SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X
- ----- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
- ----- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number 0-15083
CAROLINA FIRST CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0824914
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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
--------------
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of outstanding shares of the issuer's $1.00 par value common stock as
of August 8, 1999 was 25,660,760.
CONSOLIDATED BALANCE SHEETS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
(Unaudited)
June 30, December 31,
-------------------------------------- ------------------
ASSETS 1999 1998 1998
----------------- ----------------- ------------------
Cash and due from banks.............................................. $ 81,643 $ 72,052 $ 102,516
Interest-bearing bank balances....................................... 41,332 37,144 54,988
Federal funds sold and resale agreements............................. 6,265 35,000 5,000
Securities
Trading........................................................... 1,462 2,445 3,543
Available for sale................................................ 370,345 386,785 395,140
Held for investment (market value $48,271, $33,880 and
$50,192, respectively)............................................ 48,372 33,240 49,347
-------------- ----------------- ---------------------
Total securities................................................ 420,179 422,470 448,030
-------------- ----------------- ---------------------
Loans
Loans held for sale............................................... 44,885 86,373 112,918
Loans held for investment......................................... 1,942,065 1,477,842 1,753,778
Less unearned income........................................... (7,270) (9,349) (7,558)
Less allowance for loan losses................................. (15,976) (15,625) (17,509)
-------------- ----------------- ---------------------
Net loans.................................................... 1,963,704 1,539,241 1,841,629
-------------- ----------------- ---------------------
Premises and equipment, net.......................................... 46,955 41,606 46,953
Accrued interest receivable.......................................... 17,629 17,394 19,702
Intangible assets.................................................... 120,574 57,109 130,402
Other assets......................................................... 102,477 55,975 76,714
-------------- ----------------- ---------------------
$ 2,800,758 $ 2,277,991 $ 2,725,934
============== ================= =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing............................................ $ 282,204 $ 230,717 $ 286,831
Interest-bearing............................................... 1,890,709 1,607,800 1,838,405
-------------- ----------------- ---------------------
Total deposits................................................ 2,172,913 1,838,517 2,125,236
Borrowed funds.................................................... 205,576 125,101 193,286
Subordinated notes................................................ 25,683 25,554 25,618
Accrued interest payable.......................................... 14,786 15,377 16,373
Other liabilities................................................. 27,223 16,517 21,058
-------------- ----------------- ---------------------
Total liabilities.............................................. 2,446,181 2,021,066. 2,381,571
-------------- ----------------- ---------------------
Shareholders' Equity
Preferred stock-no par value; authorized 10,000,000 shares;
issued and outstanding none.................................... -- -- --
Common stock-par value $1 per share; authorized 100,000,000
shares; issued and outstanding 22,506,376, 18,142,554
and 22,005,391 shares, respectively............................. 22,506 18,143 22,005
Surplus........................................................... 290,258 212,802 288,577
Retained earnings................................................. 47,083 27,455 35,914
Guarantee of employee stock ownership plan debt and nonvested
restricted stock................................................ (2,528) (3,411) (2,963)
Accumulated other comprehensive income, net of tax............... (2,742) 1,936 830
-------------- ----------------- ---------------------
Total shareholders' equity..................................... 354,577 256,925 344,363
-------------- ----------------- ---------------------
$ 2,800,758 $ 2,277,991 $ 2,725,934
============== ================= =====================
1
CONSOLIDATED STATEMENTS OF INCOME
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
($ in thousands, except share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
---------------------------------------- ----------------------------------------
INTEREST INCOME
Interest and fees on loans.................. $ 44,265 $ 35,950 $ 86,864 $ 72,179
Interest and dividends on securities........ 5,769 6,130 11,440 10,945
Interest on short-term investments.......... 785 1,423 1,377 2,506
----------------- ----------------- ---------------- ----------------
Total interest income..................... 50,819 43,503 99,681 85,630
----------------- ----------------- ---------------- ----------------
INTEREST EXPENSE
Interest on deposits........................ 20,557 20,009 40,966 39,284
Interest on borrowed funds.................. 2,904 2,145 5,671 4,770
----------------- ----------------- ---------------- ----------------
Total interest expense.................... 23,461 22,154 46,637 44,054
----------------- ----------------- ---------------- ----------------
Net interest income....................... 27,358 21,349 53,044 41,576
PROVISION FOR LOAN LOSSES..................... 3,400 3,447 6,811 5,583
----------------- ----------------- ---------------- ----------------
Net interest income after
provision for loan losses............... 23,958 17,902 46,233 35,993
----------------- ----------------- ---------------- ----------------
NONINTEREST INCOME
Service charges on deposit accounts......... 2,597 2,258 4,843 4,134
Mortgage banking income..................... 766 782 1,614 2,275
Fees for investment services................ 556 369 1,062 721
Loan securitization income.................. 1,006 114 1,603 33
Gain on sale of securities.................. 81 183 244 323
Gain on sale of credit cards................ 2,362 - 2,362 -
Gain on disposition of equity investments... - - 15,471 -
Other....................................... 1,650 1,377 2,938 2,210
----------------- ----------------- ---------------- ----------------
Total noninterest income.................. 9,018 5,083 30,137 9,696
----------------- ----------------- ---------------- ----------------
NONINTEREST EXPENSES
Personel expense............................ 9,755 7,310 21,003 14,803
Occupancy................................... 1,808 1,364 3,490 2,833
Furniture and equipment..................... 1,562 1,049 2,927 2,144
Amortization of intangibles................. 1,619 818 3,537 1,692
Charitable contribution to foundation....... - - 11,890 -
Merger and related costs.................... 2,132 - 2,132 -
Other....................................... 6,598 3,682 12,865 8,010
----------------- ----------------- ---------------- ----------------
Total noninterest expenses................ 23,474 14,223 57,844 29,482
----------------- ----------------- ---------------- ----------------
Income before income taxes................ 9,502 8,762 18,526 16,207
Income taxes.................................. 3,186 3,226 5,886 5,977
----------------- ----------------- ---------------- ----------------
Net income................................ $ 6,316 $ 5,536 $ 12,640 $ 10,230
================= ================= ================ ================
NET INCOME PER COMMON SHARE:
Basic..................................... $ 0.28 $ 0.31 $ 0.57 $ 0.59
Diluted................................... 0.28 0.31 0.56 0.59
AVERAGE COMMON SHARES OUTSTANDING:
Basic..................................... 22,352,454 17,682,632 22,099,375 17,138,421
Diluted................................... 22,791,878 18,088,100 22,480,150 17,509,212
CASH DIVIDENDS DECLARED PER COMMON SHARE...... $ 0.09 $ 0.08 $ 0.18 $ 0.16
2
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Carolina First Corporation and Subsidiaries
($ in thousands, except share data)
(Unaudited)
Retained Accumulated
Shares of Earnings Other
Common Common and Comprehensive
Stock Stock Surplus Other* Income Total
-----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997............................. 15,659,338 $15,659 $164,517 $16,930 $4,553 $201,659
Net income........................................... - - - 10,230 - 10,230
Other comprehensive income (loss), net of tax:
Unrealized losses on securities:
Unrealized holding losses arising during
period, net of taxes of $1,353............... - - - - (2,538) -
Less: reclassification adjustment for gains
included in net income, net of taxes of $47.. - - - - (79) -
--------------
Other comprehensive loss.......................... - - - - (2,617) (2,617)
-------------- -----------
Comprehensive income................................. - - - - 7,613
-----------
Cash dividends declared ($0.08 per common share)..... - - - (2,835) - (2,835)
Common stock issued pursuant to:
Stock offering..................................... 2,000,000 2,000 36,375 - - 38,375
Purchase accounting acquisition.................... 398,610 399 10,386 - - 10,785
Dividend reinvestment plan......................... 29,179 29 657 - - 686
Employee stock purchase plan....................... 4,132 4 93 - - 97
Restricted stock plan.............................. 28,945 29 594 - - 623
Exercise of stock options and stock warrants....... 22,350 23 109 - - 132
Miscellaneous........................................ - - 71 (281) - (210)
============================================================================
BALANCE, JUNE 30, 1998................................. 18,142,554 $18,143 $212,802 $24,044 $1,936 $256,925
============================================================================
BALANCE, DECEMBER 31, 1998............................. 22,005,391 $22,005 $288,577 $32,951 $830 $344,363
Net income........................................... - - - 12,640 - 12,640
Other comprehensive income, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising during
period, net of taxes of $1,552............... - - - - (3,531) -
Less: reclassification adjustment for gains
included in net income, net of taxes of $19.. - - - - (41) -
--------------
Other comprehensive income......................... - - - - (3,572) (3,572)
-------------- -----------
Comprehensive income................................. - - - - 9,068
-----------
Cash dividends declared ($0.09 per common share)..... - - - (4,004) - (4,004)
Common stock issued pursuant to:
Repurchase of stock................................ (40,000) (40) (816) - - (856)
Acquisition........................................ 507,931 508 1,779 2,534 - 4,821
Dividend reinvestment plan......................... 29,341 29 643 - - 672
Employee stock purchase plan....................... 2,991 3 60 - - 63
Exercise of stock options and stock warrants....... 2,802 3 35 - - 38
Miscellaneous........................................ (2,080) (2) (20) 434 - 412
----------------------------------------------------------------------------
BALANCE, JUNE 30, 1999................................. 22,506,376 $22,506 $290,258 $44,555 ($2,742) $354,577
============================================================================
* Other includes guarantee of employee stock ownership plan debt and nonvested
