UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 14, 1995 (Event:
June 30, 1995)
CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 0-15083 57-0824914
(State of other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification Number)
102 South Main Street, Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 255-7900
The Exhibit Index appears on page 4 hereof.
1
<PAGE>
Item 7. Financial Statements and Exhibits
(a)
Annex 1. Audited balance sheets of Midlands National Bank at December 31,
1994 and 1993 and the related statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994.
Annex 2. Attached are audited supplemental consolidated balance sheets of
the registrant as of December 31, 1994 and 1993 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994, reflecting
consummation of the merger (the "Merger") of Midlands National Bank with and
into Carolina First Bank, a wholly-owned subsidiary of the registrant. Also
included are statistical disclosures, selected financial data, and
management's discussion and analysis of financial condition and results of
operations for the fiscal year ended December 31, 1994, reflecting consummation
of the Merger.
(b) Not applicable.
(c) 2.1 Reorganization Agreement entered into as of November 14,
1994, as amended on May 1, 1995, by and among Carolina First
Bank, Carolina First Corporation and Midlands National Bank.
Incorporated by reference to Exhibit 2.1 of Carolina First
Corporation's Registration Statement on Form S-4, Commission
File No. 33-58805.
20.1 Press Release dated June 30, 1995. Previously filed with initial
filing on this Form 8-K.
23.1 Consent of Elliott Davis & Company, L.L.P.
27.1 Financial Data Schedule
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CAROLINA FIRST CORPORATION
September 14, 1995 By: /s/ William S. Hummers III
William S. Hummers III
Executive Vice President
3
<PAGE>
ANNEX 1
MIDLANDS NATIONAL BANK
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report of Donald G. Jones and Company, P.A. . . . F-2
Balance Sheet as of December 31, 1994 and 1993 . . . . . . . . . . . . F-3
Statement of Income for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-4
Statement of Changes in Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-5
Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7
F-1
<PAGE>
DONALD G. JONES AND COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
810 DUTCH SQUARE BOULEVARD, SUITE 320
COLUMBIA, S.C. 29210
TELEPHONE
(803)772-9452
FACSIMILE
(803)772-9497
MEMBER MEMBER
SOUTH CAROLINA AMERICAN INSTITUTE OF
ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS DIVISION FOR CPA FIRMS
SECK AND PCPS
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of Midlands National Bank
We have audited the accompanying balance sheet of Midlands
National Bank as of December 31,1994 and 1993, and the related
statements of income, changes in stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Midlands National Bank as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note C to the financial statements, the Bank
changed its method of accounting for certain investments in debt
securities and equity securities effective January 1, 1994. In addition,
as described in Note J to the financial statements, the Bank changed its
method of accounting for deferred income taxes effective January 1,
1993.
Columbia, South Carolina
February 8, 1995
F-2
<PAGE>
Balance Sheet
Midlands National Bank
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks (Note B) $ 2,100,158 $ 1,611,208
Time deposits in other banks 400,000 1,200,000
Securities (Note C)
Available-for-sale 8,733,845
Held-to-maturity (estimated fair
value - $401,976) 457,873
Investment (estimated fair value - $7,936,534) 7,884,995
Federal funds sold 1,440,000 2,400,000
Loans (Note D) 27,463,291 29,133,317
Unearned income (692) (6,345)
Allowance for loan losses (333,000) (409,000)
Loans - net 27,129,599 28,717,972
Premises and equipment - net (Note E) 1,318,954 1,214,260
Accrued interest receivable 388,269 321,407
Other real estate 352,000 445,000
Other assets 306,836 306,118
Total assets $ 42,627,534 $ 44,100,960
Liabilities
Deposits (Note F)
Noninterest bearing $ 2,444,503 $ 1,856,259
Interest bearing 35,833,522 38,016,084
Total deposits 38,278,025 39,872,343
Obligations under capital leases (Note G) 36,355 59,843
Accrued interest payable 241,042 222,153
Other liabilities 24,431 102,466
Total liabilities 38,579,853 40,256,805
Commitments and contingent liabilities
(Notes K and M)
Stockholders' equity (Notes H and L)
Common stock - $5.00 par value; 10,000,000 1,772,630 1,772,630
shares authorized; 354,526 shares issued 1,772,630 1,717,894
and outstanding 645,062 353,631
Capital surplus
Undivided profits (142,641)
Unrealized holding gains and losses on 4,047,681 3,844,155
available-for-sale securities
Total stockholders' equity
Total liabilities and stockholders' equity $ 42,627,534 $44,100,960
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Statement of Income
Midlands National Bank
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Interest income
Loans, including fees $2,767,451 $2,696,111 $2,449,973
Time deposits in other banks 28,739 41,618 50,543
Securities
Taxable 425,569 406,612 467,636
Tax-exempt 17,483
Federal funds sold 111,513 62,338 88,425
Total interest income 3,350,755 3,206,679 3,056,577
Interest expense
Time deposits $100,000 and over 300,126 349,969 403,450
Other deposits 1,056,284 1,066,420 1,261,410
Obligations under capital leases 1,464 4,534 10,733
Total interest expense 1,357,874 1,420,923 1,675,593
Net interest income 1,992,881 1,785,756 1,380,984
Provision for loan losses (Note D) 106,392 145,327 490,328
Net interest income after provision 1,886,489 1,640,429 890,656
Other income
Service charges on deposit accounts 159,494 199,025 159,137
Credit life insurance commissions 66,769 73,288 164,158
Investment securities gains 17,941 98,411
Other income 12,641 10,795 3,762
Total other income 238,904 301,049 425,468
Other expenses (Note I)
Salaries and employee benefits 688,603 673,938 543,317
Net occupancy expense 90,387 85,555 75,203
Furniture and equipment expense 133,825 186,401 189,753
Other expense 538,303 493,698 400,834
Total other expenses 1,451,118 1,439,592 1,209,107
Income before income taxes,
extraordinary credit and cumulative
effect of accounting change 674,275 501,886 107,017
Income tax expense (Note J) 239,476 181,557 40,652
Income before extraordinary credit and
cumulative effect of accounting change 434,799 320,329 66,365
Extraordinary credit - utilization of
net operating loss carryforward 16,804
Cumulative effect of accounting change -
method of computing deferred income
taxes (Note J 49,302
Net income $ 434,799 $ 369,631 $ 83,169
Per share (Notes H and L)
Average shares outstanding 373,963 366,953 364,758
Income before extraordinary credit and
cumulative effect of accounting change $ 1.16 $ .87 .18
Extraordinary credit .05
Cumulative effect of accounting change .14
Net income 1.16 1.01 .23
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
MIDLANDS NATIONAL BANK
<TABLE>
<CAPTION>
Unrealized
Holding
Gains and
Common Stock Losses on
Number Available-
of Capital Undivided for-Sale
Shares Amount Surplus Profits Securities Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992, as previously
reported 354,526 $1,772,630 $1,717,894 $ (55,169) $3,435,355
Correction of accounting errors (Note L) (44,000) (44,000)
Balance, January 1, 1992, as restated 354,526 1,772,630 1,717,894 (99,169) 3,391,355
Net income 83,169 83,169
Balance, December 31, 1992 354,526 1,772,630 1,717,894 (16,000) 3,474,524
Net income 369,631 369,631
Balance, December 31, 1993 354,526 1,772,630 1,717,894 353,631 3,844,155
Net income 434,799 434,799
Transfer of undivided profits to capital
surplus 54,736 (54,736)
Cash dividend declared -- $.25 per share (88,632) (88,632)
Change in accounting for available-for-sale
securities, net of income taxes of $18,503
(Note C) $ 33,036 33,036
Change in unrealized holding gains and losses
on available-for-sale securities, net of
income tax benefits of $98,391 (175,677) (175,677)
Balance, December 31, 1994 354,526 $1,772,630 $1,772,630 $ 645,062 $ (142,641) $4,047,681
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Statement of Cash Flows
Midlands National Bank
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Operating activities
Net income $ 434,799 $ 369,631 $ 83,169
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 106,392 145,327 490,328
Depreciation and amortization 76,478 142,620 145,819
Deferred income taxes 103,692 (28,270) (81,690)
Amortization of net loan fees and costs 46,740 41,957 40,199
Amortization of organizational costs 17,039 18,588
Writedowns of other real estate 37,733 14,000
Securities accretion and premium amortization 48,442 35,581 29,724
Investment securities gains (17,941) (98,411)
Gains on sales of other real estate (3,510) (9,820)
(Increase) decrease in interest receivable (66,862) 36,789 (43,080)
(Decrease) increase in interest payable 18,889 (53,709) (212,575)
(Increase) decrease in prepaid expenses (24,522) (43,739) 820
(Decrease) increase in other accrued expenses (78,035) 10,047 38,712
Net cash provided by
operating activities 700,236 659,512 411,603
Investing activities
Net decrease (increase) in time deposits
in other banks 800,000 (300,000) 100,000
Purchases of available-for-sale securities (4,013,559)
Sales of available-for-sale securities 9,150
Maturities of available-for-sale securities 2,893,527
Purchases of held-to-maturity securities (466,812)
Purchases of investment securities (4,083,623) (8,220,759)
Sales and maturities of investment securities 3,670,808 6,216,751
Net decrease (increase) in loans
made to customers 1,394,508 (1,323,684) (6,269,941)
Purchase of premises and equipment (181,172) (26,896) (30,667)
Proceeds from sales of other real estate 99,510 340,431
Net cash provided (used)
by investing activities 535,152 (1,722,964) (8,204,616)
Financing activities
Net increase (decrease) in demand deposits,
interest bearing transaction accounts and
savings accounts (555,171) 2,273,779 1,506,658
Net increase (decrease) in certificates of
deposit and other time deposits (1,039,147) (326,357) 5,580,025
Principal payments on capital lease obligations (23,488) (109,652) (101,194)
Cash dividends paid (88,632)
Net cash (used) provided by
financing activities (1,706,438) 1,837,770 6,985,489
(Decrease) increase in cash and cash equivalents (471,050) 774,318 (807,524)
Cash and cash equivalents, beginning 4,011,208 3,236,890 4,044,414
Cash and cash equivalents, ending $3,540,158 $4,011,208 $3,236,890
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Notes to Financial Statements
Midlands National Bank
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Midlands National Bank (the "Bank") was chartered as a
national bank on December 7, 1988, and its deposits are insured by the
Federal Deposit Insurance Corporation. The Bank commenced commercial
banking operations from its principal office in Prosperity, South
Carolina on December 7, 1988, from its branch office in Chapin, South
Carolina on December 14, 1988, and from its branch office in Newberry,
South Carolina on October 21, 1991.
Basis of Presentation - The accounting and reporting policies of the
Bank are in conformity with generally accepted accounting principles and
general practices within the banking industry.
Securities - Effective January 1, 1994, The Bank adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Under the provisions of SFAS No. 115, equity securities that have
readily determinable fair values and all debt securities are classified
generally at the time of purchase into one of three categories; held-
to-maturity, trading and available-for-sale. Debt securities which the
Bank has the positive intent and ability to hold to ultimate maturity
are classified as held-to maturity and accounted for at amortized cost.
Debt and equity securities that are bought and held primarily for sale
in the near term are classified as trading and are accounted for on an
estimated fair value basis, with unrealized gains and losses included in
other operating income. Securities not classified as either held-to-
maturity or trading are classified as available-for-sale and are
accounted for at estimated fair value. Unrealized holding gains and
losses on available-for-sale securities are excluded from earnings and
recorded in a separate account included in stockholders' equity, net of
applicable income tax effects. Dividend and interest income, including
amortization of any premium or accretion of discount arising at
acquisition, is included in earnings for all three categories of
securities. Realized gains and losses on all categories of securities
are included in other operating income, based on the amortized cost of
the specific certificate on a trade date basis. Reference is made to
Note C to the financial statements for additional information. Prior to
January 1, 1994, investment securities were stated at cost, increased by
accretion of discount and decreased by amortization of premiums.
Realized gains and losses on the sale of an investment security were
included in other operating income based on the adjusted cost of the
specific certificate on a trade date basis.
Interest and Fees on Loans - Interest income on some installment loans
is recognized using the sum-of-the-months digits method. The results of
using this method are not materially different from those obtained by
using the interest method. Interest income on all other loans is
recognized using the interest method based upon the principal amounts
outstanding. Loan origination and commitment fees and certain direct
loan origination costs (principally salaries and employee benefits) are
being deferred and amortized as an adjustment of the related loan's
yield. Generally, these amounts are being amortized over the
contractual life of the related loans or commitments.
F-7
<PAGE>
When a loan is 90 days past due as to interest or principal or there is
serious doubt as to ultimate collectibility, the accrual of interest
income is generally discontinued unless the estimated net realizable
value of collateral is sufficient to assure collection of the principal
balance and accrued interest. Previously accrued interest on loans
placed in a nonaccrual status is reversed against current income, and
subsequent interest income is recognized when received. When
the ultimate collectibility of a significant amount of principal is in
serious doubt, the principal balance is reduced to the estimated net
realizable value of collateral by charge-off to the allowance for loan
losses and any subsequent payments are credited to the remaining
outstanding principal balance until the loan is repaid. A nonaccrual
loan is not returned to accrual status unless principal and interest
are current and the borrower has demonstrated the ability to continue
making payments as agreed.
Allowance for Loan Losses - An allowance for possible loan losses is
maintained at a level deemed appropriate by management to provide
adequately for known and inherent risks in the loan portfolio. The
allowance is based upon a continuing review of past loan loss
experience, current economic conditions which may affect the borrowers'
ability to pay and the underlying collateral value of the loans. When
management determines that a loan will not perform substantially as
agreed, a review of the loan is initiated to ascertain whether it is
more likely than not that a loss has occurred. If it is determined that
a loss is likely, the estimated amount of the loss is charged off and
deducted from the allowance. The provision for possible loan losses and
recoveries on loans previously charged off are added to the allowance.
Premises and Equipment - Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for
depreciation and amortization of equipment under capital leases is
computed by the straight-line method. Rates of depreciation are
generally based on the following estimated useful lives: buildings - 40
years; furniture and equipment - 5 to 10 years. Amortization of
equipment under capital leases is recorded at the lesser of the
estimated useful lives of the respective assets or the terms of the
leases. The cost of assets sold or otherwise disposed of, and the
related allowance for depreciation are eliminated from the accounts and
the resulting gains or losses are reflected in the income statement.
Maintenance and repairs are charged to current expense as incurred and
the costs of major renewals and improvements are capitalized.
Other Real Estate - Other real estate includes properties acquired
through foreclosure or acceptance of a deed in lieu of foreclosure.
Other real estate is initially recorded at the lower of cost or the
estimated fair market value less estimated selling costs. Loan losses
arising from the acquisition of such property are charged to the
allowance for loan losses. An allowance for losses on other real estate
is maintained for subsequent downward valuation adjustments. Holding or
operating costs are charged to expense as incurred, and the cost of
significant improvements is capitalized.
Retirement Plans - The Bank did not have any pension or profit-sharing
retirement plans in effect at December 31, 1994 and 1993. Also, the
Bank does not sponsor any postretirement or postemployment benefits.
Income Taxes - As of January 1, 1993, the Bank adopted SFAS No. 109,
"Accounting for Income Taxes". The Statement requires the use of an
asset and liability approach for financial accounting and reporting for
income taxes. If it is more likely than not that some portion or all of
a deferred tax asset will not be realized, a valuation allowance is
recognized. For the periods preceding 1993, the Bank used the deferred
method, where deferred income taxes were provided for timing differences
between the period in which certain income and expense items were
recognized for financial reporting purposes and the period in which they
affect taxable income as measured by
F-8
<PAGE>
the tax rate in effect for the year the timing differences occurred.
Refer to Note J to the financial statements for further information.
Statement of Cash Flows - The statement of cash flows reports net cash
provided or used by operating, investing and financing activities and
the net effect of those flows on cash and cash equivalents. Cash
equivalents include amounts due from banks and federal funds sold and
securities purchased under agreements to resell.
During 1994, 1993 and 1992, interest paid on deposits and other
borrowings amounted to $1,338,985, $1,474,632 and $1,888,168,
respectively. Income tax payments of $215,050, $176,801 and $54.240
were made during 1994, 1993 and 1992, respectively. In 1994 and 1993,
non-cash transfers totaling $40,733 and $501,611, respectively, were
made from loans to other real estate. A non-cash transfer of $54,736
was made from undivided profits to capital surplus in 1994. During
1994, non-cash valuation adjustments totaling $222,529 were made,
decreasing available-for-sale securities with a related stockholders'
equity account decreasing $142,641 and deferred tax assets increasing
$79,888.
NOTE B - CASH AND DUE FROM BANKS
National banks are generally required by regulation to maintain an
average cash reserve balance based on a percentage of deposits. As of
December 31, 1994 and 1993, the Bank had not attained the volume of
deposits to be subject to such reserve requirement.
NOTE C - SECURITIES
Securities available-for-sale and held-to-maturity consisted of the
following at December 31, 1994:
<TABLE>
<CAPTION>
December 31, 1994
Available-for-Sale Held-to-Maturity
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized Estimated
Amortized Holding Holding Fair Amortized holding holding Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $5,122,186 $ 103,895 $5,018,291
Obligations of states
and political
subdivisions $ 457,873 $ 55,897 $ 401,976
Mortgage-backed
securities 3,677,738 118,634 3,559,104
Equity securities 156,450 156,450
Total $8,956,374 $ $ 222,529 $8,733,845 $ 457,873 $ $ 55,897 $ 401,976
December 31, 1994
Available-for-Sale Held-to-Maturity
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
Due in one year or less $1,600,594 $1,572,079
Due after one through five years 3,521,592 3,446,212
Due after ten years $ 457,873 $ 401,976
5,122,186 5,018,291 457,873 401,976
Mortgage-backed securities 3,677,738 3,559,104
Equity securities 156,450 156,450
Total $8,956,374 $8,733,845 $ 457,873 $ 401,976
</TABLE>
F-9
<PAGE>
At December 31, 1993, investment securities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies $4,112,934 $ 26,347 $ 5,082 $4,134,199
Mortgage-backed securities 3,606,461 30,274 3,636,735
Equity securities 165,600 165,600
$7,884,995 $ 56,621 $ 5,082 $7,936,534
December 31, 1993
Amortized Estimated
Cost Fair Value
Due in one year or less $2,010,280 $2,022,444
Due after one through five years 2,102,654 2,111,755
4,112,934 4,134,199
Mortgage-backed securities 3,606,461 3,636,735
Equity securities 165,600 165,600
$7,884,995 $7,936,534
</TABLE>
The fair value of U.S. Treasury and U.S. Government agencies debt
securities is estimated based on published closing quotations. The fair
value of obligations of states and political subdivisions is
generally not available from published quotations; consequently,
their fair value estimates are based on matrix pricing or quoted market
prices of similar instruments adjusted for credit quality differences
between the quoted instruments and the instruments being valued. Fair
value for mortgage-backed securities is estimated primarily using
dealers' quotes. The fair value of equity securities, consisting of
Federal Reserve Bank and Georgia Bankers Bank stocks, is estimated based
on the amount at which the issuer would repurchase the shares.
The proceeds from sales of securities and the gross realized gains and
gross realized losses on such sales were as follows:
Year Ended December 31,
1994 1993 1992
Proceeds from sales $ 9,150 $ 943,874 $4,738,759
Gross realized gains 17,941 106,356
Gross realized losses 7,945
The Bank has never held securities for trading purposes, and there were
no transfer transactions during 1994 affecting the
available-for-sale or held-to-maturity categories of securities. All
1994 securities sales were made from securities classified as
available-for-sale.
At December 31, 1994, securities with an amortized cost of $2,583,293
and an estimated fair value of $2,544,312 were pledged as collateral to
secure public deposits. The amortized cost and estimated fair value of
such pledged securities was $4,196,545 and $4,246,273, respectively, at
the end of 1993.
