United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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
(State or other jurisdiction of incorporation or organization)
57-0824914
(I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates
(shareholders holding less than 5% of an outstanding class of stock, excluding
directors and executive officers), computed by reference to the closing price of
such stock, as of March 14, 1997 was $178,225,000.
The number of shares outstanding of the Registrant's common stock, $1.00 par
value was 11,355,445 at March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
- --------------------- ---------------------
Portions of 1996 Annual Report to Shareholders Part II; IV
Portions of Proxy Statement dated March 21, 1997 Part III
<PAGE>
PART I
ITEM 1 - BUSINESS
THE COMPANY
Carolina First Corporation (the "Company"), organized in 1986, is a
bank holding company headquartered in Greenville, South Carolina. At December
31, 1996, it operated through three subsidiaries: Carolina First Bank, a
state-chartered bank headquartered in Greenville, South Carolina; Carolina First
Mortgage Company, a South Carolina corporation headquartered in Columbia, South
Carolina ("CF Mortgage"); and Blue Ridge Finance Company, an automobile finance
company headquartered in Greenville, South Carolina ("Blue Ridge"). Through its
subsidiaries, the Company provides a full range of banking services, including
mortgage, trust and investment services, designed to meet substantially all of
the financial needs of its customers. The Company, which commenced banking
operations in December 1986, currently conducts business through 55 locations in
South Carolina. At December 31, 1996, the Company had approximately $1.574
billion in assets, $1.125 billion in loans, $1.281 billion in deposits and
$105.0 million in shareholders' equity.
The Company was formed principally in response to opportunities
resulting from the takeovers of several South Carolina-based banks by large
southeastern regional bank holding companies. A significant number of the
Company's executive officers and management personnel were previously employed
by certain of the larger South Carolina-based banks that were acquired by these
southeastern regional institutions. Consequently, these officers and management
personnel have significant customer relationships and commercial banking
experience that have contributed to the Company's loan and deposit growth. The
Company targets individuals and small- to medium-sized businesses in South
Carolina that require a full range of quality banking services.
The Company currently serves four principal market areas: the
Greenville metropolitan area and surrounding counties (located in the Upstate
region of South Carolina); the Columbia metropolitan area and surrounding
counties (located in the Midlands region of South Carolina); Georgetown and
Horry counties (located in the northern Coastal region of South Carolina); and
the Charleston metropolitan area (located in the central Coastal region of South
Carolina). The Company's principal market areas represent the four largest
Metropolitan Statistical Areas in the state. The Company also has branch
locations in other counties in South Carolina.
The Company began its operations with the de novo opening of Carolina
First Bank in Greenville and has pursued a strategy of growth through internal
expansion and through the acquisition of branch locations and financial
institutions in selected market areas. Its more significant acquisitions include
(i) the acquisition in August 1990 of First Federal Savings and Loan Association
of Georgetown (subsequently renamed Carolina First Savings Bank) which was
merged into Carolina First Bank in February 1995, (ii) the acquisitions in March
1993 and May 1994 of twelve branch locations and six branch locations,
respectively, of Republic National Bank, (iii) the acquisition of First Sun
Mortgage Corporation (subsequently renamed Carolina First Mortgage Company) in
September 1993, (iv) the merger of Aiken County National Bank into Carolina
First Bank in April 1995, and (v) the merger of Midlands National Bank into
Carolina First Bank in June 1995. Approximately half of the Company's total
deposits have been generated through acquisitions.
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The Company also owns approximately 17% of Affinity Technology Group,
Inc.'s outstanding common stock, principally in the form of stock warrants.
Affinity develops and markets technologies, including automated lending
machines, that enable financial institutions and other businesses to provide
consumer financial services electronically.
In October 1996, the Company announced the Atlanta Internet Bank's
introduction of "anytime- anywhere" banking in cyberspace. Atlanta Internet
Bank, which is a product of Carolina First Bank, opened its electronic doors on
AT&T's WorldNet Service and offers banking products primarily by means of a
secured Internet web site. The Company has an agreement with certain persons,
which provides for the transfer of the Company's Atlanta Internet Bank operation
to a thrift institution owned by Net.B@nk, Inc. ("Net B@nk"), upon compliance
with certain conditions. On March 21, 1997, Net B@nk filed a registration
statement with the Securities and Exchange Commission for the initial public
offering of its common stock. If the initial public offering is consummated as
contemplated in the registration statement, the Company would expect to own
approximately 20% of Net.B@nk's common shares, or 1.3 million shares. The
Company's ownership of the Net.B@nk, Inc. shares is subject to regulatory
approval.
CAROLINA FIRST BANK
Carolina First Bank engages in a general banking business through 52
branches in 35 communities in 16 South Carolina counties. Carolina First Bank's
primary focus is on commercial and consumer lending to customers in its market
areas, with mortgage lending being of secondary emphasis. It also provides
demand transaction accounts and time deposit accounts to businesses and
individuals. Since the acquisition of CF Mortgage in 1993, Carolina First Bank's
mortgage origination and servicing activities have been performed by CF
Mortgage.
Carolina First Bank provides a full range of commercial and consumer
banking services, including short and medium-term loans, mortgage loans,
revolving credit arrangements, inventory and accounts receivable financing,
equipment financing, real estate lending, credit card loans, safe deposit
services, savings accounts, interest- and noninterest-bearing checking accounts
and installment and other personal loans. Carolina First Bank also provides
trust services, investment products and various cash management programs.
CF MORTGAGE
On September 30, 1993, the Company acquired First Sun Mortgage
Corporation (subsequently renamed Carolina First Mortgage Company). CF Mortgage
is engaged primarily in originating, underwriting and servicing one-to-four
family residential mortgage loans. CF Mortgage also buys or sells mortgage
servicing rights to keep its servicing balances at economically desirable levels
or to benefit from favorable terms.
CF Mortgage's mortgage loan origination operation is conducted
principally through six offices in South Carolina. Mortgage loan applications
are forwarded to CF Mortgage's headquarters in Columbia for processing in
accordance with GNMA, FNMA and other applicable guidelines. During 1996, 1,173
mortgage loans totaling $127 million were originated. The Company generally
sells all conforming fixed rate mortgage loans into the secondary market.
CF Mortgage's mortgage servicing operations consist of servicing loans
that are owned by Carolina
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First Bank and subservicing loans, to which the right to service is owned by
Carolina First Bank and other non-affiliated financial institutions. This
servicing operation is conducted at its headquarters located in Columbia, South
Carolina. At December 31, 1996, CF Mortgage was servicing approximately 13,679
loans having an aggregate principal balance of approximately $1.2 billion.
BLUE RIDGE
On December 29, 1995, the Company completed its acquisition of Blue
Ridge, an automobile finance company headquartered in Greenville, South
Carolina. Blue Ridge operates from one location and, at December 31, 1996, had
approximately $16 million in total assets. Blue Ridge is engaged primarily in
indirect automobile lending.
ACQUISITIONS AND DISPOSITIONS
Since its inception in 1986, the Company has pursued a strategy of
growth through internal expansion and through the acquisition of branch
locations and financial institutions in selected market areas when suitable
opportunities develop. The Company has emphasized internal growth through the
acquisition of market share from the large out-of-state bank holding companies.
It attempts to acquire market share by providing quality banking services and
personal service to individuals and business customers.
The Company has grown through acquisitions. The following list
summarizes the Company's acquisition activity during the past three years.
<TABLE>
<CAPTION>
Method of
Acquisition Date Acquired Accounting
<S> <C> <C>
1 Branch Location April 1994 $6 million Purchase
Citadel Federal Savings and (Deposits)
Loan Association
Charleston, South Carolina
6 Branch Locations May 1994 $135 million Purchase
Republic National Bank (Deposits)
South Carolina
Aiken National Bank April 1995 $39 million Pooling
Aiken, South Carolina (Assets)
Midlands National Bank June 1995 $44 million Pooling
Prosperity, South Carolina (Assets)
Blue Ridge Finance Company December 1995 $4 million Pooling
Greenville, South Carolina (Assets)
</TABLE>
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On March 14, 1997, the Company announced the signing of an agreement to
acquire Lowcountry Savings Bank, Inc. ("Lowcountry"). The Company plans to merge
Lowcountry into Carolina First Bank, a wholly-owned subsidiary of the Company.
This transaction is valued at approximately $13.3 million, with 60% payable with
the Company's Common Stock and 40% payable in cash. Lowcountry has five offices
in the greater Charleston area and had approximately $76 million in assets and
$62 million in deposits at December 31, 1996. This transaction, which is subject
to the receipt of regulatory and shareholder approval, is expected to be
completed in the second quarter of 1997. The Company will record the acquisition
using the purchase method of accounting.
In September 1996, the Company announced the divestiture of
five branches located in Barnwell, Blackville, Salley, Springfield and Williston
with approximately $50 million in deposits. The branches are being sold to the
Bank of Barnwell County (in organization), expected to be a wholly-owned
subsidiary of Community Capital Corporation, a South Carolina corporation
headquartered in Greenwood, South Carolina. This transaction is scheduled to be
completed in the second quarter of 1997 and is subject to regulatory approval
among other conditions.
DIVIDENDS
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay.
In each year from 1989 through 1995, the Company issued 5% common stock
dividends to common shareholders. At its December 1996 meeting, the Board of
Directors of the Company declared a six-for-five stock split effected in the
form of a 20% common stock dividend which was issued on January 30, 1997 to
shareholders of record as of January 15, 1997. Share and per share data for all
periods presented have been retroactively restated to reflect the additional
shares outstanding resulting from the stock dividend. The Company has paid all
scheduled cash dividends on the Series 1993 Preferred Stock, Series 1993B
Preferred Stock, Series 1994 Preferred Stock and 9.00% Subordinated Notes since
their respective issuances.
In November 1993, the Board of Directors initiated a regular quarterly
cash dividend of $0.05 per share payable on the Common Stock, the first of which
was paid on February 1, 1994. Cash dividends have been paid on a quarterly basis
since the initiation of the cash dividend. The Board of Directors increased the
quarterly cash dividend to $0.06 beginning in the first quarter of 1995 and to
$0.07 beginning in the first quarter of 1996. At the December 1996 meeting,
concurrent with the declaration of a six-for-five stock split, the Board of
Directors also approved a $0.07 per share cash dividend on the common stock
which represents an effective increase of 20%. The Company presently intends to
continue to pay this quarterly cash dividend on the Common Stock; however,
future dividends will depend upon the Company's financial performance and
capital requirements.
COMPETITION
Each of the Company's markets is a highly competitive banking market in
which all of the largest banks in the state are represented. The competition
among the various financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans, credit and service charges,
the quality of services rendered, the convenience of banking facilities and, in
the case of loans to large commercial borrowers, relative lending limits. In
addition to banks and savings associations, the Company competes with
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other financial institutions including securities firms, insurance companies,
credit unions, leasing companies and finance companies. Size gives larger banks
certain advantages in competing for business from large corporations. These
advantages include higher lending limits and the ability to offer services in
other areas of South Carolina and the region. As a result, the Company does not
generally attempt to compete for the banking relationships of large
corporations, but concentrates its efforts on small to medium-sized businesses
and on individuals. The Company believes it has competed effectively in this
market segment by offering quality, personal service.
EMPLOYEES
At December 31, 1996, the Company employed a total of 609 full-time
equivalent employees. The Company believes that its relations with its employees
are good.
MONETARY POLICY
The earnings of bank holding companies are affected by the policies of
regulatory authorities, including the Board of Governors of the Federal Reserve
System, in connection with its regulation of the money supply. Various methods
employed by the Federal Reserve Board include open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against member bank deposits. These methods
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also affect interest
rates charged on loans or paid on deposits. The monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
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.
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.
In August 1995, 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
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(although banks pay a $2,000 annual fee). The FDIC insurance assessment
reduction applied only to BIF- insured deposits and did not include deposits
insured by the SAIF. In connection with the merger of Carolina First Savings
Bank into Carolina First Bank and Carolina First Bank's assumption of other
SAIF-insured deposits in connection with various acquisitions, approximately 22%
of Carolina First Bank's total deposits are subject to SAIF insurance
assessments imposed by the FDIC. Through September 30, 1996, Carolina First
Bank's SAIF-insured deposits were assessed at 0.23% of the average assessment
base, excluding the special assessment discussed below.
On September 30, 1996, the President signed into law legislation
requiring a special assessment to recapitalize the SAIF. This assessment was
applied at a rate of 0.657% of SAIF-insured deposits as of March 31, 1995. Banks
that have acquired "Oakar" deposits before March 31, 1995 were allowed a 20%
reduction to the assessment base. The result for Carolina First Bank was a
charge of $1.2 million pre-tax ($746,000 after-tax) based on approximately $223
million of SAIF deposits. The legislation also changed future annual assessment
rates for both BIF-insured deposits and SAIF-insured deposits. For 1997 through
1999, the annual assessment rates will be 0.0129% for BIF-insured deposits and
0.0644% for SAIF-insured deposits.
ACCOUNTING ISSUES
The Financial Accounting Standards Board ("FASB") has issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. Those
standards are based on consistent application of the financial components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished.
This statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996 and is to be
applied prospectively. In December 1996, the FASB issued SFAS 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125," which
defers for one year the applications of certain requirements under SFAS 125. The
Company does not expect SFAS 125 to have a significant impact on its financial
condition or results of operations.
SUPERVISION AND REGULATION
GENERAL
The Company and its subsidiaries are extensively regulated under
federal and state law. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws may have a material effect on the business and prospects of the Company.
The operations of the Company may be affected by possible legislative and
regulatory changes and by the monetary policies of the United States.
The Company. As a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), the Company is subject to
regulation and supervision by the Federal Reserve. Under the BHCA, the Company's
activities and those of its subsidiaries are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling
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banks as to be a proper incident thereto. The BHCA prohibits the Company from
acquiring direct or indirect control of more than 5% of any class of outstanding
voting stock, or substantially all of the assets of any bank, or merging or
consolidating with another bank holding company without prior approval of the
Federal Reserve. The BHCA also prohibited the Company from acquiring control of
any bank operating outside the State of South Carolina until September 29, 1995
unless such action was specifically authorized by the statutes of the state
where the bank to be acquired was located. See " -- Supervision and Regulation
- -- Interstate Banking."
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. The BHCA
generally does not place territorial restrictions on the activities of such
nonbanking-related entities.
Further, the Federal Deposit Insurance Act, as amended ("FDIA"),
authorizes the merger or consolidation of any Bank Insurance Fund ("BIF") member
with any Savings Association Insurance Fund ("SAIF") member, the assumption of
any liability by any BIF member to pay any deposits of any SAIF member or vice
versa, or the transfer of any assets of any BIF member to any SAIF member in
consideration for the assumption of liabilities of such BIF member or vice
versa, provided that certain conditions are met and, in the case of any
acquiring, assuming or resulting depository institution which is a BIF member,
that such institution continues to make payment of SAIF assessments on the
portion of liabilities attributable to any acquired, assumed or merged
SAIF-insured institution (or, in the case of any acquiring, assuming or
resulting depository institution which is a SAIF member, that such institution
continues to make payment of BIF assessments on the portion of liabilities
attributable to any acquired, assumed or merged BIF-insured institution).
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution becomes in danger of defaulting or in
default under its obligations to repay deposits. For example, under current
federal law, to reduce the likelihood of receivership of an insured depository
institution subsidiary, a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. Under a policy of the Federal Reserve with
respect to bank holding company operations, a bank holding company is required
to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The Federal Reserve
also has the authority under the BHCA to require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution of the bank holding
company. Further, federal law grants federal bank regulatory authorities
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
In addition, the "cross-guarantee" provisions of the FDIA require
insured depository institutions under
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common control to reimburse the FDIC for any loss suffered by either the SAIF or
the BIF as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF, or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
The Company is subject to the obligations and restrictions described
above. However, management currently does not expect that any of these
provisions will have any material impact on its operations.