restricted stock.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Carolina First Corporation and Subsidiaries
($ in thousands, except share data)
(Unaudited)
Six Months Ended June 30,
-----------------------------------------
1999 1998
-----------------------------------------
Cash Flows From Operating Activities
Net income.................................................................... $ 12,640 $ 10,230
Adjustments to reconcile net income to net cash (used for)
provided by operations
Depreciation.............................................................. 1,556 1,818
Amortization of intangibles............................................... 3,537 1,692
Charitable contribution to foundation..................................... 11,890 -
Provision for loan losses................................................. 6,811 5,583
Gain on sale of credit cards.............................................. (2,362) -
Gain on sale of securities................................................ (244) (323)
Gain on disposition of equity investments................................. (15,471) -
Trading account assets, net............................................... 2,273 101
Originations of mortgage loans held for sale.............................. (220,127) (248,796)
Sale of mortgage loans held for sale...................................... 189,997 357,234
Other assets, net......................................................... (15,224) (3,929)
Other liabilities, net.................................................... 5,623 (1,186)
-------------------------------------
Net cash (used for) provided by operating activities......................... (19,101) 122,424
-------------------------------------
Cash Flows From Investing Activities
Increase (decrease) in cash realized from
Interest-bearing bank balances............................................ 13,656 (2,441)
Federal funds sold and resale agreements.................................. (8,790) (35,000)
Sale of securities available for sale..................................... 92,852 26,733
Maturity of securities available for sale................................. 140,643 176,846
Maturity of securities held for investment................................ 6,264 4,493
Purchase of securities available for sale................................. (214,449) (331,924)
Purchase of securities held for investment................................ (5,289) (3,878)
Origination of loans, net................................................. (124,992) (69,437)
Capital expenditures...................................................... (1,558) (2,077)
Acquisitions accounted for under the purchase method
of accounting........................................................ 21,330 7,453
Proceeds from disposition of equity investments........................... 4,389 -
Proceeds from sale of credit cards........................................ 65,624 (38,480)
-------------------------------------
Net cash used for investing activities........................................ (10,320) (267,712)
-------------------------------------
Cash Flows From Financing Activities
Increase (decrease) in cash realized from
Change in deposits, net................................................... 154 135,621
Borrowed funds, net....................................................... 12,290 (28,268)
Cash dividends paid....................................................... (3,959) (3,000)
Issuance of common stock.................................................. - 38,375
Other common stock activity............................................... 63 1,286
-------------------------------------
Net cash provided by financing activities...................................... 8,548 144,014
-------------------------------------
Net change in cash and due from banks........................................... (20,873) (1,274)
Cash and due from banks at beginning of period.................................. 102,516 73,326
-------------------------------------
Cash and due from banks at end of period........................................ $ 81,643 $ 72,052
=====================================
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1998 Annual Report to
Shareholders.
(2) STATEMENTS OF CASH FLOWS
Cash includes currency and coin, cash items in process of collection
and due from banks. Interest paid, net of interest capitalized as a
part of the cost of construction, amounted to approximately $48.2
million and $42.2 million for the six months ended June 30, 1999 and
June 30, 1998, respectively. Income tax payments of $3.3 million and
$1.5 million were made for the six months ended June 30, 1999 and June
30, 1998, respectively.
(3) BUSINESS COMBINATIONS
On April 23, 1999, the Company acquired all the outstanding shares of
Citizens First National Bank ("Citizens"), a national bank
headquartered in Crescent City, Florida in exchange for 507,931 shares
of the Company's common stock. At March 31, 1999, Citizens had total
assets, loans and deposits of approximately $59 million, $37 million
and $53 million, respectively. The transaction was accounted for as a
pooling-of-interests; however, due to the immateriality of the
transaction in relation to the Company's consolidated financial
position and operating results, prior period financial statements have
not been restated.
On July 1, 1999, the Company issued 3,086,478 shares of common stock
for all the outstanding common stock of Citrus bank, a Florida
state-chartered bank headquartered in Orlando, Florida. As of June 30,
1999, Citrus Bank had total assets, loans, and deposits of
approximately $285 million, $196 million, and $264 million,
respectively. This transaction will be accounted for as a
pooling-of-interests combination and, accordingly, the Company's
historical consolidated financial statements presented in future
reports will be restated to include the accounts and results of
operations of Citrus Bank.
The following pro forma data summarizes the combined results of
operations of the Company and Citrus Bank as if the combination had
been consummated on June 30, 1999.
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
Net interest income $30,463 $23,724 $59,430 $45,787
Noninterest income 9,553 5,559 31,252 10,548
Net income 7,240 6,157 14,275 11,178
Net income per common share:
Basic $0.30 $0.32 $0.60 $0.59
Diluted 0.29 0.31 0.58 0.58
5
(4) SECURITIES
The net unrealized gain on securities available for sale, net of tax
decreased $3.6 million for the six months ended June 30, 1999.
(5) COMMON STOCK
Basic earnings per share are based on the weighted average number of
common shares outstanding during each period.
Diluted earnings per share are based on the weighted average number of
common shares outstanding during each period, including the assumed
exercise of dilutive stock options using the treasury stock method.
(6) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of its business. In the opinion of
management based on consultation with legal counsel, any outcome of
such pending litigation would not materially affect the Company's
consolidated financial position or results of operations.
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, the
majority of the Company's and Carolina First Bank's directors, and
certain executive and other officers. The named plaintiffs are the
Company by and through certain minority shareholders. The Company filed
a motion to dismiss with respect to all claims in this complaint, which
was granted in December 1997. Plaintiffs have appealed the grant of the
motion to dismiss. Plaintiffs allege as causes of action the following:
conversion of corporate opportunity; breach of fiduciary duty and
constructive fraud; civil conspiracy; and mutual mistake. The factual
basis upon which these claims are made generally involves the payment
to Company officers and other individuals of a bonus in stock held by
the Company in Affinity Technology Group, Inc. (as reward for their
efforts in connection with the Company's procurement of stock in
Affinity Technology Group, Inc.), statements to former shareholders of
Midlands National Bank in connection with the Company's acquisition of
that bank, and alleged mismanagement by certain executive officers
involving financial matters. The complaint seeks damages for the
benefit of the Company aggregating $41 million and rescission of the
Affinity Technology Group, Inc. bonus.
In an action brought by the same attorneys who brought the
above-mentioned derivative action, on December 31, 1996, certain
individuals filed a class action lawsuit against the Company, Carolina
First Bank, and a number of officers and directors of the Company and
Carolina First Bank. In connection with the judge's granting the motion
to dismiss in the above-referenced derivative action, the plaintiffs'
attorneys withdrew this lawsuit, without prejudice.
6
(7) BUSINESS SEGMENTS
Carolina First has six wholly-owned operating subsidiaries which are
evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and assess performance. Two of these
subsidiaries qualify as separately reportable operating segments,
Carolina First Bank and Carolina First Mortgage Company ("CF
Mortgage"). These operating segments offer products and services
primarily to customers in South Carolina and the surrounding areas.
Carolina First Bank's revenues are derived primarily from interest and
fees on loans, interest on investment securities and service charges on
deposits, while CF Mortgage's revenue is from mortgage banking income.
The following table summarizes certain financial information concerning
the Company's reportable operating segments for the six months ended:
CAROLINA FIRST CF ELIMINATING
BANK MORTGAGE OTHER* ENTRIES TOTAL
---- -------- ------ ------- -----
AT AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------
Income Statement Data
Total revenue $ 112,290 $ 3,766 $ 17,538 $ (3,776) $ 129,818
Net interest income 50,123 -- 2,921 -- 53,044
Provision for loan losses 6,572 -- 239 -- 6,811
Noninterest income 18,583 3,766 10,584 (2,796) 30,137
Mortgage banking
income (loss) (2,071) 3,686 (1) -- 1,614
Noninterest expenses 38,444 2,822 19,374 (2,796) 57,844
Amortization 2,843 -- 694 -- 3,537
Net income 14,689 613 (2,662) -- 12,640
Balance Sheet Data
Total assets $ 2,602,113 $ 7,180 $ 582,034 $ (390,569) $2,800,758
Loans - net of
unearned income 1,882,293 -- 97,387 -- 1,979,680
Allowance for loan
losses 13,552 -- 2,424 -- 15,976
Intangibles 104,112 -- 16,462 -- 120,574
Deposits 2,062,838 -- 125,515 (15,440) 2,172,913
7
CAROLINA FIRST CF ELIMINATING
BANK MORTGAGE OTHER* ENTRIES TOTAL
---- -------- ----- ------- -----
AT AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------
Income Statement Data
Total revenue $ 89,649 $ 4,116 $ 3,785 $ (2,224) $ 95,326
Net interest income 40,956 -- 620 -- 41,576
Provision for loan losses 4,225 -- 1,358 -- 5,583
Noninterest income 5,763 4,116 1,074 (1,257) 9,696
Mortgage banking
income (loss) (1,786) 4,061 -- -- 2,275
Noninterest expenses 26,164 2,238 2,338 (1,258) 29,482
Amortization 1,588 -- 104 -- 1,692
Net income 10,234 1,208 (1,212) -- 10,230
Balance Sheet Data
Total assets $ 2,236,486 $ 6,223 $ 322,209 $ (286,927) $2,277,991
Loans - net of
unearned income 1,540,935 -- 13,931 -- 1,554,866
Allowance for loan
losses 14,136 -- 1,489 -- 15,625
Intangibles 51,571 -- 4,404 -- 55,975
Deposits 1,870,006 -- -- (31,489) 1,838,517
---------------------------------------------------------------------------------------------------------
*Other includes corporate related items and results of subsidiaries not
meeting the criteria for reportable operating segments, including the
Parent Company, Blue Ridge Finance Company, Inc., Carolina First Bank,
F.S.B., Resource Processing Group, Inc. and CF Guaranty Reinsurance,
Ltd.
