Corporate Profile
Carolina First Corporation (Nasdaq/NM - CAFC), headquartered in
Greenville, South Carolina, is the largest independent bank holding company
in South Carolina with assets of $1.4 billion and 55 banking offices
throughout the state. Since its inception in 1986, Carolina First has
experienced exceptional growth coupled with outstanding credit quality.
Carolina First is a high growth franchise based on the "super community bank"
strategy serving individuals and small-to medium-sized businesses. We intend
to be South Carolina's bank.
Carolina First Corporation's three subsidiaries are Carolina First
Bank (CFB), a state-chartered commercial bank, Carolina First Mortgage
Company (CFMC), a mortgage banking operation, and Blue Ridge Finance Company,
an automobile finance company. CFB is the largest South Carolina-based
commercial bank, and CFMC is the fourth largest mortgage loan servicer in
South Carolina. Through its subsidiaries, Carolina First provides a full
range of banking services, including mortgage, trust and investment services,
designed to meet substantially all of the financial needs of its customers.
Table of Contents
Financial Highlights......................... 1
Letter to Shareholders....................... 2
Business Strategy............................ 6
1995 Business Highlights..................... 8
Five-Year Financial Summary.................. 9
Management's Discussion and Analysis......... 10
Report of Independent Auditors............... 20
Report of Management......................... 20
Consolidated Financial Statements............ 21
Notes to Consolidated Financial Statements... 25
Directory.................................... 42
Shareholder Information...................... 44
FINANCIAL HIGHLIGHTS
Net Income
($ in millions)
(A bar graph appears here with the following plot points:)
1991 1992 1993 1994 1995
1.9 $2.5 $5.4 $7.7* $9.4
Five-Year Compound Growth Rate 4.51%
*Excludes fourth quarter 1994 restructuring charges of $9.415 (after-tax).
Year End Assets
($ in millions)
(A bar graph appears here with the following plot points:)
1991 1992 1993 1994 1995
$528 $616 $904 $1,204 $1,415
5-Year Compound Growth Rate 28.0%
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
1995 1994 % Change
INCOME STATEMENT DATA
Net income (loss) (1)..... $9,414 $ (1,740) n/m
Net income (loss) per
common share:(2)
Primary................... $1.04 $ (0.71) n/m
Fully diluted............. 1.02 (0.71) n/m
Cash dividends declared per
common share (2).......... 0.25 0.20 19.0%
BALANCE SHEET DATA (YEAR END)
Total assets.............. $1,414,922 $ 1,204,350 17.5%
Loans - net of unearned
income.................... 1,062,660 923,068 15.1
Deposits.................. 1,095,491 1,001,748 9.4
Shareholders' equity...... 94,967 86,482 9.8
Book value per share(2)... $9.14 $ 7.93 15.3%
FINANCIAL RATIOS
Return on average assets.. 0.74% (0.16)% n/m
Return on average equity.. 10.43 (1.99) n/m
ASSET QUALITY RATIOS
Nonperforming assets as a
% of loans and foreclosed
property.................. 0.46% 0.51% (9.8)%
Net loan charge-offs as a % of
average loans............. 0.51 0.38 34.2
Allowance for loan losses times
nonperforming loans....... 3.67X 2.20x 66.7
OPERATIONS DATA
Banking offices........... 55 51 7.8%
Full-time equivalent
employees................. 589 551 6.9
STOCK PRICE INFORMATION
(YEAR END)
Closing market price(2)... $17.50 $ 13.33 31.3%
Annual shares traded...... 3,781,700 1,693,900 123.3
Price/book ratio.......... 1.91X 1.68x 13.9
Market capitalization
(includes preferred stock) $160,227 $ 121,168 32.2
n/m Not meaningful.
(1) After fourth quarter 1994 restructuring charges of $9,415 (after-tax).
(2) Per share data have been restated to reflect 5% stock dividends.
1
TO OUR SHAREHOLDERS
As Carolina First approaches its 10-year anniversary, we look back
with pride on how much we have accomplished and the leadership position we
have attained in South Carolina. Looking backward, however, is not the way
that Carolina First arrived where it is today. The 21st century is ahead, and
our vision is firmly fixed on the opportunities and challenges that we will
face during our second decade and beyond.
RECORD PERFORMANCE
We move into the future on firm financial footing. In 1995, we
reported record earnings, continuing our trend of increasing profitability.
Net income of $9.4 million, or $1.02 per fully diluted share, increased 23%
over 1994 earnings excluding restructuring charges. Earnings per share have
grown at compounded rates of 36% and 25% for the latest three- and five- year
periods, respectively. This earnings performance is particularly encouraging
as Carolina First continues to be one of the fastest-growing banks in the
Southeast.
Our commitment to South Carolina communities continues to be strong
with net loans increasing 15% during 1995 to $1.1 billion at year end. This
loan growth is net of approximately $84 million of credit card receivables
which we securitized, or packaged and sold, off-balance-sheet. Securitization
is part of our overall funding strategy, because it efficiently funds our
loan growth by moving loan balances off-balance-sheet while keeping the
related income stream and continuing to service our customers. We expect to
complete a securitization of approximately $100 million of commercial real
estate loans in the first quarter of 1996.
Our loan growth has not come at the expense of loan quality. As of
December 31, 1995, our credit quality remained outstanding with nonperforming
assets making up only 0.46% of loans and foreclosed property. Maintaining
outstanding credit quality is, and has always been, the cornerstone of
Carolina First's success.
(Photo of Mack I. Whittle, Jr. appears here with the following caption.)
"We consider Carolina First to be an innovator for better, more flexible
ways of delivering finnacial products and services."
MACK I. WHITTLE, JR.
President and Chief Executive Officer
2
". . . A $1,000 INVESTMENT AT OUR FOUNDING IN 1986 WAS WORTH $2,521 AT
YEAR END."
We also are pleased with the advances made by our mortgage company.
In July 1995, our servicing portfolio reached a new high of 15,000 loans,
totaling over $1.3 billion in loan balances being serviced. During the year,
we bought and sold mortgage servicing rights at attractive rates. These
transactions enabled us to build a solid servicing portfolio and recognize
gains from the value of our servicing rights sold.
SHAREHOLDER VALUE
Our strong performance resulted in real value to our shareholders.
We have increased our cash dividends every year since the initiation of cash
dividends, and have distributed a 5% common stock dividend for the seventh
consecutive year. Our quarterly cash dividend to common shareholders
increased 17% to $0.07 per share, or an indicated annual rate of $0.28 per
share. The market price of Carolina First's common stock rose 31% during
1995, and our market capitalization now tops $160 million. This increase in
our common stock price, which continued in January 1996, enabled us to redeem
our Series 1993 and Series 1994 Preferred Stock. Substantially all of our
preferred shareholders converted their shares into common stock. This
redemption will benefit shareholders by saving approximately $1.9 million in
annual dividend payments, improving book value per share, and increasing the
number of common shares outstanding.
We are pleased to report that 1995 was not the first year our
shareholders have been rewarded. If you had invested $1,000 at our founding
in 1986, your investment would have grown in value to $2,521 at December 31,
1995, after taking into account our seven 5% stock dividends and quarterly
cash dividends.
VALUE OF INVESTMENT
IF YOU HAD INVESTED $1,000 IN CAROLINA FIRST COMMON STOCK
COMPOUND
TOTAL VALUE % CHANGE ANNUAL
12/31/95 IN VALUE GROWTH RATE
Three Years Ago $1,549 55% 16%
Five Years Ago $2,472 147% 20%
At Our Founding in 1986 $2,521 152% 11%
ASSUMES REINVESTMENT OF CASH DIVIDENDS AND 5% STOCK DIVIDENDS.
3
BUILDING FOR THE 21ST CENTURY
To make Carolina First the best bank, we will continue to build on our
core strengths -- outstanding credit quality, "personal touch" community
banking, aggressive growth, a spirit of innovation and recognition of the
importance of technology. Customers confirm that our super community bank
strategy works. Quite simply, our definition of super community banking is
combining big bank services with a small town touch. We never will forget that
we are a people business. New customers continue to tell us that the reason they
switched to Carolina First is because they enjoy the "personal touch Carolina
First gives." At the same time, we frequently hear from customers a pleasantly
surprised "I thought only big banks could do that" when they learn of the
banking products and services we provide.
This strategy will become more central to our success in the coming
years. Customers' needs will continue to evolve, becoming more sophisticated
and diverse as new technologies arrive on the scene. At the same time,
customers will continue to seek prompt service, good value and the hometown
touch that can only come from a banker who knows you. We believe that the
challenge for the super community bank will be--at a time when many banks
are using technology to distance themselves from customers--to find ways to
harness the technologies of the future in order to serve these time-honored
goals.
We are already proving our ability to meet the changing needs of
our customers. We are introducing innovative new products and services, and
new ways to deliver those products and services, that maintain our focus on
the individual customer. In 1995, we focused on customer convenience and
choice by opening, or acquiring, six traditional branch offices, three
branches within grocery stores, four automated teller machines and seven
automated loan machines. We are providing our customers with the products they
want, when they want them.
". . . COMBINING BIG BANK SERVICES WITH A SMALL TOWN TOUCH . . . "
4
We will continue that focus in 1996, by ensuring that each branch
in our network is reaching its potential, both in terms of profitability and
customer service. And we will work to ensure that our existing customers are
aware of all of our products and services, thus strengthening and extending
our relationships with our customers. Carolina First is also guaranteeing no
fee increases in 1996 for our customers; our campaign "We've put the freeze
on fees!" has been enthusiastically received.
We also are broadening our vision by introducing services that will
use technology the way it should be used--to serve our customers. We are
introducing a home banking product, joining forces with other banks on an
Internet banking project, and concentrating on developing alternate delivery
systems. We consider Carolina First to be an innovator for better, more
flexible ways of delivering financial products and services. Carolina First
will meet the challenges of the next century by using, and offering, some of
the most innovative products on the market, but never letting the technology
become more important than our customers.
With gratitude for the commitment and support of our shareholders,
customers, employees and directors, we look forward to 1996 and the
years beyond.
(Signature of Mack I. Whittle, Jr. appears here)
Mack I. Whittle, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
"WE ARE PROVIDING OUR CUSTOMERS WITH THE PRODUCTS THEY WANT, WHEN THEY WANT
THEM."
5
THE CAROLINA FIRST BUSINESS STRATEGY
STRATEGIC FOCUS WORKS. FROM OUR 1986 INCEPTION ONWARD, CAROLINA
FIRST HAS KEPT ITS FOCUS ON BECOMING SOUTH CAROLINA'S PREMIER BANK.
WE STRIVE TOWARD CLEAR GOALS: PROVIDING THE BEST CUSTOMER SERVICE,
EMPLOYEE SATISFACTION AND SHAREHOLDER RETURN. WE SERVE A WELL-DEFINED MARKET:
INDIVIDUALS AND SMALL- TO MEDIUM-SIZED BUSINESSES WITHIN THE STATE. AND WE
PURSUE A TIMELY STRATEGY OF COMBINING THE MOST ATTRACTIVE FEATURES OF SMALL
COMMUNITY BANKS WITH THOSE OF LARGE REGIONAL BANKS.
OUR "SUPER COMMUNITY BANK" STRATEGY OF DELIVERING BIG BANK SERVICES
WITH A SMALL TOWN TOUCH WORKS. LIKE SMALL COMMUNITY BANKS, CAROLINA FIRST
OFFERS PERSONALIZED SERVICE, LOCAL MARKET KNOWLEDGE AND DECENTRALIZED
DECISION-MAKING. AT THE SAME TIME, WE FEATURE PRODUCT BREADTH AND BACK-OFFICE
EFFICIENCIES TO RIVAL LARGER REGIONAL BANKS. THIS STRATEGY LETS US REALLY
KNOW OUR CUSTOMERS AND PROVIDE CUSTOMIZED FINANCIAL SERVICES TO QUICKLY MEET
THEIR NEEDS.
IT'S A WINNING STRATEGY FOR THE BANK, OUR CUSTOMERS AND OUR
SHAREHOLDERS. IN JUST NINE YEARS, WE HAVE GROWN TO $1.4 BILLION IN ASSETS,
BECOMING SOUTH CAROLINA'S LARGEST INDEPENDENT COMMERCIAL BANK. AND WHILE
CUSTOMER SERVICE AND EMPLOYEE SATISFACTION ARE NOT AS NEATLY MEASURABLE AS
OUR FINANCIAL PERFORMANCE, OURS ARE EASILY APPRECIATED BY SIMPLY VISITING ANY
OF OUR BRANCHES.
CAROLINA FIRST'S "SUPER COMMUNITY BANK" STRATEGY FEATURES FOUR KEY
COMPONENTS:
[ ] CUSTOMER RELATIONSHIP FOCUS.
[ ] COMPREHENSIVE BANKING PRODUCTS AND SERVICES.
[ ] MULTICHANNEL DELIVERY SYSTEM.
[ ] ATTRACTIVE BANKING MARKETS.
CUSTOMER RELATIONSHIPS
[ ] Carolina First's brand of banking -- personable, flexible
and responsive -- is distinctive and attractive to the
businesses and individuals we serve.
[ ] Our bankers are committed to knowing our customers
unusually well. So well that we don't just react to
customer needs -- we anticipate them.
[ ] Founded in and focused on South Carolina, Carolina First
offers an advantage over larger banks with out-of-state
headquarters. We stress local decision-making and prompt,
appropriate answers. Our policy is not to be hamstrung by
policy.
COMPREHENSIVE PRODUCTS
[ ] Carolina First provides a full range of banking services
designed to meet substantially all the financial needs
of our customers.
[ ] Our service groups include: commercial banking, retail
banking, mortgage services, investments and trust
management, financial services and consumer finance. Our
products include commercial loans, consumer loans,
credit cards, deposits, indirect automobile financing,
investments, mortgages and trust services.
[ ] We smoothly overlap and blend products, people and
processes to build customer relationships. We are
committed to bringing together the full resources of
Carolina First to meet the needs of our customers.
6
[ ] Carolina First uses technology the way it should be used--
to serve our customers. After all, service is the
most important product we offer.
MULTICHANNEL DELIVERY SYSTEM
[ ] Carolina First's delivery system emphasizes customer
choice and convenience. We strive to provide our
customers with the products they want, when they want
them. Equally important, we ensure that banking with us
is customer-friendly and easy.
[ ] Delivery channels include traditional branch offices,
branches within grocery stores, automated teller
machines (ATMs), automated loan machines (ALMs), and a
24-hour customer voice response system. The following
chart illustrates the expansion of our cus tomers'
service options.
1995 1994 1993
Number of:
Traditional branches 46 40 32
Grocery store branches 6 3 3
ATMs 18 14 12
ALMs 7 - -
[ ] In 1996, we will further increase our accessibility by
enabling customers to bank from the convenience of their
homes and offices, 24 hours a day, by personal computer
or by telephone.
ATTRACTIVE MARKETS
[ ] Carolina First now serves 34 communities in 15 South
Carolina counties. These communities include the four
largest Metropolitan Statistical Areas in the state.
