United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1995
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM to
Commission file number 0-15083
CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0824914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 South Main Street, Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 255-7900
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The number of outstanding shares of the issuer's $1.00 par value common
stock as of May 10, 1995 was 5,246,230.
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Consolidated Balance Sheets
Carolina First Corporation and Subsidiaries
(Unaudited)
($ in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks..................................... $ 47,425 $ 55,047
Federal funds sold and securities
purchased under resale agreements......................... 500 500
Securities
Trading.................................................. 1,483 1,155
Available for sale....................................... 55,206 49,648
Held for investment (market value $64,382 in 1995
and $62,868 in 1994)..................................... 66,129 66,256
Total securities....................................... 122,818 117,059
Loans held for sale......................................... 1,100 71,695
Loans....................................................... 847,099 795,047
Less unearned income..................................... (685) (873)
Less allowance for loan losses........................... (7,552) (5,267)
Net loans.............................................. 839,962 860,602
Premises and equipment...................................... 36,599 36,842
Accrued interest receivable................................. 7,913 7,079
Other assets................................................ 41,728 42,968
$1,096,945 $ 1,120,097
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing..................................... $ 115,853 $ 119,950
Interest-bearing........................................ 791,933 805,498
Total deposits........................................ 907,786 925,448
Borrowed funds............................................ 97,269 107,200
Accrued interest payable.................................. 4,433 3,798
Other liabilities......................................... 6,608 4,610
Total liabilities...................................... 1,016,096 1,041,056
Shareholders' Equity
Preferred stock-no par value; authorized 10,000,000 shares;
issued and outstanding 917,200 shares (Series 1994),
608,000 shares (Series 1993) and 54,067 shares (Series 1993B)
in 1995 and 920,000 shares (Series 1994), 621,000 shares
(Series 1993) and 60,000 shares (Series 1993B) in 1994;
liquidation preference $25 per share (Series 1994 and 1993)
and $20 per share (Series 1993B)........................ 36,633 37,014
Common stock-par value $1 per share; authorized 20,000,000
shares; issued and outstanding 4,636,166 shares in 1995
and 4,581,247 in 1994................................... 4,636 4,581
Surplus................................................... 39,653 39,037
Retained earnings......................................... 1,490 472
Nonvested restricted stock................................ (998) (1,083)
Guarantee of ESOP debt.................................... (126) (126)
Unrealized loss on securities available for sale.......... (439) (854)
Total shareholders' equity............................. 80,849 79,041
$1,096,945 $ 1,120,097
</TABLE>
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Consolidated Statements of Income
Carolina First Corporation and Subsidiaries
(Unaudited)
($ in thousands, except share data)
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
<S> <C> <C>
Interest income
Interest and fees on loans................................ $ 19,803 $ 12,093
Interest on securities
Taxable................................................. 1,330 1,301
Exempt from Federal income taxes........................ 242 187
Total interest on securities.......................... 1,572 1,488
Interest on federal funds sold and securities
purchased under resale agreements....................... 84 133
Total interest income................................... 21,459 13,714
Interest expense
Interest on deposits...................................... 8,396 5,763
Interest on borrowed funds................................ 1,391 210
Total interest expense.................................. 9,787 5,973
Net interest income..................................... 11,672 7,741
Provision for loan losses................................... 3,000 --
Net interest income after
provision for loan losses............................. 8,672 7,741
Noninterest income
Service charges on deposit accounts....................... 1,189 826
Credit card trust income.................................. 377 --
Fees for trust services................................... 300 245
Mortgage banking income................................... 252 501
Gain on sale of securities................................ 97 73
Sundry.................................................... 756 326
Gain on sale of purchased mortgage servicing rights....... 2,026 --
Total noninterest income................................ 4,997 1,971
Noninterest expenses
Salaries and wages........................................ 3,956 2,814
Employee benefits......................................... 1,045 1,079
Occupancy................................................. 1,042 797
Furniture and equipment................................... 696 443
Sundry.................................................... 3,396 2,635
Total noninterest expenses.............................. 10,135 7,768
Income before income taxes.............................. 3,534 1,944
Income taxes................................................ 1,237 466
Net income ............................................. 2,297 1,478
Dividends on preferred stock................................ 727 310
Net income applicable to common shareholders............ $ 1,570 $ 1,168
Per share data:*
Net income per common share............................. $ 0.34 $ 0.26
Fully diluted net income per common share............... 0.30 0.26
Cash dividends per common share......................... $ 0.06 $ 0.05
Average common shares outstanding:*
Primary................................................. 4,603,769 4,498,745
Fully diluted........................................... 7,536,825 5,794,388
</TABLE>
*Per share data have been restated to reflect 5% stock dividends.
2
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Consolidated Statements of Cash Flows
Carolina First Corporation and Subsidiaries
(Unaudited)
($ in thousands)
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................$ 2,297 $ 1,478
Adjustments to reconcile net income to net cash
provided by operations
Depreciation.......................................... 763 486
Amortization of intangibles........................... 775 333
Provision for loan losses............................. 3,000 --
Gain on sale of securities............................ (97) (73)
Gain on sale of purchased mortgage servicing rights... (2,026) --
Unrealized gain on securities......................... (4) --
Proceeds from sale of trading securities.............. 170,937 92,946
Proceeds from maturity of trading securities.......... 528 9,565
Purchase of trading securities........................ (171,789) (103,488)
Originations of mortgage loans held for sale.......... (5,746) (11,410)
Proceeds from sale of mortgage loans held for sale.... 6,809 10,855
Increase in interest receivable....................... (834) (320)
Increase in interest payable.......................... 635 125
Decrease (increase) in other assets................... 2,576 (6,455)
Increase (decrease) in other liabilities.............. 1,799 (6,192)
FHLB stock dividend................................... (114) (16)
Net cash used for operating activities.................. 9,509 (12,166)
Cash Flows from Investing Activities
Proceeds from maturity of securities available for sale... 20,054 73,052
Proceeds from maturity of securities held for investment.. 2,176 2,924
Purchase of securities available for sale................. (24,903) (90,257)
Purchase of securities held for investment................ (1,935) (7,153)
Net decrease in federal funds sold and securities
purchased under resale agreements....................... -- 54,142
Net (increase) decrease in loans.......................... 16,577 (47,689)
Capital expenditures...................................... (520) (2,715)
Net cash used for investing activities ................. 11,449 (17,696)
Cash Flows from Financing Activities
Net increase (decrease) in deposits....................... (17,662) 7,606
Increase (decrease) in borrowed funds..................... (9,931) 25,581
Dividends on preferred and common stock................... (1,002) (369)
Other common stock activity............................... 15 (57)
Net cash provided by financing activities............... (28,580) 32,761
Net change in cash and due from banks....................... (7,622) 2,899
Cash and due from banks at beginning of year................ 55,047 27,320
Cash and due from banks at end of period....................$ 47,425 $ 30,219
</TABLE>
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1994 Annual
Report to shareholders.