At December 31, 1994, the Bank held a $400,000 Barnwell County, South
Carolina School District No. 45 bond with a 7.25% coupon rate, maturing
on February 1, 2011. The bond, classified as held-to-maturity, is
included in the balance sheet at an amortized cost of $457,873 and has
an estimated fair value of $401,976. The Moody rating of the bond is
Baa. All of the Bank's mortgage-backed securities held at December 31,
1994, were issued by the Federal Home Loan Mortgage Corporation.
F-10
<PAGE>
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," was issued by the Financial Accounting Standards Board in
May, 1993. As required, the Bank adopted the provisions of this
statement effective January 1, 1994, without retroactive application to
prior years' financial statements. The Bank's management reclassified,
as of January 1, 1994, the Bank's investment securities into available-
for-sale and held-to-maturity categories based on current intent in
accordance with the criteria established by SFAS No. 115. At that date,
investment securities with an amortized cost of $7,884,995 and an
estimated fair value of $7,936,534 were classified as
available-for-sale. The effect of this change in accounting principle
was to increase the carrying value of securities $51,539 and directly
increase stockholders' equity $33,036, which is net of income taxes of
$18,503. The increase, net of income tax effect, is presented in the
statement of changes in stockholders' equity as an adjustment of the
balance of the separate component of stockholders' equity required by
SFAS No. 115 for the unrealized holding gains and losses on
available-for-sale securities.
NOTE D - LOANS
Loans consisted of the following:
December 31,
1994 1993
Commercial, financial and agricultural
Commercial and industrial $ 4,156,609 $ 4,430,449
Agricultural production 497,988 379,870
Real estate - construction 936,233 1,509,891
Real estate - mortgage
Farmland 622,730 810,173
1-4 family residential 8,390,402 8,572,630
Nonfarm, nonresidential 5,832,757 5,953,559
Consumer installment
Checking credit 49,607 42,941
Other 6,976,965 7,433,804
Total loans - gross $27,463,291 $29,133,317
Included in the above were nonaccrual loans with outstanding principal
balances totaling $244,053 and $389,712 as of December 31, 1994 and
1993, respectively. There were no outstanding commitments at December
31, 1994, to lend additional funds to debtors owing nonaccrual loans.
Interest income that would have been recorded if nonaccrual loans had
been current in accordance with their original terms amounted to
$42,000, $54,000 and $47,000 for the years ended December 31, 1994, 1993
and 1992, respectively. Recognized interest income on these loans was
$21,000, $3,000 and $10,000 for the years ended December 31,
1994, 1993 and 1992, respectively. Collections of interest on
nonaccrual loans applied on a principal recovery basis totaled $88,023,
$4,000 and $14,150 for the years ended December 31, 1994, 1993 and 1992,
respectively.
As of December 31, 1994 and 1993, there were no significant
concentrations of credit risk in any single borrower or groups of
borrowers. The Bank's loan portfolio consists primarily of extensions
of credit to businesses and individuals in its service areas within
Newberry and Lexington counties of South Carolina. The economy of these
areas is diversified and does not depend on any one industry or group of
related industries. Management has established loan policies and
practices that include set limitations on loan-to-collateral value for
different types of collateral, requirements for appraisals, obtaining
and maintaining current credit and financial information on borrowers,
and credit approvals.
F-11
<PAGE>
Transactions in the allowance for loan losses are summarized below:
Year Ended December 31,
1994 1993 1992
Balance at January 1 $ 409,000 $ 392,000 $ 284,000
Provision charged to expense 106,392 145,327 490,328
Recoveries 14,368 15,419 10,315
Charge-offs (196,760) (143,746) (392,643)
Balance at December 31 $ 333,000 $ 409,000 $ 392,000
Certain officers and directors of the Bank, their immediate families and
business interests were loan customers of, and had other transactions in
the normal course of business with the Bank. Related party loans are
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal
risk of collectibility. The aggregate dollar amount of these loans was
$989,828 and $941,375 at December 31, 1994 and 1993, respectively.
During 1994, $787,481 of new loans were made and repayments totaled
$739,028.
In May, 1993, the Financial Accounting Standards Board issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
effective for fiscal years beginning after December 15, 1994. This
Statement generally applies to all loans, whether or not collateralized,
and to all loans that are restructured in a troubled debt restructuring
involving a modification of terms. It does not apply to large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or lower of cost or
fair value, leases and debt securities. SFAS No. 114 requires that
impaired loans within its scope be measured based on the present value
of expected future cash flows discounted at the loan's effective
interest rate, which is the contractual interest rate adjusted for any
deferred loan fees or costs, premium or discount existing at the
inception or acquisition of the loan. SFAS No. 114 also allows
creditors, as a practical expedient, to measure the loan at its
observable market price or the fair value of the collateral if the
repayment of the loan is expected to be provided solely by the
underlying collateral. The required adoption of SFAS No. 114 effective
January 1, 1995 did not have a material effect on the Bank's financial
statements.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land $ 197,378 $ 197,378
Building and land improvements 985,515 946,899
Furniture and equipment 456,002 700,470
Total 1,638,895 1,844,747
Less accumulated depreciation and amortization 319,941 630,487
Premises and equipment - net $ 1,318,954 $ 1,214,260
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1994, 1993 and 1992 was $76,478, $142,620 and $145,819, respectively.
F-12
<PAGE>
NOTE F - DEPOSITS
A summary of deposits follows:
December 31,
1994 1993
Noninterest bearing demand $ 2,444,503 $ 1,856,259
Interest bearing transaction accounts 7,543,060 8,518,884
Savings 1,998,140 2,165,731
time deposits $100,000 and over 6,968,921 7,700,037
Other time deposits 19,323,401 19,631,432
Total deposits $38,278,025 $39,872,343
NOTE G - OBLIGATIONS UNDER CAPITAL LEASES
Assets recorded under capital leases and included in premises and equipment
are as follows:
December 31,
1994 1993
Equipment $ 95,389 $ 485,856
Less accumulated amortization 60,413 428,360
Net assets under capital leases $ 34,976 57,496
The present value of future minimum capital lease payments as of
December 31, 1994 is as follows:
1995 $ 22,224
1996 16,330
Total minimum lease payments 38,554
Less amount representing interest
(approximate interest rate of 8.5%) 2,199
Obligations under capital leases $36,355
NOTE H - STOCKHOLDERS' EQUITY
Dividends - Banking laws and regulations limit the amount of cash
dividends which a national bank can pay without obtaining prior approval
from the Comptroller of the Currency. Generally, this amount is limited
to a bank's net income retained in the current year plus retained net
income for the preceding two years. At December 31, 1993, the Bank had
available $645,062 for the payment of cash dividends without obtaining
prior approval from the Comptroller of the Currency.
Stock Warrants and Options - The Bank had stock warrants and options
outstanding as of December 31, 1994 and 1993. Each of the Bank's
organizers received one non- transferable warrant to purchase one share
of the Bank's common stock for each share they had committed to purchase
in the 1988 initial offering. The exercise price of the warrants is
$10.00 per share, and warrants are exercisable at any time until their
expiration on December 7, 1998. The total number of shares that could
be purchased with these warrants was 92,500 at the end of 1994 and 1993.
F-13
<PAGE>
The employment agreements for two of the Bank's employees provided for
the granting of options to those employees to purchase up to 21,272
shares of the Bank's common stock at an exercise price equal to the book
value per share as of the end of the calendar quarter preceding the
awarding of the options, but not less than $10.00 per share. All
options granted under the employment agreements expire seven years from
the date of award. As of December 31, 1994 and 1993, those employees
had earned options to purchase at any time, 7,091 shares at a price of
$10.00 per share with an expiration date of December 31, 1995, and
14,181 shares at a price of $11.11 per share with an expiration date of
November 30, 2000.
The 1988 Incentive Stock Option Plan provides for the granting of
options to certain eligible employees to purchase up to an aggregate of
50,000 shares of the Bank's common stock. The exercise price of options
granted under the Plan is the fair market value of the Bank's common
stock on the date the option is granted, but in no event less than the
$5.00 par value of the stock. For any person owning directly or
indirectly more than 10% voting control of the Bank's outstanding
shares, the option price may not be less than 110% of fair market value
of the shares. Options are exercisable at any time for up to ten years
from the date of grant (five years with respect to 10% owners). At
December 31, 1994 and 1993, options had been granted to purchase 7,000
shares under the Plan for an exercise price of $10.00 per share,
expiring June 29, 1998.
At December 31, 1994 and 1993, none of the stock warrants or options
granted by the Bank have ever been exercised.
Net Income Per Share - Net income per share is calculated by dividing
net income by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding. Common stock equivalents
represent the dilutive effect of the assumed exercise of the outstanding
stock warrants and options and are calculated using the treasury stock
method. Average shares outstanding for the years ended December 31,
1994, 1993 and 1992 include equivalent shares of 19,437, 12,427 and
10,232, respectively.
Regulatory Capital - All banks are subject to regulatory risk-based
capital adequacy standards. Under these standards banks are required
to maintain various minimum ratios of capital to risk-weighted assets
and average assets. The following table sets forth the risk-based
capital ratios of Midlands National Bank and the minimum levels
prescribed by regulations as of December 31, 1994:
Tier 1 Total Capital Leverage
Midlands National Bank 14.3% 15.5% 9.5%
Minimum required 4.0% 8.0% 3.0%
F-14
<PAGE>
NOTE I - OTHER EXPENSES
Noninterest expenses are summarized below:
Year Ended December 31,
1994 1993 1992
Salaries and employee benefits $688,603 $ 673,938 $ 543,317
Net occupancy expense 90,387 85,555 75,203
Furniture and equipment expense 133,825 186,401 189,753
Other expense
Stationery, printing and postage 72,625 69,440 64,820
Telephone 34,345 28,473 28,775
Advertising and promotion 28,605 23,685 35,750
Professional services 77,477 49,618 42,924
Insurance 24,151 27,164 25,463
FDIC insurance assessment 88,410 87,648 71,909
Directors fees 35,400 31,700 29,250
Other real estate costs and
and expenses, net 55,522 52,195
Other 121,768 123,775 101,943
Total $1,451,118 $1,439,592 $1,209,107
NOTE J - INCOME TAXES
The Bank adopted, effective January 1, 1993, SFAS No. 109, "Accounting
for Income Taxes", issued in February, 1992. Under the liability method
specified by SFAS No. 109, deferred tax assets and liabilities are
determined based on the differences between the financial statement and
income tax bases of assets and liabilities as measured by the currently
enacted tax rates which are assumed will be in effect when these
differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The deferred method, used in
years prior to 1993, required the Bank to provide for deferred income
tax expense based on certain items of income and expense which were
reported in different years in the financial statements and the tax
returns as measured by the tax rate in effect for the year the
difference occurred. As permitted under SFAS No. 109, prior years'
financial statements have not been restated for this change in
accounting principle. The effect of adopting SFAS No. 109 was
immaterial to income before the cumulative effect of the change in
accounting for 1993. Net income for 1993 was increased $49,302, or $.14
per share, by the cumulative effect of the change in accounting related
to years prior to 1993.
F-15
<PAGE>
Income before income taxes, extraordinary credit and cumulative effect
of accounting change presented in the statement of income for the years
ended December 31, 1994, 1993 and 1992, included no foreign component.
Income tax expense consisted of:
Deferred
Liability Method Method
Year Ended December 31,
1994 1993 1992
Current
Federal $ 124,261 $ 147,667 $ 96,793
State 11,523 12,858 8,745
Total current 135,784 160,525 105,538
Deferred
Federal 95,374 20,026 (58,774)
State 8,318 1,006 (6,112)
Total deferred 103,692 21,032 (64,886)
Total income tax expense
$ 239,476 $ 181,557 $ 40,652
The principal components of the deferred portion of income tax expense were:
Deferred
Liability Method Method
Year Ended December 31,
1994 1993 1992
Provision for loan losses 64,423 $ 16,286 $ (52,932)
Accelerated depreciation 10,308 5,986 3,846
Start-up costs 13,350 (915)
Capitalized leases 348 6,567 (1,340)
Other real estate writedowns (10,411) (5,026)
Nonaccrual loan interest income 35,985 (17,587) (18,398)
Other, net 3,039 1,456 4,853
Total $ 103,692 $ 21,032 $ (64,886)
A reconciliation between the income tax expense and the amount computed
by applying the federal statutory rate of 34% to income before income
taxes, extraordinary credit and cumulative effect of accounting change
follows:
Deferred
Liability Method Method
Year Ended December 31,
1994 1993 1992
Tax expense at statutory rate $ 229,254 $ 170,641 $ 36,386
State income tax, net of federal
income tax benefit 13,095 8,887 1,688
Tax exempt bond interest
Other, net (5,944)
3,071 2,029 2,578
Total $ 239,476 $ 181,557 $ 40,652
F-16
<PAGE>
Deferred tax assets and liabilities included in the balance sheet
consisted of the following:
December 31,
1994 1993
Deferred tax assets
Allowance for loan losses $ 56,236 $ 120,670
Capital leases 495 843
Deferred net loan costs 798 3,826
Other real estate 15,437 5,026
Nonaccrual loan interest income 35,985
Unrealized holding gains and losses
on available-for-sale securities 79,888
Gross deferred tax assets 152,854 166,350
Valuation allowance - -
Total 152,854 166,350
Deferred tax liabilities
Accelerated depreciation 31,372 21,064
Net deferred income tax assets $ 121,482 $ 145,286
Income tax expense related to investment securities transactions was
$6,441 and $37,383 for 1993 and 1992, respectively.
NOTE K - COMMITMENTS AND CONTINGENCIES
Commitments - In the normal course of business, the Bank is party to
financial instruments with off-balance-sheet risk. These
financial instruments include commitments to extend credit and standby
letters of credit, and have elements of credit risk in excess of the
amount recognized in the balance sheet. The exposure to credit loss in
the event of nonperformance by the other parties to the financial
instruments for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of those
instruments. Generally, the same credit policies used for
on-balance-sheet instruments, such as loans, are used in extending loan
commitments and standby letters of credit.
Following are the off-balance-sheet financial instruments whose
contract amounts represent credit risk:
December 31,
1994 1993
Loan commitments $1,641,408 $1,454,263
Standby letters of credit 30,000 30,000
Loan commitments involve agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and some involve payment of a fee. Many of the commitments are
expected to expire without being fully drawn; therefore, the total
amount of loan commitments do not necessarily represent future cash
requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if any, upon
extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and
residential real properties, accounts receivable, inventory and
equipment.
F-17
<PAGE>
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in
issuing standby letters of credit is the same as that involved in making
loan commitments to customers. Collateral for secured standby letters of
credit varies but may include commercial and residential real
properties, accounts receivable, inventory, equipment, marketable
securities and certificates of deposit. Since most letters of credit
are expected to expire without being drawn upon, they do not necessarily
represent future cash requirements.
Short-term Borrowing Commitments - At December 31, 1994 and 1993, the
Bank had unused short-term lines of credit to purchase up to $1,500,000
of unsecured federal funds from unrelated correspondent financial
institutions. The lines are available generally on a one to seven
day basis for the general corporate purposes of the Bank. The lines
expire December 1, 1995.
Continent Liabilities - As of December 31, 1994, the Bank was involved
as defendant in a lawsuit concerning a depositor's forgery matter in
which the plaintiff seeks $28,000 in damages. Management is vigorously
defending this lawsuit; however, the probability of an unfavorable
outcome cannot be currently evaluated and no loss contingency has been
accrued. Management and legal counsel are not aware of any other
pending or threatened litigation, or unasserted claims or assessments
that could result in losses, if any, that would be material to the
financial statements.
NOTE L - RESTATEMENT OF FINANCIAL STATEMENTS
During 1994, Midlands National Bank received a report on examination
from its primary regulator, the Office of the Comptroller of the
Currency ("OCC"). In this report, the OCC found errors had been made in
accounting for three commercial loans involving two borrowers. These
three loans had not performed as originally agreed, but the bank
followed a workout policy of forbearance as to collection
litigation and/or repossession in order to enhance, in management's
opinion, the ultimate collectibility of the loans.
On two of the loans, the Bank entered extensions of monthly payment
terms into the computerized loan accounting system beginning in 1992 to
reflect the forbearance workout approach. Interest income continued
to accrue and the loans were not correctly identified as nonaccrual
loans. However, under generally accepted accounting principles
these loans should have been placed on a nonaccrual status and accounted
for accordingly.
One loan criticized by the OCC examiners was an unsecured loan made in
1991 to clear an overdraft of a customer who had other loans that were
also not being serviced as agreed. The loan was renewed in 1992 and
1993 without reduction of principal. The correct accounting for this
loan should have been to classify the loan as doubtful at the end of
1991 with appropriate adjustments to the provision and allowance for
loan losses, and charge-off in 1992 due to lack of performance.
Instead, the Bank erroneously carried the loan as an earning asset until
1994.
F-18
<PAGE>
The financial statements for the periods indicated below have been
restated to reflect the corrections for the accounting errors. The
effects of the corrections on the statement of income, including per
share amounts, and undivided profits are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Statement of income corrections
Interest income on loans $ (48,989) (51,247)
Provision for loan losses (80,000) $ (44,000)
Income tax expense 31,210 41,000 15,796
Extraordinary credit (41,000) (15,796)
Cumulative effect of accounting change 49,302
(Decrease) increase in net income $ 31,523 (131,247) $ (44,000)
(Decrease) increase per share
Income before extraordinary credit
and cumulative effect of accounting change $ (.05) $ (.25) $ (.07)
Extraordinary credit (.11) (.04)
Cumulative effect of accounting change .14
Net income .09 (.36) (.11)
Undivided profits, as previously reported at period end $ 497,355 $ 159,247 $ (55,169)
Correction of accounting errors (143,724) (175,247) (44,000)
Undivided profits, as restated at period end $ 353,631 $ (16,000) $ (99,169)
</TABLE>
NOTE M - PENDING MERGER TRANSACTION
In November, 1994, the Bank entered into a Reorganization Agreement with
Carolina First Corporation ("CFC"), Greenville, South Carolina, whereby
the Bank's stockholders will exchange all of their 354,526 currently
outstanding common shares of the Bank for approximately 585,000 shares
of the common stock of CFC. In addition, the various outstanding
warrants and options described in Note H to the financial statements for
the purchase of 120,772 shares of the Bank's common stock will be
converted into options to purchase approximately 199,000 shares of CFC
common stock for an average exercise price of approximately $6.14 per
share.
According to the provisions of the Reorganization Agreement, the Bank
will be merged into CFC's subsidiary, Carolina First Bank, and will
cease to operate as a separate corporation. The proposed merger is
expected to be accounted for as a pooling-of- interests. At December
31, 1994, CFC had assets totaling approximately $1.1 billion.
The pending merger transaction is subject to the approval of the Bank's
stockholders and various regulatory agencies.
F-19
<PAGE>
ANNEX 2
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Carolina First Corporation
Greenville, South Carolina
We have audited the supplemental consolidated balance sheets of Carolina
First Corporation and subsidiaries as of December 31, 1994 and 1993 and the
related supplemental consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits. The supplemental consolidated financial statements give retroactive
effect to the merger of Aiken County National Bank on April 10, 1995 and
Midlands National Bank on June 30, 1995, which have been accounted for using the
pooling of interests method as described in the notes to the supplemental
consolidated financial statements. Generally accepted accounting principles
proscribe giving effect to consummated business combinations accounted for by
the pooling of interests method in the financial statements that do not include
the date of consummation. These financial statements do not extend through the
date of consummation, however, they will become the historical consolidated
financial statements of Carolina First Corporation and subsidiaries after
financial statements covering the date of consummation of the business
combination are issued.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Carolina First Corporation and subsidiaries as of December 31, 1994 and 1993 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combinations.
(Signature of Elliott, Davis & Company, L.L.P.)
