United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM to
Commission file number 0-15083
CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina
(State or other jurisdiction of incorporation or organization)
57-0824914
(I.R.S. Employer Identification No.)
102 South Main Street, Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (864) 255-7900
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates
(shareholders holding less than 5% of an outstanding class of stock, excluding
directors and executive officers), computed by reference to the closing price of
such stock, as of March 14, 1997 was $178,225,000.
The number of shares outstanding of the Registrant's common stock, $1.00 par
value was 11,355,445 at March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
- --------------------- ---------------------
Portions of 1996 Annual Report to Shareholders Part II; IV
Portions of Proxy Statement dated March 21, 1997 Part III
PART I
ITEM 1 - BUSINESS
THE COMPANY
Carolina First Corporation (the "Company"), organized in 1986, is a
bank holding company headquartered in Greenville, South Carolina. At December
31, 1996, it operated through three subsidiaries: Carolina First Bank, a
state-chartered bank headquartered in Greenville, South Carolina; Carolina First
Mortgage Company, a South Carolina corporation headquartered in Columbia, South
Carolina ("CF Mortgage"); and Blue Ridge Finance Company, an automobile finance
company headquartered in Greenville, South Carolina ("Blue Ridge"). 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. The Company, which commenced banking
operations in December 1986, currently conducts business through 55 locations in
South Carolina. At December 31, 1996, the Company had approximately $1.574
billion in assets, $1.125 billion in loans, $1.281 billion in deposits and
$105.0 million in shareholders' equity.
The Company was formed principally in response to opportunities
resulting from the takeovers of several South Carolina-based banks by large
southeastern regional bank holding companies. A significant number of the
Company's executive officers and management personnel were previously employed
by certain of the larger South Carolina-based banks that were acquired by these
southeastern regional institutions. Consequently, these officers and management
personnel have significant customer relationships and commercial banking
experience that have contributed to the Company's loan and deposit growth. The
Company targets individuals and small- to medium-sized businesses in South
Carolina that require a full range of quality banking services.
The Company currently serves four principal market areas: the
Greenville metropolitan area and surrounding counties (located in the Upstate
region of South Carolina); the Columbia metropolitan area and surrounding
counties (located in the Midlands region of South Carolina); Georgetown and
Horry counties (located in the northern Coastal region of South Carolina); and
the Charleston metropolitan area (located in the central Coastal region of South
Carolina). The Company's principal market areas represent the four largest
Metropolitan Statistical Areas in the state. The Company also has branch
locations in other counties in South Carolina.
The Company began its operations with the de novo opening of Carolina
First Bank in Greenville and has pursued a strategy of growth through internal
expansion and through the acquisition of branch locations and financial
institutions in selected market areas. Its more significant acquisitions include
(i) the acquisition in August 1990 of First Federal Savings and Loan Association
of Georgetown (subsequently renamed Carolina First Savings Bank) which was
merged into Carolina First Bank in February 1995, (ii) the acquisitions in March
1993 and May 1994 of twelve branch locations and six branch locations,
respectively, of Republic National Bank, (iii) the acquisition of First Sun
Mortgage Corporation (subsequently renamed Carolina First Mortgage Company) in
September 1993, (iv) the merger of Aiken County National Bank into Carolina
First Bank in April 1995, and (v) the merger of Midlands National Bank into
Carolina First Bank in June 1995. Approximately half of the Company's total
deposits have been generated through acquisitions.
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The Company also owns approximately 17% of Affinity Technology Group,
Inc.'s outstanding common stock, principally in the form of stock warrants.
Affinity develops and markets technologies, including automated lending
machines, that enable financial institutions and other businesses to provide
consumer financial services electronically.
In October 1996, the Company announced the Atlanta Internet Bank's
introduction of "anytime- anywhere" banking in cyberspace. Atlanta Internet
Bank, which is a product of Carolina First Bank, opened its electronic doors on
AT&T's WorldNet Service and offers banking products primarily by means of a
secured Internet web site. The Company has an agreement with certain persons,
which provides for the transfer of the Company's Atlanta Internet Bank operation
to a thrift institution owned by Net.B@nk, Inc. ("Net B@nk"), upon compliance
with certain conditions. On March 21, 1997, Net B@nk filed a registration
statement with the Securities and Exchange Commission for the initial public
offering of its common stock. If the initial public offering is consummated as
contemplated in the registration statement, the Company would expect to own
approximately 20% of Net.B@nk's common shares, or 1.3 million shares. The
Company's ownership of the Net.B@nk, Inc. shares is subject to regulatory
approval.
CAROLINA FIRST BANK
Carolina First Bank engages in a general banking business through 52
branches in 35 communities in 16 South Carolina counties. Carolina First Bank's
primary focus is on commercial and consumer lending to customers in its market
areas, with mortgage lending being of secondary emphasis. It also provides
demand transaction accounts and time deposit accounts to businesses and
individuals. Since the acquisition of CF Mortgage in 1993, Carolina First Bank's
mortgage origination and servicing activities have been performed by CF
Mortgage.
Carolina First Bank provides a full range of commercial and consumer
banking services, including short and medium-term loans, mortgage loans,
revolving credit arrangements, inventory and accounts receivable financing,
equipment financing, real estate lending, credit card loans, safe deposit
services, savings accounts, interest- and noninterest-bearing checking accounts
and installment and other personal loans. Carolina First Bank also provides
trust services, investment products and various cash management programs.
CF MORTGAGE
On September 30, 1993, the Company acquired First Sun Mortgage
Corporation (subsequently renamed Carolina First Mortgage Company). CF Mortgage
is engaged primarily in originating, underwriting and servicing one-to-four
family residential mortgage loans. CF Mortgage also buys or sells mortgage
servicing rights to keep its servicing balances at economically desirable levels
or to benefit from favorable terms.
CF Mortgage's mortgage loan origination operation is conducted
principally through six offices in South Carolina. Mortgage loan applications
are forwarded to CF Mortgage's headquarters in Columbia for processing in
accordance with GNMA, FNMA and other applicable guidelines. During 1996, 1,173
mortgage loans totaling $127 million were originated. The Company generally
sells all conforming fixed rate mortgage loans into the secondary market.
CF Mortgage's mortgage servicing operations consist of servicing loans
that are owned by Carolina
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First Bank and subservicing loans, to which the right to service is owned by
Carolina First Bank and other non-affiliated financial institutions. This
servicing operation is conducted at its headquarters located in Columbia, South
Carolina. At December 31, 1996, CF Mortgage was servicing approximately 13,679
loans having an aggregate principal balance of approximately $1.2 billion.
BLUE RIDGE
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, 1996, had
approximately $16 million in total assets. Blue Ridge is engaged primarily in
indirect automobile lending.
ACQUISITIONS AND DISPOSITIONS
Since its inception in 1986, the Company has pursued a strategy of
growth through internal expansion and through the acquisition of branch
locations and financial institutions in selected market areas when suitable
opportunities develop. The Company has emphasized internal growth through the
acquisition of market share from the large out-of-state bank holding companies.
It attempts to acquire market share by providing quality banking services and
personal service to individuals and business customers.
The Company has grown through acquisitions. The following list
summarizes the Company's acquisition activity during the past three years.
Method of
Acquisition Date Acquired Accounting
1 Branch Location April 1994 $6 million Purchase
Citadel Federal Savings and (Deposits)
Loan Association
Charleston, South Carolina
6 Branch Locations May 1994 $135 million Purchase
Republic National Bank (Deposits)
South Carolina
Aiken National Bank April 1995 $39 million Pooling
Aiken, South Carolina (Assets)
Midlands National Bank June 1995 $44 million Pooling
Prosperity, South Carolina (Assets)
Blue Ridge Finance Company December 1995 $4 million Pooling
Greenville, South Carolina (Assets)
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On March 14, 1997, the Company announced the signing of an agreement to
acquire Lowcountry Savings Bank, Inc. ("Lowcountry"). The Company plans to merge
Lowcountry into Carolina First Bank, a wholly-owned subsidiary of the Company.
This transaction is valued at approximately $13.3 million, with 60% payable with
the Company's Common Stock and 40% payable in cash. Lowcountry has five offices
in the greater Charleston area and had approximately $76 million in assets and
$62 million in deposits at December 31, 1996. This transaction, which is subject
to the receipt of regulatory and shareholder approval, is expected to be
completed in the second quarter of 1997. The Company will record the acquisition
using the purchase method of accounting.
In September 1996, the Company announced the divestiture of
five branches located in Barnwell, Blackville, Salley, Springfield and Williston
with approximately $50 million in deposits. The branches are being sold to the
Bank of Barnwell County (in organization), expected to be a wholly-owned
subsidiary of Community Capital Corporation, a South Carolina corporation
headquartered in Greenwood, South Carolina. This transaction is scheduled to be
completed in the second quarter of 1997 and is subject to regulatory approval
among other conditions.
DIVIDENDS
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay.
In each year from 1989 through 1995, the Company issued 5% common stock
dividends to common shareholders. At its December 1996 meeting, the Board of
Directors of the Company declared a six-for-five stock split effected in the
form of a 20% common stock dividend which was issued on January 30, 1997 to
shareholders of record as of January 15, 1997. Share and per share data for all
periods presented have been retroactively restated to reflect the additional
shares outstanding resulting from the stock dividend. The Company has paid all
scheduled cash dividends on the Series 1993 Preferred Stock, Series 1993B
Preferred Stock, Series 1994 Preferred Stock and 9.00% Subordinated Notes since
their respective issuances.
