UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report: April 10, 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 2. Acquisition or Disposition of Assets
On April 10, 1995, Carolina First Corporation (the "Company")
acquired Aiken County National Bank ("ACNB") through the merger of ACNB
with and into Carolina First Bank ("CFB"), a wholly-owned subsidiary of
the Company. In connection with such acquisition, all outstanding
shares of ACNB common stock were acquired based on an exchange ratio of
1.125 shares of Company common stock for each share of ACNB common
stock. The transaction has been accounted for as a pooling of interests.
Certain historical and supplemental financial
information relating to ACNB are included herewith under Item 7.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the Businesses Acquired.
Annex 1. Audited balance sheets of ACNB at
December 31, 1994 and 1993 and the related
statements of income (loss),
changes in stockholders' equity and cash flows
for each of the years in the three-year period
ended December 31, 1994.
Annex 2. Audited supplemental consolidated balance sheets
of Carolina First Corporation 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 ACNB.
The 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
ACNB, are also included.
(b) Pro Forma Financial Information. Not Applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
<S> <C>
2.1 Reorganization Agreement entered into as of October 13, 1994 by and among Carolina First Bank, Carolina
First Corporation and Aiken County National Bank. Incorporated by reference to Exhibit 2.1 of Carolina
First Corporation's Registration Statement on Form S-4, Commission File No. 33-57389.
24.1 Consent of Elliott Davis & Company, L.L.P.
27.1 Financial Data Schedule
</TABLE>
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
April 11, 1995 By: ___________________________________
William S. Hummers III
Executive Vice President
3
<PAGE>
EXHIBIT INDEX
EXHIBIT
2.1 Reorganization Agreement entered into as of October 13, 1994 by and
among Carolina First Bank, Carolina First Corporation and Aiken County
National Bank. Incorporated by reference to Exhibit 2.1 of Carolina
First Corporation's Registration Statement on Form S-4, Commission File
No. 33-57389.
24.1 Consent of Elliott Davis & Company, L.L.P.
27.1 Financial Data Schedule
4
<PAGE>
ANNEX 1
AIKEN COUNTY NATIONAL BANK
AIKEN, SOUTH CAROLINA
REPORT ON FINANCIAL STATEMENTS
<PAGE>
(Elliott, Davis & Company letterhead)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Aiken County National Bank
Aiken, South Carolina
We have audited the accompanying balance sheets of Aiken
County National Bank as of December 31, 1994 and 1993, and the
related statements of income, shareholders' 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 audits 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
Aiken County National Bank at 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.
(Elliott, Davis & Company signature)
January 17, 1995
<PAGE>
AIKEN COUNTY NATIONAL BANK
BALANCE SHEETS
DECEMBER 31,
1994 1993
ASSETS
CASH AND DUE FROM BANKS $2,203,735 $1,385,312
FEDERAL FUNDS SOLD 2,480,000 3,258,000
Total cash and cash equivalents 4,683,735 4,643,312
INVESTMENTS - Note 3
Available for sale - At fair value 695,822 -
Held to maturity - At amortized cost
(fair value $3,549,798 and $7,114,505) 3,549,816 7,001,584
LOANS (less allowance for loan losses of
$402,230 and $582,323
at December 31, 1994 and 1993, respectively)
- Note 4 29,333,701 28,779,022
ACCRUED INTEREST RECEIVABLE 206,970 243,146
PREMISES AND EQUIPMENT - Net - Note 5 1,662,142 1,576,189
OTHER REAL ESTATE OWNED (less valuation
allowance of
$236,000 and $15,000) 1,126,732 1,413,300
OTHER ASSETS 365,928 295,581
$41,624,846 $43,952,134
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits - Note 6
Non-interest bearing $4,580,169 $3,317,771
Interest bearing 33,441,584 36,774,173
38,021,753 40,091,944
Accrued interest on deposits 101,769 102,538
Obligations under capital leases - 24,423
Other 108,760 31,803
Total liabilities 38,232,282 40,250,708
COMMITMENTS AND CONTINGENCIES -
Notes 7, 8 and 13
SHAREHOLDERS' EQUITY - Note 13
Common stock, par value $5 per share,
2,000,000 shares
authorized, 402,500 shares issued 2,012,500 2,012,500
Additional paid-in capital 1,985,117 1,985,117
Retained earnings (deficit) (602,588) (296,191)
Net unrealized holding loss on
investments available for sale (2,465) -
Total shareholders' equity 3,392,564 3,701,426
$41,624,846 $43,952,134
See Notes to Financial Statements which are an integral part
of these statements.
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<PAGE>
AIKEN COUNTY NATIONAL BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,609,405 $2,526,344 $3,022,301
Interest on investments 283,230 398,689 366,323
Interest on federal funds sold
and deposits
in other banks 138,592 142,545 139,782
Total interest income 3,031,227 3,067,578 3,528,406
INTEREST EXPENSE ON DEPOSITS 1,187,435 1,437,329 1,978,826
Net interest income 1,843,792 1,630,249 1,549,580
PROVISION FOR LOAN LOSSES - Note 4 140,000 52,170 375,237
Net interest income after
provision for loan losses 1,703,792 1,578,079 1,174,343
NONINTEREST INCOME
Service charges and fees 228,947 181,066 163,594
Credit life insurance commissions 38,209 13,684 16,987
Net investment gains (losses) (158,595) - 18,731
Other 20,322 16,459 35,993
128,883 211,209 235,305
NONINTEREST EXPENSES
Salaries and employee benefits 782,938 744,080 673,548
Occupancy - net 90,537 86,181 82,045
Equipment 201,248 189,016 193,913
Other - Note 9 1,064,349 657,620 594,103
2,139,072 1,676,897 1,543,609
Income (loss) before income taxes (306,397) 112,391 (133,961)
PROVISION FOR INCOME TAXES - Note 10 - - -
Net income (loss) $ (306,397) $112,391 $(133,961)
NET INCOME (LOSS) PER SHARE $ (.73) $ .27 $ (.32)
</TABLE>
See Notes to Financial Statements which are an integral part of
these statements.
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<PAGE>
AIKEN COUNTY NATIONAL BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Net unrealized
Additional Retained holding loss on Total
Common paid-in earnings investments shareholders'
stock capital (deficit) available for sale equity
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $2,012,500 $1,985,117 $(274,621) $ - $3,722,996
Net loss - - (133,961) - (133,961)
BALANCE, DECEMBER 31, 1992 2,012,500 1,985,117 (408,582) - 3,589,035
Net income - - 112,391 - 112,391
BALANCE, DECEMBER 31, 1993 2,012,500 1,985,117 (296,191) - 3,701,426
Net loss - - (306,397) - (306,397)
Change in net unrealized holding
loss on investments available
for sale - - - (2,465) (2,465)
BALANCE, DECEMBER 31, 1994 $2,012,500 $1,985,117 $(602,588) $ (2,465) $3,392,564
</TABLE>
See Notes to Financial Statements which are an integral part of these
statements.
-4-
<PAGE>
AIKEN COUNTY NATIONAL BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(306,397) $ 112,391 $(133,961)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 127,596 146,197 154,329
Provision for loan losses 140,000 52,170 375,237
Provision for losses on other real estate owned 221,000 15,000 -
Loss on other real estate owned transactions 815 3,897 -
Amortization of investment premiums and accretion
of discounts 4,493 984 (3,285)
Net investment realized (gains) losses 158,595 - (18,731)
(Increase) decrease in other assets and accrued
interest receivable 45,036 29,886 24,381
Increase (decrease) in other liabilities and
accrued interest payable 100,188 (78,183) (170,775)
Net cash provided by operating activities 491,326 282,342 227,195
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in
other banks - - 95,000
Investments, available for sale
Proceeds from sales 2,289,415 - -
Investments, held to maturity
Maturities 900,000 1,692,329 2,199,970
Proceeds from sales - - 2,518,731
Purchases (599,022) (3,349,438)(5,502,966)
Net (increase) decrease in loans (745,839) 1,080,273 1,959,069
Proceeds from sale of other real estate owned 36,705 94,856 -
Purchase of equipment (237,548) (47,673) (46,564)
Net cash provided by (used for) investing
activities 1,643,711 (529,653) 1,223,240
FINANCING ACTIVITIES
Net increase in deposits 133,958 1,610,249 5,369,560
Net decrease in certificates of deposit (2,204,149) (2,949,245)(5,787,796)
Repayment of obligations under capital leases (24,423) (107,365) (105,160)
Net cash used for financing activities (2,094,614) (1,446,361) (523,396)
Net increase (decrease) in cash and cash
equivalents 40,423 (1,693,672) 927,039
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,643,312 6,336,984 5,409,945
CASH AND CASH EQUIVALENTS AT END OF YEAR $4,683,735 $4,643,312 $6,336,984
CASH PAID (RECEIVED) FOR
Interest $1,188,204 $1,488,090 $2,405,852
Income taxes $ 75,200 $(105,557) $140,384
NONCASH INVESTING ACTIVITY
Additions to other real estate owned $266,633 $ 89,907 $693,762
Acquisitions of equipment under capital lease - 76,734 -
$266,633 $ 166,641 $693,762
</TABLE>
See Notes to Financial Statements which are an integral part of these
statements.
-5-
<PAGE>
AIKEN COUNTY NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentrations of credit risk
The Bank makes loans to individuals and businesses located
primarily in Aiken County, South Carolina for various personal and
commercial purposes. The Bank has a diversified loan portfolio and
the borrowers' ability to repay their loans is not dependent upon
any specific economic segment.