(2) SECURITIES
The change in the net unrealized loss on securities
available for sale for the three months ended March 31, 1995
was a decrease of $415,000.
(3) STATEMENTS OF CASH FLOWS
Cash includes currency and coin, cash items in process of
collection and due from banks. Interest paid, net of
interest capitalized as a part of the cost of construction,
amounted to approximately $9,152,000 for the three months
ended March 31, 1995. Income tax payments of $135,000 were
made for the three months ended March 31, 1995.
(4) ACQUISITIONS
On April 10, 1995, the Company completed its acquisition of
Aiken County National Bank ("ACNB"), which was accounted for
as a pooling of interests. The financial statements for
future periods will be restated to include ACNB. In
connection with this acquisition, ACNB was merged into
Carolina First Bank, and the Company issued 452,658 shares
of the Company's common stock to the ACNB shareholders. At
March 31, 1995, ACNB had approximately $39 million in
assets, $30 million in loans and $35 million in deposits.
Effective November 14, 1994, the Company entered into an
agreement to acquire Midlands National Bank ("MNB"). The
Company expects that this acquisition will be consummated in
the second quarter of 1995. The Company expects to issue up
to 784,242 shares of the Company's common stock in
connection with this acquisition, which is expected to be
accounted for as a pooling of interests. The transaction
will be structured as a merger of MNB into Carolina First
Bank. At March 31, 1995, MNB operated through three
locations and had approximately $42 million in assets, $37
million in deposits and $27 million in loans.
(5) MANAGEMENT'S OPINION
The financial statements in this report are unaudited. In
the opinion of management, all adjustments necessary to
present a fair statement of the results for the interim
periods have been made. All such adjustments are of a
normal, recurring nature.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On April 10, 1995, the Company completed its acquisition of
Aiken County National Bank, a national bank headquartered in
Aiken, South Carolina ("ACNB"). The transaction was accounted
for as a pooling of interests. Since this acquisition closed
subsequent to the end of the first quarter of 1995, all financial
information contained in this filing excludes the results of ACNB
for all periods presented.
GENERAL
Carolina First Corporation (the "Company") is a bank holding
company headquartered in Greenville, South Carolina which
operates through two subsidiaries: Carolina First Bank, a state-
chartered bank headquartered in Greenville, South Carolina and
Carolina First Mortgage Company, a South Carolina corporation
headquartered in Columbia, South Carolina ("CF Mortgage").
Through its subsidiaries, the Company provides a full range of
banking services, including mortgage, trust and investment
services, designed to meet substantially all of the financial
needs of its customers. The Company, which commenced banking
operations in December 1986, currently conducts business through
47 locations in South Carolina. At March 31, 1995, the Company
had approximately $1.1 billion in assets, $847.5 million in
loans, $907.8 million in deposits and $80.8 million in
shareholders' equity.
The Company was formed principally in response to perceived
opportunities resulting from the takeovers of several South
Carolina-based banks by large southeastern regional bank holding
companies. A significant number of the Company's executive
officers and management personnel were previously employed by
certain of the larger South Carolina-based banks that were
acquired by these southeastern regional institutions.
Consequently, these officers and management personnel have
significant customer relationships and commercial banking
experience that have contributed to the Company's loan and
deposit growth.
The Company's objective is to become the leading South
Carolina-based banking institution. It believes that it can
accomplish this goal by pursuing a "super-community bank"
strategy, offering the personalized service and local decision-
making authority that characterize community banks, as well as
the sophisticated banking products offered by regional and super-
regional institutions. The Company targets individuals and
small- to medium-sized businesses in South Carolina that require
a full range of quality banking services.
The Company currently serves three principal market areas:
the Greenville metropolitan area and surrounding counties
(located in the Upstate region of South Carolina); the Columbia
metropolitan area and surrounding counties (located in the
Midlands region of South Carolina); and Georgetown and Horry
counties (located in the Coastal region of South Carolina). In
April 1994, the Company entered the Charleston market with its
acquisition of Citadel Federal Savings and Loan Association from
the Resolution Trust Corporation. The Company's principal market
areas, together with the Charleston market, represent the four
largest Metropolitan Statistical Areas in the state.
The Company began its operations with the de novo opening of
Carolina First Bank in Greenville and has pursued a strategy of
growth through internal expansion and through the acquisition of
branch locations and financial institutions in selected market
areas. Its more significant acquisitions include (i) the
acquisition in August 1990 of First Federal Savings and Loan
Association of Georgetown (subsequently
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renamed Carolina First Savings Bank ("CF Savings Bank")), (ii) the
acquisitions in March 1993 and May 1994 of twelve branch locations and
six branch locations (the "6 Republic Branches"), respectively, of
Republic National Bank, (iii) the acquisition of First Sun Mortgage
Corporation (subsequently renamed Carolina First Mortgage Company) in
September 1993, and (iv) the merger of Aiken County National Bank into
Carolina First Bank in April 1995. Approximately half of the Company's
total deposits have been generated through acquisitions.
In the fourth quarter of 1994, the Company initiated a
restructuring which was designed to improve its long-term
competitive position. This restructuring had several unrelated
components and involved (i) the merger of Carolina First Bank and
CF Savings Bank, (ii) the securitization of credit card
receivables, and (iii) the write-off of certain intangible
assets. In connection with these transactions, the Company
incurred in the fourth quarter of 1994 an aggregate, one-time,
after-tax charge of $9.4 million ($12.2 million pre-tax). The
Company believes that on a going-forward basis, the aggregate
effect of the restructuring will be to increase pre-tax income by
approximately $2.8 million a year. Absent the one-time charge
associated with these transactions, the Company would have had
net income of $7.5 million during 1994.
Since 1990, Carolina First Bank acquired or originated
credit card receivables which had outstanding balances of
approximately $104 million as of December 31, 1994. In January
1995, Carolina First Bank contributed approximately $97 million
of its credit card receivables to a master trust (the "Trust") in
connection with a securitization of such credit card receivables
(the "Securitization"). In connection with the Securitization,
certain interests in the Trust were sold to an institutional
investor, while Carolina First Bank retained certain residual
interests in the Trust assets and potential income. In
connection with the sale of such interests, Carolina First Bank
received cash proceeds of approximately $66 million.