In November 1993, the Board of Directors initiated a regular quarterly
cash dividend of $0.05 per share payable on the Common Stock, the first of which
was paid on February 1, 1994. Cash dividends have been paid on a quarterly basis
since the initiation of the cash dividend. The Board of Directors increased the
quarterly cash dividend to $0.06 beginning in the first quarter of 1995 and to
$0.07 beginning in the first quarter of 1996. At the December 1996 meeting,
concurrent with the declaration of a six-for-five stock split, the Board of
Directors also approved a $0.07 per share cash dividend on the common stock
which represents an effective increase of 20%. The Company presently intends to
continue to pay this quarterly cash dividend on the Common Stock; however,
future dividends will depend upon the Company's financial performance and
capital requirements.
COMPETITION
Each of the Company's markets is a highly competitive banking market in
which all of the largest banks in the state are represented. The competition
among the various financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans, credit and service charges,
the quality of services rendered, the convenience of banking facilities and, in
the case of loans to large commercial borrowers, relative lending limits. In
addition to banks and savings associations, the Company competes with
5
other financial institutions including securities firms, insurance companies,
credit unions, leasing companies and finance companies. Size gives larger banks
certain advantages in competing for business from large corporations. These
advantages include higher lending limits and the ability to offer services in
other areas of South Carolina and the region. As a result, the Company does not
generally attempt to compete for the banking relationships of large
corporations, but concentrates its efforts on small to medium-sized businesses
and on individuals. The Company believes it has competed effectively in this
market segment by offering quality, personal service.
EMPLOYEES
At December 31, 1996, the Company employed a total of 609 full-time
equivalent employees. The Company believes that its relations with its employees
are good.
MONETARY POLICY
The earnings of bank holding companies are affected by the policies of
regulatory authorities, including the Board of Governors of the Federal Reserve
System, in connection with its regulation of the money supply. Various methods
employed by the Federal Reserve Board include open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against member bank deposits. These methods
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also affect interest
rates charged on loans or paid on deposits. The monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company's subsidiaries are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the general levels of inflation on the price of
goods and services. While the Company's noninterest income and expense and the
interest rates earned and paid are affected by the rate of inflation, the
Company believes that the effects of inflation are generally manageable through
asset/liability management.
INDUSTRY DEVELOPMENTS
Certain recently-enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or operations.
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.
Effective January 1, 1996, the insurance assessment for Carolina First Bank's
BIF deposits was set at zero
6
(although banks pay a $2,000 annual fee). The FDIC insurance assessment
reduction applied only to BIF- insured deposits and did not include deposits
insured by the 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 22%
of Carolina First Bank's total deposits are subject to SAIF insurance
assessments imposed by the FDIC. Through September 30, 1996, Carolina First
Bank's SAIF-insured deposits were assessed at 0.23% of the average assessment
base, excluding the special assessment discussed below.
On September 30, 1996, the President signed into law legislation
requiring a special assessment to recapitalize the SAIF. This assessment was
applied at a rate of 0.657% of SAIF-insured deposits as of March 31, 1995. Banks
that have acquired "Oakar" deposits before March 31, 1995 were allowed a 20%
reduction to the assessment base. The result for Carolina First Bank was a
charge of $1.2 million pre-tax ($746,000 after-tax) based on approximately $223
million of SAIF deposits. The legislation also changed future annual assessment
rates for both BIF-insured deposits and SAIF-insured deposits. For 1997 through
1999, the annual assessment rates will be 0.0129% for BIF-insured deposits and
0.0644% for SAIF-insured deposits.
ACCOUNTING ISSUES
The Financial Accounting Standards Board ("FASB") has issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. Those
standards are based on consistent application of the financial components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished.
This statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996 and is to be
applied prospectively. In December 1996, the FASB issued SFAS 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125," which
defers for one year the applications of certain requirements under SFAS 125. The
Company does not expect SFAS 125 to have a significant impact on its financial
condition or results of operations.
SUPERVISION AND REGULATION
GENERAL
The Company and its subsidiaries are extensively regulated under
federal and state law. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws may have a material effect on the business and prospects of the Company.
The operations of the Company may be affected by possible legislative and
regulatory changes and by the monetary policies of the United States.
The Company. As a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), the Company is subject to
regulation and supervision by the Federal Reserve. Under the BHCA, the Company's
activities and those of its subsidiaries are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling
7
banks as to be a proper incident thereto. The BHCA prohibits the Company from
acquiring direct or indirect control of more than 5% of any class of outstanding
voting stock, or substantially all of the assets of any bank, or merging or
consolidating with another bank holding company without prior approval of the
Federal Reserve. The BHCA also prohibited the Company from acquiring control of
any bank operating outside the State of South Carolina until September 29, 1995
unless such action was specifically authorized by the statutes of the state
where the bank to be acquired was located. See " -- Supervision and Regulation
- -- Interstate Banking."
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. The BHCA
generally does not place territorial restrictions on the activities of such
nonbanking-related entities.
Further, the Federal Deposit Insurance Act, as amended ("FDIA"),
authorizes the merger or consolidation of any Bank Insurance Fund ("BIF") member
with any Savings Association Insurance Fund ("SAIF") member, the assumption of
any liability by any BIF member to pay any deposits of any SAIF member or vice
versa, or the transfer of any assets of any BIF member to any SAIF member in
consideration for the assumption of liabilities of such BIF member or vice
versa, provided that certain conditions are met and, in the case of any
acquiring, assuming or resulting depository institution which is a BIF member,
that such institution continues to make payment of SAIF assessments on the
portion of liabilities attributable to any acquired, assumed or merged
SAIF-insured institution (or, in the case of any acquiring, assuming or
resulting depository institution which is a SAIF member, that such institution
continues to make payment of BIF assessments on the portion of liabilities
attributable to any acquired, assumed or merged BIF-insured institution).
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution becomes in danger of defaulting or in
default under its obligations to repay deposits. For example, under current
federal law, to reduce the likelihood of receivership of an insured depository
institution subsidiary, a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. Under a policy of the Federal Reserve with
respect to bank holding company operations, a bank holding company is required
to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The Federal Reserve
also has the authority under the BHCA to require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution of the bank holding
company. Further, federal law grants federal bank regulatory authorities
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
In addition, the "cross-guarantee" provisions of the FDIA require
insured depository institutions under
8
common control to reimburse the FDIC for any loss suffered by either the SAIF or
the BIF as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF, or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
The Company is subject to the obligations and restrictions described
above. However, management currently does not expect that any of these
provisions will have any material impact on its operations.
As a bank holding company registered under the South Carolina Bank
Holding Company Act, the Company also is subject to regulation by the State
Board. Consequently, the Company must receive the approval of the State Board
prior to engaging in the acquisitions of banking or nonbanking institutions or
assets. The Company must also file with the State Board periodic reports with
respect to its financial condition and operations, management, and intercompany
relationships between the Company and its subsidiaries.
Carolina First Bank. Carolina First Bank is an FDIC-insured, South
Carolina-chartered banking corporation and is subject to various statutory
requirements and rules and regulations promulgated and enforced primarily by the
State Board and the FDIC. These statutes, rules and regulations relate to
insurance of deposits, required reserves, allowable investments, loans, mergers,
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the business of Carolina First Bank. The FDIC has
broad authority to prohibit Carolina First Bank from engaging in what it
determines to be unsafe or unsound banking practices. In addition, federal law
imposes a number of restrictions on state-chartered, FDIC-insured banks and
their subsidiaries. These restrictions range from prohibitions against engaging
as a principal in certain activities to the requirement of prior notification of
branch closings. Carolina First Bank also is subject to various other state and
federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit and fair credit reporting laws.
Carolina First Bank is not a member of the Federal Reserve System.
Dividends. The holders of the Company's common stock are entitled to
receive dividends when and if declared by the Board of Directors out of funds
legally available therefor. The holders of the Company's outstanding series of
preferred stock are also entitled to receive dividends when, as and if declared
by the Board of Directors in their discretion out of funds legally available
therefor and as set forth in the Company's Articles of Incorporation. The
Company is a legal entity separate and distinct from its subsidiaries and
depends for its revenues on the payment of dividends from its subsidiaries.
Current federal law would prohibit, except under certain circumstances and with
prior regulatory approval, an insured depository institution, such as Carolina
First Bank, from paying dividends or making any other capital distribution if,
after making the payment or distribution, the institution would be considered
"undercapitalized," as that term is defined in applicable regulations. In
addition, as a South Carolina-chartered bank, Carolina First Bank is subject to
legal limitations on the amount of dividends it is permitted to pay. In
particular, Carolina First Bank must receive the approval of the South Carolina
Commissioner of Banking prior to paying dividends to the Company.
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CAPITAL ADEQUACY
The Company. The Federal Reserve has adopted risk-based capital
guidelines for bank holding companies. Under these guidelines, the minimum ratio
of total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the total
capital is required to be "Tier 1 capital," principally consisting of common
stockholders' equity, noncumulative preferred stock, a limited amount of
cumulative perpetual preferred stock, and minority interests in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder (Tier 2 capital) may consist of a limited amount of subordinated debt
and intermediate-term preferred stock, certain hybrid capital instruments and
other debt securities, perpetual preferred stock, and a limited amount of the
general loan loss allowance. In addition to the risk-based capital guidelines,
the Federal Reserve has adopted a minimum Tier 1 (leverage) capital ratio under
which a bank holding company must maintain a minimum level of Tier 1 capital (as
determined under applicable rules) to average total consolidated assets of at
least 3% in the case of bank holding companies which have the highest regulatory
examination ratios and are not contemplating significant growth or expansion.