Investments
The Bank adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity
Securities (FASB 115), effective January 1, 1994. Under the
Statement, investments that the Bank has the positive intent and
ability to hold to maturity are classified as "held to maturity"
investments and reported at amortized cost. Investments not
classified as held to maturity are classified as "available for
sale" investments and reported at fair value with unrealized
holding gains and losses excluded from earnings and reported as a
separate component of shareholders' equity.
Premiums and discounts on investments are amortized or accreted as
adjustments to income over the estimated life of the security using
a method approximating the level yield method. Gain or loss on the
sale of investments is based on the specific identification method.
The fair value of investments is based on quoted market prices or
dealer quotes.
Loans
Loans are recorded at cost. Mortgage loans consist principally of
conventional one-to four-family residential loans and interim and
permanent financing of non-residential loans that are secured by
real estate. Commercial loans are made primarily on the strength
of the borrower's general credit standing, the ability to generate
repayment from income sources and the collateral securing such
loans. Consumer loans generally consist of home equity loans,
second mortgage loans, automobile and other personal loans.
In many lending transactions, collateral is taken to provide an
additional measure of security. Generally, the cash flow or
earning power of the borrower represents the primary source of
repayment, and collateral liquidation as a secondary source of
repayment. The Bank determines the need for collateral on a case-
by-case basis. Factors considered include the current and
prospective creditworthiness of the customer, terms of the
instrument and economic condition.
Interest income on loans
Interest on loans is accrued monthly based on the principal amount
outstanding. The Bank places loans on non-accrual status when they
become greater than ninety days delinquent and management has
determined that collectibility of the accrued interest is doubtful.
When a loan is placed in non-accrual status, all accrued interest
receivable is reversed as a charge against income. When interest
is received on a non-accrual loan, it is recognized as a principal
reduction or interest income based upon management's determination
of the loan's ultimate collectibility.
(Continued)
-6-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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.
Other real estate owned (OREO)
OREO includes properties acquired in satisfaction of debt and loans
considered to be in substance foreclosures. The properties are
carried at the lower of cost or fair market value. Market values
of real estate are reviewed regularly, and allowances for possible
losses are established when the carrying values of real estate
acquired in settlement of loans exceeds fair values less estimated
costs to sell. Reductions in carrying value are recognized through
charges to the allowance. The costs of maintaining and operating
foreclosed properties are expensed as incurred.
Premises and equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives
of the assets and on an accelerated basis for tax purposes. The
estimated useful lives range from five to twelve years for
furniture and equipment and thirty-one years for buildings.
Income taxes
Effective January 1, 1992, the Bank adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". SFAS 109 replaces SFAS 96 beginning
in 1993, with early implementation permitted. The Bank previously
accounted for income taxes in accordance with Accounting Principles
Board Statement Number 23. The adoption of FASB 109 required a
change from the deferred method to the asset and liability method
of accounting for income taxes. The impact of the adoption of SFAS
109 is not considered to be material and thus is not separately
presented as a change in accounting principle.
Under FASB 109, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. A valuation allowance is established for
deferred tax assets that may not be realized.
Net income (loss) per share
Net income (loss) per share is computed on the basis of the
weighted average number of common shares outstanding during the
period. The weighted average number of shares outstanding during
the years ended December 31, 1994, 1993 and 1992 was 417,500.
Cash and cash equivalents
For purposes of the Statements of Cash Flows, cash and cash
equivalents are defined as cash working funds and federal funds
sold.
(Continued)
-7-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Recently issued accounting standards
The Financial Accounting Standards Board (FASB) has issued
Statements of Financial Accounting Standards Nos. 107 and 114.
Other proposed standards and exposure drafts which have been issued
by the Accounting Standards Board are not expected to have a
material impact. SFAS No. 107, titled "Disclosures about Fair
Value of Financial Instruments" is effective for calendar year
1995. The standard requires disclosure of fair value of financial
instruments for which it is practicable to estimate that value.
SFAS No. 114, titled "Accounting by Creditors for Impairment of a
Loan", amends the provisions of SFAS Nos. 5 and 15 regarding the
accounting and presentation of impaired loans. SFAS No. 114 is
effective for fiscal years beginning after December 15, 1994. The
impact of the new standards has not yet been fully determined.
Reclassifications
Certain items in the financial statements for 1993 and 1992 have
been reclassified to conform with the presentation for 1994. Such
reclassifications had no effect on the net results of operations.
NOTE 2 - MERGER
On October 13, 1994, the Board of Directors signed an Agreement and
Plan of Reorganization with Carolina First Corporation and Carolina
First Bank. Upon approval of the shareholders of at least two-
thirds of the outstanding stock of the Bank, Aiken County National
Bank will be merged into Carolina First Bank. Upon the effective
date of such merger, shareholders of the Bank will be entitled to
receive 1.125 shares of Carolina First Corporation common stock for
each share of Aiken County National Bank stock owned. The merger
is subject to the approval of certain regulatory agencies in
addition to shareholder approval. If approved, the merger is
expected to occur in the second quarter of 1995.
NOTE 3 - INVESTMENTS
Available-for-sale - The amortized cost, gross holding gains and
losses and fair values of securities available for sale consisted of
the following:
Gross
Amortized unrealized holding
cost Gains Losses Fair value
December 31, 1994:
Securities
U. S. Treasury Obligations $598,287 $ - $ 2,465 $ 595,822
U. S. Agency Obligations 100,000 - - 100,000
$698,287 $ - $ 2,465 $ 695,822
(Continued)
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<PAGE>
NOTE 3 - INVESTMENTS, Continued
Held to Maturity - The amortized cost, gross unrealized holding
gains and losses and fair values of investments held to maturity
consisted of the following:
Gross
Amortized unrealized holding
cost Gains Losses Fair value
December 31, 1994:
Investments
U. S. Treasury Obligations $199,881 $ - $ 19 $ 199,862
U. S. Agency Obligations 2,750,757 31 5 2,750,783
Municipals - Tax exempt 599,178 - 25 599,153
$3,549,816$ 31 $ 49 $3,549,798
December 31, 1993:
Investments
U. S. Treasury Obligations $797,085 $59,806 $ - $ 856,891
U. S. Government Agency
Obligations 6,204,499 55,583 2,468 6,257,614
$7,001,584 $115,389 $ 2,468 $7,114,505
The amortized cost and fair value of investments at December 31,
1994, by contractual maturity, follow:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
Amortized Amortized
cost Fair value cost Fair value
<S> <C> <C> <C> <C>
Investments
Due in one year or less $199,881 $199,862 $100,000 $ 100,000
Due after one year through
five years 3,149,935 3,149,936 598,287 595,822
Due after five years
through ten years 200,000 200,000 - -
Total $3,549,816 $3,549,798 $698,287 $ 695,822
</TABLE>
Investments with an amortized cost of $299,741, and a fair value
of $299,101, at December 31, 1994 were pledged as collateral for
certain deposits.
NOTE 4 - LOANS
Loans consisted of the following:
DECEMBER 31,
1994 1993
Commercial and agricultural $ 11,030,898 $9,777,333
Real estate construction 1,185,355 1,569,111
Real estate mortgage 4,554,900 3,132,993
Installment and consumer 8,902,008 10,056,644
Other 4,062,770 4,825,264
29,735,931 29,361,345
Less allowance for loan losses 402,230 582,323
Net loans $29,333,701 $28,779,022
(Continued)
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<PAGE>
NOTE 4 - LOANS, Continued
Non-accrual loan information is as follows:
DECEMBER 31,
1994 1993
Non-accrual loans $ 794,853 $1,539,110
Interest revenue under original terms $ 124,898 $ 289,190
Interest revenue recognized $ - $ -
Changes in the allowance for loan losses are summarized as
follows:
DECEMBER 31,
1994 1993 1992
Balance at beginning of year $582,323 $621,278 $507,652
Provision for loan losses 140,000 52,170 375,237
Loan charge-offs (332,993) (114,166) (290,377)
Recoveries 12,900 23,041 28,766
Balance at end of year $402,230 $582,323 $621,278
Contractual principal repayments at December 31, 1994 are
approximately:
Due in one year or less $25,198,931
Due from one year to five years 4,537,000
As of December 31, 1994 $29,735,931
The Bank's loan portfolio consists of both fixed rate and
variable rate loans at December 31, 1994 as follows:
Fixed rate loans $28,300,067
Variable rate loans (indexed to prime rate) 1,435,864
$29,735,931
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31, is summarized as follows:
1994 1993
Land $ 550,800 $ 550,800
Building 742,437 742,437
Furniture, fixtures and equipment 1,006,966 1,023,775
2,300,203 2,317,012
Less accumulated depreciation 638,061 740,823
$1,662,142 $1,576,189
Depreciation expense, including amortization of leased property,
for the years ended December 31, 1994, 1993 and 1992 was $127,596,
$146,197 and $154,329, respectively.
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<PAGE>
NOTE 6 - DEPOSITS
Deposits are summarized as follows:
1994 1993
Demand - Noninterest bearing $4,580,169 $3,317,771
Demand - Interest bearing and savings 16,689,610 17,818,050
Time
$100,000 and over 3,099,722 2,761,665
Under $100,000 13,652,252 16,194,458
Total $38,021,753 $40,091,944
Scheduled maturities of time deposits at December 31, 1994 are
approximately:
One year or less $14,573,000
From one to five years 2,179,000
$16,752,000
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instrument is essentially the same as that involved in extending loan
facilities to customers. The Bank 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 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 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 amount of collateral obtained if deemed necessary by
the Bank upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties. Commitments to extend
credit, including unused lines of credit, amounted to $3,758,000 at
December 31, 1994.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party.