The Company completed the merger of CF Savings Bank into Carolina
First Bank. Management believes that there will be significant economic
and managerial benefits from this combination including the elimination
of duplicative administration, the consolidation of regulators, the
reduction of regulatory burdens and increased management focus.
CF Mortgage s principal activities include the origination
and servicing of one-to-four family residential mortgage loans
through its seven offices in South Carolina. At March 31, 1995,
CF Mortgage was servicing 10,360 loans having an aggregate
principal balance of approximately $800 million. This servicing
includes approximately $435 million in servicing sold to an
unrelated party as of March 31, 1995. The Company is
subservicing these loans until June 1995. This sale resulted in
a gain for the Company of approximately $2 million and was
effected because the Company believed that the terms were
favorable.
On May 4, 1995, Carolina First Bank and HomeBanc executed a
letter setting forth the proposed terms of the sale by HomeBanc
and the purchase by Carolina First Bank of servicing rights
associated with approximately $1 billion in mortgage loans. The
purchase price for the servicing is expected to be approximately
$13 million. The sale is expected to be consummated on or before
June 1, 1995. Consummation of the transaction is subject to,
among other things, the completion of a satisfactory due
diligence investigation by Carolina First Bank, the receipt of
all necessary regulatory and other approvals, the execution of a
mutually satisfactory purchase and sale agreement, and the sale
of HomeBanc's capital stock to a designated individual. In
connection with the transaction, Carolina First Bank will receive
a letter of credit equal to 5% of the purchase price, which can
be drawn upon by Carolina First Bank in
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certain instances, including for breaches of warranties by HomeBanc.
On April 27, 1995, the Company filed a registration
statement (Commission File No. 33-58879) (the "Registration
Statement") with the Securities and Exchange Commission (the
"Commission") with respect to the offering of up to $26.5 million
in 9.0% Subordinated Notes due 2005 (the "Notes"). The
Registration Statement was declared effective by the Commission
on May 11, 1995. Contemporaneous with such effectiveness, the
Company entered into an underwriting agreement (the "Underwriting
Agreement") with J.C. Bradford & Co., Interstate/Johnson Loan
Corporation, and Morgan Keegan & Company, Inc. (collectively, the
"Underwriters"), pursuant to which the Underwriters agreed to
purchase $23 million principal amount of the Notes. In the
Underwriting Agreement, the Company also granted the Underwriters
a 30-day option to purchase up to $3.45 million aggregate
principal amount of additional Notes on the same terms and
conditions applicable to the initial $23 million, solely to cover
over-allotments, if any. The Company expects that the closing of
the offering will take place on May 18, 1995; however, such
closing is subject to compliance with certain standard conditions
to closing set forth in the Underwriting Agreement. The offering
is described in greater detail in the Registration Statement, to
which reference is made.
RECENT ACQUISITIONS
On April 10, 1995, the Company completed its acquisition of
Aiken County National Bank, a national bank headquartered in
Aiken, South Carolina ("ACNB"). At March 31, 1995, ACNB had two
locations and approximately $39 million in assets, $35 million in
deposits and $30 million in loans. In connection with this
acquisition, ACNB was merged into Carolina First Bank, and the
Company issued 452,658 shares of the Company's $1 par value
common stock ("Common Stock") to the ACNB shareholders. The
transaction was accounted for as a pooling of interests. Since
this acquisition closed subsequent to the end of the first
quarter of 1995, all financial information contained in this
filing excludes the results of ACNB for all periods presented.
In November 1994, the Company entered into an agreement to
acquire Midlands National Bank, a national bank headquartered in
Prosperity, South Carolina ("MNB"). The Company expects that
this acquisition will be consummated in the second quarter of
1995. At March 31, 1995, MNB operated through three locations
and had approximately $42 million in assets, $37 million in
deposits and $27 million in loans. The Company expects to issue
up to 784,242 shares of the Company's Common Stock in connection
with this acquisition, which is expected to be accounted for as a
pooling of interests. The transaction will be structured as a
merger of MNB into Carolina First Bank, and the former MNB
banking locations will be operated as branch locations of
Carolina First Bank after the merger.
EARNINGS REVIEW
Net Interest Income
The largest component of the Company's net income is
Carolina First Bank's net interest income. Net interest income
is the difference between the interest earned on assets and the
interest paid for the liabilities used to support such assets.
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
the Company's earnings, net interest income constituted 80% of
net revenues (net interest
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income plus noninterest income excluding the gain on sale of purchased
mortgage servicing rights) in the first quarters of 1995 and 1994.
Fully tax-equivalent net interest income adjusts the yield
for assets earning tax-exempt income to a comparable yield on a
taxable basis.
Fully tax equivalent net interest income
increased $3.9 million, or 49%, to $11.8 million in the first
quarter of 1995 from $7.9 million in the first quarter of 1994.
The increase resulted from an improvement in the net interest
margin and a higher level of average earning assets. The
improvement in the net interest margin, which increased to 4.97%
in the first quarter of 1995 from 4.35% in the first quarter of
1994, primarily resulted from loans repricing more rapidly than
deposits in a rising interest rate environment and a higher level
of noninterest-bearing deposits. The growth in average earning
assets, which increased $228.7 million to $961.0 million in the
first quarter of 1995 from $732.3 million in the first quarter of
1994, resulted primarily from internal loan growth, which more
than offset a decrease in investment securities. Loans averaged
$257.2 million higher in the first quarter of 1995 than in the
same period in 1994.
Provision for Loan Losses
The provision for loan losses was $3 million and none in the
first quarter of 1995 and 1994, respectively. The $3 million
provision for loan losses in the first quarter of 1995 was made
for several reasons. As a general matter, management believed
that such provision was appropriate in view of a potential
slowdown in the economy (which became evident in the first
quarter) and an increase in the prime interest rate in February
1995, both of which could make it more difficult for certain
borrowers to repay loans. Furthermore, management believed that
such provision was prudent because the Company was expanding in
new markets and was expecting to experience continued strong
growth in loans. Also, the mix of its loan portfolio was
changing such that a number of small loans were being replaced by
larger credits, particularly in connection with the
Securitization which occurred in January 1995. Finally,
management determined that such provision was warranted because
of the increase in charge-offs in the first quarter to $760,000.
At March 31, 1995, the Company's allowance for loan losses
as a percentage of nonperforming assets was 535.6%, compared to
439.4% a year earlier. The allowance for loan losses as
percentage of total loans was 0.89% and 0.90% at March 31, 1995
and 1994, respectively. Annualized net charge-offs as a
percentage of average loans were 0.34% in the first quarter of
1995 and 0.12% in the first quarter of 1994.