All other bank holding companies are required to maintain a ratio of at least
100 to 200 basis points above the stated minimum. At December 31, 1996, the
Company was in compliance with both the risk-based capital guidelines and the
minimum leverage capital ratio.
Carolina First Bank. As a state-chartered, FDIC-insured institution
which is not a member of the Federal Reserve System, Carolina First Bank is
subject to capital requirements imposed by the FDIC. The FDIC requires
state-chartered nonmember banks to comply with risk-based capital standards
substantially similar to those required by the Federal Reserve, as described
above. The FDIC also requires state-chartered nonmember banks to maintain a
minimum leverage ratio similar to that adopted by the Federal Reserve. Under the
FDIC's leverage capital requirement, state nonmember banks that (a) receive the
highest rating during the examination process and (b) are not anticipating or
experiencing any significant growth are required to maintain a minimum leverage
ratio of 3% of Tier 1 capital to total assets; all other banks are required to
maintain a minimum ratio of 100 to 200 basis points above the stated minimum,
with an absolute minimum leverage ratio of not less than 4%. As of December 31,
1996, the Company and Carolina First Bank were both in compliance with each of
the applicable regulatory capital requirements.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Federal Reserve, the FDIC and the OCC have issued a joint advance
notice of proposed rulemaking, and have issued a revised proposal, soliciting
comments on a proposed framework for implementing these revisions. Under the
proposal, an institution's assets, liabilities, and off-balance sheet positions
would be weighted by risk factors that approximate the instrument's price
sensitivity to a 100 basis point change in interest rates. Institutions with
interest rate risk exposure in excess of a threshold level would be required to
hold additional capital proportional to that risk. The notice also asked for
comments on how the risk-based capital guidelines of each agency may be revised
to take account of concentration and credit risk and the risk of nontraditional
activities. Carolina First Corporation cannot assess at this point the impact
the proposal would have on the capital requirements of Carolina First
Corporation or its subsidiary depository institutions.
As an FDIC-insured institution, Carolina First Bank is subject to
insurance assessments imposed by
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the FDIC. Under current law, the insurance assessment to be paid by insured
institutions shall be as specified in a schedule required to be issued by the
FDIC that specifies, at semiannual intervals, target reserve ratios designed to
increase the FDIC insurance fund's reserve ratio to 1.25% of estimated insured
deposits (or such higher ratio as the FDIC may determine in accordance with the
statute) in 15 years. Further, the FDIC is authorized to impose one or more
special assessments in any amount deemed necessary to enable repayment of
amounts borrowed by the FDIC from the United States Department of the Treasury
(the "Treasury Department").
Effective January 1, 1993, the FDIC implemented a risk-based assessment
schedule where the actual assessment to be paid by each FDIC-insured institution
is based on the institution's assessment risk classification. This
classification is determined based on whether the institution is considered
"well capitalized," "adequately capitalized" or "undercapitalized," as such
terms have been defined in applicable federal regulations adopted to implement
the prompt corrective action provisions of FDICIA (see "--Certain Regulatory
Matters--Other Safety and Soundness Regulations"), and whether such institution
is considered by its supervisory agency to be financially sound or to have
supervisory concerns. Effective January 1, 1996, the insurance assessment for
Carolina First Bank's BIF deposits was set at zero (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, Carolina First Bank has
deposits subject to SAIF insurance assessments imposed by the FDIC. On September
30, 1996, the President signed into law legislation requiring a special
assessment to recapitalize the SAIF. This assessment was applied at a rate of
0.657% of SAIF-insured deposits as of March 31, 1995. Banks that have acquired
"Oakar" deposits before March 31, 1995 were allowed a 20% reduction to the
assessment base. The result for Carolina First Bank was a charge of $1.2 million
pre-tax ($746,000 after-tax) based on approximately $223 million of SAIF
deposits. The legislation also changed future annual assessment rates for both
BIF-insured deposits and SAIF-insured deposits. For 1997 through 1999, the
annual assessment rates will be 0.0129% for BIF-insured deposits and 0.0644% for
SAIF-insured deposits.
OTHER SAFETY AND SOUNDNESS REGULATIONS
Prompt Corrective Action. Current law provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under uniform regulations defining such capital
levels issued by each of the federal banking agencies, a bank is considered
"well capitalized" if it has (i) a total risk-based capital ratio of 10% or
greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater, and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for any capital measure.
An "adequately capitalized" bank is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with a composite CAMEL rating of 1). A bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage ratio of less than 4% ( or 3% in the case of a bank with a composite
CAMEL rating of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based
capital ratio of less than 3%, or (iii) a leverage ratio of less than 3%; and
(C) "critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. Carolina First Corporation and Carolina
First Bank each currently meet the definition of well capitalized.
11
Brokered Deposits. Current federal law also regulates the acceptance of
brokered deposits by insured depository institutions to permit only a "well
capitalized" depository institution to accept brokered deposits without prior
regulatory approval. Under FDIC regulations, "well capitalized" insured
depository institutions may accept brokered deposits without restriction,
"adequately capitalized" insured depository institutions may accept brokered
deposits with a waiver from the FDIC (subject to certain restrictions on
payments of interest rates) while "undercapitalized" insured depository
institutions may not accept brokered deposits. The regulations provide that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" are the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions of FDICIA (as described in the
previous paragraph). Carolina First Corporation does not believe that these
regulations will have a material adverse effect on its current operations.
Other FDICIA Regulations. To facilitate the early identification of
problems, FDICIA required the federal banking agencies to review and, under
certain circumstances, prescribe more stringent accounting and reporting
requirements than those required by generally accepted accounting principles.
The FDIC has issued final regulations implementing those provisions. The rule,
among other things, requires that management report on the institution's
responsibility for preparing financial reporting and compliance with designated
laws and regulations concerning safety and soundness, and that independent
auditors attest to and report separately on assertions in management's reports
concerning compliance with such laws and regulations, using FDIC approved audit
procedures.
FDICIA required each of the federal banking agencies to develop
regulations addressing certain safety and soundness standards for insured
depository institutions (such as Carolina First Bank) and depository institution
holding companies (such as Carolina First Corporation), including operational
and managerial standards, asset quality, earnings and stock valuation standards,
as well as compensation standards (but not dollar levels of compensation). Each
of the federal banking agencies has issued a joint notice of proposed
rulemaking, which requested comment on the implementation of these standards.
The proposed rule sets forth general operational and managerial standards in the
areas of internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation fees and benefits. The proposed rule also establishes a maximum
ratio of classified assets to capital, and requires institutions to meet minimum
capital standards as a measure of whether such institutions have minimum
earnings sufficient to absorb losses without impairing capital. Finally, the
proposed rule would define compensation as excessive if it is unreasonable or
disproportionate to the services actually performed. Bank holding companies
would not be subject to the standards on compensation. The proposal contemplates
that each federal agency would determine compliance with these standards through
the examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. Carolina
First Corporation has not yet determined the effect the proposed rule would have
on its operations and the operations of its depository institution subsidiary if
it is adopted substantially as proposed.
COMMUNITY REINVESTMENT ACT
Carolina First Bank is subject to the requirements of the Community
Reinvestment Act ("CRA"). The CRA requires that financial institutions have an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility. Carolina First Bank received an "outstanding" rating in its
most recent evaluation.
As a result of a Presidential initiative, each of the federal banking
agencies has issued a notice of
12
proposed rulemaking that would replace the current CRA assessment system with a
new evaluation system that would rate institutions based on their actual
performance (rather than efforts) in meeting community credit needs. Under the
proposal, each institution would be evaluated based on the degree to which it is
providing loans (the lending test), branches and other services (the service
test) and investments to low- and moderate-income areas (the investment test).
Under the lending test, as proposed, an institution would be evaluated on the
basis of its market share of reportable loans in low- and moderate-income areas
in comparison to other lenders subject to CRA in its service area, and in
comparison with the institution's market share of reportable loans in other
service areas. An institution would be evaluated under the investment test based
on the amount of investments made that have had a demonstrable impact on low-
and moderate-income areas or persons as compared to its risk-based capital. The
service test would evaluate a retail institution primarily based on the
percentage of its branches located in, or that are readily accessible to, low-
and moderate-income areas. Each depository institution would have to report to
its federal supervisory agency and make available to the public data on the
geographic distribution of its loan applications, denials, originations and
purchases. Small institutions could elect to be evaluated under a streamlined
method that would not require them to report this data. All institutions,
however, would receive one of five ratings based on their performance:
Outstanding, High Satisfactory, Low Satisfactory, Needs to Improve or
Substantial Noncompliance. An institution that received a rating of Substantial
Noncompliance would be subject to enforcement action. The Company currently is
studying the proposal and determining whether the regulation, if adopted, would
require changes to Carolina First Bank's CRA action plans.
TRANSACTIONS BETWEEN THE COMPANY, ITS SUBSIDIARIES AND AFFILIATES
The Company's subsidiaries are subject to certain restrictions on
extensions of credit to executive officers, directors, principal stockholders or
any related interest of such persons. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unaffiliated persons;
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features. Aggregate limitations on extensions of credit also
may apply. The Company's subsidiaries also are subject to certain lending limits
and restrictions on overdrafts to such persons.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its nonbank subsidiary, on investments in their
securities and on the use of their securities as collateral for loans to any
borrower. Such restrictions may limit the Company's ability to obtain funds from
its bank subsidiary for its cash needs, including funds for acquisitions,
interest and operating expenses. Certain of these restrictions are not
applicable to transactions between a bank and a savings association owned by the
same bank holding company, provided that every bank and savings association
controlled by such bank holding company complies with all applicable capital
requirements without relying on goodwill.