Commitments under standby letters of credit amounted to $38,000 at
December 31, 1994.
The Bank is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and
claims will not be material to the Bank's financial position.
NOTE 8 - UNUSED LINE OF CREDIT
At December 31, 1994, the Bank had an unused $1,000,000 line of
credit. This line is available on a one-to-seven day basis for general
corporate purposes of the Bank. The lender has reserved the right to
withdraw the line at their option.
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<PAGE>
NOTE 9- OTHER EXPENSES
A summary of the components of other expenses is as follows:
For the years ended December 31,
1994 1993 1992
Advertising $ 18,442 $ 23,885 $ 14,107
Printing, stationery and supplies 55,138 62,690 46,490
Legal and professional fees 189,742 112,755 98,701
Audits and examinations 115,000 7,584 35,850
Director fees 45,300 1,500 80,700
Insurance 31,477 29,685 26,887
Automatic teller machine (ATM) charges 30,396 23,692 29,839
FDIC and Comptroller of Currency fees 127,331 124,873 115,132
Telephone 22,523 21,106 18,828
Loss on other real estate owned 258,322 69,730 -
Other 170,678 180,120 127,569
$1,064,349$ 657,620 $594,103
NOTE 10 - INCOME TAXES
The provision for income taxes is as follows:
For the years ended December 31,
1994 1993 1992
Income taxes payable (refundable) $(1,165) $(45,124) $(37,493)
Deferred income taxes 1,165 45,124 37,493
Provision for income taxes $ - $ - $ -
The provision for income taxes as of December 31, 1994 is
reconciled to the amount of income taxes computed at the federal
statutory rate as follows:
1994 1993 1992
Amount Percent Amount Percent Amount Percent
Tax expense (benefit) at
statutory rates $(104,175)(34)% $38,213 34% $(45,547)(34)%
Reduction in taxes
resulting from
Surtax rate reduction 11,750 4 (11,750) (9) 11,750 9
Organizational costs - (8,588) (7) (8,588) (7)
Valuation allowance
for net
operating loss carry-
forwards 68,340 22 - - - -
Other - Net 24,085 8 (17,875) (18) 42,385 32
Provision for
income taxes $ - - % $ - - % $ - -%
(Continued)
-12-
<PAGE>
NOTE 10 - INCOME TAXES, Continued
The deferred income tax assets and liabilities at December 31,
1994 and 1993, consists of the following:
1994 1993
Deferred Deferred
tax asset tax asset
(liability) (liability)
Bad debts $ 59,558 $ 92,673
Accrued expenses 45,388 -
Depreciation (7,822) (27,868)
Cash basis adjustment 14,088 (31,113)
Net operating loss carryforward 56,467 6,300
Other net (23,694) 945
143,985 40,937
Valuation allowance (143,985) (40,937)
Deferred taxes $ - $ -
Included in other assets is approximately $23,359 representing
refundable federal income taxes as a result of the carryback of the
1994 and 1993 losses to 1991.
At December 31, 1994, the Bank had net operating loss
carryforwards of $201,000 for tax purposes, which expire in 1999.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain officers, directors, employees and companies in which
they have ten percent or more beneficial ownership, were indebted to
the Bank in the amount of $1,668,055 and $1,550,390 as of December 31,
1994 and 1993, respectively. Loans to these parties are made on
substantially the same terms as those prevailing at the time for
comparable transactions with unaffiliated persons and, in the opinion
of management, do not involve more than the normal risk of
collectibility. An analysis of the activity for related party loans is
summarized as follows:
For the years ended
December 31,
1994 1993
Balance, beginning of year $ 1,550,390 $ 1,652,615
Loan advances 1,271,435 2,251,623
Loan repayments (1,194,757) (2,598,757)
Other changes 40,987 244,909
Balance, end of year $1,668,055 $1,550,390
-13-
<PAGE>
NOTE 12 - EMPLOYEE BENEFIT PLAN
The Bank maintains an Employee Savings Plan qualified under
Section 401(k) of the Internal Revenue Code. The Bank matches employee
contributions at 50%, up to 6.0% of salary. Employees of the Bank with
one or more years service are eligible to participate in the Plan. The
amount charged to expense was $10,856, $9,029 and $11,992 for 1994,
1993 and 1992, respectively. The Plan also has a provision for
discretionary profit-sharing upon the approval by the Board of
Directors, should certain profitability goals be attained. No
contributions were made in 1994, 1993 and 1992.
In October, 1992, the Board of Directors approved a 15,000 share
stock option at $10 per share to an officer of the Bank for an exercise
period of ten years to exercise the option.
NOTE 13 - REGULATORY MATTERS
The Bank is currently operating under regulatory supervision
through an agreement between the Board of Directors and the Office of
the Comptroller of the Currency. The agreement requires the Board to
make certain changes and improvements in the areas of credit
administration, loan underwriting, internal controls and regulatory
compliance and to decrease the level of classified and nonperforming
loans. To date, the Board is in partial compliance with the regulatory
agreement.
The Bank is subject to the dividend restrictions set forth by
the Comptroller of the Currency. Under such restrictions, the Bank may
not, without the prior approval of the Comptroller of the Currency,
declare dividends in excess of the sum of the current year's earnings,
as defined, plus the retained earnings, as defined, from the prior two
years. At December 31, 1994, the Bank could not declare dividends
without approval of the Comptroller of the Currency.
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 year ended December
31, 1994 and 1993 were approximately $176,000 and $168,000.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the financial statements. The
regulations require the Bank to meet specific capital adequacy
guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital classification is also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts and ratios
(set forth in the table below) of Tier I capital to adjusted total
assets (leverage capital ratio), and minimum ratios of Tier I capital
and total capital to risk-weighted assets. To be considered adequately
capitalized under the regulatory framework for prompt corrective
action, the Bank must maintain minimum Tier I leverage, Tier I risk-
based, and total risk-based ratios as set forth in the table. The
Bank's required minimum and actual capital ratios as of December 31,
1994 are as follows:
Required
Minimum Actual
Tier I Leverage Capital 6.5% 8.0%
Tier I Risk-based Capital 9.5% 9.9%
Total Risk-based Capital 8.0% 11.1%
Management believes, as of December 31, 1994, that the Bank
meets all capital requirements.
-14-
<PAGE>
<PAGE>
ANNEX 2
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
<PAGE>
REPORT OF INDEPENDENT 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, which has
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
statement presentation. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated finanical 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
combination.
ELLIOTT, DAVIS & COMPANY, L.L.P.
Greenville, South Carolina
April 24, 1995
F-1
<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........................................................................... $ 57,250 $ 28,705
Federal funds sold and securities purchased under resale agreements............................... 2,980 57,470
Securities
Trading........................................................................................ 1,155 250
Available for sale............................................................................. 50,344 64,871
Held for investment (market value $66,418 in 1994 and $57,140 in 1993)......................... 69,806 56,607
Total securities............................................................................. 121,305 121,728
Loans held for sale............................................................................ 71,695 7,700
Loans.......................................................................................... 824,783 589,040
Less unearned income......................................................................... (873) (2,221)
Less allowance for loan losses............................................................... (5,669) (6,270)
Net loans................................................................................. 889,936 588,249
Premises and equipment............................................................................ 38,504 30,566
Accrued interest receivable....................................................................... 7,286 5,054
Other assets...................................................................................... 44,461 28,601
$1,161,722 $860,373
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing............................................................................ $ 124,530 $ 71,094
Interest-bearing............................................................................... 838,940 693,583
Total deposits............................................................................... 963,470 764,677
Federal funds purchased and securities sold under repurchase agreements........................... 33,986 16,725
Other short-term borrowings....................................................................... 72,052 54
Long-term debt.................................................................................... 1,162 1,214
Accrued interest payable.......................................................................... 3,900 3,144
Other liabilities................................................................................. 4,718 7,988
Total liabilities............................................................................ 1,079,288 793,802
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
5,034,060 shares in 1994 and 4,732,537 shares in 1993.......................................... 5,034 4,733
Surplus........................................................................................... 42,582 38,957
Retained earnings................................................................................. (130) 8,104
Nonvested restricted stock........................................................................ (1,083) (709)
Guarantee of ESOP debt............................................................................ (126) (176)
Unrealized loss on securities available for sale.................................................. (857) --
Total shareholders' equity................................................................... 82,434 66,571
$1,161,722 $860,373
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
F-2
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS, EXCEPT SHARE DATA)
INTEREST INCOME
Interest and fees on loans........................................................ $ 67,911 $ 44,617 $ 37,338
Interest on securities
Taxable........................................................................ 5,197 6,076 3,462
Exempt from Federal income taxes............................................... 1,002 475 296
Total interest on securities................................................. 6,199 6,551 3,758
Interest on federal funds sold and securities purchased under resale
agreements.................................................................... 512 591 606
Total interest income........................................................ 74,622 51,759 41,702
INTEREST EXPENSE
Interest on deposits.............................................................. 29,393 22,639 22,096
Interest on short-term borrowings................................................. 1,638 427 128
Interest on long-term debt........................................................ 120 120 110
Total interest expense....................................................... 31,151 23,186 22,334
Net interest income............................................................ 43,471 28,573 19,368
PROVISION FOR LOAN LOSSES........................................................... 1,090 961 1,828
Net interest income after provision for loan losses............................ 42,381 27,612 17,540
NONINTEREST INCOME
Service charges on deposit accounts............................................... 3,930 2,717 1,632
Mortgage banking income........................................................... 1,638 1,788 1,274
Fees for trust services........................................................... 919 542 305
Gain on sale of securities........................................................ 75 662 535
Sundry............................................................................ 1,425 755 (55)
Total noninterest income..................................................... 7,987 6,464 3,691
NONINTEREST EXPENSES
Salaries and wages................................................................ 14,470 10,165 6,495
Employee benefits................................................................. 4,239 2,301 1,428
Occupancy......................................................................... 3,638 2,215 1,421
Furniture and equipment........................................................... 2,443 1,747 1,346
Sundry............................................................................ 15,588 10,427 6,998
Credit card restructuring charges................................................. 12,214 -- --
Total noninterest expenses................................................... 52,592 26,855 17,688
Income (loss) before income taxes.............................................. (2,224) 7,221 3,543
Income taxes...................................................................... (49) 2,173 1,160
Net income (loss).............................................................. (2,175) 5,048 2,383
Dividends on preferred stock...................................................... 2,433 1,930 625
Net income (loss) applicable to common shareholders............................ $ (4,608) $ 3,118 $ 1,758
PER COMMON SHARE DATA*
Net income (loss).............................................................. $ (0.93) $ 0.82 $ 0.47
Cash dividends................................................................. $ 0.21 $ 0.05 $ --
Average common shares.......................................................... 4,974,087 3,784,599 3,743,504
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
* Per share data have been restated to reflect 5% stock dividends.