At March 31, 1995, the Company was closely monitoring loans
totaling approximately $8.5 million to three borrowers which were
experiencing financial difficulty. None of these loans was
included in nonperforming assets or loans 90 days or more past
due and still accruing interest at March 31, 1995.
Noninterest Income
Noninterest income, excluding the gain on sale of purchased
mortgage servicing rights and securities transactions, increased
51% to $2.9 million for the three months ended March 31, 1995
from $1.9 million for the same period of 1994, for an increase of
$1.0 million. On March 31, 1995, the Company sold purchased
mortgage servicing rights associated with $435 million in loans,
which resulted in a gain of approximately $2 million.
8
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Service charges on deposit accounts, generally the largest
contributor to noninterest income, rose 44% to $1.2 million in
the first quarter of 1995 from $826,000 in the first quarter of
1994. The increase in service charges was attributable to the
acquisition of branches and new deposit accounts, increased fee
charges and improved collection results. Average deposits for
the same period increased 25%.
During the first quarter of 1995, the Company received
income of $377,000 from its interests in the Trust (created in
the Securitization). Fees for trust services in the first
quarter of 1995 increased to $300,000, up 22% from the $245,000
earned in the first quarter of 1994. Fees for trust services
increased as a result of the generation of new trust business and
additional assets under management. Assets under management of
the trust department increased to approximately $264 million at
March 31, 1995 from approximately $145 million at March 31, 1994.
Mortgage banking income includes origination fees, gains
from the sale of loans and servicing fees. Mortgage banking
income in the first quarter of 1995 decreased 50% to $252,000, as
compared to $501,000 in the first quarter of 1994. This decrease
is attributable to lower origination fees resulting from a
slowdown in mortgage loan refinancings and a decline in servicing
fees net of related amortization of purchased mortgage servicing
rights. Origination fees totaled $189,000 in the first quarter
of 1995, compared to $231,000 in the first quarter of 1994.
Mortgage loans totaling approximately $7 million and $11 million
were sold in the first quarters of 1995 and 1994, respectively.
Income from this activity totaled $56,000 in the first quarter of
1995 and $32,000 in the first quarter of 1994.
CF Mortgage's mortgage servicing operations consist of
servicing loans that are owned by Carolina First Bank and
subservicing loans, to which the right to service is owned by
Carolina First Bank and other non-affiliated financial
institutions. At March 31, 1995, CF Mortgage was servicing or
subservicing 10,360 loans having an aggregate principal balance
of approximately $800 million. These amounts include 5,257 loans
having a principal balance of approximately $435 million which
were sold to an unrelated third party effective March 31, 1995
but which CF Mortgage will continue to service through June 1995.
This sale resulted in a gain for the Company of approximately $2
million and was effected because the Company believed that the
terms were favorable. The Company has executed a letter with
HomeBanc to purchase additional servicing rights in order to
increase its servicing portfolio and replace the servicing rights
sold. See "General." Servicing income from non-affiliated
companies, net of the related amortization, was $7,000 for the
first quarter of 1995 and $238,000 for the first quarter of 1994.
The Company recognized gains on the sale of securities of
$97,000 and $73,000 in the first quarters of 1995 and 1994,
respectively. Sundry income was $430,000 higher for the first
three months of 1995 than the same period of 1994, primarily
because of higher customer service fees, insurance commissions,
and appraisal fee income which were primarily related to
increased lending and deposit activities.
On August 18, 1993, Carolina First 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 Carolina First Bank's customers. Under
this affiliate arrangement, Carolina First Bank offers certain
brokerage services to its customers through dual employees (a
Carolina First Bank employee who is also employed by Norris &
Co.). The commissions or mark-up charges on transactions will be
shared between Carolina First Bank and Norris & Co. as set forth
in the investor services agreement. Brokerage services activity
for the first quarter of 1995 has been limited.
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Noninterest Expenses
Noninterest expenses increased $2.3 million, or 29%, to
$10.1 million in the first quarter of 1995 from $7.8 million in
the first quarter of 1994. The increased expenditures primarily
reflect the costs of additional personnel to support the
Company's current and anticipated growth.
Salaries and wages and employee benefits increased $1.1
million, or 28%, to $5.0 million in the first quarter of 1995
from $3.9 million in the first quarter of 1994. Full-time
equivalent employees rose to 449 as of March 31, 1995 from 443 as
of March 31, 1994. The staffing cost increases were principally
attributable to acquisitions (primarily the acquisition of the 6
Republic Branches), the opening of de novo branches (including
Lexington and Myrtle Beach main offices), and additional
personnel hired to support the internal growth in loans and
deposits.
Occupancy and furniture and equipment expenses increased
$498,000, or 40%, to $1.7 million for the three months ended
March 31, 1995 from $1.2 million for the three months ended March
31, 1994. This increase resulted principally from the addition
of new banking offices, including new Myrtle Beach and Lexington
main offices.
Sundry noninterest expenses increased $761,000 to $3.4
million in the first quarter of 1995 from $2.6 million in the
first quarter of 1994. Of this increase, $442,000 represented
the amortization of intangibles and $154,000 represented higher
federal deposit insurance premiums associated with higher deposit
levels. Intangibles amortization increased principally as a
result of the acquisition of the 6 Republic Branches in May 1994
and the reclassification of loan premiums as intangible assets.
The increase in the remaining sundry noninterest expense was
primarily attributable to the overhead and operating expenses
associated with higher lending and deposit activities. The large
items of sundry noninterest expenses were stationery, supplies
and printing, telephone, postage, credit card processing charges
and advertising.
BALANCE SHEET REVIEW
Loans
The Company's loan portfolio consists of commercial mortgage
loans, commercial loans, consumer loans and one-to-four family
residential mortgage loans. A substantial portion of these
borrowers are located in South Carolina and are concentrated in
the Company's market areas. The Company has no foreign loans or
loans for highly leveraged transactions. The loan portfolio does
not contain any industry concentrations of credit risk exceeding
10% of the portfolio. At March 31, 1995, the Company had total
loans outstanding of $847.5 million which equaled approximately
93% of the Company's total deposits and approximately 77% of the
Company's total assets.
The Company's loans increased $234.3 million, or 38%, to
$847.5 million at March 31, 1995 from $613.2 million at March 31,
1994. Of this increase, $37.5 million resulted from loans
acquired in branch acquisitions. This increase was net of $51
million of mortgage loans sold, which were predominantly current
production, fixed rate mortgage loans, and the Securitization.