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
February 3, 1995
5
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
($ IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Cash and due from banks........................................................................... $ 59,750 $ 31,516
Federal funds sold and securities purchased under resale agreements............................... 4,420 59,870
Securities
Trading........................................................................................ 1,155 250
Available for sale............................................................................. 59,078 64,871
Held for investment (market value $66,820 in 1994 and $65,077 in 1993)......................... 70,264 64,492
Total securities............................................................................. 130,497 129,613
Loans held for sale............................................................................ 71,695 7,700
Loans.......................................................................................... 852,246 618,173
Less unearned income......................................................................... (873) (2,227)
Less allowance for loan losses............................................................... (6,002) (6,679)
Net loans................................................................................. 917,066 616,967
Premises and equipment............................................................................ 39,823 31,780
Accrued interest receivable....................................................................... 7,674 5,375
Other assets...................................................................................... 45,120 29,353
$1,204,350 $904,474
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing............................................................................ $ 126,974 $ 72,950
Interest-bearing............................................................................... 874,774 731,599
Total deposits............................................................................... 1,001,748 804,549
Federal funds purchased and securities sold under repurchase agreements........................... 33,986 16,725
Other short-term borrowings....................................................................... 72,073 54
Long-term debt.................................................................................... 1,177 1,274
Accrued interest payable.......................................................................... 4,141 3,366
Other liabilities................................................................................. 4,743 8,091
Total liabilities............................................................................ 1,117,868 834,059
COMMITMENTS AND CONTINGENT LIABILITIES
Shareholders' Equity
Preferred stock -- no par value; authorized 10,000,000 shares; issued and outstanding 920,000
shares (Series 1994), 621,000 shares (Series 1993) and 60,000 shares (Series 1993B) in 1994 and
621,000 shares (Series 1993) and 60,000 shares (Series 1993B) in 1993; liquidation preference
$25 per share (Series 1994 and 1993) and $20 per share (Series 1993B).......................... 37,014 15,662
Common stock -- par value $1 per share; authorized 20,000,000 shares; issued and outstanding
5,618,873 shares in 1994 and 5,317,350 shares in 1993.......................................... 5,619 5,317
Surplus........................................................................................... 45,543 41,863
Retained earnings................................................................................. 515 8,458
Nonvested restricted stock........................................................................ (1,083) (709)
Guarantee of ESOP debt............................................................................ (126) (176)
Unrealized loss on securities available for sale.................................................. (1,000) --
Total shareholders' equity................................................................... 86,482 70,415
$1,204,350 $904,474
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
6
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS, EXCEPT SHARE DATA)
INTEREST INCOME
Interest and fees on loans........................................................ $ 70,678 $ 47,313 $ 39,788
Interest on securities
Taxable........................................................................ 5,623 6,483 3,930
Exempt from Federal income taxes............................................... 1,020 475 296
Total interest on securities................................................. 6,643 6,958 4,226
Interest on federal funds sold and securities purchased under resale
agreements.................................................................... 652 695 745
Total interest income........................................................ 77,973 54,966 44,759
INTEREST EXPENSE
Interest on deposits.............................................................. 30,750 24,055 23,761
Interest on short-term borrowings................................................. 1,638 427 128
Interest on long-term debt........................................................ 121 125 121
Total interest expense....................................................... 32,509 24,607 24,010
Net interest income............................................................ 45,464 30,359 20,749
PROVISION FOR LOAN LOSSES........................................................... 1,197 1,106 2,318
Net interest income after provision for loan losses............................ 44,267 29,253 18,431
NONINTEREST INCOME
Service charges on deposit accounts............................................... 4,089 2,916 1,791
Mortgage banking income........................................................... 1,638 1,788 1,274
Fees for trust services........................................................... 919 542 305
Gain on sale of securities........................................................ 75 680 633
Sundry............................................................................ 1,505 839 113
Total noninterest income..................................................... 8,226 6,765 4,116
NONINTEREST EXPENSES
Salaries and wages................................................................ 15,023 10,630 6,870
Employee benefits................................................................. 4,375 2,510 1,596
Occupancy......................................................................... 3,728 2,301 1,496
Furniture and equipment........................................................... 2,577 1,933 1,536
Sundry............................................................................ 16,126 10,921 7,399
Credit card restructuring charges................................................. 12,214 -- --
Total noninterest expenses................................................... 54,043 28,295 18,897
Income (loss) before income taxes.............................................. (1,550) 7,723 3,650
Income taxes...................................................................... 190 2,305 1,184
Net income (loss).............................................................. (1,740) 5,418 2,466
Dividends on preferred stock...................................................... 2,433 1,930 625
Net income (loss) applicable to common shareholders............................ $ (4,173) $ 3,488 $ 1,841
PER COMMON SHARE DATA*
Net income (loss).............................................................. $ (0.71) $ 0.76 $ 0.41
Cash dividends................................................................. $ 0.21 $ 0.05 $ --
Average common shares.......................................................... 5,836,845 4,587,884 4,544,733
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
* Share data have been restated to reflect 5% stock dividends.
7
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................................................... $ (1,740) $ 5,418 $ 2,466
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operations
Depreciation....................................................................... 2,756 1,965 1,602
Amortization of intangibles........................................................ 2,485 902 462
Provision for loan losses.......................................................... 1,197 1,106 2,318
Provision for deferred taxes....................................................... 73 (267) (243)
Gain on sale of securities......................................................... (75) (680) (633)
Unrealized (gain) loss on securities............................................... -- (199) 199
Originations of mortgage loans held for sale....................................... (49,562) (81,076) (22,538)
Proceeds from sale of mortgage loans held for sale................................. 55,099 80,177 15,737
Proceeds from sale of trading securities........................................... 420,378 1,075 --
Proceeds from maturity of trading securities....................................... 31,176 -- --
Purchase of trading securities..................................................... (452,459) (1,325) --
Mortgage loans sold in process of collection....................................... -- -- (6,830)
Increase in accrued interest receivable............................................ (2,299) (751) (202)
Increase (decrease) in accrued interest payable.................................... 775 281 (422)
(Increase) decrease in other assets................................................ (16,646) 619 (1,801)
Premiums paid on acquired credit cards............................................. -- (1,023) (1,377)
Increase (decrease) in other liabilities........................................... (3,334) 5,524 558
Federal Home Loan Bank stock dividend.............................................. (150) (68) (77)
Net cash provided by (used for) operating activities............................. (12,326) 11,678 (10,781)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities...................................................... -- -- 34,929
Proceeds from sale of securities available for sale................................... 26,429 67,285 --
Proceeds from maturity of securities.................................................. -- -- 27,451
Proceeds from maturity of securities available for sale............................... 162,709 219,720 --
Proceeds from maturity of securities held for investment.............................. 8,110 5,570 10,966
Purchase of securities................................................................ -- -- (84,044)
Purchase of securities available for sale............................................. (173,712) (276,940) --
Purchase of securities held for investment............................................ (24,777) (52,708) (13,724)
Net decrease (increase) in federal funds sold and securities purchased under
resale agreements.................................................................. 55,450 (51,934) 11,400
Purchase of loans..................................................................... -- (16,265) (5,359)
Net increase in loans................................................................. (264,738) (119,208) (50,884)
Proceeds from sale of premises and equipment.......................................... 424 474 871
Capital expenditures.................................................................. (11,209) (12,060) (1,521)
Net cash used for investing activities............................................. (221,314) (236,066) (69,915)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquired deposits..................................................................... 97,735 196,840 --
Net increase in deposits.............................................................. 56,024 5,674 75,661
Net increase in federal funds purchased and securities sold under repurchase
agreements......................................................................... 17,261 14,188 84
Issuance (payments) of borrowed funds................................................. 71,898 (271) (508)
Issuance of preferred stock........................................................... 21,352 14,462 10,319
Redemption of preferred stock......................................................... -- (92) --
Cash dividends paid................................................................... (3,025) (1,777) (385)
Other common stock activity........................................................... 629 30 --
Net cash provided by financing activities............................................. 261,874 229,054 85,171
Net change in cash and due from banks................................................... 28,234 4,666 4,475
Cash and due from banks at beginning of year............................................ 31,516 26,850 22,375
Cash and due from banks at end of year.................................................. $ 59,750 $ 31,516 $ 26,850
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
8
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
EARNINGS
SHARES OF PREFERRED COMMON AND
COMMON STOCK STOCK STOCK SURPLUS OTHER* TOTAL
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
BALANCE, DECEMBER 31, 1991............................ 3,874,981 $ -- $3,875 $29,094 $ 6,020 $38,989
Net income.......................................... -- -- -- -- 2,466 2,466
Issuance of Series 1992 preferred stock............. -- 10,319 -- -- -- 10,319
Common stock issued pursuant to:
Stock dividend................................... 139,505 -- 139 1,187 (1,334) (8)
Restricted stock plan............................ 21,787 -- 22 195 (217) --
Cash dividends paid/accrued by Carolina First:
Preferred stock.................................. -- -- -- -- (625) (625)
Vesting recognized as salary expense................ -- -- -- -- 97 97
Payment on ESOP debt................................ -- -- -- -- 50 50
BALANCE, DECEMBER 31, 1992............................ 4,036,273 10,319 4,036 30,476 6,457 51,288
Net income.......................................... -- -- -- -- 5,418 5,418
Issuance of Series 1993 preferred stock............. -- 14,462 -- -- -- 14,462
Issuance of Series 1993B preferred stock............ -- 1,200 -- -- -- 1,200
Conversion and redemption of Series 1992 preferred
stock............................................ 1,089,674 (10,319) 1,090 9,137 -- (92)
Common stock issued pursuant to:
Stock dividend................................... 147,458 -- 147 1,770 (1,926) (9)
Restricted stock plan............................ 35,500 -- 36 409 (445) --
Dividend reinvestment plan.......................... 4,104 -- 4 45 -- 49
Exercise of stock options........................... 4,341 -- 4 26 -- 30
Cash dividends paid/accrued by Carolina First:
Preferred stock.................................. -- -- -- -- (1,930) (1,930)
Common stock..................................... -- -- -- -- (214) (214)
Vesting recognized as salary expense................ -- -- -- -- 163 163
Payment on ESOP debt................................ -- -- -- -- 50 50
BALANCE, DECEMBER 31, 1993............................ 5,317,350 15,662 5,317 41,863 7,573 70,415
Net loss............................................ -- -- -- -- (1,740) (1,740)
Transfer of undivided profits to surplus............ -- -- -- 56 (56) --
Issuance of Series 1994 preferred stock............. -- 21,444 -- -- -- 21,444
Common stock issued pursuant to:
Stock dividend................................... 214,380 -- 214 2,466 (2,689) (9)
Restricted stock plan............................ 40,700 -- 41 570 (611) --
Dividend reinvestment plan....................... 44,055 -- 44 559 -- 603
Employee stock purchase plan..................... 2,247 -- 3 28 -- 31
Exercise of stock options........................ 141 -- -- 1 -- 1
Cash dividends paid/accrued by Carolina First:
Preferred stock.................................. -- -- -- -- (2,433) (2,433)
Common stock..................................... -- -- -- -- (1,024) (1,024)
Treasury shares purchased........................... -- (92) -- -- -- (92)
Vesting recognized as salary expense................ -- -- -- -- 236 236
Payment on ESOP debt................................ -- -- -- -- 50 50
Unrealized loss on securities available for sale.... -- -- -- -- (1,000) (1,000)
BALANCE, DECEMBER 31, 1994............................ 5,618,873 $ 37,014 $5,619 $45,543 $(1,694) $86,482
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
* Other includes unrealized loss on securities available for sale, nonvested
restricted stock and guarantee of ESOP debt.
9
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The supplemental consolidated financial
statements include the accounts of Carolina First Corporation (the "Company")
and its wholly-owned subsidiaries, Carolina First Bank (the "Bank"), Carolina
First Savings Bank, F.S.B. (the "Savings Bank"), and Carolina First Mortgage
Company (the "Mortgage Company"). All significant intercompany accounts and
transactions have been eliminated.
CONCENTRATIONS OF CREDIT RISK -- The Company makes loans to individuals and
small businesses for various personal and commercial purposes throughout South
Carolina. The Company has a diversified loan portfolio and the borrowers'
ability to repay their loans is not dependent upon any specific economic
segment.
SECURITIES -- Management determines the appropriate classification of
securities at the time of purchase. Securities, primarily debt securities, are
classified as trading securities, securities available for sale and securities
held for investment, defined as follows:
Trading securities are carried at market value. The Company's policy
is to acquire trading securities only to facilitate their sale to
customers. Adjustments for unrealized gains or losses are included in
noninterest income.
Securities available for sale are carried at market value. Such
securities are used to execute asset/liability management strategy and to
manage liquidity. Adjustments for unrealized gains or losses are made
through the equity account.
Securities held for investment are stated at cost, net of the
amortization of premiums and the accretion of discounts. The Company
intends to and has the ability to hold such securities until maturity.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
LOANS -- The Bank and the Savings Bank recognize interest on loans using
the interest method. Income on certain installment loans is recognized using the
"Rule of 78's" method. The results from the use of the "Rule of 78's" method are
not materially different from those obtained by using the interest method. The
recognition of interest income is discontinued when, in management's judgment,
the interest is not collectible in the normal course of business.
The premium or discount on purchased loans is amortized over the expected
life of the loans and is included in interest and fees on loans.
LOANS HELD FOR SALE -- Loans held for sale include mortgage loans and
credit card loans and are carried at the lower of aggregate cost or market
value.
LOAN SALES AND SERVICING FEES -- Gains or losses on sales of loans are
recognized at the time of sale and are determined by the difference between net
sales proceeds and the carrying value of the loans sold. When loans are sold
with servicing rights retained, additional gains or losses are realized if the
actual servicing fees to be received differ from the normal servicing fees.
Normal service fees are recognized as income in the period earned.
Loan servicing rights purchased are recorded at lower of cost or market.
The Company amortizes the estimated future reduction in the value of purchased
and excess mortgage servicing rights based upon quarterly external valuations.
Such valuations are projected using a discounted cash flow method that includes
assumptions regarding prepayments, servicing costs and other factors. Impairment
is measured on a disaggregated basis for each pool of rights.
ALLOWANCE FOR LOAN LOSSES -- The allowance for loan losses is based on
management's ongoing evaluation of the loan portfolio and reflects an amount
that, in management's opinion, is adequate to absorb losses in the existing
portfolio. In evaluating the portfolio, management takes into consideration
numerous factors, including current economic conditions, prior loan loss
experience, the composition of the loan portfolio, and management's estimate of
anticipated credit losses. Loans are charged against the allowance at such time
as they are determined to be losses. Subsequent recoveries are credited to the
allowance. Management considers the year end allowance appropriate and adequate
to cover possible losses in the loan portfolio; however, management's judgment
is based upon a number of assumptions about future events, which are believed to
be reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required.
10
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed over the estimated useful lives of the assets primarily using the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the lesser of the estimated useful life of the improvement or the
terms of the respective lease.
Additions to premises and equipment and major replacements or improvements
are capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred.
INTANGIBLE ASSETS -- Intangible assets consist primarily of goodwill and
core deposit premiums resulting from the Company's branch acquisitions. On an
ongoing basis, the Company evaluates the carrying value of these intangible
assets and charges to expense any difference between the carrying value and the
estimated fair market value.
Amortization for intangibles is generally provided by using the
straight-line method over the estimated economic lives of the various assets,
ranging from 9 to 25 years.
During 1994, the Company reevaluated the estimated economic lives and
amortization methods for its intangible assets. As a result of this
reevaluation, core deposit intangibles are being amortized over 10 years
(previously 15 years) using the sum-of-the-years' digits method (previously
straight-line method). Goodwill is being amortized over 25 years (previously 15
years) using the straight-line method. The effect of this change is not
significant.
OTHER REAL ESTATE OWNED -- Other real estate owned, included in other
assets, is comprised of real estate properties acquired in partial or total
satisfaction of problem loans. The properties are recorded at the lower of cost
or fair market value at the date acquired. Losses arising at the time of
acquisition of such properties are charged against the allowance for loan
losses. Subsequent write-downs that may be required to the carrying value of
these properties are charged to other expenses. Gains and losses realized from
the sale of other real estate owned are included in noninterest income.
LOAN ORIGINATION FEES -- The Company accounts for loan origination and
commitment fees and related direct costs in accordance with Statement of
Financial Accounting Standards ("SFAS") 91, "Accounting for Non-refundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." Origination fees received and direct costs incurred are
amortized to interest income over the contractual lives of the loans, adjusted
for repayments, using the level yield method. Loan commitment fees received to
originate or purchase loans are offset against the direct costs incurred to make
such commitments. The net amount is deferred and upon exercise is recognized
over the life of the related loan as a yield adjustment. If the commitment
expires unexercised, the net deferred amount is recognized.
INCOME TAXES -- Effective January 1, 1992, the Company adopted the
provisions of SFAS 109, "Accounting for Income Taxes." The pronouncement
requires an asset and liability approach for financial accounting and reporting
for income taxes. The adoption of SFAS 109 had no effect on the financial
statements and, accordingly, is not presented as a change in an accounting
principle.
Certain items of income and expense (principally provision for loan losses
and depreciation) are included in one reporting period for financial accounting
purposes and another for income tax purposes. Provisions for deferred income
taxes are made in recognition of such temporary differences. Rehabilitation
investment tax credits are accounted for by the use of the flow-through method.
RECLASSIFICATIONS -- Certain amounts for prior years have been reclassified
to conform with statement presentations for 1994. These reclassifications have
no affect on previously reported net income.
STATEMENTS OF CASH FLOWS -- Cash includes currency and coin, cash items in
process of collection and due from banks. Interest paid on deposits and
short-term borrowings amounted to approximately $31,734,000, $24,326,000 and
$24,857,000 in 1994, 1993 and 1992, respectively. Income tax payments of
$2,868,000 were made in 1994, $2,059,000 in 1993 and $1,048,000 in 1992.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In May 1993, the Financial
Accounting Standards Board ("FASB") issued SFAS 114, "Accounting by Creditors
for Impairment of a Loan." SFAS 114 provides for the use of present value
11
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
accounting to determine the reserve for possible credit losses on certain loans,
including loans that have been modified as part of a troubled debt
restructuring. The impact of the new statement, effective for fiscal years
beginning after December 15, 1994, has not yet been determined, but is not
expected to have a material impact on the Company's financial position or
results of operations.
In October 1994, the FASB issued SFAS 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." SFAS 118 amends SFAS
114 in the areas of disclosure requirements and methods for recognizing interest
income on an impaired loan. The Statement is effective concurrent with the
effective date of SFAS 114.
In May 1993, the FASB issued SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 provides for the classification of
investment securities into three categories -- trading, available for sale and
held for investment. Trading and available for sale securities are reported at
market value in the balance sheet with unrealized gains and losses to be
reported in income (for trading securities) or shareholders' equity (for
available for sale securities). The Company adopted SFAS 115 on January 1, 1994.
The FASB has also issued an exposure draft, "Accounting for the Impairment
of Long-Lived Assets," which proposes standards for the identification of
long-lived assets, identifiable intangibles and goodwill that may need to be
written down because of an entity's inability to recover the assets' carrying
values. The periodic effect of the adoption of this standard on net income has
not been fully determined. This proposed standard would apply for fiscal years
beginning after December 15, 1994 with earlier application encouraged.
In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." SFAS 119
requires disclosures about Derivative Financial Instruments. The Company has no
such securities. SFAS 119 also amends SFAS 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk" and SFAS 107, "Disclosures about Fair Value of
Financial Instruments" for certain disclosure requirements which have a minimal
impact on the Company.
2. STATEMENT PRESENTATION
The supplemental consolidated financial statements give retroactive effect
to the pooling of interests merger of Aiken County National Bank ("Aiken County
National") on April 10, 1995 and Midlands National Bank ("Midlands") on June 30,
1995 (see Note 5). As a result, the supplemental consolidated balance sheets as
of December 31, 1994 and 1993, and the related supplemental consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1994, are presented as if
the combining companies had been consolidated for all periods presented. As
required by generally accepted accounting principles, the supplemental
consolidated financial statements will become the historical consolidated
financial statements upon issuance of the consolidated financial statements for
the period that includes the date of the acquisition. The supplemental
consolidated statements of changes in shareholders' equity reflect the accounts
of the Company as if the additional common stock had been issued during all the
periods presented. The supplemental consolidated financial statements, including
the notes thereto, should be read in conjunction with the historical
consolidated financial statements of the Company included in the Company's 1994
annual report on Form 10-K, of Aiken County National included in the Company's
Form 8-K dated April 10, 1995 and of Midlands included in the Company's Form
S-4.
