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, 2000
____ 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
THE SOUTH FINANCIAL GROUP, INC.
-------------------------------
(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
--------------
Carolina First Corporation
- --------------------------
(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 $1.00 par value common stock as
of August 10, 2000 was 43,108,509.
1
CONSOLIDATED BALANCE SHEETS
The South Financial Group and Subsidiaries
($ in thousands, except share data) (Unaudited)
June 30, December 31,
----------------------------------- ----------------
ASSETS 2000 1999 1999
---------------- ---------------- ----------------
Cash and due from banks............................... $ 194,675 $ 140,188 $ 138,829
Interest-bearing bank balances........................ 40,116 44,774 28,972
Federal funds sold and resale agreements.............. 400 57,639 3,625
Securities
Trading............................................ 3,704 1,462 4,668
Available for sale................................. 846,491 650,788 887,718
Held for investment (market value $67,472, $62,416 and
$71,291, respectively)............................. 67,919 62,621 71,760
---------------- ---------------- ----------------
Total securities................................. 918,114 714,871 964,146
---------------- ---------------- ----------------
Loans
Loans held for sale................................ 11,957 45,311 45,591
Loans held for investment.......................... 3,575,915 2,982,564 3,251,894
Less unearned income............................ (3,170) (8,276) (5,765)
Less allowance for loan losses.................. (41,742) (29,846) (33,756)
---------------- ---------------- ----------------
Net loans..................................... 3,542,960 2,989,753 3,257,964
---------------- ---------------- ----------------
Premises and equipment, net........................... 108,725 81,665 84,863
Accrued interest receivable........................... 35,426 28,120 31,176
Intangible assets..................................... 110,675 121,277 113,960
Other assets.......................................... 135,041 120,244 145,121
---------------- ---------------- ----------------
$ 5,086,132 $ 4,298,531 $ 4,768,656
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing................................ $ 572,395 $ 515,384 $ 496,428
Interest-bearing................................... 3,132,901 2,883,422 2,985,223
---------------- ---------------- ----------------
Total deposits.................................... 3,705,296 3,398,806 3,481,651
---------------- ---------------- ----------------
Borrowed funds....................................... 812,695 348,673 696,236
Subordinated notes................................... 36,750 36,594 36,672
Accrued interest payable............................. 30,469 18,548 23,108
Other liabilities.................................... 27,786 32,514 30,399
---------------- ---------------- ----------------
Total liabilities................................. 4,612,996 3,835,135 4,268,066
---------------- ---------------- ----------------
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 43,056,873, 43,116,881
and 43,326,754 shares, respectively................ 43,057 43,117 43,327
Surplus.............................................. 340,058 340,486 345,309
Retained earnings.................................... 93,626 89,227 100,298
Guarantee of employee stock ownership plan debt and nonvested
restricted stock................................... (4,316) (3,573) (4,445)
Accumulated other comprehensive income (loss), net of tax 711 (5,861) 16,101
---------------- ---------------- ----------------
Total shareholders' equity......................... 473,136 463,396 500,590
---------------- ---------------- ----------------
$ 5,086,132 $ 4,298,531 $ 4,768,656
================ ================ ================
2
CONSOLIDATED STATEMENTS OF INCOME
The South Financial Group and Subsidiaries
($ in thousands, except share data) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
-------------------------------- ---------------------------------
Interest Income
Interest and fees on loans................. $ 81,019 $ 67,390 $ 156,652 $ 132,771
Interest and dividends on securities....... 14,478 10,036 29,047 19,839
Interest on short-term investments......... 524 1,478 1,032 2,500
------------- ------------- -------------- -------------
Total interest income.................... 96,021 78,904 186,731 155,110
------------- ------------- -------------- -------------
Interest Expense
Interest on deposits....................... 37,786 30,403 73,410 60,456
Interest on borrowed funds................. 12,880 4,675 23,547 8,914
------------- ------------- -------------- -------------
Total interest expense................... 50,666 35,078 96,957 69,370
------------- ------------- -------------- -------------
Net interest income...................... 45,355 43,826 89,774 85,740
Provision for Loan Losses.................... 8,482 3,985 12,427 8,618
------------- ------------- -------------- -------------
Net interest income after
provision for loan losses.............. 36,873 39,841 77,347 77,122
------------- ------------- -------------- -------------
Noninterest Income
Service charges on deposit accounts........ 4,078 3,920 8,339 7,452
Mortgage banking income.................... 1,668 1,165 3,012 2,462
Fees for investment services............... 1,508 1,229 2,866 2,450
Loan securitization income................. - 1,006 - 1,603
Gain on sale of securities................. 92 92 163 318
Gain on disposition of equity investments, net 187 - 2,465 15,471
Gain on disposition of assets and liabilities 106 - 106 -
Gain on sale of credit cards............... - 2,362 - 2,362
Other...................................... 3,021 2,775 6,453 5,103
------------- ------------- -------------- -------------
Total noninterest income................. 10,660 12,549 23,404 37,221
------------- ------------- -------------- -------------
Noninterest Expenses
Personel expense............................ 18,942 16,905 38,000 34,812
Occupancy................................... 3,797 2,720 7,435 5,389
Furniture and equipment..................... 2,637 2,317 5,318 4,391
Amortization of intangibles................. 1,616 1,686 3,224 3,655
Restructuring and -related costs...... 19,924 3,281 19,924 3,402
System conversion costs..................... 459 - 839 -
Charitable contribution to foundation....... -- - -- 11,890
Other....................................... 10,003 9,991 20,337 19,490
------------- ------------- -------------- -------------
Total noninterest expenses................ 57,378 36,900 95,077 83,029
------------- ------------- -------------- -------------
Income (loss) before income taxes......... (9,845) 15,490 5,674 31,314
Income taxes.................................. (896) 5,515 4,221 10,638
------------- ------------- -------------- -------------
Net income (loss)......................... $ (8,949) $ 9,975 $ 1,453 $ 20,676
============= ============= ============== =============
Net Income (Loss) per Common Share:
Basic.................................... $ (0.21) $ 0.23 $ 0.03 $ 0.49
Diluted.................................. (0.21) 0.23 0.03 0.47
Average Common Shares Outstanding:
Basic.................................... 42,842,124 42,682,425 42,893,484 42,398,234
Diluted.................................. 43,530,646 43,980,307 43,579,836 43,608,504
Cash Dividends Declared per Common Share..... $ 0.10 $ 0.09 $ 0.20 $ 0.18
3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
The South Financial Group and Subsidiaries
($ in thousands, except share data) (Unaudited)
Retained Accumulated
Shares of Earnings Other
Common Preferred Common and Comprehensive
Stock Stock Stock Surplus Other* Income (Loss) Total
------------------------------------------------------------------------------
Balance, December 31, 1998............. 42,372,191 $ -- $ 42,372 $ 338,282 $ 68,081 $ 2,254 $ 450,989
Net income........................... -- -- -- -- 20,676 -- 20,676
Other comprehensive income, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising during
period, net of tax benefit of $4,322 -- -- -- -- -- (8,026)
Less: reclassification adjustment for gains
included in net income, net of taxes of $48 -- -- -- -- -- (89)
-------------
Other comprehensive income......... -- -- -- -- -- (8,115) (8,115)
------------- -----------
Comprehensive income................. -- -- -- -- -- 12,561
-----------
Cash dividends declared ($0.18 per common share) -- -- -- -- (6,140) -- (6,140)
Common stock issued pursuant to:
Sale, conversion, acquisition, retirement
of stock 306,438 306 1,819 -- 2,125
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 77,794 -- 78 214 -- -- 292
Miscellaneous......................... (139,805) -- (139) (1,495)... 503 -- (1,131)
------------------------------------------------------------------------------
Balance, June 30, 1999.................. 43,116,881 $ -- $ 43,117 $ 340,486 $ 85,654 $ (5,861) $ 463,396
==============================================================================
Balance, December 31, 1999............. 43,326,754 $ -- $ 43,327 $ 345,309 $ 95,853 $ 16,101 $ 500,590
Net income........................... -- -- -- -- 1,453 -- 1,453