F-3
<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)................................................................... $ (2,175) $ 5,048 $ 2,383
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operations
Depreciation........................................................................ 2,680 1,822 1,456
Amortization of intangibles......................................................... 2,485 902 462
Provision for loan losses........................................................... 1,090 961 1,828
Provision for deferred taxes........................................................ 74 (222) (206)
Gain on sale of securities.......................................................... (75) (662) (535)
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............................................. (2,232) (788) (159)
Increase (decrease) in accrued interest payable..................................... 756 335 (209)
(Increase) decrease in other assets................................................. (16,859) 285 (1,776)
Premiums paid on acquired credit cards.............................................. -- (1,023) (1,377)
Increase (decrease) in other liabilities............................................ (3,256) 5,514 519
Federal Home Loan Bank stock dividend............................................... (150) (68) (77)
Net cash provided by (used for) operating activities.............................. (13,030) 10,756 (11,123)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities....................................................... -- -- 34,929
Proceeds from sale of securities available for sale.................................... 26,420 67,285 --
Proceeds from maturity of securities................................................... -- -- 27,451
Proceeds from maturity of securities available for sale................................ 159,767 219,720 --
Proceeds from maturity of securities held for investment............................... 8,110 1,863 4,719
Purchase of securities................................................................. -- -- (84,044)
Purchase of securities available for sale.............................................. (169,698) (276,940) --
Purchase of securities held for investment............................................. (24,310) (48,624) (5,503)
Net decrease (increase) in federal funds sold and securities purchased under resale
agreements.......................................................................... 54,490 (51,234) 9,700
Purchase of loans...................................................................... -- (16,265) (5,359)
Net increase in loans.................................................................. (266,180) (117,926) (44,654)
Proceeds from sale of premises and equipment........................................... 424 474 871
Capital expenditures................................................................... (11,028) (12,033) (1,490)
Net cash used for investing activities.............................................. (222,005) (233,680) (63,380)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquired deposits (net)................................................................ 97,735 196,840 --
Net increase in deposits............................................................... 57,618 3,726 68,574
Net increase in federal funds purchased and securities sold under repurchase
agreements.......................................................................... 17,261 14,188 84
Issuance (payments) of borrowed funds.................................................. 71,921 (161) (407)
Issuance of preferred stock............................................................ 21,352 14,462 10,319
Redemption of preferred stock.......................................................... -- (92) --
Cash dividends paid.................................................................... (2,936) (1,777) (385)
Other common stock activity............................................................ 629 30 --
Net cash provided by financing activities.............................................. 263,580 227,216 78,185
Increase in cash and due from banks...................................................... 28,545 4,292 3,682
Cash and due from banks at beginning of year............................................. 28,705 24,413 20,731
Cash and due from banks at end of year................................................... $ 57,250 $ 28,705 $ 24,413
</TABLE>
See Notes to Supplemental Consolidated Financial Statements which are an
integral part of these statements.
F-4
<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............................ 3,290,168 $ -- $3,289 $26,190 $ 6,119 $35,598
Net income.......................................... -- -- -- -- 2,383 2,383
Issuance of Series 1992 preferred stock............. -- 10,319 -- -- -- 10,319
Common stock issued pursuant to:
Stock dividend................................... 139,505 -- 140 1,186 (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............................ 3,451,460 10,319 3,451 27,571 6,473 47,814
Net income.......................................... -- -- -- -- 5,048 5,048
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............................ 4,732,537 15,662 4,732 38,958 7,219 66,571
Net loss............................................ -- -- -- -- (2,175 ) (2,175)
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 -- 42 569 (611 ) --
Dividend reinvestment plan....................... 44,055 -- 44 559 -- 603
Employee stock purchase plan..................... 2,247 -- 2 29 -- 31
Exercise of stock options........................ 141 -- -- 1 -- 1
Cash dividends paid/accrued by Carolina First:
Preferred stock.................................. -- -- -- -- (2,433 ) (2,433)
Common stock..................................... -- -- -- -- (936 ) (936)
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.... -- -- -- -- (857 ) (857)
BALANCE, DECEMBER 31, 1994............................ 5,034,060 $ 37,014 $5,034 $42,582 $(2,196 ) $82,434
</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.
F-5
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The 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.
F-6
<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 $30,394,000, $22,851,000 and
$22,969,000 in 1994, 1993 and 1992, respectively. Income tax payments of
$2,653,000 were made in 1994, $1,882,000 in 1993 and $994,000 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
F-7
<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 on April 10,
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 and of Aiken County National Bank included in this
Form 8-K.
3. SUBSEQUENT EVENTS
On January 24, 1995, the Bank securitized approximately $100,000,000 of
credit card receivables. This transaction will be 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. 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.
F-8
<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 Bank ("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 452,813 shares of the Company's
common stock. At December 31, 1994,. Aiken County National has 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 National Bank ("Midlands") for the merger of Midlands into the Bank.
The Bank will acquire all the outstanding common shares of Midlands in exchange
for approximately 584,000 shares of the Company's common stock (assuming no
dissenter's rights are exercised). Midlands has assets of approximately $43
million, loans of $28 million and deposits of $39 million. This transaction has
received regulatory approval but is still subject to Midlands shareholder
approval and is expected to be completed during the second quarter of 1995. The
Midlands merger will be accounted for as a pooling of interests.
F-9
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BUSINESS COMBINATIONS -- Continued
The Company has 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............................................................ $ 22,091 $-- $ 575 $21,516
Obligations of U.S. government agencies and corporations............................ 27,512 -- 633 26,879
Corporate bonds..................................................................... 1,999 -- 50 1,949
Total securities available for sale................................................. $ 51,602 $-- $1,258 $50,344
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.................................... 20,628 19 1,018 19,629
Other bonds......................................................................... 53 -- -- 53
Total securities held for investment................................................ $ 69,806 $ 19 $3,407 $66,418
<CAPTION>
1993
BOOK GROSS UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
($ 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
Corporate bonds..................................................................... 1,997 -- 6 1,991
Total securities available for sale................................................. $ 64,871 $ 73 $ 73 $64,871
SECURITIES HELD FOR INVESTMENT:
U.S. treasury securities............................................................ $ 4,793 $ 60 $ 7 $ 4,846
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
Corporate bonds..................................................................... 2,271 -- 1 2,270
Total securities held for investment................................................ $ 56,607 $ 588 $ 55 $57,140
</TABLE>
F-10
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SECURITIES -- Continued
The book value and estimated market value of debt securities at December
31, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. Market value
of securities is determined using quoted market prices.
<TABLE>
<CAPTION>
BOOK MARKET
VALUE VALUE
<S> <C> <C>
($ IN THOUSANDS)
Due in one year or less............................................................................... $ 45,640 $ 44,596
Due after one year through five years................................................................. 55,428 52,701
Due after five years through ten years................................................................ 9,751 9,196
Due after ten years................................................................................... 10,589 10,269
Total securities...................................................................................... $ 121,408 $ 116,762
</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 $955 $623
Gross realized losses................................................................................. (177) (293) (88)
Net gain on sale of securities........................................................................ $ 75 $662 $535
</TABLE>
The change in the net unrealized loss on securities available for sale for
the year ended December 31, 1994 was $857,000, net of applicable income taxes of
$401,000. Securities with an approximate book value of $89,844,000 and
$85,533,000 at December 31, 1994 and 1993, respectively, were pledged to secure
public deposits and for other purposes. Estimated market values of securities
pledged were $85,894,000 and $86,226,000 at December 31, 1994 and 1993,
respectively.
8. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
($ IN THOUSANDS)
Real estate -- mortgage............................................................................... $198,590 $148,888
Real estate -- construction........................................................................... 23,103 21,242
Commercial and industrial............................................................................. 175,221 132,530
Commercial and industrial secured by real estate...................................................... 268,628 150,764
Loans to individuals for household, family and other personal expenditures............................ 154,375 134,124
Loans held for sale................................................................................... 71,695 7,700
All other loans, including overdrafts................................................................. 4,866 1,492
Gross loans........................................................................................... 896,478 596,740
Less unearned income.................................................................................. (873) (2,221)
Less allowance for loan losses........................................................................ (5,669) (6,270)
Net loans............................................................................................. $889,936 $588,249
</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
$10,145,000 and $10,911,000 at December 31, 1994 and 1993, respectively. During
1994, new loans of approximately $4,177,000 were made, and payments totaled
approximately $4,943,000.
F-11
<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 $1,807,000 and $2,097,000,
respectively, on which interest was not being accrued. At December 31, 1994,
loans included $675,000 in restructured loans. Foregone interest income was
approximately $178,000 in 1994, $507,000 in 1993 and $407,000 in 1992.
Foreclosure loans included in other real estate owned amounted to $517,000 and
$1,021,000 at December 31, 1994 and 1993, respectively.
Transactions in the allowance for loan losses were:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Balance at beginning of year.................................................................. $ 6,270 $ 4,884 $ 4,235
Valuation allowance for loans purchased....................................................... 1,078 1,811 255
Provision for loan losses..................................................................... 1,090 961 1,828
Recoveries on loans previously charged off.................................................... 126 49 83
Loans charged off............................................................................. (2,895) (1,435) (1,517)
Balance at end of year........................................................................ $ 5,669 $ 6,270 $ 4,884
</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.................................................................................................... $ 5,502 $ 4,799
Buildings............................................................................................... 19,613 14,251
Furniture, fixtures and equipment....................................................................... 16,454 12,122
Leasehold improvements.................................................................................. 6,469 5,872
Construction in progress................................................................................ 420 712
48,458 37,756
Less accumulated depreciation and amortization.......................................................... (9,954) (7,190)
$38,504 $30,566
</TABLE>
Depreciation and amortization charged to operations totaled $2,680,000,
$1,822,000 and $1,456,000 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
F-12
<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 $128,896,000 and
$113,074,000 at December 31, 1994 and 1993, respectively.
13. INCOME TAXES
Income tax expense (benefit) for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Currently payable (refundable):
Federal......................................................................................... $(286) $2,155 $1,289
State........................................................................................... 163 240 77
Total........................................................................................... (123) 2,395 1,366
Deferred.......................................................................................... 74 (222) (206)
$ (49) $2,173 $1,160
</TABLE>
The sources of temporary differences and the resulting deferred taxes for
the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Provision for loan losses in excess of amount deductible for taxes................................ $(1,729) $(277) $(258)
Accretion and FHLB dividends...................................................................... (27) (23) (24)
Tax depreciation in excess of book depreciation................................................... (203) 38 22
Restructuring charges............................................................................. 2,131 -- --
Amortization...................................................................................... (65) -- --
Other, net........................................................................................ (33) 40 54
$ 74 $(222) $(206)
</TABLE>
Deferred taxes of $841,000 and $915,000 are included in other assets on the
balance sheets at December 31, 1994 and 1993, respectively. There is no
valuation allowance related to deferred tax assets.
F-13
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES -- Continued
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate, 34%, to income before income taxes. The
reasons for these differences are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Tax expense (benefit) at statutory rate.......................................................... $ (756) $2,455 $1,272
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............................................................... 56 162 56
Nontaxable interest............................................................................ (221) (176) (89)
Other, net..................................................................................... 93 (110) 29
$ 95 $2,169 $1,200
</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 $18,750,000. 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.
F-14
<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 26). The note bears interest, which is payable annually, at a
variable rate which approximates 90% of the prime interest rate. Annual
principal payments are $50,000 until the note is repaid. Future payments due on
long-term debt are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
<S> <C>
1995................................................................. $ 52
1996................................................................. 52
1997................................................................. 28
1998................................................................. 28
1999................................................................. 28
Thereafter........................................................... 1,026
$ 1,214
</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.
F-15
<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 1.7931 shares of common stock or a conversion price of $13.94 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
1.917 shares of common stock, or a conversion price of $13.04 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 1.75 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 stock dividend
issuable on May 16, 1994, to stockholders of record on April 29, 1994. Per share
data have been restated to reflect this dividend.
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 $4,524,000.
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.
F-16
<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 525,000. 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.................................................... 55,809 $ 8.85/11.46 45,768 $ 6.58/11.46
Granted................................................................... 26,950 14.88 17,535 12.03
Cancelled................................................................. -- -- 3,153 $ 8.85/12.03
Exercised................................................................. 141 $ 9.41/12.03 4,341 6.58
Outstanding, December 31.................................................. 82,618 $ 8.85/14.88 55,809 $ 8.85/12.03
Exercisable, December 31.................................................. 33,887 $ 8.85/12.03 26,145 $ 8.85/11.46
Available for grant, December 31.......................................... 400,019 169,988
</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 100,479 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 16,000 shares at an option price of $12.38 per share
were issued.
23. 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.
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.
F-17
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- Continued
The total portfolio of loans serviced or sub-serviced for non-affiliated
parties at December 31, 1994, was $704,869,000.
24. 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.
25. 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
$199,000 ($.07 per common share).
26. 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 $275,000, respectively, were charged to operations.
The ESOP has a loan used to acquire shares of stock of the Company. Such
stock is pledged as collateral for the loan. In accordance with the requirements
of the AICPA Statement of Position 76-3 and 93-6, the Company presents the
outstanding loan amount as other borrowed money and as a reduction of
shareholders' equity in the accompanying consolidated balance sheets (Note 16).
Company contributions to the ESOP are the primary source of funds used to
service the debt.
27. NONINTEREST EXPENSES
The significant components of sundry noninterest expenses for the years
ended December 31 are presented below:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
Noninterest expenses -- Sundry:
Federal deposit insurance premiums............................................................ $ 2,026 $ 1,517 $1,025
Credit card processing fees................................................................... 1,506 909 603
Intangibles amortization...................................................................... 2,485 902 462
Stationery, supplies and printing............................................................. 1,150 835 567
Telephone..................................................................................... 906 558 287
Postage....................................................................................... 861 564 318
Advertising................................................................................... 930 410 520
Other......................................................................................... 5,724 4,732 3,216
$15,588 $10,427 $6,998
</TABLE>
F-18
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
28. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Carolina First
Corporation (Parent Company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
($ IN THOUSANDS)
ASSETS
Cash.................................................................................................... $ 298 $ 828
Investment in Subsidiaries Bank......................................................................... 58,631 49,532
Savings Bank.......................................................................................... 15,404 13,700
Mortgage Company...................................................................................... 1,640 1,877
Total investment in subsidiaries........................................................................ 75,675 65,109
Receivable from subsidiaries............................................................................ 76 7
Premises and equipment.................................................................................. 363 --
Other investments....................................................................................... 1,439 959
Other assets............................................................................................ 5,310 391
$83,161 $67,294
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities.................................................................. $ 601 $ 547
Long-term debt.......................................................................................... 126 176
Shareholders' equity.................................................................................... 82,434 66,571
$83,161 $67,294
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ 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.............................................. (2,081) 3,968 1,858
Net income (loss)............................................................................... $(2,175) $5,048 $2,383
</TABLE>
F-19
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
28. PARENT COMPANY FINANCIAL INFORMATION -- Continued
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
($ IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)............................................................................. $(2,175) $ 5,048 $ 2,383
Adjustments to reconcile net income (loss) to net cash provided by (used for) operations
Equity in undistributed earnings of subsidiaries.............................................. 2,081 (3,968) (1,858)
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
$6,339,000 for the issuance of 452,815 shares of the Company's common stock
in exchange for all the outstanding common stock of Aiken County National Bank.
F-20
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
29. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results
of the Company and its subsidiaries for the years ended December 31:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER
1994 1993 1994 1993
<S> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT SHARE DATA)
Interest income........................................................... $ 14,410 $ 10,763 $ 17,638 $ 13,144
Interest expense.......................................................... 6,272 5,096 7,035 6,019
Net interest income....................................................... 8,138 5,667 10,603 7,125
Provision for loan losses................................................. 20 319 200 313
Net interest income after provision for loan losses....................... 8,118 5,348 10,403 6,812
Noninterest income........................................................ 2,042 1,132 2,039 1,586
Noninterest expenses...................................................... 8,190 5,055 9,795 6,586
Income before taxes....................................................... 1,970 1,425 2,647 1,812
Income taxes.............................................................. 483 513 825 620
Net income................................................................ 1,487 912 1,822 1,192
Dividends on preferred stock.............................................. 310 239 661 612
Net income applicable to common shareholders.............................. $ 1,177 $ 673 $ 1,161 $ 580
Earnings per common share*................................................ $ 0.24 $ 0.18 $ 0.23 $ 0.15
Average number of outstanding common shares*.............................. 4,951,558 3,760,931 4,966,815 3,763,038
<CAPTION>
THIRD QUARTER FOURTH QUARTER
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest income........................................................... $ 19,942 $ 13,812 $ 22,632 $ 14,041
Interest expense.......................................................... 8,455 6,027 9,389 6,044
Net interest income....................................................... 11,487 7,785 13,243 7,997
Provision for loan losses................................................. 260 330 610 --
Net interest income after provision for loan losses....................... 11,227 7,455 12,633 7,997
Noninterest income........................................................ 2,336 1,650 1,570 2,095
Noninterest expenses...................................................... 10,555 7,245 24,052 7,968
Income (loss) before taxes................................................ 3,008 1,860 (9,849) 2,124
Income taxes.............................................................. 947 466 (2,304) 574
Net income (loss)......................................................... 2,061 1,394 (7,545) 1,550
Dividends on preferred stock.............................................. 731 530 731 549
Net income (loss) applicable to common shareholders....................... $ 1,330 $ 864 $ (8,276) $ 1,001
Earnings (loss) per common share*......................................... $ 0.27 $ 0.23 $ (1.65) $ 0.26
Average number of outstanding common shares*.............................. 4,972,299 3,778,421 5,005,274 3,839,121
</TABLE>
*Per share data have been restated to reflect the 5% stock dividend.