(Map of South Carolina depicting the counties currently served by
Carolina First appears here.)
[ ] South Carolina is a great place to do business. Our
strengths include 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.
[ ] South Carolina is not just our home; it's an
attractive banking environment. With over 75% of South
Carolina's banking assets controlled by out-of-state
financial institutions, the state presents a
remarkable opportunity for an independent bank like
Caro lina First. We have seized this opportunity to
become South Carolina's premier independent commercial
bank.
7
1995 BUSINESS HIGHLIGHTS
CAROLINA FIRST
EXPANDED INTO NEW
SOUTH CAROLINA MARKETS . . .
[ ] Completed acquisitions of Aiken County National Bank
of Aiken with $39 million in assets and Midlands
National Bank of Prosperity with $44 million in
assets.
[ ] Opened our main office in Charleston, at 1 Broad St.,
a highly visible and historic location, and new
offices in two Charleston grocery stores. Carolina
First now operates four branches in Charleston, with a
fifth branch opening in 1996.
[ ] Initiated plans for our first branch in Hilton Head,
opening in the second half of 1996.
INTRODUCED INNOVATIVE
NEW PRODUCTS . . .
[ ] Developed a home banking product so customers can bank
from the convenience of their homes or offices, 24
hours a day, by personal computer or telephone.
[ ] Installed seven automated loan machines, adding
efficient and cost-effective lending vehicles to our
retail branch network.
[ ] Launched a life-cycle investment product, "Carolina
Compass Portfolios", for our personal and
institutional trust customers.
[ ] Enhanced indirect automobile lending through our new
subsidiary, Blue Ridge Finance Company, which was
acquired in December.
FUNDED OUR GROWTH . . .
[ ] Initiated a profitable program of credit card
securitization providing over $84 million in
off-balance-sheet financing. In 1995, credit card
trust income topped $2.7 million, exceeding our
forecasts.
[ ] Raised $26.5 million in new capital through the public
offering of our subordinated notes.
[ ] Invested in Affinity Technology Group, Inc., a
developer of a new generation of automated loan
machines.
ALL OF WHICH REWARDED
OUR SHAREHOLDERS.
[ ] Increased quarterly cash dividend 17% to $0.07 per share, or
$0.28 per share on an annualized basis, our third
consecutive increase.
[ ] Distributed 5% common stock dividends for the seventh
consecutive year.
[ ] Common stock price advanced 31% during the year to
$17.50.
[ ] More than doubled the common stock trading volume to
3.8 million shares, dramatically improving the stock's
marketability.
8
FIVE-YEAR FINANCIAL SUMMARY
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
Years Ended December 31,
FIVE-YEAR
COMPOUND
1995 1994 1993 1992 1991 GROWTH RATE
INCOME STATEMENT DATA
Net interest income $ 50,772 $ 43,260 $ 29,358 $ 20,749 $ 15,351 32.5%
Provision for loan losses 6,846 1,197 1,106 2,318 1,890 49.2
Noninterest income, excluding
securities transactions 16,557 8,151 6,085 3,483 2,010 61.5
Securities transactions 769 75 680 633 733 N/M
Noninterest expenses 46,882 51,839 27,294 18,897 13,875 33.8
Net income (loss) (1) 9,414 (1,740) 5,418 2,466 1,871 45.1
PER COMMON SHARE DATA (2)
Net income (loss) per common share:
Primary $ 1.04 $ (0.71) $ 0.76 $ 0.41 $ 0.41 25.8%
Fully diluted 1.02 (0.71) 0.76 0.41 0.41 25.3
Book value (December 31) 9.14 7.93 9.24 8.72 8.59 2.1
Closing market price (December 31) 17.50 13.33 11.79 11.01 6.99 19.3
Cash dividends declared 0.25 0.20 0.05 -- -- --
BALANCE SHEET DATA (YEAR END)
Total assets $ 1,414,922 $ 1,204,350 $ 904,474 $ 616,288 $ 528,472 28.0%
Loans - net of unearned income 1,062,660 923,068 623,646 455,650 395,136 27.2
Allowance for loan losses 8,661 6,002 6,679 5,276 4,519 23.9
Nonperforming assets 4,868 4,722 5,366 5,631 3,350 17.4
Total earning assets 1,242,026 1,059,455 814,579 555,871 482,130 26.9
Deposits 1,095,491 1,001,748 804,549 555,624 480,058 25.1
Shareholders' equity 94,967 86,482 70,415 51,288 38,989 20.6
BALANCE SHEET DATA (AVERAGES)
Total assets $ 1,269,757 $ 1,056,954 $ 782,551 $ 562,369 $ 459,900 27.1%
Loans - net of unearned income 965,632 781,503 548,619 432,282 355,944 27.0
Total earning assets 1,130,245 941,155 711,138 520,125 426,518 25.8
Deposits 1,023,029 925,615 635,582 476,291 384,791 26.9
Shareholders' equity 90,242 87,377 65,518 47,206 38,279 20.0
FINANCIAL RATIOS
Return on average assets 0.74% (0.16)% 0.69% 0.44% 0.41%
Return on average equity 10.43 (1.99) 8.27 5.22 4.89
Net interest margin 4.54 4.65 4.16 4.01 3.62
ASSET QUALITY RATIOS
Nonperforming assets as a % of
loans and foreclosed property 0.46% 0.51% 0.86% 1.23% 0.84%
Net loan charge-offs as a % of
average loans 0.51 0.38 0.28 0.42 0.22
Allowance for loan losses times
nonperforming loans 3.67X 2.20x 2.69x 1.87x 2.40x
OPERATIONS DATA
Banking offices 55 51 42 21 20
Full-time equivalent employees 589 551 477 275 250
(1) After fourth quarter 1994 restructuring charges of $9,415 (after-tax).
(2) Per share data have been restated to reflect 5% stock dividends.
9
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 (THE "COMPANY") AND ITS SUBSIDIARIES,
CAROLINA FIRST BANK, CAROLINA FIRST MORTGAGE COMPANY ("CF MORTGAGE") AND
BLUE RIDGE FINANCE COMPANY ("BLUE RIDGE"). THIS DISCUSSION SHOULD BE
READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES PRESENTED ELSEWHERE IN THIS REPORT.
OVERVIEW
The Company, which commenced banking operations in December
1986, currently conducts business through 55 locations in South
Carolina. Through its subsidiaries, the Company 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. At December 31, 1995, the Company had approximately $1.415
billion in assets, $1.063 billion in loans, $1.095 billion in deposits
and $95.0 million in shareholders' equity.
In January 1995, Carolina First Bank contributed
approximately $97 million of its credit card receivables to a master
trust (the "Trust") in connection with a securitization of such credit
card receivables (the "Securitization"). In connection with the
Securitization, certain interests in the Trust were sold to an
institutional investor, while Carolina First Bank retained certain
interests in the Trust assets and potential income. In connection with
the sale of such interests, Carolina First Bank received cash proceeds
of approximately $66 million. Additional credit card receivables,
totaling approximately $14 million, have been added to the Trust during
1995.
In February 1995, the Company completed the merger of Carolina
First Savings Bank, its savings bank subsidiary, into Carolina First Bank.
The Company has experienced economic and managerial benefits from this
combination including the elimination of duplicative administration, the
consolidation of regulators, the reduction of regulatory burdens and
increased management focus.
On May 18, 1995, the Company completed a $26.5 million public
offering of its 9.0% Subordinated Notes due 2005 (the "Notes"). A substantial
portion of the proceeds was contributed to Carolina First Bank to provide
additional capital to support internal growth and acquisitions and for
working capital purposes.
At its June 1995 meeting, the Board of Directors of the Company
declared the issuance of a 5% common stock dividend on August 15, 1995 to
common shareholders of record as of August 1, 1995. This dividend resulted in
the issuance of 291,603 shares of the Company's $1.00 par value common stock
("Common Stock"). This is the seventh consecutive year that the Company has
issued a 5% common stock dividend. Per share data of prior periods have been
restated to reflect these dividends. At its December 1995 meeting, the Board
of Directors increased the quarterly cash dividend to $0.07 per share from
$0.06 per share. This is the third consecutive year that the Company has
increased its quarterly cash dividend.
During 1995, the Company sold and purchased mortgage servicing
rights. On March 31, 1995, the Company sold mortgage servicing rights for
approximately $435 million in mortgage loans which resulted in a gain of
approximately $2 million. On August 31, 1995, the Company completed the
purchase of mortgage servicing rights for loans with an aggregate principal
balance of approximately $933 million. On December 29, 1995, a sale of
mortgage servicing rights for approximately $324 million in mortgage loans
was completed which resulted in a gain of approximately $790,000. At December
31, 1995, CF Mortgage was servicing or subservicing 14,979 loans having an
aggregate principal balance of approximately $1.279 billion.
Increasing Returns
(in percentages)
(Line graph appears here with the following plot points.)
1991 1992 1993 1994 1995
Return on average equity 4.89% 5.22% 8.27% 8.78%* 10.43%
Return on average assets 0.41% 0.44% 0.69% 0.73%* 0.74
*Excluding restructuring charges
10
These servicing balances included the $324 million in mortgage
servicing rights sold at year end which CF Mortgage is subservicing until
June 1996.
At December 31, 1995, the Company owned 7,500 shares of common
stock of Affinity Technology Group, Inc. ("Affinity") and warrants to
purchase 55,390 shares of Affinity's common stock at a purchase price of
$0.01 per share. As of December 31, 1995, there was no market for this
investment which was recorded at its book value of $75. On January 24, 1996,
the Board awarded 6,289 shares of Affinity stock
to certain officers of the Company deemed most
responsible for the Company's investment.
In February 1996, the Company redeemed its 7.50% Noncumulative
Convertible Preferred Stock Series 1993 ("Series 1993 Preferred Stock") and its
7.32% Noncumulative Convertible Preferred Stock Series 1994 ("Series 1994
Preferred Stock"). In connection with the redemptions, the Company expects that
substantially all of the outstanding preferred stock will be converted into
Common Stock.
In February 1996, the Atlanta Internet Bank, F.S.B. (the "Atlanta
Internet Bank"), a de novo banking operation scheduled to open in the Atlanta
marketplace in 1996, announced the participation of Carolina First Bank as a
lead investor. The Atlanta Internet Bank plans to provide banking services to
customers on the Internet.
RECENT ACQUISITIONS
On April 10, 1995, the Company completed its acquisition of Aiken
County National Bank ("ACNB"), a national bank headquartered in Aiken, South
Carolina. ACNB operated through two locations and had approximately $39
million in assets. The Company issued 475,291 shares of its Common Stock for
all the issued and outstanding shares of ACNB.
On June 30, 1995, the Company completed its acquisition of Midlands
National Bank ("MNB"), a national bank headquartered in Prosperity, South
Carolina. MNB operated through three locations and had approximately $44
million in assets. The Company issued 614,216 shares of its Common Stock for
all the issued and outstanding shares of MNB.
Each of these acquisitions has been accounted for using the
pooling-of-interests method of accounting. Accordingly, financial statements
for all periods have been restated to reflect the results of operations of
the combined companies from the earliest period presented, except for
dividends per share.
On December 29, 1995, the Company completed its acquisition of Blue
Ridge, an automobile finance company headquartered in Greenville, South
Carolina. Blue Ridge operates from one location and, at December 31, 1995,
had approximately $4 million in total assets. The Company issued 154,141
shares of Common Stock for all the issued and outstanding shares of Blue
Ridge. This acquisition was accounted for as a pooling-of-interests, except
financial statements for periods prior to the acquisition were not restated
since the effect was not material.
INCOME STATEMENT REVIEW
The Company reported record earnings in 1995. Net income for 1995
increased 23% to $9.414 million, compared with 1994 net operating earnings
before restructuring charges of $7.675 million and 1993 net income of $5.418
million. Net income per fully diluted share was $1.02 in 1995, up 12% over
1994 net income per share before restructuring charges of $0.91 and 1993 net
income per share of $0.76. In the fourth quarter of 1994, the Company
incurred one-time restructuring charges of $9.415 million (net of tax),
related to the initiation of a program of credit card securitization and the
merger of two subsidiaries. Including these restructuring charges, the net
loss for 1994 was $1.740 million, or $0.71 per common share.
The largest component of the Company's net income is Carolina First
Bank's net interest income. Net interest income is the difference between the
interest earned on assets and the interest paid for the liabilities to
support such assets. The Company has experienced an upward trend in net
interest income, which increased 17% in 1995 compared with 1994 and 47% in
1994 compared with 1993. The increases in net interest income were primarily
attributable to loan growth. Average loans increased 24% in 1995 and 42% in
1994.
The net interest margin, defined as net interest income divided by
average earning assets, decreased slightly to 4.54% in 1995 from 4.65% in
1994. The 1993 net interest margin was 4.16%. The decline in the 1995 net
interest margin was primarily due to a reduction in the prime interest rate
and an especially competitive deposit rate environment. In July, the prime
interest rate was reduced from 9% to 8.75%. Approximately 65% of the loan
portfolio has variable rates, indexed to the prime interest rate, and were
immediately repriced downward resulting in lower interest income. While
deposit rates were lowered somewhat, the full impact of the reduction in the
general level of interest rates was not realized in interest expense savings.
During 1995, many financial institutions continued to offer deposit
promotions above the market rates, creating upward pressure on the Company's
cost
11
INCOME STATEMENT REVIEW -- SUMMARY OF CHANGES
($ in thousands)
For the years ended December 31,
CHANGE 1995 VS. 1994 Change 1994 vs. 1993
1995 $ % 1994 $ % 1993
Net interest income $ 50,772 $ 7,512 17.4% $ 43,260 $ 13,902 47.4% $ 29,358
Provision for loan losses 6,846 5,649 471.9 1,197 91 8.2 1,106
Net interest income after
provision for loan losses 43,926 1,863 4.4 42,063 13,811 48.9 28,252
Noninterest income, excluding
securities transactions and
sale of mortgage servicing
rights 13,614 5,463 67.0 8,151 2,066 34.0 6,085
Gain on sale of securities 769 694 N/M 75 (605) n/m 680
Gain on sale of mortgage
servicing rights 2,943 2,943 N/M -- -- n/m --
Noninterest expenses 46,882 7,257 18.3 39,625 12,331 45.2 27,294
Credit card restructuring
charges -- (12,214) N/M 12,214 12,214 n/m --
Income (loss) before
income taxes 14,370 15,920 N/M (1,550) (9,273) n/m 7,723
Income taxes 4,956 4,766 N/M 190 (2,115) n/m 2,305
Net income (loss) $ 9,414 $ 11,154 N/M $ (1,740) $ (7,158) n/m $ 5,418
of funds. During the first half of 1995, the Company offered a
5-month certificate of deposit promotion at a rate above the prevailing
market rate. The Company also offered money market promotions in new markets,
such as Charleston, to develop new customer relationships. The Company has
instituted deposit promotions and kept its deposit rates competitive in an
effort to increase its liquidity levels, as recommended by the Federal
Deposit Insurance Corporation ("FDIC"). The Company expects the competitive
deposit rate environment to continue.