As a bank holding company registered under the South Carolina Bank
Holding Company Act, the Company also is subject to regulation by the State
Board. Consequently, the Company must receive the approval of the State Board
prior to engaging in the acquisitions of banking or nonbanking institutions or
assets. The Company must also file with the State Board periodic reports with
respect to its financial condition and operations, management, and intercompany
relationships between the Company and its subsidiaries.
Carolina First Bank. Carolina First Bank is an FDIC-insured, South
Carolina-chartered banking corporation and is subject to various statutory
requirements and rules and regulations promulgated and enforced primarily by the
State Board and the FDIC. These statutes, rules and regulations relate to
insurance of deposits, required reserves, allowable investments, loans, mergers,
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the business of Carolina First Bank. The FDIC has
broad authority to prohibit Carolina First Bank from engaging in what it
determines to be unsafe or unsound banking practices. In addition, federal law
imposes a number of restrictions on state-chartered, FDIC-insured banks and
their subsidiaries. These restrictions range from prohibitions against engaging
as a principal in certain activities to the requirement of prior notification of
branch closings. Carolina First Bank also is subject to various other state and
federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit and fair credit reporting laws.
Carolina First Bank is not a member of the Federal Reserve System.
Dividends. The holders of the Company's common stock are entitled to
receive dividends when and if declared by the Board of Directors out of funds
legally available therefor. The holders of the Company's outstanding series of
preferred stock are also entitled to receive dividends when, as and if declared
by the Board of Directors in their discretion out of funds legally available
therefor and as set forth in the Company's Articles of Incorporation. The
Company is a legal entity separate and distinct from its subsidiaries and
depends for its revenues on the payment of dividends from its subsidiaries.
Current federal law would prohibit, except under certain circumstances and with
prior regulatory approval, an insured depository institution, such as Carolina
First Bank, from paying dividends or making any other capital distribution if,
after making the payment or distribution, the institution would be considered
"undercapitalized," as that term is defined in applicable regulations. In
addition, as a South Carolina-chartered bank, Carolina First Bank is subject to
legal limitations on the amount of dividends it is permitted to pay. In
particular, Carolina First Bank must receive the approval of the South Carolina
Commissioner of Banking prior to paying dividends to the Company.
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CAPITAL ADEQUACY
The Company. The Federal Reserve has adopted risk-based capital
guidelines for bank holding companies. Under these guidelines, the minimum ratio
of total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the total
capital is required to be "Tier 1 capital," principally consisting of common
stockholders' equity, noncumulative preferred stock, a limited amount of
cumulative perpetual preferred stock, and minority interests in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder (Tier 2 capital) may consist of a limited amount of subordinated debt
and intermediate-term preferred stock, certain hybrid capital instruments and
other debt securities, perpetual preferred stock, and a limited amount of the
general loan loss allowance. In addition to the risk-based capital guidelines,
the Federal Reserve has adopted a minimum Tier 1 (leverage) capital ratio under
which a bank holding company must maintain a minimum level of Tier 1 capital (as
determined under applicable rules) to average total consolidated assets of at
least 3% in the case of bank holding companies which have the highest regulatory
examination ratios and are not contemplating significant growth or expansion.
All other bank holding companies are required to maintain a ratio of at least
100 to 200 basis points above the stated minimum. At December 31, 1996, the
Company was in compliance with both the risk-based capital guidelines and the
minimum leverage capital ratio.
Carolina First Bank. As a state-chartered, FDIC-insured institution
which is not a member of the Federal Reserve System, Carolina First Bank is
subject to capital requirements imposed by the FDIC. The FDIC requires
state-chartered nonmember banks to comply with risk-based capital standards
substantially similar to those required by the Federal Reserve, as described
above. The FDIC also requires state-chartered nonmember banks to maintain a
minimum leverage ratio similar to that adopted by the Federal Reserve. Under the
FDIC's leverage capital requirement, state nonmember banks that (a) receive the
highest rating during the examination process and (b) are not anticipating or
experiencing any significant growth are required to maintain a minimum leverage
ratio of 3% of Tier 1 capital to total assets; all other banks are required to
maintain a minimum ratio of 100 to 200 basis points above the stated minimum,
with an absolute minimum leverage ratio of not less than 4%. As of December 31,
1996, the Company and Carolina First Bank were both in compliance with each of
the applicable regulatory capital requirements.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Federal Reserve, the FDIC and the OCC have issued a joint advance
notice of proposed rulemaking, and have issued a revised proposal, soliciting
comments on a proposed framework for implementing these revisions. Under the
proposal, an institution's assets, liabilities, and off-balance sheet positions
would be weighted by risk factors that approximate the instrument's price
sensitivity to a 100 basis point change in interest rates. Institutions with
interest rate risk exposure in excess of a threshold level would be required to
hold additional capital proportional to that risk. The notice also asked for
comments on how the risk-based capital guidelines of each agency may be revised
to take account of concentration and credit risk and the risk of nontraditional
activities. Carolina First Corporation cannot assess at this point the impact
the proposal would have on the capital requirements of Carolina First
Corporation or its subsidiary depository institutions.
As an FDIC-insured institution, Carolina First Bank is subject to
insurance assessments imposed by
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the FDIC. Under current law, the insurance assessment to be paid by insured
institutions shall be as specified in a schedule required to be issued by the
FDIC that specifies, at semiannual intervals, target reserve ratios designed to
increase the FDIC insurance fund's reserve ratio to 1.25% of estimated insured
deposits (or such higher ratio as the FDIC may determine in accordance with the
statute) in 15 years. Further, the FDIC is authorized to impose one or more
special assessments in any amount deemed necessary to enable repayment of
amounts borrowed by the FDIC from the United States Department of the Treasury
(the "Treasury Department").
Effective January 1, 1993, the FDIC implemented a risk-based assessment
schedule where the actual assessment to be paid by each FDIC-insured institution
is based on the institution's assessment risk classification. This
classification is determined based on whether the institution is considered
"well capitalized," "adequately capitalized" or "undercapitalized," as such
terms have been defined in applicable federal regulations adopted to implement
the prompt corrective action provisions of FDICIA (see "--Certain Regulatory
Matters--Other Safety and Soundness Regulations"), and whether such institution
is considered by its supervisory agency to be financially sound or to have
supervisory concerns. 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 Carolina First Savings Bank into
Carolina First Bank and Carolina First Bank's assumption of other SAIF-insured
deposits in connection with various acquisitions, Carolina First Bank has
deposits subject to SAIF insurance assessments imposed by the FDIC. On September
30, 1996, the President signed into law legislation requiring a special
assessment to recapitalize the SAIF. This assessment was applied at a rate of
0.657% of SAIF-insured deposits as of March 31, 1995. Banks that have acquired
"Oakar" deposits before March 31, 1995 were allowed a 20% reduction to the
assessment base. The result for Carolina First Bank was a charge of $1.2 million
pre-tax ($746,000 after-tax) based on approximately $223 million of SAIF
deposits. The legislation also changed future annual assessment rates for both
BIF-insured deposits and SAIF-insured deposits. For 1997 through 1999, the
annual assessment rates will be 0.0129% for BIF-insured deposits and 0.0644% for
SAIF-insured deposits.
OTHER SAFETY AND SOUNDNESS REGULATIONS
Prompt Corrective Action. Current law provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under uniform regulations defining such capital
levels issued by each of the federal banking agencies, a bank is considered
"well capitalized" if it has (i) a total risk-based capital ratio of 10% or
greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater, and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for any capital measure.
An "adequately capitalized" bank is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with a composite CAMEL rating of 1). A bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage ratio of less than 4% ( or 3% in the case of a bank with a composite
CAMEL rating of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based
capital ratio of less than 3%, or (iii) a leverage ratio of less than 3%; and
(C) "critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. Carolina First Corporation and Carolina
First Bank each currently meet the definition of well capitalized.
11
<PAGE>
Brokered Deposits. Current federal law also regulates the acceptance of
brokered deposits by insured depository institutions to permit only a "well
capitalized" depository institution to accept brokered deposits without prior
regulatory approval. Under FDIC regulations, "well capitalized" insured
depository institutions may accept brokered deposits without restriction,
"adequately capitalized" insured depository institutions may accept brokered
deposits with a waiver from the FDIC (subject to certain restrictions on
payments of interest rates) while "undercapitalized" insured depository
institutions may not accept brokered deposits. The regulations provide that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" are the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions of FDICIA (as described in the
previous paragraph). Carolina First Corporation does not believe that these
regulations will have a material adverse effect on its current operations.
Other FDICIA Regulations. To facilitate the early identification of
problems, FDICIA required the federal banking agencies to review and, under
certain circumstances, prescribe more stringent accounting and reporting
requirements than those required by generally accepted accounting principles.
The FDIC has issued final regulations implementing those provisions. The rule,
among other things, requires that management report on the institution's
responsibility for preparing financial reporting and compliance with designated
laws and regulations concerning safety and soundness, and that independent
auditors attest to and report separately on assertions in management's reports
concerning compliance with such laws and regulations, using FDIC approved audit
procedures.
FDICIA required each of the federal banking agencies to develop
regulations addressing certain safety and soundness standards for insured
depository institutions (such as Carolina First Bank) and depository institution
holding companies (such as Carolina First Corporation), including operational
and managerial standards, asset quality, earnings and stock valuation standards,
as well as compensation standards (but not dollar levels of compensation). Each
of the federal banking agencies has issued a joint notice of proposed
rulemaking, which requested comment on the implementation of these standards.
The proposed rule sets forth general operational and managerial standards in the
areas of internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation fees and benefits. The proposed rule also establishes a maximum
ratio of classified assets to capital, and requires institutions to meet minimum
capital standards as a measure of whether such institutions have minimum
earnings sufficient to absorb losses without impairing capital. Finally, the
proposed rule would define compensation as excessive if it is unreasonable or
disproportionate to the services actually performed. Bank holding companies
would not be subject to the standards on compensation. The proposal contemplates
that each federal agency would determine compliance with these standards through
the examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. Carolina
First Corporation has not yet determined the effect the proposed rule would have
on its operations and the operations of its depository institution subsidiary if
it is adopted substantially as proposed.
COMMUNITY REINVESTMENT ACT
Carolina First Bank is subject to the requirements of the Community
Reinvestment Act ("CRA"). The CRA requires that financial institutions have an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility. Carolina First Bank received an "outstanding" rating in its
most recent evaluation.
As a result of a Presidential initiative, each of the federal banking
agencies has issued a notice of
12
<PAGE>
proposed rulemaking that would replace the current CRA assessment system with a
new evaluation system that would rate institutions based on their actual
performance (rather than efforts) in meeting community credit needs. Under the
proposal, each institution would be evaluated based on the degree to which it is
providing loans (the lending test), branches and other services (the service
test) and investments to low- and moderate-income areas (the investment test).
Under the lending test, as proposed, an institution would be evaluated on the
basis of its market share of reportable loans in low- and moderate-income areas
in comparison to other lenders subject to CRA in its service area, and in
comparison with the institution's market share of reportable loans in other
service areas. An institution would be evaluated under the investment test based
on the amount of investments made that have had a demonstrable impact on low-
and moderate-income areas or persons as compared to its risk-based capital. The
service test would evaluate a retail institution primarily based on the
percentage of its branches located in, or that are readily accessible to, low-
and moderate-income areas. Each depository institution would have to report to
its federal supervisory agency and make available to the public data on the
geographic distribution of its loan applications, denials, originations and
purchases. Small institutions could elect to be evaluated under a streamlined
method that would not require them to report this data. All institutions,
however, would receive one of five ratings based on their performance:
Outstanding, High Satisfactory, Low Satisfactory, Needs to Improve or
Substantial Noncompliance. An institution that received a rating of Substantial
Noncompliance would be subject to enforcement action. The Company currently is
studying the proposal and determining whether the regulation, if adopted, would
require changes to Carolina First Bank's CRA action plans.
TRANSACTIONS BETWEEN THE COMPANY, ITS SUBSIDIARIES AND AFFILIATES
The Company's subsidiaries are subject to certain restrictions on
extensions of credit to executive officers, directors, principal stockholders or
any related interest of such persons. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unaffiliated persons;
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features. Aggregate limitations on extensions of credit also
may apply. The Company's subsidiaries also are subject to certain lending limits
and restrictions on overdrafts to such persons.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its nonbank subsidiary, on investments in their
securities and on the use of their securities as collateral for loans to any
borrower. Such restrictions may limit the Company's ability to obtain funds from
its bank subsidiary for its cash needs, including funds for acquisitions,
interest and operating expenses. Certain of these restrictions are not
applicable to transactions between a bank and a savings association owned by the
same bank holding company, provided that every bank and savings association
controlled by such bank holding company complies with all applicable capital
requirements without relying on goodwill.
In addition, under the BHCA and certain regulations of the Federal
Reserve, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. For example, a
subsidiary may not generally require a customer to obtain other services from
any other subsidiary or the Company, and may not require the customer to promise
not to obtain other services from a competitor, as a condition to an extension
of credit to the customer.
13
<PAGE>
INTERSTATE BANKING
In 1986, South Carolina adopted legislation which permitted banks and
bank holding companies in certain southern states to acquire banks in South
Carolina to the extent that such other states had reciprocal legislation which
was applicable to South Carolina banks and bank holding companies. The
legislation resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies.
In July 1994, South Carolina enacted legislation which effectively
provides that, after June 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other conditions, including
that the effect of the transaction not lessen competition and that the laws of
the state in which the out-of-state bank holding company filing the applications
has its principal place of business permit South Carolina bank holding companies
to acquire banks and bank holding companies in that state. Although such
legislation may increase takeover activity in South Carolina, the Company does
not believe that such legislation will have a material impact on its competitive
position. However, no assurance of such fact may be given.
In 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle-Neal Act"), which increased the
ability of bank holding companies and banks to operate across state lines. Under
the Riegle-Neal Act, the existing restrictions on interstate acquisitions of
banks by bank holding companies will be repealed one year following enactment,
such that the Company and any other bank holding company located in South
Carolina would be able to acquire a bank located in any other state, and a bank
holding company located outside South Carolina could acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. The legislation also provides that, unless an individual
state elects beforehand either (i) to accelerate the effective date or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate their multistate bank operations
into a single bank subsidiary and to branch interstate through acquisitions. De
novo branching by an out-of-state bank would be permitted only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state will continue to be subject to
applicable state branching laws. The Company believes that this legislation may
result in increased takeover activity of South Carolina financial institutions
by out-of-state financial institutions. However, the Company does not presently
anticipate that such legislation will have a material impact on its operations
or future plans.
The General Assembly of the State of South Carolina has adopted
legislation designed to implement the Riegle-Neal Act.
OTHER REGULATIONS
Interest and certain other charges collected or contracted for by
Carolina First Bank and CF Mortgage Company are subject to state usury laws and
certain federal laws concerning interest rates. Carolina First Bank's and CF
Mortgage Company's loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, CRA requiring
financial institutions to meet their obligations to provide for the total credit
needs of the communities they serve, including investing their assets in loans
to low- and moderate-income borrowers, the Home Mortgage Disclosure Act of 1975
requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves, the Equal
Opportunity Act prohibiting
14
<PAGE>
discrimination on the basis of race, creed or other prohibited factors in
extending credit, the Fair Credit Reporting Act of 1978 governing the use and
provision of information to credit reporting agencies, the Fair Debt Collection
Act governing the manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of Carolina First Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve to implement that act, which govern
automatic deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller machines and
other electronic services.
