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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
Commission file number 0-15083
CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0824914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 South Main Street, Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (864) 255-7900
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of outstanding shares of the issuer's $1.00 par value common
stock as of May 10, 1996 was 9,237,264.
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Consolidated Balance Sheets
Carolina First Corporation and Subsidiaries
(Unaudited)
($ in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
---------------------- -------------
ASSETS 1996 1995 1995
---------- --------- -------------
<S> <C> <C> <C>
Cash and due from banks...........................$ 100,253 $ 50,965 $ 84,433
Federal funds sold and resale agreements.......... --- 2,740 ---
Securities
Trading........................................ 2,355 1,483 5,805
Available for sale............................. 149,073 65,869 146,272
Held for investment (market value $26,802,
$68,357 and $26,670, respectively)............ 26,681 70,134 26,289
---------- --------- ------------
Total securities............................. 178,109 137,486 178,366
---------- --------- ------------
Loans held for sale............................... 9,865 1,100 125,000
Loans............................................. 1,025,660 903,632 944,716
Less unearned income........................... (5,923) (685) (7,056)
Less allowance for loan losses................. (9,093) (8,295) (8,661)
---------- --------- -------------
Net loans.................................... 1,020,509 894,652 1,053,999
---------- --------- -------------
Premises and equipment............................ 40,323 39,548 40,320
Accrued interest receivable....................... 12,347 8,545 10,829
Other assets...................................... 50,198 42,143 46,975
---------- --------- -------------
$ 1,401,739 $1,176,079 $ 1,414,922
---------- --------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing...........................$ 163,492 $ 122,182 $ 160,394
Interest-bearing.............................. 993,429 858,090 935,097
--------- ---------- --------------
Total deposits.............................. 1,156,921 980,272 1,095,491
Borrowed funds.................................. 109,611 97,305 187,899
Subordinated notes.............................. 25,269 --- 25,237
Accrued interest payable........................ 8,218 4,728 6,737
Other liabilities............................... 5,156 6,644 4,591
---------- ---------- -------------
Total liabilities............................ 1,305,175 1,088,949 1,319,955
---------- ---------- -------------
Shareholders' Equity
Preferred stock-no par value; authorized
10,000,000 shares; issued and outstanding
Series 1993B 52,097, 54,067 and 53,575 shares,
respectively; Series 1994 none, 917,200 and
917,200 shares, respectively; Series 1993 none,
608,000 and 456,521 shares, respectively;
liquidation preference $20 per share (Series 1993B)
and $25 per share (Series 1994 and Series
1993)......................................... 1,002 36,633 32,909
Common stock-par value $1 per share; authorized
20,000,000 shares; issued and outstanding
9,224,149; 5,673,792 and 6,517,366 shares,
respectively.................................. 9,224 5,674 6,517
Surplus......................................... 84,359 46,158 54,432
Retained earnings............................... 3,321 1,348 1,778
Nonvested restricted stock...................... (1,133) (998) (745)
Guarantee of ESOP debt.......................... (76) (126) (76)
Unrealized gain (loss) on securities available
for sale, net of tax.......................... (133) (459) 152
---------- --------- -----------
Total shareholders' equity................... 96,564 88,230 94,967
----------- --------- -----------
$ 1,401,739 $1,177,179 $ 1,414,922
========== =========== ===========
</TABLE>
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Consolidated Statements of Income
Carolina First Corporation and Subsidiaries
($ in thousands, except share data)
(unaudited)
Three Months Ended March 31,
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Interest income
Interest and fees on loans.............. $ 25,359 $ 20,994
Interest on securities
Taxable............................... 2,234 1,518
Exempt from Federal income taxes...... 300 253
------------ -------------
Total interest on securities........ 2,534 1,771
Interest on federal funds sold and
resale agreements..................... 101 148
------------ -------------
Total interest income................. 27,994 22,913
------------ -------------
Interest expense
Interest on deposits.................... 11,356 9,084
Interest on borrowed funds.............. 3,314 1,422
------------ -------------
Total interest expense................ 14,670 10,506
------------ -------------
Net interest income................... 13,324 12,407
Provision for loan losses................. 1,500 3,400
------------ -------------
Net interest income after
provision for loan losses........... 11824 9007
------------ -------------
Noninterest income
Service charges on deposit accounts..... 1,476 1,295
Loan securitization income.............. 707 377
Mortgage banking income................. 576 270
Fees for trust services................. 336 300
Gain on sale of securities.............. 83 105
Sundry.................................. 1,215 780
Gain on sale of mortgage servicing
rights................................ -- 2,026
------------ -------------
Total noninterest income.............. 4,393 5,153
------------ -------------
Noninterest expenses
Salaries and wages...................... 5,414 4,259
Employee benefits....................... 1,453 1,099
Occupancy............................... 1,108 1,062
Furniture and equipment................. 833 737
Sundry.................................. 3,871 3,668
------------ -------------
Total noninterest expenses............ 12,679 10,825
------------ -------------
Income before income taxes............ 3,538 3,335
Income taxes.............................. 1,310 1,134
------------ -------------
Net income ........................... 2,228 2,201
Dividends on preferred stock.............. 16 727
------------ -------------
Net income applicable to common
shareholders........................ $ 2,212 $ 1,474
============ =============
Net income per common share:*
Primary............................... $ 0.28 $ 0.24
Fully diluted......................... 0.24 0.24
Average common shares outstanding:*
Primary............................... 7,950,598 6,211,368
Fully diluted......................... 9,435,940 9,291,330
Cash dividends declared per common
share*.................................. $ 0.07 $ 0.06
*Share data have been restated to reflect 5% stock dividends.
2
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Consolidated Statement of Cash Flows
Carolina First Corporation
(Unaudited)
($ in thousands)
Three Months Ended March 31,
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income................................. $ 2,228 $ 2,201
Adjustments to reconcile net income to
net cash provided by operations
Depreciation........................... 882 815
Amortization of intangibles............ 459 463
Provision for loan losses.............. 1,500 3,400
Gain on sale of securities............. (83) (97)
Gain on sale of mortgage servicing
rights............................... -- (2,026)
Unrealized loss (gain) on securities... 47 (4)
Proceeds from maturity of trading
securities........................... 7,142 528
Proceeds from sale of trading
securities........................... 130,248 170,937
Purchase of trading securities......... (133,907) (171,789)
Originations of mortgage loans held
for sale............................... (43,486) (5,746)
Sale of mortgage loans held for sale... 40,202 6,809
Increase in interest receivable........ (1,518) (871)
Increase in interest payable........... 1,481 587
(Increase) decrease in other assets..... (3,581) 2,965
Increase in other liabilities.......... 1,122 1,773
------------ ------------
Net cash provided by operating
activities............................. 2,736 9,945
------------ ------------
Cash Flows from Investing Activities
Proceeds from maturity of securities
available for sale....................... 11,276 20,420
Proceeds from maturity of securities held
for investment........................... 118 2,064
Purchase of securities available for sale.. (24,810) (24,978)
Purchase of securities held for
investment............................... (510) (1,934)
Proceeds from sale of securities available
for sale................................. 10,231 --
Net decrease in federal funds sold and
resale agreements........................ -- 1,680
Securitization of commercial loans......... 95,582
Net (increase) decrease in loans........... (60,308) 17,042
Capital expenditures....................... (885) (540)
------------ ------------
Net cash provided by investing
activities............................. 30,694 13,754
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in deposits........ 61,430 (21,476)
Decrease in borrowed funds................. (78,256) (9,931)
Redemption of preferred stock.............. (204) --
Dividends on preferred and common stock.... (1,021) (1,092)
Other common stock activity................ 441 15
------------ ------------
Net cash used in financing activities.... (17,610) (32,484)
------------ ------------
Net change in cash and due from banks........ 15,820 (8,785)
Cash and due from banks at beginning of
period..................................... 84,433 59,750
------------ ------------
Cash and due from banks at end of period..... $ 100,253 $ 50,965
============ ============
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1995 Annual Report to
shareholders.