10
<PAGE>
The Company has experienced significant growth in its
commercial and commercial mortgage loans over the past several
years. Furthermore, these loans constitute approximately 53% of
the Company's total loans. There are certain risks inherent in
making all loans, including risks resulting from uncertainties as
to the future value of collateral, risks resulting from changes
in economic and industry conditions and risks inherent in dealing
with individual borrowers. However, commercial, multi-family
mortgage and commercial mortgage loans are generally more risky
than one-to-four family or consumer loans because they are unique
in character, are generally larger in amount and are dependent
upon the business' generating cash to service the loan.
The Company had loans to 39 borrowers having principal
amounts ranging from $2 million to $5 million, which loans
accounted for $112.5 million, or 13%, of the Company's loan
portfolio in the first quarter of 1995. The Company had loans to
ten borrowers having principal amounts in excess of $5 million,
which loans accounted for $65.8 million, or 7%, of the Company's
loan portfolio in the first quarter of 1995. Any material
deterioration in the quality of any of these larger loans could
have a significant impact on the Company's earnings.
For the first three months of 1995, the Company's loans
averaged $835.5 million with a yield of 9.61%, compared with
$578.4 million and a yield of 8.52% for the same period of 1994.
The interest rates charged on loans vary with the degree of risk
and the maturity and amount of the loan. Competitive pressures,
money market rates, availability of funds, and government
regulations also influence interest rates. The increase in loan
yield more than offset the upward repricing of deposits which
resulted in a higher net interest margin.
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.
In addition, various regulatory agencies, as a part of their
examination process, periodically review Carolina First Bank's
allowance for loan losses and real estate owned. Such agencies
may require Carolina First Bank to recognize changes to the
allowance based on their judgments about information available to
them at the time of their examination.
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 Company's
approach to managing credit risk is provided below in the "Asset
Quality" section.
11
<PAGE>
At March 31, 1995, the Company had $762,000 in non-accruing
and restructured loans and $2.0 million in loans
greater than ninety days past due on which interest was still
being accrued. This compares with $478,000 and $1.1 million,
respectively, at March 31, 1994. Nonperforming assets as a
percentage of loans and other real estate owned were 0.17% and
0.20% at March 31, 1995 and 1994, respectively. Charge-offs as a
percentage of average loans during the first three months of 1995
were 0.34%, compared with 0.12% for the first three months of
1994. These asset quality measures compare favorably to the
Company's peer group.
The allowance for loan losses totaled $7.6 million, or 0.89%
of total loans, at the end of March 1995, compared with $5.5
million, or 0.90% of total loans, at the end of March 1994. The
allowance for loan losses as a percentage of non-performing loans
was 991% and 1,153% as of March 31, 1995 and 1994, respectively.
The following table presents changes in the allowance for loan losses:
($ in thousands)
Balance at 12/31/94 $5,267
Provision for loan losses 3,000
Charge-offs (759)
Recoveries 44
Balance at 3/31/95 $7,552
Effective January 1, 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards
("SFAS") 114, Accounting by Creditors for Impairment of a Loan .
Under the new standard, the Company must value all specifically
reviewed loans for which it is probable that the Company will be
unable to collect all amounts due (principal and interest)
according to the terms of the loan agreement on the discounted
cash flows using the loan's initial effective interest rate or
the fair value of the collateral for certain collateral dependent
loans. Prior to 1995, the allowance for credit losses related to
these loans was based on undiscounted cash flows or the fair
value of the collateral for collateral dependent loans.
At March 31, 1995, the recorded investment in loans that
were considered to be impaired under SFAS 114 was $155,000. The
related allowance for these impaired loans was $64,000. The
average recorded investment and foregone interest on impaired
loans during the quarter ended March 31, 1995 was approximately
$333,000 and $17,000, respectively. For the quarter ended March
31, 1995, the Company recognized interest income on impaired
loans of $3,000, none of which was recognized using the cash
method of income recognition.
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 SFAS 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
shareholders' equity. 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 projected
12
<PAGE>
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.
During the first quarter of 1993, the Company 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 March 31, 1995, the Company's total investment portfolio
had a book value of $123.5 million and a market value of $121.1
million for an unrealized loss of $2.4 million. The investment
portfolio has a weighted average duration of approximately 1.94
years. Securities (i.e., investment securities, securities
available for sale and trading securities) averaged $120.6
million in the first three months of 1995, 14% below the first
quarter 1994 average of $140.6 million. The average portfolio
yield increased to 5.76% for the first three months of 1995 from
4.56% for the first three months of 1994. The portfolio yield
increased due to a rising interest rate environment. At March
31, 1995, securities totaled $122.8 million, down $13.9 million
from the $136.7 million invested as of the first quarter end
1994.
Other Assets
At March 31, 1995, other assets included other real estate
owned of $648,000 and intangible assets of $21.3 million. The
intangible assets balance is attributable to goodwill of $8.6
million, core deposit balance premiums of $10.8 million, excess
and purchased mortgage servicing rights of $1.6 million and
purchased credit card premiums of $328,000.
Deposits
Carolina First Banks' primary source of funds for loans and
investments is its deposits which are gathered through Carolina
First 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 the liquidity needs of the Company, the direction and
levels of interest rates, and local market conditions.
Certificates of deposit in amounts in excess of $100,000 are held
primarily by customers in the Company's market areas. It is the
Company's policy not to use deposit brokers.
During the first three months of 1995, interest-bearing
liabilities averaged $896.5 million, compared with $685.7 million
for the comparable period of 1994. This increase resulted
principally from branch acquisitions. The average interest rates
were 4.44% and 3.53% for the first three months of 1995 and 1994,
respectively. At March 31, 1995, interest-bearing deposits
comprised approximately 87% of
13
<PAGE>
total deposits and 89% of interest-bearing liabilities. In 1994, the
Company modified its funding strategy to rely more on advances from the
Federal Home Loan Bank (the "FHLB") because management determined that,
due to increased competition for deposits, the marginal cost of
borrowing from the FHLB is lower that the marginal cost of raising
deposits. At March 31, 1995, FHLB advances totaled $68.2 million,
compared with $18.0 million at March 31, 1994.
The Company uses its deposit base as its primary source of
funds. Deposits grew 24% to $907.8 million at March 31, 1995
from $732.2 million at March 31, 1994. Of the $175.6 million
increase in deposits, approximately $141.2 million resulted from
the acquisition of the 6 Republic Branches and Citadel Federal
Savings and Loan Association. Internal growth generated the
remaining new deposits. During the first three months of 1995,
total interest-bearing deposits averaged $801.4 million with a
rate of 4.25%, compared with $659.0 million with a rate of 3.55%
in 1994. As the level of interest rates continued to rise in
1994, the Company was able to reprice deposits more slowly than
the increases in the yields on earning assets.