The provision for loan losses was $6.846 million in 1995, up
significantly from $1.197 million in 1994 and $1.106 million in 1993. The
1995 provision for loan losses was increased principally as a result of the
growth in commercial and commercial real estate loans. Also, management
believed that the provision was appropriate in view of the composition of the
commercial loan portfolio. Commercial and commercial real estate loans
constitute approximately 51% of the Company's total loans, including loans hel
d for sale. The Company had loans to 62 borrowers having principal amounts
ranging from $2 million to $5 million, which accounted for $185.7 million, or
17% of the Company's loan portfolio in the fourth quarter of 1995. The
Company had loans to five borrowers having principal amounts in excess of $5
million, which accounted for $31.1 million, or 3%, of the Company's loan
portfolio in the fourth quarter of 1995.
Another consideration for increasing the Company's 1995 provision
for loan losses was the Company's credit card activities. The Company
continued to solicit new credit card receivables during 1995 and ended the
year with credit card receivables of $86.9 million, or 8% of the Company's
loan portfolio. In prior years, the Company had escrow balances established
by the seller of credit card accounts against which to offset credit card
losses. These escrow balances have fully expired, resulting in an increase in
credit card charge-offs to $2.536 million in 1995 from $1.641 million in 1994
and $488,000 in 1993. Management also felt that an increased provision was
warranted because of overall economic signals and reports that consumer
credit quality is deteriorating. While the Company has not recognized such
signs of deteriorating credit quality in its portfolio, management decided
that such a provision was appropriate in view of a potential deterioration.
Management currently anticipates that loan growth will continue in
1996. New market areas are expected to contribute
12
to 1996 portfolio growth. Certain forecasts for 1996 indicate a
potential slowing of the economy. Management intends to closely monitor
economic trends and the potential effect on Carolina First Bank's loan
portfolio. These factors could result in an increase in the 1996
provision for loan losses.
Noninterest income, excluding the gain on sale of mortgage
servicing rights and securities transactions, increased $5.463 million, or
67%, to $13.614 million in 1995, up from $8.151 million in 1994 and $6.085
million in 1993. This increase resulted principally from service charges on
deposit accounts, credit card trust income and mortgage banking income. The
Company had $2.943 million in gains on sale of mortgage servicing rights in
1995 and no gains in 1994 or 1993. The Company recognized gains on the sale
of securities of $769,000, $75,000 and $680,000 in 1995, 1994 and 1993,
respectively.
Service charges on deposit accounts, the largest contributor to
noninterest income, rose $1.435 million, or 35%, to $5.524 million in 1995,
an increase from $4.089 million in 1994 and $2.916 million in 1993. Average
deposits increased 11% in 1995 and 46% in 1994. The increase in service
charges was attributable to attracting new transaction accounts, increased
fee charges and improved collection results. In addition, effective March 1,
1995, Carolina First Bank implemented new service charges, including a charge
for foreign automated teller machine transactions.
Mortgage banking income includes origination fees, gains from the
sale of loans and servicing fees (which are net of the related amortization
for the mortgage servicing rights and subservicing payments). Mortgage
banking income in 1995 was $2.162 million, compared with $1.638 million in
1994 and $1.788 million in 1993. The increase is primarily attributable to
gains on the sale of mortgage loans and the adoption of Statement of
Financial Accounting Standards ("SFAS") 122, "Accounting for Mortgage Servicing
Rights". Income from originations and sales of mortgage loans totaled
$1.785 million in 1995, compared with $1.066 million in 1994 and $1.560
million in 1993. Mortgage loans totaling approximately $116 million, $55
million and $80 million were sold in 1995, 1994 and 1993, respectively. CF
Mortgage's mortgage servicing operations consist of servicing loans that are
owned by Carolina First Bank and subservicing loans, to which the right to
service is owned by Carolina First Bank and other non-affiliated financial
institutions. At December 31, 1995, CF Mortgage was servicing or subservicing
14,979 loans having an aggregate principal balance of approximately $1.279
billion.
During 1995, the Company adopted SFAS 122, which was applied
retroactively to the beginning of 1995, and recorded an asset to reflect the
value of the servicing for its originated mortgage loans. In connection with
the Company's adoption of SFAS 122, the Company recognized a gain of $281,000
which is included in mortgage banking income.
Fees for trust services in 1995 increased to $1.042 million, up 13%
from the $919,000 earned in 1994. Fees for trust services in 1993 were
$542,000. At December 31, 1995, Carolina First Bank's trust department had
assets under management of approximately $343 million. Trust department
assets under management were $214 million at year end 1994 and $129 million
at year end 1993. Fees for trust services increased as a result of the
generation of new trust business and
AVERAGE YIELDS AND RATES
(on a fully tax-equivalent basis)
1995 1994 1993 1992 1991
EARNING ASSETS
Loans........................................ 9.60% 8.76% 8.44% 9.20% 10.36%
Securities................................... 5.83 5.04 5.15 6.41 7.95
Short-term investments...................... 6.35 3.84 3.10 3.82 5.53
Total earning assets......................... 9.05% 8.11% 7.62% 8.64% 9.90%
INTEREST-BEARING LIABILITIES
Interest-bearing deposits.................... 4.62% 3.73% 3.80% 5.00% 6.79%
Short-term borrowings........................ 6.00 3.96 3.05 5.57 5.82
Long-term debt............................... 9.50 9.25 8.66 7.54 6.93
Total interest-bearing liabilities........... 4.87% 3.75% 3.79% 5.02% 6.77%
NET INTEREST MARGIN.............................. 4.54% 4.65% 4.16% 4.01% 3.62%
PRIME INTEREST RATE.............................. 8.83% 7.14% 6.00% 6.26% 8.48%
13
additional assets under management, but were less than expected
because of delays in the introduction of new products and the recognition of
income from new business booked.
Sundry income was $606,000 higher in 1995 than in 1994, primarily
because of higher customer service fees, insurance commissions and appraisal
fee income. These increases are primarily related to increased lending and
deposit activities.
Noninterest expenses were $46.882 million in 1995, $51.839 million
in 1994 and $27.294 million in 1993. Included in 1994 noninterest expenses
was a $12.214 million one-time restructuring charge associated with the
credit card securitization and the write-down of other intangible assets.
Excluding the 1994 restructuring charges, 1995 noninterest expenses increased
18% over 1994, while 1994 was 45% higher than 1993.
Salaries and wages and benefits increased 14% to $22.108 million in
1995 from $19.398 million in 1994. This increase follows an increase of 48%
from $13.140 million in 1993. Full-time equivalent employees rose to 589 at
the end of 1995 from 551 and 477 at the end of 1994 and 1993, respectively.
Staff increases were attributable to the addition of 4 banking offices, entry
into the Charleston market and higher loan and deposit activity resulting
from internal growth and acquisitions.
The 1995 occupancy and furniture and equipment expenses increased
17% to $7.391 million in 1995 from $6.305 million in 1994 and $4.234 million
in 1993. This increase resulted principally from the addition of new banking
offices. Thirteen new offices, including the Lexington, Myrtle Beach and
Charleston main offices, have been added since the beginning of 1994.
Sundry expense items increased $4.097 million, or 36%, to $15.609
million in 1995 from $11.512 million in 1994 and $9.045 million in 1993. The
largest items of sundry noninterest expense were telephone, postage,
supplies, loan servicing expense and professional fees. The amortization of
solicitation fees associated with direct mail credit card originations
increased approximately $1.910 million. Advertising expenses increased
approximately $468,000 over the prior year due to new advertising campaigns
to raise deposit balances and promotions in new markets. The remaining
increase in sundry noninterest expense was principally attributable to the
overhead and operating expenses associated with higher lending and deposit
activities.
In August 1995, the FDIC approved a reduction in the insurance
assessments for Bank Insurance Fund ("BIF") deposits. This reduction
decreased Carolina First Bank's insurance assessment for BIF deposits from
0.26% to 0.04% of the average assessment base. This decrease was retroactive
to June 1, 1995. FDIC insurance premiums for 1995 were $1.983 million,
approximately $131,000 lower than 1994's charges. Effective January 1, 1996,
the insurance assessment for Carolina First Bank's BIF deposits was set at zer
o (although banks pay a $2,000 annual fee). The FDIC insurance assessment
reduction applies only to BIF-insured deposits and does not include deposits
insured by the Savings Association Insurance Fund ("SAIF"). In connection
with the merger of Carolina First Savings Bank into Carolina First Bank and
Carolina First Bank's assumption of other SAIF-insured deposits in connection
with various acquisitions, approximately $223 million of Carolina First
Bank's total deposits (as of March 31, 1995, the proposed assessment date)
are subject to SAIF insurance assessments imposed by the FDIC. The SAIF is
underfunded and various proposals, including a one-time charge assessed on
all SAIF-insured deposits, are being considered by regulators and lawmakers
to recapitalize the SAIF. The proposed amount of the special assessment has
been as high as $0.85 per $100 of SAIF deposits. Assuming that the special
assessment were applied at the $0.85 rate, the Company would incur additional
deposit insurance premium expense of approximately $1.9 million which would
be charged against current period income. The timing and amount of such an
assessment cannot be accurately predicted at this time. Carolina First Bank's
SAIF-insured deposits are currently assessed at 0.23% of the average
assessment base.
The provision for income taxes in 1995 was $4.956 million, $190,000
in 1994 and $2.305 million in 1993. Income taxes for 1994 include a one-time
reduction of $2.799 million from restructuring charges, partially offset by
$1.005 million of income tax expense in connection with the merger of
Carolina First Savings Bank into Carolina First Bank.
BALANCE SHEET REVIEW
Total assets at December 31, 1995 were $1.415 billion, an increase
of $210.6 million, or 17%, from $1.204 billion at the end of 1994. Loans
increased $139.6 million, or 15%, to $1.063 billion at December 31, 1995
compared with $923.1 million at December 31, 1994. Deposits at year end 1995
were $1.095 billion, up 9% from $1.002 billion at year end 1994. Total
shareholders' equity increased 10% to $95.0 million at December 31, 1995 from
$86.5 million at the end of 1994. Significant components of balance sheet
growth include increases from internal loan growth, new branch openings and
the proceeds from the public offering of the Notes.
Average total assets in 1995 were $1.270 billion, a 20% increase
over the 1994 average of $1.057 billion. Average
14
earning assets were $1.130 billion in 1995, a 20% increase over
the 1994 level of $941.2 million. For 1993, average total assets and average
earning assets were $782.6 million and $711.1 million, respectively.
The Company's loan portfolio consists of commercial mortgage loans,
commercial loans, consumer loans and one-to-four family residential mortgage
loans. A substantial portion of these borrowers are located in South Carolina
and are concentrated in the Company's market areas. The Company has no
foreign loans or loans for highly leveraged transactions. The loan portfolio
does not contain any industry concentrations of credit risk exceeding 10% of
the portfolio. At December 31, 1995, the Company had total loans outstanding
of $1.063 billion which equaled approximately 97% of the Company's total
deposits and approximately 75% of the Company's total assets. The composition
of the Company's loan portfolio, including loans held for sale, at December
31, 1995 was as follows: commercial and commercial real estate 51%,
residential mortgage 20%, consumer 14%, credit card 8%, lease financing
receivables 4% and construction 3%.
The Company's loans increased $139.6 million, or 15%, to
approximately $1.063 billion at December 31, 1995 from $923.1 million at
December 31, 1994. This increase resulted primarily from internal growth.
This increase was net of approximately $116.1 million of mortgage loans sold
and $84 million of credit card receivables sold. In August 1995, the Company
purchased approximately $32.9 million, net of related unearned income, in
lease receivables from an unrelated third party.
Year End Loans
($ in millions)
(A bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
$395 $456 $624 $923 $1,063
5-Year Compound Growth Rate 27.2%
For 1995, the Company's loans averaged $965.6 million with a yield
of 9.60%, compared with $781.5 million and a yield of 8.76% for the same
period of 1994. 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 was offset by the upward repricing
of interest-bearing deposits.
In June 1995, Carolina First Bank received an "outstanding" rating,
the highest level attainable, for its Community Reinvestment Act ("CRA")
performance from the FDIC. The CRA examination was conducted in December
1994.
Securitization and packaging and selling loans are part of the
Company's funding strategy. The Company engages in these transactions because
they fund loan growth by moving loans off-balance-sheet while allowing the
Company to retain the related income stream and servicing relationships.
During 1995, approximately $97 million in credit card receivables were
transferred to the Trust. Loans held for sale at December 31, 1995 were
approximately $125 million and primarily consisted of commercial and industrial
loans secured by real estate. The Company expects to complete a
securitization of approximately $100 million of commercial real estate loans
in the first quarter of 1996.
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. Loan losses and recoveries are charged
or credited directly to the allowance. The amount charged to the provision
for loan losses by the Company is based on management's judgment as to the
amount required to maintain an allowance adequate to provide for potential
losses in the Company's loan portfolio. The level of this allowance is
dependent upon the total amount of past due
15
loans, general economic conditions and management's assessment of
potential losses.
At December 31, 1995, the Company had $1.275 million in
non-accruing loans, $1.085 million in restructured loans and $2.748 million
in loans greater than ninety days past due on which interest was still being
accrued. This compares with $2.051 million in non-accruing loans, $675,000 in
restructured loans and $1.285 million in loans greater than ninety days past
due on which interest was still being accrued at December 31, 1994.
Nonperforming assets as a percentage of loans and other real estate owned were
0.46% and 0.51% at December 31, 1995 and 1994, respectively. Charge-offs as
a percentage of average loans, excluding credit cards, during 1995 were
0.24%, compared with 0.17% in 1994. The allowance for loan losses as a
percentage of nonperforming loans was 367% and 220% as of December 31, 1995
and 1994, respectively.
At December 31, 1995, the total investment portfolio had a book
value of $172.5 million and a fair value of $172.9 million for an unrealized
gain of $472,000. The investment portfolio had a weighted average maturity of
approximately 2 years. Securities (i.e., investment securities, securities
available for sale and trading securities) averaged $157.8 million in 1995,
11% above the 1994 average of $142.5 million. The average portfolio yield
increased to 5.83% in 1995 from 5.04% in 1994. The portfolio yield increased
due to upward repricing during the first half of the year when interest rates
were rising. At December 31, 1995, securities totaled $178.4 million, up
$46.4 million from the $132.0 million invested at the end of 1994.
At December 31, 1995, other assets included other real estate owned
of $2.508 million and intangible assets of $18.382 million. The intangible
assets balance is attributable to goodwill of $8.168 million, core deposit
balance premiums of $9.938 million and purchased credit card premiums of
$276,000.
During 1995, interest-bearing liabilities averaged $1.046 billion,
compared with $867.1 million for 1994. The average interest rates were 4.87%
and 3.75% for 1995 and 1994, respectively. At December 31, 1995,
interest-bearing deposits comprised approximately 85% of total deposits and
81% of interest-bearing liabilities. Starting in 1994, the Company modified
its funding strategy to rely more on advances from the Federal Home Loan Bank
("FHLB") because management determined that, due to increased competition for
deposits, the marginal cost of borrowing from the FHLB is lower that the
marginal cost of raising deposits. At December 31, 1995, FHLB advances
totaled $90.0 million, compared with $72.0 million at December 31, 1994.