In addition, under the BHCA and certain regulations of the Federal
Reserve, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. For example, a
subsidiary may not generally require a customer to obtain other services from
any other subsidiary or the Company, and may not require the customer to promise
not to obtain other services from a competitor, as a condition to an extension
of credit to the customer.
13
INTERSTATE BANKING
In 1986, South Carolina adopted legislation which permitted banks and
bank holding companies in certain southern states to acquire banks in South
Carolina to the extent that such other states had reciprocal legislation which
was applicable to South Carolina banks and bank holding companies. The
legislation resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies.
In July 1994, South Carolina enacted legislation which effectively
provides that, after June 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other conditions, including
that the effect of the transaction not lessen competition and that the laws of
the state in which the out-of-state bank holding company filing the applications
has its principal place of business permit South Carolina bank holding companies
to acquire banks and bank holding companies in that state. Although such
legislation may increase takeover activity in South Carolina, the Company does
not believe that such legislation will have a material impact on its competitive
position. However, no assurance of such fact may be given.
In 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle-Neal Act"), which increased the
ability of bank holding companies and banks to operate across state lines. Under
the Riegle-Neal Act, the existing restrictions on interstate acquisitions of
banks by bank holding companies will be repealed one year following enactment,
such that the Company and any other bank holding company located in South
Carolina would be able to acquire a bank located in any other state, and a bank
holding company located outside South Carolina could acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. The legislation also provides that, unless an individual
state elects beforehand either (i) to accelerate the effective date or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate their multistate bank operations
into a single bank subsidiary and to branch interstate through acquisitions. De
novo branching by an out-of-state bank would be permitted only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state will continue to be subject to
applicable state branching laws. The Company believes that this legislation may
result in increased takeover activity of South Carolina financial institutions
by out-of-state financial institutions. However, the Company does not presently
anticipate that such legislation will have a material impact on its operations
or future plans.
The General Assembly of the State of South Carolina has adopted
legislation designed to implement the Riegle-Neal Act.
OTHER REGULATIONS
Interest and certain other charges collected or contracted for by
Carolina First Bank and CF Mortgage Company are subject to state usury laws and
certain federal laws concerning interest rates. Carolina First Bank's and CF
Mortgage Company's loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, CRA requiring
financial institutions to meet their obligations to provide for the total credit
needs of the communities they serve, including investing their assets in loans
to low- and moderate-income borrowers, the Home Mortgage Disclosure Act of 1975
requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves, the Equal
Opportunity Act prohibiting
14
discrimination on the basis of race, creed or other prohibited factors in
extending credit, the Fair Credit Reporting Act of 1978 governing the use and
provision of information to credit reporting agencies, the Fair Debt Collection
Act governing the manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of Carolina First Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve to implement that act, which govern
automatic deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller machines and
other electronic services.
15
ITEM 1 - STATISTICAL DISCLOSURE
Comparative Average Balances -- Yields and Costs.................................................................17
Rate/Volume Variance Analysis....................................................................................18
Securities Held for Investment Composition.......................................................................19
Securities Available for Sale Composition........................................................................19
Trading Account Composition......................................................................................19
Securities Held for Investment and Securities Available for Sale Maturity Schedule...............................20
Loan Portfolio Composition.......................................................................................21
Loan Maturity and Interest Sensitivity...........................................................................21
Nonperforming Assets.............................................................................................22
Summary of Loan Loss Experience..................................................................................22
Composition of Allowance for Loan Losses.........................................................................23
Types of Deposits................................................................................................24
Certificates of Deposit Greater than $100,000....................................................................24
Return on Equity and Assets......................................................................................25
Short-Term Borrowings............................................................................................26
Interest Rate Sensitivity........................................................................................27
Noninterest Income...............................................................................................28
Noninterest Expense..............................................................................................28
16
COMPARATIVE AVERAGE BALANCES -- YIELDS AND COSTS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- --------------------------- ------------------------
AVERAGE/ INCOME/ YIELD/ AVERAGE/ INCOME/ YIELD/ AVERAGE/ INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
ASSETS
Earning assets
Loans (net of unearned income)(1) .......$ 1,085,680 $ 103,040 9.49% $ 965,632 $ 92,731 9.60% 781,503 68,474 8.76%
Investment securities (taxable) ......... 187,485 10,959 5.85 134,894 7,500 5.56 125,053 5,623 4.50
Investment securities (nontaxable) ...... 26,897 1,889(2) 7.02 22,930 1,674 (2) 7.30 17,609 1,567(2) 8.90
Federal funds sold and resale
agreements ........................... 10,112 676 6.69 5,870 360 6.13 15,810 603 3.81
Interest bearing deposits with other
banks ............................... 10,484 633 6.04 919 71 7.73 1,180 49 4.17
---------- -------- ---------- --------- ----------- -------
Total earning assets ............... 1,320,658 117,197 8.87% 1,130,245 102,336 9.05% 941,155 76,316 8.11%
----------- -------
---------- -------- ---------- ---------
Non-earning assets 160,036 139,512 115,799
Total assets ....................... $ 1,480,694 $ 1,269,757 1,056,954
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking .....................$ 157,596 $ 3,897 2.47% $ 114,897 $ 2,332 2.03% 101,558 2,193 2.16%
Savings ............................... 62,529 1,772 2.83 75,407 2,235 2.96 87,919 2,619 2.98
Money market .......................... 192,026 8,071 4.20 158,742 6,473 4.08 157,460 4,856 3.08
Certificates of deposit ............... 563,773 31,923 5.66 497,358 27,544 5.54 433,123 18,945 4.37
Other ................................. 50,566 2,986 5.91 45,850 2,595 5.66 44,347 2,137 4.82
---------- -------- ---------- --------- ----------- -------
Total interest-bearing deposits ..... 1,026,490 48,649 4.74% 892,254 41,179 4.62 824,407 30,750 3.73%
Short-term borrowings .................. 158,294 8,657 5.47 136,799 8,196 6.00 41,362 1,638 3.96
Long-term borrowings ................... 26,356 2,495 9.47 16,875 1,603 9.50 1,309 121 9.25
---------- -------- ---------- --------- ----------- -------
Total interest-bearing liabilities .... 1,211,140 59,801 4.94% 1,045,928 50,978 4.87% 867,078 32,509 3.75%
----------- -------- ------ ---------- --------- ---------- ------
Non-interest bearing liabilities
Non-interest bearing deposits ......... 154,261 130,775 101,209
Other non-interest liabilities ........ 16,107 2,812 1,290
---------- ---------- -----------
Total liabilities ..................... 1,381,508 1,179,515 969,577
-----------
---------- ----------
Shareholders' equity 99,186 90,242 87,377
Total liabilities and shareholders'
equity ............................... $1,480,694 $1,269,757 $1,056,954
Net interest margin ...................... $ 57,396 4.35% $ 51,358 4.54% 43,807 4,65%
======== ========= ======= =====
- ---------------
(1)Includes nonaccruing loans.
(2)Fully tax-equivalent basis at a 35% tax rate.
Note: Average balances are derived from daily balances.
17
RATE/VOLUME VARIANCE ANALYSIS
(DOLLARS IN THOUSANDS)
1996 COMPARED TO 1995 1995 COMPARED TO 1994
------------------------------------ --------------------------------------
TOTAL CHANGE IN CHANGE IN TOTAL CHANGE IN CHANGE IN
CHANGE VOLUME RATE CHANGE VOLUME RATE
EARNING ASSETS
Loans, net of unearned income........ $10,309 $11,393 $(1,084) $ 24,257 $ 17,682 $ 6,575
Securities, taxable.................. 3,459. 3,074 385 1,877 547 1,330
Securities, nontaxable............... 215 278 (63) 107 388 (281)
Federal funds sold................... 316 284 32 (243) (609) 366
Interest-bearing deposits with
other banks....................... 562 578 (16) 22 (11) 33
----- ---------- ------------ ---------- ------------ ------------
Total interest income...... 14,861 15,607 (746) 26,020 17,997 8,023
----- ---------- ------------ ---------- ------------ ------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
Interest checking................. 1,565 1,056 509 139 271 (132)
Savings........................... (463) (365) (98) (384) (370) (14)
Money market...................... 1,598 1,399 199 1,617 52 1,565
Certificates of deposit........... 4,379 3,761 618 8,599 3,557 5,042
Other............................. 391 278 113 458 85 373
----------- ------------ ------------ ---------- ------------ ------------
Total interest-bearing
deposits.................... 7,470 6,129 1,341 10,429 3,595 6,834
Short-term borrowings................... 460 1,175 (715) 6,558 5,718 840
Long-term borrowings.................... 893 898 (5) 1,482 1,479 3
----------- ----------- ------------ ---------- ------------ ------------
Total interest expense..... 8,823 8,202 621 18,469 10,792 7,677
----------- ------------ ---------- ---------- ------------ ------------
Net interest income..... $6,038 $ 7,405 $(1,367) $ 7,551 $ 7,205 $ 346
=========== ============ ========== ========== ============ ============
Note: Changes which are not solely attributable to volume or rate have been
allocated to volume and rate on a pro-rata basis.