Other comprehensive income, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising during
period, net of taxes of $7,149 -- -- -- -- -- (12,561)
Less: reclassification adjustment for gains
included in net income, net of taxes
of $1,332.................... -- -- -- -- -- (2,829)
-------------
Other comprehensive loss........... -- -- -- -- -- (15,390) (15,390)
-------------
-----------
Comprehensive loss................... -- -- -- -- -- (13,937)
-----------
Cash dividends declared ($0.20 per common share) -- -- -- -- (8,145) -- (8,145)
Common stock issued pursuant to:
Repurchase of stock................ (524,600) -- (525) (7,783) -- -- (8,308)
Acquisition........................ -- -- -- -- -- -- -
Dividend reinvestment plan......... 61,601 -- 62 810 -- -- 872
Employee stock purchase plan....... 9,203 -- 9 119 -- -- 128
Restricted stock plan.............. 89,792 -- 90 1,269 (1,359) -- -
Exercise of stock options and stock warrants 94,123 -- 94 291 -- -- 385
Miscellaneous........................ -- -- -- 43 1,508 -- 1,551
------------------------------------------------------------------------------
Balance, June 30, 2000................. 43,056,873 $ -- $ 43,057 $ 340,058 $ 89,310 $ 711 $ 473,136
==============================================================================
* Other includes guarantee of employee stock ownership plan debt and
nonvested restricted stock.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
The South Financial Group and Subsidiaries
(in thousands, except share data)
(unaudited)
Six Months Ended June 30,
----------------------------
2000 1999
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 1,453 $ 20,676
Adjustments to reconcile net income to net cash provided by operations
Depreciation........................................ 3,877 3,070
Amortization of intangibles......................... 3,224 3,655
Charitable contribution to foundation............... - 11,890
Provision for loan losses........................... 12,427 8,618
Gain on sale of securities.......................... (163) (318)
Gain on disposition of equity investments........... (2,465) (15,471)
Gain on sale of assets and liabilities.............. (106) -
Gain on sale of credit cards........................ - (2,362)
Gain on sale of mortgage loans...................... (186) (725)
Trading account assets, net......................... 1,131 2,273
Originations of mortgage loans held for sale........ (127,026) (267,556)
Sale of mortgage loans held for sale................ 160,846 238,639
Other assets, net................................... 5,096 (17,834)
Other liabilities, net.............................. 9,672 4,792
------------ -----------
Net cash provided by (used for) operating activities 67,780 (10,653)
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Interest-bearing bank balances...................... (11,144) 18,296
Federal funds sold and resale agreements............ 3,225 (31,473)
Sale of securities available for sale............... 3,498 147,167
Maturity of securities available for sale........... 29,178 152,822
Maturity of securities held for investment.......... 10,334 24,226
Purchase of securities available for sale........... (14,781) (318,285)
Purchase of securities held for investment.......... (6,793) (5,289)
Origination of loans, net........................... (333,589) (183,702)
Sale of credit cards................................ - 65,624
Capital expenditures, net........................... (23,622) (2,612)
Acquisitions accounted for under the purchase
method of accounting............................. - 21,330
Disposition of equity investments................... 4,255 4,389
Disposition of assets and liabilities, net.......... (6,753) -
------------ -----------
Net cash used for investing activities............ (346,192) (107,507)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase in deposits, net........................... 230,895 48,760
Borrowed funds, net................................. 116,459 49,379
Cash dividends paid................................. (6,411) (6,093)
Repurchase of common stock.......................... (8,308) -
Other common stock activity......................... 1,623 716
------------ ------------
Net cash provided by financing activities......... 334,258 92,762
------------ ------------
Net change in cash and due from banks................... 55,846 (25,398)
Cash and due from banks at beginning of year............ 138,829 165,586
------------ ------------
Cash and due from banks at end of year.................. $ 194,675 $ 140,188
============ ============
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1999 Annual Report on Form
10-K.
(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, amounted to
approximately $89.6 million and $72.2 million for the six months ended June
30, 2000 and 1999, respectively. Income tax payments of $10.6 million and
$7.5 million were made for the six months ended June 30, 2000 and 1999,
respectively.
(3) BUSINESS COMBINATIONS
On June 6, 2000, the Company completed the merger with Anchor Financial
Corporation ("Anchor Financial"), headquartered in Myrtle Beach, South
Carolina. The Company acquired all the outstanding common shares of Anchor
Financial in exchange for 17,674,244 shares of the Company's common stock.
Each share of Anchor Financial stock was exchanged for 2.175 shares of the
Company's common stock. At March 31, 2000, Anchor Financial had total
assets of approximately $1.2 billion, loans of approximately $873 million,
and deposits of approximately $1.0 billion with 33 branch locations in
South Carolina and North Carolina.
The Anchor Financial transaction has been accounted for as a
pooling-of-interests combination and, accordingly, the Company's
consolidated financial statements for all prior periods have been restated
to include the accounts and results of operations of Anchor Financial,
except for cash dividends declared per common share.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
($ in thousands, except per share data)
Net interest income:
The Company $31,505 $28,976
Anchor Financial 12,914 12,925
Combined $44,419 $41,901
Net income:
The Company $ 6,568 $ 7,035
Anchor Financial 3,834 3,666
Combined $10,402 $10,701
6
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
($ in thousands, except per share data)
Basic income per common share:
The Company $ 0.26 $ 0.29
Anchor Financial 0.48 0.46
Combined 0.24 0.25
Diluted income per common share:
The Company $ 0.26 $ 0.28
Anchor Financial 0.46 0.44
Combined 0.24 0.25
(4) RESTRUCTURING AND MERGER-RELATED COSTS
In connection with the Anchor Financial merger, the Company recorded
restructuring and merger-related costs of approximately $19.9 million. The
following table indicates the primary components of these charges,
including the amounts incurred through June 30, 2000, and the amounts
remaining as accrued expenses in other liabilities at June 30, 2000.
Total
Restructuring Paid Remaining
And Merger- Through Accrual at
Related Costs June 30, 2000 June 30, 2000
------------- ------------- -------------
($ in thousands)
Severance costs $ 3,455 $ 441 $3,014
Contract termination costs 6,552 5,136 1,416
Investment banking fees 7,026 7,026 --
Professional fees 1,445 1,445 --
System conversion and
write-off of obsolete assets 344 344 --
Other merger costs 1,102 1,102 --
------- ------- -------
Total $19,924 $15,494 $4,430
The severance costs include accruals for payments made in connection with
the involuntary termination of approximately 88 employees who had been
notified that their positions were redundant within the combined
organizations. Management expects payments for the remaining accrual to be
substantially made during 2000. The contract termination costs are
primarily comprised of payments required to be made to certain executives
of Anchor Financial pursuant to their employment contracts.
(5) SECURITIES
The net unrealized gain on securities available for sale, net of tax
decreased $15.4 million for the six months ended June 30, 2000. The Company
7
began recording its investment in Net.B@nk, Inc. at market value effective
July 31, 1999, or one year prior to the termination of restrictions on the
sale of these securities.
(6) COMMON STOCK
Basic earnings per share are computed by dividing net income applicable to
common shareholders by the weighted average number of common shares
outstanding.
Diluted earnings per share are computed by dividing net income by the
weighted average number of shares of common shares outstanding during each
period, plus the assumed exercise of dilutive stock options using the
treasury stock method.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management based
on consultation with legal counsel, any outcome of such pending litigation
would not materially affect the Company's consolidated financial position
or results of operations.
(8) BUSINESS SEGMENTS
The Company has seven wholly-owned operating subsidiaries which are
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and assess performance. One of these subsidiaries,
Carolina First Bank, qualifies as a separately reportable operating
segment. Carolina First Bank offers products and services primarily to
customers in South Carolina and North Carolina. Revenues for Carolina First
Bank are derived primarily from interest and fees on loans, interest on
investment securities and service charges on deposits.