(2) SECURITIES
The net unrealized gain (loss) on securities available for sale
decreased $285,000 for the three months ended March 31, 1996.
(3) STATEMENTS OF CASH FLOWS
Cash includes currency and coin, cash items in process of collection
and due from banks. Interest paid, net of interest capitalized as a
part of the cost of construction, amounted to approximately
$13,189,000 for the three months ended March 31, 1996. Income tax
payments of $83,000 and $143,000 were made for the three months ended
March 31, 1996 and March 31, 1995, respectively.
(4) COMMON STOCK
Primary earnings per share is based on the weighted average number of
common shares outstanding during each period, including the assumed
exercise of dilutive stock options, using the treasury stock method.
Primary earnings per share also reflects provisions for dividend
requirements on all outstanding shares of preferred stock.
Fully diluted earnings per share is based on the weighted average
number of common shares outstanding during each period, including the
assumed conversion of convertible preferred stock into common stock
and the assumed exercise of dilutive stock options using the treasury
stock method.
(5) MANAGEMENT'S OPINION
The financial statements in this report are unaudited. In the
opinion of management, all adjustments necessary to present a fair
statement of the results for the interim periods have been made. All
such adjustments are of a normal, recurring nature.
4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes and with
the statistical information and financial data appearing in this report
as well as the 1995 Annual Report of Carolina First Corporation (the
"Company") on Form 10-K. Results of operations for the three month
period ended March 31, 1996 are not necessarily indicative of results to
be attained for any other period.
OVERVIEW
The Company, which commenced banking operations in December 1986,
currently conducts business through 55 locations in South Carolina. The
Company operates through three subsidiaries: Carolina First Bank, a
state-chartered commercial bank, Carolina First Mortgage Company ("CF
Mortgage"), a mortgage banking operation, and Blue Ridge Finance Company
("Blue Ridge"), an automobile finance company. Through its
subsidiaries, the Company provides a full range of banking services,
including mortgage, trust and investment services, designed to meet
substantially all of the financial needs of its customers. At March 31,
1996, the Company had approximately $1.402 billion in assets, $1.030
billion in loans, $1.157 billion in deposits and $96.6 million in
shareholders' equity.
Net income rose 1% for the first quarter of 1996 to $2,228,000 from
$2,201,000 for the first quarter of 1995. Net income per common share
increased 17% to $0.28 for the first quarter of 1996, compared to $0.24
for the first quarter of 1995. The increase in net income per common
share was attributable to the redemptions of the 7.50% Noncumulative
Convertible Preferred Stock Series 1993 ("Series 1993 Preferred Stock")
and 7.32% Noncumulative Convertible Preferred Stock Series 1994 ("Series
1994 Preferred Stock") and the related savings in dividends on preferred
stock. Net income per fully diluted share was $0.24 for the first
quarter of 1996 and 1995.
Earnings for the first quarter of 1996 were comparable to those of
the first quarter of 1995. Higher net interest income and a lower
provision for loan losses were offset by lower noninterest income and
higher noninterest expenses. In the first quarter of 1995, a $2,026,000
gain on sale of mortgage servicing rights was included in noninterest
income, compared to no gain for the first quarter of 1996. The
remainder of this discussion provides a more detailed explanation of
factors affecting the change in results of operations and the change in
financial position of the Company for the reported periods.
Net income in the first quarter produced a return on average assets
of 0.62%, compared to the 0.75% reported for the first quarter of 1995.
Return on average equity was 9.29% for the first quarter of 1996,
compared to 10.10% for the same period in 1995.
In February 1996, the Company redeemed its Series 1993 Preferred
Stock and Series 1994 Preferred Stock. In connection with the
redemptions, substantially all of the outstanding shares of preferred
stock were converted into common stock resulting in the issuance of
approximately 2.6 million shares of the Company's $1.00 par value common
stock ("Common Stock").
In February 1996, the Atlanta Internet Bank, F.S.B.. (the "Atlanta
Internet Bank"), a de novo banking operation scheduled to open in the
Atlanta marketplace in 1996, announced the anticipated participation of
Carolina First Bank as a lead investor. The Atlanta Internet Bank plans
to provide banking
5
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services to customers on the Internet. Carolina First Bank's
affiliation with the Atlanta Internet Bank is subject to receipt of
certain regulatory approvals.
In March 1996, Carolina First Bank contributed approximately $116
million in commercial real estate loans to a trust in connection with a
securitization of such loans (the"Commercial Loan Securitization"). In
connection with the Commercial Loan Securitization, certain interest in
the trust were sold to institutional investors, while Carolina First
Bank retained certain interest in trust assets and potential income. In
connection with the sale of such interest, Carolina First Bank received
cash proceeds of approximately $96 million.
Investment in Affinity Technology Group
At December 31, 1995, the Company owned 7,500 shares of common stock
of Affinity Technology Group, Inc. ("Affinity") and a warrant to
purchase 55,390 shares of Affinity's common stock at a purchase price of
$0.01 per share ("Affinity Warrant"). The Affinity common shares and
Affinity Warrant were acquired in connection with lending arrangements
between the Company and Affinity and services performed by the Company
on behalf of Affinity. As of December 31, 1995, there was no market for
this investment which was recorded at its book value of $75.