Carolina First Bank's primary source of funds for loans and
investments is deposits which are gathered through Carolina First Bank's
branch network. Deposits grew 9.4% to $1.095 billion at December 31, 1995
from $1.002 billion at December 31, 1994. Internal growth generated the $93.0
million in new deposits. During 1995, total interest-bearing deposits
averaged $892.3 million with a rate of 4.62%, compared with $824.4 million
with a rate of 3.73% in 1994. As the level of interest rates continued to
rise in 1994, the Company repriced deposits more slowly than the increase in
the yields on earning assets. During 1995, however, deposit pricing was very
competitive in Carolina First Bank's market areas, resulting in upward
pressure on deposit interest rates. The Company does not believe that it has
any brokered deposits.
Average noninterest-bearing deposits, which increased 29% during
the year, increased to 12.8% of average total deposits in 1995 from 10.9% in
1994. This increase was attributable to new accounts from commercial loan
customers and escrow balances related to mortgage servicing operations.
The Company's core deposit base consists of consumer time deposits,
savings, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both the
Company and the
Year End Deposits
($ in millions)
(A bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
$480 $556 $804 $1,002 $1,095
5-Year Compound Growth Rate 25.1%
16
Shareholders' Equity vs. Market Capitalization
($ in millions)
(A bar grap appears here with the following plot points.)
1991 1992 1993 1994 1995
Shareholders' Equity $39 $51 $70 $ 86 $ 95
Market Capitalization $34 $65 $89 $121 $160
industry as a whole, such core deposits continue to provide the
Company with a large and stable source of funds. Core deposits as a
percentage of average total deposits averaged approximately 86% in 1995. The
Company closely monitors its reliance on certificates of deposit greater than
$100,000, which are generally considered less stable and less reliable than
core deposits.
Total shareholders' equity amounted to $95.0 million, or 6.71% of
total assets, at December 31, 1995, compared with $86.5 million, or 7.18% of
total assets, at December 31, 1994. The $8.5 million increase in total
shareholders' equity resulted principally from retention of earnings less
cash dividends paid. In addition, the year end 1995 shareholders' equity was
increased by the $1.152 million change from an unrealized loss to an
unrealized gain on securities available for sale.
The Company's capital needs have been met principally through
public offerings of common stock, preferred stock and subordinated notes and
through the retention of earnings. In addition, the Company issued capital
stock in connection with the acquisitions of Carolina First Savings Bank, CF
Mortgage, ACNB, MNB and Blue Ridge.
On May 18, 1995, the Company completed a $26.5 million public
offering of its Notes. The Notes, which are due on September 1, 2005, pay
interest quarterly at an annual rate of 9.00%. The Notes qualify as Tier 2
capital.
In February 1996, the Company redeemed its Series 1993 Preferred Stock
and its Series 1994 Preferred Stock. In connection with the redemption of the
Series 1993 Preferred Stock, substantially all of the outstanding shares were
converted into 871,021 shares of Common Stock. The redemption date for the
Series 1994 Preferred Stock is February 29, 1996. Holders may elect to convert
their shares into Common Stock (at a rate of 1.8828 shares for each share of
Series 1994 Preferred Stock) or redeem their shares for $26.50. The Company
expects that substantially all of the shares of Series 1994 Preferred Stock will
be converted into Common Stock.
Book value per share at December 31, 1995 and 1994 was $9.14 and
$7.93, respectively. Tangible book value per share at December 31, 1995 and
1994 was $6.36 and $4.49, respectively. Tangible book value was significantly
below book value as a result of the purchase premiums associated with branch
acquisitions and the purchase of CF Mortgage. The conversions of the Series
1993 Preferred Stock and Series 1994 Preferred Stock described above are
expected to increase the Company's book value per share and tangible book
value per share.
At December 31, 1995, the Company and Carolina First Bank were in
compliance with each of the applicable regulatory capital requirements and
exceeded the "well capitalized" regulatory guidelines. The following table
sets forth various capital ratios for the Company and Carolina First Bank.
AS OF Well Capitalized
CAPITAL RATIOS 12/31/95 Requirement
THE COMPANY
Total risk-based
capital............ 10.22% 10.0%
Tier 1 risk-based
capital............ 7.09 6.0
Leverage ratio..... 5.40 5.0
CAROLINA FIRST BANK
Total risk-based
capital............ 10.15 10.0
Tier 1 risk-based
capital............ 9.35 6.0
Leverage ratio..... 7.23 5.0
17
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the Company
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 the Company. These cash flow
requirements primarily involve withdrawals of deposits, extensions of
credit, payment of operating expenses and repayment of purchased funds.
The Company'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 0.52% and 1.68% of earning assets in 1995
and 1994, respectively. Management believes that the Company 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 borrowing from the FHLB. The Company is pursuing
the securitization of approximately $100 million in commercial real
estate loans, which would move these loans off the balance sheet and
significantly improve liquidity. The Company expects to complete the
commercial loan securitization in the first quarter of 1996.
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, 1995,
Carolina First Bank's liquidity ratio was approximately 10%. At December 31,
1995, Carolina First Bank had unused short-term lines of credit totaling
approximately $12.8 million (which are withdrawable at the lender's option).
In addition, Carolina First Bank has access to borrowing from the FHLB. At
December 31, 1995, unused borrowing capacity from the FHLB totaled
approximately $45 million. Management believes that these sources are
adequate to meet its liquidity needs. Following its third quarter of 1995
examination, the FDIC recommended that Carolina First Bank increase its
liquidity ratio. Carolina First Bank has adopted a plan which is designed to
improve its liquidity ratio.
In 1994, the Company modified its funding strategy to rely more on
advances from the FHLB because management determined that, due to increased
competition for deposits, the marginal cost of borrowing from the FHLB is
lower than the marginal cost of raising deposits. At December 31, 1995, FHLB
advances totaled $90.0 million, compared with $72.0 million at December 31,
1994.
The Company has certain cash needs, including general operating
expenses and the payment of dividends and interest on borrowings. The Company
generates cash to meet these needs primarily through management fees and
dividends paid to it by its subsidiaries and secondarily from existing cash
reserves, sales of securities available for sale, interest income on its
investment assets and certain other vehicles.
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. Over
the past several years, the environment in which financial institutions
operate has been characterized by volatile interest rates and greater
NonPerforming Assets as a % of
Loans and Foreclosed Property
(in percentages)
(A bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
Carolina First 0.84% 1.23% 0.86% 0.51% 0.46%
Federal Reserve Bank Holding
Company Peer Group** 3.32% 2.78% 2.20% 1.25% 1.13%*
*As of September 30, 1995
**Source: Federal Reserve Bank Holding Company Performance Report
18
reliance on market-sensitive deposits, increasing both the importance
and the difficulty of interest sensitivity management. 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 Company's 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. The Company 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.
As demonstrated by the following analytical measures of asset
quality, management believes the Company has effectively managed its credit
risk. Net loan charge-offs, including credit card receivables, totaled $4.948
million in 1995 and $2.951 million in 1994, or 0.51% and 0.38%, respectively,
as a percentage of average loans. Nonperforming assets as a percentage of
loans and other real estate owned were 0.46% and 0.51% as of December 31,
1995 and 1994, respectively.
ASSET QUALITY
($ in thousands)
December 31,
1995 1994 1993 1992 1991
Nonaccural loans $1,275 $2,051 $2,487 $2,474 $1,879
Restructured loans 1,085 675 -- -- --
Total nonperforming loans 2,360 2,726 2,487 2,474 1,879
Other real estate 2,508 1,996 2,879 2,804 1,471
Total nonperforming assets $4,868 $4,722 $5,366 $5,278 $3,350
Nonperforming assets as a % of loans and
foreclosed property 0.46% 0.51% 0.86% 1.23% 0.84%
Accruing loans past due 90 days $2,748 $1,285 $2,060 $2,127 $1,784
Allowance for loan losses times nonperforming loans 3.67X 2.20x 2.69x 1.87x 2.40x
19
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS OF CAROLINA FIRST CORPORATION
We have audited the accompanying consolidated balance sheet of
Carolina First Corporation and subsidiaries as of December 31, 1995, and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for the year then ended. 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 audit. The accompanying consolidated financial
statements of Carolina First Corporation and subsidiaries as of December 31,
1994, and for each of the years in the two-year period ended December 31,
1994, were audited by other auditors whose report thereon dated February 3,
1995, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1995 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, 1995, and the
results of their operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
(Signature of KPMG Peat Marwick LLP)
KPMG PEAT MARWICK LLP
Greenville, SC
January 26, 1996
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 KPMG Peat Marwick
LLP, independent auditors, in accordance with generally accepted auditing
standards. KPMG Peat Marwick LLP 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 KPMG Peat Marwick LLP
(separately and jointly) to determine that each is fulfilling its responsibili
ties and to consider recommendations for enhancing internal controls. The
financial statements have not been reviewed, or confirmed for accuracy or
relevance, by the Federal Deposit Insurance Corporation.
(Signature of Mack I. Whittle, Jr.) (Signature of William S. Hummers, III)
Mack I. Whittle, Jr. William S. Hummers, III
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
20
CONSOLIDATED BALANCE SHEETS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
December 31,
1995 1994
ASSETS
Cash and due from banks.................................... $ 84,433 $ 59,750
Federal funds sold and resale agreements................... - 4,420
Securities
Trading.................................................. 5,805 1,155
Available for sale....................................... 146,272 60,548
Held for investment (market value $26,670 in 1995 and
$66,820 in 1994)....................................... 26,289 70,264
Total securities....................................... 178,366 131,967
Loans held for sale........................................ 125,000 71,695
Loans...................................................... 944,716 852,246
Less unearned income..................................... 7,056 873
Less allowance for loan losses........................... 8,661 6,002
Net loans.............................................. 1,053,999 917,066
Premises and equipment..................................... 40,320 39,823
Accrued interest receivable................................ 10,829 7,674
Other assets............................................... 46,975 43,650
$ 1,414,922 $ 1,204,350
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing.................................... $ 160,394 $ 126,974
Interest-bearing....................................... 935,097 874,774
Total deposits......................................... 1,095,491 1,001,748
Federal funds purchased and repurchase agreements........ 91,532 33,986
Other short-term borrowings.............................. 95,257 72,088
Long-term debt........................................... 26,347 1,162
Accrued interest payable................................. 6,737 4,141
Other liabilities........................................ 4,591 4,743
Total liabilities...................................... 1,319,955 1,117,868
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred stock - no par value; authorized 10,000,000
shares; issued and outstanding 917,200 shares (Series
1994), 456,521 shares (Series 1993) and 53,575 shares
(Series 1993B) in 1995 and 920,000 shares (Series
1994), 621,000 shares (Series 1993) and 60,000 shares
(Series 1993B) in 1994; liquidation preference $25 per
share (Series 1994 and 1993) and $20 per share (Series
1993B)................................................. 32,909 37,014
Common stock - par value $1 per share; authorized
20,000,000 shares; issued and outstanding 6,517,366
shares in 1995 and 5,618,941 shares in 1994............ 6,517 5,619
Surplus.................................................. 54,432 45,543
Retained earnings........................................ 1,778 515
Nonvested restricted stock............................... (745) (1,083)
Guarantee of ESOP debt................................... (76) (126)
Unrealized gain (loss) on securities available for sale,
net of tax............................................. 152 (1,000)
Total shareholders' equity............................. 94,967 86,482
$ 1,414,922 $ 1,204,350
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
21
CONSOLIDATED STATEMENTS OF INCOME
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
For The Years Ended December 31,
1995 1994 1993
INTEREST INCOME
Interest and fees on loans................................. $ 92,731 $ 68,474 $ 46,312
Interest on securities
Taxable.................................................. 7,500 5,623 6,483
Exempt from Federal income taxes......................... 1,088 1,020 475
Total interest on securities........................... 8,588 6,643 6,958
Interest on federal funds sold and resale agreements....... 431 652 695
Total interest income.................................. 101,750 75,769 53,965
INTEREST EXPENSE
Interest on deposits....................................... 41,179 30,750 24,055
Interest on short-term borrowings.......................... 8,196 1,638 427
Interest on long-term debt................................. 1,603 121 125
Total interest expense................................. 50,978 32,509 24,607
Net interest income.................................... 50,772 43,260 29,358
PROVISION FOR LOAN LOSSES.................................... 6,846 1,197 1,106
Net interest income after provision for loan losses.... 43,926 42,063 28,252
NONINTEREST INCOME
Service charges on deposit accounts........................ 5,524 4,089 2,916
Credit card trust income................................... 2,775 - -
Mortgage banking income.................................... 2,162 1,638 1,788
Fees for trust services.................................... 1,042 919 542
Gain on sale of securities................................. 769 75 680
Gain on sale of mortgage servicing rights.................. 2,943 - -
Sundry..................................................... 2,111 1,505 839
Total noninterest income............................... 17,326 8,226 6,765
NONINTEREST EXPENSES
Salaries and wages......................................... 17,524 15,023 10,630
Employee benefits.......................................... 4,584 4,375 2,510
Occupancy.................................................. 4,209 3,728 2,301
Furniture and equipment.................................... 3,182 2,577 1,933
Amortization of intangibles................................ 1,774 2,410 875
Sundry..................................................... 15,609 11,512 9,045
Credit card restructuring charges.......................... - 12,214 -
Total noninterest expenses............................. 46,882 51,839 27,294
Income (loss) before income taxes...................... 14,370 (1,550) 7,723
Income taxes............................................... 4,956 190 2,305
Net income (loss)...................................... 9,414 (1,740) 5,418
Dividends on preferred stock............................... 2,752 2,433 1,930
Net income (loss) applicable to common shareholders.... $ 6,662 $ (4,173) $ 3,488
NET INCOME (LOSS) PER COMMON SHARE:*
Primary................................................ $ 1.04 $ (0.71) $ 0.76
Fully diluted.......................................... 1.02 (0.71) 0.76
AVERAGE COMMON SHARES OUTSTANDING:*
Primary................................................ 6,396,838 5,836,845 4,587,884
Fully diluted.......................................... 9,274,686 8,429,010 6,840,779
CASH DIVIDENDS DECLARED PER COMMON SHARE*.................... $ 0.25 $ 0.20 $ 0.05
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
* Share data have been restated to reflect 5% stock dividends.
