LOANS
Carolina First's loan portfolio consists principally of one-to-four family
residential mortgage loans, commercial mortgage loans and other commercial and
consumer loans. A substantial portion of these borrowers are located in South
Carolina and are concentrated in the Carolina First's
16
market areas. Carolina First has no foreign loans or loans for highly
leveraged transactions. The loan portfolio does not contain any concentrations
of credit risk exceeding 10% of the portfolio. At December 31, 1994, Carolina
First had total loans outstanding of $865.9 million which equaled approximately
94% of Carolina First's total deposits and approximately 77% of Carolina First's
total assets. The level of total loans, relative to total deposits and total
assets, has increased from the prior year. The composition of Carolina First's
loan portfolio at December 31, 1994, was as follows: commercial and commercial
mortgage 47%, residential mortgage 26%, consumer 11%, credit card 12% and
construction 4%.
Carolina First's loans increased $300.7 million, or 53%, to $865.9 million
at December 31, 1994 from $565.2 million at December 31, 1993. Of this
increase, $37.5 million resulted from loans acquired in branch acquisitions.
The balance was internal loan growth. This increase was net of $55.1 million of
mortgage loans sold, which were predominantly current production, fixed rate
mortgage loans. During 1994, the Bank began a mail campaign to solicit new
credit card customers. These solicitations resulted in approximately $60 million
in new credit card balances, which nearly doubled the size of the Bank's credit
card portfolio.
As noted above, Carolina First has experienced significant growth in its
commercial and commercial mortgage loans over the past several years.
Furthermore, these loans constitute approximately 47% of Carolina First's total
loans at December 31, 1994. These loans generally range in size from $250,000
to $500,000 and are typically made to small- to medium-sized, owner-operated
companies.
(A bar graph appears here. The plot points are listed below:)
Year End Loans
($ in millions)
1990 1991 1992 1993 1994
$275 $339 $397 $565 $866
5-Year Compound Growth Rate 30.0%
For 1994, Carolina First's loans averaged $723.5 million with a yield of
9.03%, compared with $489.9 and a yield of 8.59% for 1993. The interest rates
charged on loans vary with the degree of risk and the maturity and amount of the
loan. Competitive pressures, money market rates, availability of funds, and
government regulations also influence interest rates. The increase in loan
yield is largely
17
attributable to the upward repricing of variable rate loans, which
constitute approximately 60% of the loan portfolio. During 1994, the average
prime interest rate rose approximately 114 basis points.
Loans held for sale at December 31, 1994, included $69.5 million in credit
card loans and $2.2 million in mortgage loans. On January 24, 1995, Carolina
First completed the securitization of the credit card loans held for sale at
year end.
SECURITIES
Carolina First's subsidiaries are generally limited to investments in (i)
United States Treasury securities or United States Government guaranteed
securities, (ii) securities of United States Government agencies, (iii)
mortgage-backed securities, (iv) general obligation municipal bonds and revenue
bonds which are investment grade rated and meet certain other standards and (v)
money market instruments which are investment grade rated and meet certain other
standards. To date, Carolina First does not own any derivative products.
At December 31, 1994, the total investment portfolio had a book value of
$118.3 million and a market value of $113.7 million for an unrealized loss of
$4.6 million. The investment portfolio had a weighted average duration of
approximately 2.15 years. Securities (i.e., investment secu-rities, securities
available for sale and trading securities) averaged $128.0 million in 1994, 1%
above the 1993 average of $126.4 million. The average portfolio yield declined
slightly from 5.07% in 1993 to 5.03% in 1994.
During the past two years, average securities have been a lesser component
of average earning assets, decreasing from 20.0% in 1993 to 14.8% in 1994.
Carolina First decreased the relative level of its investment portfolio to fund
loans in its banking markets. At year end 1994, securities totaled $117.1
million, up $2.4 million from the $114.7 million invested at the end of 1993.
DEPOSITS
The primary source of funds for loans and investments is deposits which are
gathered through the Bank's branch network. Competition for deposit accounts is
primarily based on the interest rates paid thereon and the convenience of and
the services offered by the branch locations. Carolina First's pricing policy
with respect to deposits takes into account liquidity needs, the direction and
levels of interest rates and local market conditions. Carolina First does not
believe that any of its deposits qualify as brokered deposits. It is Carolina
First's policy not to accept brokered deposits.
During 1994, interest-bearing liabilities averaged $794.9 million, compared
with $574.7 million for 1993. This increase resulted principally from branch
acquisitions. The
18
average interest rates were 3.77% and 3.78% for 1994 and 1993, respectively.
At December 31, 1994, interest-bearing deposits comprised approximately 87% of
total deposits and 88% of interest-bearing liabilities. During 1994, Carolina
First increased its use of short-term borrowings to fund loan growth. Short-
term borrowings averaged $41.4 million and $14.0 million in 1994 and 1993,
respectively.
Carolina First uses its deposit base as its primary source of funds.
Deposits grew 28% to $925.4 million at December 31, 1994, from $724.6 million at
December 31, 1993. Of the $200.8 million increase in deposits, approximately
$141.2 million resulted from the acquisition of branches. Internal growth
generated the remaining new
(Bar graph appears here. The plot points are listed below:)
Year End Deposits
($ in millions)
1990 1991 1992 1993 1994
$300 $407 $476 $725 $925
5-Year Compound Growth Rate 26.3%
deposits. During 1994, total interest-bearing deposits averaged $752.2
million with a rate of 3.75%, compared with $559.4 million with a rate of 3.79%
in 1993. As the level of interest rates fell in 1993, Carolina First was able
to reprice deposits to more than recover declines in the yields on earning
assets. During the first half of 1994, which was a period of rising interest
rates, Carolina First generally kept deposit interest rates unchanged which
caused the average deposit rate to continue to decline, primarily from the
repricing of certificates of deposit. Beginning with the third quarter of 1994,
however, Carolina First raised deposit interest rates, causing the cost of
deposits to rise.
Average noninterest-bearing deposits, which increased 68% during the year,
increased to 11.2% of average total deposits in 1994 from 9.2% in 1993. This
increase was attributable to new accounts from commercial loan customers and
escrow balances related to mortgage servicing operations.
Carolina First's core deposit base consists of consumer time deposits,
savings, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both
Carolina First and the industry as a whole, such core deposits continue to
provide Carolina First with a large and stable source of funds. Core deposits
as a percentage of average total deposits averaged approximately 86% in 1994.
Carolina First closely monitors its reliance on certificates of
19
deposit greater than $100,000, which are generally considered less stable
and less reliable than core deposits.
CAPITAL RESOURCES AND DIVIDENDS
Carolina First's capital needs have been met principally through public
offerings of common and preferred stock and through the retention of earnings.
In addition, Carolina First issued both common and preferred stock in connection
with the acquisitions of the Savings Bank and the Mortgage Company.
Carolina First completed the offering of its Series 1994 Preferred Stock on
April 15, 1994. In connection with this offering, Carolina First raised
approximately $21.4 million after deduction of the related expenses and issued
920,000 shares of its Series 1994 Preferred Stock. Each share of Series 1994
Preferred Stock provides for cash dividends, when, as, and if declared by the
Board of Directors, at the annual rate of $1.83 per share. Dividends on the
Series 1994 Preferred Stock are not cumulative. A Series 1994 Preferred Stock
share may be converted at the option of the holder into 1.7931 shares of common
stock. The conversion ratio has been restated to reflect the 5% common stock
dividend. In addition, and upon compliance with certain conditions, Carolina
First may redeem the Series 1994 Preferred Stock at the redemption prices set
forth in the Company's Articles of Amendment related to the Series 1994
Preferred Stock.
Total shareholders' equity increased $16.1 million, or 26%, to $79.0 million
at December 31, 1994, from $62.9 million at December 31, 1993. This change
primarily reflects the capital raised in connection with the Series 1994
Preferred Stock offering discussed above, which was issued on April 15, 1994,
partially offset by the payment of dividends and the net loss for 1994.
Book value per share was $8.58 and $10.27 at December 31, 1994 and 1993,
respectively. The decline in book value is attributable to the one-time
restructuring charges. Tangible book value per share at December 31, 1994 was
$4.16, down from $7.37 at December 31, 1993. Tangible book value is
significantly below book value as a result of the purchase premiums associated
with branch acquisitions and the purchase of the Mortgage Company. Tangible
book value declined during 1994 from the addition of intangible assets related
to the branch acquisitions and reclassifications of loan premiums to intangible
assets.
At December 31, 1994, Carolina First and the Savings Bank were in compliance
with each of the applicable
AS OF WELL CAPITALIZED ADEQUATELY CAPITALIZED
CAPITAL RATIOS 12/31/94 REQUIREMENT REQUIREMENT
CAROLINA FIRST CORPORATION:
Total Risk-based Capital.... 8.35% 10.0% 8.0%
Tier 1 Risk-based Capital... 7.65 6.0 4.0
Leverage Ratio.............. 5.44% 5.0 4.0
20
regulatory capital requirements and exceeded the "adequately capitalized"
regulatory guidelines. The Bank exceeded the "adequately capitalized"
regulatory guidelines for the Tier 1 risk-based capital and leverage ratios, but
was "undercapitalized" for the total risk-based capital ratio. Following the
merger with the Savings Bank which was completed on February 3, 1995, the Bank's
total risk-based capital ratio increased to exceed the "adequately capitalized"
guidelines. The risk-based insurance assessments for the Bank has been set at
0.26% of the average assessment basis.
Carolina First and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay. Carolina
First has paid all scheduled cash dividends on the Series 1993 Preferred Stock,
the Series 1993B Preferred Stock and the Series 1994 Preferred Stock since their
respective issuances. During each of the last six years, Carolina First issued
5% common stock dividends to common shareholders.
In November 1993, the Board of Directors initiated a regular quarterly cash
dividend of $0.05 per share payable on the common stock, the first of which was
paid on February 1, 1994. Cash dividends of $0.05 have been paid on a quarterly
basis since the initiation of the cash dividend. The Board of Directors
increased the quarterly cash dividend to $0.06 beginning in the first quarter of
1995. Carolina First presently intends to continue to pay this quarterly cash
dividend on the common stock; however, future dividends will depend upon
Carolina First's financial performance and capital requirements.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which Carolina First monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities. Liquidity management involves meeting the cash flow requirements of
Carolina First. These cash flow requirements primarily involve withdrawals of
deposits, extensions of credit, payment of operating expenses and repayment of
purchased funds. Carolina First's principal sources of funds for liquidity
purposes are customer deposits, principal and interest payments on loans,
maturities and sales of debt securities, temporary investments and earnings.