15
<PAGE>
ITEM 1 - STATISTICAL DISCLOSURE
<TABLE>
<CAPTION>
<S> <C>
Comparative Average Balances -- Yields and Costs.................................................................17
Rate/Volume Variance Analysis....................................................................................18
Securities Held for Investment Composition.......................................................................19
Securities Available for Sale Composition........................................................................19
Trading Account Composition......................................................................................19
Securities Held for Investment and Securities Available for Sale Maturity Schedule...............................20
Loan Portfolio Composition.......................................................................................21
Loan Maturity and Interest Sensitivity...........................................................................21
Nonperforming Assets.............................................................................................22
Summary of Loan Loss Experience..................................................................................22
Composition of Allowance for Loan Losses.........................................................................23
Types of Deposits................................................................................................24
Certificates of Deposit Greater than $100,000....................................................................24
Return on Equity and Assets......................................................................................25
Short-Term Borrowings............................................................................................26
Interest Rate Sensitivity........................................................................................27
Noninterest Income...............................................................................................28
Noninterest Expense..............................................................................................28
</TABLE>
16
<PAGE>
COMPARATIVE AVERAGE BALANCES -- YIELDS AND COSTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- --------------------------- ------------------------
AVERAGE/ INCOME/ YIELD/ AVERAGE/ INCOME/ YIELD/ AVERAGE/ INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans (net of unearned income)(1) .......$ 1,085,680 $ 103,040 9.49% $ 965,632 $ 92,731 9.60% 781,503 68,474 8.76%
Investment securities (taxable) ......... 187,485 10,959 5.85 134,894 7,500 5.56 125,053 5,623 4.50
Investment securities (nontaxable) ...... 26,897 1,889(2) 7.02 22,930 1,674 (2) 7.30 17,609 1,567(2) 8.90
Federal funds sold and resale
agreements ........................... 10,112 676 6.69 5,870 360 6.13 15,810 603 3.81
Interest bearing deposits with other
banks ............................... 10,484 633 6.04 919 71 7.73 1,180 49 4.17
---------- -------- ---------- --------- ----------- -------
Total earning assets ............... 1,320,658 117,197 8.87% 1,130,245 102,336 9.05% 941,155 76,316 8.11%
----------- -------
---------- -------- ---------- ---------
Non-earning assets 160,036 139,512 115,799
Total assets ....................... $ 1,480,694 $ 1,269,757 1,056,954
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking .....................$ 157,596 $ 3,897 2.47% $ 114,897 $ 2,332 2.03% 101,558 2,193 2.16%
Savings ............................... 62,529 1,772 2.83 75,407 2,235 2.96 87,919 2,619 2.98
Money market .......................... 192,026 8,071 4.20 158,742 6,473 4.08 157,460 4,856 3.08
Certificates of deposit ............... 563,773 31,923 5.66 497,358 27,544 5.54 433,123 18,945 4.37
Other ................................. 50,566 2,986 5.91 45,850 2,595 5.66 44,347 2,137 4.82
---------- -------- ---------- --------- ----------- -------
Total interest-bearing deposits ..... 1,026,490 48,649 4.74% 892,254 41,179 4.62 824,407 30,750 3.73%
Short-term borrowings .................. 158,294 8,657 5.47 136,799 8,196 6.00 41,362 1,638 3.96
Long-term borrowings ................... 26,356 2,495 9.47 16,875 1,603 9.50 1,309 121 9.25
---------- -------- ---------- --------- ----------- -------
Total interest-bearing liabilities .... 1,211,140 59,801 4.94% 1,045,928 50,978 4.87% 867,078 32,509 3.75%
----------- -------- ------ ---------- --------- ---------- ------
Non-interest bearing liabilities
Non-interest bearing deposits ......... 154,261 130,775 101,209
Other non-interest liabilities ........ 16,107 2,812 1,290
---------- ---------- -----------
Total liabilities ..................... 1,381,508 1,179,515 969,577
-----------
---------- ----------
Shareholders' equity 99,186 90,242 87,377
Total liabilities and shareholders'
equity ............................... $1,480,694 $1,269,757 $1,056,954
Net interest margin ...................... $ 57,396 4.35% $ 51,358 4.54% 43,807 4,65%
======== ========= ======= =====
</TABLE>
- ---------------
(1)Includes nonaccruing loans.
(2)Fully tax-equivalent basis at a 35% tax rate.
Note: Average balances are derived from daily balances.
17
<PAGE>
RATE/VOLUME VARIANCE ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
------------------------------------ --------------------------------------
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........ $10,309 $11,393 $(1,084) $ 24,257 $ 17,682 $ 6,575
Securities, taxable.................. 3,459. 3,074 385 1,877 547 1,330
Securities, nontaxable............... 215 278 (63) 107 388 (281)
Federal funds sold................... 316 284 32 (243) (609) 366
Interest-bearing deposits with
other banks....................... 562 578 (16) 22 (11) 33
----- ---------- ------------ ---------- ------------ ------------
Total interest income...... 14,861 15,607 (746) 26,020 17,997 8,023
----- ---------- ------------ ---------- ------------ ------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
Interest checking................. 1,565 1,056 509 139 271 (132)
Savings........................... (463) (365) (98) (384) (370) (14)
Money market...................... 1,598 1,399 199 1,617 52 1,565
Certificates of deposit........... 4,379 3,761 618 8,599 3,557 5,042
Other............................. 391 278 113 458 85 373
----------- ------------ ------------ ---------- ------------ ------------
Total interest-bearing
deposits.................... 7,470 6,129 1,341 10,429 3,595 6,834
Short-term borrowings................... 460 1,175 (715) 6,558 5,718 840
Long-term borrowings.................... 893 898 (5) 1,482 1,479 3
----------- ----------- ------------ ---------- ------------ ------------
Total interest expense..... 8,823 8,202 621 18,469 10,792 7,677
----------- ------------ ---------- ---------- ------------ ------------
Net interest income..... $6,038 $ 7,405 $(1,367) $ 7,551 $ 7,205 $ 346
=========== ============ ========== ========== ============ ============
</TABLE>
Note: Changes which are not solely attributable to volume or rate have been
allocated to volume and rate on a pro-rata basis.
18
<PAGE>
SECURITIES HELD FOR INVESTMENT COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31, (AT AMORTIZED COST)
------------------------------
1996 1995 1994
---- ---- ----
U.S. Treasury securities......................... $ 0 $ 0 6,189
Obligations of U.S. Government agencies and
corporations................................... 0 0 42,936
Obligations of states and political subdivisions. 29,113 25,937 21,086
Other securities................................. 352 352 53
-------- --------- --------
$ 29,465 26,289 70,264
======== ========= ========
SECURITIES AVAILABLE FOR SALE COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31, (AT FAIR VALUE)
---------------------------
1996 1995 1994
---- ---- ----
U.S. Treasury securities......................... $167,430 $97,140 $ 26,534
Obligations of U.S. Government agencies
and corporations............................... 39,234 36,706 26,879
Other securities................................. 7,225 12,426 7,135
-------- --------- --------
$ 213,889 146,272 60,548
TRADING ACCOUNT COMPOSITION
(DOLLARS IN THOUSANDS)
DECEMBER 31, (AT FAIR VALUE)
---------------------------
1996 1995 1994
---- ---- ----
U.S. Treasury and Government agencies......... $ 1,990 $ 4,954 178
State and political subdivisions.............. 15 851 977
-------- --------- ---------
$ 2,005 5,805 1,155
======== ======== =========
19
<PAGE>
SECURITIES HELD FOR INVESTMENT AND
SECURITIES AVAILABLE FOR SALE MATURITY SCHEDULE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HELD FOR INVESTMENT -- AMORTIZED COST
----------------------------------------------------------------
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...................... $ 0 $ 0 $ 0 $ 0 $ 0
U.S. Government agencies
and corporations............... 0 0 0 0 0
States and political subdivisions. 1,464 16,786 9,734 1,129 29,113
Other securities.................. 0 0 52 300 352
----------- ----------- ---------- ---------- -----------
$ 1,464 $ 16,786 $ 9,786 $ 1,429 $ 29,465
=========== =========== ========== ========== ===========
WEIGHTED AVERAGE YIELD
U.S Treasury...................... 0.00 % 0.00 % 0.00 % 0.00 % 0.00%
U.S. Government agencies
and corporations............... 0.00 0.00 0.00 0.00 0.00
States and political subdivisions. 3.93 4.34 4.92 5.24 4.55
Other securities.................. 0.00 0.00 7.33 2.24 3.00
----------- ----------- ---------- ---------- -----------
3.93 % 4.34 % 4.93 % 4.61 % 4.53%
=========== =========== ========== ========== ===========
AVAILABLE FOR SALE -- FAIR VALUE
------------------------------------------------------------------
AFTER ONE AFTER FIVE
BUT BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
U.S Treasury.......................$ 52,913 $ 114,517 $ 0 $ 0 $ 167,430
U.S. Government agencies
and corporations................ 1,439 37,795 0 0 39,234
States and political subdivisions.. 0 0 0 0 0
Other securities................... 0 0 0 7,225 7,225
----------- ----------- ---------- ---------- -----------
$ 54,352 $ 152,312 $ 0 $ 7,225 $ 213,889
=========== =========== ========== ========== ===========
WEIGHTED AVERAGE YIELD
U.S Treasury...................... 5.02% 6.03% 0.00 0.00% 5.71%
U.S. Government agencies
and corporations............... 5.96 6.18 0.00 0.00 6.17
States and political subdivisions. 0.00 0.00 0.00 0.00 0.00
Other securities.................. 0.00 0.00 0.00 9.11 9.11
---- ----------- ---------- ---------- -----------
5.04% 6.07% 0.00 9.11 % 5.91%
==== =========== ========== ========== ===========
</TABLE>
20
<PAGE>
LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural................ $ 196,206 $ 188,255 $ 179,876 $ 137,340 $ 112,241
Real Estate
Construction....................................... 36,757 31,552 24,039 22,752 18,269
Mortgage
Residential........................................ 245,096 217,899 206,980 157,460 123,636
Commercial and multifamily (1)..................... 378,471 234,153 275,083 157,528 94,084
Consumer.............................................. 140,206 149,216 129,106 89,788 73,883
Credit cards.......................................... 40,480 86,901 36,954 53,305 30,702
Lease financing receivables........................... 91,321 36,740 208 ------ 7
Loans held for sale................................... 10,449 125,000 71,695 7,700 6,801
--------------- ------------
----------- ---------- -----------
Total gross loans............................... $ 1,138,986 $ 1,069,716 $ 923,941 $ 625,873 $ 459,623
Unearned income....................................... (14,211) (7,056) (873) (2,227) (3,973)
--------------- ------------ ----------- ---------- -----------
Total loans net of unearned income............. 1,124,775 1,062,660 923,068 623,646 455,650
Allowance for loan losses............................ (11,290) (8,661) (6,002) (6,679) (5,276)
--------------- ------------ ----------- ---------- -----------
Total net loans................................ $ 1,113,485 $ 1,053,999 $ 917,066 $ 616,967 $ 450,374
=============== ============ =========== ========== ===========
</TABLE>
- ---------------------------------------
(1) The majority of these loans are made to operating businesses where real
property has been taken as additional collateral.
LOAN MATURITY AND INTEREST SENSITIVITY
(DOLLARS IN THOUSANDS)
<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......................... $147,099 $ 333,643 $ 93,935 $ 574,677
Real estate -- construction....................... 31,611 5,146 0 36,757
Total of loans with:
Predetermined interest rates................... 44,513 104,621 56,335 205,469
Floating interest rates........................ 134,197 234,168 37,600 405,965
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.............................. $ 960 $ 1,275 $ 2,051 $ 2,487 $ 2,474
Restructured loans............................ 1,909 1,085 675 0 353
---------- ----------- -------- -------- --------
Total nonperforming loans........... 2,869 2,360 2,726 2,487 2,827
Other real estate owned....................... 3,011 2,508 1,996 2,879 2,804
---------- ----------- ======== ======== ========
Total nonperforming assets.......... $ 5,880 $ 4,868 $ 4,722 $ 5,366 $ 5,631
======== ======== ======== ======== ========
Loans past due 90 days still accruing interest...$ 2,371 $ 2,748 $ 1,285 $ 2,060 $ 2,127
========== =========== ======== ======== ========
Total nonperforming assets as a percentage
of loans and foreclosed property............. 0.52% 0.46% 0.51% 0.86% 1.23%
======== ======== ======== ========= =======
Allowance for loan losses as a percentage
of nonperforming loans........................ 393.52% 366.99% 220.18 268.59% 186.63%
======== ======== ======== ========= =======
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------- ---------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loan loss reserve at beginning of period........ $ 8,661 $ 6,002 $ 6,679 $ 5,276 $ 4,520
Blue Ridge merger............................... 0 128 0 0 0
Valuation allowance for loans acquired.......... 1,261 633 1,077 1,811 255
Charge-offs:
Commercial, financial and agricultural...... 335 1,201 519 401 1,450
Real estate - construction................. 115 0 85 0 30
Real estate - mortgage..................... 1,475 85 263 267 195
Consumer................................... 3,463 1,437 583 423 235
Credit cards............................... 4,072 2,536 1,641 488 0
---------- ----------- -------- -------- --------
Total loans charged-off............ 9,460 5,259 3,091 1,579 1,910
---------- ----------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural..... 67 180 69 23 48
Real estate - construction................ 0 0 0 0 1
Real estate - mortgage.................... 7 14 9 23 18
Consumer.................................. 95 114 62 19 26
Credit cards.............................. 396 3 0 0 0
---------- ----------- -------- -------- --------
Total loans recovered............. 565 311 140 65 93
---------- ----------- -------- -------- --------
Net charge-offs................................. 8,895 4,948 2,951 1,514 1,817
Provision charged to expense.............. 10,263 6,846 1,197 1,106 2,318
---------- ----------- -------- -------- --------
Loan loss reserve at end of period.............. $ 11,290 $ 8,661 $ 6,002 $ 6,679 $ 5,276
========== =========== ======== ======== ========
Average loans.................................. $ 1,085,680 $ 965,632 $ 781,503 $ 548,619 $ 432,282
Total loans, net of unearned income (period end). 1,124,775 1,062,660 923,068 623,646 455,650
Net charge-offs as a percentage of average loans. 0.82% 0.51% 0.38% 0.38% 0.42%
Allowance for loan losses as a percentage of loans.. 1.00 0.82 0.65 1.07 1.16
Note: In 1996, the Company experienced increased charge-offs related to its
credit card activities. This trend has continued into 1997.