8
The following table summarizes certain financial information concerning
the Company's reportable operating segments at and for the six months
ended June 30, 2000 ($ in thousands):
Carolina First Eliminating
Bank Other Entries (1) Total
June 30, 2000
Income Statement Data
Total revenue $178,497 $52,137 ($20,499) $210,135
Net interest income 77,481 12,325 (32) 89,774
Provision for loan losses 9,684 2,743 -- 12,427
Noninterest income 16,155 25,153 (17,904) 23,404
Mortgage banking income (780) 3,758 34 3,012
Noninterest expenses 80,167 32,845 (17,935) 95,077
Amortization 2,760 464 -- 3,224
Net income 805 648 -- 1,453
Balance Sheet Data
Total assets $4,403,264 $1,269,076 ($586,208) $5,086,132
Loans - net of unearned income 3,040,551 544,151 -- 3,584,702
Allowance for loan losses 35,017 6,725 -- 41,742
Intangibles 94,904 15,771 -- 110,675
Deposits 3,164,768 555,029 (14,501) 3,705,296
Carolina First Eliminating
Bank Other Entries (1) Total
June 30, 1999
Income Statement Data
Total revenue $163,236 $32,871 ($3,776) $192,331
Net interest income 76,413 9,327 -- 85,740
Provision for loan losses 7,424 1,194 -- 8,618
Noninterest income 24,572 15,445 (2,796) 37,221
Mortgage banking income (1,346) 3,808 -- 2,462
Noninterest expenses 59,695 26,130 (2,796) 83,029
Amortization 2,961 694 -- 3,655
Net income 21,090 (414) -- 20,676
Balance Sheet Data
Total assets $3,814,500 $874,600 ($390,569) $4,298,531
Loans - net of unearned income 2,725,927 293,672 -- 3,019,599
Allowance for loan losses 23,856 5,990 -- 29,846
Intangibles 104,802 16,475 -- 121,277
Deposits 3,024,744 389,502 (15,440) 3,398,806
(1) The majority of the eliminating entries relate to intercompany
accounts.
9
(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.
10
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 The South Financial Group, Inc. (the "Company") on Form 10-K for the
year ended December 31, 1999. Results of operations for the six month period
ended June 30, 2000 are not necessarily indicative of results to be attained for
any other period.
The Company, a South Carolina corporation headquartered in Greenville,
South Carolina, is a financial institution holding company, which commenced
banking operations in December 1986, and currently conducts business through 82
locations in South Carolina and North Carolina and 13 locations in northern and
central Florida. The Company operates through the following principal
subsidiaries: Carolina First Bank, a South Carolina state-chartered commercial
bank; Citrus Bank, a Florida state-chartered commercial bank; Carolina First
Mortgage Company ("CF Mortgage"), a mortgage banking company; and Carolina First
Bank, F.S.B., a Federal savings bank which operates Bank CaroLine (an Internet
bank). 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.
Effective April 24, 2000, the Company changed its corporate name to The
South Financial Group, Inc. and began trading under a new Nasdaq market symbol,
"TSFG."
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995) to assist in the understanding
of anticipated future operating and financial performance, growth opportunities,
growth rates, and other similar forecasts and statements of expectations. These
forward-looking statements reflect current views, but are based on assumptions
and are subject to risks, uncertainties and other factors, which may cause
actual results to differ materially from those in such statements. Those factors
include, but are not limited to, the following: risks from changes in economic,
monetary policy and industry conditions; changes in interest rates and deposit
rates; inflation; risks inherent in making loans including repayment risks and
value of collateral; loan growth; adequacy of the allowance for loan losses and
the assessment of problem loans; fluctuations in consumer spending; the demand
for the Company's products and services; dependence on senior management;
technological changes; ability to increase market share; expense projections;
system conversion costs; costs associated with new buildings; acquisitions;
risks, realization of costs savings, and total financial performance associated
with the Company's merger with Anchor Financial Corporation; changes in
accounting policies and practices; costs and effects of litigation; and
recently-enacted or proposed legislation.
Such forward-looking statements speak only as of the date on which such
statements are made. 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.
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.
11
MERGER WITH ANCHOR FINANCIAL CORPORATION
On June 6, 2000, the Company completed the merger with Anchor Financial
Corporation ("Anchor Financial"), a South Carolina corporation headquartered in
Myrtle Beach, South Carolina, whose principal operating subsidiary was The
Anchor Bank. The Company acquired all the outstanding common shares of Anchor
Financial in exchange for 17,674,244 shares of the Company's common stock. Each
share of Anchor Financial stock was exchanged for 2.175 shares of the Company's
common stock. The Anchor Financial transaction has been accounted for as a
pooling-of-interests combination and, accordingly, the Company's historical
financial information for all prior periods has been restated to include the
accounts and results of operations of Anchor Financial, except for cash
dividends declared per common share.
During the second quarter of 2000, the Company incurred one-time pre-tax
restructuring and merger-related costs of $19.9 million in connection with the
Anchor Financial merger. In addition to the $19.9 million, during the second
quarter of 2000, the Company also included an additional provision for loan
losses of $3.0 million to apply the Company's reserve analysis methodology to
Anchor Financial's loan portfolio. In connection with the Anchor Financial
merger, the Company plans to restructure the investment portfolio to generate
higher investment yields. Losses related to the sale of various securities and
other restructuring and merger-related charges are anticipated to be
approximately $10 million during the third quarter of 2000.
On July 10, 2000, the Company completed the system conversion for Anchor
Financial and its subsidiary, The Anchor Bank. Effective with the system
conversion, The Anchor Bank offices began operating as Carolina First Bank
offices. In addition, the Company consolidated 11 offices and closed Anchor
Financial's operations center.
SALE OF BRANCH OFFICES
The Company has sold offices in Prosperity, South Carolina (effective June
23, 2000) and Saluda, South Carolina (effective July 3, 2000). The Company also
has an agreement to sell the Nichols, South Carolina office, which is expected
to close in August 2000 subject to regulatory approval, among other conditions.
EQUITY INVESTMENTS
Investment in Net.B@nk, Inc.
At June 30, 2000, the Company owned 2,265,000 shares of Net.B@nk, Inc.
("Net.B@nk") common stock, or approximately 7.6% of the outstanding shares. The
Company's investment in Net.B@nk, which is included in securities available for
sale and has a basis of approximately $629,000, had a pre-tax market value of
approximately $28.2 million as of June 30, 2000. During the second quarter of
2000, the Company sold 150,000 shares of Net.B@nk stock resulting in a pre-tax
gain of $1.9 million. The Company's shares of Net.B@nk common stock are
"restricted" securities, as that term is defined in federal securities law.
12
INVESTMENT IN AFFINITY TECHNOLOGY GROUP, INC.
At June 30, 2000, the Company, through its subsidiary Blue Ridge Finance
Company, Inc. ("Blue Ridge"), owned 1,753,366 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"). In
March 2000, the Company sold 775,000 shares of Affinity common stock for a
pre-tax gain of approximately $2.3 million.
These Affinity shares and the shares represented by the Affinity Warrant
constitute approximately a 16% ownership in Affinity. As of June 30, 2000, the
investment in Affinity's common stock, which is included in securities available
for sale and has a basis of approximately $111,000, was recorded at its pre-tax
market value of approximately $2.0 million. The Affinity Warrant was not
reported on the Company's balance sheet as of June 30, 2000.
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, 2000, the Company had equity investments in the following 14
community banks located in the Southeast: CNB Florida Bancshares, Inc.; Capital
Bank; Carolina Bank; Coastal Banking Company, Inc.; Community Capital
Corporation; First Reliance Bank; FirstSpartan Financial Corporation; Florida
Banks, Inc.; Greenville First Bancshares, Inc.; SouthBanc Shares, Inc.; High
Street Banking Company; Marine Bancshares; People's Community Capital Corp.; and
Trinity Bank. In each case, the Company owns less than 5% of the community
bank's outstanding common stock. As of June 30, 2000, equity investments in the
community banks listed above, included in securities available for sale with a
basis of approximately $10.8 million, were recorded at pre-tax market value of
approximately $8.4 million. The Company has made these investments to develop
correspondent banking relationships and to promote community banking in the
Southeast.