3. SUBSEQUENT EVENTS
On January 24, 1995, the Bank securitized approximately $100,000,000 of
credit card receivables. This transaction was recorded as a sale in accordance
with SFAS 77 "Reporting by Transferor for Transfer of Receivables with
Recourse." Recourse obligations related to this transaction are not material.
Excess servicing fees related to the securitization are recorded during the life
of the transaction. The excess servicing fee is based upon the difference
between finance charges received from the cardholder less the yield paid to
investors, credit losses and a nominal servicing fee.
12
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RESTRUCTURING CHARGES
During the fourth quarter of 1994, the Company announced a restructuring
that initiated a program of credit card securitization, wrote down related
intangible assets, and merged the Savings Bank into the Bank. Restructuring and
nonrecurring charges related to this plan amounted to $12,214,000 pre-tax
($9,415,000 after-tax).
The Company incurred credit card restructuring charges of $12,214,000
pre-tax ($8,410,000 after-tax) primarily from the write-down of intangible
assets and charges associated with the origination of credit card accounts. As
part of the merger of the Savings Bank into the Bank, the Company incurred
income taxes of $1,005,000 due to the different tax treatment accorded the
allowance for loan losses at the Savings Bank.
5. BUSINESS COMBINATIONS
In March 1993, the Bank acquired certain assets and assumed certain
liabilities of 13 South Carolina branches of Republic National Bank. The Bank
acquired $31,239,000 in loans, $6,400,000 in premises and equipment, and
$204,863,000 in deposit liabilities. The total premium paid for the acquisitions
was approximately $6,929,000.
On September 30, 1993, the Company acquired, for 60,000 shares of
Convertible Preferred Stock Series 1993B ("Series 1993B Preferred Stock"), all
of the outstanding stock of First Sun Mortgage Corporation, a South Carolina
corporation which engaged in mortgage banking activities. The Company changed
the name of First Sun Mortgage Corporation to Carolina First Mortgage Company.
The value of the Series 1993B Preferred Stock on the date of acquisition was
determined to be $1,200,000. Total cost of the acquisition in excess of the fair
value of net assets acquired aggregated approximately $3,070,000.
On December 31, 1993, the Bank acquired certain assets and assumed certain
liabilities of three Columbia, South Carolina branches of Bay Savings Bank,
F.S.B. (formerly Omni Savings Bank, F.S.B.). The Bank assumed deposit
liabilities of $38,489,000 and acquired $143,000 in loans. The total premium
paid for the acquisition was approximately $1,068,000.
On April 29, 1994, the Bank purchased the insured deposits of Citadel
Federal Savings and Loan Association ("Citadel Federal") from the Resolution
Trust Corporation, as receiver for Citadel Federal. This acquisition resulted in
the acquisition of one branch office in Charleston, South Carolina, with
deposits of approximately $5,849,000, on which a premium of approximately
$533,000 was paid.
On May 2, 1994, the Bank and the Savings Bank acquired six branches from
Republic National Bank. The acquired branches are located in Columbia,
Edgefield, Johnston, Bennettsville, Lake City and McColl. In addition, the Bank
acquired only the deposits and select loans from Republic National Bank's main
office branch in Columbia. With this transaction, the Bank and the Savings Bank
acquired loans of approximately $37,511,000 and deposits of about $135,326,000,
on which a premium of approximately $5,400,000 was paid.
The above acquisitions were accounted for under the purchase method of
accounting. The results of operations of the above acquisitions have been
included in the consolidated financial statements since the acquisition date.
On October 13, 1994, the Bank entered into a definitive agreement with
Aiken County National for the merger of Aiken County National into the Bank. The
Bank acquired all the outstanding common shares of Aiken County National in
exchange for 475,291 (adjusted for the 5% stock dividend) shares of the
Company's common stock. At December 31, 1994, Aiken County National had assets
of approximately $42 million, loans of $29 million and deposits of $38 million.
The Aiken County National merger was consummated on April 10, 1995 and accounted
for as a pooling of interests. The Company's historical financial statements
have been restated herein for the Aiken County National merger.
On November 14, 1994, the Bank entered into a definitive agreement with
Midlands for the merger of Midlands into the Bank. The Bank acquired all the
outstanding common shares of Midlands in exchange for 614,216 (adjusted for the
5% stock dividend) shares of the Company's common stock. At December 31, 1994,
Midlands had assets of approximately $43 million, loans of $28 million and
deposits of $39 million. The Midland's merger was consummated on June 30, 1995
and accounted for as a pooling of interests. The Company's historical financial
statements have been restated herein for the Midlands merger.
13
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BUSINESS COMBINATIONS -- Continued
The Company applied for and received regulatory approval to merge the
Savings Bank into the Bank. This merger was completed February 3, 1995.
6. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank based upon a percentage of deposits. The average amounts of these
reserve balances for the years ended December 31, 1994 and 1993, were
approximately $6,927,000 and $4,853,000, respectively.
7. SECURITIES
The aggregate book and market values of securities at December 31 were as
follows:
<TABLE>
<CAPTION>
1994
BOOK GROSS UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
SECURITIES AVAILABLE FOR SALE:
U.S. treasury securities............................................................ $ 27,213 $-- $ 679 $26,534
Obligations of U.S. government agencies and corporations............................ 27,512 -- 633 26,879
Other securities.................................................................... 5,833 -- 168 5,665
Total securities available for sale................................................. $ 60,558 $-- $1,480 $59,078
SECURITIES HELD FOR INVESTMENT:
U.S. treasury securities............................................................ $ 6,189 $-- $ 537 $ 5,652
Obligations of U.S. government agencies and corporations............................ 42,936 -- 1,852 41,084
Obligations of states and political subdivisions.................................... 21,086 19 1,074 20,031
Other securities.................................................................... 53 -- -- 53
Total securities held for investment................................................ $ 70,264 $ 19 $3,463 $66,820
<CAPTION>
1993
BOOK GROSS UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. treasury securities............................................................ $ 11,521 $ 12 $ 10 $11,523
Obligations of U.S. government agencies and corporations............................ 51,353 61 57 51,357
Other securities.................................................................... 1,997 -- 6 1,991
Total securities available for sale................................................. $ 64,871 $ 73 $ 73 $64,871
SECURITIES HELD FOR INVESTMENT:
U.S. treasury securities............................................................ $ 8,906 $ 86 $ 12 $ 8,980
Obligations of U.S. government agencies and corporations............................ 37,636 288 33 37,891
Obligations of states and political subdivisions.................................... 11,907 240 14 12,133
Other securities.................................................................... 6,043 31 1 6,073
Total securities held for investment................................................ $ 64,492 $ 645 $ 60 $65,077
</TABLE>
14
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SECURITIES -- Continued
The book value and estimated market value of debt securities at December
31, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. Market value
of securities was determined using quoted market prices.
<TABLE>
<CAPTION>
BOOK MARKET
VALUE VALUE
<S> <C> <C>
($ IN THOUSANDS)
Due in one year or less............................................................................... $ 47,241 $ 46,168
Due after one year through five years................................................................. 62,784 59,863
Due after five years through ten years................................................................ 9,750 9,196
Due after ten years................................................................................... 11,047 10,671
Total securities...................................................................................... $ 130,822 $ 125,898
</TABLE>
Gross realized gains and losses on sales of securities were:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Gross realized gains.................................................................................. $252 $973 $729
Gross realized losses................................................................................. (177) (293) (96)
Net gain on sale of securities........................................................................ $ 75 $680 $633
</TABLE>
The change in the net unrealized loss on securities available for sale for
the year ended December 31, 1994 was $1,000,000, net of applicable income taxes
of $480,000. Securities with an approximate book value of $92,427,000 and
$89,730,000 at December 31, 1994 and 1993, respectively, were pledged to secure
public deposits and for other purposes. Estimated market values of securities
pledged were $88,438,000 and $90,472,000 at December 31, 1994 and 1993,
respectively.
8. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
($ IN THOUSANDS)
Real estate -- mortgage............................................................................... $206,980 $157,460
Real estate -- construction........................................................................... 24,039 22,752
Commercial and industrial............................................................................. 179,876 137,340
Commercial and industrial secured by real estate...................................................... 275,083 157,528
Loans to individuals for household, family and other personal expenditures............................ 161,352 141,558
Loans held for sale................................................................................... 71,695 7,700
All other loans, including overdrafts................................................................. 4,916 1,535
Gross loans........................................................................................... 923,941 625,873
Less unearned income.................................................................................. (873) (2,227)
Less allowance for loan losses........................................................................ (6,002) (6,679)
Net loans............................................................................................. $917,066 $616,967
</TABLE>
Directors, executive officers and associates of such persons were customers
of and had transactions with the Company in the ordinary course of business.
Included in such transactions are outstanding loans and commitments, all of
which were made under normal credit terms and did not involve more than normal
risk of collection. The aggregate dollar amount of these loans was approximately
$11,135,000 and $11,852,000 at December 31, 1994 and 1993, respectively. During
1994, new loans of approximately $4,965,000 were made, and payments totaled
approximately $5,682,000.
15
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LOANS AND ALLOWANCE FOR LOAN LOSSES -- Continued
At December 31, 1994 and 1993, loans included $2,051,000 and $2,487,000,
respectively, on which interest was not being accrued. At December 31, 1994,
loans included $675,000 in restructured loans. Foregone interest income was
approximately $220,000 in 1994, $561,000 in 1993 and $454,000 in 1992.
Foreclosure loans included in other real estate owned amounted to $869,000 and
$1,466,000 at December 31, 1994 and 1993, respectively.
Transactions in the allowance for loan losses were:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Balance at beginning of year.................................................................. $ 6,679 $ 5,276 $ 4,519
Valuation allowance for loans purchased....................................................... 1,077 1,811 255
Provision for loan losses..................................................................... 1,197 1,106 2,318
Recoveries on loans previously charged off.................................................... 140 65 93
Loans charged off............................................................................. (3,091) (1,579) (1,909)
Balance at end of year........................................................................ $ 6,002 $ 6,679 $ 5,276
</TABLE>
9. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
($ IN THOUSANDS)
Land.................................................................................................... $ 5,699 $ 4,996
Buildings............................................................................................... 20,599 15,198
Furniture, fixtures and equipment....................................................................... 16,910 12,822
Leasehold improvements.................................................................................. 6,469 5,872
Construction in progress................................................................................ 420 712
50,097 39,600
Less accumulated depreciation and amortization.......................................................... (10,274) (7,820)
$39,823 $31,780
</TABLE>
Depreciation and amortization charged to operations totaled $2,756,000,
$1,965,000 and $1,602,000 in 1994, 1993 and 1992, respectively.
At December 31, 1994, approximately $2,145,000 of land and buildings is
pledged as collateral for long-term debt obligations (Note 16).
10. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31 are
included in other assets and summarized as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
($ IN THOUSANDS)
Goodwill........................................................................ $ 9,123 $ 5,791
Core deposit premium............................................................ 11,125 8,820
Credit card premium............................................................. 345 2,244
$ 20,593 $ 16,855
</TABLE>
Goodwill arising from acquisitions is being amortized on a straight-line
basis over 25 years. Core deposit premiums are being amortized using the
sum-of-the-years' digits method over 10 years. Credit card premiums are
amortized over their estimated useful economic lives primarily over nine years.
Goodwill, core deposit and credit card premium amortization
16
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INTANGIBLE ASSETS -- Continued
charged to operations was $2,485,000, $902,000 and $462,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
11. MORTGAGE OPERATIONS
Purchased servicing rights and excess servicing rights derived from the
sale of loans which are included in other assets at December 31 are summarized
as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
($ IN THOUSANDS)
Purchased servicing rights......................................................... $8,655 $ 3,334
Excess servicing rights............................................................ 34 54
</TABLE>
The Company paid $6,665,000 for servicing rights to approximately
$222,697,000 of loans in 1994. The amortization of purchased and excess
servicing rights included in loan servicing fees amounted to $908,000, $636,000,
and $35,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Mortgage banking income includes origination fees of $954,000, $1,051,000
and $778,000 in 1994, 1993 and 1992, respectively, and gains from the sale of
mortgage loans of $112,000, $509,000 and $496,000 in 1994, 1993 and 1992,
respectively.
12. DEPOSITS
Certificates of deposit in excess of $100,000 totaled $135,865,000 and
$120,774,000 at December 31, 1994 and 1993, respectively.
13. INCOME TAXES
Income tax expense (benefit) for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Currently payable (refundable):
Federal......................................................................................... $(162) $2,253 $1,369
State........................................................................................... 174 253 86
Total........................................................................................... 12 2,506 1,455
Deferred.......................................................................................... 178 (201) (271)
$ 190 $2,305 $1,184
</TABLE>
The sources of temporary differences and the resulting deferred taxes for
the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Provision for loan losses in excess of amount deductible for taxes................................ $(1,664) $(261) $(311)
Accretion and FHLB dividends...................................................................... (27) (23) (24)
Tax depreciation in excess of book depreciation................................................... (193) 44 26
Restructuring charges............................................................................. 2,131 -- --
Amortization...................................................................................... (65) -- --
Other, net........................................................................................ (4) 39 38
$ 178 $(201) $(271)
</TABLE>
Deferred taxes of $962,000 and $1,060,000 are included in other assets on
the balance sheets at December 31, 1994 and 1993, respectively. There is no
valuation allowance related to deferred tax assets.
17
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES -- Continued
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate, 34%, to income before income taxes. The
reasons for these differences are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Tax expense (benefit) at statutory rate.......................................................... $ (527) $2,626 $1,308
Differences resulting from:
Rehabilitation tax credit...................................................................... (150) (60) (68)
Effect of Savings Bank merger.................................................................. 1,005 -- --
Benefit of net operating loss carryforward..................................................... 68 (102) --
State tax net of federal benefit............................................................... 69 171 58
Nontaxable interest............................................................................ (227) (176) (89)
Other, net..................................................................................... (48) (154) (25)
$ 190 $2,305 $1,184
</TABLE>
There are no significant pending assessments from taxing authorities
regarding taxation issues at the Company or its subsidiaries.
14. BORROWED FUNDS
Federal funds purchased mature overnight and carried a rate of 5.58%, 2.99%
and 2.94% at December 31, 1994, 1993 and 1992, respectively.
Securities sold under repurchase agreements mature overnight and carried a
rate of 5.23%, 2.74% and 2.69% at December 31, 1994, 1993 and 1992,
respectively.
Advances from the Federal Home Loan Bank ("FHLB") mature daily and carried
a rate of 6.03% at December 31, 1994. Total loans pledged to the FHLB for
advances at December 31, 1994 were $138,114,000.
Following is a summary of short-term borrowings at December 31:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Federal funds purchased..................................................................... $ 16,000 $ 400 $ 1,145
Securities sold under repurchase agreements................................................. 17,986 16,325 1,392
Advances from the FHLB...................................................................... 72,000 -- --
$105,986 $16,725 $ 2,537
Maximum amount outstanding at any month end:
Federal funds purchased and securities sold under repurchase agreements................... $ 33,986 $23,278 $ 8,520
Advances from the FHLB.................................................................... 72,000 15,550 12,000
Aggregate short-term borrowings........................................................... 105,986 32,767 17,963
Average amount outstanding.................................................................. 41,362 14,023 2,290
Interest rate at year end................................................................... 5.84% 2.75% 2.80%
Average interest rate during year........................................................... 3.96% 3.05% 5.55%
</TABLE>
15. UNUSED LINES OF CREDIT
At December 31, 1994, the Bank had unused short-term lines of credit to
purchase federal funds from unrelated banks totaling $20,250,000. These lines of
credit are available on a one-to-ten day basis for general corporate purposes of
the Bank. All of the lenders have reserved the right to withdraw these lines at
their option.
At December 31, 1994, the Savings Bank had an unused line of credit with
the FHLB of Atlanta totaling $33,000,000.
18
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. LONG-TERM DEBT
At December 31, 1994 and 1993, long-term debt consisted of a mortgage note
payable of $1,088,000 and $1,092,000, respectively. The note bears interest at
11% per annum with current annual payments of approximately $125,000. Long-term
debt also consisted of a note payable totaling $125,920 and $175,920,
respectively, representing the Company's guarantee of borrowings from a bank by
the ESOP (see Note 28). The note bears interest, which is payable annually, at a
variable rate which approximates 90% of the prime interest rate. Annual
principal payments are $50,000 until the note is repaid. Future payments due on
long-term debt and capital leases are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
<S> <C>
1995................................................................. $ 73
1996................................................................. 67
1997................................................................. 28
1998................................................................. 28
1999................................................................. 28
Thereafter........................................................... 1,026
$ 1,250
</TABLE>
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has, from time to time, various lawsuits and claims arising
from the conduct of its business. Such items are not expected to have any
material adverse effect on the financial position or results of operations of
the Company.
On October 31, 1994, JW Charles Clearing Corp. filed a lawsuit against the
Bank in the Court of Common Pleas in Lexington County, South Carolina. Such
action, in general, claims that the Bank improperly paid approximately $600,000
in checks to Harold McCarley and/or McCarley and Associates, Inc. The complaint
seeks actual and punitive damages in an amount to be determined by a jury, plus
interest on the damages and other costs. The Bank has answered the complaint and
plans to vigorously defend such complaint. The Bank believes that there are
valid defenses available to it. In connection with the litigation, the Bank also
expects to make a claim under insurance policies for any losses it may suffer
which, if determined to cover the loss, could pay for substantially all of the
actual damages, if any, determined to be appropriate by a jury. However, no
assurance can be given at this time regarding whether it will be determined that
any losses suffered in this litigation will be covered by the insurance policy.
Furthermore, the Company is not in a position at this time to assess the likely
outcome of the litigation or any damages for which it may become liable.
18. LEASE COMMITMENTS
Approximate minimum rental payments under noncancelable operating leases at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
<S> <C>
1995................................................................. $ 1,273
1996................................................................. 1,220
1997................................................................. 1,047
1998................................................................. 916
1999................................................................. 902
Thereafter........................................................... 4,348
$ 9,706
</TABLE>
Leases on premises have options for extensions under substantially the same
terms as in the original lease period with certain rate escalations. Lease
payments charged to expense totaled $1,138,000, $714,000 and $405,000 in 1994,
1993 and 1992, respectively. The leases provide that the lessee pay property
taxes, insurance and maintenance cost.
19
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. PREFERRED STOCK
On April 15, 1994, the Company issued 920,000 shares of 7.32% Noncumulative
Convertible Preferred Stock Series 1994 ("Series 1994 Preferred Stock"), which
raised $21,444,000 in equity. Dividends on the Series 1994 Preferred Stock will
be payable quarterly, when, as, and if declared by the Board of Directors, at an
annual rate of $1.83 per share. Dividends on the Series 1994 Preferred Stock are
not cumulative. To date, all regular quarterly dividends have been paid. A
Series 1994 Preferred Stock share may be converted at the option of the holder
into 1.8828 shares of common stock or a conversion price of $13.28 per share of
common stock. The Company, at its option, may redeem the Series 1994 Preferred
Stock at any time after July 1, 1994. However, the Series 1994 Preferred Stock
may not be redeemed prior to July 1, 1997, unless the average of the last
reported sale price of the Company's common stock for 20 consecutive business
days ending within 5 business days of the date of the notice of redemption has
been at least 125% of the conversion price. Dividends paid or declared on the
Series 1994 Preferred Stock during 1994 were $1,194,000.