Temporary investments averaged 1.18% and 2.31% of earning assets in 1994 and
1993, respectively. Management believes that Carolina First maintains an
adequate level of liquidity by retaining liquid assets and other assets that can
easily be converted into cash and by maintaining access to alternate sources of
funds, including federal funds purchased from correspondent banks and borrowings
from the Federal Home Loan Bank.
21
The liquidity ratio is an indication of a company's ability to meet its
short-term funding obligations. FDIC examiners suggest that a commercial bank
maintain a liquidity ratio of between 20% and 25%. At December 31, 1994, the
Bank's liquidity ratio was approximately 13%. At December 31, 1994, the Bank
had unused short-term lines of credit with correspondent banks of $17.8 million.
All of the lenders have reserved the right to withdraw these lines of credit at
their option. In addition, Carolina First, through its subsidiaries, has access
to borrowings from the Federal Home Loan Bank. At December 31, 1994, unused
borrowing capacity from the Federal Home Loan Bank totaled $33 million.
Management believes that these sources are adequate to meet its liquidity needs.
On January 24, 1995, Carolina First completed the securitization of the majority
of its credit card loans. In connection with this securitization, Carolina First
received approximately $70 million which provided additional liquidity.
Carolina First plans to meet its future cash needs through the proceeds of
stock offerings, liquidation of temporary investments, maturities or sales of
loans and investment securities and generation of deposits. By increasing the
rates paid on deposits, Carolina First would be able to raise deposits.
The interest sensitivity gap is the difference between total interest
sensitive assets and liabilities in a given time period. The objective of
interest sensitivity management is to maintain reasonably stable growth in net
interest income despite changes in market interest rates by maintaining the
proper mix of interest sensitive assets and liabilities. Management seeks to
maintain a general equilibrium between interest sensitive assets and liabilities
in order to insulate net interest income from significant adverse changes in
market rates. The Asset/Liability Management Committee uses an asset/liability
simulation model which quantifies balance sheet and earnings variations under
different interest rate environments to measure and manage interest rate risk.
ASSET QUALITY
Prudent risk management involves assessing risk and managing it
effectively. Certain credit risks are inherent in making loans, particularly
commercial, real estate and consumer loans. Carolina First attempts to manage
credit risks by adhering to internal credit policies and procedures. These
policies and procedures include a multi-layered loan approval process, officer
and customer limits, periodic documentation examination and follow-up procedures
for any exceptions to credit policies. Loans are assigned a grade and those
that are determined to involve more than normal credit risk are placed in a
special review status. Loans that are placed in special review status are
required to have a plan under which they will be either repaid or restructured
in a way that reduces credit risk. Loans in this special review status are
reviewed monthly by the loan committee of the Board of Directors.
22
As demonstrated by the following key analytical measures of asset quality,
management believes Carolina First has effectively managed its credit risk. Net
loan charge-offs, excluding credit card loans, decreased to $779,000 in 1994,
from $1.3 million in 1993 and $1.2 million in 1992. During 1994, net loan
charge-offs as a percentage of average loans have remained low at 0.11%,
compared with 0.26% for 1993 and 0.31% in 1992. Nonperforming assets as a
percentage of loans and foreclosed property were 0.25% and 0.28% at December 31,
1994 and 1993, respectively. At December 31, 1994, the allowance for loan
losses was 312% of nonperforming loans. At December 31, 1994, Carolina First had
$1.0 million in nonaccruing loans, $675,000 in restructured loans and $1.3
million in loans greater than ninety days past due on which interest was still
being accrued. These asset quality measures compare favorably to Carolina
First's bank holding company peer group.
(A bar graph appears here. The plot points are listed below:)
Nonperforming Assets as a % of
Loans and Foreclosed Property
(in percentages)
1990 1991 1992 1993 1994
Federal Reserve Bank
Holding Company Peer Group** 2.90% 3.32% 2.79% 2.19% 1.48%*
Carolina First 0.69% 0.45% 0.49% 0.28% 0.25%
* As of September 30, 1994
**Source: Federal Reserve Bank Holding Company Performance Report
ASSET QUALITY
($ in thousands)
December 31,
1994 1993 1992 1991 1990
Nonaccrual loans................................. $ 1,012 $ 558 $ 519 $ 843 $ 1,202
Restructured loans............................... 675 - 353 - -
Total nonperforming loans..................... 1,687 558 872 843 1,202
Other real estate................................ 517 1,021 1,074 695 699
Total nonperforming assets.................... $ 2,204 $ 1,579 $1,946 $1,538 $ 1,901
Nonperforming assets as a percentage of loans and
foreclosed property............................ 0.25% 0.28% 0.49% 0.45% 0.69%
Accruing loans past due 90 days.................. $ 1,285 $ 2,060 $2,121 $1,489 $ 424
Allowance for loan losses to
nonperforming loans............................ 312% 1,019% 489% 442% 200%
23
REPORT OF MANAGEMENT
Management of Carolina First Corporation ("the Company") is committed to
quality customer service, enhanced shareholder value, financial stability and
integrity in all dealings. Management has prepared the accompanying consolidated
financial statements in conformity with generally accepted accounting
principles. The statements include amounts that are based on management's best
estimates and judgments. Other financial information contained in this report is
presented on a basis consistent with the financial statements.
To ensure the integrity, objectivity and fairness of data in these
statements, management of the Company has established and maintains an internal
control structure that is supplemented by a program of internal audits. The
internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed, recorded and reported in
accordance with management's intentions and authorizations.
The financial statements have been audited by Elliott, Davis & Company,
L.L.P., independent auditors, in accordance with generally accepted auditing
standards. Elliott, Davis & Company reviews the results of its audit with both
management and the Audit Committee of the Board of Directors of the Company. The
Audit Committee, composed entirely of outside directors, meets periodically with
management, internal auditors and Elliott, Davis & Company (separately and
jointly) to determine that each is fulfilling its responsibilities and to
consider recommendations for enhancing internal controls.
(Signature of Mack I. Whittle, Jr.) (Signature of William S. Hummers, III)
Mack I. Whittle, Jr. William S. Hummers, III
President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Carolina First Corporation
Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of Carolina
First Corporation and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carolina
First Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
(Signature of Elliott, Davis & Company, L.L.P.)
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
February 3, 1995
24
CONSOLIDATED BALANCE SHEETS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
December 31,
1994 1993
ASSETS
Cash and due from banks................................... $ 55,047 $ 27,320
Federal funds sold and securities
purchased under resale agreements........................ 500 54,212
Securities
Trading.................................................. 1,155 250
Available for sale....................................... 49,648 64,871
Held for investment (market value $62,868 in 1994
and $50,024 in 1993)................................... 66,256 49,605
Total securities....................................... 117,059 114,726
Loans held for sale....................................... 71,695 7,700
Loans..................................................... 795,047 559,679
Less unearned income..................................... (873) (2,221)
Less allowance for loan losses........................... (5,267) (5,688)
Net loans.............................................. 860,602 559,470
Premises and equipment.................................... 36,842 28,990
Accrued interest receivable............................... 7,079 4,811
Other assets.............................................. 42,968 26,892
1,120,097 $ 816,421
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing.................................... 119,950 $ 67,776
Interest-bearing....................................... 805,498 656,809
Total deposits......................................... 925,448 724,585
Federal funds purchased and securities
sold under repurchase agreements....................... 33,986 16,725
Other short-term borrowings.............................. 72,052 54
Long-term debt........................................... 1,162 1,214
Accrued interest payable................................. 3,798 3,041
Other liabilities........................................ 4,610 7,933
Total liabilities...................................... 1,041,056 753,552
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred stock - no par value; authorized
10,000,000 shares;
issued and outstanding 920,000 shares (Series
1994),
621,000 shares (Series 1993) and 60,000 shares
(Series 1993B) in 1994 and 621,000 shares
(Series 1993)
and 60,000 shares (Series 1993B) in 1993;
liquidation
preference $25 per share (Series 1994 and 1993)
and
$20 per share (Series 1993B)........................... 37,014 15,662
Common stock - par value $1 per share; authorized
20,000,000 shares; issued and outstanding
4,581,247
shares in 1994 and 4,279,724 shares in 1993............ 4,581 4,280
Surplus.................................................. 39,037 35,412
Retained earnings........................................ 472 8,400
Nonvested restricted stock............................... (1,083) (709)
Guarantee of ESOP debt................................... (126) (176)
Unrealized loss on securities available for sale......... (854) -
Total shareholders' equity............................. 79,041 62,869
1,120,097 $ 816,421
See Notes to Consolidated Financial Statements which are an
integral part of these statements.
25
CONSOLIDATED STATEMENTS OF INCOME
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
For The Years Ended December 31,
1994 1993 1992
INTEREST INCOME
Interest and fees on loans............................... 65,302 $ 42,091 $34,316
Interest on securities
Taxable................................................. 4,936 5,677 3,096
Exempt from Federal income taxes........................ 980 475 296
Total interest on securities.......................... 5,916 6,152 3,392
Interest on federal funds sold and securities
purchased
under resale agreements................................. 373 449 466
Total interest income................................. 71,591 48,692 38,174
INTEREST EXPENSE
Interest on deposits..................................... 28,206 21,202 20,117
Interest on short-term borrowings........................ 1,638 427 128
Interest on long-term debt............................... 120 120 110
Total interest expense................................ 29,964 21,749 20,355
Net interest income................................... 41,627 26,943 17,819
PROVISION FOR LOAN LOSSES.................................. 950 909 1,453
Net interest income after provision for loan
losses.............................................. 40,677 26,034 16,366
NONINTEREST INCOME
Service charges on deposit accounts...................... 3,720 2,536 1,468
Mortgage banking income.................................. 1,638 1,788 1,274
Fees for trust services.................................. 919 542 305
Gain on sale of securities............................... 234 662 517
Sundry................................................... 1,347 724 (108)
Total noninterest income.............................. 7,858 6,252 3,456
NONINTEREST EXPENSES
Salaries and wages....................................... 13,883 9,607 5,989
Employee benefits........................................ 4,043 2,115 1,260
Occupancy................................................ 3,547 2,129 1,339
Furniture and equipment.................................. 2,242 1,558 1,152
Sundry................................................... 14,524 9,769 6,405
Credit card restructuring charges........................ 12,214 - -
Total noninterest expenses............................ 50,453 25,178 16,145
Income (loss) before income taxes..................... (1,918) 7,108 3,677
Income taxes............................................... (49) 2,173 1,160
Net income (loss)..................................... (1,869) 4,935 2,517
Dividends on preferred stock............................... 2,433 1,930 625
Net income (loss) applicable to common
shareholders........................................ (4,302) $ 3,005 $1,892
PER COMMON SHARE DATA*
Net income (loss)..................................... $ (0.95) $ 0.90 $0.57
Cash dividends........................................ 0.21 $ 0.05 $ -
Average common shares................................. 4,521,274 3,331,787 3,290,691
See Notes to Consolidated Financial Statements which are an integral part of
these statements. *Per share data have been restated to reflect 5% stock
dividends.