18
SECURITIES HELD FOR INVESTMENT COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31, (AT AMORTIZED COST)
------------------------------
1996 1995 1994
---- ---- ----
U.S. Treasury securities......................... $ 0 $ 0 6,189
Obligations of U.S. Government agencies and
corporations................................... 0 0 42,936
Obligations of states and political subdivisions. 29,113 25,937 21,086
Other securities................................. 352 352 53
-------- --------- --------
$ 29,465 26,289 70,264
======== ========= ========
SECURITIES AVAILABLE FOR SALE COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31, (AT FAIR VALUE)
---------------------------
1996 1995 1994
---- ---- ----
U.S. Treasury securities......................... $167,430 $97,140 $ 26,534
Obligations of U.S. Government agencies
and corporations............................... 39,234 36,706 26,879
Other securities................................. 7,225 12,426 7,135
-------- --------- --------
$ 213,889 146,272 60,548
TRADING ACCOUNT COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31, (AT FAIR VALUE)
---------------------------
1996 1995 1994
---- ---- ----
U.S. Treasury and Government agencies......... $ 1,990 $ 4,954 178
State and political subdivisions.............. 15 851 977
-------- --------- ---------
$ 2,005 5,805 1,155
======== ======== =========
19
SECURITIES HELD FOR INVESTMENT AND
SECURITIES AVAILABLE FOR SALE MATURITY SCHEDULE
(DOLLARS IN THOUSANDS)
HELD FOR INVESTMENT -- AMORTIZED COST
----------------------------------------------------------------
AFTER ONE AFTER FIVE
BUT BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
U.S Treasury...................... $ 0 $ 0 $ 0 $ 0 $ 0
U.S. Government agencies
and corporations............... 0 0 0 0 0
States and political subdivisions. 1,464 16,786 9,734 1,129 29,113
Other securities.................. 0 0 52 300 352
----------- ----------- ---------- ---------- -----------
$ 1,464 $ 16,786 $ 9,786 $ 1,429 $ 29,465
=========== =========== ========== ========== ===========
WEIGHTED AVERAGE YIELD
U.S Treasury...................... 0.00 % 0.00 % 0.00 % 0.00 % 0.00%
U.S. Government agencies
and corporations............... 0.00 0.00 0.00 0.00 0.00
States and political subdivisions. 3.93 4.34 4.92 5.24 4.55
Other securities.................. 0.00 0.00 7.33 2.24 3.00
----------- ----------- ---------- ---------- -----------
3.93 % 4.34 % 4.93 % 4.61 % 4.53%
=========== =========== ========== ========== ===========
AVAILABLE FOR SALE -- FAIR VALUE
------------------------------------------------------------------
AFTER ONE AFTER FIVE
BUT BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
U.S Treasury.......................$ 52,913 $ 114,517 $ 0 $ 0 $ 167,430
U.S. Government agencies
and corporations................ 1,439 37,795 0 0 39,234
States and political subdivisions.. 0 0 0 0 0
Other securities................... 0 0 0 7,225 7,225
----------- ----------- ---------- ---------- -----------
$ 54,352 $ 152,312 $ 0 $ 7,225 $ 213,889
=========== =========== ========== ========== ===========
WEIGHTED AVERAGE YIELD
U.S Treasury...................... 5.02% 6.03% 0.00 0.00% 5.71%
U.S. Government agencies
and corporations............... 5.96 6.18 0.00 0.00 6.17
States and political subdivisions. 0.00 0.00 0.00 0.00 0.00
Other securities.................. 0.00 0.00 0.00 9.11 9.11
---- ----------- ---------- ---------- -----------
5.04% 6.07% 0.00 9.11 % 5.91%
==== =========== ========== ========== ===========
20
LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial, financial and agricultural................ $ 196,206 $ 188,255 $ 179,876 $ 137,340 $ 112,241
Real Estate
Construction....................................... 36,757 31,552 24,039 22,752 18,269
Mortgage
Residential........................................ 245,096 217,899 206,980 157,460 123,636
Commercial and multifamily (1)..................... 378,471 234,153 275,083 157,528 94,084
Consumer.............................................. 140,206 149,216 129,106 89,788 73,883
Credit cards.......................................... 40,480 86,901 36,954 53,305 30,702
Lease financing receivables........................... 91,321 36,740 208 ------ 7
Loans held for sale................................... 10,449 125,000 71,695 7,700 6,801
--------------- ------------
----------- ---------- -----------
Total gross loans............................... $ 1,138,986 $ 1,069,716 $ 923,941 $ 625,873 $ 459,623
Unearned income....................................... (14,211) (7,056) (873) (2,227) (3,973)
--------------- ------------ ----------- ---------- -----------
Total loans net of unearned income............. 1,124,775 1,062,660 923,068 623,646 455,650
Allowance for loan losses............................ (11,290) (8,661) (6,002) (6,679) (5,276)
--------------- ------------ ----------- ---------- -----------
Total net loans................................ $ 1,113,485 $ 1,053,999 $ 917,066 $ 616,967 $ 450,374
=============== ============ =========== ========== ===========
- ---------------------------------------
(1) The majority of these loans are made to operating businesses where real
property has been taken as additional collateral.
LOAN MATURITY AND INTEREST SENSITIVITY
(DOLLARS IN THOUSANDS)
OVER ONE
BUT OVER
ONE YEAR LESS THAN FIVE
OR LESS FIVE YEARS YEARS TOTAL
--------------------------------------------------------------
Commercial, financial, agricultural and
commercial real estate......................... $147,099 $ 333,643 $ 93,935 $ 574,677
Real estate -- construction....................... 31,611 5,146 0 36,757
Total of loans with:
Predetermined interest rates................... 44,513 104,621 56,335 205,469
Floating interest rates........................ 134,197 234,168 37,600 405,965
21
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Nonaccrual loans.............................. $ 960 $ 1,275 $ 2,051 $ 2,487 $ 2,474
Restructured loans............................ 1,909 1,085 675 0 353
---------- ----------- -------- -------- --------
Total nonperforming loans........... 2,869 2,360 2,726 2,487 2,827
Other real estate owned....................... 3,011 2,508 1,996 2,879 2,804
---------- ----------- ======== ======== ========
Total nonperforming assets.......... $ 5,880 $ 4,868 $ 4,722 $ 5,366 $ 5,631
======== ======== ======== ======== ========
Loans past due 90 days still accruing interest...$ 2,371 $ 2,748 $ 1,285 $ 2,060 $ 2,127
========== =========== ======== ======== ========
Total nonperforming assets as a percentage
of loans and foreclosed property............. 0.52% 0.46% 0.51% 0.86% 1.23%
======== ======== ======== ========= =======
Allowance for loan losses as a percentage
of nonperforming loans........................ 393.52% 366.99% 220.18 268.59% 186.63%
======== ======== ======== ========= =======
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
DECEMBER 31,
---------- ---------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- -------- -------- --------
Loan loss reserve at beginning of period........ $ 8,661 $ 6,002 $ 6,679 $ 5,276 $ 4,520
Blue Ridge merger............................... 0 128 0 0 0
Valuation allowance for loans acquired.......... 1,261 633 1,077 1,811 255
Charge-offs:
Commercial, financial and agricultural...... 335 1,201 519 401 1,450
Real estate - construction................. 115 0 85 0 30
Real estate - mortgage..................... 1,475 85 263 267 195
Consumer................................... 3,463 1,437 583 423 235
Credit cards............................... 4,072 2,536 1,641 488 0
---------- ----------- -------- -------- --------
Total loans charged-off............ 9,460 5,259 3,091 1,579 1,910
---------- ----------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural..... 67 180 69 23 48
Real estate - construction................ 0 0 0 0 1
Real estate - mortgage.................... 7 14 9 23 18
Consumer.................................. 95 114 62 19 26
Credit cards.............................. 396 3 0 0 0
---------- ----------- -------- -------- --------
Total loans recovered............. 565 311 140 65 93
---------- ----------- -------- -------- --------
Net charge-offs................................. 8,895 4,948 2,951 1,514 1,817
Provision charged to expense.............. 10,263 6,846 1,197 1,106 2,318
---------- ----------- -------- -------- --------
Loan loss reserve at end of period.............. $ 11,290 $ 8,661 $ 6,002 $ 6,679 $ 5,276
========== =========== ======== ======== ========
Average loans.................................. $ 1,085,680 $ 965,632 $ 781,503 $ 548,619 $ 432,282
Total loans, net of unearned income (period end). 1,124,775 1,062,660 923,068 623,646 455,650
Net charge-offs as a percentage of average loans. 0.82% 0.51% 0.38% 0.38% 0.42%
Allowance for loan losses as a percentage of loans.. 1.00 0.82 0.65 1.07 1.16
Note: In 1996, the Company experienced increased charge-offs related to its
credit card activities. This trend has continued into 1997.