On March 5, 1993, the Company issued 621,000 shares of 7.50% Noncumulative
Convertible Preferred Stock Series 1993 ("Series 1993 Preferred Stock"), which
raised $14,462,000 in equity. Dividends on the Series 1993 Preferred Stock are
payable quarterly, if declared by the Board of Directors, at an annual rate of
$1.875 per share. Dividends on the Series 1993 Preferred Stock are not
cumulative. To date, all regular quarterly dividends have been paid. A Series
1993 Preferred Stock share may be converted at the option of the holder into
2.0132 shares of common stock, or a conversion price of $12.42 per share of
common stock. The Company, at its option, may redeem the Series 1993 Preferred
Stock at any time after July 1, 1993. However, the Series 1993 Preferred Stock
may not be redeemed prior to July 1, 1996, unless the average of the last
reported sale price of the Company's common stock for 20 consecutive business
days ending within 5 business days of the date of the notice of redemption has
been at least 125% of the conversion price. Dividends paid or declared on the
Series 1993 Preferred Stock during 1994 were $1,164,000.
On November 1, 1993, the Company announced the redemption of the 8.32%
Cumulative Convertible Preferred Stock Series 1992 ("Series 1992 Preferred
Stock"). The redemption date was December 31, 1993. Of the 460,000 shares of
Series 1992 Preferred Stock outstanding, holders of 456,634 shares elected to
convert into common stock. Consequently, the Company issued 1,089,674 shares of
$1.00 par value common stock.
On September 30, 1993, the Company issued 60,000 shares of Series 1993B
Preferred Stock in exchange for all the outstanding common stock of the Mortgage
Company, formerly First Sun Mortgage Corporation. The value of the Series 1993B
Preferred Stock on the date of the acquisition was determined to be $1,200,000.
The Series 1993B Preferred Stock has a liquidation value of $20.00 per share and
provides for cumulative quarterly cash dividends of $0.3125 per share. Each
share of Series 1993B Preferred Stock is convertible into 1.8375 shares of
common stock. There is currently no market for the Series 1993B Preferred Stock,
and it is not expected that any market for such class of stock will develop.
Dividends paid or declared on the Series 1993B Preferred Stock were $75,000.
20. PER SHARE INFORMATION
The Company's Board of Directors declared a five percent common stock
dividend issuable on May 16, 1994, to common shareholders of record on April 29,
1994. Per share data have been restated to reflect this dividend. Per share data
have also been restated for the five percent common stock dividend issuable on
August 15, 1995 to common shareholders of record on August 1, 1995 (see Note 3).
21. RESTRICTION OF DIVIDENDS
The ability of the Company to pay cash dividends over the long term is
dependent upon receiving cash in the form of dividends from the Bank. South
Carolina's banking regulations restrict the amount of dividends that can be
paid. All dividends paid from the Bank are subject to the prior approval of the
Commissioner of Banking and payable only from the retained earnings of the Bank.
At December 31, 1994, the Bank's retained earnings were $5,169,000.
After the merger of the Bank and Savings Bank in February 1995, the
retained earnings of the Savings Bank will be available to pay dividends to the
Company. At December 31, 1994, the Savings Bank's retained earnings were
$8,370,000.
20
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. STOCK OPTION AND RESTRICTED STOCK PLANS
The Company maintains an Incentive Stock Option Plan and a Restricted Stock
Awards Plan. Under these plans, shares of the Company's common stock are granted
to key employees.
At the 1994 Annual Meeting, the number of shares available for grants was
increased to 551,250. Under the terms of the plan, the option price must not be
less than the fair market value of the stock at the date of grant. Options are
exercisable ratably (on a cumulative basis), twenty percent twelve months after
the date of grant, and twenty percent at the end of each twelve month period
thereafter. All options granted under the plan must be exercised within a period
not to exceed ten years from the date of grant.
The following is a summary of the activity under the Company's Incentive
Stock Option Plan for the years 1994 and 1993. The information has been adjusted
for the 5% stock dividends.
<TABLE>
<CAPTION>
1994 1993
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
<S> <C> <C> <C> <C>
Outstanding, January 1.................................................... 64,663 $ 5.77/10.91 54,120 $ 5.77/10.91
Granted................................................................... 28,298 14.17 18,412 11.46
Cancelled................................................................. -- -- 3,311 8.43/11.46
Exercised................................................................. 148 8.96/11.46 4,558 6.27
Outstanding, December 31.................................................. 92,813 5.77/14.17 64,663 5.77/11.46
Exercisable, December 31.................................................. 41,645 5.77/11.46 33,516 5.77/10.91
Available for grant, December 31.......................................... 420,020 178,487
</TABLE>
All shares granted under the Restricted Stock Plan are subject to
restrictions as to continuous employment for a specified time period following
the date of grant. During this period the holder is entitled to full voting
rights and dividends. At December 31, 1994, there were 105,503 shares of
restricted stock outstanding. Deferred compensation representing the fair market
value of the stock at the date of grant is being amortized over a five-year
vesting period, with $236,000 charged to expense in 1994, $163,000 in 1993 and
$97,000 in 1992.
At the 1994 Annual Meeting, a Directors' Stock Option Plan was established.
On May 2, 1994, grants for 16,800 shares at an option price of $11.79 per share
were issued.
23. STOCK WARRANTS
Midlands had non-transferable stock warrants outstanding at December 31,
1994 and 1993. The exercise price of the warrants is $5.77 per share, and
warrants are exercisable at any time until their expiration on December 7, 1998.
The total number of shares that could be purchased with these warrants was
160,256 at the end of 1994 and 1993.
24. EMPLOYEE CONTRACTS
The employee contracts for two of Midland's employees provided for the
granting of options to those employees to purchase up to 36,854 shares of the
Company's common stock at an exercise price equal to the book value per share as
of the end of the calendar quarter preceding the awarding of the options, but
not less than $5.77 per share. All options granted under the employment
agreements expire seven years from the date of award. As of December 31, 1994
and 1993, those employees had earned options to purchase at any time, 12,285
shares at a price of $5.77 per share with an expiration date of December 31,
1995, and 24,569 shares at a price of $6.41 per share with an expiration date of
November 30, 2000.
25. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, to meet the financing needs of its
customers, the Company is a party to financial instruments with
off-balance-sheet risk. These financial instruments include commitments to
extend credit, standby letters of credit, repurchase agreements and documentary
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statements of financial position.
21
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- Continued
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit
evaluation.
At December 31, 1994, the Company had executed simultaneous
repurchase/reverse repurchase transactions with customers with total principal
amounts of approximately $233,400,000 which are not reflected in the
accompanying statement of financial position.
The total portfolio of loans serviced or sub-serviced for non-affiliated
parties at December 31, 1994, was $704,869,000.
26. RELATED PARTY TRANSACTIONS
The Bank leases a Greenville office from a partnership; one of the partners
is a director of the Bank and the Company. Under the terms of this lease, which
extends to 2001, the Bank made payments totaling $82,000 in both 1994 and 1993.
The Bank leases land, on which it has constructed a branch, from a company of
which a director is an officer. Under the terms of the lease, which extends to
2009, the Bank made $56,000 in payments in 1994, 1993 and 1992, respectively.
The Savings Bank leases the land, on which an office is constructed, from the
wife of a director. Under the terms of this lease, which extends to 2018, the
Savings Bank made $25,000 in payments in 1994, 1993 and 1992. These leases were
made on terms comparable to those which would have been obtained between
unrelated parties.
27. CORRECTION OF AN ERROR
The accompanying financial statements for 1992 have been restated to
correct an error. Unrealized losses on securities available for sale were
charged to shareholders' equity instead of being charged to income as stated in
the Company's policy of accounting for such securities at the lower of cost or
market. The effect of the restatement was to decrease net income for 1992 by
$199,000 ($.04 per average common share).
28. EMPLOYEE BENEFIT PLANS
The Company maintains the Carolina First Salary Reduction Plan and Trust
("the Plan") for all eligible employees of the Bank, the Savings Bank and the
Mortgage Company. Upon ongoing approval of the Board of Directors, the Company
matches employee contributions equal to four percent of compensation subject to
certain adjustments and limitations. Contributions of $458,000, $301,000 and
$180,000 were charged to operations in 1994, 1993 and 1992, respectively.
The Company maintains the Carolina First Employee Stock Ownership Plan
("ESOP") for all eligible employees. Contributions are at the discretion of, and
determined annually by, the Board of Directors, and may not exceed the maximum
amount deductible under the applicable section of the Internal Revenue Code. For
the years ended December 31, 1994, 1993 and 1992, contributions of $813,000,
$401,000 and $275,000, respectively, were charged to operations.
The ESOP has a loan used to acquire shares of stock of the Company. Such
stock is pledged as collateral for the loan. In accordance with the requirements
of the AICPA Statement of Position 76-3 and 93-6, the Company presents the
outstanding loan amount as other borrowed money and as a reduction of
shareholders' equity in the accompanying consolidated balance sheets (Note 16).
Company contributions to the ESOP are the primary source of funds used to
service the debt.
22
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
29. NONINTEREST EXPENSES
The significant components of sundry noninterest expenses for the years
ended December 31 are presented below:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Noninterest expenses -- Sundry:
Federal deposit insurance premiums............................................................ $ 2,114 $ 1,605 $1,097
Credit card processing fees................................................................... 1,506 909 603
Intangibles amortization...................................................................... 2,485 902 462
Stationery, supplies and printing............................................................. 1,223 904 632
Telephone..................................................................................... 940 586 316
Postage....................................................................................... 861 564 318
Advertising................................................................................... 959 434 556
Other......................................................................................... 6,038 5,017 3,415
$16,126 $10,921 $7,399
</TABLE>
30. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Carolina First
Corporation (Parent Company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1994 1993
<CAPTION>
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash.................................................................................................... $ 298 $ 828
Investment in Subsidiaries:
Bank.................................................................................................. 62,679 53,376
Savings Bank.......................................................................................... 15,404 13,700
Mortgage Company...................................................................................... 1,640 1,877
Total investment in subsidiaries........................................................................ 79,723 68,953
Receivable from subsidiaries............................................................................ 76 7
Premises and equipment.................................................................................. 363 --
Other investments....................................................................................... 1,439 959
Other assets............................................................................................ 5,310 391
$87,209 $71,138
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities.................................................................. $ 601 $ 547
Long-term debt.......................................................................................... 126 176
Shareholders' equity.................................................................................... 86,482 70,415
$87,209 $71,138
</TABLE>
23
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
30. PARENT COMPANY FINANCIAL INFORMATION -- Continued
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
INCOME
Dividends
Bank subsidiary............................................................................... $ 200 $ 700 $ 350
Savings Bank subsidiary....................................................................... 300 700 300
Interest, Bank.................................................................................. 98 73 97
Sundry.......................................................................................... 181 217 227
779 1,690 974
EXPENSES
Interest on borrowed funds...................................................................... 10 -- 5
Deferred compensation........................................................................... 236 163 97
Shareholder communications...................................................................... 287 203 152
Sundry.......................................................................................... 1,020 417 253
1,553 783 507
Income (loss) before taxes and equity in undistributed net income of subsidiaries............... (774) 907 467
Income tax benefits............................................................................. 680 173 58
Equity in undistributed net income of subsidiaries.............................................. (1,646) 4,338 1,941
Net income (loss)............................................................................... $(1,740) $5,418 $2,466
</TABLE>
24
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
30. PARENT COMPANY FINANCIAL INFORMATION -- Continued
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)............................................................................. $(1,740) $ 5,418 $ 2,466
Adjustments to reconcile net income (loss) to net cash provided by (used for) operations
Equity in undistributed earnings of subsidiaries.............................................. 1,646 (4,338) (1,941)
Depreciation.................................................................................. 18 15 14
Increase (decrease) in other liabilities...................................................... 54 (190) 204
Decrease (increase) in other assets........................................................... (4,919) (45) 117
Net cash provided by (used for) operating activities.......................................... (4,941) 860 860
INVESTING ACTIVITIES
Investment in Bank subsidiary................................................................. (13,000) (15,000) (7,000)
Investment in Savings Bank subsidiary......................................................... (1,000) -- --
Investment in Mortgage Company................................................................ -- (350) --
Loans to subsidiary........................................................................... -- (212) --
Increase in other investments................................................................. (480) (348) (580)
Sale of fixed assets.......................................................................... (381) 230 --
Net cash used for investing activities........................................................ (14,861) (15,680) (7,580)
FINANCING ACTIVITIES
Decrease in notes payable..................................................................... -- -- (250)
Exercise of stock options..................................................................... -- 30 --
Net proceeds from sale of Preferred stock..................................................... 21,444 14,462 10,319
Redemption of Preferred stock................................................................. -- (92) --
Cash dividend on Preferred stock.............................................................. (2,936) (1,777) (385)
Other......................................................................................... 764 -- --
Net cash provided by financing activities..................................................... 19,272 12,623 9,684
Net change in cash and due from banks......................................................... (530) (2,197) 2,964
Cash at beginning of year..................................................................... 828 3,025 61
Cash at end of year........................................................................... $ 298 $ 828 $ 3,025
</TABLE>
Non-cash investing activities during 1994 amounted to approximately
$15,114,000 which included the issuance of 475,291 shares of the Company's
common stock in exchange for all the outstanding common stock of Aiken County
National and 614,216 shares of the Company's common stock in exchange for all
the outstanding common stock of Midlands.
25
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
31. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results
of the Company and its subsidiaries for the years ended December 31:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER
1994 1993 1994 1993
<S> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT SHARE DATA)
Interest income........................................................... $ 15,204 $ 11,557 $ 18,433 $ 13,969
Interest expense.......................................................... 6,630 5,469 7,394 6,378
Net interest income....................................................... 8,574 6,088 11,039 7,591
Provision for loan losses................................................. 38 334 204 354
Net interest income after provision for loan losses....................... 8,536 5,754 10,835 7,237
Noninterest income........................................................ 2,096 1,203 2,109 1,673
Noninterest expenses...................................................... 8,516 5,383 10,133 6,933
Income before taxes....................................................... 2,116 1,574 2,811 1,977
Income taxes.............................................................. 540 567 880 679
Net income................................................................ 1,576 1,007 1,931 1,298
Dividends on preferred stock.............................................. 310 239 661 612
Net income applicable to common shareholders.............................. $ 1,266 $ 768 $ 1,270 $ 686
Earnings per common share*................................................ $ 0.22 $ 0.17 $ 0.22 $ 0.15
Average number of outstanding common shares*.............................. 5,813,190 4,563,031 5,829,209 4,565,244
<CAPTION>
THIRD QUARTER FOURTH QUARTER
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest income........................................................... $ 20,796 $ 14,595 $ 23,540 $ 14,845
Interest expense.......................................................... 8,820 6,380 9,665 6,380
Net interest income....................................................... 11,976 8,215 13,875 8,465
Provision for loan losses................................................. 275 363 680 55
Net interest income after provision for loan losses....................... 11,701 7,852 13,195 8,410
Noninterest income........................................................ 2,399 1,723 1,622 2,166
Noninterest expenses...................................................... 10,876 7,614 24,518 8,365
Income (loss) before taxes................................................ 3,224 1,961 (9,701) 2,211
Income taxes.............................................................. 1,020 439 (2,250) 620
Net income (loss)......................................................... 2,204 1,522 (7,451) 1,591
Dividends on preferred stock.............................................. 731 530 731 549
Net income (loss) applicable to common shareholders....................... $ 1,473 $ 992 $ (8,182) $ 1,042
Earnings (loss) per common share*......................................... $ 0.25 $ 0.22 $ (1.39) $ 0.22
Average number of outstanding common shares*.............................. 5,834,968 4,581,396 5,869,591 4,645,131
</TABLE>
*Per share data have been restated to reflect the 5% stock dividends.
32. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information, whether or not recognized in the statement
of financial position, when it is practicable to estimate the fair value. SFAS
107 defines a financial instrument as cash, evidence of an ownership interest in
an entity or contractual obligations which require
26
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
32. FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
the exchange of cash of other financial instruments. Certain items are
specifically excluded from the disclosure requirements, including the Company's
Common and Preferred stock, premises and equipment and other assets and
liabilities.
Fair value approximates book value for the following financial instruments
due to the short-term nature of the instrument: cash and due from banks, federal
funds sold and securities purchased under resale agreements, federal funds
purchased and securities sold under repurchase agreements, and other short-term
borrowings.
Fair value for variable rate loans that reprice frequently and for loans
that mature in less than one year is based on the carrying value. Fair value for
mortgage loans, consumer loans and all other loans (primarily commercial and
industrial loans) is based on the discounted present value of the estimated
future cash flows. Discount rates used in these computations approximate the
rates currently offered for similar loans of comparable terms and credit
quality.
Fair value for demand deposit accounts and interest-bearing accounts with
no fixed maturity date is equal to the carrying value. Certificate of deposit
accounts maturing during 1995 are valued at their carrying value. Certificate of
deposit accounts maturing after 1995 are estimated by discounting cash flows
from expected maturities using current interest rates on similar instruments.
Fair value for long-term debt is based on discounted cash flows using the
Company's current incremental borrowing rate. Investment securities are valued
using quoted market prices. Fair value for the Company's off-balance-sheet
financial instruments is based on the discounted present value of the estimated
future cash flows. Discount rates used in these computations approximate rates
currently offered for similar loans of comparable terms and credit quality.
The Company has used management's best estimate of fair value based on the
above assumptions. Thus, the fair values presented may not be the amounts which
could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair values
presented.
The estimated fair values of the Company's financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
FINANCIAL ASSETS:
Cash and due from banks.................................................. $ 59,750 $ 59,750 $ 31,516 $ 31,516
Federal funds sold and securities purchased under resale agreements...... 4,420 4,420 59,870 59,870
Trading securities....................................................... 1,155 1,155 250 250
Securities available for sale............................................ 59,078 59,078 64,871 64,871
Securities held to maturity.............................................. 70,264 66,820 64,492 65,077
Loans receivable......................................................... 923,941 901,933 625,873 622,869
FINANCIAL LIABILITIES:
Deposit liabilities...................................................... 1,001,748 1,000,973 804,549 784,089
Federal funds purchased and securities sold under repurchase
agreements............................................................. 33,986 33,986 16,725 16,725
Short-term borrowings.................................................... 72,073 72,073 54 54
Long-term debt........................................................... 1,177 1,330 1,274 1,461
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
Commitments to extend credit............................................. 74,373 70,732 47,868 47,434
Standby letters of credit................................................ 5,837 5,518 4,579 4,536
Documentary letters of credit............................................ 394 376 713 721
</TABLE>
27
<PAGE>
STATISTICAL DISCLOSURE -- SUMMARY OF CONTENTS
Comparative Average Balances -- Yields and Costs . . . . . . . 1
Rate/Volume Variance Analysis . . . . . . . . . . . . . . . . . 2
Securities Held for Investment Composition . . . . . . . . . . 3
Securities Available for Sale Composition . . . . . . . . . . . 3
Trading Account Composition . . . . . . . . . . . . . . . . . . 3
Securities Held for Investment and Securities Available for Sale
Maturity Schedule . . . . . . . . . . . . . . . . . . . . . . . 4
Loan Portfolio Composition . . . . . . . . . . . . . . . . . . 5
Loan Maturity and Interest Sensitivity . . . . . . . . . . . . 5
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . 6
Summary of Loan Loss Experience . . . . . . . . . . . . . . . . 6
Composition of Allowance for Loan Losses . . . . . . . . . . . 7
Types of Deposits . . . . . . . . . . . . . . . . . . . . . . . 8
Certificates of Deposit Greater than $100,000 . . . . . . . . . 8
Return on Equity and Assets . . . . . . . . . . . . . . . . . . 9
Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . 10
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . 11
Noninterest Income . . . . . . . . . . . . . . . . . . . . . 12
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
Comparative Average Balances -- Yields and Costs
Carolina First Corporation
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
Average/ Income/ Yield/ Average/ Income/ Yield/ Average/ Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans (net of unearned
income)(1)..........$ 781,503 $ 70,678 9.04 % $ 548,619 $ 47,313 8.62 % $ 432,282 $ 39,788 9.20 %
Investment securities
(taxable)............ 125,053 5,623 4.50 131,829 6,483 4.92 64,583 3,930 6.08
Investment securities
(nontaxable)......... 17,609 1,567 (2) 8.90 8,252 731 (2) 8.86 3,741 456 (2) 12.18
Federal funds sold..... 15,810 603 3.81 21,154 638 3.02 18,186 678 3.73
Interest bearing
deposits with
other banks.......... 1,180 49 4.17 1,284 57 4.42 1,333 67 5.00
Total earning
assets........... 941,155 78,520 8.34 % 711,138 55,222 7.77 % 520,125 44,919 8.64 %
Non-earning
assets............... 115,799 71,413 42,244
Total assets.......$ 1,056,954 $ 782,551 $ 562,369
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking....$ 101,558 $ 2,193 2.16 % $ 66,891 $ 1,523 2.28 % $ 33,092 $ 1,012 3.06 %
Savings.............. 87,919 2,619 2.98 60,854 1,848 3.04 24,554 1,003 4.08
Money market......... 157,460 4,856 3.08 137,807 4,007 2.91 125,807 4,890 3.89
Certificates of
deposit............ 433,123 18,945 4.37 333,338 14,911 4.47 259,231 14,811 5.71
Other................ 44,347 2,137 4.82 34,733 1,766 5.09 32,132 2,045 6.36
Total interest-bearing
deposits......... 824,407 30,750 3.73 % 633,623 24,055 3.80 % 474,816 23,761 5.00 %
Short-term borrowings. 41,362 1,638 3.96 14,023 427 3.05 2,290 128 5.57
Long-term borrowings.. 1,309 121 9.25 1,444 125 8.66 1,604 121 7.54
Total interest-
bearing liabilities. 867,078 32,509 3.75 % 649,090 24,607 3.79 % 478,710 24,010 5.02 %
Non-interest bearing
liabilities
Non-interest bearing
deposits........... 101,209 61,550 32,346
Other non-interest
liabilities........ 1,290 6,393 4,107
Total liabilities.... 969,577 717,033 515,163
Stockholders' equity.... 87,377 65,518 47,206
Total liabilities and
stockholders' equity.$ 1,056,954 $ 782,551 $ 562,369
Net interest margin.... $ 46,011 4.89 % $ 30,615 4.31 % $ 20,909 4.02 %
</TABLE>
---------------------------------
(1)Includes nonaccruing loans.