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands)
For The Years Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... (1,869) $ 4,935 $ 2,517
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operations
Depreciation............................................. 2,552 1,676 1,302
Amortization of intangibles.............................. 2,485 902 462
Provision for loan losses................................ 950 909 1,453
Provision for deferred taxes............................. 73 (267) (243)
Gain on sale of securities............................... (234) (662) (517)
Unrealized (gain) loss on securities..................... - (199) 199
Originations of mortgage loans held for sale............. (49,562) (81,076) (22,538)
Proceeds from sale of mortgage loans held for
sale................................................... 55,099 80,177 15,737
Proceeds from sale of trading securities................. 420,378 1,075 -
Proceeds from maturity of trading securities............. 31,176 - -
Purchase of trading securities........................... (452,459) (1,325) -
Mortgage loans sold in process of collection............. - - (6,830)
Increase in accrued interest receivable.................. (2,268) (788) (159)
Increase (decrease) in accrued interest payable.......... 757 385 (209)
(Increase) decrease in other assets...................... (17,093) 281 (1,760)
Premiums paid on acquired credit cards................... - (1,023) (1,377)
Increase (decrease) in other liabilities................. (3,356) 5,542 690
Federal Home Loan Bank stock dividend.................... (150) (68) (77)
Net cash provided by (used for) operating
activities........................................... (13,521) 10,474 (11,350)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities.......................... - - 34,929
Proceeds from sale of securities available for sale....... 24,131 67,285 -
Proceeds from maturity of securities...................... - - 27,451
Proceeds from maturity of securities available for
sale.................................................... 159,767 219,720 -
Proceeds from maturity of securities held for
investment.............................................. 7,210 171 -
Purchase of securities.................................... - - (84,044)
Purchase of securities available for sale................. (169,698) (276,940) -
Purchase of securities held for investment................ (23,711) (45,275) -
Net decrease (increase) in federal funds sold and
securities
purchased under resale agreements........................ 53,712 (51,996) 10,300
Purchase of loans......................................... - (16,265) (5,359)
Net increase in loans..................................... (265,434) (119,006) (46,613)
Proceeds from sale of premises and equipment.............. 387 379 871
Capital expenditures...................................... (10,791) (11,985) (1,443)
Net cash used for investing activities................. (224,427) (233,912) (63,908)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquired deposits (net)................................... 97,735 196,840 -
Net increase in deposits.................................. 59,688 5,065 68,897
Net increase in federal funds purchased and
securities sold under repurchase agreements.............. 17,261 14,188 84
Issuance (payments) of borrowed funds..................... 71,946 (54) (302)
Issuance of preferred stock............................... 21,352 14,462 10,319
Redemption of preferred stock............................. - (92) -
Cash dividends paid....................................... (2,936) (1,777) (385)
Other common stock activity............................... 629 30 -
Net cash provided by financing activities.............. 265,675 228,662 78,613
Increase in cash and due from banks......................... 27,727 5,224 3,355
Cash and due from banks at beginning of year................ 27,320 22,096 18,741
Cash and due from banks at end of year...................... 55,047 $ 27,320 $ 22,096
See Notes to Consolidated Financial Statements which are an
integral part of these statements.
27
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands)
Retained
Shares of Earnings
Common Preferred Common and
Stock Stock Stock Surplus Other* Total
BALANCE, DECEMBER 31, 1991........................... 2,837,355 $ - $ 2,837 $ 22,644 $ 6,394 $ 31,875
Net income......................................... - - - - 2,517 2,517
Issuance of Series 1992 preferred stock............ - 10,319 - - - 10,319
Common stock issued pursuant to:
Stock dividend.................................... 139,505 - 140 1,186 (1,334) (8)
Restricted stock plan............................. 21,787 - 22 195 (217) -
Cash dividends paid/accrued by Carolina First:
Preferred stock................................... - - - - (625) (625)
Vesting recognized as salary expense............... - - - - 97 97
Payment on ESOP debt............................... - - - - 50 50
BALANCE, DECEMBER 31, 1992........................... 2,998,647 10,319 2,999 24,025 6,882 44,225
Net income......................................... - - - - 4,935 4,935
Issuance of Series 1993 preferred stock............ - 14,462 - - - 14,462
Issuance of Series 1993B preferred stock........... - 1,200 - - - 1,200
Conversion and redemption of Series 1992
preferred stock................................... 1,089,674 (10,319) 1,090 9,137 - (92)
Common stock issued pursuant to:
Stock dividend.................................... 147,458 - 147 1,770 (1,926) (9)
Restricted stock plan............................. 35,500 - 36 409 (445) -
Dividend reinvestment plan........................ 4,104 - 4 45 - 49
Exercise of stock options......................... 4,341 - 4 26 - 30
Cash dividends paid/accrued by Carolina First:
Preferred stock................................... - - - - (1,930) (1,930)
Common stock...................................... - - - - (214) (214)
Vesting recognized as salary expense............... - - - - 163 163
Payment on ESOP debt............................... - - - - 50 50
BALANCE, DECEMBER 31, 1993........................... 4,279,724 15,662 4,280 35,412 7,515 62,869
Net loss........................................... - - - - (1,869) (1,869)
Issuance of Series 1994 preferred stock............ - 21,444 - - - 21,444
Common stock issued pursuant to:
Stock dividend.................................... 214,380 - 214 2,466 (2,689) (9)
Restricted stock plan............................. 40,700 - 41 570 (611) -
Dividend reinvestment plan........................ 44,055 - 44 559 - 603
Employee stock purchase plan...................... 2,247 - 2 29 - 31
Exercise of stock options......................... 141 - - 1 - 1
Cash dividends paid/accrued by Carolina First:
Preferred stock................................... - - - - (2,433) (2,433)
Common stock...................................... - - - - (936) (936)
Treasury shares purchased.......................... - (92) - - - (92)
Vesting recognized as salary expense............... - - - - 236 236
Payment on ESOP debt............................... - - - - 50 50
Unrealized loss on securities available for sale... - - - - (854) (854)
BALANCE, DECEMBER 31, 1994........................... 4,581,247 $ 37,014 $ 4,581 $ 39,037 $ (1,591) $ 79,041
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
* Other includes unrealized loss on securities available for sale,
nonvested restricted stock and guarantee of ESOP debt.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Carolina First Corporation (the "Company") and its wholly-owned
subsidiaries, Carolina First Bank (the "Bank"), Carolina First Savings Bank,
F.S.B. (the "Savings Bank"), and Carolina First Mortgage Company (the "Mortgage
Company"). All significant intercompany accounts and transactions have been
eliminated.
Concentrations of Credit Risk - The Company makes loans to individuals and
small businesses for various personal and commercial purposes throughout South
Carolina. The Company has a diversified loan portfolio and the borrowers'
ability to repay their loans is not dependent upon any specific economic
segment.
Securities - Management determines the appropriate classification of
securities at the time of purchase. Securities, primarily debt securities, are
classified as trading securities, securities available for sale and securities
held for investment, defined as follows:
Trading securities are carried at market value. The Company's policy is to
acquire trading securities only to facilitate their sale to customers.
Adjustments for unrealized gains or losses are included in noninterest income.
Securities available for sale are carried at market value. Such securities
are used to execute asset/liability management strategy and to manage liquidity.
Adjustments for unrealized gains or losses are made through the equity account.
Securities held for investment are stated at cost, net of the amortization
of premiums and the accretion of discounts. The Company intends to and has the
ability to hold such securities until maturity.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
Loans - The Bank and the Savings Bank recognize interest on loans using the
interest method. Income on certain installment loans is recognized using the
"Rule of 78's" method. The results from the use of the "Rule of 78's" method
are not materially different from those obtained by using the interest method.
The recognition of interest income is discontinued when, in management's
judgment, the interest is not collectible in the normal course of business.
The premium or discount on purchased loans is amortized over the expected
life of the loans and is included in interest and fees on loans.
Loans Held for Sale - Loans held for sale include mortgage loans and credit
card loans and are carried at the lower of aggregate cost or market value.
Loan Sales and Servicing Fees - Gains or losses on sales of loans are
recognized at the time of sale and are determined by the difference between net
sales proceeds and the carrying value of the loans sold. When loans are sold
with servicing rights retained, additional gains or losses are realized if the
actual servicing fees to be received differ from the normal servicing fees.
Normal service fees are recognized as income in the period earned.
Loan servicing rights purchased are recorded at lower of cost or market.
The Company amortizes the estimated future reduction in the value of purchased
and excess mortgage servicing rights based upon quarterly external valuations.
Such valuations are projected using a discounted cash flow method that includes
assumptions regarding prepayments, servicing costs and other factors. Impairment
is measured on a disaggregated basis for each pool of rights.
Allowance for Loan Losses - The allowance for loan losses is based on
management's ongoing evaluation of the loan portfolio and reflects an amount
that, in management's opinion, is adequate to absorb losses in the existing
portfolio. In evaluating the portfolio, management takes into consideration
numerous factors, including current economic conditions, prior loan loss
experience, the composition of the loan portfolio, and management's estimate of
anticipated credit losses. Loans are charged against the allowance at such time
as they are determined to be losses. Subsequent recoveries are credited to the
allowance. Management considers the year end allowance appropriate and adequate
to cover possible losses in the loan portfolio; however, management's judgment
is based upon a number of
29
assumptions about future events, which are believed to be reasonable, but
which may or may not prove valid. Thus, there can be no assurance that charge-
offs in future periods will not exceed the allowance for loan losses or that
additional increases in the allowance for loan losses will not be required.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed over the estimated useful lives of the assets primarily using the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the lesser of the estimated useful life of the improvement or the
terms of the respective lease.
Additions to premises and equipment and major replacements or improvements
are capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred.