(8) MANAGEMENT'S OPINION
The financial statements in this report are unaudited. In the opinion
of management, all adjustments necessary to present a fair statement of
the results for the interim periods have been made. All such
adjustments are of a normal, recurring nature.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AND WITH THE
STATISTICAL INFORMATION AND FINANCIAL DATA APPEARING IN THIS REPORT AS WELL AS
THE ANNUAL REPORT OF CAROLINA FIRST CORPORATION (THE "COMPANY") ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1998. RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 1999 ARE NOT NECESSARILY INDICATIVE OF RESULTS TO BE ATTAINED FOR
ANY OTHER PERIOD.
FORWARD-LOOKING STATEMENTS
Statements included in this report which are not historical in nature
are intended to be, and are hereby identified as, "forward-looking statements"
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended (the "Act"). In addition, certain statements in
future filings by the Company with the Securities and Exchange Commission, in
press releases and in oral and written statements made by or with the approval
of the Company which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. The Company cautions
readers that forward-looking statements, including without limitation, those
relating to the Company's future business prospects, plans, objectives, future
economic performance, revenues, working capital, liquidity, capital needs,
interest costs, income or loss, income or loss per share, dividends and other
financial items are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward-looking
statements due to several important factors herein identified, among others, and
other risks and factors identified from time to time in the Company's reports
filed with the Securities and Exchange Commission.
The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include, but are
not limited to, the following: projections regarding the estimated annualized
financial impact from the sale of the credit cards; risks from changes in
economic, monetary policy and industry conditions; changes in interest rates;
inflation; risks inherent in making loans including repayment risks and value of
collateral; fluctuations in consumer spending; the demand for the Company's
products and services; dependence on senior management; technological changes;
ability to increase market share and control expenses; acquisitions; changes in
accounting policies and practices; costs and effects of litigation;
recently-enacted or proposed legislation; and year 2000 readiness.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
OVERVIEW
The Company, a South Carolina corporation headquartered in Greenville,
South Carolina, is a financial institutions holding company, which commenced
banking operations in December 1986, and currently conducts business through 75
locations in South Carolina and 13 locations in northern and central Florida.
The Company operates through the following subsidiaries: Carolina
9
First Bank, a South Carolina state-chartered commercial bank; Carolina
First Mortgage Company ("CF Mortgage"), a mortgage banking company; Carolina
First Bank, F.S.B., a Federal savings bank; Citrus Bank, a Florida
state-chartered bank; Blue Ridge Finance Company, Inc. ("Blue Ridge"), a
consumer finance company; and Resource Processing Group, Inc. ("RPGI"), a credit
card servicing company. 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.
Net income for the second quarter of 1999 increased 14% to $6.3
million, compared with $5.5 million for the second quarter of 1998. Earnings per
diluted share for the three months ended June 30, 1999 were $0.28 per diluted
share, compared with $0.31 for the prior year period. Second quarter 1999
earnings included a $2.4 million gain on the sale of credit cards, $2.1 million
of merger and related costs and $301,000 of Y2K expenses. The increase in net
income during the second quarter of 1999 resulted principally from an increase
in net interest income. The decrease in earnings per diluted share was a result
of a 26% increase in average common shares outstanding, principally from the
completion of bank mergers in the fall of 1998. Net income for the first six
months of 1999 increased 24% to $12.6 million compared with $10.2 million for
the same period in 1998. Earnings per diluted share for the six months ended
June 30, 1999 were $0.56 compared with $0.59 for the prior year period. At June
30, 1999, the Company had approximately $2.8 billion in assets, $2.0 billion in
loans, $2.2 billion in deposits and $354.6 million in shareholders' equity. At
June 30, 1999, the Company's ratio of nonperforming assets to loans and other
real estate owned was 0.22%.
On April 23, 1999, the Company acquired all the outstanding shares of
Citizens First National Bank ("Citizens"), a national bank headquartered in
Crescent City, Florida in exchange for 507,931 shares of the Company's common
stock. At March 31, 1999, Citizens had total assets, loans and deposits of
approximately $59 million, $37 million and $53 million, respectively, and
operated through four branch locations. The transaction was accounted for as a
pooling-of-interests combination; however, due to the immateriality of the
transaction in relation to the Company's consolidated financial position and
operating results, prior period financial statements have not been restated.
On July 1, 1999, the Company issued 3,086,478 shares of common stock
for all the outstanding common stock of Citrus Bank, a Florida state-chartered
bank headquartered in Orlando, Florida. As of June 30, 1999, Citrus Bank had
total assets, loans, and deposits of approximately $285 million, $196 million,
and $264 million, respectively, and operated eight locations. This transaction
will be accounted for as a pooling-of-interests combination and, accordingly,
Citrus Bank's historical consolidated financial statements presented in future
reports will be restated to included the accounts and results of operations of
Citrus Bank. Accordingly, the financial information provided in this filing has
not been restated to include Citrus Bank, unless specified otherwise.
On July 1, 1999, Citizens was merged into Citrus Bank, and all of the
Company's Florida bank branches currently operate as branches of Citrus Bank.
In March 1999, Carolina First Bank signed a definitive agreement to
sell two branch offices located in Ridgeland and Hardeeville, South Carolina to
First National Bank, a subsidiary of First National Corporation. In June 1999,
Carolina First Bank signed a definitive agreement to sell one branch office
located in Johnston, South Carolina to First Citizens Bank and one branch office
located in Abbeville, South Carolina to The Palmetto Bank, a subsidiary of
Palmetto Bancshares, Inc. These four branches have approximately $58 million in
deposits and approximately $15 million
10
in loans. These transactions are expected to close in the second half of 1999
and are subject to regulatory approval, among other conditions.
The consolidation of the credit card industry has accelerated over the
last several years creating large companies specializing in credit cards that
are able to offer diversified products at competitive rates. Given the
diminished potential for relatively small credit card lenders, the Company sold
its consumer credit card receivables totaling approximately $112 million to
First USA, N.A. on April 30, 1999. The sale resulted in a gain of approximately
$2.4 million and a reduction in the allowance for loan losses of approximately
$3.0 million (see "BALANCE SHEET REVIEW-Allowance for Loan Losses"). The credit
cards sold include approximately $58 million owned by the Company's off-balance
sheet credit card trust. The Company will continue to service these credit cards
until the end of August 1999. In connection with the sale, the Company's credit
card trust was terminated effective May 17, 1999. In addition, the Company
entered into a partnership agreement with an affiliate of the purchaser to offer
credit card products to its retail customers. The Company will continue to
originate business credit cards in its market areas and has retained its
business credit card receivables, which totaled approximately $2.2 million as of
June 30, 1999.
EQUITY INVESTMENTS
INVESTMENT IN NET.B@NK, INC.
At June 30, 1999, the Company owned 2,415,000 shares of Net.B@nk, Inc.
("Net.B@nk") common stock, or approximately 8.4% of the outstanding shares.
Net.B@nk owns and operates Net.B@nk, FSB, an FDIC-insured federal savings bank
that provides banking services to consumers utilizing the Internet. At quarter
end, these shares were carried on the Company's books at a basis of
approximately $671,000 due to a restriction on selling the shares, which expires
on July 31, 2000. Under the terms of the OTS's regulatory ruling on Net.B@nk in
1997, certain affiliates of Net.B@nk, including the Company, may not sell their
shares in Net.B@nk until July 31, 2000. Effective July 31, 1999, which is within
one year of the termination of the restriction, the Company began carrying the
Net.B@nk shares on the Company books at market value.
On January 8, 1999, the OTS granted the Company permission to sell or
transfer 1,110,000 (adjusted for the stock split) shares in order to reduce its
ownership to less than 10%. In January 1999, the Company contributed 870,000
shares (adjusted for the stock split) of Net.B@nk common stock to Carolina First
Foundation, a non-profit corporation organized for charitable purposes which
establishes an endowment to fund future charitable contributions. In February
1999, the Company contributed capital in the form of 90,000 shares (adjusted for
the stock split) of Net.B@nk common stock to its wholly-owned subsidiary,
Carolina First Guaranty Reinsurance, Ltd., a company which will be engaged in
the reinsurance of credit insurance to customers of the Company's banking
subsidiaries. On February 10, 1999, the Company and Carolina First Guaranty
Reinsurance, Ltd. sold 150,000 shares (adjusted for the stock split) and 90,000
shares (adjusted for the stock split), respectively, of Net.B@nk's common stock
at a net price of $14.46 (adjusted for the stock split) per share in connection
with Net.B@nk's secondary public offering. In addition, Carolina First
Foundation sold 870,000 shares (adjusted for the stock split) of Net.B@nk common
stock at a net price of $14.46 per share (adjusted for the stock split).