(2)Fully tax-equivalent basis at a 35% tax rate.
Note: Average balances are derived from daily balances.
<PAGE>
Rate/Volume Variance Analysis
Carolina First Corporation
(dollars in thousands)
<TABLE>
<CAPTION>
1994 Compared to 1993 1993 Compared to 1992
Amount Amount Amount Amount
Caused Caused Caused Caused
by by by by
Total Change in Change in Total Change in Change in
Change Volume Rate Change Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Loans, net of unearned income.............$ 23,365 $ 20,920 $ 2,445 $ 7,525 $ 10,144 $ (2,619)
Securities, taxable....................... (860) (310) (550) 2,553 3,353 (800)
Securities, nontaxable.................... 836 820 16 275 435 (160)
Federal funds sold........................ (35) (234) 199 (40) 90 (130)
Interest-bearing deposits with
other banks............................ (8) (6) (2) (10) (3) (7)
Total interest income........... 23,298 21,190 2,108 10,303 14,019 (3,716)
Interest-bearing liabilities
Interest-bearing deposits
Interest checking...................... 670 757 (87) 511 790 (279)
Savings................................ 771 812 (41) 845 1,147 (302)
Money market........................... 849 602 247 (883) 445 (1,328)
Certificates of deposit................ 4,034 4,374 (340) 100 3,645 (3,545)
Other.................................. 371 465 (94) (279) 162 (441)
Total interest-bearing deposits.... 6,695 7,010 (315) 294 6,189 (5,895)
Short-term borrowings........................ 1,211 1,049 162 299 381 (82)
Long-term borrowings......................... (4) (9) 5 4 (8) 12
Total interest expense.......... 7,902 8,050 (148) 597 6,562 (5,965)
Net interest income..........$ 15,396 $ 13,140 $ 2,256 $ 9,706 $ 7,457 $ 2,249
</TABLE>
<PAGE>
Securities Held for Investment Composition
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
<S> <C> <C> <C>
U.S. Treasury securities....................................$ 6,189 $ 8,906 $ 4,755
Obligations of U.S. Government agencies and corporations.... 42,936 37,636 3,502
Obligations of states and political subdivisions............ 21,086 11,907 3,316
Other securities............................................ 53 6,043 5,781
$ 70,264 $ 64,492 $ 17,354
Securities Available for Sale Composition
(dollars in thousands)
December 31,
1994 1993 1992
U.S. Treasury securities....................................$ 26,534 11,523 30,574
Obligations of U.S. Government agencies and corporations.... 26,879 51,357 38,311
Other securities............................................ 5,665 1,991 4,896
$ 59,078 $ 64,871 $ 73,781
Trading Account Composition
(dollars in thousands)
December 31,
1994 1993 1992
U.S. Treasury and Government agencies.......................$ 178 $ ------ $ ------
State and political subdivisions............................ 977 250 ------
$ 1,155 $ 250 $ ------
</TABLE>
<PAGE>
Consolidated
Securities Held for Investment and
Securities Available for Sale Maturity Schedule
(dollars in thousands)
<TABLE>
<CAPTION>
Held for Investment -- Book Value
After One After Five
But But
Within Within Within After
One Year Five Years Ten Years Ten Years Total
<S> <C> <C> <C> <C> <C>
U.S Treasury..................$ 200 $ 5,989 $ ------ $ ------ $ 6,189
U.S. Government
agencies and
corporations............... ------ 35,773 ------ 7,163 42,936
States and political
subdivisions............... 1,396 6,108 9,698 3,884 21,086
Other securities.............. ------ ------ 53 ------ 53
$ 1,596 $ 47,870 $ 9,751 $ 11,047 $ 70,264
Weighted average yield
U.S Treasury.................. 8.50 % 5.18 % 0.00 % 0.00 % 5.28 %
U.S. Government
agencies and
corporations............... 0.00 5.69 0.00 6.25 5.78
States and political
subdivisions............... 4.69 4.16 4.67 5.05 4.59
Other securities.............. 0.00 0.00 4.45 0.00 4.45
5.14 % 5.43 % 4.67 % 5.83 % 5.38 %
Available for Sale -- Book Value
After One After Five
But But
Within Within Within After
One Year Five Years Ten Years Ten Years Total
U.S Treasury..................$ 19,135 $ 4,557 $ ------ $ ------ $ 23,692
U.S. Government
agencies and
corporations............... 24,511 6,523 ------ ------ 31,034
States and political
subdivisions............... ------ ------ ------ ------ ------
Other securities.............. 1,999 3,834 ------ ------ 5,833
$ 45,645 $ 14,914 $ ------ $ ------ $ 60,559
Weighted average yield
U.S Treasury.................. 4.23 % 5.64 % 0.00 % 0.00 % 4.50 %
U.S. Government
agencies and
corporations............... 4.31 5.70 0.00 0.00 4.60
States and political
subdivisions............... 0.00 0.00 0.00 0.00 0.00
Other securities.............. 3.89 6.20 0.00 0.00 5.42
4.26 % 5.81 % 0.00 % 0.00 % 4.64 %
</TABLE>
<PAGE>
Carolina First Corporation
Loan Portfolio Composition
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.......$ 179,875 $ 137,340 $ 112,241 $ 96,061 $ 68,490
Real Estate
Construction........................... 24,040 22,752 18,269 21,682 18,785
Mortgage
Residential.......................... 206,980 157,460 123,636 124,162 122,670
Commercial and multifamily (1)....... 275,083 157,528 94,084 69,492 61,405
Consumer..................................... 166,268 143,093 104,592 87,622 50,437
Loans held for sale.......................... 71,695 7,700 6,801 ------ ------
Total gross loans................... 923,941 625,873 459,623 399,019 321,787
Unearned income.............................. (873) (2,227) (3,973) (3,883) (2,907)
Total loans net of unearned income.. 923,068 623,646 455,650 395,136 318,880
Allowance for loan losses.................... (6,002) (6,679) (5,276) (4,520) (2,960)
Total net loans....................$ 917,066 $ 616,967 $ 450,374 $ 390,616 $ 315,920
--------------------------
(1) The majority of these loans are made to operating businesses where real property has been taken as
additional collateral.
Loan Maturity and Interest Sensitivity
(dollars in thousands)
Over One
But Over
One Year Less than Five
or Less Five Years Years Total
Commercial, financial, agricultural and
commercial real estate..................$ 349,797 $ 75,108 $ 30,054 $ 454,959
Real estate - construction................... 20,184 3,855 ------ 24,039
Total of loans with:
Predetermined interest rates............ 46,428 26,409 30,054 102,891
Floating interest rates................. 323,553 52,554 ------ 376,107
</TABLE>
<PAGE>
Carolina First Corporation
Nonperforming Assets
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonaccrual loans..................................$ 2,051 $ 2,487 $ 2,474 $ 1,879 $ 1,484
Restructured loans................................ 675 0 353 0 0
Total nonperforming loans............... 2,726 2,487 2,827 1,879 1,484
Other real estate owned........................... 1,996 2,879 2,804 1,471 699
Total nonperforming assets..............$ 4,722 $ 5,366 $ 5,631 $ 3,350 $ 2,183
Loans past due 90 days still accruing interest....$ 1,285 $ 2,060 $ 2,127 $ 1,784 $ 605
Total nonperforming assets as a percentage
of loans and other real estate owned.......... 0.51 % 0.86 % 1.23 % 0.84 % 0.68 %
Allowance for loan losses as a percentage
of nonperforming loans......................... 220.18 % 268.59 % 186.63 % 240.55 % 199.46 %
Carolina First Corporation
Summary of Loan Loss Experience
(dollars in thousands)
December 31,
1994 1993 1992 1991 1990
Loan loss reserve at beginning of period..........$ 6,679 $ 5,276 $ 4,520 $ 2,960 $ 2,425
Valuation allowance for loans acquired............ 1,077 1,811 255 450 0
Charge-offs:
Commercial, financial and agricultural........ 519 401 1,450 418 299
Real estate - construction................... 85 0 30 31 0
Real estate - mortgage....................... 263 267 195 108 12
Consumer..................................... 583 423 235 257 215
Credit cards................................. 1,641 488 0 0 0
Total loans charged-off.............. 3,091 1,579 1,910 814 526
Recoveries:
Commercial, financial and agricultural....... 69 23 48 0 103
Real estate - construction.................. 0 0 1 0 0
Real estate - mortgage...................... 9 23 18 0 0
Consumer.................................... 62 19 26 34 31
Credit cards................................ 0 0 0 0 0
Total loans recovered............... 140 65 93 34 134
Net charge-offs................................... 2,951 1,514 1,817 780 392
Provision charged to expense................. 1,197 1,106 2,318 1,890 927
Loan loss reserve at end of period................$ 6,002 $ 6,679 $ 5,276 $ 4,520 $ 2,960
Average loans.....................................$ 781,503 $ 548,619 $ 432,282 $ 355,926 $ 291,880
Total loans, net of unearned income (period end).. 923,068 623,646 455,650 395,136 318,880
Net charge-offs as a percentage of average loans.. 0.38 % 0.28 % 0.42 % 0.22 % 0.13 %
Allowance for loan losses as a percentage of loans 0.65 1.07 1.16 1.14 0.93
</TABLE>
<PAGE>
Carolina First Corporation
Composition of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
Allowance Breakdown
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural..................$ 1,730 $ 1,866 $ 1,783 $ 1,220 $ 898
Real Estate
Construction.................. 130 148 356 273 195
Mortgage:
Residential................. 135 145 288 126 91
Commercial and
Multifamily.............. 581 627 1,223 1,485 934
Consumer........................... 2,828 3,227 1,099 964 546
Unallocated........................ 598 666 527 452 296
Total...................$ 6,002 $ 6,679 $ 5,276 $ 4,520 $ 2,960
Percentage of Loans in Category
December 31,
1994 1993 1992 1991 1990
Commercial, financial and
agricultural................... 19.47 % 21.94 % 24.44 % 24.07 % 21.29 %
Real Estate
Construction................ 2.60 3.64 3.98 5.43 5.84
Mortgage:
Residential............... 22.40 25.16 26.89 31.12 38.12
Commercial and
Multifamily............ 29.77 25.17 20.46 17.42 19.08
Consumer................. 25.76 24.09 24.23 21.96 15.67
Total..................... 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
</TABLE>
<PAGE>
Carolina First Corporation
Types of Deposits
(dollars in thousands)
<TABLE>
<CAPTION>
Balance as of December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Demand deposit accounts.................$ 126,974 $ 72,950 $ 44,553 $ 29,238 $ 27,795
NOW accounts............................ 117,271 85,910 40,779 28,740 16,214
Savings accounts........................ 94,774 70,897 26,758 18,119 12,744
Money market accounts................... 155,695 156,519 133,904 121,263 91,382
Time deposits........................... 371,169 297,499 224,279 216,222 156,869
Time deposits of $100,000 or
over................................. 135,865 120,774 85,351 66,476 52,384
Total deposits.....................$ 1,001,748 $ 804,549 $ 555,624 $ 480,058 $ 357,388
Percent of Deposits as of December 31,
1994 1993 1992 1991 1990
Demand deposit accounts................. 12.68 % 9.07 % 8.02 % 6.09 % 7.78 %
NOW accounts............................ 11.71 10.68 7.34 5.99 4.54
Savings accounts........................ 9.46 8.81 4.82 3.77 3.57
Money market accounts................... 15.54 19.45 24.10 25.26 25.56
Time deposits........................... 37.05 36.98 40.36 45.04 43.89
Time deposits of $100,000 or
over................................. 13.56 15.01 15.36 13.85 14.66
Total deposits..................... 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
Certificates of Deposit Greater than $100,000
(dollars in thousands)
Maturing in three months or less.....................................$ 56,305
Maturing in over three through six months............................ 34,830
Maturing in over six through twelve months........................... 25,206
Maturing in over twelve months....................................... 19,524
Total......................................................$ 135,865
</TABLE>
<PAGE>
Carolina First Corporation
Return on Equity and Assets
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Return on average assets................ (0.16)% 0.69 % 0.44 % 0.41 % 0.38 %
Return on average equity................ (1.99) 8.27 5.22 4.89 4.04
Return on average common equity......... (3.08) 12.60 6.10 4.89 4.04
Average equity as a percentage of
average assets....................... 8.27 8.37 8.39 8.32 9.46
Dividend payout ratio................... n/m 0.00 0.00 0.00 0.00
</TABLE>
<PAGE>
Short Term Borrowings
(dollars in thousands)
<TABLE>
<CAPTION>
Maximum Average
Outstanding Average Interest
At Any Average Interest Ending Rate at
Year Ended December 31, Month End Balance Rate Balance Year End
<S> <C> <C> <C> <C> <C>
1994
Federal funds purchased.................$ 16,000 $ 5,474 4.50 % $ 16,000 5.58 %
Securities sold under
repurchase agreements................ 17,986 15,870 3.80 17,986 5.23
Advances from the FHLB............... 72,000 20,018 3.94 72,000 6.03
$ 105,986 $ 41,362 3.96 % $ 105,986 5.84 %
1993
Federal funds purchased.................$ 6,953 3,571 2.68 % $ 400 2.99 %
Securities sold under
repurchase agreements................ 16,325 5,827 2.49 16,325 2.74
Advances from the FHLB............... 15,550 4,625 4.04 ------ 3.44
$ 38,828 $ 14,023 3.05 % $ 16,725 2.75 %
1992
Federal funds purchased.................$ 6,695 $ 592 5.65 % $ 1,145 2.94 %
Securities sold under
repurchase agreements................ 1,825 756 5.72 1,392 2.69
Advances from the FHLB............... 12,000 942 5.35 ------ 3.39
$ 20,520 $ 2,290 5.55 % $ 2,537 2.80 %
</TABLE>
<PAGE>
Carolina First Corporation
Interest Rate Sensitivity
(dollars in thousands)
<TABLE>
<CAPTION>
Over One
Total Year or
0-3 4-6 7-12 Within Non-
Months Months Months One Year Sensitive Total
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans, net of unearned income.......... $ 520,961 $ 31,548 $ 49,960 $ 602,469 $ 320,599 $ 923,068
Investment securities, taxable............. 19,025 3,739 24,545 47,309 62,699 110,008
Investment securities, nontaxable...... 1,346 ------ 50 1,396 19,093 20,489
Federal funds sold............................. 4,420 ------ ------ 4,420 ------ 4,420
Interest bearing deposits with
other banks.................................. 800 100 ------ 900 ------ 900
Total earning assets............... 546,552 35,387 74,555 656,494 402,391 1,058,885
Non-earning assets, net........................... ------- ------- ------- ------- 145,465 145,465
Total assets.......................$ 546,552 $ 35,387 $ 74,555 $ 656,494 $ 547,856 $ 1,204,350
Liabilities and Stockholders' Equity
Liabilities
Intererest-bearing liabilities
Interest-bearing deposits
Interest Checking.......................$ 110,944 $ ------ $ ------ $ 110,944 $ ------ $ 110,944
Savings................................. 94,743 ------ ------ 94,743 ------ 94,743
Money Market............................ 153,878 ------ ------ 153,878 ------ 153,878
Certificates of Deposit................. 153,381 114,739 113,638 381,758 83,428 465,186
Other................................... 20,834 10,826 10,209 41,869 8,154 50,023
Total interest-bearing deposits....... 533,780 125,565 123,847 783,192 91,582 874,774
Short-term borrowings....................... 105,986 ------ ------ 105,986 ------ 105,986
Long-term borrowings........................ 6 7 60 73 1,177 1,250
Total interest-bearing liabilities.... 639,772 125,572 123,907 889,251 92,759 982,010
Noninterest bearing liabilities
Noninterest bearing deposits................ ------ ------ ------ ------ 126,974 126,974
Other noninterest bearing liabilities, net ------ ------ ------ ------ 8,884 8,884
Total liabilities..................... 639,772 125,572 123,907 889,251 228,617 1,117,868
Stockholders'equity............................... ------ ------ ------ ------ 86,482 86,482
Total liabilities and stockholders'
equity.............................$ 639,772 $ 125,572 $ 123,907 $ 889,251 $ 315,099 $ 1,204,350
Interest sensitive gap............................$ (93,220)$ (90,185)$ (49,352)$ (232,757)$ 232,757 $ ------
Cumulative interest sensitive gap.................$ (93,220)$ (183,405)$ (232,757)$ 235,731 ------ ------
</TABLE>
<PAGE>
Noninterest Income
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Service charges on deposits.............$ 4,089 2,916 1,791 1,116 733
Mortgage banking income:
Origination fees..................... 954 1,051 778 461 309
Gain on sale of mortgage loans....... 112 509 496 0 0
Servicing and other.................. 572 228 0 0 0
Fees for trust services................. 919 542 305 197 141
Gain on sale of securities.............. 75 680 633 733 (4)
Sundry.................................. 1,505 839 113 236 326
Total noninterest income......$ 8,226 6,765 4,116 2,743 1,505
Noninterest Expense
(dollars in thousands)
Years Ended December 31,
1994 1993 1992 1991 1990
Salaries and wages......................$ 15,023 $ 10,630 $ 6,870 $ 4,788 $ 3,656
Benefits................................ 4,375 2,510 1,596 1,576 1,160
Occupancy............................... 3,728 2,301 1,496 1,075 978
Furniture and equipment................. 2,577 1,933 1,536 1,187 944
Federal deposit insurance premiums...... 2,114 1,605 1,097 838 496
Credit card processing charges.......... 1,506 909 603 458 0
Intangibles amortization................ 2,485 902 462 214 25
Credit card restructuring charges....... 12,214 ------- ------- ------- -------
Sundry.................................. 10,021 7,505 5,237 3,739 3,686
Total noninterest expense.....$ 54,043 $ 28,295 $ 18,897 $ 13,875 $ 10,945
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years.
All per share data have been restated to reflect 5% common stock dividends
issued on the common stock in the last six years.