On January 24, 1996, the Board awarded 6,289 shares of Affinity stock
to certain officers of the Company deemed most responsible for the
Company's investment. The Company has recorded compensation expense for
the estimated fair value of the Affinity stock awarded to Company
officers. In addition, since the Company had a negligible basis in its
Affinity investment, a gain on disposition of securities was recorded at
the same calculated fair value. For tax and accounting purposes, fair
value is measured as of the date of grant, January 24, 1996. This date
preceded Affinity's filing of an initial SEC registration statement and
was three months prior to Affinity's completion of its initial public
offering. To determine the estimated fair value as of January 24, 1996,
the Company obtained an independent third party appraisal. The
appraisal considered third party transactions of Affinity prior to this
date, the financial condition and operating results of Affinity, the
status of patents and trademarks, etc. Fair value of the Affinity stock
award, as determined by the independent third party appraisal based on
information known at the time, was estimated at $.88 per share (after a
106-for-1 stock split) and, accordingly, approximately $587,000 was
recorded as compensation expense and gain on disposition of equity
investments. The impact on compensation expense and gain on disposition
of equity investments offset resulting in no impact on the Company's net
income.
As of March 31, 1996, the investment in Affinity's common stock,
included in securities available for sale, was recorded at its book
value of $12. On April 25, 1996, Affinity completed an initial public
offering of its common stock. Immediately prior to the consummation of
Affinity's initial public offering, a 106-for-1 common stock split in
the form of a stock dividend was completed. Following the completion of
Affinity's public offering and stock split, the Company's investment in
Affinity (through its subsidiary, Blue Ridge) consisted of 128,366
shares of common stock and a warrant to purchase an additional 5,871,340
shares (for an adjusted purchase price of approximately $0.0001 per
share), or approximately 18% of Affinity's outstanding common stock.
6
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The Company entered into a lock-up agreement with Affinity which
provides that no shares will be sold for 180 days after the offering
date unless Affinity grants permission. The Company's shares in
Affinity are, and the shares issuable upon the exercise of the Affinity
Warrant will be, "restricted" securities as that term is defined in
federal securities laws. The shares of Affinity common stock awarded to
Company officers are not subject to the lock-up agreement.
The Affinity Warrant may be exercised in whole or in part at any time
prior to December 31, 2015, subject to certain restrictions. Unless
prior written approval of the Board of Governors of the Federal Reserve
Board (the "Federal Reserve Board") is received, the Affinity Warrant
may not be exercised in whole or in part if, after such exercise, the
holder of the Affinity Warrant will beneficially own 5% or more of
Affinity's common stock. Also, as a bank holding company, the Company
and its officers, directors and affiliates may not own, control or hold
power to vote 5% or more of any class of outstanding voting shares of
Affinity. The Affinity Warrant may not be transferred without the
approval of the Federal Reserve Board.
On April 15, 1996, the Company transferred its Affinity common
stock and Affinity Warrant to Blue Ridge, a wholly-owned subsidiary of
the Company. The Company is reviewing its options with respect to its
investment in Affinity. The Company has formed a special committee of
the Board of Directors to assess these options and is seeking
professional investment advice with respect to this matter.
INCOME STATEMENT REVIEW
Net Interest Income
The largest component of the Company's net income is Carolina First
Bank's net interest income. Net interest income is the difference
between the interest earned on assets and the interest paid for the
liabilities used to support such assets. Fully tax-equivalent net
interest income adjusts the yield for assets earning tax-exempt income
to a comparable yield on a taxable basis. Fully tax equivalent net
interest income increased $714,000, or 6%, to $13.5 million for the
first three months of 1996 from $12.8 million for the first three months
of 1995. The increase resulted principally from a higher level of
average earning assets, partially offset by a decline in the net
interest margin..
The growth in average earning assets, which increased $237.2 million,
or 23%, to approximately $1.272 billion in the first three months of
1996 from $1.035 billion in the first three months of 1995, resulted
primarily from internal loan growth. Loans averaged $195.9 million
higher in the first three months of 1996 than in the same period in
1995.
The net interest margin for the three months ended March 31, 1996 of
4.24% was lower than the margin of 5.00% for the same period of 1995.
The decline in the net interest margin is primarily due to a delay in
the completion of the commercial loan securitization, reduction in the
prime interest rate and an especially competitive deposit rate
environment. During March 1996, Carolina First securitized
approximately $116 million in commercial real estate loans. The
completion of this transaction took longer than expected, resulting in
higher funding costs from short-term borrowing at incrementally higher
rates.
In February, the prime interest rate was reduced from 8.50% to 8.25%.
Approximately 54% of the loan portfolio has variable rates and
immediately repriced downward resulting in lower interest
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income. While deposit rates were lowered somewhat, the full impact of
the reduction in prime interest rate was not realized in interest
expense savings. During the first quarter of 1996, many financial
institutions continued to offer deposit promotions above the market
rates, creating upward pressure on the Company's cost of funds. The
Company has instituted deposit promotions and kept its deposit rates
competitive in an effort to increase its liquidity levels, as
recommended by the Federal Deposit Insurance Corporation ("FDIC"). See
"Liquidity." The Company expects the competitive deposit rate
environment to continue.
Provision for Loan Losses
The provision for loan losses was $1.5 million for the first three
months of 1996 and $3.4 million for the first three months of 1995. The
1995 provision for loan losses was increased principally as a result of
the growth in commercial and commercial real estate loans. Furthermore,
the Company increased the 1995 provision as a result of its credit card
activities and overall economic signals and reports that consumer credit
quality was deteriorating. While the Company has not recognized such
signs of deteriorating credit quality in its portfolio, management
decided that such a provision was appropriate in view of potential
deterioration.
Management currently anticipates that loan growth will continue in
1996. New market areas are expected to contribute to 1996 portfolio
growth. Certain forecasts for 1996 indicate a potential slowing of the
economy. Management intends to closely monitor economic trends and the
potential effect on Carolina First Bank's loan portfolio. These factors
could result in an increase in the provision for loan losses for the
remainder of 1996.
Noninterest Income
Noninterest income, excluding the gain on sale of mortgage servicing
rights, securities transactions and disposition of equity investments,
increased 23% to $3.7 million for the three months ended March 31, 1996
from $3.0 million for the same period of 1995, for an increase of
$700,000. This increase resulted principally from service charges on
deposit accounts, loan securitization income (from both the credit card
and commercial real estate loan securitizations) and mortgage banking
income. The Company has no gains on sale of mortgage servicing rights
in 1996 and a $2.0 million gain in 1995. The Company recognized gains
on the sale of securities of $583,000 and $105,000 in the first quarters
of 1996 and 1995, respectively. The $587,000 gain on the disposition of
equity investments for the first quarter of 1996 related to the transfer
of Affinity stock to certain officers of the Company. See "OVERVIEW -
Investment in Affinity Technology Group."
Service charges on deposit accounts, the largest contributor to
noninterest income, rose 14% to $1.5 million in the first three months
of 1996 from $1.3 million in the first three months of 1995. Average
deposits for the same period increased 10.6%. The increase in service
charges was attributable to attracting new transaction accounts, opening
new branches and improved collection results. In addition, effective
March 1, 1995, Carolina First Bank implemented new service charges,
including a charge for foreign automated teller machine transactions.