. Average noninterest-bearing deposits, which increased 62%
during the year, increased to 12.01% of average total deposits in
the first quarter of 1995 from 9.39% in the first quarter of
1994. This increase was attributable to new accounts from
commercial loan customers and escrow balances related to mortgage
servicing operations.
The Company's core deposit base consists of consumer time
deposits, savings, NOW accounts, money market accounts and
checking accounts. Although such core deposits are becoming
increasingly interest sensitive for both the Company and the
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
88% for the first quarter of 1995. The Company closely monitors
its reliance on certificates of deposit greater than $100,000,
which are generally considered less stable and less reliable than
core deposits.
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 capital stock in connection with the acquisitions of CF
Savings Bank, CF Mortgage and ACNB.
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, and 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 7.32% Noncumulative Convertible
Preferred Stock Series 1994 ("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 were converted into 1,089,674
shares of Common Stock.
On April 10, 1995, the Company completed its acquisition of
ACNB. In connection with this acquisition, ACNB was merged into
Carolina First Bank, and the Company issued 452,658 shares of the
14
<PAGE>
Company's Common Stock to the ACNB shareholders. In November
1994, the Company entered into an agreement to acquire MNB. The
Company expects that this acquisition will be consummated in the
second quarter of 1995. The Company expects to issue up to
784,242 shares of the Company's Common Stock in connection with
this acquisition.
On April 27, 1995, the Company filed the Registration
Statement with the Commission with respect to the offering of up
to $26.45 million of the Notes. The Registration Statement was
declared effective by the Commission on May 11, 1995.
Contemporaneous with such effectiveness, the Company entered into
the Underwriting Agreement ) with the Underwriters, pursuant to
which the Underwriters agreed to purchase $23 million principal
amount of Notes. In the Underwriting Agreement, the Company also
granted the Underwriters a 30-day option to purchase up to $3.45
million aggregate principal amount of additional Notes on the
same terms and conditions applicable to the initial $23 million,
solely to cover over-allotments, if any. The Company expects
that the closing of the offering will take place on May 18, 1995;
however, such closing is subject to compliance with certain
standard conditions to closing set forth in the Underwriting
Agreement. The offering is described in greater detail in the
Registration Statement, to which reference is made. The proceeds
of the offering will qualify as Tier 2 capital. The Company
anticipates that approximately $15 million of the proceeds of
this offering will be contributed to Carolina First Bank to
provide additional capital to support internal growth and
acquisitions.
Risk-based capital guidelines for financial institutions
adopted by the regulatory authorities went into effect after
December 31, 1991. The risk-based capital rules are designed to
make regulatory capital requirements more sensitive to
differences in asset risk profile among financial institutions,
to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. However,
the guidelines require that intangible assets be deducted when
computing risk-based capital ratios. Acquisitions accounted for
using the purchase method of accounting generally create
intangible assets. Consequently, the Company's ability to make
cash acquisitions in the future using the purchase method of
accounting may be adversely affected. Intangible assets created
as a result of the purchase method of accounting also reduce the
Company's tangible book value. The ability of the Company to
make acquisitions using the pooling of interests method of
accounting will not be affected by the guidelines. Acquisitions
using the pooling of interests method of accounting involve the
issuance of equity securities in exchange for the securities of
the acquired company.
Total shareholders' equity increased $17.1 million, or 27%,
to $80.8 million at March 31, 1995 from $63.7 million at March
31, 1994. This change primarily reflects the capital raised in
connection with the Series 1994 Preferred Stock offering, which
was issued on April 15, 1994, which capital issuance was
partially offset by the fourth quarter 1994 one-time
restructuring charges.
Book value per share at March 31, 1995 and 1994 was $8.98
and $10.41, respectively. The decline in book value was
attributable to the one-time 1994 restructuring charges. Tangible
book value per share at March 31, 1995 and 1994 was $4.79 and
$7.15, respectively. Tangible book value was significantly below
book value as a result of the purchase premiums associated with
branch acquisitions and the purchase of CF Mortgage. Tangible
book value declined during 1994 as a result of the addition of
intangible assets related to the branch acquisitions and
reclassification of loan premiums as intangible assets.
Under the capital guidelines of the Board of Governors of
the Federal Reserve (the "Federal Reserve Board") and the Federal
Deposit Insurance Corporation ("FDIC"), the Company and Carolina
15
<PAGE>
First Bank are currently required to maintain a minimum risk-
based total capital ratio of 8%, with at least 4% being Tier 1
capital. Tier 1 capital consists of common stockholders equity,
qualifying perpetual preferred stock and minority interest in
equity accounts of consolidated subsidiaries, less goodwill.
Banks and bank holding companies must maintain a minimum Tier 1
leverage ratio (Tier 1 capital to total assets less goodwill and
other intangibles) of at least 3%, but this minimum ratio is
increased by 100 to 200 basis points for other than the highest-
rated institutions.
Effective January 1, 1993, the FDIC replaced the uniform
insurance assessment rate with a transitional risk-based
assessment schedule (which is required by FDICIA to be fully
effective by January 1994), having assessments ranging from 0.23%
to 0.31% of an institution's average assessment base. The actual
assessment to be paid is based on the institution's assessment
risk classification, which will be determined based on (i)
whether the institution is considered "well capitalized,"
"adequately capitalized" or "undercapitalized," as such terms
have been defined in applicable federal regulations adopted to
implement prompt corrective action provisions of FDICIA, and (ii)
whether such institution is considered by its supervisory agency
to be financially sound or to have supervisory concerns.
At December 31, 1994, the Company and CF Savings Bank were
in compliance with each of the applicable regulatory capital
requirements and exceeded the "adequately capitalized" regulatory
guidelines. Carolina First 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 Carolina First Bank's Report of Condition as of
December 31, 1994, Carolina First Bank was undercapitalized
because its total risk-based capital ratio had fallen below 8% to
6.70%, principally as a result of the inclusion of certain off-
balance sheet items as risk-weighted assets. As a result of the
capital deficiency, Carolina First Bank committed to (1) merge CF
Savings Bank into Carolina First Bank, (2) consummate the
Securitization, (3) have the Company contribute capital of $3.5
million to Carolina First Bank, and (4) sell certain purchased
mortgage servicing rights. All these steps were taken by March
31, 1995. Although these steps were the subject of an agreement
between Carolina First Bank and the FDIC, the Company had
determined to effect all of these actions, except the $3.5
million capital contribution, prior to and independent of the
capital deficiency matter. As a result of its total risk-based
capital ratio declining below 8%, the Company, Carolina First
Bank and the FDIC entered into a Capital Maintenance Commitment
and Guaranty Agreement pursuant to which the Company guaranteed
that Carolina First Bank will comply with the capital restoration
plan described above until Carolina First Bank has been
"adequately capitalized" on average during each of four
consecutive quarters. At the end of February, Carolina First
Bank's total risk-based capital ratio was 8.10%. Carolina First
Bank has received a letter from the FDIC confirming that it is
"adequately capitalized".