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement:
Net interest income.....................$ 45,464 $ 30,359 $ 20,749 $ 15,351 $ 12,413
Provision for loan losses............... 1,197 1,106 2,318 1,890 927
Noninterest income...................... 8,226 6,765 4,116 2,743 1,504
Noninterest expenses.................... 54,043 28,295 18,897 13,875 10,945
Net income (loss) (1)................... (1,740) 5,418 2,466 1,871 1,464
Per Common Share Data:
Net income (loss).......................$ (0.71)$ 0.76 $ 0.41 $ 0.41 $ 0.33
Cash dividends declared................. 0.21 0.05 ------- ------- -------
Balance Sheet (Period End):
Total assets............................$ 1,204,350 $ 904,474 $ 616,288 $ 528,472 $ 411,308
Loans - net of unearned income.......... 923,068 623,646 455,650 395,136 318,880
Nonperforming assets.................... 4,722 5,366 5,631 3,350 2,183
Total earning assets.................... 1,058,885 814,579 555,987 482,130 377,491
Total deposits.......................... 1,001,748 804,549 555,624 480,058 357,388
Short-term borrowings................... 106,059 16,779 2,591 2,755 12,260
Long-term debt.......................... 1,177 1,274 1,492 1,753 791
Shareholders' equity.................... 86,482 70,415 51,288 38,989 37,157
Balance Sheet (Averages):
Total Assets............................$ 1,056,954 $ 782,551 $ 562,369 $ 459,878 $ 382,995
Shareholders' equity.................... 87,377 65,518 47,206 38,257 36,217
</TABLE>
(1) After fourth quarter 1994 restructuring charges of $9,415 (after-tax).
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except where expressly stated otherwise, the financial
information contained herein reflects Carolina First
Corporation's acquisition of Aiken County National Bank which was
consummated on April 10, 1995 and Midlands National Bank which
was consummated on June 30, 1995. Both acquisitions were
accounted for as a pooling of interests.
EARNINGS ANALYSIS
The one-time charge for the corporate restructuring
(discussed above in "Business - Restructuring Charges") resulted
in a net loss for 1994. The Company reported a net loss for 1994
of $1.7 million, or a loss of $0.71 per common share. The net
loss for 1994 includes one-time restructuring charges of $9.4
million (after-tax). Net income for 1993 was $5.4 million, or
$0.76 per common share, and 1992 net income was $2.5 million, or
$0.41 per common share. Increased net interest income, growth in
noninterest income and continued good credit quality were the
primary reasons for the growth in earnings excluding
restructuring charges.
Fully tax equivalent ("FTE") net interest income increased
$15.4 million, or 50%, due to a higher level of average earning
assets and an increased net interest margin. Increases in
average earning assets resulted primarily from the acquisition of
branches and internal growth. The net interest margin increased
to 4.89% from 4.31% in 1993 and 4.01% in 1992.
Noninterest income, excluding securities transactions
increased to $8.2 million, or 34%, from $6.1 million in 1993 and
$3.5 million in 1992. The increase in noninterest income was
attributable to higher service charges on deposit accounts, the
expansion of mortgage servicing and the generation of new trust
business.
Noninterest expenses increased to $54.0 million in 1994 from
$28.3 million in 1993 and $18.9 million in 1992. The 1994
noninterest expenses includes one-time restructuring charges of
$12.2 million. Also contributing to the increase in noninterest
expenses were the acquisition of seven branches and the opening
of four branches de novo, a higher level of loan and deposit
activity, amortization of intangibles and higher credit card
processing fees.
Net Interest Income
The largest component of Carolina First's operations is net
interest income, the difference between the interest earned on
assets and the interest paid for the liabilities used to support
such assets. Variations in the volume and mix of assets and
liabilities and their relative sensitivity to interest rate
movements determine changes in net interest income. As the
primary contributor to Carolina First's earnings, net interest
income constituted 85% of net revenues (net interest income plus
noninterest income) in 1994, compared with 82% in 1993 and 84% in
1992.
FTE net interest income adjusts the yield for assets earning
tax-exempt income to a comparable yield
14
<PAGE>
on a taxable basis. The Company has experienced a markedly
upward trend in FTE net interest income, which increased 50%
in 1994, 47% in 1993 and 35% in 1992. FTE net interest income
was $46.0 million in 1994, $30.6 million in 1993 and $20.9
million in 1992. The increase resulted from a higher level of
average earning assets and an improvement in the net interest
margin. The growth in average earning assets, which increased
to $941.2 billion in 1994 from $711.1 million in 1993 and
$520.1 in 1992, resulted primarily from internal loan growth
and the acquisition of branches. The majority of this increase
was in loans, which averaged $232.9 million higher in 1994
than 1993 and $116.3 million higher in 1993 than 1992.
The net interest margin, defined as net interest income
divided by average earning assets, increased to 4.89% in 1994
from 4.31% in 1993 and 4.02% in 1992. The increase resulted
primarily from lower deposit interest rates and a higher
proportion of noninterest-bearing deposits. In addition, the
yield on loans has risen due to increases in the prime interest
rate, increased consumer loan volume from the retail branch
n e twork and increased credit card loan volume from mail
solicitations.
Provision and Allowance for Loan Losses
Management maintains an allowance for loan losses which it
believes is adequate to cover possible losses in the loan
portfolio. However, management's judgment is based upon a number
of assumptions about future events which are believed to be
reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases
in the allowance for loan losses will not be required.
The allowance for loan losses is established through charges
in the form of a provision for loan losses and purchased loan
adjustments. Loan losses and recoveries are charged or credited
directly to the allowance. The amount charged to the provision
for loan losses by the Company is based on management's judgment
as to the amount required to maintain an allowance adequate to
provide for potential losses in the Company's loan portfolio.
The level of this allowance is dependent upon the total amount of
past due loans, general economic conditions and management's
assessment of potential losses.
The Company attempts to deal with repayment risks through
the establishment of, and adherence to, internal credit policies.
These policies include officer and customer limits, periodic
documentation examination and follow-up procedures for any
exceptions to credit policies. A summary of the Bank's approach
to managing credit risk is provided below in the "Asset Quality"
section.
During 1994, 1993 and 1992, the Company expensed $1,197,000,
$1,106,000, and $2,318,000, respectively, through its provision
for loan losses. Net loan charge-offs, excluding credit card
loans, were $1,310,000, $1,026,000 and $1,817,000 in 1994, 1993
and 1992, respectively. During 1994, net loan charge-offs as a
percentage of average loans have remained low at 0.38% including
credit card charge-offs, compared with 0.28% for 1993 and and
0.42% for 1992.
At December 31, 1994, the allowance for loan losses totaled
$6.0 million, or 0.7% of total loans, a decline from $6.7
million, or 1.1% of total loans, at the end of 1993. Continued
reductions in nonperforming asset levels enabled the Company to
reduce the allowance for loan losses compared with the prior
years' levels. Nonperforming assets as a percentage of loans and
foreclosed property were 0.51% and 0.86% at December 31, 1994 and
1993, respectively. At December 31, 1994, the allowance for loan
losses was 220% of nonperforming loans. The Company's asset
quality measures compare favorably to its Federal Deposit
Insurance Corporation ("FDIC") peer group.
15
<PAGE>
The Bank was examined in December 1993 by the FDIC, and the
Savings Bank was examined in February 1994 by the Office of
Thrift Supervision. No significant increases in reserves
resulted from these examinations.
Noninterest Income
Noninterest income, excluding securities transactions,
increased $2.1 million, or 34%, to $8.2 million in 1994, up from
$6.1 million in 1993 and $3.5 million in 1992. This increase
resulted principally from service charges on deposit accounts,
fees for trust services and mortgage banking servicing income.
The Company realized gains on the sale of securities of $75,000,
$680,000 and $633,000 in 1994, 1993 and 1992, respectively.
Service charges on deposit accounts, the largest contributor
to noninterest income, rose $1.2 million, or 41%, to $4.1 million
in 1994, an increase from $2.9 million in 1993 and $1.8 million
in 1992. The increase in service charges is attributable to
acquiring branches and new deposit accounts, increasing fee
charges and improving collection rates. In 1994, average
deposits increased 33%.
Mortgage banking income was $1.6 million in 1994, $1.8
million in 1993 and $1.3 million in 1992. Mortgage banking
income includes origination fees, profits from the sale of loans
and servicing fees (which started in 1993). Origination fees
totaled $1.0 million in 1994, compared with $1.1 million in 1993
and $778,000 in 1992. During 1994, 1,062 mortgage loans totaling
$108 million were originated, similar to originations of 1,063
loans for $103 million in 1993. The increase in the level of
interest rates during 1994 made the origination of mortgage loans
more competitive resulting in a slightly lower origination fee
per loan.
Until the third quarter of 1992, mortgage loans were
originated primarily for the account of correspondent financial
institutions, with the Company retaining an origination fee.
Beginning in the third quarter of 1992, the Company expanded the
activities of its mortgage loan operations and began self-funding
the loans through the Savings Bank prior to sale in the secondary
market. Mortgage loans totaling approximately $55 million, $80
million and $16 million were sold in 1994, 1993 and 1992,
respectively. Income from this activity totaled $112,000 in
1994, $509,000 in 1993 and $496,000 in 1992.
The Mortgage Company's mortgage servicing operations consist
of servicing loans that are owned by the Bank and subservicing
loans, to which the right to service is owned by the Bank and
other non-affiliated financial institutions. Mortgage loans
serviced are all one-to-four family residential mortgage loans.
At December 31, 1994, 10,351 loans with an aggregate principal
amount of $800 million were being serviced or subserviced by the
Mortgage Company. Servicing and other mortgage banking income
from non-affiliated companies, net of the related amortization,
was $572,000 in 1994 and $228,000 in 1993.
The Company views its mortgage banking operation as a means
of increasing noninterest income without increasing assets. The
Company purchased the rights to service the loan portfolios to
take advantage of excess capacity, thereby creating a revenue
stream to more rapidly cover the fixed costs associated with its
mortgage banking operations. However, the Company's long-term
strategy is to have a servicing portfolio principally comprised
of loans originated by the Company but which have been sold into
the secondary market with servicing retained.
Subsequent to year end, the Company entered into an
agreement with a non-affiliated company to sell the rights to
service approximately $450 million (face value) of mortgage
loans. This transaction will result
16
<PAGE>
in a gain of approximately $2 million and a reduction of the
Company's purchased mortgage servicing rights by approximately
$7 million. The Company will continue to subservice these
loans until June 1995 and is actively pursuing a strategy to
replace this servicing volume.
Fees for trust services in 1994 increased to $919,000, up
70% from the $542,000 earned in 1993. Fees for trust services in
1992 were $305,000. Fees for trust services increased as a
result of the generation of new trust business and additional
assets under management, particularly in investment management
and custody accounts. Assets under management of the trust
department increased to approximately $214 million at December
31, 1994, up significantly from $129 million at year end 1993 and
$55 million at year end 1992.
Sundry income items were $666,000 higher in 1994, primarily
because of higher customer service fees, appraisal fee income and
insurance commissions. These increases are largely attributable
to increased lending and deposit activity. In addition, the
Company earned approximately $108,000 in 1994 real estate rental
income, the majority of which is not expected to continue. In
addition, earnings associated with the credit card securitization
are expected to be a new source of fee income in 1995.
On August 18, 1993, the Bank entered into an investor
services agreement with Edgar M. Norris & Co., Inc. ("Norris &
Co."), a broker-dealer registered with the National Association
of Securities Dealers, Inc., to offer certain brokerage services
to the Bank's customers. Under this affiliate arrangement, the
Bank offers certain brokerage services to its customers through
dual employees (a Bank employee who is also employed by Norris &
Co.). The commissions or mark up charges on transactions are
shared between the Bank and Norris & Co. as set forth in the
investor services agreement. Brokerage services activity for
1994 has been limited.
Noninterest Expense
Noninterest expenses were $54.0 million in 1994, $28.3
million in 1993 and $18.9 million in 1992. Included in 1994
noninterest expenses is a $12.2 million one-time restructuring
charge associated with the credit card securitization and the
write-down of other intangible assets. Excluding the
restructuring charges, 1994 noninterest expenses increased 48%
over 1993, while 1993 was 50% higher than 1992. The increased
expenditures primarily reflect the costs of additional personnel
to support the Company's current and anticipated growth.
Salaries and wages and benefits increased 48% to $19.4
million in 1994 from $13.1 million in 1993. This increase
follows an increase of 54% from $8.5 million in 1992. Full-time
equivalent employees rose to 551 at the end of 1994 from 477 and
275 at the end of 1993 and 1992, respectively. Staff increases
were attributable to the addition of 11 banking offices, higher
loan and deposit activity resulting from internal growth and
acquisitions, and the expansion of the mortgage banking
operations.
The 1994 occupancy and furniture and equipment expenses
increased $2.1 million, or 49%, due to the addition of 11 banking
offices, including a new Myrtle Beach main office, the opening of
a regional headquarters office in Columbia for the Midlands
region of South Carolina, the expansion of the Mortgage Company's
operations and the expansion of its administrative offices in
Greenville to a second location.
The 1994 restructuring charges include $12.2 million
primarily from the write down of intangible assets and charges
associated with the origination of credit card accounts.
Management expects the restructuring of its credit card
operations to increase future pre-tax income by approximately
$2.3 million a
17
<PAGE>
year, through increased lower amortization costs and the
reinvestment of the cash currently invested in the credit card
portfolio.
Sundry expense items increased $5.2 million, or 48%, to
$16.1 million in 1994 from $10.9 million in 1993 and $7.4 million
in 1992. Three expense items-- federal insurance premiums,
intangibles amortization and credit card processing fees --
accounted for approximately 66% of this increase. Federal
deposit insurance premiums increased $509,000, or 32%, in 1994 to
$2.1 million. This increase was primarily due to a higher levels
of deposits. Intangibles amortization increased $1.6 million, or
175%, in 1994 to $2.5 million, principally as a result of
intangibles relating to the acquisition of branches, credit card
receivables and the Mortgage Company. Credit card processing
fees increased $597,000, or 66%, to $1.5 million in 1994,
principally as a result of credit card solicitations by the
Company and the purchase of approximately $16.3 million in credit
card receivables in June 1993 and November 1993. With the
securitization of the majority of credit card loans during the
first quarter of 1995, management expects credit card processing
fees to decrease significantly in 1995.
Advertising and public relations expenses increased
$526,000, or 121%, to $959,000 in 1994, due to the Company's
statewide expansion, advertising campaigns in key markets and
special deposit promotions. The remaining increase in sundry
noninterest expenses was primarily attributable to the overhead
and operating expenses associated with higher lending and deposit
activities. The largest sundry noninterest expenses were
stationery, supplies and printing, telephone, postage, and fees.
Income Taxes
The provision for income taxes in 1994 was $190,000. The
provision for income taxes was $2.3 million in 1993 and $1.2
million in 1992. Income taxes for 1994 include a one-time
reduction of $2.8 million from restructuring charges, partially
offset by $1 million of income tax expense in connection with the
merger of the Savings Bank into the Bank.
BALANCE SHEET ANALYSIS
Total assets at December 31, 1994 were $1.2 billion, an
increase of $299.9 million, or 33%, from $904.5 million at the
end of 1993. Loans increased $299.4 million, or 48%, to $923.1
million at December 31, 1994 compared with $623.6 million at
December 31, 1993. Deposits at year end 1994 were $1.0 billion,
up 25% from $804.5 million at year end 1993. Total shareholders'
equity increased 24% to $86.5 million at December 31, 1994 from
$70.4 million at the end of 1993. Significant components of
balance sheet growth include increases from internal loan growth,
branch acquisitions and the proceeds from the Series 1994
preferred stock offering.
Average total assets in 1994 were $1.1 billion, a 41%
increase over the 1993 average of $782.6 million. Average
earning assets were $941.2 million in 1994, a 32% increase over
the 1993 level of $711.1 million. For 1992, average total assets
and average earning assets were $562.4 million and $520.1
million, respectively.
18
<PAGE>
Loans
The Company's loan portfolio consists principally of
commercial mortgage loans, other commercial loans, consumer loans
and one-to-four family residential mortgage loans. A substantial
portion of these borrowers are located in South Carolina and are
concentrated in the Company's market areas. The Company has no
foreign loans or loans for highly leveraged transactions. The
loan portfolio does not contain any concentrations of credit risk
exceeding 10% of the portfolio. At December 31, 1994, the
Company had total loans outstanding of $923.1 million which
equaled approximately 92% of the Company's total deposits and
approximately 77% of the Company's total assets. The level of
total loans, relative to total deposits and total assets, has
increased from the prior year. The composition of the Company's
loan portfolio at December 31, 1994 was as follows: commercial
and commercial mortgage 50%, residential mortgage 22%, credit
card 19%, consumer 6% and construction 3%.
The Company's loans increased $299.4 million, or 48%, to
$923.1 million at December 31, 1994 from $623.6 million at
December 31, 1993. Of this increase, $37.5 million resulted from
loans acquired in branch acquisitions. The balance was internal
loan growth. This increase was net of $55.1 million of mortgage
loans sold, which were predominantly current production, fixed
rate mortgage loans. During 1994, the Bank began a mail campaign
to solicit new credit card customers. These solicitations
resulted in approximately $60 million in new credit card
balances, which nearly doubled the size of the Bank's credit card
portfolio.
As noted above, the Company has experienced significant
growth in its commercial and commercial mortgage loans over the
past several years. Furthermore, these loans constitute
approximately 57% of the Company's total loans at December 31,
1994. These loans generally range in size from $250,000 to
$500,000 and are typically made to small to medium-sized,
owner-operated companies.
For 1994, the Company's loans averaged $781.5 million with a
yield of 9.04%, compared with $548.6 million and a yield of 8.62%
for 1993. The interest rates charged on loans vary with the
degree of risk and the maturity and amount of the loan.
Competitive pressures, money market rates, availability of funds,
and government regulations also influence interest rates. The
increase in loan yield is largely attributable to the upward
repricing of variable rate loans, which constitute approximately
60% of the loan portfolio. During 1994, the average prime
interest rate rose approximately 114 basis points.
Loans held for sale at December 31, 1994 included $69.5
million in credit card loans and $2.2 million in mortgage loans.
On January 24, 1995, the Company completed the securitization of
the credit card loans held for sale at year end.
Securities
Debt securities held as assets are classified as investment
securities, securities available for sale or trading securities.
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards 115, "Accounting for Certain
Investments in Debt and Equity Securities." Securities
classified as investments are carried at cost, adjusted for the
amortization of premiums and the accretion of discounts. In
order to qualify as an investment asset, the Company must have
the ability and a positive intention to hold them to maturity.
Securities available for sale are carried at market value with
unrealized gains or losses reported in stockholders' equity (net
of tax effect). These securities may be disposed of if
management believes that the sale would provide the Company and
its subsidiaries with increased liquidity or, based upon
prevailing or
19
<PAGE>
projected economic conditions, that such sales would be a
safe and sound banking practice and in the best interest of
the stockholders. Trading securities are carried at market
value with adjustments for unrealized gains or losses
reported in noninterest income. The Company's policy is to
acquire trading securities only to facilitate their sale to
customers.
The Company's subsidiaries are generally limited to
investments in (i) United States Treasury securities or United
States Government guaranteed securities, (ii) securities of
United States Government agencies, (iii ) mortgage-backed
securities, (iv) general obligation municipal bonds and revenue
bonds which are investment grade rated and meet certain other
standards, and (v) money market instruments which are investment
grade rated and meet certain other standards. To date, the
Company does not use derivative products.
During the first quarter of 1993, the Bank received approval
to establish dealer bank operations to sell United States
Treasury, Federal agency and municipal bonds to individuals,
corporations and municipalities through its investments division.
Income from the Company's dealer activity is not material.
At December 31, 1994, the total investment portfolio had a
book value of $130.8 million and a market value of $125.9 million
for an unrealized loss of $4.9 million. The investment portfolio
had a weighted average duration of approximately 2 years.
Securities (i.e., investment securities, securities available for
sale and trading securities) averaged $142.7 million in 1994, 2%
above the 1993 average of $140.1 million. The average portfolio
yield declined from 5.15% in 1993 to 5.04% in 1994.