</TABLE>
22
<PAGE>
COMPOSITION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE BREAKDOWN
DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural........................ $ 2,415 $ 2,287 $ 1,730 $ 1,866 $ 1,783
Real Estate
Construction........................ 203 151 130 148 356
Mortgage:
Residential....................... 267 233 135 145 288
Commercial and
multifamily.................... 1,218 946 581 627 1,223
Consumer................................. 1,942 1,535 1,071 1,965 845
Credit cards............................. 3,157 2,643 1,757 1,262 254
Lease financing receivables.............. 948 0 0 0 0
Unallocated.............................. 1,140 866 598 666 527
---------------- ------------ -------- ------------- ------------
Total......................... $ 11,290 $ 8,661 $ 6,002 $ 6,679 $ 5,276
================ ============ ======== ============= ============
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF LOANS IN CATEGORY
DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural.......................... 17.44 % 17.60 % 19.47 % 21.94 % 24.44%
Real Estate
Construction.......................... 3.27 2.95 2.60 3.64 3.97
Mortgage:
Residential......................... 22.00 20.37 22.64 26.39 28.38
Commercial and
multifamily...................... 33.65 33.58 29.77 25.16 20.46
Consumer................................... 12.33 13.95 13.97 14.35 16.07
Credit cards............................... 4.31 8.12 11.53 8.52 6.68
Lease financing receivables................ 7.00 3.43 0.02 0.00 0.00
------------- ------------------ --------- -------
Total........................... 100.00% 100.00% 100.00 % 100.00 % 100.00%
============= ================== ========= =======
</TABLE>
23
<PAGE>
TYPES OF DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Demand deposit accounts.........$ 194,067 $ 160,393 $ 126,974 $ 72,950 $ 44,553
NOW accounts.................... 184,450 132,063 117,271 85,910 40,779
Savings accounts................ 57,977 66,552 94,774 70,897 26,758
Money market accounts........... 177,665 178,662 155,695 156,519 133,904
Time deposits................... 474,553 403,914 371,169 297,499 224,279
Time deposits of $100,000 or
over......................... 192,338 153,907 135,865 120,774 85,351
----------- ----------- ----------- ----------- ----------
Total deposits.............$ 1,281,050 $ 1,095,491 $ 1,001,748 $ 804,549 $ 555,624
=========== =========== =========== =========== ==========
PERCENT OF DEPOSITS AS OF DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Demand deposit accounts........... 15.15% 14.64% 12.68% 9.07% 8.02%
NOW accounts...................... 14.40 12.06 11.71 10.68 7.34
Savings accounts.................. 4.53 6.07 9.46 8.81 4.82
Money market accounts............. 13.87 16.31 15.54 19.45 24.10
Time deposits..................... 37.04 36.87 37.05 36.98 40.36
Time deposits of $100,000 or
over........................... 15.01 14.05 13.56 15.01 15.36
----------- ----------- ----------- ----------- ----------
Total deposits............... 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
CERTIFICATES OF DEPOSIT GREATER THAN $100,000
(DOLLARS IN THOUSANDS)
<S> <C>
Maturing in three months or less.....................................................$ 85,034
Maturing in over three through six months............................................ 43,854
Maturing in over six through twelve months........................................... 35,178
Maturing in over twelve months....................................................... 28,272
----------
Total......................................................................$ 192,338
==========
</TABLE>
24
<PAGE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Return on average assets............ 0.71% 0.74% (0.16)% 0.69% 0.44%
Return on average equity............ 10.56 10.43 (1.99) 8.27 5.22
Return on average common equity..... 10.97 17.07 (3.08) 12.60 6.10
Average equity as a percentage of
average assets................... 6.70 7.11 8.27 8.37 8.39
Dividend payout ratio............... 27.17 24.51 n/m 0.00 0.00
</TABLE>
25
<PAGE>
SHORT TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM
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>
1996
Federal funds purchased............. $ 56,263 $ 12,968 5.57% $ 15,000 6.88 %
Securities sold under
repurchase agreements............ 38,750 67,676 5.20 72,144 4.99
Advances from the FHLB.............. 115,000 64,554 5.52 40,000 6.95
Commercial paper.................... 18,558 13,067 6.29 18,016 6.40
Other............................... 29 29 7.81 29 7.72
------------ ------------ ----- --------- -------
$ 228,600 $ 158,294 5.47% $ 145,189 5.90 %
============ ============ ===== ========== ======
1995
Federal funds purchased............. $ 40,750 $ 12,727 6.95% $ 31,000 6.01%
Securities sold under
repurchase agreements............ 66,967 50,884 5.36 60,532 5.30
Advances from the FHLB.............. 90,000 70,526 6.11 90,000 5.75
Commercial paper.................... 2,405 37 6.76 2,405 6.76
Other............................... 2,852 2,625 9.00 2,852 9.00
------------ --------- --------- ---------- -------
$202,974 $ 136,799 6.00% $ 186,789 5.84%
============== ========= ========= ========== =======
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 19,933 3.94 72,000 6.03
Other............................... 88 85 9.00 88 9.00
-------------- --------- --------- ---------- ----------
$ 106,074 $ 41,362 3.96% $ 106,074 5.84%
============== ======== ========= ========== ==========
</TABLE>
26
<PAGE>
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....... $618,794 $46,183 $ 94,279 $ 759,256 $ 365,519 $1,124,775
Investment securities, taxable...... 52,435 95 3,799 56,329 159,917 216,246
Investment securities, nontaxable... 682 306 476 1,464 27,649 29,113
Federal funds sold.................. 0 0 0 0 0 0
Interest bearing balances with
other banks....................... 250 500 250 1,000 25,037 26,037
---------- --------- --------- ---------- ---------- ----------
Total earning assets.... 672,161 47,084 98,804 818,049 578,122 1,396,171
Non-earning assets, net................ 0 0 0 0 178,033 178,033
---------- -------- ---------- ---------- ---------- ----------
Total assets............ $672,161 $47,084 $ 98,804 $ 818,049 $ 756,155 $1,574,204
========== ========= ========= ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest Checking............ $ 184,450 $ 0 $ 0 $ 184,450 $ 0 $ 184,450
Savings...................... 57,977 0 0 57,977 0 57,977
Money Market................. 177,665 0 0 177,665 0 177,665
Certificates of Deposit...... 236,939 126,543 131,726 495,208 114,997 610,205
Other........................ 22,011 11,755 12,237 46,003 10,683 56,686
---------- --------- --------- ---------- ---------- ----------
Total interest-bearing
deposits................. 679,042 138,298 143,963 961,303 125,680 1,086,983
---------- --------- --------- ---------- ---------- ----------
Short-term borrowings............ 144,544 477 166 145,187 0 145,187
Long-term borrowings............. 1 1 2 4 27,524 27,528
---------- --------- --------- ---------- ---------- ----------
Total interest-bearing
liabilities.............. 823,587 138,776 144,131 1,106,494 153,204 1,259,698
Noninterest bearing liabilities
Noninterest bearing deposits..... 0 0 0 0 194,067 194,067
Other noninterest bearing
liabilities, net............... 0 0 0 0 15,475 15,475
---------- --------- --------- ---------- ---------- ----------
Total liabilities.......... 823,587 138,776 144,131 1,106,494 362,746 1,469,240
---------- --------- --------- ---------- ---------- ----------
Shareholders'equity.................... 0 0 0 0 104,964 104,964
---------- --------- --------- ---------- ---------- ----------
Total liabilities and
shareholders' equity..... $ 823,587 $ 138,776 $ 144,131 $1,106,494 $ 467,710 $ 1,574,204
========== ========= ========= ========== ========== ==========
Interest sensitive gap................ $(151,426)$ (91,692) $ (45,327) $ (288,445)$ 288,445 $ ------
Cumulative interest sensitive gap..... $(151,426)$(243,118) $(288,445) $ 288,445 ------ ------
</TABLE>
27
<PAGE>
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Service charges on deposits............. $6,490 $5,524 $4,089 $2,916 $1,791
Loan securitization income.............. 2,865 2,775 0 0 0
Mortgage banking income:
Origination fees..................... 1,358 1,086 954 1,051 778
Gain on sale of mortgage loans....... 34 699 112 509 496
Servicing and other.................. 1,394 377 572 228 0
Fees for trust services................. 1,286 1,042 919 542 305
Gain on sale of credit cards............ 4,293 0 0 0 0
Gain on sale of securities.............. 386 769 75 680 633
Gain on sale of mortgage servicing
rights................................ 107 2,943 0. 0 0
Sundry.................................. 3,128 2,111 1,505 839 113
--------- -------- --------- --------- --------
Total noninterest income...... $ 21,341 $17,326 $8,226 $6,765 $4,116
========= ======== ======== ========= ========
</TABLE>
NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Salaries and wages..................... $ 20,573 $ 17,524 $ 15,023 $ 10,630 $ 6,870
Benefits............................... 4,649 4,584 4,375 2,510 1,596
Occupancy.............................. 4,336 4,209 3,728 2,301 1,496
Furniture and equipment................ 3,621 3,182 2,577 1,933 1,536
Other real estate owned and other
losses............................... 2,120 364 280 345 78
Intangibles amortization............... 1,889 1,774 2,410 875 462
Savings Association Insurance
Fund assessment..................... 1,184 0 0 0 0
Stationery, supplies and printing...... 1,183 1,037 1,223 875 605
Postage................................ 1,105 1,127 861 584 335
Advertising............................ 821 1,427 959 434556
Federal deposit insurance premiums..... 469 1,983 2,114 1,605 1,097
Credit card solicitation charges....... 383 1,910 0 0 0
Credit card restructuring charges...... 0 0 12,214 0 0
Sundry................................. 9,342 7,761 6,075 5,202 3,529
--------- -------- -------- --------- --------
Total noninterest expense.... $51,675 $46,882 $51,839 $27,294 $ 18,160
========= ======== ======== ========= ========
</TABLE>
28
<PAGE>
ITEM 2 - PROPERTIES
At December 31, 1996, the Company conducted business through 55
locations in South Carolina. At December 31, 1996, the total net tangible book
value of the premises and equipment and leasehold improvements owned by the
Company was $32,418,000. The Company believes that its physical facilities are
adequate for its current operations.
The Company's headquarters are located on Main Street in Greenville's
downtown commercial area. The headquarters, which were built in 1900, are owned
by the Company and have been substantially renovated to suit their present
purposes. The Company's headquarters also serve as the Bank's headquarters. The
headquarters contain approximately 160,000 square feet, of which approximately
69,000 square feet is currently being utilized by the Company. The balance of
the building will be renovated as necessary to accommodate future expansion of
the Company. In October 1993, the Bank purchased another office building, with
approximately 27,000 square feet, in downtown Greenville, which houses Carolina
First Bank's trust department, a CF Mortgage origination office and various
administrative functions. Blue Ridge headquarters are located in an office park
in Greenville and occupy approximately 3,000 square feet.
In February 1993, the Company entered into a lease on a 42,000 square
foot building in Columbia, South Carolina. This facility houses the Company's
operations center, regional administrative offices, investments division and a
Columbia main office branch, which opened in September 1993. In September 1993,
the Company purchased an office building in Columbia, South Carolina for its
mortgage banking operations. CF Mortgage's headquarters are located in this
building. In June 1994, the Company completed the construction of a 16,000
square foot main office branch in Myrtle Beach which serves as the regional
headquarters for the coastal offices. In September 1995, the Company completed
renovations on its Charleston main office situated in the historic district of
downtown Charleston. This office occupies approximately 9,000 square feet and
serves as home to the branch office as well as to additional administrative
offices.
The Company's subsidiaries operate through 55 locations, which include
the buildings described above. The Company or a subsidiary of the Company owns
17 locations and leases 38 locations. During 1996, the Company sold and leased
back seven operating locations for an aggregate sales price of approximately
$8.3 million. The rental payments due under the leases approximate the market
rates. Leases generally have options for extensions under substantially the same
terms as in the original lease period with certain rate escalations. The leases
generally provide that the lessee pay property taxes, insurance and maintenance
costs.
All locations of the Company and its subsidiaries are considered
suitable and adequate for their intended purposes. Individually, none of the
above leases are considered material.
29
<PAGE>
ITEM 3 - 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 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. In this action, the Bowers allege that
Carolina First Bank breached an employment contract between each of the Bowers
and Carolina First Bank, breached that contract with fraudulent intent and
committed fraud in the inducement regarding the Bowers' decision to enter the
employment contract. The complaint seeks actual damages of approximately
$912,000 and future pay increases and punitive damages in an amount to be
determined by a jury, plus attorneys' fees and interest on the damages. The
Company has filed an answer to these claims denying any liability and intends to
vigorously defend this action. The Company believes that it will prevail in this
litigation.
On August 26, 1996, the Company filed a lawsuit against E. Monte Bowers
and David W. Bowers, as well as a company called Financial Investors Resource
Management, LLC, in the United States District Court for the District of South
Carolina. In this action, the Company alleges that before, during, and after the
time of the merger between Carolina First Bank and Midlands National Bank
("Midlands"), the Bowers, as officers of Midlands and then Carolina First Bank,
violated federal and state securities laws and federal banking fraud laws,
breached their fiduciary duties, their duties of loyalty and due care, and
committed fraud in their jobs at Midlands and Carolina First Bank. The complaint
seeks actual damages of approximately $3.5 million and punitive damages in an
amount to be determined by a jury, plus attorneys' fees and interest on the
damages. The Bowers have filed counterclaims against the Company, alleging that
Carolina First Bank violated federal and state securities laws in relation to
the merger between Midlands and Carolina First Bank. Specifically, among other
things, the Bowers allege that Carolina First Bank improperly accounted for
credit card solicitation expenses, costs, and other expenses with a resulting
overstatement of income adversely affecting the merger consideration received by
them in connection with the merger of Midlands and Carolina First Bank. The
Bowers also allege that certain statements in the Proxy Statement sent to the
Midlands shareholders were fraudulent. The Company has filed a reply to these
counterclaims denying any liability. The Company intends to pursue this lawsuit
vigorously and believes that it will prevail. On March 17, 1997, the United
States District Court granted summary judgment in favor of the Company on all of
the Bowers' counterclaims. The Court's Order concluded that there was
"absolutely nothing inaccurate or misleading in the Proxy statement or in any of
Carolina First's financial statements. The undisputed evidence shows that these
records are true and correct in all material respects. The Court also finds that
there is no evidence of any fraud or deception committed by Carolina First."
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, Mack I. Whittle,
Jr., William S. Hummers III, Steve Powell and Edward J. Sebastian. The complaint
was subsequently amended several times, most recently on February 25, 1997. The
recent amended complaint names as additional defendants the majority of the
directors of the Company and Carolina First Bank. The named plaintiffs in the
amended complaints are Carolina First Corporation, pursuant to Section 33-7-400
of the South Carolina Code of Laws, by and through its minority shareholders,
Emory Lester, Beatrice Hutchinson and John Wesley Purdie, Jr. Plaintiffs allege
as causes of action the following: conversion of corporate opportunity; breach
of fiduciary duty and "constructive fiduciary fraud"; civil conspiracy; and
mutual mistake. The factual basis upon which these claims are made generally
involves the payment to Messrs. Whittle, Hummers and Powell of a bonus in stock
held by the Company in
30
<PAGE>
Affinity Technology Inc. ("Affinity") (as reward for their efforts in connection
with the Affinity investment), allegedly excessive compensation to the Company's
executive officers, transactions between the Company and entities affiliated
with Mr. Sebastian, alleged concealment of financial problems, alleged
mismanagement by Messrs. Whittle and Hummers involving financial matters and
employee matters. The complaint seeks damages for the benefit of the Company as
follows: for the first cause of action, an amount that the Defendants have
realized from the sale of Affinity stock, director's fees from Mr. Sebastian,
certain undetermined amounts arising from conflicts of interest and excessive
compensation (summarized as $32 million and the costs of this action). With
respect to the second cause of action: damages as much as $9.0 million actual
and punitive damages. With respect to the third cause of action: damages as much
as $9.0 million actual and punitive damages. With respect to the fourth cause of
action: unspecified. With respect to the fourth cause of action: recision of the
Affinity bonuses. The Company believes that this lawsuit is without merit and
expects to defend it vigorously. A motion to dismiss this action has already
been filed and another will be filed in response to the most recent amended
Complaint.