30. 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
F-21
<PAGE>
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
30. 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 FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
FINANCIAL ASSETS:
Cash and due from banks...................................................... $ 57,250 $ 57,250 $ 28,705 $ 28,705
Federal funds sold and securities purchased under resale agreements.......... 2,980 2,980 57,470 57,470
Trading securities........................................................... 1,155 1,155 250 250
Securities available for sale................................................ 50,344 50,344 64,871 64,871
Securities held to maturity.................................................. 69,806 66,418 56,607 57,140
Loans receivable............................................................. 896,478 875,129 596,740 593,870
FINANCIAL LIABILITIES:
Deposit liabilities.......................................................... 963,470 962,725 764,677 745,226
Federal funds purchased and securities sold under repurchase
agreements................................................................. 33,986 33,986 16,725 16,725
Short-term borrowings........................................................ 72,052 72,052 54 54
Long-term debt............................................................... 1,162 1,315 1,214 1,401
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
Commitments to extend credit................................................. 72,732 69,171 46,414 46,835
Standby letters of credit.................................................... 5,807 5,516 4,549 4,592
Documentary letters of credit................................................ 394 376 713 721
</TABLE>
F-22
<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 $100,000 . . . . . . . . .8
Return on Equity and Assets . . . . . . . . . . . . . . . . . 9
Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . 10
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . 11
Noninterest Income . . . . . . . . . . . . . . . . . . . . . 12
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
Comparative Average Balances -- Yields and Costs
Carolina First Corporation
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
Average/ Income/ Yield/ Average/ Income/ Yield/ Average/ Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans (net of unearned income)(1)$ 753,482 $ 67,911 9.01 % $ 519,710 $ 44,617 8.58 % $ 406,288 $ 37,339 9.19 %
Investment securities (taxable).. 116,745 5,224 4.47 124,407 6,076 4.88 57,505 3,462 6.02
Investment securities (nontaxable) 17,188 1,540 (2) 8.96 8,252 731 (2) 8.86 3,741 456 (2) 12.18
Federal funds sold............... 13,066 492 3.76 19,035 577 3.03 15,680 538 3.43
Interest bearing deposits with
other banks.................... 476 20 4.25 250 15 5.89 340 16 4.62
Total earning assets......... 900,957 75,187 8.35 % 671,654 52,016 7.74 % 483,554 41,811 8.65 %
Non-earning assets............... 112,603 67,953 39,723
Total assets.................$1,013,560 $ 739,607 $523,277
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking..............$ 98,073 $ 2,108 2.15 % $ 64,393 $ 1,465 2.28 % $ 31,558 $ 962 3.05 %
Savings........................ 85,691 2,564 2.99 58,613 1,788 3.05 21,821 892 4.09
Money market................... 152,833 4,743 3.10 133,255 3,900 2.93 120,766 4,727 3.91
Certificates of deposit........ 408,239 17,895 4.38 307,155 13,779 4.49 236,296 13,548 5.73
Other.......................... 43,077 2,083 4.84 33,358 1,707 5.12 30,734 1,968 6.40
Total interest-bearing
deposits................... 787,913 29,393 3.73 % 596,774 22,639 3.79 % 441,175 22,097 5.01 %
Short-term borrowings........... 41,362 1,638 3.96 14,023 427 3.05 2,290 128 5.57
Long-term borrowings............ 1,264 120 9.50 1,318 120 9.10 1,374 110 8.00
Total interest-bearing
liabilities.................. 830,539 31,151 3.75 % 612,115 23,186 3.79 % 444,839 22,335 5.02 %
Non-interest bearing liabilities
Non-interest bearing deposits.. 98,638 59,591 30,871
Other non-interest liabilities. 1,006 6,042 3,793
Total liabilities.............. 930,183 677,748 479,503
Stockholders' equity.............. 83,377 61,859 43,774
Total liabilities and stockholders'
equity.......................$1,013,560 $ 739,607 $523,277
Net interest margin............... $44,036 4.89 % $ 28,830 4.29 % $ 19,476 4.03 %
- - ---------------------------------
(1)Includes nonaccruing loans.
(2)Fully tax-equivalent basis at a 35% tax rate.
Note: Average balances are derived from daily balances.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Rate/Volume Variance Analysis
Carolina First Corporation
(dollars in thousands)
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...$ 23,294 $ 21,002 $ 2,292 $ 7,278 $ 9,871 $ (2,593)
Securities, taxable............. (852) (367) (485) 2,614 3,331 (717)
Securities, nontaxable.......... 810 793 17 275 435 (160)
Federal funds sold.............. (86) (256) 170 39 115 (76)
Interest-bearing deposits with 0 0 0 0 0 0
other banks.................. 5 8 (3) (1) (5) 4
Total interest
income............... 23,171 21,180 1,991 10,205 13,747 (3,542)
Interest-bearing liabilities
Interest-bearing deposits
Interest checking............ 643 733 (90) 503 767 (264)
Savings...................... 776 812 (36) 896 1,165 (269)
Money market................. 843 600 243 (827) 457 (1,284)
Certificates of deposit...... 4,116 4,430 (314) 231 3,503 (3,272)
Other........................ 376 469 (93) (261) 163 (424)
Total interest-bearing
deposits................ 6,754 7,044 (290) 542 6,055 (5,513)
Short-term borrowings.............. 1,211 1,049 162 299 381 (82)
Long-term borrowings............... 0 (5) 5 10 (4) 14
Total interest
expense.............. 7,965 8,088 (123) 851 6,432 (5,581)
Net interest
income............ $ 15,206 $ 13,092 $ 2,114 $ 9,354 $ 7,315 $ 2,039
2
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Securities Held for Investment Composition
(dollars in thousands)
December 31,
1994 1993 1992
<S> <C> <C> <C>
U.S. Treasury securities................$ 6,189 $ 4,793 $ 1,843
Obligations of U.S. Government agencies 42,936 37,636 3,502
Obligations of states and political
subdivisions.......................... 20,628 11,907 3,316
Other securities........................ 53 2,271 1,203
$ 69,806 $ 56,607 $ 9,864
Securities Available for Sale Composition
(dollars in thousands)
December 31,
1994 1993 1992
U.S. Treasury securities................$ 21,516 11,523 30,574
Obligations of U.S. Government agencies
and corporations.................... 26,879 51,357 38,311
Other securities........................ 1,949 1,991 4,896
$ 50,344 $ 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 $ ------
3
<PAGE>
Carolina First Corporation
Securities Held for Investment and
Securities Available for Sale Maturity Schedule
(dollars in thousands)
</TABLE>
<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 3,426 20,628
Other securities................... ----- ----- 53 ----- 53
$ 1,596 $ 47,870 $ 9,751 $ 10,589 $ 69,806
Weighted average yield
U.S Treasury....................... 8.50 % 5.18 % 0.00 % 0.00 % 5.29 %
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 5.14 4.59
Other securities................... 0.00 0.00 4.45 0.00 4.45
5.17 % 5.43 % 4.67 % 5.89 % 5.39 %
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.......................$ 17,534 $ 4,557 $ ----- $ ----- $ 22,091
U.S. Government agencies
and corporations................ 24,511 3,001 ----- ----- 27,512
States and political subdivisions.. ----- ----- ----- ----- ------
Other securities................... 1,999 ----- ----- ----- 1,999
$ 44,044 $ 7,558 $ ----- $ ----- $ 51,602
Weighted average yield
U.S Treasury....................... 4.17 % 5.64 % 0.00 % 0.00 % 4.47 %
U.S. Government agencies
and corporations................ 4.31 4.71 0.00 0.00 4.35
States and political subdivisions.. 0.00 0.00 0.00 0.00 0.00
Other securities................... 3.89 0.00 0.00 0.00 3.89
4.24 % 5.27 % 0.00 % 0.00 % 4.39 %
</TABLE>
4
<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....................$ 175,221 $ 132,530 $ 106,858 $ 91,041 $ 64,534
Real Estate
Construction................. 23,103 21,242 17,191 20,791 17,808
Mortgage
Residential................ 198,590 148,888 115,813 118,591 118,219
Commercial and multifamily (1) 268,628 150,764 87,566 63,469 56,475
Consumer........................... 159,241 135,616 96,886 82,104 46,486
Loans held for sale................ 71,695 7,700 6,801 ------ ------
Total gross loans......... 896,478 596,740 431,115 375,996 303,522
Unearned income.................... (873) (2,221) (3,943) (3,766) (2,591)
Total loans net of unearne 895,605 594,519 427,172 372,230 300,931
Allowance for loan losses.......... (5,669) (6,270) (4,884) (4,235) (2,731)
Total net loans..........$ 889,936 $ 588,249 $ 422,288 $ 367,995 $ 298,200
- - --------------------------
(1) The majority of these loans are made to operating businesses where real property has been taken
additional collateral.