Intangible Assets - Intangible assets consist primarily of goodwill and core
deposit premiums resulting from the Company's branch acquisitions. On an
ongoing basis, the Company evaluates the carrying value of these intangible
assets and charges to expense any difference between the carrying value and the
estimated fair market value.
Amortization for intangibles is generally provided by using the straight-
line method over the estimated economic lives of the various assets, ranging
from 9 to 25 years.
During 1994, the Company reevaluated the estimated economic lives and
amortization methods for its intangible assets. As a result of this
reevaluation, core deposit intangibles are being amortized over 10 years
(previously 15 years) using the sum-of-the-years' digits method (previously
straight-line method). Goodwill is being amortized over 25 years (previously 15
years) using the straight-line method. The effect of this change is not
significant.
Other Real Estate Owned - Other real estate owned, included in other assets,
is comprised of real estate properties acquired in partial or total satisfaction
of problem loans. The properties are recorded at the lower of cost or fair
market value at the date acquired. Losses arising at the time of acquisition of
such properties are charged against the allowance for loan losses. Subsequent
write-downs that may be required to the carrying value of these properties are
charged to other expenses. Gains and losses realized from the sale of other
real estate owned are included in noninterest income.
Loan Origination Fees - The Company accounts for loan origination and
commitment fees and related direct costs in accordance with Statement of
Financial Accounting Standards ("SFAS") 91, "Accounting for Non-refundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." Origination fees received and direct costs incurred are
amortized to interest income over the contractual lives of the loans, adjusted
for repayments, using the level yield method. Loan commitment fees received to
originate or purchase loans are offset against the direct costs incurred to make
such commitments. The net amount is deferred and upon exercise is recognized
over the life of the related loan as a yield adjustment. If the commitment
expires unexercised, the net deferred amount is recognized.
Income Taxes- Effective January 1, 1992, the Company adopted the provisions
of SFAS 109, "Accounting for Income Taxes." The pronouncement requires an asset
and liability approach for financial accounting and reporting for income taxes.
The adoption of SFAS 109 had no effect on the financial statements and,
accordingly, is not presented as a change in an accounting principle.
Certain items of income and expense (principally provision for loan losses
and depreciation) are included in one reporting period for financial accounting
purposes and another for income tax purposes. Provisions for deferred income
taxes are made in recognition of such temporary differences. Rehabilitation
investment tax credits are accounted for by the use of the flow-through method.
Reclassifications - Certain amounts for prior years have been reclassified
to conform with statement presentations for 1994. These reclassifications have
no affect on previously reported net income.
Statements of Cash Flows - Cash includes currency and coin, cash items in
process of collection and due from banks. Interest paid on deposits and short-
term borrowings amounted to approximately $29,206,000, $21,364,000 and
$20,563,000 in 1994, 1993 and 1992, respectively. Income
30
tax payments of $2,578,000 were made in 1994, $1,988,000 in 1993 and
$854,000 in 1992.
Recently Issued Accounting Pronouncements- In May 1993, the Financial
Accounting Standards Board ("FASB") issued SFAS 114, "Accounting by Creditors
for Impairment of a Loan." SFAS 114 provides for the use of present value
accounting to determine the reserve for possible credit losses on certain loans,
including loans that have been modified as part of a troubled debt
restructuring. The impact of the new statement, effective for fiscal years
beginning after December 15, 1994, has not yet been determined, but is not
expected to have a material impact on the Company's financial position or
results of operations.
In October 1994, the FASB issued SFAS 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." SFAS 118 amends SFAS
114 in the areas of disclosure requirements and methods for recognizing interest
income on an impaired loan. The Statement is effective concurrent with the
effective date of SFAS 114.
In May 1993, the FASB issued SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 provides for the classification of
investment securities into three categories - trading, available for sale and
held for investment. Trading and available for sale securities are reported at
market value in the balance sheet with unrealized gains and losses to be
reported in income (for trading securities) or shareholders' equity (for
available for sale securities). The Company adopted SFAS 115 on January 1, 1994.
The FASB has also issued an exposure draft, "Accounting for the Impairment
of Long-Lived Assets," which proposes standards for the identification of long-
lived assets, identifiable intangibles and goodwill that may need to be written
down because of an entity's inability to recover the assets' carrying values.
The periodic effect of the adoption of this standard on net income has not been
fully determined. This proposed standard would apply for fiscal years beginning
after December 15, 1994 with earlier application encouraged.
In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." SFAS 119
requires disclosures about Derivative Financial Instruments. The Company has no
such securities. SFAS 119 also amends SFAS 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk" and SFAS 107, "Disclosures about
Fair Value of Financial Instruments" for certain disclosure requirements which
have a minimal impact on the Company.
2. SUBSEQUENT EVENTS
On January 24, 1995, the Bank securitized approximately $100,000,000 of
credit card receivables. This transaction will be recorded as a sale in
accordance with SFAS 77 "Reporting by Transferor for Transfer of Receivables
with Recourse." Recourse obligations related to this transaction are not
material. Excess servicing fees related to the securitization are recorded
during the life of the transaction. The excess servicing fee is based upon the
difference between finance charges received from the cardholder less the yield
paid to investors, credit losses and a nominal servicing fee.
3. RESTRUCTURING CHARGES
During the fourth quarter of 1994, the Company announced a restructuring
that initiated a program of credit card securitization, wrote down related
intangible assets, and merged the Savings Bank into the Bank. Restructuring and
nonrecurring charges related to this plan amounted to $12,214,000 pre-tax
($9,415,000 after-tax).
The Company incurred credit card restructuring charges of $12,214,000 pre-
tax ($8,410,000 after-tax) primarily from the write-down of intangible assets
and charges associated with the origination of credit card accounts. As part of
the merger of the Savings Bank into the Bank, the Company incurred income taxes
of $1,005,000 due to the different tax treatment accorded the allowance for loan
losses at the Savings Bank.
4. BUSINESS COMBINATIONS
In March 1993, the Bank acquired certain assets and assumed certain
liabilities of 13 South Carolina branches of
31
Republic National Bank. The Bank acquired $31,239,000 in loans, $6,400,000
in premises and equipment, and $204,863,000 in deposit liabilities. The total
premium paid for the acquisitions was approximately $6,929,000.
On September 30, 1993, the Company acquired, for 60,000 shares of
Convertible Preferred Stock Series 1993B ("Series 1993B Preferred Stock"), all
of the outstanding stock of First Sun Mortgage Corporation, a South Carolina
corporation which engaged in mortgage banking activities. The Company changed
the name of First Sun Mortgage Corporation to Carolina First Mortgage Company.
The value of the Series 1993B Preferred Stock on the date of acquisition was
determined to be $1,200,000. Total cost of the acquisition in excess of the
fair value of net assets acquired aggregated approximately $3,070,000.
On December 31, 1993, the Bank acquired certain assets and assumed certain
liabilities of three Columbia, South Carolina branches of Bay Savings Bank,
F.S.B. (formerly Omni Savings Bank, F.S.B.). The Bank assumed deposit
liabilities of $38,489,000 and acquired $143,000 in loans. The total premium
paid for the acquisition was approximately $1,068,000.
On April 29, 1994, the Bank purchased the insured deposits of Citadel
Federal Savings and Loan Association ("Citadel Federal") from the Resolution
Trust Corporation, as receiver for Citadel Federal. This acquisition resulted
in the acquisition of one branch office in Charleston, South Carolina, with
deposits of approximately $5,849,000, on which a premium of approximately
$533,000 was paid.
On May 2, 1994, the Bank and the Savings Bank acquired six branches from
Republic National Bank. The acquired branches are located in Columbia,
Edgefield, Johnston, Bennettsville, Lake City and McColl. In addition, the Bank
acquired only the deposits and select loans from Republic National Bank's main
office branch in Columbia. With this transaction, the Bank and the Savings Bank
acquired loans of approximately $37,511,000 and deposits of about $135,326,000,
on which a premium of approximately $5,400,000 was paid.
The above acquisitions were accounted for under the purchase method of
accounting. The results of operations of the above acquisitions have been
included in the consolidated financial statements since the acquisition date.
On October 13, 1994, the Bank entered into a definitive agreement with Aiken
County National Bank ("Aiken County National") for the merger of Aiken County
National into the Bank. The Bank will acquire all the outstanding common shares
of Aiken County National in exchange for approximately 453,000 shares of the
Company's common stock (assuming no dissenter's rights are exercised). Aiken
County National has assets of approximately $42 million, loans of $29 million
and deposits of $38 million. This transaction, which is subject to regulatory
and Aiken County National shareholder approval, is expected to be completed in
the first quarter of 1995.
On November 14, 1994, the Bank entered into a definitive agreement with
Midlands National Bank ("Midlands") for the merger of Midlands into the Bank.
The Bank will acquire all the outstanding common shares of Midlands in exchange
for approximately 584,000 shares of the Company's common stock (assuming no
dissenter's rights are exercised). Midlands has assets of approximately $43
million, loans of $28 million and deposits of $39 million. This transaction,
which is subject to regulatory and Midlands shareholder approval, is expected to
be completed in the second quarter of 1995.
Regulatory approval has been applied for both the Aiken County National and
Midlands mergers. The Aiken County National and Midlands mergers will be
accounted for as a pooling of interests.
The Company has applied for and received regulatory approval to merge the
Savings Bank into the Bank. This merger was completed February 3, 1995.
5. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank based upon a percentage of deposits. The average amounts of these
reserve balances for
32
the years ended December 31, 1994 and 1993, were approximately $6,927,000
and $4,853,000, respectively.
6. SECURITIES
The aggregate book and market values of securities at December 31 were as
follows:
1994
Book Gross Unrealized Market
($ in thousands) Value Gains Losses Value
SECURITIES AVAILABLE FOR SALE:
U.S. treasury securities....... $21,493 $ - $ 573 $20,920
Obligations of U.S. government
agencies and corporations.... 27,412 - 633 26,779
Corporate bonds................ 1,999 - 50 1,949
Total securities available
for sale..................... $50,904 $ - $1,256 $49,648
SECURITIES HELD FOR INVESTMENT:
U.S. treasury securities....... $ 5,989 $ - $ 537 $ 5,452
Obligations of U.S. government
agencies and corporations.... 40,185 - 1,852 38,333
Obligations of states and
political subdivisions....... 20,029 19 1,018 19,030
Other bonds.................... 53 - - 53
Total securities held
for investment............... $66,256 $19 $3,407 $62,868
1993
Book Gross Unrealized Market
($ in thousands) Value Gains Losses Value
SECURITIES AVAILABLE FOR SALE:
U.S. treasury securities....... $11,521 $ 12 $ 10 $11,523
Obligations of U.S. government
agencies and corporations.... 51,353 61 57 51,357
Corporate bonds................ 1,997 - 6 1,991
Total securities available
for sale..................... $64,871 $ 73 $ 73 $64,871
SECURITIES HELD FOR INVESTMENT:
U.S. treasury securities....... $ 3,995 $ - $ 7 $ 3,988
Obligations of U.S. government
agencies and corporations.... 31,432 232 31 31,633
Obligations of states and
political subdivisions....... 11,907 240 14 12,133
Corporate bonds................ 2,271 - 1 2,270
Total securities held
for investment............... $49,605 $472 $ 53 $50,024
The book value and estimated market value of debt securities at December 31,
1994, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties. Market value
of securities is determined using quoted market prices.