In an action instituted by the same attorneys bringing the foregoing
derivative action, on December 31, 1996, Dan Beckman, Onida Beckman and Dale
Epting filed a class action lawsuit against the Company, Carolina First Bank, a
number of their officers and the majority of the directors of the Company. In
this action, plaintiffs allege that they are former shareholders of Midlands
National Bank and seek to represent a class of all Midlands shareholders
involved in the merger of Midlands into Carolina First Bank, asserting that the
defendants committed fraud, constructive fraud and breach of fiduciary duty
against the defendants by overstating earnings and thereby adversely affecting
the consideration received by the Midlands shareholders in connection with the
merger of Midlands National Bank into Carolina First Bank. The complaint seeks
compensatory damages of approximately $1.8 million and punitive damages in an
amount to be determined by a jury, attorneys' fees and other costs. The Company
and other named defendants have filed a motion to dismiss all claims asserted in
the lawsuit and believe that there are a number of valid defenses available to
them. Both this case and the case discussed in the preceding paragraph have been
designated as complex litigation and have been assigned to a single judge for
handling.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by solicitation
of proxies or otherwise during the fourth quarter of 1996.
31
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
In November 1993, the Board of Directors announced an initial quarterly
cash dividend of $0.05 per share payable on the common stock. A cash dividend of
$0.05 per share was paid to common shareholders each quarter in 1994. In
November 1994, the Board of Directors increased the quarterly cash dividend on
the common stock to $0.06 per share, which was paid each quarter of 1995. In
December 1995, the Board approved an increase in the quarterly cash dividend to
$0.07 per share. This dividend amount was paid in each quarter of 1996. At the
December 1996 meeting, concurrent with the declaration of a six-for-five stock
split, the Board of Directors also approved a $0.07 per share cash dividend on
the common stock, which represents an effective increase of 20%. The Company
presently intends to continue to pay this quarterly cash dividend on the common
stock; however, future dividends will depend upon the Company's financial
performance and capital requirements.
The Company generates cash to pay dividends primarily through dividends
paid to it by its subsidiaries. South Carolina's banking regulations restrict
the amount of dividends that may be paid from Carolina First Bank. All dividends
paid from Carolina First Bank are subject to prior approval by the South
Carolina Commissioner of Banking and are payable only from the undivided profits
of Carolina First Bank. At December 31, 1996, Carolina First Bank's retained
earnings were $29.7 million. However, the payments of any such dividends would
be subject to receipt of appropriate regulatory approvals.
The Board of Directors declared a six-for-five stock split effected in
the form of a 20% common stock dividend, issued on January 30, 1997, to common
stockholders of record as of January 15, 1997. This dividend resulted in the
issuance of 1,870,130 shares of the Company's $1.00 par value common stock. Per
share data of prior periods have been restated to reflect this dividend.
The remaining information required by Item 5 is set forth on page 52 of
the Company's 1996 Annual Report to Shareholders and is incorporated by
reference herein. On February 1, 1997, all outstanding shares of the Series
1993B Cumulative Convertible Preferred Stock ("Series 1993B Preferred Stock")
were converted into the Company's Common Stock. As of March 14, 1997, there were
3,202 common shareholders of record.
32
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is set forth on page 12 in the
Company's 1996 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth on pages 14 through
24 in the Company's 1996 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth on pages 25 through
49 in the Company's 1996 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
33
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on pages 2, 5 and 13
of the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders and
is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item may be found on pages 6 through
11 of the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on page 12 of the
Company's Proxy Statement for the 1997 Annual Meeting of the Shareholders and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on page 13 of the
Company's Proxy Statement for the 1997 Annual Meeting of the Shareholders and is
incorporated herein by reference.
34
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Certain documents filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS
The information required by this item is set forth on pages 25 through
49 in the Company's 1996 Annual Report to Shareholders, which
information is incorporated herein by reference. The Report of
Independent Auditors, dated January 21, 1997 of KPMG Peat Marwick LLP
is included on page 25 of the Company's 1996 Annual Report to
Shareholders, which information is incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES
All other financial statements or schedules have been omitted since the
required information is included in the consolidated financial
statements or notes thereto, or is not applicable or required.
3. LISTING OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
3.1 -- Articles of Incorporation: Incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4, Commission File No. 57389
3.2 -- Amended and Restated Bylaws of Carolina First Corporation, as amended and restated as of
December 18, 1996: Incorporated by reference to Exhibit 3.1 of Carolina First Corporation's Current
Report on Form 8-K dated December 18, 1996, Commission File No. 0-15083.
4.1 -- Specimen CFC Common Stock certificate: Incorporated by reference to Exhibit 4.1 of Carolina First
Corporation's Registration Statement on Form S-1, Commission File No. 33-7470.
4.2 -- Articles of Incorporation: Included as Exhibit 3.1.
4.2 -- Bylaws: Included as Exhibit 3.2.
4.3 -- Carolina First Corporation Amended and Restated Common Stock Dividend Reinvestment Plan:
Incorporated by reference to the Prospectus in Carolina First Corporation's Registration Statement
on Form S-3, Commission File No. 333-06975.
4.6 -- Amended and Restated Shareholder Rights Agreement: Incorporated by reference to Exhibit 4.1 of
Carolina First Corporation's Current Report on Form 8-K dated December 18, 1996, Commission
File No. 0-15083.
4.7 -- Form of Indenture between Carolina First Corporation and First American Trust Company, N.A.,
as Trustee: Incorporated by reference to Exhibit 4.11 of the Company's Registration Statement on
Form S-3, Commission File No. 22-58879.
10.1 -- Carolina First Corporation Amended and Restated Restricted Stock Plan: Incorporated by reference
to Exhibit 99.1 from the Company's Registration Statement on Form S-8, Commission File No. 33-
82668/82670.
10.2 -- Carolina First Corporation Employee Stock Ownership Plan: Incorporated by reference to
Exhibit 10.2 of Carolina First Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 0-15083.
10.3 -- Carolina First Corporation Amended and Restated Stock Option Plan: Incorporated by reference to
Exhibit 99.1 from the Company's Registration Statement on Form S-8, Commission File No. 33-
80822.
35
<PAGE>
10.4 -- Carolina First Corporation Salary Reduction Plan: Incorporated by reference to Exhibit 28.1 of
Carolina First Corporation's Registration Statement on Form S-8, Commission File No. 33-25424.
10.5 -- Amended and Restated Noncompetition and Severance Agreement dated February 21, 1996, between
Carolina First Corporation and Mack I. Whittle, Jr.: Incorporated by reference to Exhibit 10.5 of
Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-15083.
10.6 -- Amended and Restated Noncompetition and Severance Agreement dated February 21, 1996, between
Carolina First Corporation and William S. Hummers III: Incorporated by reference to Exhibit 10.6
of Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-15083.
10.7 -- Amended and Restated Noncompetition and Severance Agreement dated February 21, 1996, between
Carolina First Corporation and James W. Terry, Jr.: Incorporated by reference to Exhibit 10.7 of
Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-15083.
10.8 -- Noncompetition and Severance Agreement dated February 21, 1996, between Carolina First
Corporation and David L. Morrow: Incorporated by reference to Exhibit 10.8 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, Commission File
No. 0-15083.
10.9 -- Short-Term Performance Plan: Incorporated by reference to Exhibit 10.3 of Carolina First
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993,
Commission File No. 0-15083.
10.10-- Carolina First Corporation Long-Term Management Performance Plan: Incorporated by reference
to Exhibit 10.11 of Carolina First Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 0-15083.
10.11-- Carolina First Corporation Employee Stock Purchase Plan: Incorporated by reference to Exhibit 99.1
from the Company's Registration Statement on Form S-8, Commission File No. 33-79668.
10.12-- Carolina First Corporation Directors Stock Option Plan: Incorporated by reference to Exhibit 99.1
from the Company's Registration Statement on Form S-8, Commission File No. 33-82668/82670.
10.13-- Pooling and Servicing Agreement dated as of December 31, 1994 between Carolina First Bank, as Seller
and Master Servicer, and The Chase Manhattan Bank, as Trustee. Incorporated by reference to Exhibit 28.1
of Carolina First Corporation's Current Report on Form 8-K dated as of January 24, 1995.
10.14-- 1994-A Supplement dated as of December 31, 1994 between Carolina First Bank, as Seller and Master Servicer,
and The Chase Manhattan Bank, as Trustee. Incorporated by reference to Exhibit 28.2 of Carolina First
Corporation's Current Report on Form 8-K dated as of January 24, 1995.
10.15-- Servicing Rights Purchase Agreement between Bank of America, F.S.B. and Carolina First Bank
dated as of March 31, 1995: Incorporated by reference to Exhibit 10.17 of Amendment No. 1 to
Carolina First Corporation's Annual Report on Form 10-K for the year ended, December 31, 1994,
Commission File No. 0-15083.
10.16-- Warrant to Purchase Common Stock of Affinity Financial Group, Inc. and Amendment No. 1 with
respect to Warrant to Purchase Common Stock of Affinity Financial Group, Inc. Incorporated by
reference to Exhibit 10.16 of Carolina First Corporation's Annual Report on Form 10-K for the year
ended December 31, 1995, Commission File No. 0-15083.
10.17-- 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. Incorporated
by reference to Exhibit 10.1 of Carolina First Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, Commission File No. 0-15083.
10.18-- Amended and Restated Agreement regarding the Atlanta Internet Banking Operation by and among
Carolina First Bank, Internet Organizing Group, Inc., the Organizers (as set forth on the Signature
Page of the Agreement), and the Kelton Group of Investors.
36
<PAGE>
11.1 -- Computation of Per Share Earnings.
12.1 -- Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
13.1 -- 1996 Annual Report to Shareholders of the Company.
21.1 -- Subsidiaries of the Registrant: Carolina First Bank, Carolina First Mortgage Company and Blue Ridge
Finance Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
(b) None.
(c) Exhibits required to be filed with this Form 10-K by Item 601 of Regulation S-K are filed herewith or
incorporated by reference herein.
(d) Certain additional financial statements. Not applicable
</TABLE>
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
CAROLINA FIRST CORPORATION
Signature Title Date
<S> <C> <C>
/s/Mack I. Whittle, Jr. President, Chief March 26, 1997
- --------------------------------
Mack I. Whittle, Jr. Executive Officer and Director
/s/William S. Hummers III Executive Vice President and March 26, 1997
- ----------------------------
William S. Hummers III Secretary
(Principal Accounting and
Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities on the dates indicated:
Signature Title Date
/s/William R. Timmons, Jr. Director March 26, 1997
- ------------------------------
William R. Timmons, Jr.
/s/Mack I. Whittle, Jr. Director March 26, 1997
- -------------------------------
Mack I. Whittle, Jr.
/s/William S. Hummers III Director March 26, 1997
- -------------------------------
William S. Hummers III
/s/Judd B. Farr Director March 26, 1997
- -------------------------------
Judd B. Farr
/s/C. Claymon Grimes, Jr. Director March 26, 1997
- -------------------------------
C. Claymon Grimes, Jr.
/s/M. Dexter Hagy Director March 26, 1997
- -------------------------------
M. Dexter Hagy
/s/H. Earle Russell, Jr. Director March 26, 1997
- -------------------------------
H. Earle Russell, Jr.
/s/Charles B. Schooler Director March 26, 1997
- -------------------------------
Charles B. Schooler
/s/Elizabeth P. Stall Director March 26, 1997
- -------------------------------
Elizabeth P. Stall
/s/Eugene E. Stone IV Director March 26, 1997
- -------------------------------
Eugene E. Stone IV
</TABLE>
38
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
10.18 Amended and Restated Agreement regarding the Atlanta Internet
Banking Operation by and among Carolina First Bank, Internet
Organizing Group, Inc., the Organizers (as set forth on the
Signature Page of the Agreement), and the Kelton Group of
Investors.
11.1 Computation of Per Share Earnings.
12.1 Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Fixed Charges and Preferred Stock Dividends.
13.1 1996 Annual Report to Shareholders of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
39
<PAGE>
EXHIBIT 10.18
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO
CHAPTER 48 OF TITLE 15 OF THE CODE OF LAWS OF SOUTH CAROLINA
AMENDED AND RESTATED AGREEMENT
This Amended and Restated Agreement (this "Agreement") is dated as of
July 15, 1996, executed as of this 17th day of September, 1996 (except Sections
2.3(iii) and 6.6 are dated as of September 15, 1996) by and among Carolina First
Bank, a South Carolina corporation ("CFB"), Internet Organizing Group, Inc., a
Georgia corporation ("IOG"), the Organizers (as set forth on the Signature Page
hereof, which include Kelton International, Limited and which are hereinafter
referred to as the "Organizers"), and the Kelton Group of Investors (as set
forth on the Signature Page hereof and which are hereinafter referred to as the
"Kelton Group").
PREAMBLE
WHEREAS this Agreement amends and restates in full that certain
Agreement entered into July 15, 1996 by and among CFB, IOG, the Organizers (as
set forth on the Signature Page thereof, and the Kelton Group of Investors (as
set forth on the Signature Page thereof);
NOW, THEREFORE, in consideration of the mutual covenants and
representations contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION I. CERTAIN COVENANTS OF THE PARTIES
1.1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the definitions indicated.
"Accrued Interest Payable" means interest on Deposits which is accrued
but has neither been posted to a deposit account nor paid as of the Transfer
Date.
"Accrued Interest Receivable" means interest on loans which is accrued
but unpaid as of the Closing Date.
"Cash Items" means all cash items, suspense items and items in process
of collection, that are related to the IB Deposits.
"CFB IB Operation" shall mean the CFB Internet banking operation
described in Section 2.2 hereof.
"Deposit" shall have the meaning set forth in Section 3(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1813(l), including, without
limitation, individual retirement accounts and cash management accounts.
"IB Contracts" means any leases, contracts and other agreements owned by
CFB and utilized principally in the CFB IB Operation.
"IB Deposit" means a Deposit (except South Carolina Deposits), including
Accrued Interest Payable thereon, which has been gathered through the CFB IB
Operation.
"IB Loan" means any loan substantially effected through the CFB IB
Operation and any other loans of such types or categories and in such amounts as
are agreed upon by the parties hereto, together with any Accrued Interest
Receivable thereon, the related servicing rights and all records associated
therewith.
"Net Book Value" means the value of an asset on the books of CFB as of
the date of the Transfer determined in accordance with Generally Accepted
Accounting Principles ("GAAP"), but without regard to any general allowance for
credit losses.
"Premier Charter" shall mean the thrift charter of Premier Bank, FSB.
"South Carolina Deposits" shall mean IB Deposits associated with
customers who on the date hereof,
40
<PAGE>
are customers of CFB.
"Transfer" shall mean the transfer of the assets and liabilities of the
CFB IB Operation to IOG, all as more specifically set forth in Section III and
other sections of this Agreement.
SECTION II. CERTAIN COVENANTS OF THE PARTIES
2.1. ACQUISITION OF CHARTER. IOG shall use its best efforts to acquire
the Premier Charter on substantially the terms and otherwise as contemplated in
that certain H(e)-1 Application of IOG filed (or to be filed) with the Office of
Thrift Supervision, a copy of which has been provided to CFB. In the event that
IOG does not reasonably expect to obtain the Premier Charter on reasonably
acceptable terms or in a timely manner, IOG shall use its best efforts to
acquire another banking charter on reasonably acceptable terms (such other
charter, or the Premier Charter being hereinafter referred to as the "Charter").
2.2. CFB INTERNET BANKING OPERATIONS. Prior to the Transfer, CFB shall
conduct certain Internet banking operations (the "CFB IB Operation"), which
shall consist of the following:
(i) As soon as reasonably practicable following the date hereof,
CFB shall offer certain banking products via the Internet under the name
"The Atlanta Internet Bank, a product of Carolina First Bank"
(hereinafter referred to as the "AIB Product"). The AIB Product and the
CFB IB Operation shall be offered and conducted as otherwise described
herein, including as described on Exhibit A attached hereto.