During the first quarter of 1996, the Company received loan
securitization income of $707,000 from its interests in the credit card
and commercial real estate loan trusts, compared to $377,000 for the
8
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same period in 1995. Loan securitization income is net of charge-offs
associated with the loans in the trusts. On March 14, 1996, the Company
completed the securitization of approximately $116 million in commercial
real estate loans.
Mortgage banking income includes origination fees, gains from the
sale of loans and servicing fees (which are net of the related
amortization for the mortgage servicing rights and subservicing
payments). Mortgage banking income in the first three months of 1996
increased 113% to $576,000, compared with $270,000 in the first three
months of 1995. The increase is attributable to higher servicing
volumes, increased gains on the sale of loans and higher origination
volumes. During 1995, the Company adopted Statement of Financial
Accounting Standards 122, "Accounting for Mortgage Servicing Rights"
("SFAS 122"), and recorded an asset to reflect the value of the
servicing for its originated mortgage loans. The effect of this
statement was retroactive back to the beginning of 1995.
Income from originations and sales of mortgage loans, including sales
of loans originated by Carolina First Bank, totaled $494,000 in the
first three months of 1996, up from $249,000 for the first three months
of 1995. The increase in origination fees is attributable to higher
internally originated loan volume due to lower mortgage loan rates and
higher average origination fees per loan. Mortgage loans totaling
approximately $40 million and $7 million were sold in the first three
months of 1996 and 1995, respectively.
CF Mortgage's mortgage servicing operations consist of servicing
loans that are owned by Carolina First Bank and subservicing loans, to
which the rights to service is owned by Carolina First Bank or other
non-affiliated financial institutions. At March 31, 1996, CF Mortgage
was servicing or subservicing 14,020 loans having an aggregate principal
balance of approximately $1.193 billion. Effective March 31, 1995, the
Company sold servicing rights for 5,257 loans having a principal balance
of approximately $435 million to an unrelated third party. This sale
resulted in a gain for the Company of approximately $2.0 million and was
effected because the Company believed that the terms were favorable. CF
Mortgage continued servicing the loans sold until June 1995.
Servicing income from non-affiliated companies, net of the related
amortization, was $82,000, compared with $21,000 for the first three
months of 1995. This increase is primarily attributable to higher
volumes of loans serviced which increased to $1.193 billion at March 31,
1996 from $802 million at March 31, 1995. Servicing income is net of
the related amortization for the mortgage servicing rights and
subservicing payments. The servicing income does not include the
benefit of interest-free escrow balances related to mortgage loan
servicing activities.
Fees for trust services in the first three months of 1996 of $336,000
were 12% above the $300,000 earned in the same period of 1995. At March
31, 1996, Carolina First Bank's trust department had assets under
management of approximately $379 million. Fees for trust services
increased as a result of the generation of new trust business and
additional assets under management.
Sundry income was $348,000 higher for the first three months of 1996
than for the same period of 1995. Sundry income in 1995 included
approximately $300,000 in non-recurring income from programming services
provided for an outside company.
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Noninterest Expenses
Noninterest expenses, excluding $587,000 in non-recurring
compensation expense, increased $1.3 million, or 12%, to $12.1 million
in the first three months of 1996 from $10.8 million in the first three
months of 1995. The increased expenditures primarily reflect the costs
of additional personnel to support the Company's current and anticipated
growth. In the first quarter of 1996, approximately $587,000 was
recorded as compensation expense related to a non-recurring award of
Affinity stock to certain officers of the Company. See "OVERVIEW -
Investment in Affinity Technology Group."
Salaries and wages and employee benefits, excluding $587,000 in
non-recurring compensation expense, increased $922,000, or 17%, to $6.3
million in the first three months of 1996 from $5.4 million in the first
three months of 1995. Full-time equivalent employees rose to 593 as of
March 31, 1996 from 549 as of March 31, 1995. The staffing cost
increases were principally attributable to the opening of a Charleston
main office and three grocery store branches and additional personnel
hired to support the internal growth in loans and deposits.
Occupancy and furniture and equipment expenses increased $142,000, or
8%, to $1.9 million for the three months ended March 31, 1996 from $1.8
million for the three months ended March 31, 1995. This increase
resulted principally from the addition of new banking offices. Four new
offices, including a main office in Charleston, have been added since
the beginning of 1995.
Sundry noninterest expenses increased $203,000, or 6%, to $3.9
million in the first three months of 1996 from $3.7 million in the first
three months of 1995. The overall increase in sundry noninterest
expense was principally attributable to the overhead and operating
expenses associated with higher lending and deposit activities,
partially offset by the decrease in the Federal Deposit Insurance
Corporation ("FDIC") assessment discussed below. The largest items of
sundry noninterest expense were stationery, supplies, printing,
telephone and advertising.
FDIC insurance premiums for the first quarter of 1996 were $155,000,
approximately $485,000 lower than 1995's charges. At its August 1995
meeting, the FDIC approved a reduction in the insurance assessments for
Bank Insurance Fund ("BIF") deposits. This reduction decreased Carolina
First Bank's insurance assessment for BIF deposits from 0.26% to 0.04%
of the average assessment base. This decrease was retroactive to June
1, 1995. Effective January 1, 1996, the insurance assessment for
Carolina First Bank's BIF deposits was set at zero (although banks pay a
$2,000 annual fee). The FDIC insurance assessment reduction applies
only to BIF-insured deposits and does not include deposits insured by
the Savings Association Insurance Fund ("SAIF"). In connection with the
merger of CF Savings Bank into Carolina First Bank and Carolina First
Bank's assumption of other SAIF-insured deposits in connection with
various acquisitions, approximately 22%, or $257 million as of March 31,
1996, of Carolina First Bank's total deposits are subject to SAIF
insurance assessments imposed by the FDIC.
The SAIF is underfunded and various proposals, including a one-time
charge assessed on all SAIF-insured deposits, are being considered by
regulators and lawmakers to recapitalize the SAIF. The proposed amount
of the special assessment has been as high as $0.85 per $100 of SAIF
deposits. Assuming that the special assessment were applied at the $0.85
rate using SAIF-insured deposits as of a proposed assessment date of
March 31 1995 (approximately $223 million), the Company would incur
additional deposit insurance premium expense of approximately $1.9
million which would be charged against current period income. The
timing and amount of such an assessment cannot be accurately predicted
at this time. Carolina First Bank's SAIF-insured deposits are currently
assesssed at 0.23% of the
10
<PAGE>
average assessment base.
BALANCE SHEET REVIEW
Loans
The Company's loan portfolio consists of commercial mortgage loans,
commercial loans, consumer loans and one-to-four family residential
mortgage loans. A substantial portion of these borrowers are located in
South Carolina and are concentrated in the Company's market areas. The
Company has no foreign loans or loans for highly leveraged transactions.