11
INVESTMENT IN AFFINITY TECHNOLOGY GROUP, INC.
At June 30, 1999, the Company (through its subsidiary CF Investment
Company) owned 2,528,366 shares of common stock of Affinity Technology Group,
Inc. ("Affinity") and a warrant to purchase an additional 3,471,340 shares for
approximately $0.0001 per share ("Affinity Warrant").
These Affinity shares and the shares represented by the Affinity
Warrant constitute approximately 17% of Affinity's outstanding common stock. The
investment in Affinity's common stock, which is included in securities available
for sale and has a basis of approximately of $160,000, was recorded at its
market value of approximately $4.5 million. The Affinity Warrant was not
reported on the Company's balance sheet as of June 30, 1999.
The Company's shares in Affinity and the shares issuable upon the
exercise of the Affinity Warrant are "restricted" securities, as that term is
defined in federal securities laws.
INVESTMENTS IN COMMUNITY BANKS
As of June 30, 1999, the Company had equity investments in the
following community banks located in the Southeast: Capital Bank in Raleigh,
North Carolina; Carolina Bank in Greensboro, North Carolina; Carolina Savings
Bank, Incorporated, S.S.B. in Greensboro, North Carolina; CNB, Inc. in Lake
City, Florida; Community Capital Corporation in Greenwood, South Carolina;
FirstSpartan Financial Corporation in Spartanburg, South Carolina; Florida
Banks, Incorporated in Jacksonville, Florida; Heritage Bancorp, Incorporated in
Laurens, South Carolina; People's Community Capital Corporation in Aiken, South
Carolina; and Trinity Bank in Monroe, North Carolina. In each case, the Company
owns less than 5% of the community bank's outstanding common stock. The Company
has made these investments to develop correspondent banking relationships and to
promote community banking in the Southeast.
CF INVESTMENT COMPANY
In September 1997, the Company's subsidiary, CF Investment Company,
became licensed through the Small Business Administration to operate as a Small
Business Investment Company. CF Investment Company is a wholly-owned subsidiary
of Blue Ridge. CF Investment Company's principal focus is investing in companies
that have a bank-related technology or service the Company and its subsidiaries
can use. As of June 30, 1999, CF Investment Company had invested approximately
$2.4 million (principally in the form of loans) in companies specializing in
electronic document management and Internet-related services. In March 1999, CF
Investment Company sold its investment in Corporate Solutions International, a
company that develops automated credit decision systems, for a pre-tax gain of
approximately $412,000.
EARNINGS REVIEW
NET INTEREST INCOME
The largest component of the Company's net income is Carolina First
Bank's net interest income. Net interest income is the difference between the
interest earned on assets and the interest paid for the liabilities used to
support such assets. Fully tax-equivalent net interest income adjusts the yield
for assets earning tax-exempt income to a comparable yield on a taxable basis.
12
Fully tax equivalent net interest income increased $11.7 million, or 28%, to
$53.6 million in the first six months of 1999 from $41.9 million in the first
six months of 1998. The increase resulted from a higher level of average earning
assets and a higher net interest margin. The growth in average earning assets,
which increased $376.1 million, or 19%, to approximately $2.4 billion in the
first half of 1999 from $2.0 billion in the first half of 1998 resulted from
acquisitions completed in the second half of 1998, accounted for using the
purchase method of accounting, and internal loan growth. Average loans, net of
unearned income, were $1.9 billion in the first six months of 1999, compared
with $1.6 billion in the first six months of 1998. Average investment securities
were $395.2 million and $357.3 million in the first six months of 1999 and 1998,
respectively.
The net interest margin of 4.50% for the first half of 1999 was higher
than the margin of 4.22% for the first half of 1998. The higher net interest
margin in 1999 resulted from lower deposit costs partially offset by lower
earning asset yields. The lower deposit costs resulted from shifting the deposit
mix from certificates of deposit into lower-yielding transaction accounts. Also
contributing to the Company's lower cost of deposits was the declining interest
rate environment and the Company's rate reductions. The yield on earning assets
was lower in 1999 as a result of a 0.75% reduction in the prime interest rate,
which occurred during the fourth quarter of 1998. Approximately 54% of the
commercial loan portfolio is variable and immediately repriced downward with the
decrease in the prime interest rate. The earning asset yield was enhanced
somewhat by the restructuring of the loan portfolio. Approximately $246 million,
or 89%, of the loans acquired in the acquisition of First Southeast Financial
Corporation ("First Southeast"), which closed in November 1997, were mortgage
loans. Mortgage loans typically have a lower yield than commercial or consumer
loans. During the first quarter of 1998, the Company sold approximately $153
million of First Southeast mortgage loans and deployed the proceeds into
higher-yielding commercial and consumer loans during the remainder of 1998.
The net interest margin of 4.55% for the second quarter of 1999 showed
improvement over the net interest margin of 4.45% for the first quarter of 1999.
The increase from first quarter to second quarter of 1999 resulted primarily
from lower deposit costs associated with an increase in transaction accounts.
Effective July 1, 1999, the prime interest rate increased 0.25% to
8.00%, which will lead to increased loan yields and higher deposit rates during
the third quarter of 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $6.8 million for the first
half of 1999 compared with $5.6 million for the first half of 1998. The higher
1999 provision for loan losses reflected the higher level of outstanding loans,
which increased 27%. As a percentage of average loans, the net charge-off ratio
was 0.60% for the first half of 1999, compared with 0.79% for the first half of
1998. The nonperforming asset ratio remained low at 0.22% as of June 30, 1999,
compared with 0.17% as of June 30, 1998.
Management currently anticipates significant loan growth will continue
in 1999. New market areas, such as northern and central Florida, are expected to
contribute to 1999 portfolio growth. Management intends to closely monitor
economic trends and the potential effect on the banking subsidiaries' loan
portfolios. In addition, management is discussing Year 2000 readiness with loan
customers to assess the related loan collection risk.
13
NONINTEREST INCOME
Noninterest income increased to $30.1 million in the first six months
of 1999 from $9.7 million in the first six months of 1998. Noninterest income in
1999 included non-recurring income from the disposition of assets. A
non-recurring pre-tax gain of approximately $15.1 million (primarily offset by a
contribution to the Carolina First Foundation) was recorded which related to the
sale of Net.B@nk stock (see "EQUITY INVESTMENTS-Investment in Net.B@nk, Inc.").
A pre-tax gain of approximately $412,000 was recorded relating to the sale of
Corporate Solutions International stock (see "EQUITY INVESTMENTS-CF Investment
Company). In addition, a gain on the sale of credit cards of approximately $2.4
million was recorded (see "OVERVIEW"). Excluding these nonrecurring gains,
noninterest income increased $2.5 million to $12.2 million in the first six
months of 1999 from $9.7 million in the first six months of 1998. This increase
was primarily attributable to higher service charges on deposit accounts, loan
securitization income and other income.
Service charges on deposit accounts, the largest contributor to
noninterest income, rose 17% to $4.8 million in the first half of 1999 from $4.1
million for the same time period in 1998. Average deposits for the same period
increased 18%. The increase in service charges was attributable to attracting
new transaction accounts and improved collection of fees. Effective July 1,
1999, certain deposit service charges were increased to reflect competitive
pricing.
Mortgage banking income includes origination fees, gains from the sale
of loans and servicing fees (which are net of the related amortization for the
mortgage servicing rights and subservicing payments). Mortgage banking income in
the first half of 1999 decreased to $1.6 million compared with $2.3 million in
the first half of 1998.
Income from originations and sales of mortgage loans, including sales
of loans originated by Carolina First Bank, totaled $2.0 million in the first
half of 1999 compared with $2.1 million in 1998. The decrease in 1999 resulted
from lower gains on the sale of loans, primarily due to a lower volume of sales.
Mortgage loans totaling approximately $190 million and $215 million were sold in
the first half of 1999 and 1998, respectively. Mortgage originations totaled
approximately $220 million in the first six months of 1999 and $249 million in
the first six months of 1998.
CF Mortgage's mortgage servicing operations consist of servicing loans
that are owned by Carolina First Bank and subservicing loans, to which the
rights to service are owned by Carolina First Bank or other non-affiliated
financial institutions. At June 30, 1999, CF Mortgage was servicing or
subservicing 21,330 loans having an aggregate principal balance of approximately
$1.8 billion. The decrease in both the number of loans serviced and the
aggregate principal balance since December 31, 1998 was the result of the sale
of mortgage servicing rights associated with approximately 1,000 loans with an
aggregate principal balance of $70 million during the first quarter of 1999. The
servicing rights sold, which resulted in a pre-tax loss of $123,000, were
related to loans with a high likelihood of accelerated prepayments. In the first
six months of 1999, fees related to the servicing portfolio from non-affiliated
companies were offset by the related amortization for the mortgage servicing
rights and subservicing payments for a loss of $309,000 compared to income of
$128,000 in the first six months of 1998. The servicing income does not include
the benefit of interest-free escrow balances related to mortgage loan servicing
activities.