22
COMPOSITION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
ALLOWANCE BREAKDOWN
DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial, financial and
agricultural........................ $ 2,415 $ 2,287 $ 1,730 $ 1,866 $ 1,783
Real Estate
Construction........................ 203 151 130 148 356
Mortgage:
Residential....................... 267 233 135 145 288
Commercial and
multifamily.................... 1,218 946 581 627 1,223
Consumer................................. 1,942 1,535 1,071 1,965 845
Credit cards............................. 3,157 2,643 1,757 1,262 254
Lease financing receivables.............. 948 0 0 0 0
Unallocated.............................. 1,140 866 598 666 527
---------------- ------------ -------- ------------- ------------
Total......................... $ 11,290 $ 8,661 $ 6,002 $ 6,679 $ 5,276
================ ============ ======== ============= ============
PERCENTAGE OF LOANS IN CATEGORY
DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial, financial and
agricultural.......................... 17.44 % 17.60 % 19.47 % 21.94 % 24.44%
Real Estate
Construction.......................... 3.27 2.95 2.60 3.64 3.97
Mortgage:
Residential......................... 22.00 20.37 22.64 26.39 28.38
Commercial and
multifamily...................... 33.65 33.58 29.77 25.16 20.46
Consumer................................... 12.33 13.95 13.97 14.35 16.07
Credit cards............................... 4.31 8.12 11.53 8.52 6.68
Lease financing receivables................ 7.00 3.43 0.02 0.00 0.00
------------- ------------------ --------- -------
Total........................... 100.00% 100.00% 100.00 % 100.00 % 100.00%
============= ================== ========= =======
23
TYPES OF DEPOSITS
(DOLLARS IN THOUSANDS)
BALANCE AS OF DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Demand deposit accounts.........$ 194,067 $ 160,393 $ 126,974 $ 72,950 $ 44,553
NOW accounts.................... 184,450 132,063 117,271 85,910 40,779
Savings accounts................ 57,977 66,552 94,774 70,897 26,758
Money market accounts........... 177,665 178,662 155,695 156,519 133,904
Time deposits................... 474,553 403,914 371,169 297,499 224,279
Time deposits of $100,000 or
over......................... 192,338 153,907 135,865 120,774 85,351
----------- ----------- ----------- ----------- ----------
Total deposits.............$ 1,281,050 $ 1,095,491 $ 1,001,748 $ 804,549 $ 555,624
=========== =========== =========== =========== ==========
PERCENT OF DEPOSITS AS OF DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Demand deposit accounts........... 15.15% 14.64% 12.68% 9.07% 8.02%
NOW accounts...................... 14.40 12.06 11.71 10.68 7.34
Savings accounts.................. 4.53 6.07 9.46 8.81 4.82
Money market accounts............. 13.87 16.31 15.54 19.45 24.10
Time deposits..................... 37.04 36.87 37.05 36.98 40.36
Time deposits of $100,000 or
over........................... 15.01 14.05 13.56 15.01 15.36
----------- ----------- ----------- ----------- ----------
Total deposits............... 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ==========
CERTIFICATES OF DEPOSIT GREATER THAN $100,000
(DOLLARS IN THOUSANDS)
Maturing in three months or less.....................................................$ 85,034
Maturing in over three through six months............................................ 43,854
Maturing in over six through twelve months........................................... 35,178
Maturing in over twelve months....................................................... 28,272
----------
Total......................................................................$ 192,338
==========
24
RETURN ON EQUITY AND ASSETS
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ------
Return on average assets............ 0.71% 0.74% (0.16)% 0.69% 0.44%
Return on average equity............ 10.56 10.43 (1.99) 8.27 5.22
Return on average common equity..... 10.97 17.07 (3.08) 12.60 6.10
Average equity as a percentage of
average assets................... 6.70 7.11 8.27 8.37 8.39
Dividend payout ratio............... 27.17 24.51 n/m 0.00 0.00
25
SHORT TERM BORROWINGS
(DOLLARS IN THOUSANDS)
MAXIMUM
OUTSTANDING AVERAGE INTEREST
AT ANY AVERAGE INTEREST ENDING RATE AT
YEAR ENDED DECEMBER 31, MONTH END BALANCE RATE BALANCE YEAR END
--------- ------- ---- ------- --------
1996
Federal funds purchased............. $ 56,263 $ 12,968 5.57% $ 15,000 6.88 %
Securities sold under
repurchase agreements............ 38,750 67,676 5.20 72,144 4.99
Advances from the FHLB.............. 115,000 64,554 5.52 40,000 6.95
Commercial paper.................... 18,558 13,067 6.29 18,016 6.40
Other............................... 29 29 7.81 29 7.72
------------ ------------ ----- --------- -------
$ 228,600 $ 158,294 5.47% $ 145,189 5.90 %
============ ============ ===== ========== ======
1995
Federal funds purchased............. $ 40,750 $ 12,727 6.95% $ 31,000 6.01%
Securities sold under
repurchase agreements............ 66,967 50,884 5.36 60,532 5.30
Advances from the FHLB.............. 90,000 70,526 6.11 90,000 5.75
Commercial paper.................... 2,405 37 6.76 2,405 6.76
Other............................... 2,852 2,625 9.00 2,852 9.00
------------ --------- --------- ---------- -------
$202,974 $ 136,799 6.00% $ 186,789 5.84%
============== ========= ========= ========== =======
1994
Federal funds purchased............. $ 16,000 $ 5,474 4.50% $ 16,000 5.58 %
Securities sold under
repurchase agreements............ 17,986 15,870 3.80 17,986 5.23
Advances from the FHLB.............. 72,000 19,933 3.94 72,000 6.03
Other............................... 88 85 9.00 88 9.00
-------------- --------- --------- ---------- ----------
$ 106,074 $ 41,362 3.96% $ 106,074 5.84%
============== ======== ========= ========== ==========
26
INTEREST RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
OVER ONE
TOTAL YEAR OR
0-3 4-6 7-12 WITHIN NON-
MONTHS MONTHS MONTHS ONE YEAR SENSITIVE TOTAL
ASSETS
Earning assets
Loans, net of unearned income....... $618,794 $46,183 $ 94,279 $ 759,256 $ 365,519 $1,124,775
Investment securities, taxable...... 52,435 95 3,799 56,329 159,917 216,246
Investment securities, nontaxable... 682 306 476 1,464 27,649 29,113
Federal funds sold.................. 0 0 0 0 0 0
Interest bearing balances with
other banks....................... 250 500 250 1,000 25,037 26,037
---------- --------- --------- ---------- ---------- ----------
Total earning assets.... 672,161 47,084 98,804 818,049 578,122 1,396,171
Non-earning assets, net................ 0 0 0 0 178,033 178,033
---------- -------- ---------- ---------- ---------- ----------
Total assets............ $672,161 $47,084 $ 98,804 $ 818,049 $ 756,155 $1,574,204
========== ========= ========= ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest Checking............ $ 184,450 $ 0 $ 0 $ 184,450 $ 0 $ 184,450
Savings...................... 57,977 0 0 57,977 0 57,977
Money Market................. 177,665 0 0 177,665 0 177,665
Certificates of Deposit...... 236,939 126,543 131,726 495,208 114,997 610,205
Other........................ 22,011 11,755 12,237 46,003 10,683 56,686
---------- --------- --------- ---------- ---------- ----------
Total interest-bearing
deposits................. 679,042 138,298 143,963 961,303 125,680 1,086,983
---------- --------- --------- ---------- ---------- ----------
Short-term borrowings............ 144,544 477 166 145,187 0 145,187
Long-term borrowings............. 1 1 2 4 27,524 27,528
---------- --------- --------- ---------- ---------- ----------
Total interest-bearing
liabilities.............. 823,587 138,776 144,131 1,106,494 153,204 1,259,698
Noninterest bearing liabilities
Noninterest bearing deposits..... 0 0 0 0 194,067 194,067
Other noninterest bearing
liabilities, net............... 0 0 0 0 15,475 15,475
---------- --------- --------- ---------- ---------- ----------
Total liabilities.......... 823,587 138,776 144,131 1,106,494 362,746 1,469,240
---------- --------- --------- ---------- ---------- ----------
Shareholders'equity.................... 0 0 0 0 104,964 104,964
---------- --------- --------- ---------- ---------- ----------
Total liabilities and
shareholders' equity..... $ 823,587 $ 138,776 $ 144,131 $1,106,494 $ 467,710 $ 1,574,204
========== ========= ========= ========== ========== ==========
Interest sensitive gap................ $(151,426)$ (91,692) $ (45,327) $ (288,445)$ 288,445 $ ------
Cumulative interest sensitive gap..... $(151,426)$(243,118) $(288,445) $ 288,445 ------ ------
27
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Service charges on deposits............. $6,490 $5,524 $4,089 $2,916 $1,791
Loan securitization income.............. 2,865 2,775 0 0 0
Mortgage banking income:
Origination fees..................... 1,358 1,086 954 1,051 778
Gain on sale of mortgage loans....... 34 699 112 509 496
Servicing and other.................. 1,394 377 572 228 0
Fees for trust services................. 1,286 1,042 919 542 305
Gain on sale of credit cards............ 4,293 0 0 0 0
Gain on sale of securities.............. 386 769 75 680 633
Gain on sale of mortgage servicing
rights................................ 107 2,943 0. 0 0
Sundry.................................. 3,128 2,111 1,505 839 113
--------- -------- --------- --------- --------
Total noninterest income...... $ 21,341 $17,326 $8,226 $6,765 $4,116
========= ======== ======== ========= ========
NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Salaries and wages..................... $ 20,573 $ 17,524 $ 15,023 $ 10,630 $ 6,870
Benefits............................... 4,649 4,584 4,375 2,510 1,596
Occupancy.............................. 4,336 4,209 3,728 2,301 1,496
Furniture and equipment................ 3,621 3,182 2,577 1,933 1,536
Other real estate owned and other
losses............................... 2,120 364 280 345 78
Intangibles amortization............... 1,889 1,774 2,410 875 462
Savings Association Insurance
Fund assessment..................... 1,184 0 0 0 0
Stationery, supplies and printing...... 1,183 1,037 1,223 875 605
Postage................................ 1,105 1,127 861 584 335
Advertising............................ 821 1,427 959 434556
Federal deposit insurance premiums..... 469 1,983 2,114 1,605 1,097
Credit card solicitation charges....... 383 1,910 0 0 0
Credit card restructuring charges...... 0 0 12,214 0 0
Sundry................................. 9,342 7,761 6,075 5,202 3,529
--------- -------- -------- --------- --------
Total noninterest expense.... $51,675 $46,882 $51,839 $27,294 $ 18,160
========= ======== ======== ========= ========
28
ITEM 2 - PROPERTIES
At December 31, 1996, the Company conducted business through 55
locations in South Carolina. At December 31, 1996, the total net tangible book
value of the premises and equipment and leasehold improvements owned by the
Company was $32,418,000. The Company believes that its physical facilities are
adequate for its current operations.