The loan portfolio does not contain any industry concentrations of
credit risk exceeding 10% of the portfolio. At March 31, 1996, the
Company had total loans outstanding of $1.030 billion which equaled
approximately 88% of the Company's total deposits and approximately 73%
of the Company's total assets. The composition of the Company's loan
portfolio at March 31, 1996 follows: commercial and commercial mortgage
49%, residential mortgage 25%, consumer 12%, credit card 8%, lease
receivables 3% and construction 3%.
The Company's loans increased $125.6 million, or 14%, to
approximately $1.030 billion at March 31, 1996 from $904.0 million at
March 31, 1995 and decreased $33.1 million from approximately $1.063
billion at December 31, 1995. This increase resulted primarily from
internal growth. The decrease since December 31, 1995 is due to
approximately $97 million in commercial real estate loans sold in the
Commercial Loan Securitization and $43 million of mortgage loans sold.
The Company had loans to 50 borrowers having principal amounts
ranging from $2 million to $5 million, which loans accounted for $150.5
million, or 15%, of the Company's loan portfolio in the first quarter of
1996. The Company had loans to four borrowers having principal amounts
in excess of $5 million, which loans accounted for $25.3 million, or 2%,
of the Company's loan portfolio in the first quarter of 1996. Any
material deterioration in the quality of any of these larger loans could
have a significant impact on the Company's earnings.
For the first three months of 1996, the Company's loans averaged
$1.088 billion with a yield of 9.33%, compared with $891.8 million and a
yield of 9.65% for the same period of 1995. 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 decrease
in the loan yield reflects the lowering of the prime rate in February
1996.
In June 1995, Carolina First Bank received an "outstanding" rating,
the highest level attainable, for its Community Reinvestment Act ("CRA")
performance from the FDIC. The CRA examination was conducted in
December 1994.
Securitization and packaging and selling loans are part of the
Company's funding strategy. The Company engages in these transactions
because they fund loan growth by moving loans off-balance-sheet while
allowing the Company to retain the related income stream and servicing
relationships. In March 1996, the Company completed the Commercial Loan
Securitization and received cash proceeds of approximately $96 million.
Since the securitization of certain of the Company's credit cards in
January 1995, the Company has received cash proceeds totaling
approximately $80 million in connection with the transfer of certain
credit card receivables into a trust created in connection with the
securitization.
11
<PAGE>
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. 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 allowance for loan losses totaled $9.1 million, or 0.88% of total
loans, at the end of March 1996, compared with $8.3 million, or 0.92% of
total loans, at the end of March 1995. At December 31, 1995, the
allowance for loan losses was $8.7 million, or 0.82% of total loans.
Charge-offs as a percentage of average loans during the first three
months of 1996 were 0.39%, compared with 0.49% for the first three
months of 1995. The allowance for loan losses as a percentage of
nonperforming loans was 189% and 274% as of March 31, 1996 and 1995,
respectively. Table 1 presents changes in the allowance for loan
losses.
TABLE 1
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
At and for
At and for the three months the year ended
ended March 31, December 31,
---------------------------- ---------------
1996 1995 1995
- ----------------------------------------------------------------------
Balance at beginning of
period $8,661 $6,002 $6,002
Blue Ridge merger 0 0 128
Valuation allowance for
loans purchased 0 0 633
Provision for loan losses 1,500 3,400 6,846
Charge-offs 1,119 1,176 5,259
Recoveries 51 69 311
- ----------------------------------------------------------------------
Net charge-offs 1,068 1,107 4,948
- ----------------------------------------------------------------------
Allowance at end of period $9,093 $8,295 $8,661
======================================================================
Effective January 1, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") 114, "Accounting by
Creditors for Impairment of a Loan". Under the new standard, the
Company must value all specifically-reviewed loans for which it is
probable that the Company will be unable to collect all amounts due
(principal and interest) according to the terms of the loan agreement on
the loan's discounted cash flows using the loan's initial effective
interest rate or the fair
12
<PAGE>
value of the collateral for certain collateral dependent loans.
At March 31, 1996, the recorded investment in loans that were
considered to be impaired under SFAS 114 was $2,452,000. The related
allowance for these impaired loans was $1.3 million. The average
recorded investment and foregone interest on impaired loans during the
three months ended March 31, 1996 was approximately $1,896,000 and
$325,000, respectively. For the three months ended March 31, 1996, the
Company recognized interest income on impaired loans of $15,000, none of
which was recognized using the cash method of income recognition.
Securities
At March 31, 1996, the Company's total investment portfolio had a
book value of $178.5 million and a market value of $178.2 million for
an unrealized net loss of $288,000. The investment portfolio has a
weighted average maturity of approximately 2.9 years. Securities (i.e.,
investment securities, securities available for sale and trading
securities) averaged $179.5 million in the first three months of 1996,
34% above the first three month 1995 average of $134.3 million. The
average portfolio yield increased to 6.04% for the first three months of
1996 from 5.79% for the first three months of 1995. The portfolio yield
increased due to maturities of lower yielding government securities
which were reinvested at higher rates. At March 31, 1996, securities
totaled $178.1 million, up $40.6 million from the $137.5 million
invested as of the first quarter end 1995 and down $257,000 from the
December 31, 1995 balance of $178.4 million.
At March 31, 1996, the Company owned 128,366 shares of common stock
of Affinity and a warrant to purchase an additional 5,871,340 shares of
Affinity's common stock at a purchase price of $0.0001 per share
("Affinity Warrant"). As of March 31, 1996, the investment in
Affinity's common stock, included in securities available for sale, was
recorded at its book value of $12.
Other Assets
At March 31, 1996, other assets included other real estate owned of
$2.1 million and intangible assets, excluding mortgage servicing rights,
of $17.9 million, and mortgage servicing rights of $9.6 million. At
March 31, 1995, other assets included other real estate owned of $1.7
million and intangible assets, excluding mortgage servicing rights, of
$19.8 million, and mortgage servicing rights of $1.6 million. The
intangible assets balance at March 31, 1996 is attributable to goodwill
of $8.0 million, core deposit balance premiums of $9.6 million, and
purchased credit card premiums of $259,000.
Interest-bearing Liabilities
During the first three months of 1996, interest-bearing liabilities
averaged $1.178 billion, compared with $964.1 million for the comparable
period of 1995. This increase resulted principally from branch
openings. The average interest rates were 5.01% and 4.42% for the first
three months of 1996 and
13
<PAGE>
1995, respectively. At March 31, 1996, interest-bearing deposits
comprised approximately 86% of total deposits and 77% of
interest-bearing liabilities. Starting in 1994, the Company modified
its funding strategy to rely more on advances from the Federal Home Loan
Bank (the "FHLB") because management determined that, due to increased
competition for deposits, the marginal cost of borrowing from the FHLB
is often lower that the marginal cost of raising deposits. For the
first three months of 1996, average borrowed funds, which include FHLB
advances and other short-term borrowings, totaled $189.3 million,
compared with $93.3 million for the first three months of 1995. With
the completion of the Commercial Loan Securitization, the Company
reduced its FHLB advances to $40.0 million at March 31, 1996 from $90.0
million at December 31, 1995.