(ii) IOG shall provide the management and financial expertise
and software required for the operation of CFB's IB Operation all as
contemplated herein, including as set forth in Exhibit A attached hereto
(the "IOG Services"). IOG shall perform the IOG Services in compliance
with applicable law, and in a manner consistent with the reasonable
standards in the industry (with due consideration being given to the
relative newness of this segment of the banking industry).
Notwithstanding the foregoing, the parties acknowledge that IOG shall
not have liability for any actions taken by CFB in connection with the
CFB IB Operation, and CFB shall indemnify IOG for any liability inuring
to IOG as a result of CFB's actions. The IOG Services will be provided
beginning on the date hereof and ending on the earlier of the Transfer
or the termination of this Agreement, all as described herein.
(iii) Notwithstanding IOG's authority and responsibilities with
respect to CFB IB Operation (as contemplated in Exhibit A), IOG shall
not effect any of the following without the prior consent of CFB:
(a) Enter into contracts on behalf of CFB;
(b) Incur expenses on its own behalf in connection
with the CFB IB Operation which is reasonably
expected to involve more than an aggregate of
$20,000.
(c) Conduct any operations not specifically
contemplated in this Agreement (including,
without limitation, make expenditures not
contemplated in the Expense Estimate attached
hereto as Exhibit B).
(d) Amend its Articles of Incorporation or Bylaws
(with respect to which, CFB's
consent shall not be unreasonably withheld).
(iv) In connection with the CFB IB Operation, CFB shall perform
such services as are specifically set forth herein, including in Exhibit
A. All actions taken by CFB in connection with the CFB IB Operation
shall be in compliance with applicable law and in a manner consistent
with the reasonable standards in the industry (with due consideration
being given to the relative newness of this segment of the banking
industry). Notwithstanding the foregoing, the parties acknowledge that
CFB shall not have liability for any actions taken by IOG in connection
with its providing the IOG Services, and IOG shall indemnify CFB for any
liability inuring to CFB as a result of IOG's actions.
2.3. FUNDING OBLIGATIONS. (i) CFB shall fund the reasonable expenses of
the CFB IB Operation from the date hereof through March 31, 1997 (which date may
be extended by CFB). Notwithstanding the foregoing except as set forth in
Section 2.3(ii), CFB shall not be required to fund the CFB IB Operation if the
amounts expended by CFB as contemplated in Exhibit B, plus losses associated
with the CFB IB Operation exceeds
41
<PAGE>
$1,125,985 (the "CFB Funding Cap") (CFB's actual expenditures and net losses
associated with the CFB IB Operation being hereinafter referred to as the "CFB
Expenditures"). Subject to Section 2.3(ii), in the event that the CFB Funding
Cap is reached, then CFB may elect not to provide further funding and may
terminate the CFB IB Operation as contemplated in Section 8.1(v).
(ii) In the event that (A) the CFB Funding Cap is reached (the "Cap
Date") and IOG is not in default under this Agreement (except for a default
resulting from the March 31, 1997 deadline having been reached) or (B) this
Agreement is terminated under Section 8.1(iv) (such date of termination or the
Cap Date being hereinafter referred to as the "Termination Date"), CFB (unless
it reasonably determines that there is no reasonable likelihood that the
Transfer will occur before the earlier of 120 days from the Termination Date or
July 31, 1997) shall continue to fund the reasonable costs of the CFB IB
Operation until the earlier of 120 days from the Termination Date, July 31,
1997, or the Transfer; provided, however, that all costs during such period
shall be subject to approval of CFB and provided further that CFB shall not be
obligated to expend additional amounts in excess of $200,000 (the $200,000,
together with any other expenses of CFB in excess of the CFB Funding Cap, being
hereinafter referred to as the "Reimbursable Expenses"). At July 31, 1997, the
Reimbursable Expenses shall become immediately due and payable by IOG to CFB,
which debt shall be payable on a priority basis (prior to repayment of any
expenses of other parties set forth on the Signature Page hereof).
(iii) Concurrently with the execution hereof, the Kelton Group (jointly
and severally) agree to purchase 9,000 shares of IOG common stock (as such share
amount shall have been equitably adjusted for splits, reverse splits and similar
matters) for $1,000,000, payable in cash on the date hereof.
2.4. RETENTION OF IOG. In connection with the provision by IOG of the
IOG Services, the parties agree that at all times, IOG and all of its employees
shall be considered an independent contractor of CFB and the parties shall take
such action as may be reasonably necessary to ensure such treatment. All work
done by IOG in connection with the CFB IB Operation shall be the property of IOG
and, unless CFB consents otherwise, IOG shall enter into all contracts executed
in connection with the CFB IB Operation in its own name and on its own behalf
(such that IOG will be deemed to be the owner and beneficiary of such
contracts).
2.5. CONSIDERATION FOR THE IOG SERVICES. In connection with the
provision of the IOG Services, CFB shall pay to IOG its reasonable expenses
prior to the Transfer, all as contemplated on Exhibit B attached hereto;
provided, however, that in no event shall CFB be required to pay amounts for
items in excess of the amounts set forth in Exhibit B attached hereto or to pay
amounts (or incur losses) in excess of the amount set forth in Section 2.3. CFB
shall make its payments only to IOG and shall have no liability to IOG employees
utilized in providing the IOG Services.
2.6. DIRECT SOLICITATION. In connection with the CFB IB Operation, IOG
shall not directly solicit current CFB customers for its banking services.
Notwithstanding the foregoing, the parties acknowledge that this Section 2.6
shall not preclude general multi-state solicitation.
2.7. COOPERATION AND ACCESS. The parties shall reasonably cooperate in
order to effect the transactions contemplated herein. The parties hereby to
provide the other with full and complete access at all reasonable times to the
CFB IB Operation and all matters related thereto.
SECTION III. TRANSFER OF THE CFB IB OPERATION
3.1. TRANSFER OF ASSETS. Upon consummation of the IOG's acquisition of
the Charter and upon receipt of all necessary or desirable regulatory approvals
associated with the acquisition of the Charter, the Transfer, and the issuance
of the stock contemplated in this Section III, CFB shall transfer the CFB IB
Operation to IOG (the "Transfer"), which shall include the transfer of the
following assets and the assumption of the following
42
<PAGE>
liabilities:
(i) The assets transferred shall include the following:
(1) any tangible assets purchased by and utilized
exclusively by the CFB IB Operation, including all
furniture, fixtures and equipment utilized exclusively
by the CFB IB Operation;
(2) all IB Contracts;
(3) all IB Loans;
(4) the Cash Items;
(5) any accrued but uncollected income directly associated
with the CFB IB operation; and
(6) all other assets, of any kind and type (tangible or
intangible) associated exclusively with the CFB IB
Operation, including, without limitation, the accounting
records associated with the CFB IB Operation.
(ii) The liabilities transferred by CFB and assumed by IOG shall include
the following:
(1) all IB Deposits and all obligations of CFB to provide
services incidental to the IB Deposits;
(2) all liabilities associated with the IB Contracts;
(3) any accrued but unpaid expenses directly associated with
the CFB IB Operation; and
(4) any other liabilities associated exclusively with the CFB
IB Operation and any other liabilities as may be agreed
upon by the parties.
The parties acknowledge that they expect that the Transfer will occur in
connection with an initial public offering of IOG or a private placement of
securities raising at least $10 million (although such shall not be required).
3.2. CONSIDERATION FOR THE TRANSFER. In connection with the Transfer,
(i) IOG shall issue to CFB 40,000 shares of IOG Common Stock (the "CFB
Shares," which term may include the "Warrants" as defined below if the issuance
of such Warrants is required) and
(ii) IOG shall pay to CFB a purchase price calculated as follows:
(1) 100% of the face value of all Cash Items; plus
(2) 100% of the Reimbursable Expenses not actually
reimbursed; plus
(3) 100% of the absolute value of any net losses associated
with the CFB IB Operation (excluding the Reimbursable
Expenses); plus
(4) 100% of the Net Book Value of the Branch Loans; minus
(5) 100% of the total amount of the Branch Deposits on
deposit at the date of the Transfer.
If the results of the above calculations are positive, that amount shall be paid
by IOG to CFB, but if the results of the above calculation are negative, that
amount shall be paid by CFB to IOG. The parties agree that CFB shall be entitled
to receive the CFB Shares so long as it has funded the reasonable expenses of
the CFB IB Operation prior to the Transfer, even if the total CFB Expenditures
do not equal or exceed the amount of the CFB Funding Cap.
3.3. CLOSING DELIVERIES AND DOCUMENTS. Upon the consummation of the
Transfer, the parties shall deliver to each other such documents as are
typically provided in connection with the purchase and sale of branches,
including bills of sale, assignments, and assignment and assumption agreements,
and officer's certificates. The parties may also mutually elect to enter into a
separate transfer agreement containing standard representations, warranties and
covenants typical of such transactions.
3.4. CERTAIN TRANSFER MATTERS. Upon the Transfer, IOG shall be
responsible for completing Forms 1099 for customers who were set up in
connection with the CFB IB Operation, and other similar customer- related
matters.
3.5. RETENTION OF SOUTH CAROLINA CUSTOMERS. Upon the Transfer, IOG will
reasonably cooperate with
43
<PAGE>
CFB in order to assist CFB in setting up an Internet operation to service
customers associated with the SC Deposits. CFB shall pay IOG's out of pocket
costs associated with such assistance.
3.6. EQUITY MAINTENANCE. In the event that CFB does not receive final
approval to own the CFB Shares as contemplated above at the time of the
Transfer, IOG shall issue to CFB warrants equal exercisable into the CFB Shares
(the "Warrants"), which Warrants:
(i) shall be exercisable upon such terms as shall be acceptable to CFB
and applicable regulatory agencies;
(ii) shall have an exercise price equal to $.01 (which may be paid
via "cashless exercise");
and
(iii) shall have a term of at least 15 years.
The parties acknowledge that they expect that the form of the Warrants
would be substantially the same as the warrants to purchase common stock of
Affinity Technology Group, Inc. currently owned by CFB.
3.7. REIMBURSEMENT. If, after the date hereof, IOG procures equity
capital (or debt convertible into equity capital) exceeding $6 million (the "New
Capital"), whether in one or a series of offerings, then to the extent that the
New Capital exceeds $6 million, all parties hereto shall be reimbursed, on a pro
rata basis, (dollar for dollar until paid in full) for the reasonable expenses
incurred by the CFB IB Operation (which for CFB will be the CFB Expenditures).
The parties acknowledge, on their respective behalf, that Exhibit D sets forth
the expenses reimbursable under this Section 3.7 which were incurred prior to
June 1, 1996.
SECTION IV. MANAGEMENT AND RELATED MATTERS
4.1. DIRECTORS. In the event that CFB receives regulatory approval to
have a representative or representatives serve as members of the Board of
Directors of IOG, CFB shall be entitled to designate as part of management's
slate, three directors (and the Board of IOG shall not be composed of more than
11 persons). In the event that CFB is not permitted to designate a director
(assuming applicable law permits), IOG shall permit a representative of CFB to
be present at all IOG Board meetings.
4.2. EXECUTIVE COMMITTEE. In the event that the IOG Board of Directors
establishes an executive committee, such committee must include the
CFB-designated director as a member; provided that CFB receives regulatory
approval to have a representative serve as a member of the Board of Directors of
IOG.
4.3. VOTING OF STOCK AND OTHER ACTIONS. CFB, the Organizers and the
Kelton Group hereby agree to vote their IOG Common Stock and take such other
reasonable action as may be necessary to cause the actions set forth in this
Section IV to occur. Each party to this Section IV hereby agree that each of
them shall not vote their IOG capital stock or take any actions which are
contrary to the purposes and intent set forth in this Section IV; provided,
however, that this Section shall not impose restraints upon the actions of any
party which would be inconsistent with any applicable fiduciary duties.
4.4. TERMINATION OF VOTING AGREEMENT. The provisions of this Section IV
shall terminate completely upon the completion of an underwritten public
offering whereby IOG is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended.
4.5. CONSENT OF CFB. IOG shall obtain the prior written consent of CFB
in connection with the matters set forth below, which consent shall not be
unreasonably withheld:
(i) the issuance by IOG of any shares of capital stock (or securities
convertible into capital stock), except as contemplated in Section 6.6 hereof;
(ii) the selection of investment bankers, attorneys, consultants and
other vendors which would be required to establish operations and obtain
regulatory approvals; and
44
<PAGE>
(iii) material employment-related decisions with respect to
executive officers and key employees.
(iv) amendments to IOG's Articles of Incorporation or Bylaws.
SECTION V. REPRESENTATIONS OF CFB
CFB represents and warrants as follows:
5.1. ORGANIZATION, GOOD-STANDING AND CONDUCT OF BUSINESS. CFB is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of South Carolina, and has full power and authority and all
necessary governmental and regulatory authorization to own its properties and
assets and to carry on its business as it is presently being conducted.
5.2. CORPORATE AUTHORITY. The execution, delivery and performance of
this Agreement have been duly authorized by the Board of Directors of CFB. No
further corporate acts or proceedings on the part of CFB are required or
necessary to authorize this Agreement.
5.3. BINDING EFFECT. When executed, this Agreement will constitute a
valid and legally binding obligation of CFB, enforceable against CFB in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors of FDIC-insured institutions or the relief of
debtors generally, (ii) laws relating to the safety and soundness of depository
institutions, and (iii) general principles of equity. The Agreement, when
executed and delivered by CFB in accordance with the provisions hereof, shall be
duly authorized, executed and delivered by CFB and enforceable against CFB in
accordance with its terms, subject to the exceptions in the previous sentence.
5.4. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Agreement, nor the fulfillment of, or compliance with, the
terms and provisions hereof, will (i) result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in a
violation of, termination of or acceleration of the performance provided by the
terms of, any agreement to which CFB is a party or by which it may be bound,
(ii) violate any provision of any law, rule or regulation, (iii) result in the
creation or imposition of any lien, charge, restriction, security interest or
encumbrance of any nature whatsoever on any asset of CFB, or (iv) violate any
provisions of CFB's Articles of Incorporation or Bylaws.
5.5. NECESSARY APPROVALS. Except for regulatory approvals applicable
solely to financial institutions (which approvals (if any are determined by CFB
to be required) will be obtained by CFB prior to consummation of the
transactions contemplated herein), no consent, approval, authorization,
registration, or filing with or by any governmental authority, foreign or
domestic, is required on the part of CFB in connection with the execution and
delivery of this Agreement or the consummation by CFB of the transactions
contemplated hereby.
5.6. INVESTMENT STATUS AND INVESTMENT INTENT. CFB is acquiring the CFB
Shares (and/or the Warrants, as the case may be) for investment for CFB's own
account and not with a view to, or for resale in connection with, any
distribution thereof, and CFB has no present intention of selling or
distributing the common stock of IOG. CFB does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person with respect to any of the
common stock of IOG. CFB understands that the common stock of IOG to be acquired
by CFB has not been registered under the Securities Act of 1933, as amended, or
under any state securities laws by reason of specific exemption from the
registration provisions of the Securities Act and state securities laws which
depends upon, among other things, the bona fide nature of the investment intent
as expressed herein.
45
<PAGE>
SECTION VI. REPRESENTATIONS OF IOG
IOG represents and warrants, and the Organizers to the best of their
knowledge, represent and warrant, as follows as of the date hereof:
6.1. ORGANIZATION, GOOD-STANDING AND CONDUCT OF BUSINESS. IOG is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Georgia, and has full power and authority and all necessary
governmental and regulatory authorization to own its properties and assets and
to carry on its business as it is presently being conducted.
6.2. CORPORATE AUTHORITY. The execution, delivery and performance of
this Agreement have been duly authorized by the Board of Directors of IOG. No
further corporate acts or proceedings on the part of IOG are required or
necessary to authorize this Agreement.