Book Market
($ in thousands) Value Value
Due in one year or less... $ 45,340 $ 44,296
Due after one year
through five years...... 51,680 48,955
Due after five years
through ten years....... 9,551 8,996
Due after ten years....... 10,589 10,269
Total securities.......... $117,160 $112,516
Gross realized gains and losses on sales of securities
were:
($ in thousands) 1994 1993 1992
Gross realized gains.... $252 $ 955 $605
Gross realized losses... (18) (293) (88)
Net gain on sale of
securities............ $234 $ 662 $517
The change in the net unrealized loss on securities available for sale for
the year ended December 31, 1994 was $854,000, net of applicable income taxes of
$403,000. Securities with an approximate book value of $89,544,000 and
$85,233,000 at December 31, 1994 and 1993, respectively, were pledged to secure
public deposits and for other purposes. Estimated market values of securities
pledged were $85,595,000 and $85,926,000 at December 31, 1994 and 1993,
respectively.
7. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December 31:
($ in thousands) 1994 1993
Real estate-mortgage............. $198,590 $148,888
Real estate-construction......... 21,918 19,673
Commercial and industrial........ 164,190 122,753
Commercial and industrial
secured by real estate......... 260,010 142,806
Loans to individuals for
household, family and other
personal expenditures.......... 145,474 124,236
Loans held for sale.............. 71,695 7,700
All other loans, including
overdrafts..................... 4,865 1,323
Gross loans...................... 866,742 567,379
Less unearned income............. (873) (2,221)
Less allowance for loan losses... (5,267) (5,688)
Net loans........................ $860,602 $559,470
33
Directors, executive officers and associates of such persons were customers
of and had transactions with the Company in the ordinary course of business.
Included in such transactions are outstanding loans and commitments, all of
which were made under normal credit terms and did not involve more than normal
risk of collection. The aggregate dollar amount of these loans was
approximately $8,477,000 and $9,361,000 at December 31, 1994 and 1993,
respectively. During 1994, new loans of approximately $2,865,000 were made, and
payments totaled approximately $3,749,000.
At December 31, 1994 and 1993, loans included $1,012,000 and $558,000,
respectively, on which interest was not being accrued. At December 31, 1994,
loans included $675,000 in restructured loans. Foregone interest income was
approximately $53,000 in 1994, $218,000 in 1993 and $234,000 in 1992.
Foreclosure loans included in other real estate owned amounted to $517,000 and
$1,021,000 at December 31, 1994 and 1993, respectively.
Transactions in the allowance for loan losses were:
($ in thousands) 1994 1993 1992
Balance at beginning of year... $ 5,688 $ 4,263 $ 3,727
Valuation allowance for
loans purchased.............. 1,078 1,811 255
Provision for loan losses...... 950 909 1,453
Recoveries on loans
previously charged off....... 113 26 55
Loans charged off.............. (2,562) (1,321) (1,227)
Balance at end of year......... $ 5,267 $ 5,688 $ 4,263
8. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
($ in thousands) 1994 1993
Land......................... $ 4,951 $ 4,248
Buildings.................... 18,871 13,509
Furniture, fixtures and
equipment.................. 15,447 11,098
Leasehold improvements....... 6,469 5,872
Construction in progress..... 420 712
46,158 35,439
Less accumulated depreciation
and amortization........... (9,316) (6,449)
$36,842 $28,990
Depreciation and amortization charged to operations totaled $2,552,000,
$1,676,000 and $1,302,000 in 1994, 1993 and 1992, respectively.
At December 31, 1994, approximately $2,145,000 of land and buildings is
pledged as collateral for long-term debt obligations (Note 15).
9. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31 are
included in other assets and summarized as follows:
($ in thousands) 1994 1993
Goodwill............... 9,123 $ 5,791
Core deposit premium... 11,125 8,820
Credit card premium.... 345 2,244
$20,593 $16,855
Goodwill arising from acquisitions is being amortized on a straight-line
basis over 25 years. Core deposit premiums are being amortized using the sum-
of-the-years' digits method over 10 years. Credit card premiums are amortized
over their estimated useful economic lives primarily over nine years. Goodwill,
core deposit and credit card premium amortization charged to operations was
$2,485,000, $902,000 and $462,000 for the years ended December 31, 1994, 1993
and 1992, respectively.
10.MORTGAGE OPERATIONS
Purchased servicing rights and excess servicing rights derived from the sale
of loans which are included in other assets at December 31 are summarized as
follows:
($ in thousands) 1994 1993
Purchased servicing rights... 8,655 $3,334
Excess servicing rights...... 34 54
The Company paid $6,665,000 for servicing rights to approximately
$222,697,000 of loans in 1994. The amortization of purchased and excess
servicing rights included in loan servicing fees amounted to $908,000, $636,000,
and $35,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Mortgage banking income includes origination fees of $954,000, $1,051,000
and $778,000 in 1994, 1993 and 1992, respectively, and gains from the sale of
mortgage loans of $112,000, $509,000 and $496,000 in 1994, 1993 and 1992,
respectively.
34
11. DEPOSITS
Certificates of deposit in excess of $100,000 totaled $125,796,000 and
$110,312,000 at December 31, 1994 and 1993, respectively.
12.INCOME TAXES
Income tax expense (benefit) for the years ended December 31 consists of the
following:
($ in thousands) 1994 1993 1992
Currently payable (refundable):
Federal...................... $ (285) $2,200 $1,326
State........................ 163 240 77
Total........................ (122) 2,440 1,403
Deferred....................... 73 (267) (243)
$ (49) $2,173 $1,160
The sources of temporary differences and the resulting deferred taxes for
the years ended December 31 are as follows:
($ in thousands) 1994 1993 1992
Provision for loan losses
in excess of amount
deductible for taxes.... $ (1,729) $ (277) $ (258)
Accretion and
FHLB dividends.......... (27) (23) (24)
Tax depreciation in excess
of book depreciation.... (195) 66 49
Restructuring charges..... 2,131 - -
Amortization.............. (65) - -
Other, net................ (42) (33) (10)
$ 73 $ (267) $ (243)
Deferred taxes of $842,000 and $915,000 are included in other assets on the
balance sheets at December 31, 1994 and 1993, respectively. There is no
valuation allowance related to deferred tax assets.
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate, 34%, to income before income taxes. The
reasons for these differences are as follows:
($ in thousands) 1994 1993 1992
Tax expense (benefit)
at statutory rate.............$ (652) $2,417 $1,318
Differences resulting from:
Rehabilitation tax credit....... (150) (60) (68)
Effect of Savings Bank merger... 1,005 - -
Benefit of net operating
loss carryforward............. - (102) -
State tax net of federal
benefit....................... 56 162 56
Nontaxable interest............. (221) (176) (89)
Other, net...................... (87) (68) (57)
$ (49) $2,173 $1,160
There are no significant pending assessments from taxing authorities
regarding taxation issues at the Company or its subsidiaries.
13.BORROWED FUNDS
Federal funds purchased mature overnight and carried a rate of 5.58%, 2.99%
and 2.94% at December 31, 1994, 1993 and 1992, respectively.
Securities sold under repurchase agreements mature overnight and carried a
rate of 5.23%, 2.74% and 2.69% at December 31, 1994, 1993 and 1992,
respectively.
Advances from the Federal Home Loan Bank ("FHLB") mature daily and carried a
rate of 6.03% at December 31, 1994. Total loans pledged to the FHLB for advances
at December 31, 1994 were $138,114,000.
Following is a summary of short-term borrowings at December 31:
($ in thousands) 1994 1993 1992
Federal funds purchased... $ 16,000 $ 400 $ 1,145
Securities sold under
repurchase agreements... 17,986 16,325 1,392
Advances from the FHLB.... 72,000 - -
$105,986 $16,725 $ 2,537
Maximum amount outstanding
at any month end:
Federal funds purchased
and securities sold under
repurchase agreements.....$ 33,986 $23,278 $ 8,520
Advances from the FHLB..... 72,000 15,550 12,000
Aggregate short-term
borrowings................ 105,986 32,767 17,963
Average amount outstanding... 41,362 14,023 2,290
Interest rate at year end.... 5.84% 2.75% 2.80%
Average interest rate
during year................ 3.96% 3.05% 5.55%
14. UNUSED LINES OF CREDIT
At December 31, 1994, the Bank had unused short-term lines of credit to
purchase federal funds from unrelated banks totaling $17,750,000. These lines of
credit are available on a one-to-ten day basis for general corporate purposes of
the Bank. All of the lenders have reserved the right to withdraw these lines at
their option.
At December 31, 1994, the Savings Bank had an unused line of credit with the
FHLB of Atlanta totaling $33,000,000.
35
15. LONG TERM DEBT
At December 31, 1994 and 1993, long-term debt consisted of a mortgage note
payable of $1,088,000 and $1,092,000, respectively. The note bears interest at
11% per annum with current annual payments of approximately $125,000. Long-term
debt also consisted of a note payable totaling $125,920 and $175,920,
respectively, representing the Company's guarantee of borrowings from a bank by
the ESOP (see Note 25). The note bears interest, which is payable annually, at
a variable rate which approximates 90% of the prime interest rate. Annual
principal payments are $50,000 until the note is repaid. Future payments due on
long-term debt are as follows:
($ in thousands)
1995.......... $ 52
1996.......... 52
1997.......... 28
1998.......... 28
1999.......... 28
Thereafter.... 1,026
$1,214
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has, from time to time, various lawsuits and claims arising from
the conduct of its business. Such items are not expected to have any material
adverse effect on the financial position or results of operations of the
Company.