Fees for investment services in the first six months of 1999 of $1.1
million were 47% above the $721,000 earned in the same period of 1998. At June
30, 1999 and 1998, the market value of assets administered by Carolina First
Bank's trust department totaled approximately $344 million
14
and $311 million, respectively. The increase in fees and the market value of
administered assets resulted from the generation of new business in personal
trust and employee benefits. In addition, fees collected by Carolina First
Securities, Inc. ("CF Securities"), a subsidiary of Carolina First Bank,
contributed to the increase. CF Securities offers a complete line of investment
products and services, including mutual funds, stocks, bonds and annuities.
During the first half of 1999, the Company had income of $1.6 million
from its interests in the credit card and commercial real estate loan trusts,
compared with $33,000 in the first half of 1998. Loan securitization income is
net of charge-offs associated with the loans in the trusts. Loan securitization
income related to credit cards increased to $1.4 million (which included
$560,000 in RPGI fees for servicing trust credit cards and lower credit card
charge-offs) in the first six months of 1999 compared with $29,000 in the first
six months of 1998. With the sale of the Company's credit cards and the
termination of the credit card trust on May 17, 1999, loan securitization income
related to credit cards ceased during the second quarter of 1999. The commercial
real estate loan trust showed income of $246,000 during the first half of 1999
compared with $4,000 in the first half of 1998. This increase was a result of a
periodic revaluation of the loans in the commercial real estate loan trust,
resulting in an adjustment to the amortization of the related excess collateral.
Other noninterest income was $2.9 million in the first six months of
1999 compared with $2.2 million in the first six months of 1998. Approximately
$118,000 of the increase was due to the establishment of a bank-owned life
insurance program during the second quarter of 1999. The remaining increase was
due to higher customer service fees, lease fee income due to higher terminations
from a more aged portfolio and merchant processing fees.
NONINTEREST EXPENSES
Noninterest expenses increased to $57.8 million in the first half of
1999 from $29.5 million in the first half of 1998. Noninterest expenses in the
first quarter of 1999 included a non-recurring charitable contribution in the
form of Net.B@nk common stock, valued at approximately $12 million, which was
made to the Carolina First Foundation (see "EQUITY INVESTMENTS-Investment in
Net.B@nk, Inc."). In the second quarter of 1999, approximately $2.1 million was
recorded for merger and related costs. Intangible amortization increased in the
first six months of 1999 as a result of the three mergers completed in the last
half of 1998. The remaining increase in expenditures includes operational costs
associated with acquired branches, new markets and additional automated teller
machines ("ATMs").
Salaries and wages and employee benefits increased to $21.0 million in
the first half of 1999 from $14.8 million in the first half of 1998. Full-time
equivalent employees increased to 916 at June 30, 1999 from 787 at June 30,
1998. The staffing cost increases were primarily due to the costs of expanding
in existing and new markets (including the 1998 mergers) and back office support
functions to support growth.
Occupancy and furniture and equipment expenses increased $1.4 million,
or 28%, to $6.4 million in the first six months of 1999 from $5.0 million in the
first six months of 1998. This increase resulted principally from additional
costs associated with the branches acquired through acquisitions in 1998 and the
operating costs associated with additional ATMs.
15
Amortization of intangibles increased to $3.5 million in the first half
of 1999 from $1.7 million in the first half of 1998. The increase is due to the
acquisitions completed in 1998. This level of amortization is expected to
continue.
In connection with the mergers completed in the last year, the Company
incurred merger and related costs of approximately $2.1 million, substantially
all of which has been paid as of June 30, 1999. Table 1 shows the breakdown of
these expenses.
TABLE 1
MERGER AND RELATED COSTS
- -------------------------------------------------------------------------------
Severance payments and contracts $ 809,000
System conversion costs and write-off of obsolete equipment 545,000
Professional fees 321,000
Legal fees 102,000
Other 355,000
------------
Total $ 2,132,000
- -------------------------------------------------------------------------------
Other noninterest expenses increased $4.6 million to $12.9 million in
the first half of 1999 from $8.0 million in the first half of 1998. The overall
increase in other noninterest expenses was principally attributable to the
overhead and operating expenses associated with higher lending and deposit
activities. The largest items of other noninterest expense were telephone,
servicing fees, stationery, supplies, printing and postage.
COMPARISON FOR THE QUARTERS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Net income increased 14% in the second quarter of 1999 to $6.3 million
from $5.5 million in the second quarter of 1998. Diluted earnings per share
decreased to $0.28 in the second quarter of 1999, compared with $0.31 in the
second quarter of 1998. Average diluted shares outstanding for the same time
period increased 26% due to mergers competed in the last half of 1998. The
increase in net income was a result of increases in net interest income and
noninterest income partially offset by an increase in noninterest expenses.
Net interest income increased $6.0 million to $27.4 million for the
three months ended June 30, 1999 from $21.3 million for the comparable period in
1998. This increase was attributable to a higher level of average earning assets
and a higher net interest margin. Earning assets averaged $2.4 billion and $2.0
billion in the second quarters of 1999 and 1998, respectively. The second
quarter 1999 net interest margin increased to 4.55%, compared with 4.26% for the
second quarter of 1998. The higher net interest margin in the second quarter of
1999 resulted from lower deposit costs partially offset by lower earning asset
yields (see "EARNINGS REVIEW - Net Interest Income").
Noninterest income, excluding the $2.4 million gain on the sale of
credit cards, increased $1.6 million to $6.7 million for the second quarter of
1999 compared with $5.1 million for the second quarter of 1998. Service charges
on deposit accounts increased to $2.6 million in the second quarter of 1999
compared with $2.3 million in the second quarter of 1998. This increase was due
to attracting new transaction accounts and improved collection results. Loan
securitization income related to credit cards was $666,000 in the second quarter
of 1999 compared with $64,000 for the second quarter of 1998. With the
termination of the credit card trust during the second quarter of 1999, loan
securitization income related to credit cards ceased. Loan
16
securitization income related to the commercial real estate loan trust was
$340,000 in the second quarter of 1999 compared with $50,000 for the second
quarter of 1998. Other noninterest income for the second quarter of 1999
increased $273,000 primarily due to increased merchant processing fees.
Noninterest expenses, excluding merger and Y2K expenses of $2.4
million, increased to $21.0 million for the three months ended June 30, 1999
from $14.2 million for the three months ended June 30, 1998. Personnel expense
increased from $7.3 million for the second quarter of 1998 to $9.8 million for
the second quarter of 1999 due to mergers and the hiring of additional employees
as a result of expansion in existing and new markets. Occupancy and furniture
and equipment expense increased $957,000 to $3.4 million during second quarter
1999 from $2.4 million during second quarter 1998. Amortization of intangibles
increased from $818,000 in the second quarter of 1998 to $1.6 million in the
second quarter of 1999 as a result of mergers completed in the second half of
1998. Other noninterest expenses increased $2.9 million from second quarter 1998
to second quarter 1999, largely because of increases in servicing fees,
professional fees, legal fees and credit card processing expenses.
YEAR 2000
The Company recognizes a business risk in computerized systems when the
calendar rolls over into the new century. Some computer programs, particularly
older ones, use two digits rather than four digits for dates. Such programs may
recognize "00" as the year 1900 rather than the year 2000 causing interest
calculations to be incorrect or possibly causing the program or computer system
on which it runs to cease functioning altogether. This problem may occur in any
system containing a computer chip, even a telephone system. This problem is
commonly called the "Year 2000 Problem." All computer systems used by the
Company in its day-to-day operations could be affected.
Management has established a committee (the "Y2K Project Team") which
has identified affected systems and is currently working to ensure that this
event will not disrupt operations. A full-time staff member has been assigned to
the Y2K Project Team to assist in record keeping and disseminating information.
The Y2K Project Team reports regularly to the Audit Committee of the Company's
Board of Directors who report to the entire Board of Directors each quarter on
Year 2000 compliance. At its June 1998 meeting, the Company's Board of Directors
approved a Year 2000 Project Plan and the membership of the Y2K Project Team.
The Y2K Project Team is working closely with outside vendors to obtain Year 2000
software corrections and warranty commitments and to arrange mock conversion
testing.
The Company's Year 2000 efforts include comprehensive testing of all
hardware and software to ensure that computer systems do not negatively affect
operations. Software applications testing began during the second quarter of
1998. The Company's current core banking software, mortgage software and
operating systems have been vendor-certified as Year 2000 compliant and have
been tested extensively in a User Group environment. The results of User Group
testing have been provided for the Company to review. In-house testing of
mission critical software and hardware was conducted in the first quarter of
1999 and substantially completed on March 31, 1999 in accordance with FDIC
guidelines. These applications include core banking; mortgage servicing,
origination and secondary marketing software; ACH software; and core operating
system software and hardware. In addition, a professional third party accounting
firm has conducted an independent review of core banking software proxy testing
results. All third-party providers of non-information technology systems,
including elevators, alarm
17
systems and utilities, have been contacted. The Company continues to perform due
diligence in seeking information from all vendors regarding their Year 2000
initiatives. Testing and certification for remaining non-mission critical
applications was completed on June 30, 1999 in accordance with regulatory
requirements.