6.3. BINDING EFFECT. When executed, this Agreement will constitute a
valid and legally binding obligation of IOG, enforceable against IOG in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors or the relief of debtors generally and (ii)
general principles of equity. The Agreement, when executed and delivered by IOG
accordance with the provisions hereof, shall be duly authorized, executed and
delivered by IOG and enforceable against IOG in accordance with its terms,
subject to the exceptions in the previous sentence.
6.4. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Agreement, nor the fulfillment of, or compliance with, the
terms and provisions hereof, will (i) result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in a
violation of, termination of or acceleration of the performance provided by the
terms of, any agreement to which IOG is a party or by which it may be bound,
(ii) violate any provision of any law, rule or regulation, (iii) result in the
creation or imposition of any lien, charge, restriction, security interest or
encumbrance of any nature whatsoever on any asset of IOG, or (iv) violate any
provisions of IOG's Certificate of Incorporation or Bylaws, copies of which are
attached hereto as Exhibit C.
6.5. NECESSARY APPROVALS. No consent, approval, authorization,
registration, or filing with or by any governmental authority, foreign or
domestic, is required on the part of IOG in connection with the execution and
delivery of this Agreement or the consummation by IOG of the transactions
contemplated hereby.
6.6. CAPITALIZATION. The authorized capital stock of IOG consists solely
of 100,000 authorized shares of common stock ("IOG Common Stock"), of which
40,000 are issued and outstanding, 31,000 of which are owned by the Organizers
and 9,000 of which are being issued contemporaneously herewith to the Kelton
Group as contemplated in Section 2.3(iii) hereof. All of the issued and
outstanding shares of IOG are validly issued and fully paid and nonassessable.
Except for the CFB Shares (as defined below), there are no outstanding
obligations, options, warrants or commitments of any kind or nature or any
outstanding securities or other instruments convertible into shares of any class
of capital stock of IOG, or pursuant to which IOG is or may become obligated to
issue any shares of its capital stock. None of the shares of the IOG Common
Stock is subject to any restrictions as to the transfer thereof, except as set
forth in IOG's Certificate of Incorporation, Bylaws, or restrictions on account
of applicable federal or state securities laws. IOG does not hold 5% or more of
any class of equity securities of any other company or legal entity. The CFB
Shares (as defined below) will, when issued, be validly issued, fully paid and
nonassessable. IOG and the Organizers represent that the $1,000,000 referenced
in Section 2.3(iii) hereof has been contributed to IOG.
6.7. LIABILITIES AND LITIGATION. IOG has no liabilities other than as
referenced in this Agreement. There are no claims, actions, suits or proceedings
pending or, to IOG's knowledge, threatened against IOG, or to its
46
<PAGE>
knowledge affecting IOG, at law or in equity, before or by any Federal, state,
municipal, administrative or other court, governmental department, commission,
board, or agency, an adverse determination of which could have a material
adverse effect on the business or operations of IOG (including its ultimate
ownership and operation of the Operation), and IOG knows of no basis for any of
the foregoing. There is no order, writ, injunction, or decree of any court,
domestic or foreign, or any Federal or state agency affecting IOG or to which
IOG is subject.
6.8. OPERATIONS OF THE CFB IB OPERATION AND RIGHTS OF IOG. IOG is not
aware of any reason why the AIB Product, when in service, will not operate as
previously demonstrated to CFB. Upon execution hereof and after the Transfer,
IOG will have (or will reasonably expect to obtain) all necessary rights,
licenses and authority to operate the CFB IB Operation as previously described
to CFB.
SECTION VII. REGULATORY MATTERS AND COMPLIANCE
7.1. REGULATORY APPROVALS. Consummation of the transactions contemplated
herein shall be subject to receipt of all necessary regulatory approvals, and
neither party shall be required to consummate any transactions contemplated
herein unless all necessary or reasonably desirable regulatory approvals have
been obtained. Notwithstanding anything to the contrary herein, in no event
shall this Agreement be construed to require either party to take, or impose any
liability on either party as a result of its failure to take, any action which
is not permissible under applicable law. The consummation of any transaction
contemplated herein shall constitute a representation by each party to the other
that all regulatory approvals necessary for that particular transaction have
been received.
7.2. EXPENSE OF REGULATORY APPROVALS; COOPERATION. Each party shall be
responsible for obtaining any regulatory approvals related to its consummation
of the transactions contemplated herein. Each party shall use their respective
best efforts to obtain all regulatory approvals and shall cooperate with the
other party in order to facilitate the procurement of all regulatory approvals.
7.3. COMPLIANCE WITH APPLICABLE LAW. Each party shall be responsible for
compliance (and hereby covenants to comply) with all applicable laws and
regulations in connection with their respective actions taken in connection with
the CFB IB Operation; provided, however, that CFB shall have final authority
over all regulatory-related matters, including the authority to require IOG to
take such actions as CFB deems reasonably necessary or in order to comply with
applicable laws and regulations (as reasonably interpreted by CFB).
SECTION VIII. TERMINATION
8.1. BASES FOR TERMINATION. This Agreement may be terminated at any
time:
(i) by mutual consent of the parties;
(ii) upon 30 days' written notice, by either CFB or IOG, at that party's
option, if a permanent injunction or other order, including any order denying
any required regulatory consent or approval, shall have been issued by any
Federal or state court of competent jurisdiction in the United States or by any
United States Federal or state governmental or regulatory body, which order
prevents the consummation of the transactions substantially as contemplated
herein;
(iii) by either CFB or IOG, if the other party has failed to comply with
the agreements or fulfill the conditions contained herein, provided, however,
that any such failure of compliance or fulfillment must be material and the
breaching party must be given notice of the failure to comply and a reasonable
period of time to cure;
(iv) upon 30 days' written notice, by either CFB or IOG if it becomes
likely (in the reasonable opinion of the terminating party) that the CFB IB
Operation will not be able to be operated and transferred as
47
<PAGE>
contemplated herein or will not be transferred on or before June 30, 1997 (and
in the event of such termination, CFB shall be issued the percentage of the CFB
Shares (or Warrants) equal to the percentage derived from dividing the CFB
Expenditures by the CFB Funding Cap;
(v) upon 30 days' written notice, by CFB if the CFB IB Operation
experiences cumulative losses which, when added to the amounts expended by CFB
as contemplated in Exhibit B hereof, exceed the CFB Funding Cap.
8.2. STANDARD OF LIABILITY. In the event of termination of this
Agreement by any party as provided above in Section 8.1(i) or (ii) or (iv), this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of any party, or their respective agents, representatives or
affiliates, except for intentional breach.
8.3. EFFECT OF TERMINATION. In the event of termination of this
Agreement by any party, Section 9.1, any agreements between the two parties as
to indemnification, and any covenants contained herein which are specifically
contemplated as being performed after termination shall survive such termination
and provided, further, that any termination hereof shall not preclude any party
hereto from recovering any legal or equitable damages or relief to which it is
entitled.
8.4. FURTHER AGREEMENTS AFTER TERMINATION. In the event of a termination
of this Agreement pursuant to Section 8.1(ii) or (iv), each of the Organizers
and each member of the Kelton Group hereby agree not to participate in the
formation or operation of any entity (other than IOG) which utilizes any of the
assets, principal employees, or expertise of any form or type created, utilized
or acquired by IOG or CFB in connection with the CFB IB Operation; provided,
however, that this Section 8.4 shall not preclude an individual set forth on the
Signature Page hereof from seeking gainful employment with another banking
entity so long as such is not part of an effort to transfer assets and/or
expertise of IOG to another entity.
SECTION IX. MISCELLANEOUS PROVISIONS
9.1. CONFIDENTIALITY AND NO-USE. Each party will and, will cause its
employees and agents to, hold in strict confidence, unless disclosure is
compelled by judicial or administrative process, or in the opinion of its
counsel, by other requirements of law, all Confidential Information of the other
party and will not disclose the same to any person. Confidential Information
shall be used only for the purpose of and in connection with consummating the
transaction contemplated herein. Each party will and will cause its employees
and agents to hold in strict confidence all Confidential Information except for
such disclosure as may be required in the ordinary course of business, or unless
disclosure is compelled by judicial or administrative process, or in the opinion
of its counsel, by other requirements of law. During the pendency of this
Agreement, each party agrees that it shall use Confidential Information only in
connection with the business of IOG and not for any other purpose. In the event
that this Agreement is terminated because of a breach hereof, the breaching
party shall never be entitled to use Confidential Information. Subsequent
shareholders of IOG shall be required to agree to confidentiality and no-use
provisions substantially similar to the provisions contained in this Section
9.1. The term "Confidential Information" shall mean all information of any kind
concerning a party hereto (or an affiliate of a party) that is furnished by such
party or on its behalf in connection with this Agreement, except information (i)
ascertainable or obtained from public or published information, (ii) received
from a third party not known to the recipient of Confidential Information to be
under an obligation to keep such information confidential, (iii) which is or
becomes known to the public (other than through a breach of this Agreement),
(iv) of which the recipient was in possession prior to disclosure thereof in
connection herewith, or (v) which was independently developed by the recipient
without the benefit of Confidential Information.
9.2. ANTI-DILUTION. All share amounts set forth herein shall be subject
to equitable adjustment in the event of stock splits, stock dividends, reverse
stock splits, other similar recapitalizations, and issuances of IOG
48
<PAGE>
Common Stock (or securities convertible into IOG Common Stock) at less than fair
market value (as determined from time to time by the Board of Directors,
consistent with their duty of care); provided, however, that such equitable
adjustment shall be used only to preserve and not increase the benefits herein
to the relevant party.
9.3. ARBITRATION. Any dispute arising under this Agreement shall be
referred to and resolved by arbitration in Atlanta Georgia (if initiated by CFB)
or Greenville, South Carolina (if initiated by any other party hereto), in
accordance with the rules of the American Arbitration Association, by a panel of
three arbitrators, one of whom shall be selected by the IOG, one of whom shall
be selected by CFB and the third of whom shall be selected by the arbitrators
selected by IOG and CFB. A determination made in accordance with such rules
shall be delivered in writing to the parties hereto and shall be final and
binding and conclusive upon them. Each party shall pay its or his own legal,
accounting and other fees in connection with such an arbitration; provided,
however, that the arbitrators may award arbitration costs, including legal,
auditing and other fees to the prevailing party in the arbitration proceeding if
the arbitrators determine that such an award is appropriate.
9.4. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter contained herein and there are no
agreements, warranties, covenants or undertakings other than those expressly set
forth herein.
9.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that the Agreement shall not be assigned by
either of the parties hereto without the prior written consent of the other
party hereto, which consent shall not be unreasonably withheld, and provided
further, that any actions required or permitted to be taken herein by a party
may be taken by an affiliate of such party, provided that such substitution does
not have a material adverse affect on the attendant benefits to the other party.
It is expressly acknowledged (and consented to by the parties) that it shall be
deemed reasonable for CFB to assign all or part of its rights or obligations
under this agreement to its parent corporation or a wholly-owned subsidiary of
its parent corporation, formed as a small business investment company. This
Agreement shall not construed to create or permit third party beneficiaries.
9.6. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina.
9.7. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
9.8. WAIVER. Any term, provision or condition of this Agreement (other
than that required by law) may be waived in writing at any time by the party
which is entitled to the benefits thereof.
9.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.10. CONSTRUCTION. The parties acknowledge that representations,
acknowledgements or covenants expressly made herein by one or more parties to
this Agreement are being made only by the parties stated herein as making such
representations, acknowledgements or covenants, and no other party shall be
deemed to guarantee accuracy or performance of such provisions, unless such is
expressly stated.
END OF PAGE - NEXT PAGE IS SIGNATURE PAGE
49
<PAGE>
In witness whereof, the parties have executed this Agreement as of the
date first written above.
Witness: CAROLINA FIRST BANK
__________________________ By: /s/Mack I. Whittle, Jr.
-----------------------
Mack I. Whittle, Jr.
INTERNET ORGANIZING GROUP, INC.
__________________________ By: /s/T. Stephen Johnson
T. Stephen Johnson
KELTON GROUP OF INVESTORS (See Attached Page)
ORGANIZERS
<TABLE>
<CAPTION>
<S> <C>
___________________________ /s/Edward J. Sebastian
(signature) (signature)
- --------------------------- -------------------------
Print name and title (or if an individual Print name and title (or if an individual
so state) so state)
- --------------------------- -------------------------
(signature) (signature)
- --------------------------- -------------------------
Print name and title (or if an individual Print name and title (or if an individual
so state) so state)
Kelton International, Limited
/s/Robin C. Kelton
By: Robin C. Kelton, Authorized Person
</TABLE>
50
<PAGE>
COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
A. Net income ............................................. $10,474,000
Less: Dividends on preferred stock .................... 63,000
-----------------
B. Net income applicable to common shareholders ........... $10,411,000
=================
PRIMARY EARNINGS PER SHARE
Average shares outstanding ............................. 10,705,107
Dilutive average shares outstanding under options ...... 280,767
Exercise prices ........................................ $4.81 to $17.50
Assumed proceeds on exercise ........................... $2,343,897
Average market value per share ......................... 16.10
Less: Treasury stock purchased with the assumed
proceeds from exercise of options ................... 146,166
-----------------
C. Adjusted average shares -- Primary ..................... 10,839,708
-----------------
Primary Earnings Per Share (B/C) ....................... $0.96
=================
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding ............................. 10,705,107
Dilutive average shares outstanding under options ...... 280,767
Exercise prices ........................................ $4.81 to $17.50
Assumed proceeds on exercise ........................... $2,343,897
Market value per share ................................. 16.54
proceeds from exercise of options ................... 142,072
-----------------
Adjusted averaged shares ............................... 10,843,802
-----------------
Common shares from the assumed conversion of
convertible preferred stock ......................... 527,745
-----------------
D. Adjusted average shares -- Fully diluted ................ 11,371,547
-----------------
Fully Diluted Earnings Per Share (A/D) .................. $0.92
=================
</TABLE>
<PAGE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
($ in thousands) YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income from continuing operations
before income taxes .......... $ 16,473 $ 14,370 $ (1,550)$ 7,723 $ 3,650
ADD:
(a) Fixed charges ............... 60,541 51,573 32,902 24,845 24,145
DEDUCT:
(a) Interest capitalized
during year ............... -- -- -- -- --
------- ---------------------------------------
Earnings, for computation
purposes ........................$ 77,014 $ 65,943 $ 31,352 $ 32,568 $ 27,795 0
======= =======================================
FIXED CHARGES:
Interest on indebtedness,
expenses or cap.................$ 59,802 $ 50,978 $ 32,509 $ 24,607 $ 24,010
Portion of rents representative
of the interest factor ......... 610 520 393 238 135
Amortization of debt expense ..... 129 75 -- -- --
------- ---------------------------------------
Fixed charges, for computation
purposes .......................... $ 60,541 $ 51,573 $ 32,902 $ 24,845 $ 24,145
======= =======================================
Ratio of earnings to fixed
charges ........................ 1.27x 1.28x 0.95 1.31x 1.15x
</TABLE>
<PAGE>
(Carolina First logo)
Carolina First Corporation
1996 Annual Report
<PAGE>
Corporate Profile
Carolina First Corporation, headquartered in Greenville, South Carolina, is
the largest independent bank holding company in South Carolina with assets of
$1.6 billion and 55 banking offices throughout the state. Since its inception in
1986, the Company has experienced exceptional growth and consistently excellent
credit quality. Carolina First is a high-growth franchise based on the "super
community bank" strategy serving individuals and small-to medium-sized
businesses.