</TABLE>
Loan Maturity and Interest Sensitivity
(dollars in thousands)
<TABLE>
<CAPTION>
Over One
But Over
One Year Less than Five
or Less Five Years Years Total
<S> <C> <C> <C> <C>
Commercial, financial, agricultural and
commercial real estate........$ 342,404 $ 72,312 $ 29,133 $ 443,849
Real estate - construction......... 19,509 3,594 ------ 23,103
Total of loans with:
Predetermined interest rates.. 44,343 23,352 29,133 96,828
Floating interest rates....... 317,570 52,554 ------ 370,124
</TABLE>
5
<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...................$ 1,807 $ 2,097 $ 2,147 $ 1,779 $ 1,484
Restructured loans................. 675 ----- 353 ----- -----
Total nonperforming
loans................... 2,482 2,097 2,500 1,779 1,484
Other real estate owned............ 1,644 2,434 2,519 1,446 699
Total nonperforming
asset...................$ 4,126 $ 4,531 $ 5,019 $ 3,225 $ 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......................... 0.46 % 0.77 % 1.18 % 0.87 % 0.73 %
Allowance for loan losses as a percentage
of nonperforming loans.......... 228.40 % 299.00 % 195.36 % 238.06 % 164.02 %
Carolina First Corporation
Summary of Loan Loss Experience
(dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loan loss reserve at beginning of
period..........................$ 6,270 $ 4,884 $ 4,235 $ 2,730 $ 2,290
Valuation allowance for loans
acquired......................... 1,078 1,811 255 450 -----
Charge-offs:
Commercial, financial and
agricultural................. 394 332 1,177 311 299
Real estate - construction.... 85 ----- 30 31 -----
Real estate - mortgage........ 233 234 115 88 12
Consumer...................... 542 381 195 229 176
Credit cards.................. 1,641 488 ----- ----- -----
Total loans
charged-off.......... 2,895 1,435 1,517 659 487
Recoveries:
Commercial, financial and
agricultural................ 59 12 42 ----- 103
Real estate - construction... ----- ----- 1 ----- -----
Real estate - mortgage....... 9 23 18 ----- -----
Consumer..................... 58 14 22 27 30
Credit cards................. ----- ----- ----- ----- -----
Total loans
recovered........... 126 49 83 27 133
Net charge-offs.................... 2,769 1,386 1,434 632 354
Provision changed to expense.. 1,090 961 1,828 1,687 794
Loan loss reserve at end of
period............................$ 5,669 $ 6,270 $ 4,884 $ 4,235 $ 2,730
Average loans......................$ 753,482 $ 519,710 $ 406,288 $ 335,509 $ 276,228
Total loans, net of unearned
income (period end).............. 895,605 594,519 427,172 372,230 300,931
Net charge-offs as a percentage of
average loans................... 0.37 % 0.27 % 0.35 % 0.19 % 0.13 %
Allowance for loan losses as a
percentage of loans............. 0.63 1.05 1.14 1.15 0.91
</TABLE>
6
<PAGE>
Carolina First Corporation
Composition of Allowance for Loan Losses
(dollars in thousands)
<PAGE>
Allowance Breakdown
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural..................$ 1,638 $ 1,744 $ 1,666 $ 1,146 $ 823
Real Estate
Construction.................. 115 128 338 255 183
Mortgage:
Residential................. 100 100 250 100 60
Commercial and
Multifamily.............. 506 542 1,135 1,427 880
Consumer........................... 2,745 3,130 1,007 912 512
Unallocated........................ 565 626 488 427 273
Total...................$ 5,669 $ 6,270 $ 4,884 $ 4,267 $ 2,731
Percentage of Loans in Category
December 31,
1994 1993 1992 1991 1990
Commercial, financial and
agricultural................... 19.55 % 22.21 % 24.79 % 24.21 % 21.26 %
Real Estate
Construction................ 2.58 3.56 3.99 5.53 5.87
Mortgage:
Residential............... 22.15 24.95 26.86 31.54 38.94
Commercial and
Multifamily............ 29.96 25.26 20.31 16.88 18.61
Consumer................. 25.76 24.02 24.05 21.84 15.32
Total.................... 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
</TABLE>
7
<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............$ 124,530 $ 71,094 $ 43,069 $ 27,765 $ 25,638
NOW accounts....................... 114,030 82,891 39,299 27,660 15,160
Savings accounts................... 92,776 68,731 24,317 16,468 12,504
Money market accounts.............. 151,392 151,019 129,042 116,707 85,411
Time deposits...................... 351,846 277,868 205,713 199,906 143,861
Time deposits of $100,000 or
over............................ 128,896 113,074 76,259 60,714 48,895
Total deposits................$ 963,470 $ 764,677 $ 517,699 $ 449,220 $ 331,469
Percent of Deposits as of December 31,
1994 1993 1992 1991 1990
Demand deposit accounts............ 12.93 % 9.30 % 8.32 % 6.18 % 7.73 %
NOW accounts....................... 11.83 10.84 7.59 6.16 4.57
Savings accounts................... 9.63 8.99 4.70 3.67 3.77
Money market accounts.............. 15.71 19.75 24.93 25.98 25.78
Time deposits...................... 36.52 36.34 39.73 44.49 43.40
Time deposits of $100,000 or
over............................ 13.38 14.78 14.73 13.52 14.75
Total deposits................ 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
</TABLE>
<TABLE>
<CAPTION>
Certificates of Deposit Greater than $100,000
(dollars in thousands)
<S> <C>
Maturing in three months or less...........................................................$ 51,656
Maturing in over three through six months.................................................. 33,214
Maturing in over six through twelve months................................................. 24,902
Maturing in over twelve months............................................................. 19,124
Total............................................................................$ 128,896
</TABLE>
8
<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........... (0.21)% 0.68 % 0.46 % 0.41 % 0.36 %
Return on average equity........... (2.61) 8.16 5.44 4.98 3.89
Return on average common equity.... (8.77) 7.93 4.75 4.98 3.89
Average equity as a percentage of
average assets.................. 8.23 8.36 8.37 8.17 9.30
Dividend payout ratio.............. n/m 0.00 0.00 0.00 0.00
</TABLE>
9
<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>
10
<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...$ 505,802 $ 29,707 $ 48,732 $ 584,241 $ 310,962 $ 895,203
Investment securities, taxable.. 19,025 2,796 23,916 45,737 55,537 101,274
Investment securities,
nontaxable.................... 1,346 ------ 50 1,396 18,635 20,031
Federal funds sold.............. 2,980 ------ ------ 2,980 ------ 2,980
Interest bearing deposits with
other banks................... 500 ------ ------ 500 ------ 500
Total earning
assets............ 529,653 32,503 72,698 634,854 385,134 1,019,988
Non-earning assets, net............ ------- ------- ------- ------- 141,734 141,734
Total assets........$ 529,653 $ 32,503 $ 72,698 $ 634,854 $ 526,868 $ 1,161,722
Liabilities and Stockholders' Equity
Liabilities
Intererest-bearing liabilities
Interest-bearing deposits
Interest Checking........$ 105,966 $ ------ $ ------ $ 105,966 $ ------ $ 105,966
Savings.................. 92,745 ------ ------ 92,745 ------ 92,745
Money Market............. 151,312 ------ ------ 151,312 ------ 151,312
Certificates of Deposit.. 139,647 110,034 109,332 359,013 79,881 438,894
Other.................... 20,834 10,826 10,209 41,869 12,734 54,603
Total interest-
bearing deposits...... 510,504 120,860 119,541 750,905 92,615 843,520
Short-term borrowings........ 105,986 ------ 52 106,038 ------ 106,038
Long-term borrowings......... ------ ------ ------ ------ 1,162 1,162
Total interest-
bearing liabilities... 616,490 120,860 119,593 856,943 93,777 950,720
Noninterest bearing liabilities
Noninterest bearing
deposits.................... ------ ------ ------ ------ 119,950 119,950
Other noninterest bearing
lialities, net............. ------ ------ ------ ------ 8,618 8,618
Total liabilities...... 616,490 120,860 119,593 856,943 222,345 1,079,288
Stockholders'equity................ ------ ------ ------ ------ 82,434 82,434
Total liabilities and
stockholders'
equity..............$ 616,490 $ 120,860 $ 119,593 $ 856,943 $ 304,779 $ 1,161,722
Interest sensitive gap.............$ (86,837)$ (88,357)$ (46,895)$ (222,089)$ 222,089 $ ------
Cumulative interest sensitive gap..$ (86,837)$ (175,194)$ (222,089)$ (222,089)
</TABLE>
11
<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........$ 3,930 $ 2,717 $ 1,632 $ 983 $ 538
Mortgage banking income:
Origination fees................ 954 1,051 778 461 309
Gain on sale of mortgage loans.. 112 509 496 ------ ------
Servicing and other............. 572 228 ------ ------ ------
Fees for trust services............ 919 542 305 197 141
Gain on sale of securities......... 75 662 535 664 (4)
Sundry............................. 1,425 755 (55) 168 262
Total noninterest
income..................$ 7,987 $ 6,464 $ 3,691 $ 2,473 $ 1,246
Noninterest Expense
(dollars in thousands)
Years Ended December 31,
1994 1993 1992 1991 1990
Salaries and wages.................$ 14,470 $ 10,165 $ 6,495 $ 4,484 $ 3,392
Benefits........................... 4,239 2,301 1,428 1,440 1,041
Occupancy.......................... 3,638 2,215 1,421 1,009 910
Furniture and equipment............ 2,443 1,747 1,346 1,035 805
Federal deposit insurance
premiums.......................... 2,026 1,517 1,025 780 472
Credit card processing charges..... 1,506 909 603 458 ------
Intangibles amortization........... 2,485 902 462 214 25
Credit card restructuring charges.. 12,214 ------ ------ ------ ------
Sundry............................. 9,571 7,099 4,908 3,469 3,413
Total noninterest
expense................$ 52,592 $ 26,855 $ 17,688 $ 12,889 $ 10,058
</TABLE>
12
<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....................$ 43,471 $ 28,573 $ 19,368 $ 14,295 $ 11,467
Provision for loan losses.............. 1,090 961 1,828 1,687 793
Noninterest income..................... 7,987 6,464 3,691 2,473 1,246
Noninterest expenses................... 52,592 26,855 17,688 12,889 10,058
Net income (loss) (1).................. (2,175) 5,048 2,383 1,738 1,288
Per Common Share Data:
Net income(loss).......................$ (0.93) $ 0.82 $ 0.47 $ 0.47 $ 0.35
Cash dividends declared.............. 0.21 0.05 - - -
Balance Sheet (Period End):
Total assets...........................$ 1,161,722 $ 860,373 $ 574,351 $ 493,430 $ 381,497
Loans-net of unearned income.......... 895,605 594,519 427,172 372,231 300,932
Nonperforming assets.................. 3,967 4,531 5,025 3,520 2,364
Total earning assets.................. 1,020,390 773,967 517,419 449,408 349,732
Total deposits........................ 963,470 764,677 517,699 449,220 331,469
Short-term borrowings................. 106,038 16,779 2,591 2,755 12,260
Long-term debt........................ 1,162 1,214 1,323 1,482 534
Shareholders' equity.................. 82,434 66,571 47,814 35,598 33,899
Balance Sheet (Averages):
Total Assets.......................... $ 1,013,560 $ 739,607 $ 523,277 $ 427,451 $ 355,855
Shareholders' equity.................. 83,377 61,859 43,774 34,932 33,083
</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 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 $2.2 million, or a loss of $0.93 per common share. The net
loss for 1994 includes one-time restructuring charges of $9.4
million (after-tax). Net income for 1993 was $5.0 million, or
$0.82 per common share, and 1992 net income was $2.4 million, or
$0.47 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
$15.2 million, or 53%, 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 4.29% in 1993 and 4.03% in 1992.