The current estimated cost to the Company for all Year 2000 activities
is $3.4 million, the majority of which will be capitalized. For the first six
months of 1999, approximately $362,000 of Y2K expenses was included in other
noninterest expenses. Incomplete or untimely compliance would have a material
adverse effect on the Company, the dollar amount of which cannot be accurately
quantified because of the inherent variables and uncertainties involved.
The Company has included contingency and business resumption plans in
its Year 2000 compliance efforts. The Company has identified several potential
replacements in the event that current software is not functional in the year
2000. All internal testing and review of mission critical software has shown to
be Year 2000 compliant. Quality assurance review of testing results is ongoing.
In the event the Company encounters operational difficulty (due to
telecommunications or electrical failures) and cannot process data at the
Columbia Operations Center on January 1, 2000, the Company has an agreement with
an outside provider to use its off-site facilities to operate core banking
systems for the purpose of business resumption.
Year 2000 surveys have been sent to all commercial loan customers with
relationships greater than $1 million to assist in assessing their Year 2000
compliance. In addition, an analysis has been performed on the entire loan
portfolio based on Standard Industry Codes to determine if the Company has any
concentrations of loans in industries that are considered high risk due to Year
2000 exposure. In the fourth quarter of 1998, the Company hosted customer
seminars to educate customers in the Company's major markets. Ongoing branch
employee training and customer awareness initiatives will continue throughout
the remainder of the year. In addition, a cash availability plan has been
developed to gauge customer demand for extra cash toward the close of the year.
This plan will undergo regular reviews to adapt to changing demands.
BALANCE SHEET REVIEW
LOANS
The Company's loan portfolio consists of commercial mortgage loans,
commercial loans, consumer loans and one-to-four family residential mortgage
loans. A substantial majority of these borrowers are located in South Carolina
and are concentrated in the Company's market areas. The Company has no foreign
loans or loans for highly leveraged transactions. The loan portfolio does not
contain any industry concentrations of credit risk exceeding 10% of the
portfolio. At June 30, 1999, the Company had total loans outstanding of $2.0
billion that equaled approximately 91% of the Company's total deposits and
approximately 71% of the Company's total assets. The composition of the
Company's loan portfolio at June 30, 1999 follows: commercial and commercial
mortgage 57%, residential mortgage 28%, consumer 12%, construction 2% and lease
receivables 1%. Following the sale of the credit card portfolio, credit cards
constituted only a fraction of the Company's loan portfolio.
The Company's loans increased $424.8 million, or 27%, to approximately
$2.0 billion at June 30, 1999 from $1.6 billion at June 30, 1998 and increased
$120.5 million from approximately $1.9 billion at December 31, 1998.
Approximately $86 million of residential mortgage loans were sold in the first
six months of 1999 excluding loans originated by correspondents. In addition,
18
approximately $54 million of credit card balances were sold in the second
quarter of 1999. Adjusting for the 1999 loan sales, internal loan growth was
approximately $222.6 million, or an annualized rate of 24.0%, during the first
half of 1999.
The Company had loans to 92 borrowers having principal amounts ranging
from $2 million to $5 million, which loans accounted for $294.3 million, or 15%,
of the Company's loan portfolio at June 30, 1999. The Company had loans to 28
borrowers having principal amounts in excess of $5 million, which loans
accounted for $204.5 million, or 10%, of the Company's loan portfolio at June
30, 1999. At June 30, 1998, the Company had loans to 69 borrowers with principal
amounts ranging from $2 million to $5 million, which accounted for $210.6
million, or 14%, of the Company's loan portfolio. The Company had loans to 22
borrowers having principal amounts in excess of $5 million, which loans
accounted for $144.0 million, or 9%, of the Company's loan portfolio at June 30,
1998. Any material deterioration in the quality of any of these larger loans
could have a significant impact on the Company's earnings.
For the first six months of 1999, the Company's loans averaged $1.9
billion with a yield of 9.04%, compared with $1.6 billion and a yield of 9.35%
for the same period in 1998. The decline in loan yield was attributable to a
decrease in the prime interest rate of 0.75% in the fourth quarter of 1998
partially offset by an increase in loan fee income. The interest rates charged
on loans vary with the degree of risk and the maturity and amount of the loan.
Competitive pressures, money market rates, availability of funds and government
regulations also influence interest rates.
ALLOWANCE FOR LOAN LOSSES
Management maintains an allowance for loan losses that it believes is
adequate to cover inherent losses in the loan portfolio. However, management's
judgment is based upon a number of assumptions which are believed to be
reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required.
The allowance for loan losses is established through charges in the
form of a provision for loan losses. Loan losses and recoveries are charged or
credited directly to the allowance. The amount charged to the provision for loan
losses by the Company is based on management's judgment as to the amount
required to maintain an allowance adequate to provide for inherent losses in the
Company's loan portfolio. The level of this allowance is dependent upon the
total amount of past due loans, general economic conditions and management's
assessment of probable losses inherent in the loan portfolio.
The allowance for loan losses totaled $16.0 million, or 0.83% of loans
held for investment net of unearned income at June 30, 1999, compared with $15.6
million, or 1.06% of loans held for investment net of unearned income at June
30, 1998. At December 31, 1998, the allowance for loan losses was $17.5 million,
or 1.00% of loans held for investment net of unearned income. During the second
quarter of 1999, the allowance for loan losses was decreased $3.0 million as a
consequence of the sale of the credit cards. The amount of the decrease was the
portion of the allowance that was allocated to the credit card portfolio prior
to the sale. With the completion of the Citrus Bank merger, the allowance as a
percentage of loans held for investment increased from the reported level as of
June 30, 1999 of 0.83% to a pro forma level of 0.92% (which is the restated
amount as of June 30, 1999).
19
The allowance for loan losses as a percentage of nonperforming loans
was 637% and 883% as of June 30, 1999 and 1998, respectively. Table 2 presents
changes in the allowance for loan losses.
TABLE 2
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
At and for
At and for the six months the year ended
ended June 30, December 31,
-------------- --------------
1999 1998 1998
---- ---- -----
Balance at beginning of period $ 17,509 $ 16,211 $ 16,211
Allowance of acquired companies 410 0 1,822
Allowance adjustment for credit card sale (2,977) 0 0
Provision for loan losses 6,811 5,583 11,129
Charge-offs:
Credit cards 1,442 2,141 4,309
Bank loans, leases & Blue Ridge 5,051 4,643 8,466
Recoveries 716 615 1,122
Net charge-offs 5,777 6,169 11,653
Allowance at end of period $ 15,976 $ 15,625 $ 17,509
==============================================================================================================
At June 30, 1999, the recorded investment in loans that were considered
to be impaired under Statement of Financial Accounting Standards 114,
"Accounting by Creditors for Impairment of a Loan," was $1.2 million. The
related allowance for these impaired loans was $377,000. The average recorded
investment and foregone interest on impaired loans during the six months ended
June 30, 1999 was approximately $889,000 and $37,000, respectively. For the six
months ended June 30, 1999, the Company recognized interest income on impaired
loans of $67,000.
SECURITIES
At June 30, 1999, the Company's total investment portfolio had a book
value of $423.4 million and a market value of $420.1 million for an unrealized
net loss of approximately $3.3 million. Securities (i.e., securities held for
investment, securities available for sale and trading securities) averaged
$395.2 million in the first six months of 1999, 11% above the average of $357.3
million in the first six months of 1998. The increase in the securities balance
was primarily attributable to an additional investment in corporate bonds to
enhance investment yields and leverage the balance sheet. The average portfolio
yield decreased to 6.07% in the first six months of 1999 from 6.40% in the first
six months of 1998. The portfolio yield decreased as a result of decreasing
short-term rates in the fourth quarter of 1998. This decline was slightly offset
by a change in the mix of securities. As securities matured, they were
reinvested in higher yielding agencies and mortgage-backed securities. The
composition of the investment portfolio as of June 30, 1999 follows: treasuries
and agencies 38%, mortgage-backed securities 30%, other securities 20%, and
states and municipalities 11%. At June 30, 1999, securities totaled $420.2
million, down $2.3 million from the $422.5 million invested as of the second
quarter end 1998 and down $27.8 million from the December 31, 1998 balance of
$448.0 million.
At June 30, 1999, securities available for sale included equity
investments, including 2,528,366 shares of common stock of Affinity (recorded at
its market value of approximately $4.5
20
million) and 2,415,000 shares (adjusted for the stock split) of common
stock of Net.B@nk (recorded at its basis of approximately $671,000). See "EQUITY
INVESTMENTS." The Affinity Warrant, which entitles the Company to purchase an
additional 3,471,340 shares of common stock at a purchase price of $0.0001 per
share, was not included in securities at June 30, 1999.
INTANGIBLE ASSETS AND OTHER ASSETS
The intangible assets balance at June 30, 1999 of $120.6 million was
attributable to goodwill of $110.8 million and core deposit balance premiums of
$9.8. In connection with the Company's credit card sale, which closed on April
30, 1999, the Company wrote off approximately $6.0 million of intangible assets
related to the Company's credit card subsidiary. The intangible assets balance
at June 30, 1998 of $57.1 million was attributable to goodwill of $48.5 million,
core deposit balance premiums of $8.5 million and credit card intangibles of
$104,000. In the last half of 1998, the Company recorded intangible assets
related to the acquisitions of First National Bank of Pickens County ("First
National"), Poinsett Financial Corporation ("Poinsett") and Colonial Bank of
South Carolina, Inc. ("Colonial Bank"), respectively.