On October 31, 1994, JW Charles Clearing Corp. filed a lawsuit against the
Bank in the Court of Common Pleas in Lexington County, South Carolina. Such
action, in general, claims that the Bank improperly paid approximately $600,000
in checks to Harold McCarley and/or McCarley and Associates, Inc. The complaint
seeks actual and punitive damages in an amount to be determined by a jury, plus
interest on the damages and other costs. The Bank has answered the complaint and
plans to vigorously defend such complaint. The Bank believes that there are
valid defenses available to it. In connection with the litigation, the Bank
also expects to make a claim under insurance policies for any losses it may
suffer which, if determined to cover the loss, could pay for substantially all
of the actual damages, if any, determined to be appropriate by a jury. However,
no assurance can be given at this time regarding whether it will be determined
that any losses suffered in this litigation will be covered by the insurance
policy. Furthermore, the Company is not in a position at this time to assess
the likely outcome of the litigation or any damages for which it may become
liable.
17.LEASE COMMITMENTS
Approximate minimum rental payments under noncancelable operating leases
at December 31, 1994 are as follows:
($ in thousands)
1995.......... $1,273
1996.......... 1,220
1997.......... 1,047
1998.......... 916
1999.......... 902
Thereafter.... 4,348
$9,706
Leases on premises have options for extensions under substantially the same
terms as in the original lease period with certain rate escalations. Lease
payments charged to expense totaled $1,138,000, $714,000 and $405,000 in 1994,
1993 and 1992, respectively. The leases provide that the lessee pay property
taxes, insurance and maintenance cost.
18.PREFERRED STOCK
On April 15, 1994, the Company issued 920,000 shares of 7.32% Noncumulative
Convertible Preferred Stock Series 1994 ("Series 1994 Preferred Stock"), which
raised $21,444,000 in equity. Dividends on the Series 1994 Preferred Stock will
be payable quarterly, when, as, and if declared by the Board of Directors, at an
annual rate of $1.83 per share. Dividends on the Series 1994 Preferred Stock are
not cumulative. To date, all regular quarterly dividends have been paid. A
Series 1994 Preferred Stock share may be converted at the option of the holder
into 1.7931 shares of common stock or a conversion price of $13.94 per share of
common stock. The Company, at its option, may redeem the Series 1994 Preferred
Stock at any time after July 1, 1994. However, the Series 1994 Preferred Stock
may not be redeemed prior to July 1, 1997, unless the average of the last
reported sale price of the Company's common stock for 20 consecutive business
days ending within 5 business days of the date of the notice of redemption has
been at least 125% of the
36
conversion price. Dividends paid or declared on the Series 1994 Preferred
Stock during 1994 were $1,194,000.
On March 5, 1993, the Company issued 621,000 shares of 7.50% Noncumulative
Convertible Preferred Stock Series 1993 ("Series 1993 Preferred Stock"), which
raised $14,462,000 in equity. Dividends on the Series 1993 Preferred Stock are
payable quarterly, if declared by the Board of Directors, at an annual rate of
$1.875 per share. Dividends on the Series 1993 Preferred Stock are not
cumulative. To date, all regular quarterly dividends have been paid. A Series
1993 Preferred Stock share may be converted at the option of the holder into
1.917 shares of common stock, or a conversion price of $13.04 per share of
common stock. The Company, at its option, may redeem the Series 1993 Preferred
Stock at any time after July 1, 1993. However, the Series 1993 Preferred Stock
may not be redeemed prior to July 1, 1996, unless the average of the last
reported sale price of the Company's common stock for 20 consecutive business
days ending within 5 business days of the date of the notice of redemption has
been at least 125% of the conversion price. Dividends paid or declared on the
Series 1993 Preferred Stock during 1994 were $1,164,000.
On November 1, 1993, the Company announced the redemption of the 8.32%
Cumulative Convertible Preferred Stock Series 1992 ("Series 1992 Preferred
Stock"). The redemption date was December 31, 1993. Of the 460,000 shares of
Series 1992 Preferred Stock outstanding, holders of 456,634 shares elected to
convert into common stock. Consequently, the Company issued 1,089,674 shares of
$1.00 par value common stock.
On September 30, 1993, the Company issued 60,000 shares of Series 1993B
Preferred Stock in exchange for all the outstanding common stock of the Mortgage
Company, formerly First Sun Mortgage Corporation. The value of the Series 1993B
Preferred Stock on the date of the acquisition was determined to be $1,200,000.
The Series 1993B Preferred Stock has a liquidation value of $20.00 per share and
provides for cumulative quarterly cash dividends of $0.3125 per share. Each
share of Series 1993B Preferred Stock is convertible into 1.75 shares of common
stock. There is currently no market for the Series 1993B Preferred Stock, and it
is not expected that any market for such class of stock will develop. Dividends
paid or declared on the Series 1993B Preferred Stock were $75,000.
19.PER SHARE INFORMATION
The Company's Board of Directors declared a five percent stock dividend
issuable on May 16, 1994, to stockholders of record on April 29, 1994. Per
share data have been restated to reflect this dividend.
20.RESTRICTION OF DIVIDENDS
The ability of the Company to pay cash dividends over the long term is
dependent upon receiving cash in the form of dividends from the Bank. South
Carolina's banking regulations restrict the amount of dividends that can be
paid. All dividends paid from the Bank are subject to the prior approval of the
Commissioner of Banking and payable only from the retained earnings of the Bank.
At December 31, 1994, the Bank's retained earnings were $5,126,000.
After the merger of the Bank and Savings Bank in February 1995, the retained
earnings of the Savings Bank will be available to pay dividends to the Company.
At December 31, 1994, the Savings Bank's retained earnings were $8,370,000.
21.STOCK OPTION AND RESTRICTED STOCK PLANS
The Company maintains an Incentive Stock Option Plan and a Restricted Stock
Awards Plan. Under these plans, shares of the Company's common stock are
granted to key employees.
At the 1994 Annual Meeting, the number of shares available for grants was
increased to 525,000. Under the terms of the plan, the option price must not be
less than the fair market value of the stock at the date of grant. Options are
exercisable ratably (on a cumulative basis), twenty percent twelve months after
the date of grant, and twenty percent at the end of each twelve month period
thereafter. All options granted under the plan must be exercised within a period
not to exceed ten years from the date of grant.
The following is a summary of the activity under the Company's Incentive
Stock Option Plan for the years 1994
37
and 1993. The information has been adjusted for the 5% stock dividends.
1994 1993
OPTION PRICE Option Price
SHARES PER SHARE Shares Per Share
Outstanding,
January 1......... 38,934 $8.85/11.46 28,893 $6.58/11.46
Granted............. 26,950 14.88 17,535 12.03
Cancelled........... - - 3,153 8.85/12.03
Exercised........... 141 9.41/12.03 4,341 6.58
Outstanding,
December 31....... 65,743 $8.85/14.88 38,934 $8.85/12.03
Exercisable,
December 31....... 17,012 $8.85/12.03 9,270 $8.85/11.46
Available for grant,
December 31....... 400,019 169,988
All shares granted under the Restricted Stock Plan are subject to
restrictions as to continuous employment for a specified time period following
the date of grant. During this period the holder is entitled to full voting
rights and dividends. At December 31, 1994, there were 100,479 shares of
restricted stock outstanding. Deferred compensation representing the fair
market value of the stock at the date of grant is being amortized over a five-
year vesting period, with $236,000 charged to expense in 1994, $163,000 in 1993
and $97,000 in 1992.
At the 1994 Annual Meeting, a Directors' Stock Option Plan was established.
On May 2, 1994, grants for 16,000 shares at an option price of $12.38 per share
were issued.
22. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, to meet the financing needs of its
customers, the Company is a party to financial instruments with off-balance-
sheet risk. These financial instruments include commitments to extend credit,
standby letters of credit, repurchase agreements and documentary letters of
credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statements of
financial position.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit
evaluation.
At December 31, 1994, the Company had executed simultaneous
repurchase/reverse repurchase transactions with customers with total principal
amounts of approximately $233,400,000 which are not reflected in the
accompanying statement of financial position.
The total portfolio of loans serviced or sub-serviced for non-affiliated
parties at December 31, 1994, was $704,869,000.
23.RELATED PARTY TRANSACTIONS
The Bank leases a Greenville office from a partnership; one of the partners
is a director of the Bank and the Company. Under the terms of this lease, which
extends to 2001, the Bank made payments totaling $82,000 in both 1994 and 1993.
The Bank leases land, on which it has constructed a branch, from a company of
which a director is an officer. Under the terms of the lease, which extends to
2009, the Bank made $56,000 in payments in 1994, 1993 and 1992, respectively.
The Savings Bank leases the land, on which an office is constructed, from the
wife of a director. Under the terms of this lease, which extends to 2018, the
Savings Bank made $25,000 in payments in 1994, 1993 and 1992. These leases were
made on terms comparable to those which would have been obtained between
unrelated parties.
38
24. CORRECTION OF AN ERROR
The accompanying financial statements for 1992 have been restated to correct
an error. Unrealized losses on securities available for sale were charged to
shareholders' equity instead of being charged to income as stated in the
Company's policy of accounting for such securities at the lower of cost or
market. The effect of the restatement was to decrease net income for 1992 by
$199,000 ($.07 per common share).
25.EMPLOYEE BENEFIT PLANS
The Company maintains the Carolina First Salary Reduction Plan and Trust
("the Plan") for all eligible employees of the Bank, the Savings Bank and the
Mortgage Company. Upon ongoing approval of the Board of Directors, the Company
matches employee contributions equal to four percent of compensation subject to
certain adjustments and limitations. Contributions of $458,000, $301,000 and
$180,000 were charged to operations in 1994, 1993 and 1992, respectively.
The Company maintains the Carolina First Employee Stock Ownership Plan
("ESOP") for all eligible employees. Contributions are at the discretion of, and
determined annually by, the Board of Directors, and may not exceed the maximum
amount deductible under the applicable section of the Internal Revenue Code. For
the years ended December 31, 1994, 1993 and 1992, contributions of $813,000,
$401,000 and $275,000, respectively, were charged to operations.
The ESOP has a loan used to acquire shares of stock of the Company. Such
stock is pledged as collateral for the loan. In accordance with the requirements
of the AICPA Statement of Position 76-3 and 93-6, the Company presents the
outstanding loan amount as other borrowed money and as a reduction of
shareholders' equity in the accompanying consolidated balance sheets (Note 15).
Company contributions to the ESOP are the primary source of funds used to
service the debt.