At March 31, 1995, the Company and Carolina First Bank were
in compliance with each of the applicable regulatory capital
requirements and exceeded the "adequately capitalized" regulatory
guidelines. Carolina First Bank's risk-based insurance
assessment has been set at 0.26% of its average assessment base
for Bank Insurance Fund-insured deposits and 0.23% of its average
assessment base for Savings Association Insurance Fund-insured
deposits. Approximately 25% of Carolina First Bank's deposits
are insured through the Savings Association Insurance Fund. The
following table sets forth various capital ratios for the Company
and Carolina First Bank.
16
<PAGE>
<TABLE>
<CAPTION>
Capital Ratios
As of Well Capitalized Adequately Capitalized
3/31/95 Requirement Requirement
<S> <C> <C> <C>
Company:
Total Risk-based Capital 8.22% 10.0% 8.0%
Tier 1 Risk-based Capital 7.32 6.0 4.0
Leverage Ratio 5.74 5.0 4.0
Carolina First Bank:
Total Risk-based Capital 8.11 10.0 8.0
Tier 1 Risk-based Capital 7.22 6.0 4.0
Leverage Ratio 5.65 5.0 4.0
</TABLE>
The Company and its subsidiaries are subject to certain
regulatory restrictions on the amount of dividends they are
permitted to pay.
In each year from 1989 through 1994, the Company issued 5%
common stock dividends to common stockholders. The Company has
paid all scheduled cash dividends on the Series 1993 Preferred
Stock, Series 1993B Preferred Stock and Series 1994 Preferred
Stock since their respective issuances.
In November 1993, the Board of Directors initiated a regular
quarterly cash dividend of $0.05 per share payable on the Common
Stock, the first of which was paid on February 1, 1994. Cash
dividends have been paid on a quarterly basis since the
initiation of the cash dividend. The Board of Directors
increased the quarterly cash dividend to $0.06 beginning in the
first quarter of 1995. 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.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the
Company monitors and controls the mix and maturities of its
assets and liabilities. The essential purposes of
asset/liability management are to ensure adequate liquidity and
to maintain an appropriate balance between interest sensitive
assets and liabilities. Liquidity management involves meeting
the cash flow requirements of the Company. These cash flow
requirements primarily involve withdrawals of deposits,
extensions of credit, payment of operating expenses and repayment
of purchased funds. The Company's principal sources of funds for
liquidity purposes are customer deposits, principal and interest
payments on loans, maturities and sales of debt securities,
temporary investments and earnings. Temporary investments
averaged 0.51% and 1.82% of earning assets in the first quarter
of 1995 and 1994, respectively. Management believes that the
Company maintains an adequate level of liquidity by retaining
liquid assets and other assets that can easily be converted into
cash, and by maintaining access to alternate sources of funds,
including federal funds purchased from correspondent banks and
borrowing from the FHLB.
The 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%
17
<PAGE>
and 25%. At March 31, 1995, Carolina First Bank's
liquidity ratio was approximately 15.2%. At March 31, 1995,
Carolina First Bank had unused short-term lines of credit
totaling approximately $33.7 million. All of these lenders have
reserved the right to withdraw these lines of credit at their
option. In addition, Carolina First Bank has access to borrowing
from the FHLB. At March 31, 1995, unused borrowing capacity from
the FHLB totaled $91.8 million. Management believes that these
sources are adequate to meet its liquidity needs.
In 1994, the Company modified its funding strategy to rely
more on advances from the FHLB because management determined
that, due to increased competition for deposits, the marginal
cost of borrowing from the FHLB is lower than the marginal cost
of raising deposits. At March 31, 1995, FHLB advances totaled
$68.2 million, compared with $18.0 million at March 31, 1994.
The Company has certain cash needs, including general
operating expenses and the payment of dividends and interest on
borrowing. The Company generates cash to meet these needs
primarily through management fees and dividends paid to it by its
subsidiaries and secondarily from existing cash reserves, sales
of marketable investment securities, interest income on its
investment assets and certain other vehicles.
The interest sensitivity gap is the difference between total
interest sensitive assets and liabilities in a given time period.
The objective of interest sensitivity management is to maintain
reasonably stable growth in net interest income despite changes
in market interest rates by maintaining the proper mix of
interest sensitive assets and liabilities. Over the past several
years, the environment in which financial institutions operate
has been characterized by volatile interest rates and greater
reliance on market-sensitive deposits, increasing both the
importance and the difficulty of interest sensitivity management.
Management seeks to maintain a general equilibrium between
interest sensitive assets and liabilities in order to insulate
net interest income from significant adverse changes in market
rates.
The Company's Asset/Liability Management Committee uses an
asset/liability simulation model which quantifies balance sheet
and earnings variations under different interest rate
environments to measure and manage interest rate risk.
ASSET QUALITY
Prudent risk management involves assessing risk and managing
it effectively. Certain credit risks are inherent in making
loans, particularly commercial, real estate and consumer loans.
The Company attempts to manage credit risks by adhering to
internal credit policies and procedures. These policies and
procedures include a multi-layered loan approval process, officer
and customer limits, periodic documentation examination and
follow-up procedures for any exceptions to credit policies.
Loans are assigned a grade and those that are determined to
involve more than normal credit risk are placed in a special
review status. Loans that are placed in special review status
are required to have a plan under which they will be either
repaid or restructured in a way that reduces credit risk. Loans
in this special review status are reviewed monthly by the loan
committee of the Board of Directors.
As demonstrated by the following analytical measures of
asset quality, management believes the Company has effectively
managed its credit risk. Net loan charge-offs totaled $716,000
in the first three months of 1995 and $177,000 in the first three
months of 1994, or 0.34% and 0.12%, respectively, as a percentage
of average loans. Nonperforming assets as a percentage of loans
and other real estate owned
18
<PAGE>
were 0.17% and 0.20% as of March 31, 1995 and 1994, respectively.
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 "Capital Resources
and Dividends."