As a result of the Company's merger with Anchor Financial, the Company has
an investment in Rock Hill Bank & Trust. The investment, which is included in
securities available for sale and has a basis of approximately $3.1 million, had
a pre-tax market value of approximately $5.0 million as of June 30, 2000.
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, 2000, CF Investment Company had invested approximately
$2.2 million (principally in the form of loans) in companies specializing in
electronic document management, telecommunications and Internet-related
services.
CF Investment Company's loans represent a higher credit risk to the Company
due to the start up nature of these companies. During the second quarter of
2000, the Company incurred a $1.7 million loss on disposition of an investment
in an Internet service provider that ceased operations due to cash flow
problems.
13
EARNINGS REVIEW
OVERVIEW
Net loss, including merger-related charges and non-recurring items, for the
three month period ended June 30, 2000 was $8.9 million, or $0.21 per diluted
share. This loss included pre-tax restructuring and merger-related costs of
$19.9 million and an additional provision for loan losses of $3.0 million
(pre-tax) to apply the Company's reserve analysis methodology to Anchor
Financial's loan portfolio. These charges decreased net income by $17.8 million
(after-tax), or $0.41 per diluted share. Other non-recurring items, on a pre-tax
basis, during the second quarter of 2000 included a $1.9 million gain on the
sale of Net.B@nk stock, a $1.7 million write-off of an investment in an Internet
service provider, a $106,000 gain on the sale of the Prosperity branch office
and system conversion costs of $459,000. These nonrecurring items, excluding the
merger-related charges, decreased net income by $113,000, or approximately $0.01
per diluted share. Net income for the three months ended June 30, 1999 was $10.0
million, or $0.23 per diluted share.
Net income for the first six months of 2000, including merger-related
charges and non-recurring items, was $1.5 million, or $0.03 per diluted share
compared with $20.7 million, or $0.47 per diluted share, for the first six
months of 1999. The decrease was primarily attributable to expenses related to
the merger of Anchor Financial incurred during the second quarter of 2000.
At June 30, 2000, the Company had approximately $5.1 billion in assets,
$3.6 billion in loans, $3.7 billion in deposits and $473.1 million in
shareholders' equity. At June 30, 2000, the Company's ratio of nonperforming
assets to loans and other real estate owned was 0.61%.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on assets
and the interest paid for the liabilities to support such assets as well as such
items as loan fees and dividend income. Net interest margin measures how
effectively a company manages the difference between the yield on earning assets
and the rate paid on funds to support those assets. Fully tax-equivalent net
interest income adjusts the yield for assets earning tax-exempt income to a
comparable yield on a taxable basis. Average earning assets and the net interest
margin exclude the net unrealized gain on securities available for sale because
this gain is not included in net income.
Fully tax-equivalent net interest income increased $4.5 million, or 5%, to
$91.1 million in the first six months of 2000 from $86.6 million in the first
six months of 1999. The increase resulted from a higher level of average earning
assets partially offset by a lower net interest margin. Average earning assets
increased $586.2 million, or 16%, to approximately $4.3 billion in the first six
months of 2000 from $3.8 billion in the first six months of 1999. This increase
resulted from internal loan growth and an increased level of investment
securities. Average loans, net of unearned income, were $3.4 billion in the
first six months of 2000 compared with $3.0 billion in the first six months of
1999. Average investment securities were $895.1 million and $678.7 million in
the first six months of 2000 and 1999, respectively. The majority of the
increase in average investment securities was attributable to the match funding
in December 1999 of approximately $200 million in mortgage-backed securities
with approximately $200 million in Federal Home Loan Bank borrowings.
14
The net interest margin of 4.22% for the first half of 2000 was lower than
the margin of 4.65% for the first half of 1999. The net interest margin remained
consistent from the first quarter of 2000 to the second quarter of 2000 with
margins of 4.21% and 4.22%, respectively. The decline in the net interest margin
from the prior year was due primarily to two reasons. First, loan growth
exceeded deposit growth creating the need for alternative funding sources,
including Bank CaroLine. These alternative funding sources generally have higher
interest rates. Second, as a result of higher interest rates, increases in
funding costs, particularly certificates of deposits, have outpaced increases in
loan yields.
In September 1999, the Company introduced Bank CaroLine, an Internet bank
offered as a service of Carolina First Bank, F.S.B. Deposit rates for Bank
CaroLine are generally higher than those offered by the Company's other
subsidiary banks to reflect the lower cost structure associated with operating
on the Internet. Accordingly, as deposits build for Bank CaroLine, the Company
expects the cost of deposits on a consolidated basis to continue to increase. As
of June 30, 2000, total deposits for Bank CaroLine were approximately $138
million.
Increases in the prime interest rate, which increased 0.50% during the
second half of 1999 and 1.00% during the first half of 2000, had a positive
impact on the yield on earning assets. Variable rate loans immediately repriced
upward with the increases in the prime interest rate. The overall yield on
commercial loans (including both fixed and variable rate loans) during the first
six months of 2000 was 9.09% compared with 8.55% for the first six months of
1999. The yield on investment securities also increased from 6.16% for the first
half of 1999 to 6.69% for the first half of 2000.
During the third quarter of 2000, in connection with the Anchor Financial
merger, the Company expects to restructure 10% to 15% of the combined investment
portfolio to generate higher investment yields.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $12.4 million for the first six
months of 2000 compared with $8.6 million for the first six months of 1999.
During the second quarter of 2000, the Company added approximately $3 million to
the allowance for loan losses through a charge to the provision to apply the
Company's reserve analysis methodology to Anchor Financial's loan portfolio. As
a percentage of average loans, the net charge-off ratio was 0.26% for the first
six months of 2000 compared with 0.41% for the same period last year.
Management currently anticipates significant loan growth will continue in
2000. New market areas, particularly northern and central Florida, as well as
the expansion of the coastal market through the merger with Anchor Financial,
are expected to contribute to 2000 portfolio growth. Management intends to
closely monitor economic trends and the potential effect on the banking
subsidiaries' loan portfolios.
NONINTEREST INCOME
Noninterest income, including nonrecurring gains, decreased to $23.4
million in the first six months of 2000 from $37.2 million in the first six
months of 1999. Noninterest income in the first half of 2000 included several
nonrecurring, pre-tax gains including approximately $2.3 million related to the
sale of 775,000 shares of Affinity stock, $1.9 million related to the sale of
150,000 shares of Net.B@nk stock, and $106,000 related to the sale of the
Prosperity branch office. These gains were partially offset by a $1.7 million
15
write-off of an investment in an Internet service provider (see "CF Investment
Company"). Noninterest income in the first half of 1999 included nonrecurring,
pre-tax gains of $15.1 million (primarily offset by a $11.9 million contribution
to the Carolina First Foundation) related to the sale of Net.B@nk stock,
approximately $412,000 related to the sale of stock in Corporate Solutions
International (a company that develops automated credit decision systems) and a
$2.4 million gain on the sale of credit cards. Excluding these nonrecurring
gains, noninterest income increased $1.4 million to $20.8 million during the
first six months of 2000 from $19.4 million for the first six months of 1999.
This increase was primarily attributable to higher service charges on deposit
accounts, mortgage banking income and fees for investment services, partially
offset by lower loan securitization income.
Service charges on deposit accounts, the largest contributor to noninterest
income, rose 12% to $8.3 million in the first six months of 2000 from $7.5
million for the same time period in 1999. Average deposits for the same period
increased 7%. 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 six months of 2000 increased 20% to $3.0 million from $2.5 million in
the first six months of 1999.
Mortgage originations totaled $157 million and $220 million in the first
six months of 2000 and 1999, respectively. The decrease in 2000 resulted
primarily from lower levels of activity due to increases in mortgage loan rates.
Similarly, fewer mortgage loans were sold with sales of $81 million for the
first half of 2000 and $190 million for the first half of 1999.
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, 2000, CF Mortgage was servicing or subservicing loans
having an aggregate principal balance of approximately $2.3 billion. Fees
related to the servicing portfolio from non-affiliated companies are offset by
the related amortization for the mortgage servicing rights and subservicing
payments. In the first half of 2000, the increase in interest rates led to lower
amortization of mortgage servicing rights due to lower prepayment rates.