22
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands)
Shares of Retained
Common Preferred Common Earnings
Stock Stock Stock Surplus and Other*
BALANCE, DECEMBER 31, 1992................................... 4,036,273 $ 10,319 $ 4,036 $ 30,476 $ 6,457
Net income................................................. - - - - 5,418
Issuance of Series 1993 preferred stock.................... - 14,462 - - -
Issuance of Series 1993B preferred stock................... - 1,200 - - -
Conversion and redemption of Series 1992 preferred stock... 1,089,674 (10,319) 1,090 9,137 -
Common stock issued pursuant to:
Stock dividend........................................... 147,458 - 147 1,770 (1,926)
Restricted stock plan.................................... 35,500 - 36 409 (445)
Dividend reinvestment plan............................... 4,104 - 4 45 -
Exercise of stock options................................ 4,341 - 4 26 -
Cash dividends paid/accrued by Carolina First:
Preferred stock.......................................... - - - - (1,930)
Common stock............................................. - - - - (214)
Vesting recognized as salary expense....................... - - - - 163
Payment on ESOP debt....................................... - - - - 50
BALANCE, DECEMBER 31, 1993................................... 5,317,350 15,662 5,317 41,863 7,573
Net loss................................................... - - - - (1,740)
Transfer of undivided profits to surplus................... - - - 56 (56)
Issuance of Series 1994 preferred stock.................... - 21,444 - - -
Common stock issued pursuant to:
Stock dividend........................................... 214,380 - 214 2,466 (2,689)
Restricted stock plan.................................... 40,768 - 41 570 (611)
Dividend reinvestment plan............................... 44,055 - 44 559 -
Employee stock purchase plan............................. 2,247 - 3 28 -
Exercise of stock options................................ 141 - - 1 -
Cash dividends paid/accrued by Carolina First:
Preferred stock.......................................... - - - - (2,433)
Common stock............................................. - - - - (1,024)
Treasury shares purchased.................................. - (92) - - -
Vesting recognized as salary expense....................... - - - - 236
Payment on ESOP debt....................................... - - - - 50
Unrealized loss on securities available for sale, net of
tax...................................................... - - - - (1,000)
BALANCE, DECEMBER 31, 1994................................... 5,618,941 37,014 5,619 45,543 (1,694)
Total
BALANCE, DECEMBER 31, 1992................................... $ 51,288
Net income................................................. 5,418
Issuance of Series 1993 preferred stock.................... 14,462
Issuance of Series 1993B preferred stock................... 1,200
Conversion and redemption of Series 1992 preferred stock... (92)
Common stock issued pursuant to:
Stock dividend........................................... (9)
Restricted stock plan.................................... -
Dividend reinvestment plan............................... 49
Exercise of stock options................................ 30
Cash dividends paid/accrued by Carolina First:
Preferred stock.......................................... (1,930)
Common stock............................................. (214)
Vesting recognized as salary expense....................... 163
Payment on ESOP debt....................................... 50
BALANCE, DECEMBER 31, 1993................................... 70,415
Net loss................................................... (1,740)
Transfer of undivided profits to surplus................... -
Issuance of Series 1994 preferred stock.................... 21,444
Common stock issued pursuant to:
Stock dividend........................................... (9)
Restricted stock plan.................................... -
Dividend reinvestment plan............................... 603
Employee stock purchase plan............................. 31
Exercise of stock options................................ 1
Cash dividends paid/accrued by Carolina First:
Preferred stock.......................................... (2,433)
Common stock............................................. (1,024)
Treasury shares purchased.................................. (92)
Vesting recognized as salary expense....................... 236
Payment on ESOP debt....................................... 50
Unrealized loss on securities available for sale, net of
tax...................................................... (1,000)
BALANCE, DECEMBER 31, 1994................................... 86,482
Net income................................................. - - - - 9,414
Common stock issued pursuant to:
Stock dividend........................................... 291,603 - 292 4,082 (4,393)
Blue Ridge merger........................................ 154,141 - 154 (22) 672
Exercise of stock warrants............................... 12,598 - 13 60 -
Dividend reinvestment plan............................... 43,322 - 43 555 -
Employee stock purchase plan............................. 6,595 - 6 82 -
Exercise of stock options................................ 51,250 - 51 274 -
Conversion of preferred stock............................ 338,916 (4,197) 339 3,858 (113)
Cash dividends paid/accrued by Carolina First:
Preferred stock.......................................... - - - - (2,752)
Common stock............................................. - - - - (1,565)
Treasury shares sold....................................... - 92 - - -
Vesting recognized as salary expense....................... - - - - 338
Payment on ESOP debt....................................... - - - - 50
Unrealized gain on securities available for sale, net of
tax...................................................... - - - - 1,152
BALANCE, DECEMBER 31, 1995................................... 6,517,366 $ 32,909 $ 6,517 $ 54,432 $ 1,109
Net income................................................. 9,414
Common stock issued pursuant to:
Stock dividend........................................... (19)
Blue Ridge merger........................................ 804
Exercise of stock warrants............................... 73
Dividend reinvestment plan............................... 598
Employee stock purchase plan............................. 88
Exercise of stock options................................ 325
Conversion of preferred stock............................ (113)
Cash dividends paid/accrued by Carolina First:
Preferred stock.......................................... (2,752)
Common stock............................................. (1,565)
Treasury shares sold....................................... 92
Vesting recognized as salary expense....................... 338
Payment on ESOP debt....................................... 50
Unrealized gain on securities available for sale, net of
tax...................................................... 1,152
BALANCE, DECEMBER 31, 1995................................... $ 94,967
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
*Other includes unrealized gain (loss) on securities available for sale,
nonvested restricted stock and guarantee of ESOP debt.
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands)
For The Years Ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................... $ 9,414 $ (1,740) $ 5,418
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operations
Depreciation............................................. 3,284 2,756 1,965
Amortization of intangibles.............................. 1,774 2,410 875
Provision for loan losses................................ 6,846 1,197 1,106
Deferred income tax expense (benefit).................... (967) 1,017 450
Gain on sale of securities............................... (769) (75) (680)
Gain on sale of mortgage servicing rights................ (2,943) - -
Unrealized gain on securities............................ (51) - (199)
Originations of mortgage loans held for sale............. (110,190) (49,562) (81,076)
Sale of mortgage loans held for sale..................... 116,109 55,099 80,177
Proceeds from sale of trading securities................. 452,666 420,378 1,075
Proceeds from maturity of trading securities............. 23,493 31,176 -
Purchase of trading securities........................... (480,758) (452,459) (1,325)
Increase in accrued interest receivable.................. (3,155) (2,299) (751)
Increase in accrued interest payable..................... 2,596 775 281
Increase in other assets................................. (4,339) (17,410) (5)
Premiums paid on acquired credit cards................... - - (1,023)
Increase (decrease) in other liabilities................. (668) (3,439) 5,458
Federal Home Loan Bank stock dividend.................... - (150) (68)
Net cash provided by (used for) operating activities... 12,342 (12,326) 11,678
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold and
resale agreements........................................ 4,420 55,450 (51,934)
Proceeds from sale of securities available for sale........ 77,570 26,429 67,285
Proceeds from maturity of securities available for sale.... 72,160 162,709 219,720
Proceeds from maturity of securities held for investment... 10,135 8,110 5,570
Purchase of securities available for sale.................. (160,232) (173,712) (276,940)
Purchase of securities held for investment................. (39,041) (24,777) (52,708)
Purchase of loans.......................................... (32,911) - (16,265)
Net increase in loans...................................... (118,663) (264,738) (119,208)
Proceeds from sale of mortgage servicing rights............ 5,026 - -
Proceeds from sale of premises and equipment............... 30 424 474
Capital expenditures....................................... (3,811) (11,209) (12,060)
Blue Ridge merger.......................................... 804 - -
Net cash used for investing activities................... (184,513) (221,314) (236,066)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquired deposits (net).................................... - 97,735 196,840
Net increase in deposits................................... 93,743 56,024 5,674
Net increase in federal funds purchased and
repurchase agreements.................................... 57,546 17,261 14,188
Increase in short-term borrowings.......................... 23,169 71,976 (108)
Issuance of long-term debt................................. 25,237 - -
Payments of long-term debt................................. (52) (78) (163)
Issuance of preferred stock................................ - 21,352 14,462
Redemption of preferred stock.............................. - - (92)
Cash dividends paid........................................ (4,221) (3,025) (1,777)
Other common stock activity................................ 1,432 629 30
Net cash provided by financing activities................ 196,854 261,874 229,054
Net increase in cash and due from banks...................... 24,683 28,234 4,666
Cash and due from banks at beginning of year................. 59,750 31,516 26,850
Cash and due from banks at end of year....................... $ 84,433 $ 59,750 $ 31,516
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
24
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, Blue Ridge Finance Company ("Blue Ridge") and
Carolina First Mortgage Company ("CF Mortgage"). All significant intercompany
accounts and transactions have been eliminated.
The accounting principles followed by the Company and its subsidiaries and
the methods of applying these principles conform with generally accepted
accounting principles and with general practices within the banking industry.
Certain principles which significantly affect the determination of financial
position, results of operations and cash flows are summarized below.
Prior years' financial statements have been restated to reflect acquisitions
consummated during 1995 accounted for using the pooling-of-interests method of
accounting. Acquisitions during the past three years that were accounted for as
purchases are reflected in the financial position and results of operations of
the Company since the date of their acquisition. Certain prior year amounts have
been reclassified to conform with 1995 presentations.
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 fair 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 fair value. Such securities are
used to execute asset/liability management strategy and to manage liquidity.
Adjustments for unrealized gains or losses, net of the income tax effect, 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 -- Loans receivable are stated at unpaid principal balances adjusted
for unamortized premiums and unearned discounts. Carolina First Bank recognizes
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. Loans are considered to be impaired when, in management's
judgment, the collection of principal or interest is not collectible in
accordance with the terms of the obligation. An impaired loan is put on
non-accrual status and future cash receipts are applied to principal only. The
accrual of interest resumes only when the loan returns to performing status.
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 commercial loans secured
by real estate, mortgage loans and credit card loans and are carried at the
lower of aggregate cost or market value.
LOAN SALES -- 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 mortgage 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. The resulting excess
servicing rights, included in other assets, are amortized to operations over the
remaining life of the loans. Management periodically reviews and adjusts, as
necessary, its estimates of remaining loan lives.
MORTGAGE SERVICING RIGHTS -- Effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards ("SFAS") 122, "Accounting for
Mortgage Servicing Rights," which amends SFAS 65, "Accounting for Certain
Mortgage Banking Activities." The statement provides guidance for recognition of
mortgage servicing rights as an asset when a mortgage loan is sold or
securitized and servicing rights retained. Since the adoption of SFAS 122, the
Company capitalizes the allocated cost of originated mortgage servicing rights,
and records a corresponding increase in mortgage banking income. Prior to the
25
adoption of the statement, the allocated costs of originated mortgage servicing
rights were not capitalized.
The rights to service mortgage loans for others ("mortgage servicing rights"
or "MSRs") are included in other assets. Purchased mortgage servicing rights are
recorded at lower of cost or market. Originated mortgage servicing rights are
capitalized based on the allocated cost which is determined when the underlying
loans are sold or securitized. MSRs are amortized in proportion to and over the
period of estimated net servicing income using a method that is designed to
approximate a level-yield method, taking into consideration the estimated
prepayment of the underlying loans. For purposes of measuring impairment, MSRs
are periodically reviewed for impairment 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 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. In addition, various regulatory agencies periodically review
the Company's allowance for loan losses as part of their examination process and
could require the Company to adjust its allowance for loan losses.
CONCENTRATIONS OF CREDIT RISK -- The Company makes loans to individuals and
small businesses for various personal and commercial purposes primarily
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.
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, included in other 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.
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 noninterest expenses. Gains and losses realized
from the sale of other real estate owned are included in noninterest income.
LOAN ORIGINATION FEES -- 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
26
adjustment. If the commitment expires unexercised, the net deferred amount is
recognized.
INCOME TAXES -- The Company computes its income taxes in accordance with the
provisions of SFAS 109, "Accounting for Income Taxes." Under SFAS 109, deferred
tax liabilities are recognized on all taxable temporary differences (reversing
differences where tax deductions initially exceed financial statement expense,
or income is reported for financial statement purposes prior to being reported
for tax purposes). In addition, deferred tax assets are recognized on all
deductible temporary differences (reversing differences where financial
statement expense initially exceeds tax deductions, or income is reported for
tax purposes prior to being reported for financial statement purposes) and
operating loss and tax credit carryforwards. Valuation allowances are
established to reduce deferred tax assets if it is determined to be "more likely
than not" that all or some portion of the potential deferred tax assets will not
be realized. Under SFAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
PER SHARE DATA -- Primary earnings per share are computed by dividing net
income (loss) applicable to common shareholders by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period. Fully diluted earnings per share are computed by dividing net income
(loss) by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period, with common stock equivalents
calculated based on the ending market price, if higher than the average market
price. Common stock equivalents consist of convertible preferred stock, stock
warrants and options and are computed using the treasury stock method. The
weighted average number of shares outstanding during the period for primary and
fully diluted earnings per share was adjusted retroactively for the pooling-of-
interests acquisitions by merger of Aiken County National Bank ("ACNB") and
Midlands National Bank ("MNB").
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 establishes a new method of accounting for stock-based
arrangements by measuring the value of a stock compensation award by the fair
value method versus the intrinsic method as currently is used under the
provisions of Opinion 25. If entities do not adopt SFAS 123, they will be
required to disclose in the footnotes pro forma net income and earnings per
share information as if the fair value based method had been adopted. The
disclosure requirements of SFAS 123 are effective for financial statements with
fiscal years beginning after December 15, 1995. SFAS 123 will have minimal
impact on the Company.
2. STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash includes currency and coin, cash
items in process of collection, interest bearing time deposits with other banks
and due from banks.
The following summarizes supplemental cash flow data for the years ended
December 31:
($ in thousands) 1995 1994 1993
Interest paid.............. $ 53,574 $ 31,734 $ 24,326
Income taxes paid.......... 6,194 2,868 2,059
Significant non-cash
transactions are
summarized as follows:
Transfer of securities from
available for sale to
held for investment in
relation to
pooling-of-interests
merger................... 2,618 - -
One time reclass of
securities from held for
investment to available
for sale................. 75,499 - -
Loans transferred to other
real estate owned........ 1,876 647 2,355
Change in unrealized gain
(loss) on securities
available for sale, net
of tax................... 1,152 (1,000) -
Blue Ridge merger.......... 804 - -
Transfer from undivided
profits to capital
surplus.................. - 56 -
3. SUBSEQUENT EVENTS
On January 4, 1996, the Company announced the redemption of the 7.50%
Noncumulative Convertible Preferred Stock Series 1993 ("Series 1993 Preferred
Stock"). The redemption date was February 5, 1996. Of the 435,121 shares of
Series 1993 Preferred Stock outstanding on January 4, 1996, holders of 432,655
shares elected to convert into common stock. Consequently, the Company issued
871,021 shares of $1.00 par value common stock.
On January 25, 1996, the Company announced the redemption of the 7.32%
Noncumulative Convertible Preferred Stock Series 1994 ("Series 1994 Preferred
Stock"). The redemption date is February 29, 1996.
27
4. BUSINESS COMBINATIONS
On February 3, 1995, Carolina First Savings Bank was merged into Carolina
First Bank.