26. NONINTEREST EXPENSES
The significant components of sundry noninterest expenses for the years
ended December 31 are presented below:
($ in thousands) 1994 1993 1992
Noninterest expenses - Sundry:
Federal deposit insurance
premiums.................... $ 1,899 $ 1,392 $ 910
Credit card processing fees... 1,506 909 603
Intangibles amortization...... 2,485 902 462
Stationery, supplies
and printing................ 1,095 772 521
Telephone..................... 883 537 268
Postage....................... 832 536 291
Advertising................... 912 386 506
Other......................... 4,912 4,335 2,844
$14,524 $ 9,769 $ 6,405
27. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Carolina First
Corporation (Parent Company only):
CONDENSED BALANCE SHEETS
($ in thousands) December 31,
1994 1993
ASSETS
Cash........................... 298 $ 828
Investment in Subsidiaries
Bank......................... 55,238 45,830
Savings Bank................. 15,404 13,700
Mortgage Company............. 1,640 1,877
Total investment in
subsidiaries................. 72,282 61,407
Receivable from subsidiaries... 76 7
Premises and equipment......... 363 -
Other investments.............. 1,439 959
Other assets................... 5,310 391
$79,768 $ 63,592
LIABILITIES AND
SHAREHOLDERS' EQUITY
Accrued expenses
and other liabilities........$ 601 $ 547
Long-term debt................. 126 176
Shareholders' equity........... 79,041 62,869
$79,768 $ 63,592
39
CONDENSED STATEMENTS OF INCOME
($ in thousands)
For the years ended December 31,
1994 1993 1992
INCOME
Dividends
Bank subsidiary.............. $ 200 $ 700 $ 350
Savings Bank subsidiary...... 300 700 300
Interest, Bank................. 98 73 97
Sundry......................... 181 217 227
779 1,690 974
EXPENSES
Interest on borrowed funds..... 10 - 5
Deferred compensation.......... 236 163 97
Shareholder communications..... 287 203 152
Sundry......................... 1,020 417 253
1,553 783 507
Income (loss) before taxes
and equity in undistributed
net income of subsidiaries... (774) 907 467
Income tax benefits............ 680 173 58
Equity in undistributed net
income of subsidiaries....... (1,775) 3,855 1,992
Net income (loss).............. $ (1,869) $4,935 $2,517
CONDENSED STATEMENTS OF CASH FLOW
($ in thousands)
For the years ended December 31,
1994 1993 1992
OPERATING ACTIVITIES
Net income (loss)............... $ (1,869) $ 4,935 $ 2,517
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operations
Equity in undistributed
earnings of subsidiaries...... 1,775 (3,855) (1,992)
Depreciation.................... 18 15 14
Increase (decrease) in
other liabilities............. 54 (190) 204
Decrease (increase) in
other assets.................. (4,919) (45) 117
Net cash provided by (used for)
operating activities.......... (4,941) 860 860
INVESTING ACTIVITIES
Investment in Bank subsidiary... (13,000) (15,000) (7,000)
Investment in Savings Bank
subsidiary.................... (1,000) - -
Investment in Mortgage
Company....................... - (350) -
Loans to subsidiary............. - (212) -
Increase in other investments... (480) (348) (580)
Sale of fixed assets............ (381) 230 -
Net cash used for investing
activities.................... (14,861) (15,680) (7,580)
FINANCING ACTIVITIES
Decrease in notes payable....... - - (250)
Exercise of stock options....... - 30 -
Net proceeds from sale of
Preferred stock............... 21,444 14,462 10,319
Redemption of Preferred stock... - (92) -
Cash dividend on Preferred
stock......................... (2,936) (1,777) (385)
Other........................... 764 - -
Net cash provided by
financing activities.......... 19,272 12,623 9,684
Net change in cash and due
from banks.................... (530) (2,197) 2,964
Cash at beginning of year....... 828 3,025 61
Cash at end of year............. $ 298 $ 828 $ 3,025
40
28. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited consoli-
dated quarterly results of the Company and its subsidiaries
for the years ended December 31:
($ in thousands, except share data) First Quarter Second Quarter
1994 1993 1994 1993
Interest income.................... $ 13,714 $ 9,958 $ 16,871 $ 12,364
Interest expense................... 5,973 4,686 6,739 5,643
Net interest income................ 7,741 5,272 10,132 6,721
Provision for loan losses.......... - 265 200 314
Net interest income after provision
for loan losses.................. 7,741 5,007 9,932 6,407
Noninterest income................. 1,971 1,086 1,973 1,540
Noninterest expenses............... 7,768 4,628 9,346 6,177
Income before taxes................ 1,944 1,465 2,559 1,770
Income taxes....................... 466 513 790 620
Net income......................... 1,478 952 1,769 1,150
Dividends on preferred stock....... 310 239 661 612
Net income applicable
to common shareholders...........$ 1,168 $ 713 1,108 $ 538
Earnings per common share*.........$ 0.26 $ 0.22 0.25 $ 0.16
Average number of outstanding
common shares*................... 4,498,745 3,308,118 4,514,002 3,310,225
Third Quarter Fourth Quarter
1994 1993 1994 1993
Interest income..................... $ 19,143 $ 13,043 $ 21,863 $ 13,327
Interest expense.................... 8,152 5,690 9,100 5,730
Net interest income................. 10,991 7,353 12,763 7,597
Provision for loan losses........... 250 330 500 -
Net interest income after provision
for loan losses................... 10,741 7,023 12,263 7,597
Noninterest income.................. 2,260 1,592 1,654 2,034
Noninterest expenses................ 10,072 6,843 23,267 7,530
Income (loss) before taxes.......... 2,929 1,772 (9,350) 2,101
Income taxes........................ 928 466 (2,233) 574
Net income (loss)................... 2,001 1,306 (7,117) 1,527
Dividends on preferred stock........ 731 530 731 549
Net income (loss) applicable
to common shareholders............$ 1,270 $ 776 (7,848) $ 978
Earnings (loss) per common share*...$ 0.28 $ 0.23 (1.72) $ 0.29
Average number of outstanding
common shares*.................... 4,519,486 3,325,608 4,552,461 3,386,308
*Per share data have been restated to reflect the 5% stock dividend.
29. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information, whether or not recognized in the statement
of financial position, when it is practicable to estimate the fair value. SFAS
107 defines a financial instrument as cash, evidence of an ownership interest in
an entity or contractual obligations which require the exchange of cash of other
financial instruments. Certain items are specifically excluded from the
disclosure requirements, including the Company's Common and Preferred stock,
premises and equipment and other assets and liabilities.
41
Fair value approximates book value for the following financial instruments
due to the short-term nature of the instrument: cash and due from banks, federal
funds sold and securities purchased under resale agreements, federal funds
purchased and securities sold under repurchase agreements, and other short-term
borrowings.
Fair value for variable rate loans that reprice frequently and for loans
that mature in less than one year is based on the carrying value. Fair value for
mortgage loans, consumer loans and all other loans (primarily commercial and
industrial loans) is based on the discounted present value of the estimated
future cash flows. Discount rates used in these computations approximate the
rates currently offered for similar loans of comparable terms and credit
quality.
Fair value for demand deposit accounts and interest-bearing accounts with no
fixed maturity date is equal to the carrying value. Certificate of deposit
accounts maturing during 1995 are valued at their carrying value. Certificate
of deposit accounts maturing after 1995 are estimated by discounting cash flows
from expected maturities using current interest rates on similar instruments.
Fair value for long-term debt is based on discounted cash flows using the
Company's current incremental borrowing rate. Investment securities are valued
using quoted market prices. Fair value for the Company's off-balance-sheet
financial instruments is based on the discounted present value of the estimated
future cash flows. Discount rates used in these computations approximate rates
currently offered for similar loans of comparable terms and credit quality.
The Company has used management's best estimate of fair value based on the
above assumptions. Thus, the fair values presented may not be the amounts which
could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair values
presented.
The estimated fair values of the Company's financial instruments at December
31 were as follows:
1994 1993
CARRYING FAIR Carrying Fair
($ in thousands) AMOUNT VALUE Amount Value
FINANCIAL ASSETS:
Cash and due from banks...............$ 55,047 $ 55,047 $ 27,320 $ 27,320
Federal funds sold and securities
purchased under resale agreements... 500 500 54,212 54,212
Trading securities.................... 1,155 1,155 250 250
Securities available for sale......... 49,648 49,648 64,871 64,871
Securities held to maturity........... 66,256 62,868 49,605 50,024
Loans receivable...................... 866,742 846,285 567,379 565,683
FINANCIAL LIABILITIES:
Deposit liabilities................... 925,448 924,703 724,585 705,134
Federal funds purchased and securities
sold under repurchase agreements.... 33,986 33,986 16,725 16,725
Short-term borrowings................. 72,052 72,052 54 54
Long-term debt........................ 1,162 1,315 1,214 1,401
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK:
Commitments to extend credit.......... 68,974 65,526 44,574 45,050
Standby letters of credit............. 5,769 5,480 4,365 4,412
Documentary letters of credit......... 394 376 713 721
42
Directory
Boards of Directors
David Baker*
Real Estate Developer
R. Cobb Bell*
Certified Public Accountant
Claude M. Epps, Jr.*
Partner
The Bellamy Law Firm
Judd B. Farr+*
President
Greenco Beverage Co., Inc.
C. Claymon Grimes, Jr.+*
Attorney
M. Dexter Hagy+*
President
Vaxa Corporation
Robert E. Hamby, Jr.+*
Senior Vice President
Chief Financial Officer
Multimedia, Inc.
R. Glenn Hilliard+
President and Chief Executive Officer
ING North America
Insurance Corporation
Keith C. Hinson*
President
Waccamaw Land and Timber
Michael R. Hogan*
President
Puckett, Scheetz & Hogan
William S. Hummers, III+*
Executive Vice President
and Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
Richard E. Ingram+*
Chairman of the Board
Builder Marts of America, Inc. (BMA)
Chairman and Chief Executive Officer
Snyder's Auto Sales, Inc.