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 2000 and 1999 were
$2.9 million and $2.5 million, respectively. Fees collected by Carolina First
Securities, Inc. ("CF Securities"), a full service brokerage subsidiary,
increased to $407,000 for the first six months of 2000, compared with $240,000
for the first six months of 1999. CF Securities offers a complete line of
investment products and services, including mutual funds, stocks, bonds and
annuities. At June 30, 2000 and 1999, the market value of assets administered by
Carolina First Bank's trust department totaled approximately $734.7 million and
$780.8 million, respectively.
During the first six months of 1999, the Company had income of $1.6
million from its interests in the credit card and commercial real estate loan
trusts. 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 was terminated with the pay-off of the loans in the fourth quarter of
1999. Accordingly, no loan securitization income was realized in the first half
of 2000.
16
Other noninterest income totaled $6.5 million in the first half of
2000, compared with $5.1 million in the first half of 1999. This increase was
primarily due to the establishment of a bank-owned life insurance program
initiated during the second quarter of 1999 as well as higher debit card income
and merchant processing fees.
NONINTEREST EXPENSES
Noninterest expenses, including nonrecurring items, increased to $95.1
million in the first six months of 2000 from $83.0 million in the first six
months of 1999. Noninterest expenses in the first half of 2000 included $19.9
million in nonrecurring restructuring and merger-related costs (see "Merger of
Anchor Financial Corporation") and $839,000 in system conversion costs (see
"System Conversion"). For details on restructuring and merger-related costs, see
Note 4 to the Consolidated Financial Statements. Noninterest expenses in the
first half of 1999 included a nonrecurring charitable contribution in the form
of Net.B@nk common stock, valued at approximately $11.9 million, which was made
to the Carolina First Foundation, as well as $3.4 million in merger-related
costs. Excluding these nonrecurring expenses, noninterest expenses increased
$6.6 million from the first six months of 1999 to the first six months of 2000.
The majority of the increase related to increases in personnel, technology and
space to support the Company's current and future growth.
Salaries, wages and employee benefits increased to $38.0 million in the
first six months of 2000 from $34.8 million in the first six months of 1999.
Full-time equivalent employees decreased to 1,481 at June 30, 2000 from 1,514 at
June 30, 1999. The Company expects the number of full-time equivalent employees
to continue to decline during the third quarter of 2000 in connection with the
elimination of redundant positions associated with the Anchor Financial merger.
The staffing cost increases were primarily due to the costs of expanding in
existing and new markets, operational support to promote growth, restricted
stock awards, and additional management and technical expertise.
Occupancy and furniture and equipment expenses increased $3.0 million
to $12.8 million in the first six months of 2000 from $9.8 million in the first
six months of 1999. This increase resulted principally from lease payments
associated with two new buildings and the transition to a common computer
platform and new core operating system.
Amortization of intangibles decreased to $3.2 million in the first half
of 2000 from $3.7 million in the first half of 1999. The decrease was due to the
sale of four branches, previously acquired through mergers accounted for as
purchase transactions, in the last half of 1999. Upon completion of these branch
sales, the related intangible assets were written off resulting in lower
amortization of intangibles. This lower level of amortization is expected to
continue.
Other noninterest expenses increased $847,000 to $20.3 million in the
first six months of 2000 from $19.5 million in the first six months of 1999. 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
telecommunications, advertising, professional fees, travel, stationery, supplies
and printing.
17
COMPARISON FOR THE QUARTERS ENDED JUNE 30, 2000 AND JUNE 30, 1999
The Company reported a net loss of $8.9 million, or $0.21 per diluted
share, in the second quarter of 2000 which includes merger-related charges and
other nonrecurring items. This loss is compared with income of $10.0 million, or
$0.23 per diluted share, in the second quarter of 1999. Non-recurring items
during the second quarter of 2000 included $19.9 million of pre-tax merger
related charges (see "Merger of Anchor Financial Corporation"), $3.0 million in
additional provision expense (see "Provision for Loan Losses"), a $1.9 million
gain on the sale of Net.B@nk stock (see "Investment in Net.B@nk, Inc."), a $1.7
million write-off of an investment in an Internet service provider (see
"Noninterest Income") and a $106,000 gain on the sale of the Prosperity branch
office. Net income in the second quarter of 1999 included a nonrecurring,
pre-tax gain of $2.4 million on the sale of credit cards and $3.3 million in
merger-related charges. Excluding the merger-related charges and nonrecurring
items, net income was $8.9 million, or $0.21 per diluted share, in the second
quarter of 2000 compared with $10.6 million in the second quarter of 1999. The
decrease in net income was a result of increases in noninterest expenses
partially offset by increases in net interest income and noninterest income.
Net interest income increased $1.6 million to $45.4 million for the
three months ended June 30, 2000 from $43.8 million for the comparable period in
1999. This increase was attributable to a higher level of average earning
assets. Earning assets averaged $4.4 billion and $3.8 billion in the second
quarters of 2000 and 1999, respectively. The second quarter 2000 net interest
margin decreased to 4.22%, compared with 4.62% for the second quarter of 1999.
The lower net interest margin in the second quarter of 2000 resulted from higher
cost of funds partially offset by higher earning asset yields (see "EARNINGS
REVIEW - Net Interest Income").
Noninterest income, excluding the net gains on the disposition of
assets, liabilities and equity investments, increased $180,000 to $10.4 million
for the second quarter of 2000 compared with $10.2 million, excluding the $2.4
million gain on the sale of credit cards, in the second quarter of 1999. Service
charges on deposit accounts increased to $4.1 million in the second quarter of
2000 compared with $3.9 million in the second quarter of 1999. 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. Loan securitization income related to credit cards ceased due to the
termination of the credit card trust during the second quarter of 1999. Loan
securitization income related to the commercial real estate loan trust was
$340,000 in the second quarter of 1999. The commercial real estate loan trust
was terminated with the pay-off of the loans in the fourth quarter of 1999.
Other noninterest income for the second quarter of 2000 increased $246,000
primarily due to increased merchant processing fees.
Noninterest expenses, excluding restructuring and merger-related costs
of $19.9 million and system conversion costs of $459,000, increased to $37.0
million for the three months ended June 30, 2000 from $33.6 million, excluding
merger-related costs, for the three months ended June 30, 1999. Personnel
expense increased from $16.9 million for the second quarter of 1999 to $18.9
million for the second quarter of 2000 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 $1.4 million to $6.4
million during second quarter 2000 from $5.0 million during second quarter 1999.
Amortization of intangibles decreased from $1.7 million in the second quarter of
1999 to $1.6 million in the second quarter of 2000 due to the sale of four
branches, previously acquired through mergers accounted for as purchase
transactions, in the last half of 1999. Other noninterest expenses were $10.0
million in the second quarter of both 2000 and 1999.
18
BALANCE SHEET REVIEW
LOANS
Loans are the largest category of earning assets and produce the
highest yields. The Company's loan portfolio consists of commercial real estate
loans, commercial loans, consumer loans and one-to-four family residential
mortgage loans. Substantially all borrowers are located in South Carolina,
Florida and North Carolina with concentrations in the Company's market areas. At
June 30, 2000, the Company had total loans outstanding of $3.6 billion that
equaled approximately 97% of the Company's total deposits and approximately 70%
of the Company's total assets.
Table 1 provides a summary of loans outstanding by category. Effective
with the system conversion in June 2000, the Company reclassified certain loans
due to the enhanced capability of analyzing loans by purpose and by collateral.
Accordingly, the June 30, 2000 composition presented below may not be comparable
with the earlier periods presented. For example, the construction category as of
June 30, 2000 included commercial construction, which was previously included in
commercial and industrial secured by real estate.