On April 10, 1995, Aiken County National Bank ("ACNB"), a national bank
headquartered in Aiken, South Carolina, was merged into Carolina First Bank.
Carolina First Bank acquired all the outstanding common shares of ACNB in
exchange for 475,291 shares (adjusted for 5% stock dividend) of the Company's
common stock. At the merger date, ACNB had approximately $39 million in total
assets, year-to-date net interest income of approximately $569,000 and
year-to-date net income of approximately $117,000.
On June 30, 1995, Midlands National Bank ("MNB"), a national bank
headquartered in Prosperity, South Carolina, was merged into Carolina First
Bank. Carolina First Bank acquired all the outstanding common shares of MNB in
exchange for 614,216 shares (adjusted for 5% stock dividend) of the Company's
common stock. At the merger date, MNB had approximately $44 million in total
assets, year-to-date net interest income of approximately $926,000 and
year-to-date net income of approximately $12,000.
The consolidated financial statements of the Company give effect to these
two mergers, each of which has been accounted for as a pooling-of-interests.
Accordingly, financial statements for all periods have been restated to reflect
the results of operations of the companies on a combined basis from the earliest
period presented, except for dividends per share.
The Company's consolidated financial data for the years ended December 31,
1994 and 1993 have been restated as follows:
As
Previously Currently
($ in thousands) Reported ACNB MNB Reported
YEAR ENDED DECEMBER 31, 1994
Net interest income.......... $ 39,423 $ 1,844 $ 1,993 $ 43,260
Provision for loan losses.... 950 140 107 1,197
Net income (loss)............ (1,869) (306) 435 (1,740)
YEAR ENDED DECEMBER 31, 1993
Net interest income.......... $ 25,942 $ 1,630 $ 1,786 $ 29,358
Provision for loan losses.... 909 52 145 1,106
Net income................... 4,935 113 370 5,418
On December 29, 1995, the Company acquired all the outstanding shares of
Blue Ridge Finance Company, an automobile finance company based in Greenville,
South Carolina, in exchange for 154,141 shares of the Company's common stock. At
the merger date, Blue Ridge had approximately $4 million in total assets. The
transaction was accounted for as a pooling-of-interests; however, due to the
immateriality of the transaction in relation to the Company's consolidated
financial position and operating results, prior period financial statements have
not been restated. Prior to the merger, Blue Ridge's fiscal year ended August
31. In recording the pooling-of-interests combination, Blue Ridge's financial
statements for the twelve months ended December 31, 1995 were combined with
the Company's financial statements for the same period.
On April 29, 1994, Carolina First 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 $5.8 million, on which a premium of approximately
$533,000 was paid.
On May 2, 1994, Carolina First Bank and Carolina First 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,
Carolina First Bank acquired only the deposits and select loans from Republic
National Bank's main office branch in Columbia. With this transaction, Carolina
First Bank and Carolina First Savings Bank acquired loans of approximately
$37.5 million and deposits of about $135.3 million on which a premium of
approximately $5.4 million was paid.
In March 1993, Carolina First Bank acquired certain assets and assumed
certain liabilities of 13 South Carolina branches of Republic National Bank.
Carolina First Bank acquired $31.2 million in loans, $6.4 million in premises
and equipment, and $204.9 million in deposit liabilities. The total premium paid
for the acquisitions was approximately $6.9 million.
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 $1.2 million. Total cost of the acquisition in excess of the
fair value of net assets acquired aggregated approximately $3.7 million.
28
On December 31, 1993, Carolina First 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.). Carolina First Bank
assumed deposit liabilities of $38.5 million and acquired $143,000 in loans. The
total premium paid for the acquisition was approximately $1.1 million.
The acquisitions in 1994 and 1993 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.
5. RESTRICTIONS ON CASH AND DUE FROM BANKS
Carolina First 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 the years ended December 31, 1995 and
1994, were approximately $16,067,000 and $6,927,000, respectively.
6. SECURITIES
Effective January 1, 1994, the Company adopted 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 fair 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. Held for investment securities are
reported at amortized cost.
In November 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," which allowed entities a one-time reclassification of
their investment securities without tainting their investment portfolio. This
was to be done before December 31, 1995. In accordance with this Special Report,
the Company reclassed $75,499,000 of its held for investment portfolio to its
available for sale portfolio.
The aggregate book and fair values of securities at December 31 were as
follows:
1995
BOOK GROSS UNREALIZED FAIR
($ in thousands) VALUE GAINS LOSSES VALUE
SECURITIES AVAILABLE
FOR SALE
U.S. treasury
securities......... $ 97,118 $ 71 $ 49 $ 97,140
Obligations of U.S.
government agencies
and corporations... 36,741 63 98 36,706
Other securities..... 12,322 115 11 12,426
$ 146,181 $ 249 $ 158 $ 146,272
SECURITIES HELD FOR
INVESTMENT
Obligations of states
and political
subdivisions....... $ 25,937 $ 381 $ - $ 26,318
Other securities..... 352 - - 352
$ 26,289 $ 381 $ - $ 26,670
1994
Gross Unrealized Fair
($ in thousands) Book Value Gains Losses Value
SECURITIES AVAILABLE
FOR SALE
U.S. treasury
securities......... $ 27,213 $ - $ 679 $ 26,534
Obligations of U.S.
government agencies
and corporations... 27,512 - 633 26,879
Other securities..... 7,303 - 168 7,135
$ 62,028 $ - $ 1,480 $ 60,548
SECURITIES HELD FOR
INVESTMENT
U.S. treasury
securities......... $ 6,189 $ - $ 537 $ 5,652
Obligations of U.S.
government agencies
and corporations... 42,936 - 1,852 41,084
Obligations of states
and political
subdivisions....... 21,086 19 1,074 20,031
Other securities..... 53 - - 53
$ 70,264 $ 19 $ 3,463 $ 66,820
29
The book value and estimated fair value of debt securities at December 31,
1995, 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. Fair value of
securities was determined using quoted market prices.
1995
BOOK FAIR
($ in thousands) VALUE VALUE
SECURITIES AVAILABLE
FOR SALE
Due in one year or less.... $ 97,118 $ 98,536
Due after one year through
five years............... 35,341 35,310
No contractual maturity.... 13,722 12,426
$ 146,181 $ 146,272
SECURITIES HELD FOR
INVESTMENT
Due in one year or less.... $ 2,668 $ 2,675
Due after one year through
five years............... 9,831 9,950
Due after five years
through ten years........ 10,253 10,456
Due after ten years........ 3,537 3,589
$ 26,289 $ 26,670
Gross realized gains and losses on sales of securities for the years ended
December 31 were:
($ in thousands) 1995 1994 1993
Gross realized gains....... $ 1,156 $ 252 $ 973
Gross realized losses...... (387) (177) (293)
Net gain on sale of
securities............... $ 769 $ 75 $ 680
The change from a net unrealized loss to a net unrealized gain on securities
available for sale, as recorded in shareholders' equity, for the year ended
December 31, 1995 was $1,152,000. Securities with an approximate book value of
$120,851,000 and $92,427,000 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes. Estimated market
values of securities pledged were $121,213,000 and $88,438,000 at December 31,
1995 and 1994, respectively.
At December 31, 1995, the Company owned 7,500 shares of common stock of
Affinity Technology Group, Inc. ("Affinity"). This investment, included in
securities available for sale, was recorded at its book value of $75. As of
December 31, 1995, there was no market for this investment so the fair value
could not be determined. At December 31, 1995, the Company owned warrants to
purchase 55,390 shares of Affinity's common stock at a purchase price of $0.01
per share.
7. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December 31:
($ in thousands) 1995 1994
Real estate - mortgage..... $ 217,899 $ 206,980
Real estate -
construction............. 31,552 24,039
Commercial and
industrial............... 188,255 179,876
Commercial and industrial
secured by real estate... 234,153 275,083
Consumer................... 149,216 129,106
Credit cards............... 86,901 36,954
Lease financing
receivables.............. 36,740 208
Loans held for sale........ 125,000 71,695
Gross loans................ 1,069,716 923,941
Less unearned income....... 7,056 873
Less allowance for loan
losses................... 8,661 6,002
Net loans.................. $ 1,053,999 $ 917,066
On January 1, 1995, the Company adopted SFAS 114, "Accounting by Creditors
for Impairment of a Loan." SFAS 114 requires that impaired loans and certain
restructured loans be measured at the present value of expected future cash
flows, discounted at the loan's effective interest rate, at the loan's
observable market price, or at the fair value of the collateral if the loan is
collateral dependent. A specific reserve is set up for each impaired loan.
Also on January 1, 1995, the Company adopted 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.
At December 31, 1995, the recorded investment in loans that were considered
to be impaired under SFAS 114 was $1,275,000. The average recorded investment in
impaired loans in 1995 was $1,261,000. The related allowance for these impaired
loans was $669,000. At December 31, 1994, there were $2,051,000 of loans which
were not accruing interest. Foregone interest income was approximately $269,000
in 1995, $220,000 in 1994 and $561,000 in 1993. Interest income recognized on
these loans during 1995, 1994 and 1993 was approximately $373,000, $49,000 and
$46,000, respectively.
Foreclosure loans included in other real estate owned amounted to $2,348,000
and $869,000 at December 31, 1995 and 1994, respectively. At December 31, 1995
and 1994, loans included $1,085,000 and $675,000 in restructured loans.
30
Changes in the allowance for loan losses were:
($ in thousands) 1995 1994 1993
Balance at beginning
of year.................. $ 6,002 $ 6,679 $ 5,276
Blue Ridge merger.......... 128 - -
Valuation allowance for
loans purchased.......... 633 1,077 1,811
Provision for loan
losses................... 6,846 1,197 1,106
Recoveries on loans
previously charged off... 311 140 65
Loans charged off.......... (5,259) (3,091) (1,579)
Balance at end of year..... $ 8,661 $ 6,002 $ 6,679
On January 24, 1995, Carolina First Bank securitized approximately
$97,000,000 of credit card receivables. This transaction was recorded as a sale
in accordance with SFAS 77, "Reporting by Transferor of Receivables with
Recourse." During 1995, credit card receivables totaling approximately $14
million were securitized. 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 subservicing fee.
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
$13,405,000 and $17,295,000 at December 31, 1995 and 1994, respectively. During
1995, new loans of approximately $6,923,000 were made, and payments totaled
approximately $10,813,000.
8. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
($ in thousands) 1995 1994
Land....................... $ 6,948 $ 5,699
Buildings.................. 20,176 20,599
Furniture, fixtures and
equipment................ 17,784 16,910
Leasehold improvements..... 7,479 6,469
Construction in progress... 74 420
52,461 50,097
Less accumulated
depreciation and
amortization............. 12,141 10,274
$ 40,320 $ 39,823
Depreciation and amortization charged to operations totaled $3,284,000,
$2,756,000 and $1,965,000 in 1995, 1994 and 1993, respectively.
At December 31, 1995, approximately $2,074,000 of land and buildings was
pledged as collateral for long-term debt obligations (Note 15).
9. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31 are
included in other assets and summarized as follows:
($ in thousands) 1995 1994
Goodwill................... $ 8,168 $ 9,123
Core deposit premium....... 9,938 11,125
Credit card premium........ 276 345
$ 18,382 $ 20,593
10. MORTGAGE OPERATIONS
Effective January 1, 1995, the Company adopted SFAS 122, "Accounting for
Mortgage Servicing Rights," which amends SFAS 65, "Accounting for Certain
Mortgage Banking Activities." The statement provides guidance for recognition of
mortgage servicing rights as an asset when a mortgage loan is sold or
securitized and servicing rights retained. Since the adoption of SFAS 122, the
Company capitalized $281,000, representing the allocated cost of originated
mortgage servicing rights, and recorded a corresponding increase in mortgage
banking income. Prior to the adoption of the statement, the allocated costs of
originated mortgage servicing rights were not capitalized.
Mortgage servicing rights which are included in other assets at December 31
are summarized as follows:
($ in thousands) 1995 1994
Servicing rights........... $ 9,932 $ 8,655
Excess servicing rights.... 27 34
The Company paid $13,401,000 for mortgage servicing rights to approximately
$1,009,227,000 of loans in 1995. The amortization of servicing rights and excess
servicing rights included in loan servicing fees amounted to $1,447,000,
$908,000, and $636,000 in 1995, 1994 and 1993, respectively. Mortgage servicing
rights in 1995 were reduced by approximately $10,965,000 related to the sales of
mortgage servicing rights.
The fair value of mortgage servicing rights at December 31, 1995 was
approximately $10,511,000. No valuation allowance for capitalized servicing
rights or excess servicing rights was required during the year ended December
31, 1995.
31
Mortgage banking income includes income from originations and sales of
mortgages loans of $1,785,000, $1,066,000 and $1,560,000 in 1995, 1994 and 1993,
respectively.
11. DEPOSITS
Certificates of deposit in excess of $100,000 totaled $153,907,000 and
$135,865,000 at December 31, 1995 and 1994, respectively.
12. INCOME TAXES
Income tax expense for the years ended December 31 consists of the
following:
($ in thousands) 1995 1994 1993
CURRENTLY PAYABLE
(REFUNDABLE)
Federal.................. $ 5,664 $ (827) $ 1,555
State.................... 259 - 300
5,923 (827) 1,855
DEFERRED
Federal.................. (999) 804 436
State.................... 32 213 14
(967) 1,017 450
Total income taxes....... $ 4,956 $ 190 $ 2,305
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate of 35% for 1995, and 34% for 1994 and 1993, to
income before income taxes. The reason for these differences are as follows:
($ in thousands) 1995 1994 1993
Tax expense (benefit) at
statutory rate........... $ 5,030 $ (527) $ 2,626
Differences resulting from:
Rehabilitation tax
credit................. (30) (150) (60)
Effect of Carolina First
Savings Bank merger.... - 1,005 -
Change in valuation
allowance for deferred
tax assets............. 85 36 10
State tax net of federal
benefit................ 189 141 207
Nontaxable interest...... (329) (227) (176)
Other, net............... 11 (88) (302)
$ 4,956 $ 190 $ 2,305
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31 are
presented below:
($ in thousands) 1995 1994
DEFERRED TAX ASSETS
Loan loss allowance
deferred for tax
purposes............... $ 2,385 $ 714
Excess basis of
intangible assets for
financial reporting
purposes over tax
basis.................. 1,540 1,062
Unrealized loss on
securities available
for sale............... - 483
Net operating loss
carryforwards.......... 354 386
Compensation expense
deferred for tax
reporting purposes..... 289 166
Other.................... 114 311
4,682 3,122
Less valuation
allowance............ 217 132
4,465 2,990
DEFERRED TAX LIABILITIES
Accretion and FHLB
dividends.............. - 118
Net loan fees deferred
for tax purposes....... 390 378
Tax depreciation in
excess of book
depreciation........... 1,205 917
Unrealized gain on
securities available
for sale............... 47 -
Tax bad debt reserve
recapture adjustment... 1,695 991
Other.................... 119 14
3,456 2,418
Net deferred tax
assets............... $ 1,009 $ 572
A portion of the change in net deferred tax assets relates to unrealized
gains and losses on securities available for sale. The related current period
deferred taxes of $530,000 have been recorded directly to shareholders' equity.