James J. Johnson*
Senior Vice President and Treasurer
Dargan Construction Company
David L. Morrow*
Executive Vice President
Carolina First Bank
Walter J. Roberts, Jr., M.D.*
Internist
H. Earle Russell, Jr., M.D.*
Surgeon
Greenville Surgical Associates
Jasper Salmond*
Senior Marketing Coordinator
Wilbur Smith Associates
Charles B. Schooler, O.D.+*
Optometrist
Elizabeth P. Stall+*
Investments
James W. Terry, Jr.*
President
Carolina First Bank
William R. Timmons, Jr. +*
Chairman
Carolina First Corporation
Chairman
Canal Insurance Company
William M. Webster, III+*
Partner
Carabo Capital
Mack I. Whittle, Jr. +*
President and Chief Executive Officer
Carolina First Corporation
Chairman and Chief Executive Officer
Carolina First Bank
Thomas C. "Nap" Vandiver*
Chairman Emeritus
Carolina First Bank
Legend
+ Carolina First Corporation
* Carolina First Bank
Advisory Board Members
Anderson
Richard C. Ballenger
A. Reese Fant
Daniel J. Fleming, M.D.
William W. Jones
John F. Rainey, M.D.
D. Gray Suggs
David S. Vandiver
Barnwell
H. Pat Chappell
Ken R. Cooke, Jr.
F. H. Dicks, III
Miles Loadholt
Blackville
J. David Bodiford, Jr.
Martin O. Laird
H. A. Moskow, M.D.
J. Terry Poole
Riley T. Shelton, Sr.
Coastal
James H. Call
Edward C. Cribb, Jr.
Roger E. Grigg
Luther O. McCutcheon, III
George E. Payton
Robert E. Plowden, Jr.
Edward L. Proctor, Jr., M.D.
Frank Swinnie
Greenville
Alfred N. Bell, Jr.
Steven R. Brandt
Nesbitt Q. Cline, Sr.
R. Jack Dill, Sr.
R. Montague Laffitte, Jr., M.D.
A. Foster McKissick, III
Mary Louise Mims
James B. Orders, III
E. Hays Reynolds, III
Porter B. Rose
James Tate
Morris E. Williams, M.D.
Hardeeville
Edith Brown
Richard Crosby
Ronald Harvey
J. Willock Horton
David Lassiter
Gertrude Harvey Leonard
Lake City
Marlene T. Askins
Joe F. Boswell
Matthew C. Brown
Daniel W. Guy, M.D.
Roger K. Kirby
Laura Landrum
James C. Lynch, Sr.
E. LeRoy Nettles, Jr.
L. L. Propst, Jr.
William J. Sebnick
Piedmont
M. Larry Ayers
Max W. Kennedy
Al McAbee
John McCoy
Ridgeland
G. Dwaine Malphrus, Jr.
F. A. Nimmer
R. Bailey Preacher
H. Klugh Purdy
Harold H. Wall
Swansea
Paul E. Argoe
J. E. Hendrix
Roy Lucas
Mary Lewis Smith
Lawrence Kit Spires
Williston
Ted Craig
A. D. Gantt, M.D.
Lonnie E. McAlister
Leonard Mills
Russell W. Nix
Tom P. Scott, Sr.
Principal Officers
Charles D. Chamberlain
Executive Vice President
Carolina First Bank
Andrew M. Crane
Executive Vice President
Carolina First bank
C. Daniel Dobson, Jr.
Executive Vice President
Carolina First Mortgage Company
William S. Hummers, III
Executive Vice President
and Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
David L. Morrow
Executive Vice President
Carolina First Bank
Joseph C. Reynolds
President
Carolina First Mortgage Company
James W. Terry, Jr.
President
Carolina First Bank
Mack I. Whittle, Jr.
President and Chief Executive Officer
Carolina First Corporation
Chairman and Chief Executive Officer
Carolina First Bank
43
BANKING OFFICES
ANDERSON
Main Office
1722 North Main Street
(803)224-9520
110 West Shockley Ferry Road
(803) 231-5971
ANDREWS
210 South Morgan Avenue
(803)264-3571
BARNWELL
Dunbarton & Jackson Streets
(803)259-3536
BENNETTSVILLE
405 East Main Street
(803)479-1121
BLACKVILLE
227 Main Street
(803)284-2258
CHARLESTON
852 Orleans Road
(803)763-0072
COLUMBIA
Main Office
1225 Lady Street
(803)540-2700
1940 Blossom Street
(803)771-8919
Columbia Mall
7171 Two Notch Road
(803)253-7872
10000 Two Notch Road
(803)253-8888
380 St. Andrews Road
(803)929-5376
7389 Sumter Highway
(803)253-8894
Trenholm Plaza
4840 Forest Drive
(803)253-8890
1420 Lady Street
(803)929-5372
EDGEFIELD
309 Main Street
(803)637-3147
GEORGETOWN
Main Office
1031 Front Street
(803)546-4163
706 North Fraser Street
(803)546-6100
GREENVILLE
Main Office
102 South Main Street
(803)255-7900
101 Cleveland Street
(803)255-7904
917 Haywood Road
(803)255-7917
1295 South Pleasantburg Drive
(803)239-6430
1450 Wade Hampton Boulevard
(803)255-4900
1216 Woodruff Road
(803) 239-4650
200 East Camperdown Way
(803)255-4763
HARDEEVILLE
114 North Coastal Highway
(803)784-2216
IRMO
1265 Newberry Avenue
(803)748-7008
JOHNSTON
406 Lee Street
(803)275-4467
LAKE CITY
133 West Main Street
(803)394-8563
LEXINGTON
575 Columbia Avenue
(803)356-8500
LITCHFIELD
1 Wall Street
(803)237-9111
MAULDIN
305 Neely Ferry Road
(803)234-3180
MCCOLL
114 Main Street
(803)523-5381
MYRTLE BEACH
Main Office
2003 Oak Street
(803)448-9458
Galleria
9608 Highway 17 North
(803)449-6544
NORTH MYRTLE BEACH
781 Main Street
(803)249-3781
ORANGEBURG
230 Elliott Street
(803)531-1177
PAWLEYS ISLAND
Highway 17 South
(803)237-4294
PIEDMONT
15 Main Street
(803)845-7562
RIDGELAND
114 North Green Street
(803)726-5517
SALLEY
125 Railroad Avenue
(803)258-3201
SPRINGFIELD
7222 Festival Trail Road
(803)258-3211
SURFSIDE
5900 Highway 17 South
(803)238-0301
SWANSEA
200 South Brecon Avenue
(803)568-2131
TAYLORS
3406 Wade Hampton Boulevard
(803)239-4680
WILLISTON
11 West Main Street
(803)266-7474
44
To help us
mail more efficiently,
and to help you
invest more efficiently,
please fill out and return
the attached cards.
Thank you.
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 57 GREENVILLE, SC
Postage will be paid by addressee
Carolina First Corporation
Shareholder Relations Department
Post Office Box 1029
Greenville, South Carolina 29602-9777
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 57 GREENVILLE, SC
Postage will be paid by addressee
Carolina First Bank
Trust Department
Post Office Box 1029
Greenville, South Carolina 29602-9777
45
Duplicate Mailing/Change of Address Notification
If you would like to eliminate duplicate mailings or change the address at
which you receive shareholder mailings, please check the appropriate item
below and complete the following information.
[ ] Eliminate duplicate mailings
[ ] Address change
Name
Company Name
(If Applicable)
Address
City State Zip Code
Signature
(Please sign this card if you are changing your address)
Dividend Reinvestment Plan
You may elect to have all or a portion of your cash dividends automatically
reinvested in Carolina First Corporation common stock at a five percent
discount. In addition, you may also invest additional cash for purchase of
common stock at market value. Participants in the plan incur no brokerage
commissions, service charges or fees. Participation is completely voluntary,
and you may withdraw at any time.
This information is not an offer to sell or the solicitation of an offer to
buy. The offering is made only by means of the Prospectus, which will be mailed
upon receipt of this card.
Name
Company Name
(If Applicable)
Address
City State Zip Code
Type of stock owned:
[ ] Common [ ] Series 1994 Preferred [ ] Series 1993 Preferred
46
SHAREHOLDER INFORMATION
Common Stock
The common stock of Carolina First Corporation is
traded in the NASDAQ National Market System under
the symbol, CAFC. At December 31, 1994, there were
1,849 common shareholders of record.
Series 1994 Preferred Stock
The Series 1994 preferred stock of Carolina First
Corporation is traded over-the-counter under the
symbol, CAFCN. At December 31, 1994, there were
145 Series 1994 preferred shareholders of record.
Series 1993 Preferred Stock
The Series 1993 preferred stock of Carolina First
Corporation is traded over-the-counter under the
symbol, CAFCO. At December 31, 1994, there were 199
Series 1993 preferred shareholders of record.
Dividend Reinvestment Service
Carolina First Corporation has a dividend reinvestment
plan which allows shareholders to purchase additional
shares of common stock at a five percent discount by
reinvesting their cash dividends. Participants in the
plan may also invest additional cash, up to a maximum
of $10,000 per quarter, for purchase of common stock
at market value. Participants in the plan incur no
brokerage commissions, service charges or fees.
For information concerning Carolina First Corporation's
Dividend Reinvestment Plan, please fill out the card
in the back of this report or call our investor relations
department at (803) 255-4919.
Registrar And Transfer Agent
Carolina First Bank
Trust Division
P.O. Box 1029
Greenville, SC 29602
Annual Meeting
The Annual Meeting of Shareholders of Carolina First
Corporation will be held at 10:30 a.m., April 20, 1995,
in the Roe Coach Factory, Peace Center for the Performing
Arts, Greenville, South Carolina.
Information Contact
For further information about Carolina First Corporation
or its subsidiaries, or to obtain a copy of the Carolina
First Corporation Annual Report to the Securities and
Exchange Commission on Form 10-K (available without charge
to shareholders), please contact:
William S. Hummers III
Executive Vice President
Carolina First Corporation
P.O. Box 1029
Greenville, SC 29602
(803) 255-7913
Market Makers
J.C. Bradford & Co.
Fox-Pitt, Kelton Inc.
Interstate/Johnson Lane
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company, Inc.
Sterne, Agee & Leach
Wheat First Securities, Inc.
Quarterly Common Stock Summary
1994 1993
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
Stock price ranges:
High $14.00 $15.75 $15.00 $12.86 $14.05 $13.10 $12.38 $11.79
Low 13.25 14.00 12.50 11.43 11.67 11.43 10.48 10.43
Close 14.00 15.25 15.00 11.43 12.38 13.10 11.90 10.88
Dividend 0.05 0.05 0.05 0.05 - - - -
Volume Traded 595,643 481,530 377,904 238,843 410,768 332,516 155,615 194,334
Shares Outstanding 4,581,247 4,524,361 4,515,912 4,294,630 4,279,724 3,189,144 3,152,595 3,003,941
47