Carolina First Banks' primary source of funds for loans and
investments is deposits which are gathered through Carolina First Bank's
branch network. Deposits grew 18% to $1.157 billion at March 31, 1996
from $980.3 million at March 31, 1995. At December 31, 1995, deposits
totaled $1.095 billion. Internal growth, particularly from account
promotions and new markets, generated the new deposits. During the first
three months of 1996, total interest-bearing deposits averaged $962.2
million with a rate of 4.75%, compared with $869.6 million with a rate
of 4.24% in 1995. During the first three months of 1996, deposit
pricing was very competitive in Carolina First Bank's market areas,
resulting in upward pressure on deposit interest rates. In particular,
the interest rates paid on certificates of deposits rose significantly
as a result of customers' rate sensitivity from deposit promotions. The
Company does not believe that it has any brokered deposits.
Average noninterest-bearing deposits, which increased 26% during
the year, increased to 13.2% of average total deposits in the first
three months of 1996 from 11.8% in the first three months of 1995. 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 85% for the first three months of 1996. The Company
closely monitors its reliance on certificates of deposit greater than
$100,000, which are generally considered less stable and less reliable
than core deposits.
Capital Resources and Dividends
Total shareholders' equity amounted to $96.6 million, or 6.89% of
total assets, at March 31, 1996, compared with $88.2 million, or 7.50%
of total assets, at March 31, 1995. At December 31, 1995, shareholders'
equity totaled $95.0 million, or 6.71% of total assets. The $1.3
million increase in total shareholders' equity since December 31, 1995
resulted principally from retention of earnings less cash dividends
paid. In addition, the first quarter end 1996 shareholders' equity was
decreased by the $285,000 change from an unrealized gain to an
unrealized loss on securities available for sale.
The Company's capital needs have been met principally through
public offerings of common stock, preferred stock and subordinated notes
and through the retention of earnings. In addition, the Company issued
capital stock in connection with the acquisition of Carolina First
Savings Bank, CF Mortgage, Aiken County National Bank, Midlands National
Bank and Blue Ridge.
14
<PAGE>
On May 18, 1995, the Company completed a $26.5 million public
offering of its Notes. The Notes, which are due on September 1, 2005,
pay interest quarterly at an annual rate of 9.00%. The Notes qualify as
Tier 2 capital.
In February 1996, the Company redeemed its Series 1993 Preferred
Stock and Series 1994 Preferred Stock. In connection with the
redemptions, substantially all of the outstanding shares of Series 1993
Preferred Stock and Series 1994 Preferred Stock were converted into
approximately 2.6 million shares of Common Stock.
Book value per share at March 31, 1996 and 1995 was $10.36 and
$8.02, respectively. Tangible book value per share at March 31, 1996
and 1995 was $8.44 and $4.97, respectively. At December 31, 1995, book
value and tangible book value were $9.14 and $6.36, respectively. A
significant portion of the increase in book value and tangible book
value since December 31, 1996 was attributable to the conversions of the
Series 1993 Preferred Stock and Series 1994 Preferred Stock into Common
Stock. Tangible book value was below book value as a result of the
purchase premiums associated with branch acquisitions and the purchase
of CF Mortgage.
At March 31, 1996, the Company and Carolina First Bank were in
compliance with each of the applicable regulatory capital requirements
and exceeded the "well capitalized" regulatory guidelines. Table 2 sets
forth various capital ratios for the Company and Carolina First Bank.
TABLE 2
CAPITAL RATIOS
- ------------------------------------------------------------------------------
As of Well Capitalized Adequately Capitalized
3/31/96 Requirement Requirement
- ------------------------------------------------------------------------------
Company:
Total Risk-based
Capital 10.78% 10.0% 8.0%
Tier 1 Risk-based
Capital 7.51 6.0 4.0
Leverage Ratio 5.71 5.0 4.0
Carolina First Bank:
Total Risk-based
Capital 10.61 10.0 8.0
Tier 1 Risk-based
Capital 9.74 6.0 4.0
Leverage Ratio 7.39 5.0 4.0
- ------------------------------------------------------------------------------
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay. In
November 1993, the Board of Directors initiated a regular quarterly cash
dividend 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 $0.07 beginning in the first
quarter of 1996. The Company presently intends to continue to pay this
quarterly cash dividend on the Common Stock; however, future dividends
will depend upon the Company's financial performance and capital
15
<PAGE>
requirements. In each year from 1989 through 1995, the Company issued
5% common stock dividends to common stockholders.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the Company
monitors and controls the mix and maturities of its assets and
liabilities. The essential purposes of asset/liability management are
to ensure adequate liquidity and to maintain an appropriate balance
between interest sensitive assets and liabilities. Liquidity management
involves meeting the cash flow requirements of the Company. These cash
flow requirements primarily involve withdrawals of deposits, extensions
of credit, payment of operating expenses and repayment of purchased
funds. The Company's principal sources of funds for liquidity purposes
are customer deposits, principal and interest payments on loans,
maturities and sales of debt securities, temporary investments and
earnings. Temporary investments averaged 0.41% and 0.89% of earning
assets in the first three months of 1996 and 1995, respectively.
Management believes that the Company maintains an adequate level of
liquidity by retaining liquid assets and other assets that can easily be
converted into cash, and by maintaining access to alternate sources of
funds, including federal funds purchased from correspondent banks and
borrowing from the FHLB. In March 1996, the Company completed the
Commercial Loan Securitization and received cash proceeds of
approximately $96 million which improved liquidity. The Company has
signed contracts to purchase mortgage servicing rights for approximately
$525 million in mortgage loans for a purchase price of approximately
$8.3 million. These purchases of mortgage servicing rights are expected
to close in the third quarter of 1996.
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
March 31, 1996, Carolina First Bank's liquidity ratio was approximately
11.5%. At March 31, 1996, Carolina First Bank had unused short-term
lines of credit totaling approximately $43.8 million (which are
withdrawable at the lender's option). In addition, Carolina First Bank
has access to borrowing from the FHLB. At March 31, 1996, unused
borrowing capacity from the FHLB totaled approximately $95 million.
Management believes that these sources are adequate to meet its
liquidity needs. Following its third quarter of 1995 examination, the
FDIC recommended that Carolina First Bank increase its liquidity ratio.
The Company has adopted a plan which is designed to improve its
liquidity ratio.