Noninterest income, excluding securities transactions
increased to $7.9 million, or 36%, from $5.8 million in 1993 and
$3.2 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 $52.6 million in 1994 from
$26.9 million in 1993 and $17.7 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 84% 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 on a taxable basis. The
Company has experienced a markedly upward trend in FTE net
interest income, which
14
<PAGE>
increased 53% in 1994, 48% in 1993 and
35% in 1992. FTE net interest income was $44.0 million in 1994,
$28.8 million in 1993 and $19.5 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 $901.0 million in 1994 from
$671.7 million in 1993 and $483.6 in 1992, resulted primarily
from internal loan growth and the acquisition of branches. The
majority of this increase was in loans, which averaged $233.8
million higher in 1994 than 1993 and $113.4 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 4.29% in 1993 and 4.03% 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
network 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 $1,090,000,
$961,000, and $1,828,000, respectively, through its provision for
loan losses. Net loan charge-offs, excluding credit card loans,
were $1,128,000, $898,000 and $1,434,000 in 1994, 1993 and 1992,
respectively. During 1994, net loan charge-offs as a percentage
of average loans have remained low at 0.37% including credit card
charge-offs, compared with 0.27% for 1993 and and 0.35% for 1992.
At December 31, 1994, the allowance for loan losses totaled
$5.7 million, or 0.6% of total loans, a decline from $6.3
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 0.46% and 0.77% at December 31, 1994 and
1993, respectively. At December 31, 1994, the allowance for loan
losses was 228% 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 36%, to $7.9 million in 1994, up from
$5.8 million in 1993 and $3.2 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,
$662,000 and $535,000 in 1994, 1993 and 1992, respectively.
Service charges on deposit accounts, the largest contributor
to noninterest income, rose $1.2 million, or 45%, to $3.9 million
in 1994, an increase from $2.7 million in 1993 and $1.6 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 35%.
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 $670,000 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 $52.6 million in 1994, $26.9
million in 1993 and $17.7 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 50%
over 1993, while 1993 was 52% 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 50% to $18.7
million in 1994 from $12.5 million in 1993. This increase
follows an increase of 57% from $7.9 million in 1992. Full-time
equivalent employees rose to 527 at the end of 1994 from 453 and
252 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 53%, 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 $5.1 million, or 49%, to
$15.6 million in 1994 from $10.4 million in 1993 and $7.0 million
in 1992. Three expense items-- federal insurance premiums,
intangibles amortization and credit card processing fees --
accounted for approximately 52% of this increase. Federal
deposit insurance premiums increased $509,000, or 34%, in 1994 to
$2.0 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
$521,000, or 127%, to $930,000 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 a credit of
$49,000. The provision for income taxes was $2.2 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 $301.3 million, or 35%, from $860.4 million at the
end of 1993. Loans increased $301.1 million, or 51%, to $895.6
million at December 31, 1994 compared with $594.5 million at
December 31, 1993. Deposits at year end 1994 were $963.5
million, up 26% from $764.7 million at year end 1993. Total
shareholders' equity increased 24% to $82.4 million at December
31, 1994 from $66.6 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 $1.0 billion, a 37%
increase over the 1993 average of $739.6 million. Average
earning assets were $901.0 million in 1994, a 34% increase over
the 1993 level of $671.7 million. For 1992, average total assets
and average earning assets were $523.3 million and $483.6
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 $895.6 million which
equaled approximately 93% 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 29%, credit
card 12%, consumer 6% and construction 3%.
The Company's loans increased $301.1 million, or 51%, to
$895.6 million at December 31, 1994 from $594.5 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 50% 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 $753.5 million with a
yield of 9.01%, compared with $519.7 million and a yield of 8.58%
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 $122.6 million and a market value of $117.9 million
for an unrealized loss of $4.7 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 $133.9 million in 1994, 1%
above the 1993 average of $132.7 million. The average portfolio
yield declined from 5.13% in 1993 to 5.05% in 1994.
During the past two years, average securities have been a
lesser component of average earning assets, decreasing from 19.8%
in 1993 to 14.9% 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 $121.3
million, down $400,000 from the $121.7 million invested at the
end of 1993.
Other Assets
At December 31, 1994, other assets included other real
estate owned of $1.6 million and intangible assets of $29.8
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 $830.5
million, compared with $612.1 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
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<PAGE>
approximately 89% of total deposits and 95% 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 26% to $963.5 million at December 31, 1994
from $764.7 million at December 31, 1993. Of the $198.8 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 $787.9 million with a rate of 3.73%, compared
with $596.8 million with a rate of 3.79% 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 66%
during the year, increased to 11.1% of average total deposits in
1994 from 9.1% 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
87% 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 1.7931 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 $15.9 million, or 24%,
to $82.4 million at December 31, 1994 from $66.6 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 $8.48 and $10.08 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 $4.46, down from
$7.12 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.)
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 to the Bank; and (4) sell certain
purchase mortgage servicing rights. All of these steps were
taken except for
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<PAGE>
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. 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 May 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 8.21% 9.54% 7.53% 8.52% 5.54% 6.23%
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 quarterly cash dividend to $0.06 beginning in the
first quarter of 1995. The Company presently intends to
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<PAGE>
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
$17.8 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 $155.3 million, $89.2 million, $54.7
million and $22.0 million, respectively. The Company used this
cash to increase loans by $266.2 million, capital expenditures by
$ 1 0.6 million, cash balances by $28.5 million, operating
activities by $13.0 million and dividends by $2.9 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. The Asset/Liability
Management Committee uses an asset/liability simulation model
which quantifies balance
24
<PAGE>
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 $1.1 million, $898,000, and $1.4 million in
1994, 1993 and 1992, respectively. During 1994, net loan charge-
offs as a percentage of average loans have remained low at 0.37%,
compared with 0.27% for 1993 and and 0.35% in 1992.
Nonperforming assets as a percentage of loans and foreclosed
property were 0.45% and 0.77% at December 31, 1994 and 1993,
respectively. At December 31, 1994, the allowance for loan
losses was 228% of nonperforming loans. At December 31, 1994,
the Company had $1.8 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."
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<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 24.1
(Elliott, Davis & Company Letterhead)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Carolina First Corporation
Greenville, South Carolina
We hereby consent to the use of our reports dated January 17, 1995,
with respect to the financial statements of Aiken County National Bank,
February 3, 1995, with respect to the consolidated financial statements
of Carolina First Corporation, and April 24, 1995, with respect to the
supplemental consolidated financial statements of Carolina First Corporation,
included in this current report on Form 8-K dated April 24, 1995.
(Elliott, Davis & Company LLP Signature)
Greenville, South Carolina
April 24, 1995
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
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<INT-BEARING-DEPOSITS> 500
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<INCOME-PRETAX> (2,224)
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