The balance of the change in net deferred tax assets results from the current
period deferred tax benefit of $967,000. The net deferred tax asset is included
in other assets in the accompanying consolidated balance sheets.
32
The valuation allowance against the potential total deferred tax assets as
of December 31, 1995 and 1994 relates to deductible temporary differences for
state tax purposes. It is management's conclusion that the realization of the
net deferred tax asset recorded is more likely than not. This conclusion is
based upon taxable income in carryback years and conservative projections of
taxable income in future years.
The Company's income tax returns for 1992 and subsequent years are subject
to review by the taxing authorities. There are no significant pending
assessments from taxing authorities regarding taxation issues at the Company or
its subsidiaries.
13. BORROWED FUNDS
Short-term borrowings and their related weighted average interest rates at
December 31 were:
1995 1994
($ in thousands) AMOUNT RATE Amount Rate
Federal funds purchased.... $ 31,000 6.01% $ 16,000 5.58%
Repurchase agreements...... 60,532 5.30 17,986 5.23
FHLB advances.............. 90,000 5.75 72,000 6.03
Commercial paper........... 2,405 6.76 - -
Other...................... 2,852 9.00 88 9.00
$ 186,789 5.71% $ 106,074 5.84%
Total loans pledged to the Federal Home Loan Bank ("FHLB") for advances at
December 31, 1995 were $126,754,000.
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions by Carolina First Bank. Repurchase agreements represent
short-term borrowings by Carolina First Bank with maturities ranging from 1 to
182 days collateralized by securities of the United States government or its
agencies. FHLB advances represent borrowings from the FHLB of Atlanta by
Carolina First Bank pursuant to lines of credit collateralized by a blanket lien
on qualifying loans secured by first mortgages on 1-4 family residences. These
advances have an initial maturity of one year or less with interest payable
monthly. Commercial paper is issued by the Company with maturities less than 270
days. Other short-term borrowings represents primarily debt acquired through the
Blue Ridge merger.
The maximum short-term borrowings outstanding at any month end were:
($ in thousands) 1995 1994
Federal funds purchased
and repurchase
agreements............... $ 107,717 $ 33,986
Advances from
the FHLB................. 90,000 72,000
Commercial paper and
other short-term
borrowings............... 5,205 88
Aggregate short-term
borrowings............... 202,922 106,074
Average short-term borrowings during 1995 and 1994 were $136,799,000 and
$41,362,000, respectively. The average interest rate on short-term borrowings
during 1995 and 1994 were 6.00% and 3.96%, respectively.
14. UNUSED LINES OF CREDIT
At December 31, 1995, Carolina First Bank had unused short-term lines of
credit to purchase federal funds from unrelated banks totaling $12,750,000.
These lines of credit are available on a one-to-ten day basis for general
corporate purposes of Carolina First Bank. All of the lenders have reserved the
right to withdraw these lines at their option. At December 31, 1995, Carolina
First Bank had an unused line of credit with the FHLB of Atlanta totaling
$45,000,000.
15. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
($ in thousands) 1995 1994
9.00% Subordinated Notes;
due September 1, 2005;
interest payable
quarterly................ $ 25,237 $ -
Mortgage note payable;
interest at 11% due
December 31, 2012, with
current annual payments
of approximately
$125,000................. 1,084 1,086
Employee Stock Ownership
Plan (ESOP) note payable
to Wachovia Bank; due
December 14, 1997;
interest at 90% of the
prime rate, payable
annually................. 26 76
$ 26,347 $ 1,162
33
On May 18, 1995, the Company completed its public offering of the 9.00%
Subordinated Notes. The Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after September 1, 2000, at 100%
of the principal amount plus accrued interest to the date of redemption.
The principal maturities of long-term debt for the next five years
subsequent to December 31, 1995 are $52,000 in 1996, $29,000 in 1997, $24,000 in
1998, $27,000 in 1999 and $17,000 in 2000.
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 Corporation filed a lawsuit against
Carolina First Bank in the Court of Common Pleas in Lexington County, South
Carolina. Such action, in general, claims that Carolina First 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. Carolina
First Bank has answered the complaint and plans to vigorously defend such
complaint. Carolina First Bank believes that there are valid defenses available
to it. In connection with the litigation, Carolina First 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.
On September 26, 1995, David W. Bowers and E. Monte Bowers filed a lawsuit
against the Company and Carolina First Bank in the Court of Common Pleas in
Newberry County, South Carolina. The complaint alleges breach of contract,
breach of contract accompanied by a fraudulent act and fraud in the inducement.
The allegations arise from Carolina First Bank's alleged breach of written
employment agreements with David Bowers and Monte Bowers. The Bowers demand
judgment against Carolina First Bank in the amount of $912,000 plus punitive
damages, attorneys' fees and costs. It is the Company's position that it has not
breached the relevant employment contracts and is vigorously defending this
lawsuit. However, the Company is not in a position to assess the likelihood or
amount of liability.
During 1995, Congress considered various proposals for a one-time special
assessment to be charged on all Savings Association Insurance Fund ("SAIF")
deposits to fully capitalize the SAIF immediately. The proposed amount of the
special assessment has been as high as $0.85 per $100 of SAIF deposits. Assuming
that the special assessment were applied at the $0.85 rate, the Company would
incur additional deposit insurance premium expense of approximately $1.9 million
which would be charged against current period income. The timing and amount of
such an assessment cannot be accurately predicted at this time.
17. LEASE COMMITMENTS
Approximate minimum rental payments under noncancelable operating leases at
December 31, 1995 are as follows:
($ in thousands)
1996....................... $ 1,744
1997....................... 1,670
1998....................... 1,545
1999....................... 1,507
2000....................... 1,297
Thereafter................. 8,580
$ 16,343
Leases on premises and equipment 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 $1,484,000, $1,138,000
and $714,000 in 1995, 1994 and 1993, respectively. The leases typically provide
that the lessee pay property taxes, insurance and maintenance cost.
18. PREFERRED STOCK
On January 4, 1996, the Company announced the redemption of the Series 1993
Preferred Stock. The redemption date was February 5, 1996. Of the 435,121 shares
of Series 1993 Preferred Stock outstanding, holders of 432,655 shares elected to
convert into common stock. Consequently, the Company issued 871,021 shares of
$1.00 par value common stock. Dividends paid or declared on the Series 1993
Preferred Stock during 1995 were $1,006,000.
34
On January 25, 1996, the Company announced the redemption of the Series 1994
Preferred Stock. The redemption date is February 29, 1996. Holders may elect to
convert their shares into common stock or redeem their shares for $26.50. Each
share of Series 1994 Preferred Stock is convertible into 1.8828 shares of common
stock. Dividends paid or declared on the Series 1994 Preferred Stock during 1995
were $1,679,000.
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 CF Mortgage,
formerly First Sun Mortgage Corporation. Each share of Series 1993B Preferred
Stock is convertible into 1.8375 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 during 1995 were $67,000.
19. PER SHARE INFORMATION
The Company's Board of Directors declared a five percent common stock
dividend issued on August 15, 1995, to common shareholders of record on August
1, 1995. Per share data have been restated to reflect this dividend.
The following is a summary of the earnings per share calculation for the
years ended December 31:
($ in thousands, except
share data) 1995 1994 1993
PRIMARY
Average common shares
outstanding........... 6,263,850 5,836,845 4,587,884
Dilutive common stock
options and
warrants.............. 132,988 - -
Average primary shares
outstanding........... 6,396,838 5,836,845 4,587,884
Net income (loss)....... $9,414 $(1,740 ) $5,418
Less dividends on
preferred stock....... 2,752 2,433 1,930
Net income (loss)
applicable to common
shareholders.......... $6,662 $(4,173 ) $3,488
Per share amount........ $ 1.04 $ (0.71 ) $ 0.76
FULLY DILUTED
Average common shares
outstanding........... 6,263,850 5,836,845 4,587,884
Convertible preferred
stock assumed
converted............. 2,869,823 2,592,165 2,252,895
Dilutive common stock
options and
warrants.............. 141,013 - -
Average fully diluted
shares outstanding.... 9,274,686 8,429,010 6,840,779
Net income (loss)....... $9,414 $(1,740 ) $5,418
Per share amount, if
lower than primary per
share amount.......... $ 1.02 n/a n/a
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 its subsidiaries.
South Carolina's banking regulations restrict the amount of dividends that
Carolina First Bank can pay. All dividends paid from Carolina First Bank are
subject to the prior approval of the Commissioner of Banking and payable only
from the retained earnings of Carolina First Bank. At December 31, 1995,
Carolina First Bank's retained earnings were $24,102,000.
35
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 551,250. 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 1995 and 1994. The information has been adjusted
for the 5% stock dividends.
1995 1994
OPTION Option
PRICE Price
SHARES PER SHARE Shares Per Share
Outstanding,
January 1.......... 137,700 $ 5.77/14.77 109,550 $5.77/10.91
Granted.............. 57,775 12.74/15.25 28,298 14.17
Cancelled............ (4,022) 8.43/15.25 - -
Exercised............ (49,691) 5.77/14.17 (148) 8.96/11.46
Outstanding, December
31................. 141,762 $ 5.77/15.25 137,700 $5.77/14.17
Exercisable, December
31................. 49,548 $ 5.77/14.17 41,645 $5.77/11.46
Available for grant,
December 31........ 299,285 353,038
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, 1995, there were 72,746 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 $338,000 charged to expense in 1995, $236,000 in 1994 and
$163,000 in 1993.
In connection with the Directors' Stock Option Plan, established at the 1994
Annual Meeting, grants were issued for 19,950 shares at an option price of
$12.86 per share on May 1, 1995 and 16,800 shares at an option price of $11.79
per share on May 2, 1994.
Each of MNB's organizers received one nontransferable warrant to purchase
one share of MNB's common stock for each share they had committed to purchase in
the 1988 initial offering. The exercise price of the warrants is $5.77 per
share, and the warrants are exercisable at any time until their expiration on
December 7, 1998. The total number of shares that can be purchased with these
warrants was 160,256 at the end of 1994. At December 31, 1995 there were 147,658
warrants outstanding; 12,598 were exercised in 1995.
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, 1995, the Company had executed simultaneous
repurchase/reverse repurchase transactions with customers with total principal
amounts of approximately $345,054,000 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, 1995, was $1,196,425,000.
36
23. RELATED PARTY TRANSACTIONS
The Company has entered into a series of transactions with entities whose
Chief Executive Officer is now a director of the Company. These transactions
include the purchase of branches from Republic National Bank, the purchase of
the credit card receivables from Republic National Bank, the purchase of
mortgage servicing rights from Resource Bancshares Mortgage Group, Inc. and the
purchase of lease financing receivables from Republic Leasing Company, Inc.
Carolina First Bank has also entered into servicing and solicitation agreements
with Republic National Bank pursuant to its credit card accounts.
During the years ended December 31, 1995, 1994 and 1993, lease payments
aggregating approximately $167,000, $163,000 and $163,000, respectively, were
made to affiliates of directors or companies in which certain directors have an
interest.
These transactions, agreements and lease payments were made in the ordinary
course of business and were on terms comparable to those which would have been
obtained between unrelated parties.
24. EMPLOYEE BENEFIT PLANS
The Company maintains the Carolina First Salary Reduction Plan and Trust
("the Plan") for all eligible employees of Carolina First Bank, CF Mortgage and
Blue Ridge. 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. Effective January 1, 1996, the Company's matching
percentage was increased to five percent. Contributions of $496,000, $458,000
and $301,000 were charged to operations in 1995, 1994 and 1993, 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, 1995, 1994 and 1993, contributions of $901,000,
$813,000 and $401,000, respectively, were charged to operations.
The ESOP has a loan used to acquire shares of stock of the Company. Such
stock is pledged as collateral for the loan. In accordance with the requirements
of the American Institute of Certified Public Accountants Statements of Position
76-3 and 93-6, the Company presents the outstanding loan amount as other
borrowed money and as a reduction of shareholders' equity in the accompanying
consolidated balance sheets (Note 15). Company contributions to the ESOP are the
primary source of funds used to service the debt.
25. NONINTEREST EXPENSES
The significant components of sundry noninterest expenses for the years
ended December 31 are presented below:
($ in thousands) 1995 1994 1993
Federal deposit insurance
premiums................. $ 1,983 $ 2,114 $ 1,605
Credit card solicitation
charges.................. 1,910 - -
Advertising................ 1,427 959 434
Postage.................... 1,127 861 564
Telephone.................. 1,066 940 586
Stationery, supplies and
printing................. 1,037 1,223 904
Other...................... 7,059 5,415 4,952
$ 15,609 $ 11,512 $ 9,045
26. 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 wholly-owned subsidiary, Carolina First Savings
Bank, into Carolina First 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 Carolina First Savings Bank into Carolina First Bank, the
Company incurred income taxes of $1,005,000 due to the different tax treatment
accorded the allowance for loan losses at Carolina First Savings Bank.