During the past two years, average securities have been a
lesser component of average earning assets, decreasing from 19.7%
in 1993 to 15.2% in 1994. The Company decreased the relative
level of its investment portfolio to fund loans in its banking
markets. At December 31, 1994, securities totaled $130.5
million, down $884,000 from the $129.6 million invested at the
end of 1993.
Other Assets
At December 31, 1994, other assets included other real
estate owned of $2.0 million and intangible assets of $29.2
million. The intangible assets balance is attributable to
goodwill of $9.1 million, core deposit balance premiums of $11.1
million, excess and purchased mortgage servicing rights of $8.7
million and purchased credit card premiums of $345,000.
Deposits
The primary source of funds for loans and investments is
deposits which are gathered through the Bank's branch network.
Competition for deposit accounts is primarily based on the
interest rates paid thereon and the convenience of and the
services offered by the branch locations. The Company's pricing
policy with respect to deposits takes into account liquidity
needs, the direction and levels of interest rates and local
market conditions. The Company does not believe that any of its
deposits qualify as brokered deposits. It is the Company's
policy not to accept brokered deposits.
During 1994, interest-bearing liabilities averaged $867.1
million, compared with $649.1 million for 1993. This increase
resulted principally from branch acquisitions. The average
interest rates were 3.75% and 3.79% for 1994 and 1993,
respectively. At December 31, 1994, interest-bearing deposits
comprised
20
<PAGE>
approximately 87% of total deposits and 79% of
interest-bearing liabilities. During 1994, the Company increased
its use of short-term borrowings to fund loan growth. Short-term
borrowings averaged $41.4 million and $14.0 million in 1994 and
1993, respectively.
The Company uses its deposit base as its primary source of
funds. Deposits grew 25% to $1.0 billion at December 31, 1994
from $804.6 million at December 31, 1993. Of the $197.2 million
increase in deposits, approximately $141.2 million resulted from
the acquisition of branches. Internal growth generated the
remaining new deposits. During 1994, total interest-bearing
deposits averaged $824.4 million with a rate of 3.73%, compared
with $633.6 million with a rate of 3.80% in 1993. As the level
of interest rates fell in 1993, the Company was able to reprice
deposits to more than recover declines in the yields on earning
assets. During the first half of 1994, which was a period of
rising interest rates, the Company generally kept deposit
interest rates unchanged which caused the average deposit rate to
continue to decline, primarily from the repricing of certificates
of deposit. Beginning with the third quarter of 1994, however,
the Company raised deposit interest rates, causing the Company's
interest rate paid on deposits to rise.
Average noninterest-bearing deposits, which increased 64%
during the year, increased to 10.9% of average total deposits in
1994 from 8.9% in 1993. This increase was attributable to new
accounts from commercial loan customers and escrow balances
related to mortgage servicing operations.
The Company's core deposit base consists of consumer time
deposits, savings, NOW accounts, money market accounts and
checking accounts. Although such core deposits are becoming
increasingly interest sensitive for both the Company and the
industry as a whole, such core deposits continue to provide the
Company with a large and stable source of funds. Core deposits
as a percentage of average total deposits averaged approximately
86% in 1994. The Company closely monitors its reliance on
certificates of deposit greater than $100,000, which are
generally considered less stable and less reliable than core
deposits.
Generally, certificates of deposits greater than $100,000
have a higher degree of interest rate sensitivity than other
certificates of deposit. The percentage of the Company's
deposits represented by certificates of deposit greater than
$100,000 is higher than the percentage of such deposits held by
its peers. However, the Company does not believe that this
higher-than-peer percentage of certificates of deposits greater
than $100,000 will have a material adverse effect because such
certificates are principally held by long-term customers located
in the Company's market areas.
Capital Resources and Dividends
The Company's capital needs have been met principally
through public offerings of common and preferred stock and
through the retention of earnings. In addition, the Company
issued both common and preferred stock in connection with the
acquisitions of the Savings Bank and the Mortgage Company.
The Company's initial public offering in 1986 raised $15.3
million in common equity and, to date, represents the largest
amount of initial equity raised in connection with the startup of
a financial institution in South Carolina. Other public
offerings of capital stock include the offering of the 8.32%
Cumulative Convertible Preferred Stock ("Series 1992 Preferred
Stock") in May 1992, which raised $10.3 million, the offering of
the 7.50% Noncumulative Convertible Preferred Stock Series
("Series 1993 Preferred Stock") in March 1993, which raised $14.5
million, and the offering of the Series 1994 Preferred Stock in
April 1994, which raised $21.4 million. In December 1993, the
Company redeemed the Series 1992 Preferred Stock. In connection
with such redemption, substantially all of the outstanding shares
of Series 1992 Preferred Stock
21
<PAGE>
were converted into 1,089,674 shares of Common Stock.
On September 30, 1993, the Company completed the acquisition
of all of the outstanding stock of First Sun Mortgage Corporation
in exchange for 60,000 shares of Series 1993B Preferred Stock
which added $1.2 million in equity. There is currently no market
for the Series 1993B Preferred Stock, and it is not expected that
any market for such stock will develop.
The Company completed the offering of its Series 1994
Preferred Stock on April 15, 1994. In this offering, the Company
raised approximately $21.4 million after deduction of the related
expenses and issued 920,000 shares of its Series 1994 Preferred
Stock. Each share of Series 1994 Preferred Stock provides for
cash dividends, when, as, and if declared by the Board of
Directors, at the annual rate of $1.83 per share. Dividends on
the Series 1994 Preferred Stock are not cumulative. A Series
1994 Preferred Stock share may be converted at the option of the
holder into 1.8828 shares of common stock. The conversion ratio
has been restated to reflect the 5% common stock dividend issued
in May 1994. In addition, and upon compliance with certain
conditions, the Company may redeem the Series 1994 Preferred
Stock at the redemption prices set forth in the Company's
Articles of Amendment related to the Series 1994 Preferred Stock.
Total stockholders' equity increased $16.1 million, or 23%,
to $86.5 million at December 31, 1994 from $70.4 million at
December 31, 1993. This change primarily reflects the capital
raised in connection with the Series 1994 Preferred Stock
offering discussed above, which was issued on April 15, 1994,
partially offset by the payment of dividends and the net loss for
1994.
Book value per share was $8.61 and $9.23 at December 31,
1994 and 1993, respectively. The decline in book value is
attributable to the one-time restructuring charges. Tangible
book value per share at December 31, 1994 was $4.49, down from
$6.73 at December 31, 1993. Tangible book value is significantly
below book value as a result of the purchase premiums associated
with branch acquisitions and the purchase of the Mortgage
Company. Tangible book value declined during 1994 from the
addition of intangible assets related to the branch acquisitions
and reclassifications of loan premiums to intangible assets.
Risk-based capital guidelines for financial institutions
adopted by the regulatory authorities went into effect after
December 31, 1990. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), signed into law on December
19, 1991, provides authority for special assessments against
insured deposits and for development of a general risk-based
deposit insurance assessment system, which the Federal Deposit
Insurance Corporation ("FDIC") implemented on a transitional
basis effective January 1, 1993.
At December 31, 1994, the Company and the Savings Bank were
in compliance with each of the applicable regulatory capital
requirements and exceeded the "adequately capitalized" regulatory
guidelines. Excluding Aiken County National Bank, the Bank
exceeded the "adequately capitalized" regulatory guidelines for
the Tier 1 risk-based capital and leverage ratios, but was
"undercapitalized" for the total risk-based capital ratio. In
February 1995, the Company received a letter from the FDIC which
indicated that, based on its analysis of the Bank's Report of
Condition and income as of December 31, 1994, that the Bank was
undercapitalized with respect to its total risk-based capital
ratio. Specifically, the FDIC determined that the Bank's total
risk-based capital ratio was 6.70%, as compared to the minimum
8%. (The 6.70% excludes capital realized in connection with the
acquisition of Aiken County National Bank and Midlands National
Bank.)
As a result of the capital deficiency, the Bank committed to
(1) combine the Savings Bank and the Bank; (2) consummate the
credit card securitization; (3) have the Company contribute
capital of $3.5 million
22
<PAGE>
to the Bank; and (4) sell certain purchase mortgage
servicing rights. All of these steps were taken except for
the sale of the purchase mortgage servicing rights, which is
expected to be consummated by March 31, 1995. At the end of
February, and as a result of the January and February
operating results (and without the consummation of the sale of
the purchase mortgage servicing rights), the Bank's total
risk-based capital ratio was 8.10%, excluding Aiken County
National Bank and Midlands National Bank. The Bank expects that
its total risk-based capital ratio will continue to increase as a
result of monthly operating results and the consummation of the
acquisitions of Aiken County National Bank and Midlands National
Bank (which the Bank expects to consummate in April and June of
1995).
As a result of its total risk-based capital ratio declining
below 8%, the Company, the Bank and the FDIC entered into a
Capital Maintenance Commitment and Guaranty Agreement (the
"Guaranty Agreement") pursuant to which the Company guaranteed
that the Bank will comply with the restoration plan described
above until the Bank has been adequately capitalized on average
during each of four consecutive quarters. The Guaranty Agreement
provides that in the event the Bank fails to comply with the
applicable capital requirements, the Company will pay to the Bank
or its successors or assigns an amount equal to the lesser of (a)
5% of the Bank's total assets at the time the Bank was notified
or deemed to have notice that the Bank was undercapitalized, or
(b) the amount which is necessary to bring the Bank into
compliance with all capital standards applicable to the Bank at
the time the Bank failed to so comply.
Management does not believe that it will be required to make
payments under the Guaranty Agreement or that the Bank will not
be at least adequately capitalized in the foreseeable future.
The following table sets forth certain capital ratios and
the amount of capital of the Company and the Bank at December 31,
1994 and 1993, giving full effect to the exclusion of intangible
assets.
<TABLE>
<CAPTION>
Capital Ratios
Total Tier 1
Risk-based Risk-based
Capital Ratio Capital Ratio Leverage Ratio
12/31/94 12/31/93 12/31/94 12/31/93 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C>
The Company 8.57% 9.77% 7.88% 8.74% 5.78% 6.37%
The Bank 6.97 9.06 6.37 8.05 5.26 6.01
Adequately Capitalized
Minimum Requirement 8.00 8.00 4.00 4.00 4.00 4.00
</TABLE>
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 all scheduled cash
dividends on the Series 1993 Preferred Stock, the Series 1993B
Preferred Stock and the Series 1994 Preferred Stock since their
respective issuances. During each of the last six years, the
Company issued 5% common stock dividends to common stockholders.
In November 1993, the Board of Directors initiated a regular
quarterly cash dividend of $0.05 per share payable on the common
stock, the first of which was paid on February 1, 1994. Cash
dividends have been paid on a quarterly basis since the
initiation of the cash dividend. The Board of Directors
increased the
23
<PAGE>
quarterly cash dividend to $0.06 beginning in the first quarter
of 1995. The Company presently intends to continue to pay this
quarterly cash dividend on the common stock; however, future
dividends will depend upon the Company's financial
performance and capital requirements.
In the future, the Company may engage in offerings of equity
or debt to raise capital.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the
Company monitors and controls the mix and maturities of its
assets and liabilities. The essential purposes of
asset/liability management are to ensure adequate liquidity and
to maintain an appropriate balance between interest sensitive
assets and liabilities. Liquidity management involves meeting
the cash flow requirements of the Company. These cash flow
requirements primarily involve withdrawals of deposits,
extensions of credit, payment of operating expenses and repayment
of purchased funds. The Company's principal sources of funds for
liquidity purposes are customer deposits, principal and interest
payments on loans, maturities and sales of debt securities,
temporary investments and earnings. Temporary investments
averaged 1.50% and 2.87% of earning assets in 1994 and 1993,
respectively. Management believes that the Company maintains an
adequate level of liquidity by retaining liquid assets and other
assets that can easily be converted into cash and by maintaining
access to alternate sources of funds, including federal funds
purchased from correspondent banks and borrowing from the Federal
Home Loan Bank.
The liquidity ratio is an indication of a company's ability
to meet its short-term funding obligations. FDIC examiners
suggest that a commercial bank maintain a liquidity ratio of
between 20% and 25%. At December 31, 1994, the Bank's liquidity
ratio was approximately 13%. At December 31, 1994, the Bank had
unused short-term lines of credit with correspondent banks of
$20.3 million. All of the lenders have reserved the right to
withdraw these lines of credit at their option. In addition, the
Company, through its subsidiaries, has access to borrowing from
the Federal Home Loan Bank. At December 31, 1994, unused
borrowing capacity from the Federal Home Loan Bank totaled $33
million. Management believes that these sources are adequate to
meet its liquidity needs. On January 24, 1995, the Company
completed the securitization of the majority of its credit card
loans. In connection with this securitization, the Company
received approximately $70 million which provided additional
liquidity.
As reported in the Consolidated Statements of Cash Flows,
changes in deposits, borrowed funds, investments and equity
provided cash in 1994 of $153.8 million, $89.2 million, $54.2
million and $22.0 million, respectively. The Company used this
cash to increase loans by $264.7 million, capital expenditures by
$ 1 0.6 million, cash balances by $28.2 million, operating
activities by $12.3 million and dividends by $3.0 million.
The Company plans to meet its future cash needs through the
proceeds of stock offerings, liquidation of temporary
investments, maturities or sales of loans and investment
securities and generation of deposits. By increasing the rates
paid on deposits, the Company would be able to raise deposits.
The interest sensitivity gap is the difference between total
interest sensitive assets and liabilities in a given time period.
The objective of interest sensitivity management is to maintain
reasonably stable growth in net interest income despite changes
in market interest rates by maintaining the proper mix of
interest sensitive assets and liabilities. Management seeks to
maintain a general equilibrium between interest sensitive assets
and liabilities in order to insulate net interest income from
significant adverse changes in market rates.
24
<PAGE>
The Asset/Liability Management Committee uses an
asset/liability simulation model which quantifies balance
sheet and earnings variations under different interest rate
environments to measure and manage interest rate risk.
ASSET QUALITY
Prudent risk management involves assessing risk and managing
it effectively. Certain credit risks are inherent in making
loans, particularly commercial, real estate and consumer loans.
The Company attempts to manage credit risks by adhering to
internal credit policies and procedures. These policies and
procedures include a multi-layered loan approval process, officer
and customer limits, periodic documentation examination and
follow-up procedures for any exceptions to credit policies.
Loans are assigned a grade and those that are determined to
involve more than normal credit risk are placed in a special
review status. Loans that are placed in special review status
are required to have a plan under which they will be either
repaid or restructured in a way that reduces credit risk. Loans
in this special review status are reviewed monthly by the loan
committee of the Board of Directors.
As demonstrated by the following key analytical measures of
asset quality, management believes the Company has effectively
managed its credit risk. Net loan charge-offs, excluding credit
card loans, were $1.3 million, $1.0 million, and $1.8 million in
1994, 1993 and 1992, respectively. During 1994, net loan charge-
offs as a percentage of average loans have remained low at 0.38%,
compared with 0.28% for 1993 and 0.42% in 1992. Nonperforming
assets as a percentage of loans and foreclosed property were
0.51% and 0.86% at December 31, 1994 and 1993, respectively. At
December 31, 1994, the allowance for loan losses was 220% of
nonperforming loans. At December 31, 1994, the Company had $2.0
million in non-accruing loans, $675,000 in restructured loans and
$1.3 million in loans greater than ninety days past due on which
interest was still being accrued. These asset quality measures
compare favorably to the Company's bank holding company peer
group.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities
of financial institutions such as the Company's subsidiaries are
primarily monetary in nature. Therefore, interest rates have a
more significant effect on the Company's performance than do the
general levels of inflation on the price of goods and services.
While the Company's noninterest income and expense and the
interest rates earned and paid are affected by the rate of
inflation, the Company believes that the effects of inflation are
generally manageable through asset/liability management. See "--
Liquidity and Interest Rate Sensitivity."
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. See "Business--
Supervision and Regulation."
25
<PAGE>
ACCOUNTING ISSUES
The Financial Accounting Standards Board ("FASB") has issued
Standards No. 114, "Accounting by Creditors for Impairment of a
Loan, " which proposes that all creditors value all loans for
which it is probable that the creditor will be unable to collect
all amounts due according to the terms of the loan agreement at
the present value of the expected future cash flows. This
discounting would be done at the loan's effective interest rate.
The periodic effect on net income has not been fully determined,
but is not expected to have a material impact on the Company's
financial position or results of operations. This proposed
standard would apply for fiscal years beginning after December
15, 1994. In October 1994, the FASB issued SFAS 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." SFAS 118 amends SFAS 114 in the areas of
disclosure requirements and methods for recognizing interest
income on an impaired loan. The Statement is effective
concurrent with the effective date of SFAS 114.
The FASB has issued an exposure draft, "Accounting for the
Impairment of Long Lived Assets," which proposes standards for
the identification of long-lived assets, identifiable intangibles
and goodwill that may need to be written down because of an
entity's inability to recover the assets' carrying values. The
periodic effect of the adoption of this standard on net income
has not been fully determined. This proposed standard would
apply for fiscal years beginning after December 15, 1994 with
earlier application encouraged.
The FASB has issued an exposure draft, "Accounting for
Mortgage Servicing Rights and Excess Servicing Receivables for
Securitization of Mortgage Loans," that proposes that an entity
recognize, as separate assets, rights to service mortgage loans
for others irrespective of how those servicing rights are
acquired (i.e., whether purchased or originated). If adopted,
this statement would also require that gains on sales of loans be
recorded as income in the period of sale (i.e., such gain would
not reduce capitalized servicing rights). Under this proposed
statement, impairment of capitalized mortgage servicing rights
would be measured by type of mortgage servicing right, based on
fair value using a reserve methodology. This proposed statement
would be applied prospectively in fiscal years beginning after
December 15, 1995, to transactions in which an entity acquires
mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess
servicing receivables whenever acquired. Retroactive application
would be prohibited. The effect of this proposed statement on
the Company's results of operations has not yet been fully
determined.
26
<PAGE>
Exhibit Index
EXHIBIT
23.1 Consent of Elliott Davis & Company, L.L.P.
27.1 Financial Data Schedule
28
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Carolina First Corporation
Greenville, South Carolina
We hereby consent to the use of our report dated January 17, 1995 with
respect to the financial statements of Aiken County National Bank and
of our report dated February 3, 1995 with respect to the consolidated
financial statements of Carolina First Corporation included in this
current report on Form 8-K dated September 13, 1995.
Greenville, South Carolina
September 13, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 59,750
<INT-BEARING-DEPOSITS> 874,774
<FED-FUNDS-SOLD> 4,420
<TRADING-ASSETS> 1,155
<INVESTMENTS-HELD-FOR-SALE> 59,078
<INVESTMENTS-CARRYING> 70,264
<INVESTMENTS-MARKET> 66,880
<LOANS> 923,941
<ALLOWANCE> 6,002
<TOTAL-ASSETS> 1,204,350
<DEPOSITS> 1,001,748
<SHORT-TERM> 72,073
<LIABILITIES-OTHER> 42,870
<LONG-TERM> 1,177
<COMMON> 5,619
0
37,014
<OTHER-SE> 43,849
<TOTAL-LIABILITIES-AND-EQUITY> 1,204,350
<INTEREST-LOAN> 70,678
<INTEREST-INVEST> 6,643
<INTEREST-OTHER> 652
<INTEREST-TOTAL> 77,973
<INTEREST-DEPOSIT> 30,750
<INTEREST-EXPENSE> 32,509
<INTEREST-INCOME-NET> 45,464
<LOAN-LOSSES> 1,197
<SECURITIES-GAINS> 75
<EXPENSE-OTHER> 54,043
<INCOME-PRETAX> (1,550)
<INCOME-PRE-EXTRAORDINARY> (1,740)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,740)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 2,051
<LOANS-PAST> 1,285
<LOANS-TROUBLED> 675
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,679
<CHARGE-OFFS> 3,091
<RECOVERIES> 140
<ALLOWANCE-CLOSE> 6,002
<ALLOWANCE-DOMESTIC> 6,002
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