The Company's headquarters are located on Main Street in Greenville's
downtown commercial area. The headquarters, which were built in 1900, are owned
by the Company and have been substantially renovated to suit their present
purposes. The Company's headquarters also serve as the Bank's headquarters. The
headquarters contain approximately 160,000 square feet, of which approximately
69,000 square feet is currently being utilized by the Company. The balance of
the building will be renovated as necessary to accommodate future expansion of
the Company. In October 1993, the Bank purchased another office building, with
approximately 27,000 square feet, in downtown Greenville, which houses Carolina
First Bank's trust department, a CF Mortgage origination office and various
administrative functions. Blue Ridge headquarters are located in an office park
in Greenville and occupy approximately 3,000 square feet.
In February 1993, the Company entered into a lease on a 42,000 square
foot building in Columbia, South Carolina. This facility houses the Company's
operations center, regional administrative offices, investments division and a
Columbia main office branch, which opened in September 1993. In September 1993,
the Company purchased an office building in Columbia, South Carolina for its
mortgage banking operations. CF Mortgage's headquarters are located in this
building. In June 1994, the Company completed the construction of a 16,000
square foot main office branch in Myrtle Beach which serves as the regional
headquarters for the coastal offices. In September 1995, the Company completed
renovations on its Charleston main office situated in the historic district of
downtown Charleston. This office occupies approximately 9,000 square feet and
serves as home to the branch office as well as to additional administrative
offices.
The Company's subsidiaries operate through 55 locations, which include
the buildings described above. The Company or a subsidiary of the Company owns
17 locations and leases 38 locations. During 1996, the Company sold and leased
back seven operating locations for an aggregate sales price of approximately
$8.3 million. The rental payments due under the leases approximate the market
rates. Leases generally have options for extensions under substantially the same
terms as in the original lease period with certain rate escalations. The leases
generally provide that the lessee pay property taxes, insurance and maintenance
costs.
All locations of the Company and its subsidiaries are considered
suitable and adequate for their intended purposes. Individually, none of the
above leases are considered material.
29
ITEM 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to
various legal actions arising in the normal course of business. Such items are
not expected to have any material adverse effect on the business or financial
position of the Company or any of its subsidiaries.
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. In this action, the Bowers allege that
Carolina First Bank breached an employment contract between each of the Bowers
and Carolina First Bank, breached that contract with fraudulent intent and
committed fraud in the inducement regarding the Bowers' decision to enter the
employment contract. The complaint seeks actual damages of approximately
$912,000 and future pay increases and punitive damages in an amount to be
determined by a jury, plus attorneys' fees and interest on the damages. The
Company has filed an answer to these claims denying any liability and intends to
vigorously defend this action. The Company believes that it will prevail in this
litigation.
On August 26, 1996, the Company filed a lawsuit against E. Monte Bowers
and David W. Bowers, as well as a company called Financial Investors Resource
Management, LLC, in the United States District Court for the District of South
Carolina. In this action, the Company alleges that before, during, and after the
time of the merger between Carolina First Bank and Midlands National Bank
("Midlands"), the Bowers, as officers of Midlands and then Carolina First Bank,
violated federal and state securities laws and federal banking fraud laws,
breached their fiduciary duties, their duties of loyalty and due care, and
committed fraud in their jobs at Midlands and Carolina First Bank. The complaint
seeks actual damages of approximately $3.5 million and punitive damages in an
amount to be determined by a jury, plus attorneys' fees and interest on the
damages. The Bowers have filed counterclaims against the Company, alleging that
Carolina First Bank violated federal and state securities laws in relation to
the merger between Midlands and Carolina First Bank. Specifically, among other
things, the Bowers allege that Carolina First Bank improperly accounted for
credit card solicitation expenses, costs, and other expenses with a resulting
overstatement of income adversely affecting the merger consideration received by
them in connection with the merger of Midlands and Carolina First Bank. The
Bowers also allege that certain statements in the Proxy Statement sent to the
Midlands shareholders were fraudulent. The Company has filed a reply to these
counterclaims denying any liability. The Company intends to pursue this lawsuit
vigorously and believes that it will prevail. On March 17, 1997, the United
States District Court granted summary judgment in favor of the Company on all of
the Bowers' counterclaims. The Court's Order concluded that there was
"absolutely nothing inaccurate or misleading in the Proxy statement or in any of
Carolina First's financial statements. The undisputed evidence shows that these
records are true and correct in all material respects. The Court also finds that
there is no evidence of any fraud or deception committed by Carolina First."
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, Mack I. Whittle,
Jr., William S. Hummers III, Steve Powell and Edward J. Sebastian. The complaint
was subsequently amended several times, most recently on February 25, 1997. The
recent amended complaint names as additional defendants the majority of the
directors of the Company and Carolina First Bank. The named plaintiffs in the
amended complaints are Carolina First Corporation, pursuant to Section 33-7-400
of the South Carolina Code of Laws, by and through its minority shareholders,
Emory Lester, Beatrice Hutchinson and John Wesley Purdie, Jr. Plaintiffs allege
as causes of action the following: conversion of corporate opportunity; breach
of fiduciary duty and "constructive fiduciary fraud"; civil conspiracy; and
mutual mistake. The factual basis upon which these claims are made generally
involves the payment to Messrs. Whittle, Hummers and Powell of a bonus in stock
held by the Company in
30
Affinity Technology Inc. ("Affinity") (as reward for their efforts in connection
with the Affinity investment), allegedly excessive compensation to the Company's
executive officers, transactions between the Company and entities affiliated
with Mr. Sebastian, alleged concealment of financial problems, alleged
mismanagement by Messrs. Whittle and Hummers involving financial matters and
employee matters. The complaint seeks damages for the benefit of the Company as
follows: for the first cause of action, an amount that the Defendants have
realized from the sale of Affinity stock, director's fees from Mr. Sebastian,
certain undetermined amounts arising from conflicts of interest and excessive
compensation (summarized as $32 million and the costs of this action). With
respect to the second cause of action: damages as much as $9.0 million actual
and punitive damages. With respect to the third cause of action: damages as much
as $9.0 million actual and punitive damages. With respect to the fourth cause of
action: unspecified. With respect to the fourth cause of action: recision of the
Affinity bonuses. The Company believes that this lawsuit is without merit and
expects to defend it vigorously. A motion to dismiss this action has already
been filed and another will be filed in response to the most recent amended
Complaint.
In an action instituted by the same attorneys bringing the foregoing
derivative action, on December 31, 1996, Dan Beckman, Onida Beckman and Dale
Epting filed a class action lawsuit against the Company, Carolina First Bank, a
number of their officers and the majority of the directors of the Company. In
this action, plaintiffs allege that they are former shareholders of Midlands
National Bank and seek to represent a class of all Midlands shareholders
involved in the merger of Midlands into Carolina First Bank, asserting that the
defendants committed fraud, constructive fraud and breach of fiduciary duty
against the defendants by overstating earnings and thereby adversely affecting
the consideration received by the Midlands shareholders in connection with the
merger of Midlands National Bank into Carolina First Bank. The complaint seeks
compensatory damages of approximately $1.8 million and punitive damages in an
amount to be determined by a jury, attorneys' fees and other costs. The Company
and other named defendants have filed a motion to dismiss all claims asserted in
the lawsuit and believe that there are a number of valid defenses available to
them. Both this case and the case discussed in the preceding paragraph have been
designated as complex litigation and have been assigned to a single judge for
handling.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by solicitation
of proxies or otherwise during the fourth quarter of 1996.
31
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
In November 1993, the Board of Directors announced an initial quarterly
cash dividend of $0.05 per share payable on the common stock. A cash dividend of
$0.05 per share was paid to common shareholders each quarter in 1994. In
November 1994, the Board of Directors increased the quarterly cash dividend on
the common stock to $0.06 per share, which was paid each quarter of 1995. In
December 1995, the Board approved an increase in the quarterly cash dividend to
$0.07 per share. This dividend amount was paid in each quarter of 1996. At the
December 1996 meeting, concurrent with the declaration of a six-for-five stock
split, the Board of Directors also approved a $0.07 per share cash dividend on
the common stock, which represents an effective increase of 20%. The Company
presently intends to continue to pay this quarterly cash dividend on the common
stock; however, future dividends will depend upon the Company's financial
performance and capital requirements.
The Company generates cash to pay dividends primarily through dividends
paid to it by its subsidiaries. South Carolina's banking regulations restrict
the amount of dividends that may be paid from Carolina First Bank. All dividends
paid from Carolina First Bank are subject to prior approval by the South
Carolina Commissioner of Banking and are payable only from the undivided profits
of Carolina First Bank. At December 31, 1996, Carolina First Bank's retained
earnings were $29.7 million. However, the payments of any such dividends would
be subject to receipt of appropriate regulatory approvals.
The Board of Directors declared a six-for-five stock split effected in
the form of a 20% common stock dividend, issued on January 30, 1997, to common
stockholders of record as of January 15, 1997. This dividend resulted in the
issuance of 1,870,130 shares of the Company's $1.00 par value common stock. Per
share data of prior periods have been restated to reflect this dividend.