TABLE 1
LOAN PORTFOLIO COMPOSITION
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31,
-------- ------------
2000 1999 1999
- ---------------------------------------------------------------------------------------------------------------
Residential mortgage (1-4 Family).............................$ 912,588 $ 641,320 $ 729,522
Construction.................................................. 432,424 173,060 221,683
Commercial and industrial..................................... 560,217 511,331 536,542
Commercial and industrial secured by real estate.............. 1,216,881 1,279,664 1,336,491
Consumer...................................................... 426,864 335,334 396,358
Credit cards.................................................. 18,591 15,700 15,798
Lease financing receivables................................... 8,350 26,155 15,500
----- ------ ------
Loans held for investment..................................... 3,575,915 2,982,564 3,251,894
Loans held for sale........................................... 11,957 45,311 45,591
------ ------ ------
Gross loans................................................... 3,587,872 3,027,875 3,297,485
Less unearned income.......................................... 3,170 8,276 5,765
Less allowance for loan losses................................ 41,742 29,846 33,756
------ ------ ------
Net loans.....................................................$ 3,542,960 $ 2,989,753 $3,257,964
============= ============= ==========
- --------------------------------------------------------------------------------------------
The Company's loans, net of unearned income, increased $565.1 million,
or 19%, to approximately $3.6 billion at June 30, 2000 from $3.0 billion at June
30, 1999 and increased $293.0 million from approximately $3.3 billion at
December 31, 1999. Excluding loans originated by correspondents, approximately
$81 million of residential mortgage loans were sold in the first six months of
2000. Adjusting for the 2000 loan sales, internal loan growth was approximately
$374 million, or an annualized rate of 23%, during the first half of 2000.
Approximately $80 million of the loan growth in the first half of the year was
19
attributable to the Citrus Bank markets in Florida. In addition, the Company's
consumer loans increased significantly due primarily to the expansion of
indirect lending in South Carolina and Florida.
For the first half of 2000, the Company's loans averaged $3.4 billion
with a yield of 9.23%, compared with $3.0 billion and a yield of 9.07% for the
same period in 1999. Selling the credit card portfolio in the second quarter of
1999 lowered the average loan yield. This decrease was offset by increases in
variable rate loans related to prime interest rate increases that have occurred
since June 30, 1999. The interest rates charged on loans vary with the degree of
risk, 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
The adequacy of the allowance for loan losses (the "Allowance") is
analyzed on a quarterly basis. For purposes of this analysis, adequacy is
defined as a level sufficient to absorb probable losses in the portfolio. The
methodology employed for this analysis is as follows.
The portfolio is segregated into risk-similar segments for which
average annual historical loss ratios are calculated over time periods
corresponding to loans in each segment. Loss rates are calculated by product
type for consumer loans and by risk grade for commercial loans. Large problem
loans are individually assessed for loss potential. A range of probable loss
percentages is then derived for each segment based on the relative volatility of
its historical loss ratio. These percentages are applied to the dollar amount of
loans in each segment to arrive at a range of probable loss levels.
The location of the Allowance within this range is then assessed in
light of material changes that may render historical loss levels less predictive
of future results. This assessment addresses issues such as the pace of loan
growth, newly emerging portfolio concentrations, risk management system changes,
entry into new markets, new product offerings, off-balance sheet risk exposures,
loan portfolio quality trends, and uncertainty in economic and business
conditions. To the extent this analysis implies lower or higher risk than that
which shaped historical loss levels, the Allowance is positioned toward the
lower or higher end of the range.
This methodology, first adopted for the March 31, 2000 analysis,
develops a range of probable loss levels rather than a single, best-guess
estimate. This change in methodology did not alter management's conclusion as to
the adequacy of the Allowance.
Assessing the adequacy of the Allowance is a process that requires
considerable judgment. Management's judgments are based on numerous assumptions
about future events which it believes to be reasonable, but which may or may not
be valid. Thus there can be no assurance that loan losses in future periods will
not exceed the Allowance or that future increases in the Allowance will not be
required. No assurance can be given that management's ongoing evaluation of the
loan portfolio in light of changing economic conditions and other relevant
circumstances will not require significant future additions to the Allowance,
thus adversely affecting the operating results of the Company.
The Allowance is also subject to examination and adequacy testing by
regulatory agencies, which may consider such factors as the methodology used to
determine adequacy and the size of the Allowance relative to that of peer
institutions. In addition, such regulatory agencies could require the Company to
adjust its Allowance based on information available to them at the time of their
examination.
20
The Allowance totaled $41.7 million, or 1.17% of loans held for
investment net of unearned income at June 30, 2000, compared with $29.8 million,
or 1.00%, at June 30, 1999. At December 31, 1999, the Allowance was $33.8
million, or 1.04% of loans held for investment net of unearned income. During
the second quarter of 1999, the Allowance was reduced $3.0 million as a
consequence of the sale of the credit card portfolio. The Allowance was
increased approximately $3.0 million during the second quarter of 2000 to apply
the Company's reserve analysis methodology to Anchor Financial's loan portfolio.
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,
-------------- ------------
2000 1999 1999
- ----------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 33,756 $ 29,812 $ 29,812
Purchase accounting acquisitions -- 408 408
Allowance adjustment for credit card sale -- (2,977) (2,977)
Provision for loan losses 12,427 8,618 18,273
Charge-offs:
Credit cards -- (1,539) (1,852)
Bank loans, leases & Blue Ridge loans (5,638) (5,524) (11,950)
Recoveries 1,197 1,048 2,042
- ---------------------------------------------------------------------------------------------------------------
Net charge-offs (4,441) (6,015) (11,760)
- ---------------------------------------------------------------------------------------------------------------
Allowance at end of period $ 41,742 $ 29,846 $ 33,756
===============================================================================================================
The following summarizes impaired loan information as of June 30:
2000 1999
---- ----
($ in thousands)
Impaired loans.............................................................$ 16,763 $ 2,190
Related allowance.......................................................... 4,424 524
Recognized interest income.................................................$ 170 67
Foregone interest.......................................................... 483 44
The average recorded investment in impaired loans for the six months
ended June 30, 2000 and June 30, 1999 was approximately $13.1 million and $1.9
million, respectively.
SECURITIES
At June 30, 2000, the Company's investment portfolio totaled $918.1
million, up $203.2 million from the $714.9 million invested as of June 30, 1999
and down $46.0 million from the $964.1 million invested as of December 31, 1999.
A significant portion of the increase in investment securities in 1999 was
attributable to the match funding in December 1999 of approximately $200 million
in mortgage-backed securities with approximately $200 million in Federal Home
21
Loan Bank borrowings. In addition, effective July 31, 1999, the Company began
recording its investment in Net.B@nk at market value, which was approximately
$28.2 million at June 30, 2000, down from $44.7 million as of December 31, 1999
(see "EQUITY INVESTMENTS - Investment in Net.B@nk, Inc.").
Securities (i.e., securities held for investment, securities available
for sale and trading securities) averaged $895.1 million in the first half of
2000, 32% above the average of $678.7 million in the first half of 1999. The
average portfolio yield increased to 6.69% in the first six months of 2000 from
6.16% in the first six months of 1999. The portfolio yield increased as a result
of increasing interest rates. The mix of securities also shifted by reinvesting
maturing securities in higher yielding agencies and mortgage-backed securities.
The composition of the investment portfolio as of June 30, 2000 follows:
mortgage-backed securities 48%, treasuries and agencies 32%, other securities
11%, and states and municipalities 9%.
During the third quarter of 2000, in connection with the Anchor
Financial merger, the Company expects to restructure 10 to 15% of the combined
investment portfolio to generate higher investment yields.
INTANGIBLE ASSETS AND OTHER ASSETS
The intangible assets balance at June 30, 2000 of $110.7 million
consisted of goodwill of $102.8 million and core deposit balance premiums of
$7.9 million. The intangible assets balance at June 30, 1999 of $121.3 million
consisted of goodwill of $111.1 million and core deposit balance premiums of
$10.2 million.
At June 30, 2000, other assets included other real estate owned of $3.4
million and mortgage servicing rights of $26.7 million. At June 30, 1999, other
assets included other real estate owned of $2.8 million and mortgage servicing
rights of $22.6 million.