37
27. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Carolina First
Corporation (Parent Company only):
CONDENSED BALANCE SHEETS
December 31,
($ in thousands) 1995 1994
ASSETS
Cash......................................................... $ 1,733 $ 298
Investment in subsidiaries:
Bank subsidiary............................................ 116,158 78,083
Nonbank subsidiaries....................................... 897 1,640
Total investment in subsidiaries............................. 117,055 79,723
Receivable from subsidiaries................................. - 76
Premises and equipment....................................... 137 363
Other investments............................................ 2,014 1,470
Other assets................................................. 2,937 5,279
$ 123,876 $ 87,209
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities....................... $ 1,191 $ 601
Borrowed funds............................................... 27,718 126
Shareholders' equity......................................... 94,967 86,482
$ 123,876 $ 87,209
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31,
($ in thousands) 1995 1994 1993
INCOME
Dividend income.............................................. $ 13 $ 500 $ 1,400
Interest income from subsidiaries............................ 71 98 73
Sundry....................................................... 894 181 217
978 779 1,690
EXPENSE
Interest on borrowed funds................................... 1,503 10 -
Deferred compensation........................................ 338 236 163
Shareholder communications................................... 255 287 203
Sundry....................................................... 1,850 1,020 417
3,946 1,553 783
Income (loss) before taxes and equity in undistributed net
income (loss) of subsidiaries.............................. (2,968) (774) 907
Income tax benefits.......................................... 1,110 680 173
Equity in undistributed net income (loss) of subsidiaries.... 11,272 (1,646) 4,338
Net income (loss)............................................ $ 9,414 $ (1,740) $ 5,418
38
CONDENSED STATEMENTS OF CASH FLOW
For the Years Ended December 31,
($ in thousands) 1995 1994 1993
OPERATING ACTIVITIES
Net income (loss)............................................ $ 9,414 $ (1,740) $ 5,418
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operations
Equity in undistributed net income (loss) of subsidiaries.... (11,272) 1,646 (4,338)
Depreciation................................................. 16 18 15
Increase (decrease) in other liabilities..................... 583 143 (190)
Decrease (increase) in other assets.......................... 2,342 (4,919) (45)
Net cash provided by (used for) operating activities......... 1,083 (4,852) 860
INVESTING ACTIVITIES
Investment in bank subsidiary................................ (25,100) (14,000) (15,000)
Investment in nonbank subsidiaries........................... - - (350)
Net decrease (increase) in loans to subsidiaries............. 76 - (212)
Increase in other
investments................................................ (441) (480) (348)
Decrease (increase) in fixed assets, net..................... 210 (381) 230
Blue Ridge merger............................................ 804 - -
Net cash used for investing activities....................... (24,451) (14,861) (15,680)
FINANCING ACTIVITIES
Increase in borrowings, net.................................. 2,355 - -
Exercise of stock options.................................... - - 30
Issuance of Subordinated Notes............................... 25,237 - -
Net proceeds from sale of preferred stock.................... - 21,444 14,462
Redemption of preferred stock................................ - - (92)
Cash dividends paid.......................................... (4,221) (3,025) (1,777)
Other........................................................ 1,432 764 -
Net cash provided by financing activities.................... 24,803 19,183 12,623
Net change in cash and due from banks........................ 1,435 (530) (2,197)
Cash at beginning of year.................................... 298 828 3,025
Cash at end of year.......................................... $ 1,733 $ 298 $ 828
39
28. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results
of the Company and its subsidiaries for the years ended December 31:
Fourth
($ in thousands, except First Quarter Second Quarter Third Quarter Quarter
share data) 1995 1994 1995 1994 1995 1994 1995
Interest income........ $22,913 $14,308 $24,001 $18,131 $26,351 $20,337 $28,485
Interest expense....... 10,506 6,630 12,143 7,394 13,746 8,820 14,583
Net interest income.... 12,407 7,678 11,858 10,737 12,605 11,517 13,902
Provision for loan
losses............... 3,400 38 990 204 1,000 275 1,456
Net interest income
after provision for
loan losses.......... 9,007 7,640 10,868 10,533 11,605 11,242 12,446
Noninterest income..... 5,153 2,096 3,643 2,109 3,893 2,399 4,637
Noninterest expenses... 10,825 7,620 11,119 9,831 11,824 10,417 13,114
Income before taxes.... 3,335 2,116 3,392 2,811 3,674 3,224 3,969
Income taxes........... 1,134 540 1,163 880 1,203 1,020 1,456
Net income (loss)...... 2,201 1,576 2,229 1,931 2,471 2,204 2,513
Dividends on preferred
stock................ 727 310 685 661 687 731 653
Net income (loss)
applicable to common
shareholders......... $ 1,474 $ 1,266 $ 1,544 $ 1,270 $ 1,784 $ 1,473 $ 1,860
Net income (loss) per
common share:*
Primary.............. $ 0.24 $ 0.22 $ 0.24 $ 0.22 $ 0.28 $ 0.25 $ 0.28
Fully diluted........ 0.24 0.22 0.24 0.22 0.27 0.25 0.27
Average common shares
outstanding:*
Primary.............. 6,211,368 5,813,352 6,385,478 5,829,209 6,436,619 5,834,968 6,555,895
Fully diluted........ 9,291,330 7,173,615 9,315,021 8,652,326 9,340,304 8,927,528 9,356,861
FOURTH
($ in thousands, except QUARTER
share data) 1994
Interest income........ $22,993
Interest expense....... 9,665
Net interest income.... 13,328
Provision for loan
losses............... 680
Net interest income
after provision for
loan losses.......... 12,648
Noninterest income..... 1,622
Noninterest expenses... 23,971
Income before taxes.... (9,701)
Income taxes........... (2,250)
Net income (loss)...... (7,451)
Dividends on preferred
stock................ 731
Net income (loss)
applicable to common
shareholders......... $ (8,182)
Net income (loss) per
common share:*
Primary.............. $ (1.40)
Fully diluted........ (1.40)
Average common shares
outstanding:*
Primary.............. 5,869,591
Fully diluted........ 8,625,154
*Per share data have been restated to reflect the 5% stock dividends.
40
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, accrued interest receivable and payable and other assets
and liabilities.
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 resale agreements, federal funds purchased and repurchase
agreements and other short-term borrowings.
Fair value for variable rate loans that reprice frequently 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 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.
At December 31, 1995 and 1994, Carolina First Bank had outstanding standby
letters of credit, documentary letters of credit and commitments to extend
credit. These off-balance sheet financial instruments are based on fees
currently charged for similar instruments or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties at the
reporting date. At December 31, 1995 and 1994 the carrying amounts and fair
values of these off-balance sheet financial instruments were immaterial.
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:
1995 1994
FAIR
($ in thousands) CARRYING AMOUNT VALUE Carrying Amount
FINANCIAL ASSETS
Cash and due from banks...................................... $ 84,433 $ 84,433 $ 59,750
Federal funds sold and resale agreements..................... - - 4,420
Trading securities........................................... 5,805 5,805 1,155
Securities available for sale................................ 146,272 146,272 60,548
Securities held to maturity.................................. 26,289 26,670 70,264
Loans receivable............................................. 1,062,660 1,064,354 923,068
FINANCIAL LIABILITIES
Deposit liabilities.......................................... 1,095,491 1,096,892 1,001,748
Federal funds purchased and repurchase agreements............ 91,532 91,532 33,986
Short-term borrowings........................................ 95,257 95,257 72,088
Long-term debt............................................... 26,347 27,314 1,162
1994
Fair
($ in thousands) Value
FINANCIAL ASSETS
Cash and due from banks...................................... $ 59,750
Federal funds sold and resale agreements..................... 4,420
Trading securities........................................... 1,155
Securities available for sale................................ 60,548
Securities held to maturity.................................. 66,820
Loans receivable............................................. 901,060
FINANCIAL LIABILITIES
Deposit liabilities.......................................... 1,000,973
Federal funds purchased and repurchase agreements............ 33,986
Short-term borrowings........................................ 72,088
Long-term debt............................................... 1,315
41
DIRECTORY
BOARDS OF DIRECTORS
DAVID BAKER (Bullet)
Real Estate Developer
R. COBB BELL (Bullet)
Certified Public Accountant
CLAUDE M. EPPS, JR. (Bullet)
President
Bellamy, Rutenberg, Copeland,
Epps, Gravely & Bowers, P.A.
JUDD B. FARR +(Bullet)
President
Greenco Beverage Co., Inc.
C. CLAYMON GRIMES, JR. (Bullet)
Attorney
M. DEXTER HAGY +(Bullet)
President
Vaxa Corporation
ROBERT E. HAMBY, JR. +(Bullet)
Certified Public Accountant
R. GLENN HILLIARD+
Chairman, President and Chief Executive Officer
ING North America
Insurance Corporation
KEITH C. HINSON (Bullet)
President
Waccamaw Land and Timber
MICHAEL R. HOGAN +(Bullet)
President
Puckett, Scheetz & Hogan
WILLIAM S. HUMMERS, III +(Bullet)
Executive Vice President
and Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
RICHARD E. INGRAM +(Bullet)
Chairman of the Board
Builder Marts of America, Inc. (BMA)
JAMES J. JOHNSON (Bullet)
President and Treasurer
Dargan Construction Company, Inc.
DAVID L. MORROW (Bullet)
Executive Vice President
Carolina First Bank
WALTER J. ROBERTS, JR., M.D. (Bullet)
Internist
Medical Director SCMA-PCN
H. EARLE RUSSELL, JR., M.D. (Bullet)
Surgeon
Greenville Surgical Associates
JASPER SALMOND (Bullet)
Senior Marketing Coordinator
Wilbur Smith Associates
CHARLES B. SCHOOLER, O.D. +(Bullet)
Optometrist
EDWARD J. SEBASTIAN+
Chairman and Chief Executive Officer
Resource Bancshares Corporation
Chairman and Chief Executive Officer
Resource Bancshares Mortgage
Group, Inc.
ELIZABETH P. STALL +(Bullet)
Investments
JAMES W. TERRY, JR. (Bullet)
President
Carolina First Bank
WILLIAM R. TIMMONS, JR. +(Bullet)
Chairman
Carolina First Corporation
Chairman
Canal Insurance Company
WILLIAM M. WEBSTER, III +(Bullet)
Partner
Carabo Capital
MACK I. WHITTLE, JR. +(Bullet)
President and Chief Executive Officer
Carolina First Corporation
Chairman and Chief Executive Officer
Carolina First Bank
THOMAS C. "NAP" VANDIVER (Bullet)
Chairman Emeritus
Carolina First Bank
ADVISORY BOARD MEMBERS
ANDERSON
Richard C. Ballenger
James W. Braswell, Jr.
A. Reese Fant
Daniel J. Fleming, M.D.
William W. Jones
John F. Rainey, M.D.
D. Gray Suggs
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.
GEORGETOWN COUNTY
Alan S. Altman
T. M. Andrews
James H. Call
William F. Fairey, M.D.
Douglas G. Mahon, III
Robert B. Plowden, Jr.
Julian A. Reynolds, Jr.
R. Frank Swinnie, Jr.
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 A. Lassiter
Gertrude Harvey Leonard
HORRY COUNTY
W. Scott Brandon
H. Eugene Butler, III, DMD
Donald M. Carriker
Edward C. Cribb, Jr.
Roger E. Grigg
Luther O. McCutchen, III
Daniel W. R. Moore, Sr.
Edward L. Proctor, Jr., M.D.
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
MIDLANDS
Earl H. Bergen, Jr.
Rodney S. Griffin
Dan H. Hamm, Jr.
Terry L. Koon
Heyward D. Shealy
C. Gurnie Stuck
PIEDMONT
Max W. Kennedy
Al McAbee, Jr.
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 W. Craig
A. D. Gantt, M.D.
Lonnie McAlister
Leonard Mills
Russell Nix
Tom P. Scott
Legend
+Carolina First Corporation (Bullet)Carolina First Bank
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
42
BANKING OFFICES
AIKEN
Main Office
142 Chesterfield Street, S.E.
803-649-9991
2286 Whiskey Road
803-642-0300
ANDERSON
Main Office
1722 North Main Street
864-231-5960
110 West Shockley Ferry Road
864-231-5971
ANDREWS
201 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
CHAPIN
260 Columbia Avenue
803-345-1066
CHARLESTON
Main Office
1 Broad Street
803-769-2929
556 E. Bay Street (Drive up)
(Opening in 1996)
Bi-Lo at Mt. Pleasant
923 Houston Northcutt Boulevard
803-769-2965
852 Orleans Road
803-763-0072
Bi-Lo at Savannah Highway
1621 Savannah Highway
803-769-2942
COLUMBIA
Main Office
1225 Lady Street
803-540-2700
1940 Blossom Street
803-771-8919
Columbia Mall
7171 Two Notch Road
803-253-7873
Kroger at Decker Boulevard
2500 Decker Boulevard
803-929-5397
1420 Lady Street
803-929-5372
380 St. Andrews Road
803-929-5376
7389 Sumter Highway
803-253-8894
Trenholm Plaza
4840 Forest Drive
803-253-8890
10000 Two Notch Road
803-253-8888
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
864-255-7900
101 Cleveland Street
864-255-7904
200 East Camperdown Way
864-255-4763
917 Haywood Road
864-255-7917
1295 South Pleasantburg Drive
864-239-6432
1450 Wade Hampton Boulevard
864-255-4900
1216 Woodruff Road
864-239-4650
Blue Ridge Finance Company
355 Woodruff Road, Suite 210
864-458-7134
HARDEEVILLE
114 North Coastal Highway
803-784-2216
IRMO
1265 Lake Murray Boulevard
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
864-234-3180
MCCOLL
114 Main Street
803-523-5381
MYRTLE BEACH
Main Office
2003 Oak Street
803-448-9458
Kroger at Galleria
9608 Highway 17 North
803-449-6544
NEWBERRY
2633 Winnsboro Road
803-321-0433
NORTH MYRTLE BEACH
Kroger at North Myrtle Beach
781 Main Street
803-249-3781
PAWLEYS ISLAND
Highway 17 South
803-237-4294
PIEDMONT
15 Main Street
864-845-7563
PROSPERITY
305 Main Street
803-364-7300
RIDGELAND
114 North Green Street
803-726-5518
SALLEY
125 Railroad Avenue North
803-258-3201
SPRINGFIELD
7222 Festival Trail Road
803-258-3211
SURFSIDE
Kroger at Surfside
5900 Highway 17 South
803-238-0301
SWANSEA
200 South Brecon Avenue
803-568-2133
TAYLORS
3406 Wade Hampton Boulevard
864-239-4680
WILLISTON
11 West Main Street
803-266-7474
43
TO HELP US
MAIL MORE EFFICIENTLY,
AND TO HELP YOU
INVEST MORE EFFICIENTLY,
PLEASE FILL OUT AND RETURN
THE ATTACHED CARDS.
THANK YOU.
(Mailing Code NO POSTAGE
appears here) 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
(Bar Code appears here)
(Mailing Code NO POSTAGE
appears here) 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
(Bar Code appears here)
Duplicate Mailing/Change of Address Notification
If you would like to eliminate duplicate mailings, or change the address at
which you receive shareholders 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
SHAREHOLDER INFORMATION
STOCK LISTING
The common stock of Carolina First Corporation is traded on The
Nasdaq Stock Market's National Market under the symbol, CAFC. At December 31,
1995, there were 2,926 common shareholders of record, 157 Series 1994
preferred shareholders of record (formerly traded under the symbol, CAFCN),
and 181 Series 1993 preferred shareholders of record (formerly traded under
the symbol, CAFCO).
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.
DIVIDEND CALENDAR
Dividends, if approved by the Board of Directors, are customarily
paid to shareholders of record as follows.
Record Dates:
January 15, April 15, July 15 and October 15
Dividend Dates:
February 1, May 1, August 1 and November 1
REGISTRAR AND TRANSFER AGENT
Carolina First Bank, Trust Division
P. O. Box 1029, Greenville, SC 29602
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 (864) 255-4919.
ANNUAL MEETING
The Annual Meeting of Shareholders of Carolina First Corporation
will be held at 10:30 a.m., April 18, 1996, at the 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
(864) 255-7913
QUARTERLY COMMON STOCK SUMMARY
1995 1994
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
STOCK PRICE RANGES:
High $19.38 $16.75 $14.52 $14.52 $13.33 $15.00 $14.29 $12.25
Low 13.50 14.05 12.14 12.86 12.62 13.33 10.89 10.89
Close 17.50 16.25 14.29 13.45 13.33 14.52 14.29 10.89
DIVIDEND 0.07 0.06 0.06 0.06 0.05 0.05 0.05 0.05
VOLUME TRADED 1,792,590 778,306 742,581 468,246 595,643 481,530 377,904 238,843
SHARES OUTSTANDING 6,517,366 6,131,722 5,831,724 5,673,860 5,618,941 5,561,987 5,553,538 5,332,324
44