At June 30, 1999, other assets included other real estate owned of $1.8
million and mortgage servicing rights of $22.6 million. At June 30, 1998, other
assets included other real estate owned of $677,000 and mortgage servicing
rights of $23.4 million. The increase in other real estate owned is largely
attributable to one-to-four family residential mortgages associated with the
acquisition of Poinsett.
INTEREST-BEARING LIABILITIES
During the first half of 1999, interest-bearing liabilities averaged
$2.0 billion, compared with $1.8 billion in the first half of 1998. This
increase resulted principally from acquisitions and internal deposit growth
related to account promotions and sales efforts. The average interest rates were
4.49% and 5.07% in the first six months of 1999 and 1998, respectively. At June
30, 1999, interest-bearing deposits comprised approximately 87% of total
deposits and 89% of interest-bearing liabilities. In the first six months of
1999, average borrowed funds which includes repurchase agreements and a portion
of Federal Home Loan Bank ("FHLB") advances, totaled $171.5 million compared
with $128.1 million for the same period in 1998. This increase was primarily
attributable to an increase in repurchase agreements from an average of $110.6
million in the first six months of 1998 to $135.0 million in the first six
months of 1999. This increase was partially offset by a decrease in average
commercial paper balances. In 1998, the Company stopped offering commercial
paper resulting in a decline in the average balance from $6.5 million in the
first six months of 1998 to zero in the first six months of 1999. Advances from
the FHLB increased to $74.6 million as of June 30, 1999 from $10.0 million at
June 30, 1998. At December 31, 1998, FHLB advances totaled $35.1 million. This
increase was primarily due to additional borrowings from FHLB for the purpose of
funding fixed rate commercial loans and corporate bonds. FHLB advances are a
source of funding which the Company uses depending on the current level of
deposits and management's willingness to raise deposits through market
promotions.
The Company's primary source of funds for loans and investments is its
deposits, which are gathered through the banking subsidiaries' branch network.
Deposits grew 18% to $2.2 billion at June 30, 1999 from $1.8 billion at June 30,
1998. The 1998 acquisitions of First National, Poinsett and Colonial Bank added
approximately $220 million in deposits. The second quarter purchase of
21
Citizens added approximately $53 million in deposits. Internal growth,
particularly from account and sales promotions, generated the remaining new
deposits. During the first six months of 1999, total interest-bearing deposits
averaged $1.8 billion with a rate of 4.46%, compared with $1.6 billion with a
rate of 4.97% in the first six months of 1998. The decline in the rate reflects
the Company's efforts to shift the deposit mix from CDs into lower-yielding
transaction accounts. When the prime interest rate was reduced in the fourth
quarter of 1998, the Company reduced the rate paid on some CDs, which assisted
in lowering the overall cost of deposits. During the first six months of 1999,
deposit pricing remained very competitive, a pricing environment which the
Company expects to continue.
During the first quarter of 1999, the Company opened a branch in the
Cayman Islands. The branch is a "shell" branch of Carolina First Bank, and
accordingly, involved minimal start-up costs. The primary function of the branch
is to obtain deposits from the Eurocurrency interbank markets, which will be
utilized in funding Carolina First Bank's domestic loan portfolio. The bank
views this branch primarily as a vehicle for entrance into a funds market in
which it is not currently active.
Average noninterest-bearing deposits, which increased 31% during the
year, increased to 13.1% of average total deposits in the first six months of
1999 from 11.7% in the first six months of 1998. This increase reflects the
Company's progress in attracting transaction accounts and improving the mix of
acquired deposits.
Time deposits of $100,000 or more represented 13.3% of total deposits
at June 30, 1999 and 14.6% of total deposits at June 30, 1998. The Company's
large denomination time deposits are generally from customers within the local
market areas of its banks and, therefore, provide a greater degree of stability
than is typically associated with this source of funds. The Company does not
pursue brokered deposits; however, the Company acquired an immaterial amount of
brokered deposits through its Colonial Bank acquisition.
CAPITAL RESOURCES AND DIVIDENDS
Total shareholders' equity amounted to $354.6 million, or 12.66% of
total assets, at June 30, 1999, compared with $256.9 million, or 11.28% of total
assets, at June 30, 1998. At December 31, 1998, total shareholders' equity
totaled $344.4 million, or 12.63% of total assets. The increase in total
shareholders' equity since June 30, 1998 resulted principally from the issuance
of $99.2 million in capital related to acquisitions and the retention of
earnings less cash dividends paid and stock repurchased. In the fourth quarter
of 1998, the Company repurchased 394,874 shares of common stock, which decreased
shareholders' equity $9.8 million, in connection with the acquisition of First
National. In the first quarter of 1999, the Company repurchased 40,000 shares of
common stock. In March 1999, the Company rescinded its share repurchase program
due to the planned purchase of Citizens and Citrus Bank.
Book value per share at June 30, 1999 and 1998 was $15.75 and $14.16,
respectively. Tangible book value per share at June 30, 1999 and 1998 was $10.40
and $11.01, respectively. Tangible book value was below book value as a result
of the purchase premiums associated with branch acquisitions and the
acquisitions of CF Mortgage, RPGI and five banks (all of which were accounted
for as purchases).
At June 30, 1999, the Company, Carolina First Bank, Carolina First
Bank, F.S.B. and Citizens were in compliance with each of the applicable
regulatory capital requirements and
22
exceeded the well capitalized requirements. The table below sets forth various
capital ratios for the Company, Carolina First Bank, Carolina First Bank, F.S.B.
and Citizens.
TABLE 3
CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------
As of Well Capitalized Adequately Capitalized
6/30/99 Requirement Requirement
- ------------------------------------------------------------------------------------------------------
The Company:
Total Risk-based Capital 12.74% n/a n/a
Tier 1 Risk-based Capital 10.82 n/a n/a
Leverage Ratio 8.79 n/a n/a
Carolina First Bank:
Total Risk-based Capital 10.56% 10.0% 8.0%
Tier 1 Risk-based Capital 9.89 6.0 4.0
Leverage Ratio 8.10 5.0 4.0
Carolina First Bank, F.S.B.:
Total Risk-based Capital 13.11% 10.0% 8.0%
Tier 1 Risk-based Capital 12.25 6.0 4.0
Leverage Ratio 8.20 5.0 4.0
Citizens
Total Risk-based Capital 17.13% 10.0% 8.0%
Tier 1 Risk-based Capital 15.98 6.0 4.0
Leverage Ratio 9.23 5.0 4.0
- -----------------------------------------------------------------------------------------------------
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay. The Company
has paid a cash dividend each quarter since the initiation of cash dividends on
February 1, 1994. At the December 16, 1998 meeting, the Board of Directors
approved a $0.09 per share cash dividend on the common stock, which represents
an effective annual increase of approximately 11%. The Company presently intends
to pay a quarterly cash dividend on the Common Stock; however, future dividends
will depend upon the Company's financial performance and capital requirements.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Company
manages other risks, such as credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be its most
significant market risk and could potentially have the largest material effect
on the Company's financial condition and results of operations. Other types of
market risks, such as foreign currency exchange risk and commodity price risk,
do not arise in the normal course of the Company's business activities.
Achieving consistent growth in net interest income is the primary goal
of the Company's asset/liability function. The Company attempts to control the
mix and maturities of assets and liabilities to achieve consistent growth in net
interest income despite changes in market interest
23
rates. The Company seeks to accomplish this goal while maintaining adequate
liquidity and capital. The Company's asset/liability mix is sufficiently
balanced so that the effect of interest rates moving in either direction is not
expected to be significant over time.
The Company's Asset/Liability Committee uses a simulation model to
assist in achieving consistent growth in net interest income while managing
interest rate risk. The model takes into account interest rate changes as well
as changes in the mix and volume of assets and liabilities. The model simulates
the Company's balance sheet and income statement under several different rate
scenarios. The model's inputs (such as interest rates and levels of loans and
deposits) are updated on a monthly basis in order to obtain the most accurate
forecast possible. The forecast presents information over a twelve-month period.
It reports a base case in which interest rates remain flat and reports
variations that occur when rates increase and decrease 200 basis points.
According to the model as of June 30, 1999, the Company is positioned so that
net interest income will increase $5.9 million if interest rates rise in the
next twelve months and will decrease $3.3 million if interest rates decline in
the next twelve months. Computation of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates and loan prepayments, and should not be relied
upon as indicative of actual results. Further, the computations do not
contemplate any actions the Company could undertake in response to changes in
interest rates.
As of June 30, 1999, there was no substantial change from the interest
rate risk sensitivity analysis for various changes in interest rates calculated
as of December 31, 1998. The foregoing disclosures related to the market risk of
the Company should be read in conjunction with the Company's audited
consolidated financial statements, related notes and management's discussion and
analysis of financial condition and results of operations for the year ended
December 31, 1998 included in the Company's 1998 Annual Report on Form 10-K.