INTEREST-BEARING LIABILITIES
During the first six months of 2000, interest-bearing liabilities
averaged $3.8 billion, compared with $3.2 billion in the first six months of
1999. This increase resulted principally from additional borrowings from the
Federal Home Loan Bank ("FHLB") to fund increased loan activity and to purchase
corporate bonds for leveraging purposes. Internal deposit growth related to
account promotions, sales efforts and the introduction of Internet banking also
contributed to the increase. The average interest rates were 5.10% and 4.43% in
the first six months of 2000 and 1999, respectively. At June 30, 2000,
interest-bearing deposits comprised approximately 85% of total deposits and 79%
of interest-bearing liabilities.
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 9% to $3.7 billion at June 30, 2000 from $3.4 billion at June 30,
1999. In the last half of 1999, the Company sold approximately $54 million in
deposits related to the sale of four branch offices. During the second quarter
of 2000, approximately $7 million in deposits were sold in relation to the sale
of the Prosperity branch office.
During the first six months of 2000, total interest-bearing deposits
averaged $3.0 billion with a rate of 4.84%, compared with $2.8 billion with a
rate of 4.32% in the first six months of 1999. During the first six months of
2000, deposit pricing remained very competitive, a pricing environment which the
Company expects to continue. Average noninterest-bearing deposits, which
22
increased 5% during the year, were 14.8% of average total deposits for the first
six months of 2000 compared with 15.1% of average total deposits for the prior
year period.
In September 1999, the Company introduced an Internet bank, which is
marketed as Bank CaroLine and offered as a service of Carolina First Bank,
F.S.B. Deposit rates for Bank CaroLine are generally higher than the rates
offered by the Company's other subsidiary banks due to lower operating costs.
Deposits gathered through Bank CaroLine will be used to fund commercial and
consumer loans generated by the Company's subsidiary banks. At June 30, 2000,
total deposits for Bank CaroLine totaled approximately $138 million.
Time deposits of $100,000 or more represented 16% of total deposits at
June 30, 2000 and 12% of total deposits at June 30, 1999. The Company's large
denomination time deposits are generally from customers within the local market
areas of its banks and, therefore, have a greater degree of stability than is
typically associated with this source of funds. As of June 30, 2000, the Company
had $97.2 million in brokered deposits. The Company considers these funds as an
alternative funding source.
In the first six months of 2000, average borrowed funds, which includes
repurchase agreements and FHLB advances, totaled $765.3 million compared with
$338.7 million for the same period in 1999. This increase was primarily
attributable to a rise in average FHLB advances to $523.8 million in the first
six months of 2000 from $96.7 million in the first six months of 1999. Advances
from the FHLB increased to $582.6 million as of June 30, 2000 from $138.1
million at June 30, 1999. At December 31, 1999, FHLB advances totaled $510.6
million. The increase since June 30, 1999 was primarily due to additional
borrowings from FHLB to fund increased loan activity and to purchase corporate
bonds for leveraging purposes. 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.
CAPITAL RESOURCES AND DIVIDENDS
Total shareholders' equity amounted to $473.1 million, or 9.3% of total
assets, at June 30, 2000, compared with $463.4 million, or 10.8% of total
assets, at June 30, 1999. At December 31, 1999, total shareholders' equity
totaled $500.6 million, or 10.5% of total assets. The increase in total
shareholders' equity since June 30, 1999 resulted principally from the retention
of earnings less cash dividends paid, stock repurchased and a decline in the net
unrealized gain on securities.
In the first quarter of 2000, the Company repurchased 524,600 shares of
common stock, which decreased shareholders' equity by $8.3 million. In March
2000, the Company rescinded its share repurchase program due to the pending
merger with Anchor Financial.
The Company began recording its investment in Net.B@nk at market value
during the third quarter of 1999, which added $17.9 million (net of taxes) to
the June 30, 2000 net unrealized gain on securities, which is a component of
shareholders' equity. The Company's unrealized gain, net of taxes, related to
Net.B@nk declined $10.7 million, from December 31, 1999 to June 30, 2000.
Book value per share at June 30, 2000 and 1999 was $10.99 and $10.75,
respectively. Recording the Company's Net.B@nk investment at market value,
effective with the third quarter of 1999, added approximately $0.42 to book
value at June 30, 2000. Tangible book value per share at June 30, 2000 and 1999
was $8.42 and $7.93, respectively. Tangible book value was below book value as a
23
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, 2000, the Company and its subsidiary banks were in
compliance with each of the applicable regulatory capital requirements. Table 3
sets forth various capital ratios for the Company and its subsidiary banks.
TABLE 3
CAPITAL RATIOS
- ------------------------------------------------------------------------------------------------------
As of Well Capitalized Adequately Capitalized
6/30/00 Requirement Requirement
- ------------------------------------------------------------------------------------------------------
The Company:
Total Risk-based Capital 11.13% n/a n/a
Tier 1 Risk-based Capital 9.16 n/a n/a
Leverage Ratio 7.30 n/a n/a
Carolina First Bank:
Total Risk-based Capital 10.03% 10.0% 8.0%
Tier 1 Risk-based Capital 9.17 6.0 4.0
Leverage Ratio 7.54 5.0 4.0
Carolina First Bank, F.S.B.:
Total Risk-based Capital 11.13% 10.0% 8.0%
Tier 1 Risk-based Capital 10.23 6.0 4.0
Leverage Ratio 5.03 5.0 4.0
Citrus Bank:
Total Risk-based Capital 10.00% 10.0% 8.0%
Tier 1 Risk-based Capital 8.79 6.0 4.0
Leverage Ratio 8.12 5.0 4.0
Anchor Bank:
Total Risk-based Capital 9.23% 10.0% 8.0%
Tier 1 Risk-based Capital 7.50 6.0 4.0
Leverage Ratio 5.76 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. 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
24
course of business, management considers interest rate risk to be its most
significant market risk. 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 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 periodic 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 immediately increase and decrease 200 basis
points. According to the model, the Company is positioned so that net interest
income will increase if interest rates rise in the next twelve months and will
decrease 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, 2000, there was no significant change from the interest
rate risk sensitivity analysis for various changes in interest rates calculated
as of December 31, 1999. 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, 1999 included in the Company's 1999 Annual Report on Form 10-K.
Interest sensitivity gap ("GAP position") measures the difference
between rate sensitive assets and rate sensitive liabilities during a given time
frame. The Company's GAP position, while not a complete measure of interest
sensitivity, is reviewed periodically to provide insights related to the static
repricing structure of assets and liabilities. At June 30, 2000, on a cumulative
basis through twelve months, rate-sensitive liabilities exceeded rate-sensitive
assets, resulting in a liability sensitive position of $250.3 million.
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
25
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
securities, temporary investments and earnings. The subsidiary banks' liquidity
is also enhanced by the ability to acquire new deposits through the established
branch network. The liquidity needs of the Subsidiary Banks are a factor in
developing their deposit pricing structure; deposit pricing may be altered to
retain or grow deposits if deemed necessary.
The Company's loan to deposit ratio has increased to 97% as of June 30,
2000 from 93% as of December 31, 1999 and 88% as of June 30, 1999. This increase
reflects greater reliance by the Company on other funding sources, including
borrowing from the FHLB, which is expected to continue.
Carolina First Bank, Anchor Bank and Carolina First Bank, F.S.B. have
access to borrowing from the FHLB. Each of the Subsidiary Banks maintain unused
short-term lines of credit from unrelated banks. At June 30, 2000, unused
borrowing capacity from the FHLB totaled approximately $94 million with an
outstanding balance of $582.6 million. At June 30, 2000, the Subsidiary Banks
had unused short-term lines of credit totaling approximately $125 million (which
are withdrawable at the lender's option). Management believes that these sources
are adequate to meet its liquidity needs.
ASSET QUALITY
Lending is a risk-taking business. Prudent lending requires a sound
risk-taking philosophy, policies and procedures which translate that philosophy
into practices, and a risk management process that ensures effective execution.