In 1994, the Company modified its funding strategy to rely more on
advances from the FHLB because management determined that, due to
increased competition for deposits, the marginal cost of borrowing from
the FHLB is often lower than the marginal cost of raising deposits. At
March 31, 1996, FHLB advances totaled $40.0 million, compared with $68.2
million at March 31, 1995 and $90.0 million at December 31, 1995. The
Company reduced its FHLB advances following the March 1996 completion of
the Commercial Loan Securitization.
The Company has certain cash needs, including general operating
expenses and the payment of dividends and interest on borrowings. The
Company generates cash to meet these needs primarily through management
fees and dividends paid to it by its subsidiaries and secondarily from
existing cash reserves, sales of securities available for sale, interest
income on its investment assets and certain other vehicles.
The interest sensitivity gap is the difference between total
interest sensitive assets and liabilities in a given time period. The
objective of interest sensitivity management is to maintain reasonably
stable growth in net interest income despite changes in market interest
rates by maintaining the proper mix of
16
<PAGE>
interest sensitive assets and liabilities. Over the past several years,
the environment in which financial institutions operate has been
characterized by volatile interest rates and greater reliance on
market-sensitive deposits, increasing both the importance and the
difficulty of interest sensitivity management. Management seeks to
maintain a general equilibrium between interest sensitive assets and
liabilities in order to insulate net interest income from significant
adverse changes in market rates.
The Company's Asset/Liability Management Committee uses an
asset/liability simulation model which quantifies balance sheet and
earnings variations under different interest rate environments to
measure and manage interest rate risk.
ASSET QUALITY
Prudent risk management involves assessing risk and managing it
effectively. Certain credit risks are inherent in making loans,
particularly commercial, real estate and consumer loans. The Company
attempts to manage credit risks by adhering to internal credit policies
and procedures. These policies and procedures include a multi-layered
loan approval process, officer and customer limits, periodic
documentation examination and follow-up procedures for any exceptions to
credit policies. Loans are assigned a grade and those that are
determined to involve more than normal credit risk are placed in a
special review status. Loans that are placed in special review status
are required to have a plan under which they will be either repaid or
restructured in a way that reduces credit risk. Loans in this special
review status are reviewed monthly by the loan committee of the Board of
Directors.
As demonstrated by the following analytical measures of asset
quality, management believes the Company has effectively managed its
credit risk. Net loan charge-offs, including credit card receivables,
totaled $1.1 million and $1.2 million in the first three months of 1996
and 1995, respectively, or 0.39% and 0.49%, respectively, as a
percentage of average loans.
TABLE 4
NONPERFORMING ASSETS AND PAST DUE LOANS
($ in thousands)
March 31, December 31,
--------------- ------------
1996 1995 1995
- ---------------------------------------------------------------------------
Nonaccrual loans $2,452 $ 618 $ 1,275
Restructured loans 300 675 1,085
- ----------------------------------------------------------------------------
Total nonperforming loans 2,752 1,293 2,360
Other real estate 2,067 1,737 2,508
- ----------------------------------------------------------------------------
Total nonperforming assets 4,819 3,030 4,868
- ----------------------------------------------------------------------------
Nonperforming assets as a % of loans
and foreclosed property 0.47% 0.33% 0.46%
============================================================================
Accruing loans past due 90 days $3,193 $2,347 $2,748
============================================================================
17
<PAGE>
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 "INCOME STATEMENT REVIEW -- Noninterest Expenses" for
summary of potential assessment on SAIF-insured deposits.
18
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to
various legal actions arising in the normal course of business.
Such items are not expected to have any material adverse effect on
the business or financial position of the Company or any of its
subsidiaries.
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 is vigorously defending 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.
On September 26, 1995, David W. Bowers and E. Monte Bowers filed a
lawsuit against the Company and Carolina First Bank in the Court of
Common Pleas in Newberry County, South Carolina. The complaint
alleges breach of contract, breach of contract accompanied by a
fraudulent act and fraud in the inducement. The allegations arise
from Carolina First Bank's alleged breach of written employment
agreements with David Bowers and Monte Bowers. The Bowers demand
judgment against Carolina First Bank in the amount of $912,000 plus
punitive damages, attorneys' fees and costs. It is the Company's
position that it has not breached the relevant employment contracts
and it is vigorously defending this lawsuit. The Company has asked
the Court for permission to file a counterclaim which alleges,
among other things, securities law violations. This case is now in
discovery. Both parties are taking depositions and otherwise
seeking information in accordance with court rules. However, the
Company is not in a position at this time to assess the likelihood
the Bowers will prevail on their claim, amount of liability, if
any, or the probability of the Company's success on its
counterclaim.
ITEM 2 CHANGE IN SECURITIES
In February 1996, the Company redeemed its Series 1993 Preferred
Stock and Series 1994 Preferred Stock. In connection with the
redemptions, substantially all of the outstanding shares of Series
1993 Preferred Stock and Series 1994 Preferred Stock were converted
into approximately 2.6 million shares of Common Stock.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
19
<PAGE>
PART II
(Continued)
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On April 18, 1996, the Company held its 1996 Annual Meeting of
Stockholders. At the 1996 Annual Meeting, the following
individuals were elected as Directors with the votes indicated.
Withheld
In Favor Authority
Robert E. Hamby, Jr. 7,119,285 14,961
William S. Hummers III 7,115,688 18,558
Charles B. Schooler 7,118,511 15,705
Edward J. Sebastian 7,111,772 22,474
Eugene E. Stone IV 7,108,795 25,451
Judd B. Farr, C. Claymon Grimes, Jr., M. Dexter Hagy, R. Glenn
Hilliard, Richard E. Ingram, Elizabeth P. Stall, William R.
Timmons, Jr., and Mack I. Whittle, Jr. continued in their present
terms as directors.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Letter Agreement between Carolina First Corporation and the Board
of Governors of the Federal Reserve Board regarding warrant to
purchase shares of Affinity Technology Group, Inc. common stock.
10.2 "Lock-up" Agreement between Carolina First Corporation and the
Underwriters for the Affinity Technology Group, Inc.'s Public
Offering of Common Stock
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
12.1 Computation of Earnings to Fixed Charges Ratio
27.1 Financial Data Schedules.
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Carolina First Corporation
/S/ William S. Hummers, III
William S. Hummers, III
Executive Vice President,
Secretary
(Principal Financial and
Accounting Officer)
21
<PAGE>
EXHIBIT 10.1
Federal Reserve Bank of Richmond
Post Office Box 27622
Richmond, Virginia 23261
November 22, 1995
William S. Hummers, III
Executive Vice President
Carolina First Corporation
P.O. Box 1029
Greenville, South Carolina 29602
Re: Investment of Carolina First Corporation in Affinity Financial Group, Inc.
Dear Mr. Hummers:
This is in response to your letter of October 26, 1995 regarding the
investment by Carolina First Corporation ("CFC"), a bank holding company,
in Affinity Financial Group, Inc. ("Affinity").