The static interest sensitivity gap position, while not a complete
measure of interest sensitivity, is also reviewed periodically to provide
insights related to the static repricing structure of assets and liabilities. At
June 30, 1999, on a cumulative basis through twelve months, rate-sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $584.8 million. This liability sensitive position is largely
attributable to assuming that the Company's deposit transaction accounts, which
totaled $811 million at June 30, 1999, will reprice within one year. This
assumption may or may not hold true as the Company believes its transaction
accounts are generally not price sensitive.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company both at the holding company level as well as at the subsidiary level.
The holding company and non-banking subsidiaries of the Company require cash for
various operating needs, including general operating expenses, payment of
dividends to shareholders, interest on borrowing, extensions of credit at Blue
Ridge, business combinations and capital infusions into subsidiaries. The
primary source of liquidity for the Company's holding company is dividends from
the banking and non-banking subsidiaries.
The Company's banking subsidiaries have cash flow requirements
involving withdrawals of deposits, extensions of credit and payment of operating
expenses. The principal sources of funds for liquidity purposes for the banking
subsidiaries are customers' deposits, principal and interest payments on loans,
loan sales or securitizations, securities available for sale, maturities of
24
securities, temporary investments and earnings. The subsidiary banks' liquidity
is also enhanced by the ability to acquire new deposits through the established
branch network of 72 branches in South Carolina and 4 branches in Florida as of
June 30, 1999. With the completion of the Citrus Bank merger and the opening of
a branch office in Jacksonville, Florida in July 1999, the total number of
branches in Florida was thirteen. The liquidity ratio is an indication of a
company's ability to meet its short term funding obligations. At June 30, 1999,
the liquidity ratios for Carolina First Bank, Carolina First Bank, F.S.B. and
Citizens were approximately 20%, 35% and 37%, respectively. The liquidity needs
of the banking subsidiaries are a factor in developing their deposit pricing
structure; deposit pricing may be altered to retain or grow deposits if deemed
necessary. Carolina First Bank and Carolina First Bank, F.S.B. have access to
borrowing from the FHLB and maintain unused short-term lines of credit from
unrelated banks. At June 30, 1999, the banking subsidiaries had unused
short-term lines of credit totaling approximately $55 million (which are
withdrawable at the lender's option). At June 30, 1999, unused borrowing
capacity from the FHLB totaled approximately $149 million with an outstanding
balance of $75 million. Management believes that these sources are adequate to
meet its liquidity needs.
ASSET QUALITY
Prudent risk management involves assessing risk and managing it
effectively. Certain credit risks are inherent in making loans, particularly
commercial, real estate and consumer loans. The Company attempts to manage
credit risks by adhering to internal credit policies and procedures. These
policies and procedures include a multi-layered loan approval process, officer
and customer limits, periodic documentation examination and follow-up procedures
for any exceptions to credit policies. Loans are assigned a grade and those that
are determined to involve more than normal credit risk are placed in a special
review status. Loans that are placed in special review status are required to
have a plan under which they will be either repaid or restructured in a way that
reduces credit risk. The Loan Committee of the Board of Directors reviews loans
in this special review status monthly.
As demonstrated by the following analytical measures of asset quality,
management believes the Company has effectively managed its credit risk. Net
loan charge-offs, including credit card receivables, totaled $5.8 million and
$6.2 million in the first six months of 1999 and 1998, respectively, or 0.60%
and 0.79%, respectively, as an annualized percentage of average loans. Excluding
credit card receivables, annualized net loan charge-offs as a percentage of
average loans were 0.46% and 0.54% during the first six months of 1999 and 1998,
respectively. In the first six months of 1999 and 1998, net charge-offs for
credit cards totaled $1.4 million and $2.1 million, respectively. With the
termination of the credit card trust, net charge-offs should decline in the
future. The majority of the increase in accruing loans past due 90 days is
attributable to one-to-four family residential loans acquired through mergers.
25
TABLE 4
NONPERFORMING ASSETS AND PAST DUE LOANS
($ in thousands)
June 30, December 31,
1999 1998 1998
---- ---- ----
Nonaccrual loans $ 1,225 $ 487 $ 753
Restructured loans 1,283 1,283 1,283
Total nonperforming loans 2,508 1,770 2,036
Other real estate 1,815 677 3,168
Total nonperforming assets 4,323 2,447 5,204
Nonperforming assets as a % of
loans and foreclosed property 0.22% 0.17% 0.30%
Net loan charge-offs as a % of
average loans (annualized) 0.60 0.79 0.71
Acccruing loans past due 90 days 5,056 4,514 7,023
Allowance for loan losses to
nonperforming loans 6.37x 8.83x 8.60x
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.
26
PART II
ITEM 1 LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of its business. In the opinion of
management based on consultation with legal counsel, any outcome of
such pending litigation would not materially affect the Company's
consolidated financial position or results of operations.
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, the
majority of the Company's and Carolina First Bank's directors and
certain executive and other officers. The named plaintiffs are the
Company by and through certain minority shareholders. The Company filed
a motion to dismiss with respect to all claims in this complaint, which
was granted in December 1997. Plaintiffs have appealed the grant of the
motion to dismiss. Plaintiffs allege as causes of action the following:
conversion of corporate opportunity; breach of fiduciary duty and
constructive fraud; civil conspiracy; and mutual mistake. The factual
basis upon which these claims are made generally involves the payment
to Company officers and other individuals of a bonus in stock held by
the Company in Affinity Technology Group, Inc. (as reward for their
efforts in connection with the Company's procurement of stock in
Affinity Technology Group, Inc.), statements to former shareholders of
Midlands National Bank in connection with the Company's acquisition of
that bank, and alleged mismanagement by certain executive officers
involving financial matters. The complaint seeks damages for the
benefit of the Company aggregating $41 million and rescission of the
Affinity Technology Group, Inc. bonus.
In an action brought by the same attorneys who brought the
above-mentioned derivative action, on December 31, 1996, certain
individuals filed a class action lawsuit against the Company, Carolina
First Bank, and a number of officers and directors of the Company and
Carolina First Bank. In connection with the judge's granting the motion
to dismiss in the above-referenced derivative action, the plaintiffs'
attorneys withdrew this lawsuit, without prejudice.
ITEM 2 CHANGE IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On April 21, 1999, the Company held its 1999 Annual Meeting of
Shareholders. The results of the 1999 Annual Meeting of Shareholders
follow.
27
PART II
(CONTINUED)
PROPOSAL #1 - ELECTION OF DIRECTORS
The shareholders approved setting the number of Company directors at
12. The following persons were elected as Directors with the votes
indicated.
Voting shares in favor Withheld
# % Authority
- - ---------
William S. Hummers III 16,522,997 99.61% 64,362
Charles B. Schooler 16,528,543 99.65% 58,816
Eugene E. Stone IV 16,524,984 99.62% 62,375
Mack I. Whittle, Jr. 16,514,195 99.56% 73,164
Judd B. Farr, C. Claymon Grimes, Jr., M. Dexter Hagy, Vernon E. Merchant, Jr., H. Earle Russell, Jr.,
Elizabeth P. Stall, William R. Timmons, Jr. and David C. Wakefield III continued in their present terms
as directors.
ITEM 5 OTHER INFORMATION
Completed Acquisitions
----------------------
On April 23, 1999, the Company acquired all the outstanding shares of
Citizens First National Bank, a national bank headquartered in Crescent
City, Florida in exchange for 507,931 shares of the Company's common
stock. At March 31, 1999, Citizens First National Bank had total
assets, loans and deposits of approximately $59 million, $37 million
and $53 million, respectively, and operated through four branch
locations. The transaction was accounted for as a pooling-of-interests
combination; however, due to the immateriality of the transaction in
relation to the Company's consolidated financial position and operating
results, prior period financial statements have not been restated.
On July 1, 1999, the Company issued 3,086,478 shares of common stock
for all the outstanding common stock of Citrus bank, a Florida
state-chartered bank headquartered in Orlando, Florida. As of June 30,
1999, Citrus Bank had total assets, loans, and deposits of
approximately $285 million, $196 million, and $264 million,
respectively. This transaction will be accounted for as a
pooling-of-interests combination and, accordingly, Citrus Bank's
historical consolidated financial statements presented in future
reports will be restated to included the accounts and results of
operations of Citrus Bank.
Pending Sale of Branches
------------------------
In March 1999, Carolina First Bank signed a definitive agreement to
sell two branch offices located in Ridgeland and Hardeeville, South
Carolina to First National Bank, a subsidiary of First National
Corporation. In June 1999, Carolina First Bank signed a definitive
agreement to sell one branch office located in Johnston, South Carolina
to First Citizens Bank and one branch office located in Abbeville,
South Carolina to The Palmetto Bank, a subsidiary of Palmetto
Bancshares, Inc. These three branches have approximately $58 million in
deposits and approximately $15 million in loans. These transactions are
expected to close in the second half of the year and are subject to
regulatory approval, among other conditions.
28
PART II
(CONTINUED)
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Carolina First Corporation Fortune 50 Plan: Incorporated by
reference to the Prospectus in Carolina First Corporation's Registration
Statement on Form S-8, Commission File No. 333-83519.
11.1 Computation of Basic and Diluted Earnings Per Share.
12.1 Computation of Earnings to Fixed Charges Ratio.
27.1 Financial Data Schedules
(b) Reports on Form 8-K
None
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Carolina First Corporation
/s/ William S. Hummers III
----------------------------
William S. Hummers III
Executive Vice President