19
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
On October 31, 1994, J.W. Charles Clearing Corp. filed
a lawsuit against Carolina First Bank in the Court of
Common Pleas in Lexington County, South Carolina. Such
action, in general, claims that Carolina First Bank
improperly paid approximately $600,000 in checks to
Harold McCarley and/or McCarley and Associates, Inc.
The complaint seeks actual and punitive damages in an
amount to be determined by a jury, plus interest on the
damages and other costs. Carolina First Bank has
answered the complaint and is vigorously defending such
complaint. Carolina First Bank believes that there are
valid defenses available to it. In connection with the
litigation, Carolina First bank also expects to make a
claim under insurance policies for any losses it may
suffer which, if determined to cover the loss, could
pay for substantially all of the actual damages, if
any, determined to be appropriate by a jury. However,
no assurance can be given at this time regarding
whether it will be determined that any losses suffered
in this litigation will be covered by the insurance
policy. Furthermore, the Company is not in a position
at this time to assess the likely outcome of the
litigation or any damages for which it may become
liable.
ITEM 2 CHANGE IN SECURITIES
On April 27, 1995, the Company filed the Registration
Statement (Commission File No. 33-58879) with the
Commission with respect to the offering of up to $26.45
million principal amount of the Notes. The
Registration Statement was declared effective by the
Commission on May 11, 1995. Contemporaneous with such
effectiveness, the Company entered into the
Underwriting Agreement with the Underwriters, pursuant
to which the Underwriters agreed to purchase $23
million principal amount of Notes. In the Underwriting
Agreement, the Company also granted the Underwriters a
30-day option to purchase up to $3.45 million aggregate
principal amount of additional Notes on the same terms
and conditions applicable to the initial $23 million,
solely to cover over-allotments, if any. The Company
expects that the closing of the offering will take
place on May 18, 1995; however, such closing is
subject to compliance with certain standard conditions
to closing set forth in the Underwriting Agreement.
The terms of the Notes provide that upon an "event of
default" as defined in the indenture entered into by
Carolina First Bank and First American National Bank,
as Trustee, no dividends may be paid on any outstanding
equity securities of the Company until such "event of
default" is remedied. An "event of default" includes,
among other things, the failure to pay interest and
principal on the Notes when due. Accordingly, the
Notes are senior to all outstanding equity securities
of the Company, including with respect to payment of
dividends or interest (as the case may be) and upon
liquidation.
20
<PAGE>
PART II
(Continued)
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On April 20, 1995, the Company held its 1995 Annual
Meeting of Stockholders. At the 1995 Annual Meeting,
the following individuals were elected as Directors
with the votes indicated.
In Favor Against
Judd B. Farr 5,770,239 3,253
C. Claymon Grimes, Jr. 5,769,416 3,722
Elizabeth P. Stall 5,772,115 1,023
Mack I. Whittle, Jr. 5,772,131 1,307
M. Dexter Hagy, Robert E. Hamby, Jr., R. Glenn
Hilliard, William S. Hummers III, Richard E. Ingram,
Charles B. Schooler, William R. Timmons, Jr. and
William M. Webster III continued in their present terms
as directors.
At the 1995 Annual Meeting, the shareholders also
approved certain amendments to the Employee Stock
Purchase Plan.
In Favor Against
Employee Stock Purchase
Plan Amendments 3,822,600 1,924,937*
* Includes broker non-votes.
ITEM 5 OTHER INFORMATION
Completed Acquisition
On April 10, 1995, the Company completed its
acquisition of Aiken County National Bank ("ACNB"). At
March 31, 1995, ACNB had two locations and
approximately $39 million in assets, $35 million in
deposits and $30 million in loans. In connection with
this acquisition, ACNB was merged into Carolina First
Bank, and the Company issued 452,658 shares of the
Company's $1 par value common stock ( Common
21
<PAGE>
PART II
(Continued)
Stock ) to the ACNB shareholders. The transaction was
accounted for as a pooling of interests.
Pending Acquisition
In November 1994, the Company entered into an
agreement to acquire Midlands National Bank ("MNB").
The Company expects that this acquisition will be
consummated in the second quarter of 1995. At March
31, 1995, MNB operated through three locations and had
approximately $42 million in assets, $37 million in
deposits and $27 million in loans. The Company expects
to issue up to 784,242 shares of the Company's Common
Stock in connection with this acquisition, which is
expected to be accounted for as a pooling of interests.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Form of Indenture between the Company and First
American Trust Company, N.A., as Trustee: Incorporated
by reference to Exhibit 4.11 from the Company's
Registration Statement on Form S-3, Commission File
No. 33-58879.
4.2 Form of Subordinated Note due 2005: Incorporated by
reference to Exhibit 4.12 from the Company's Registration
Statement on Form S-3, Commission File No. 33-58879.
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
27.1 Financial Data Schedules.
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K dated January
24, 1995, March 15, 1995 and April 10, 1995.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Carolina First Corporation
/S/ William S. Hummers, III
William S. Hummers, III
Executive Vice President,
Secretary
(Principal Financial and
Accounting Officer)
23
<PAGE>
EXHIBIT 11.1
CAROLINA FIRST CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(All Amounts, Except Share Data, in Thousands)
Three Months Ended
March 31, 1995
Primary
Net income applicable to
common shareholders $ 1,570
Shares:
Weighted average number of
outstanding common shares 4,603,769
Primary earnings per common share $ 0.34
Fully Diluted
Net income applicable to
common shareholders $ 1,570
Dividends on preferred stock 727
Net income $ 2,297
Shares:
Weighted average number of
outstanding common shares 4,603,769
Weighted average common share
equivalents from preferred stock 2,933,056
Total common share equivalents 7,536,825
Fully diluted earnings per share $ 0.30
<TABLE> <S> <C>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 46,425
<INT-BEARING-DEPOSITS> 1,000
<FED-FUNDS-SOLD> 500
<TRADING-ASSETS> 1,483
<INVESTMENTS-HELD-FOR-SALE> 55,206
<INVESTMENTS-CARRYING> 66,129
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<LOANS> 847,514
<ALLOWANCE> 7,552
<TOTAL-ASSETS> 1,096,945
<DEPOSITS> 907,786
<SHORT-TERM> 95,019
<LIABILITIES-OTHER> 12,129
<LONG-TERM> 1,162
<COMMON> 4,636
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36,633
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<INTEREST-TOTAL> 21,459
<INTEREST-DEPOSIT> 8,396
<INTEREST-EXPENSE> 9,787
<INTEREST-INCOME-NET> 11,672
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 10,135
<INCOME-PRETAX> 3,534
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<EPS-PRIMARY> 0.34
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