The remaining information required by Item 5 is set forth on page 52 of
the Company's 1996 Annual Report to Shareholders and is incorporated by
reference herein. On February 1, 1997, all outstanding shares of the Series
1993B Cumulative Convertible Preferred Stock ("Series 1993B Preferred Stock")
were converted into the Company's Common Stock. As of March 14, 1997, there were
3,202 common shareholders of record.
32
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is set forth on page 12 in the
Company's 1996 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth on pages 14 through
24 in the Company's 1996 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth on pages 25 through
49 in the Company's 1996 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
33
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on pages 2, 5 and 13
of the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders and
is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item may be found on pages 6 through
11 of the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on page 12 of the
Company's Proxy Statement for the 1997 Annual Meeting of the Shareholders and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on page 13 of the
Company's Proxy Statement for the 1997 Annual Meeting of the Shareholders and is
incorporated herein by reference.
34
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Certain documents filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS
The information required by this item is set forth on pages 25 through
49 in the Company's 1996 Annual Report to Shareholders, which
information is incorporated herein by reference. The Report of
Independent Auditors, dated January 21, 1997 of KPMG Peat Marwick LLP
is included on page 25 of the Company's 1996 Annual Report to
Shareholders, which information is incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES
All other financial statements or schedules have been omitted since the
required information is included in the consolidated financial
statements or notes thereto, or is not applicable or required.
3. LISTING OF EXHIBITS
3.1 -- Articles of Incorporation: Incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4, Commission File No. 57389
3.2 -- Amended and Restated Bylaws of Carolina First Corporation, as amended and restated as of
December 18, 1996: Incorporated by reference to Exhibit 3.1 of Carolina First Corporation's Current
Report on Form 8-K dated December 18, 1996, Commission File No. 0-15083.
4.1 -- Specimen CFC Common Stock certificate: Incorporated by reference to Exhibit 4.1 of Carolina First
Corporation's Registration Statement on Form S-1, Commission File No. 33-7470.
4.2 -- Articles of Incorporation: Included as Exhibit 3.1.
4.2 -- Bylaws: Included as Exhibit 3.2.
4.3 -- Carolina First Corporation Amended and Restated Common Stock Dividend Reinvestment Plan:
Incorporated by reference to the Prospectus in Carolina First Corporation's Registration Statement
on Form S-3, Commission File No. 333-06975.
4.6 -- Amended and Restated Shareholder Rights Agreement: Incorporated by reference to Exhibit 4.1 of
Carolina First Corporation's Current Report on Form 8-K dated December 18, 1996, Commission
File No. 0-15083.
4.7 -- Form of Indenture between Carolina First Corporation and First American Trust Company, N.A.,
as Trustee: Incorporated by reference to Exhibit 4.11 of the Company's Registration Statement on
Form S-3, Commission File No. 22-58879.
10.1 -- Carolina First Corporation Amended and Restated Restricted Stock Plan: Incorporated by reference
to Exhibit 99.1 from the Company's Registration Statement on Form S-8, Commission File No. 33-
82668/82670.
10.2 -- Carolina First Corporation Employee Stock Ownership Plan: Incorporated by reference to
Exhibit 10.2 of Carolina First Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 0-15083.
10.3 -- Carolina First Corporation Amended and Restated Stock Option Plan: Incorporated by reference to
Exhibit 99.1 from the Company's Registration Statement on Form S-8, Commission File No. 33-
80822.
35
10.4 -- Carolina First Corporation Salary Reduction Plan: Incorporated by reference to Exhibit 28.1 of
Carolina First Corporation's Registration Statement on Form S-8, Commission File No. 33-25424.
10.5 -- Amended and Restated Noncompetition and Severance Agreement dated February 21, 1996, between
Carolina First Corporation and Mack I. Whittle, Jr.: Incorporated by reference to Exhibit 10.5 of
Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-15083.
10.6 -- Amended and Restated Noncompetition and Severance Agreement dated February 21, 1996, between
Carolina First Corporation and William S. Hummers III: Incorporated by reference to Exhibit 10.6
of Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-15083.
10.7 -- Amended and Restated Noncompetition and Severance Agreement dated February 21, 1996, between
Carolina First Corporation and James W. Terry, Jr.: Incorporated by reference to Exhibit 10.7 of
Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-15083.
10.8 -- Noncompetition and Severance Agreement dated February 21, 1996, between Carolina First
Corporation and David L. Morrow: Incorporated by reference to Exhibit 10.8 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, Commission File
No. 0-15083.
10.9 -- Short-Term Performance Plan: Incorporated by reference to Exhibit 10.3 of Carolina First
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993,
Commission File No. 0-15083.
10.10-- Carolina First Corporation Long-Term Management Performance Plan: Incorporated by reference
to Exhibit 10.11 of Carolina First Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 0-15083.
10.11-- Carolina First Corporation Employee Stock Purchase Plan: Incorporated by reference to Exhibit 99.1
from the Company's Registration Statement on Form S-8, Commission File No. 33-79668.
10.12-- Carolina First Corporation Directors Stock Option Plan: Incorporated by reference to Exhibit 99.1
from the Company's Registration Statement on Form S-8, Commission File No. 33-82668/82670.
10.13-- Pooling and Servicing Agreement dated as of December 31, 1994 between Carolina First Bank, as Seller
and Master Servicer, and The Chase Manhattan Bank, as Trustee. Incorporated by reference to Exhibit 28.1
of Carolina First Corporation's Current Report on Form 8-K dated as of January 24, 1995.
10.14-- 1994-A Supplement dated as of December 31, 1994 between Carolina First Bank, as Seller and Master Servicer,
and The Chase Manhattan Bank, as Trustee. Incorporated by reference to Exhibit 28.2 of Carolina First
Corporation's Current Report on Form 8-K dated as of January 24, 1995.
10.15-- Servicing Rights Purchase Agreement between Bank of America, F.S.B. and Carolina First Bank
dated as of March 31, 1995: Incorporated by reference to Exhibit 10.17 of Amendment No. 1 to
Carolina First Corporation's Annual Report on Form 10-K for the year ended, December 31, 1994,
Commission File No. 0-15083.
10.16-- Warrant to Purchase Common Stock of Affinity Financial Group, Inc. and Amendment No. 1 with
respect to Warrant to Purchase Common Stock of Affinity Financial Group, Inc. Incorporated by
reference to Exhibit 10.16 of Carolina First Corporation's Annual Report on Form 10-K for the year
ended December 31, 1995, Commission File No. 0-15083.
10.17-- Letter Agreement between Carolina First Corporation and the Board of Governors of the Federal Reserve
Board regarding warrant to purchase shares of Affinity Technology Group, Inc. common stock. Incorporated
by reference to Exhibit 10.1 of Carolina First Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 0-15083.
10.18-- Amended and Restated Agreement regarding the Atlanta Internet Banking Operation by and among
Carolina First Bank, Internet Organizing Group, Inc., the Organizers (as set forth on the Signature
Page of the Agreement), and the Kelton Group of Investors.
36
11.1 -- Computation of Per Share Earnings.
12.1 -- Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
13.1 -- 1996 Annual Report to Shareholders of the Company.
21.1 -- Subsidiaries of the Registrant: Carolina First Bank, Carolina First Mortgage Company and Blue Ridge
Finance Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
(b) None.
(c) Exhibits required to be filed with this Form 10-K by Item 601 of Regulation S-K are filed herewith or
incorporated by reference herein.
(d) Certain additional financial statements. Not applicable
37
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAROLINA FIRST CORPORATION
Signature Title Date
/s/Mack I. Whittle, Jr. President, Chief March 26, 1997
- --------------------------------
Mack I. Whittle, Jr. Executive Officer and Director
/s/William S. Hummers III Executive Vice President and March 26, 1997
- ----------------------------
William S. Hummers III Secretary
(Principal Accounting and
Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities on the dates indicated:
Signature Title Date
/s/William R. Timmons, Jr. Director March 26, 1997
- ------------------------------
William R. Timmons, Jr.
/s/Mack I. Whittle, Jr. Director March 26, 1997
- -------------------------------
Mack I. Whittle, Jr.
/s/William S. Hummers III Director March 26, 1997
- -------------------------------
William S. Hummers III
/s/Judd B. Farr Director March 26, 1997
- -------------------------------
Judd B. Farr
/s/C. Claymon Grimes, Jr. Director March 26, 1997
- -------------------------------
C. Claymon Grimes, Jr.
/s/M. Dexter Hagy Director March 26, 1997
- -------------------------------
M. Dexter Hagy
/s/H. Earle Russell, Jr. Director March 26, 1997
- -------------------------------
H. Earle Russell, Jr.
/s/Charles B. Schooler Director March 26, 1997
- -------------------------------
Charles B. Schooler
/s/Elizabeth P. Stall Director March 26, 1997
- -------------------------------
Elizabeth P. Stall
/s/Eugene E. Stone IV Director March 26, 1997
- -------------------------------
Eugene E. Stone IV
38
INDEX TO EXHIBITS
Exhibit
Number Description
10.18 Amended and Restated Agreement regarding the Atlanta Internet
Banking Operation by and among Carolina First Bank, Internet
Organizing Group, Inc., the Organizers (as set forth on the
Signature Page of the Agreement), and the Kelton Group of
Investors.
11.1 Computation of Per Share Earnings.
12.1 Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Fixed Charges and Preferred Stock Dividends.
13.1 1996 Annual Report to Shareholders of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
39