The Company's risk-taking philosophy is articulated in credit policies approved
by its Board of Directors annually. Implementing policies and procedures are
promulgated by the Credit Risk Management Group. These policies contain
underwriting standards, risk analysis requirements, loan documentation criteria,
credit approval requirements, and risk monitoring requirements. Credit approval
authority delegated to lending officers is limited in scope to actions that
comply with these policies. In the first quarter of 2000, a Credit Review
function was chartered to independently test for compliance with these policies
and report findings to the Credit Committee of the Company's Board of Directors.
26
Table 4 presents information pertaining to nonperforming assets.
TABLE 4
NONPERFORMING ASSETS AND PAST DUE LOANS
($ in thousands)
June 30, December 31,
----------- ------------
2000 1999 1999
---- ---- ----
- ---------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 18,341 $ 3,351 $ 11,185
Restructured loans -- 1,283 --
- ---------------------------------------------------------------------------------------------------------
Total nonperforming loans 18,341 4,634 11,185
Other real estate 3,390 2,833 2,787
- ---------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 21,731 $ 7,467 $ 13,972
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Nonperforming assets as a % of
loans and other real estate owned 0.61% 0.25% 0.43%
Net loan charge-offs as a % of
average loans (annualized) 0.26 0.41 0.39
Accruing loans past due 90 days $ 7,789 $5,066 $ 5,100
Allowance for loan losses to
nonperforming loans 2.28x 6.44x 3.02x
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Nonaccrual loans increased to $18.3 million as of June 30, 2000 from $11.2
million as of December 31, 1999 and $3.4 million as of June 30, 1999. Of the
$18.3 million of nonaccrual loans as of June 30, 2000, $7.0 million was for
three loans not past due over 30 days.
Net loan charge-offs totaled $4.4 million and $6.0 million in the first six
months of 2000 and 1999, respectively, or 0.26% and 0.41%, respectively, as an
annualized percentage of average loans. Accruing loans past due 90 days or more
were composed primarily of consumer and 1-4 family mortgage loans. At June 30,
2000, commercial loans in this category were nominal.
SYSTEM CONVERSION
From March 2000 through July 2000, the Company and its subsidiaries
converted their operating systems to the Fiserv Comprehensive Banking System.
As a result of the system conversions, and the related training involved
with learning a new system, outstanding items on general ledger, loan funding
and demand deposit account reconciliations have not been resolved in a timely
manner. Timely reconciliations, as well as the ongoing resolution of outstanding
items, reduces the risk of financial reporting errors and losses.
27
The Company has dedicated resources, including the Company's internal audit
staff and professional consultants, to complete these reconciliations. At this
time, based upon the clearance of outstanding items to date, the Company does
not anticipate any material changes to the Company's consolidated financial
position or results of operations related to these reconciliations, however, no
assurance of this can be given.
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.
CURRENT ACCOUNTING ISSUES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 required that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. This
effective date reflects the deferral provided by SFAS 137, which defers the
earlier effective date specified in SFAS 133. SFAS 138 amends SFAS 133 to
address a limited number of issues causing implementation difficulties. The
Company, which will be required to adopt this statement January 1, 2001, has not
yet determined the financial impact of the adoption of SFAS 133.
28
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.
ITEM 2 CHANGE IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Annual Meeting of Shareholders
------------------------------
On April 19, 2000, the Company held its 2000 Annual Meeting of
Shareholders. The results of the 2000 Annual Meeting of Shareholders
follow.
PROPOSAL #1 - ELECTION OF DIRECTORS
The shareholders approved setting the number of Company directors at 12
persons. The following persons were elected as Directors with the votes
indicated.
Voting shares in favor
---------------------- Withheld
# % Authority
- - ---------
M. Dexter Hagy 18,785,209 94.1% 1,178,243
H. Earle Russell, Jr. 18,734,288 94.1% 1,179,164
William R. Timmons, Jr. 18,005,786 90.4% 1,907,666
Samuel H. Vickers 18,261,750 91.7% 1,651,702
Judd B. Farr, C. Claymon Grimes, Jr., William S. Hummers III, Charles
B. Schooler, Elizabeth P. Stall, Eugene E. Stone IV, David C.
Wakefield III, and Mack I. Whittle, Jr. continued in their present
terms as directors.
PROPOSAL #2 - CHANGE THE COMPANY'S NAME TO THE SOUTH FINANCIAL GROUP,
INC.
The shareholders approved changing the Company's name to The South
Financial Group, Inc.
Voting shares in favor
----------------------
# % Against Abstain
- - ------- -------
19,119,176 96.0% 647,750 146,526
PROPOSAL #3 - ADOPTION OF THE COMPANY'S AMENDED AND RESTATED FORTUNE 50
PLAN
The shareholders approved the Company's Amended and Restated Fortune
50 Plan.
Voting shares in favor
----------------------
# % Against Abstain Non-Vote
- - ------- ------- --------
11,976,957 60.1% 965,708 217,967 6,752,820
29
PART II
(CONTINUED)
PROPOSAL #4 - ADOPTION OF AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
STOCK OPTION PLAN
The shareholders approved amending the Company's Amended and Restated
Stock Option Plan to increase the number of shares of the Company's
common stock that may be issued to an aggregate of 2,500,000.
Voting shares in favor
----------------------
# % Against Abstain Non-Vote
- - ------- ------- --------
11,097,770 55.7% 1,788,292 274,544 6,752,846
PROPOSAL #5 - ADOPTION OF AMENDMENT NO. 1 TO THE COMPANY'S COMMON STOCK
AMENDED DIVIDEND REINVESTMENT PLAN
The shareholders approved amending the Company's Amended common Stock
Dividend Reinvestment Plan to increase the number of shares of the
Company's common stock that may be issued to an aggregate of 450,000.
Voting shares in favor
----------------------
# % Against Abstain Non-Vote
- - ------- ------- --------
11,104,751 55.8% 1,390,254 659,536 6,758,911
SPECIAL MEETING OF SHAREHOLDERS
-------------------------------
On May 1, 2000, the Company held a Special Meeting of Shareholders. The
results of the Special Meeting of Shareholders follow.
PROPOSAL #1 - APPROVAL OF REORGANIZATION AGREEMENT WITH ANCHOR
FINANCIAL CORPORATION
The shareholders approved the Reorganization Agreement dated as of
January 10, 2000, providing for the merger of Anchor Financial
Corporation with and into a subsidiary of the Company and, in
connection therewith, the conversion of shares of common stock of
Anchor Financial Corporation into shareholder of common stock of the
Company.
Voting shares in favor
----------------------
# % Against Abstain
- - ------- -------
13,567,333 89.4% 1,555,459 45,241
PROPOSAL #2 - INCREASE SIZE OF BOARD
The shareholders approved increasing the Company's board of
directors from twelve members to seventeen members.
Voting shares in favor
----------------------
# % Against Abstain
- - ------- -------
13,365,780 88.1% 1,716,410 85,843
30
PART II
(CONTINUED)
ITEM 5 OTHER INFORMATION
Completed Acquisition
---------------------
On June 6, 2000, the Company completed the merger with Anchor Financial
Corporation ("Anchor Financial"), headquartered in Myrtle Beach, South
Carolina. The Company acquired all the outstanding common shares of
Anchor Financial in exchange for 17,674,244 shares of the Company's
common stock. Each share of Anchor Financial stock was exchanged for
2.175 shares of the Company's common stock. At March 31, 2000, Anchor
Financial had total assets of approximately $1.2 billion, loans of
approximately $873 million, and deposits of approximately $1.0 billion
with 33 branch locations in South Carolina and North Carolina. The
Anchor Financial transaction has been accounted for as a
pooling-of-interests combination.
Pending Sale of Branch Offices
------------------------------
On July 3, 2000, The Anchor Bank completed the sale of its branch
office located in Saluda, South Carolina. The Company also has signed a
definitive agreement to sell the Nichols, South Carolina office, which
is expected to close in August 2000 subject to regulatory approval,
among other conditions.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended and Restated Employee Stock Purchase Plan.
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
The Company filed current reports on Form 8-K dated April 24, 2000 and
June 6, 2000.
31
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.
The South Financial Group, Inc.
/s/William S. Hummers III
-------------------------
William S. Hummers III
Executive Vice President
32