Affinity is a privately held corporation which has developed in automatic
loan machine ("ALM"). CFC assisted in the development of the ALM in a
consultative capacity but was not paid a fee. Affinity is currently negotiating
to engage in an Initial Public Offering of its stock and is not in a position
to pay CFC in cash. Instead, CFC and Affinity entered into an agreement on
February 27, 1995 (the "Agreement") whereby CFC was granted stock options
amounting to 29.5% of the total amount of Affinity's stock issued and
outstanding on October 24, 1994, or cash compensation having substantially
equivalent value.
CFC has represented that the proposed investment in Affinity would be
permissible if made by a Small Business Investment Company ("SBIC") owned by
CFC. CFC has further represented that no violations of the Securities Act of
1933 or the Securities Exchange Act of 1934 would occur in connection with the
exercise of CFC's options and no filings would be required to be made to the
Securities and Exchange Commission. Finally, CFC and its personal and affiliates
will never own, control, or hold power to vote 5% or more of any class of
voting stock of Affinity at any time or to influence Affinity's management
or policies.
CFC wishes to invest in the stock of Affinity and to exercise its options and
has agreed to abide by certain conditions. In particular, CFC will not, without
the prior approval of the Federal Reserve Bank of Richmond:
<PAGE>
Letter to William S. Hummers, III
November 22, 1995
Page 2
(1) exercise or attempt to exercise a controlling influence
over the management of policies of Affinity;
(2) have or seek to have any employee or representative
of CFC serve as an officer, agent or employee of Affinity;
(3) take any action causing Affinity to become a
subsidiary of CFC;
(4) acquire or retain shares that would cause the
combined interest of CFC and its officers, directors and
affiliates to equal or exceed 5% of any class of outstanding
voting shares of Affinity at any time;
(5) propose a director or slate of directors in opposition
to a nominee or state of nominees proposed by
management or board of directors of Affinity;
(6) attempt to influence the dividend policies of Affinity;
(7) solicit or participate in soliciting proxies with respect
to any matter presented to the shareholders of Affinity;
(8) attempt to influence the decisions or policies of
Affinity, the pricing of services, any personnel decision, the
location of any offices, or similar activities of Affinity;
(9) use the disposition of, exercise rights to acquire, or
use any threat to dispose of or acquire shares of Affinity in
any manner to induce or encourage specific actions or
nonaction by Affinity;
(10) see or accept representation on the board of
directors of Affinity; or
(11) sell any Affinity shares to any person that would
cause that person's aggregate interest in Affinity to equal
or exceed 5% of the outstanding shares of Affinity.
<PAGE>
Letter to William S. Hummers, III
November 22, 1995
Page 3
The Agreement referenced above has been cancelled and a Warrant
to Purchase Common Stock of Affinity Financial Group, Inc. (the "Warrant"), a
copy of which was attached to your letter of October 26, 1995 and which is
hereby incorporated by reference, will be executed by Affinity and CFC.
Based upon all the facts of record, including the representations,
conditions and commitments made by CFC referenced in this letter, the Federal
Reserve Bank of Richmond does not believe that CFC is required under the Bank
Holding Company Act or the Change in Bank Control Act to file any further notice
or application for the series of investments it may make in Affinity in accord-
ance with its Warrant. This view, which has not been reviewed by the Board of
Governors of the Federal Reserve System, is expressly contingent upon the
understanding that CFC will comply fully with all representations, conditions
and commitments contained in this letter or made in connection with this
proposed investment.
Very truly yours,
/s/ Fred L. Bagwell
Fred L. Bagwell
Vice President
cc: James McAfee
Lloyd W. Bostian, Jr.
P.A.L. Nunley
<PAGE>
Affinity Technology Group, Inc.
Public Offering of Common Stock
April 3, 1996
Donaldson, Lufkin & Jenrette
Securities Corporation
Montgomery Securities
As Representatives of the several Underwriters,
Dear Sirs:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between Affinity
Technology Group, Inc., a Delaware corporation (the "Company"), and you
as representative of a group of Underwriters named therein, relating to
an underwritten public offering of Common Stock, $.0001 par value (the
"Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of Common Stock beneficially owned
by the undersigned or any securities convertible into, or exchangeable for,
shares of Common Stock for a period of 180 days following the day on which
the Underwriting Agreement is executed without the prior written consent of
<PAGE>
Montgomery Securities other than shares of Common Stock disposed of as
bona fide gifts.
If for any reason the Underwriting Agreement shall be terminated prior to the
Closing Date (as defined in the Underwriting Agreement), the agreement set
forth above shall likewise be terminated.
Yours very truly,
Carolina First Corporation
(Signature of Mack Whittle Jr.
appears here)
by: Mack Whittle Jr.
-----------------------------
Computation of Earnings Per Share Exhibit 11.1
Carolina First Corporation and Subsidiaries
Three Months Ended
March 31, 1996
------------------
A.Net income...................................... $2,228,000
Less: Dividends on preferred stock............. 16,000
------------------
B.Net income applicable to common shareholders.... $2,212,000
==================
Primary Earnings Per Share
Average shares outstanding...................... 7,810,191
Dilutive average shares outstanding under
options....................................... 247,649
Exercise prices.................................$5.77 to $17.50
Assumed proceeds on exercise.................... $2,243,159
Average market value per share.................. 20.92
Less: Treasury stock purchased with the assumed
proceeds from exercise of options............ 107,242
---------------
C. Adjusted average shares -- Primary............. 7,950,598
---------------
Primary Earnings Per Share (B/C)................ $0.28
===============
Fully Diluted Earnings Per Share
Average shares outstanding...................... 7,810,191
Dilutive average shares outstanding under
options....................................... 247,649
Exercise prices.................................$5.77 to $17.50
Assumed proceeds on exercise.................... $2,243,159
Market value per share.......................... 21.50
Less: Treasury stock purchased with the assumed
proceeds from exercise of options............ 104,333
---------------
Adjusted averaged shares........................ 7,953,507
---------------
Common shares from the assumed conversion of
convertible preferred stock.................. 1,482,433
---------------
D.Adjusted average shares -- Fully diluted........ 9,435,940
---------------
Fully Diluted Earnings Per Share (A/D).......... $0.24
===============
<PAGE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1
Carolina First Corporation and Subsidiaries
($ in thousands)
March 31, 1996
--------------
EARNINGS:
Income from continuing operations
before income taxes.......................$ 3,538
ADD:
(a) Fixed charges............................ 14,843
DEDUCT:
(a) Interest capitalized during year......... --
-------------
Earnings, for computation purposes.............$ 18,381
=============
FIXED CHARGES:
Interest on indebtedness, expenses or cap....$ 14,670
Portion of rents representative of the
interest factor........................... 141
Amortization of debt expense................. 32
-------------
Fixed charges, for computation purposes........$ 14,843
=============
Ratio of earnings to fixed charges............. 1.24 x
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