Through its subsidiaries, Carolina First provides a full range of banking
services, including mortgage, trust and investment services, designed to meet
substantially all of the financial needs of its customers. The subsidiaries are
Carolina First Bank (CFB), a state-chartered commercial bank; Carolina First
Mortgage Company (CFMC), a mortgage banking operation; Blue Ridge Finance
Company, an automobile finance company; and CF Investments, a venture capital
investment company. CFB is the largest South Carolina-based commercial bank, and
CFMC is the second largest mortgage loan servicer in South Carolina.
Carolina First also owns approximately 17% of Affinity Technology Group,
Inc.'s outstanding common stock, principally in the form of stock warrants.
Affinity develops and markets technologies, including automated lending
machines, that enable financial institutions and other businesses to provide
consumer financial services electronically.
Contents
Financial Highlights ..................................... 1
Letter to Shareholders ................................... 2
Carolina First ........................................... 6
Ten-Year Financial Summary ............................... 12
Management's Discussion and Analysis ..................... 14
Report of Independent Auditors ........................... 25
Report of Management ..................................... 25
Consolidated Financial Statements ........................ 26
Notes to Consolidated Financial Statements ............... 30
Directory ................................................ 50
Shareholder Information................................... 52
NET INCOME
($ in millions)
(Net Income chart appears here. Plot points appear below.)
'92 '93 '94 '95 '96
$2.5 $5.4 $7.7 a $9.4 $11.2 b
5-Year Compound Growth Rate 43.1%
a Excludes fourth quarter 1994 restructuring charges of $9.4 (after-tax).
b Excludes third quarter 1996 SAIF assessment of $0.7 (after-tax).
YEAR END ASSETS
($ in millions)
(Year End Assets chart appears here. Plot points are below.)
'92 '93 '94 '95 '96
$616 $904 $1,204 $1,415 $1,574
5-Year Compound Growth Rate 24.4%
<PAGE>
(Carolina First Corporation logo)
Financial Highlights
($ in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 % Change
<S> <C> <C> <C>
For the Year
Net income ................................................. $ 10,474 $ 9,414 11.3%
Operating net income (1) ................................... 11,220 9,414 19.2
Per common share: (2)
Net income - primary ..................................... 0.96 0.87 10.3
Net income - fully diluted ............................... 0.92 0.85 8.2
Operating net income - fully diluted (1) ................. 0.99 0.85 16.5
Cash dividends declared .................................. 0.25 0.21 19.0
At Year End
Total assets ............................................... $ 1,574,204 $ 1,414,922 11.3%
Loans - net of unearned income ............................. 1,124,775 1,062,660 5.8
Deposits ................................................... 1,281,050 1,095,491 16.9
Shareholders' equity ....................................... 104,964 94,967 10.5
Book value per share (2) ................................... 9.26 7.61 21.7
Financial Ratios
Return on average assets (3) ............................... 0.71% 0.74%
Return on average equity (3) ............................... 10.56 10.43
Asset Quality Ratios
Nonperforming assets as a % of loans and foreclosed property 0.52% 0.46%
Allowance for loan losses times nonperforming loans ........ 3.94x 3.67x
Operations Data
Banking offices ............................................ 55 55
Number of ATMs ............................................. 30 18
Full-time equivalent employees ............................. 609 589
Stock Price Information (Year End)
Closing market price (2) ................................... $ 16.15 $ 14.58 10.8%
Annual shares traded ....................................... 16,101,659 3,781,700 325.8
Price/book ratio (2) ....................................... 1.74x 1.91x (8.9)
Market capitalization (includes preferred stock) ........... $ 182,244 $ 160,227 13.7
</TABLE>
(1) Reflects recurring net income. Excludes third quarter 1996 nonrecurring
Savings Association Insurance Fund (SAIF) assessment of $746 (after-tax).
(2) Share data have been restated to reflect the stock dividends and the
six-for-five stock split declared 12/18/96.
(3) After third quarter 1996 nonrecurring SAIF assessment. Excluding this
charge, the return on average assets was 0.76%, and the return on average
equity was 11.3%.
1
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
To Our Shareholders
Ten years is a short time in the life of a bank, or in the life of a
community. Yet in the short 10 years since Carolina First opened for business in
Greenville, our bank has brought a dramatically new face to banking in South
Carolina. During the last decade, we have built the largest independent
commercial bank and the second largest mortgage loan servicing operation in
South Carolina. In the process, we have created more than 600 jobs and
established 55 banking offices throughout the State. By combining competitive
products with unmatched personal service, Carolina First has set a new standard
for banking in our great state.
Carolina First was founded on the principle that the customer comes first.
We have prospered by keeping our eye firmly fixed on that goal. And we firmly
believe that we will continue to thrive for as long (and only as long) as we
remember that guiding principle. That is why the theme of this anniversary
report is "Carolina First ... Customers First." That's who we were 10 years ago,
and that's who we are today.
Although it sounds simple, putting customers first is not always easy, and
what it means to "put customers first" has changed a great deal during our first
decade, as dynamic forces have changed the business of banking forever.
Personalized customer service used to mean a smile and a handshake; while those
are still important, customers now demand 24-hour-a-day banking by phone or
computer, and a host of other services designed to help customers meet their own
evolving needs. Being committed to our customers means being committed to
changing with them. It is the core of our culture to remain flexible and nimble,
so that we can explore and embrace change, rather than being overcome by it.
It is easy enough to talk about missions and visions, but where that talk
becomes meaningful is in the concrete performance of the company. The numbers
reflecting the earnings and value of a company are some of the best indicators -
certainly among those that matter most to investors - of whether the company is
fulfilling its mission. We are pleased to begin our second decade of operations
by answering that question with a resounding "Yes!" Net income for 1996 set a
new record for Carolina First. Excluding a one-time special assessment to
recapitalize the Savings Association Insurance Fund (SAIF), net income increased
19% to $11.2 million, or $0.99 per fully diluted share. During the third quarter
of 1996, a one-time special assessment to recapitalize the SAIF was levied by
the federal government on all thrift institutions or non-thrift institutions,
such as Carolina First, which have acquired deposits from
2
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
(Picture of Mack I. Whittle, Jr. appears here)
MACK I. WHITTLE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
thrift institutions over past years. Including the SAIF assessment, net income
was $10.5 million, or $0.92 per fully diluted share.
We are equally proud of the longer term trend; with the exception of our
1994 restructuring, Carolina First's earnings have increased each of the last
seven years. Earnings per share (excluding the SAIF assessment) have grown at
annualized rates of 16% and 24% for the latest three- and five-year periods,
respectively. We view this consistent growth as strong evidence that we are on
the right track.
There is still work to do for our shareholders. Carolina First's returns on
assets and equity have improved, but they are not where we want them to be. We
will continue to focus on increasing these short-term returns, without
sacrificing the innovative projects and focus that make Carolina First special.
Market value is another critical measure of our progress. In 1996, Carolina
First's market value grew by more than $22 million, for an increase of 14%. If
you had invested $1,000 at our founding in 1986, your investment would have
grown in value to $2,824 at December 31, 1996, after taking into account our
eight stock dividends and quarterly cash dividends. We have increased our cash
dividends every year since their initiation for a four-year annual compound
increase in excess of 22%. In January 1997, we distributed a 20% common stock
dividend, marking our eighth consecutive annual stock dividend.
Of course, these solid financial measurements have to be backed by tough,
smart decisions in the real world of banking. During 1996, we strengthened our
balance sheet, leaving ourselves with greater ability to take advantage of
future good times, as well as more strength to weather downturns that may come.
Among our major initiatives were a focus on building deposit relationships,
completion of our first commercial loan securitization, and the conversion of
the remainder of our preferred stock into common stock. Our asset quality,
always one of the cornerstones of our success, continues to be excellent. At
year end, non-performing assets made up just 0.52% of loans and foreclosed
property.
In 1996, we focused heavily on expanding our retail banking business and
deepening our customer relationships. We took a hard look at the profitability
and potential of each of our branches and made the decision to sell five
branches. At the same time, we have entered into an agreement to acquire
Lowcountry Savings Bank which will add five offices in the Charleston area. We
believe that these are desirable locations in an outstanding market that will
add strength to Carolina First.
3
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
We have introduced a new WorkPlace banking product which brings our banking
services to customers throughout the state where they work. We also have added
12 new automated lending machines and continued to serve customers through our
grocery store branches. The result of this emphasis on retail banking was a 17%
increase in deposits in 1996 - an increase well above the average growth rate
for all commercial banks in South Carolina, and one achieved solely through
internal growth, without any acquisitions.
Carolina First's first commercial loan securitization - involving
approximately $100 million in commercial real estate loans - was completed in
1996. This is another example of our flexibility and ability to embrace change.
As the deposit market becomes more competitive, loan securitizations such as
this one will help to ensure that Carolina First will have adequate sources of
funding for continued loan growth.
Carolina First is also stepping into its second decade, and the next
millennium, by embracing and improving the technologies that are reshaping the
face of banking. Both as a user of technology and as an investor, we are working
to ensure that our customers and shareholders are served by computers and new
technologies, not becoming slaves to them. Carolina First's technology
initiatives include ownership of approximately 17% of the common stock of
Affinity Technology Group, Inc., a developer and marketer of financial service
technologies. We also are participating in the development of Atlanta Internet
Bank, one of the first on-line, real-time Internet banks in the world. Atlanta
Internet Bank, which opened its "doors" in October 1996, is presently offered as
a service of Carolina First Bank. Ultimately, Atlanta Internet Bank is expected
to be a stand-alone entity in which Carolina First will be a lead investor,
owning approximately 40% of the bank.
Carolina First Customers First. The simple things are not always easy, and
they are sometimes forgotten. As we embark on our second decade, we have not
lost sight of our founding principles. Fulfilling our goals depends on the
dedication and commitment of our employees and directors, for which we are
grateful. We also want to recognize and thank our shareholders and customers for
their loyal and enthusiastic support. We've come a long way in ten years and
look forward to 1997 and the years to come.
/s/ Mack I. Whittle, Jr.
Mack I. Whittle, Jr.
President and Chief Executive Officer
4
CAROLINA FIRST CORPORATION
<PAGE>
One Mission Ten Years
Carolina First was created in 1986 with one simple yet bold mission: to
become South Carolina's premier bank by putting customers first. As Carolina
First celebrates its tenth anniversary, that is still our guiding principle.
Carolina First is progressive and innovative while remaining focused on the
personable, flexible and responsive brand of banking that has always been our
hallmark. We are committed to our customers, to knowing them unusually well and
developing the right mix of services to meet their individual needs.
(Carolina First logo)
<PAGE>
(Carolina First logo)
Carolina First . . . Customers First
Traditional Banking
Founded in and focused on South
Carolina, Carolina First offers an
advantage over larger banks with
out-of-state headquarters. We stress
local decision-making and prompt,
appropriate answers.
During Carolina First's first decade, the face of banking has changed
dramatically. The megabanks seem to consolidate or expand constantly. Computers,
telephones, and machines take the place of tellers and loan officers. And
non-bank competitors, such as mutual funds, are selling products that once were
the exclusive province of banks. Carolina First has evolved a simple yet
powerful formula for meeting these changes: We do whatever it takes to keep our
customers first.
This "Customers First" commitment has brought us extraordinary success
during our first 10 years. We are confident that this guiding principle will
keep us on the right path in our second decade. Putting Customers First means
bringing banking to our customers, on their terms, not ours. We are dedicated to
listening to our customers, understanding their needs, and responding to those
needs.
It's a winning strategy for Carolina First, our customers, and our
shareholders.
(Picture of three people looking of documents.)
Banking
Face-to-Face
At Carolina First, you won't find cookie-cutter or bureaucratic banking.
What you will find are dedicated employees who deal directly and intimately with
our customers. Treating customers like individuals - that's Carolina First's
brand of banking.
We offer a full range of "big city" banking services, without sacrificing
the personalized, "small town" service that our customers have come to expect
from
6
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
us. We call this "super community banking", combining the best of the
traditional local bank with the best of the technologically sophisticated larger
banks.
(Picture a person making a bank deposit.)
Like small community banks, Carolina First offers personalized service,
local market knowledge, and decentralized decision-making. At the same time, we
feature product breadth and back-office efficiencies to rival larger regional
banks.
We use technology the way it should be used - to serve our customers. At
Carolina First, new technologies are not the means for avoiding interaction with
our customers; instead, they are an opportunity to build on the time-tested
"face-to-face" banking that our customers value.
One smile and handshake at a time, Carolina First has entered 28
communities in 14 South Carolina counties. In 1996, we opened our first branch
in the attractive Hilton Head Island market. With over 600 employees at our 55
banking locations, we are prepared to offer our experience to meet our
customers' financial needs.
Knowing our customers is also the key to the way we develop new products
and services. We identify a need, and we fill it. In 1996, when the large
regional banks moved their international banking departments out-of-state,
Carolina First moved in. We created a full service international banking
department to serve the international banking needs of South Carolina businesses
and individuals. The Greenville/Spartanburg market, for instance, has the
highest level of foreign investment per capita in the United States. It makes
sense for our customers - and for Carolina First - to meet those needs at the
source.
Drive-up Banking
Drive-up banking is just one of
the many options we offer our
customers to make their banking
transactions a little easier.
Our drive-up windows offer
convenience and flexibility for
our customers.
In 1996, Carolina First focused heavily on expanding our retail banking
7
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
business and deepening our customer relationships. The result of this emphasis
was a 17% increase in deposits in 1996, well above the average growth rate for
commercial banks in South Carolina. We welcome each new depositor, large or
small. Our goal is to become the primary provider of financial services for each
of our customers, thereby increasing our share of the total financial services
provided.
Banking Smart
Carolina First emphasizes customer choice and convenience. We strive to
provide our customers with the products they want, when and where they want
them. Whether at home or at work or at the grocery store, Carolina First is
there, making sure that banking with Carolina First is customer-friendly and
easy. That's banking smart.
Banking at Home
Nothing can be easier than calling
up your account from the privacy
of your home, on your schedule.
Banking at home is just one more
way we offer our customers "Banking
Smart" convenience.
AT HOME. Customers looking for ways to make their lives easier find banking
at home a winner. Carolina First customers can access their accounts 24 hours a
day, seven days a week. In 1997, we are introducing new alternatives to
computer-based home banking and enhancing our telephone customer service lines
to meet the ever-changing needs of our customers.
(Picuture of a person on the phone.)
This year, we introduced an Internet banking product, Atlanta Internet
Bank. Customers do their banking anytime, anywhere, using a personal computer
with Internet access. Unlike traditional home banking, the Atlanta Internet Bank
product allows customers to conduct their banking activities on a real-time
basis. The Atlanta Internet Bank product also enables customers to pay bills
with ease from their personal computers.
8
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
(Picture of a Moovies employee putting movies on the shelf.)
AT WORK. In 1996, Carolina First introduced WorkPlace Banking bringing to
employees of selected companies the convenience of features such as direct
deposit of payroll checks and banking services provided by Carolina First
representatives on-site at the companies' offices. WorkPlace Banking has already
been enthusiastically received; it is in place at companies with more than 1,000
employees, and at much smaller companies.
WorkPlace Banking
Moovies, Inc. is just one of the
companies that have taken advantage
of our WorkPlace Banking, a new service
begun in 1996 that features direct deposit
of payroll checks and on-site banking services.
Grocery Store Banking
Carolina First operates full-service
retail bank branches in six grocery
stores to provide customers with the
convenience of one-stop shopping and
banking on Saturdays and evenings.
AT THE GROCERY STORE. Our grocery store branches give customers the
convenience of banking where they shop. Our six grocery store locations (with a
seventh scheduled to open in 1997) are full-service retail branches, open in the
evenings and on Saturdays. Loans, checking accounts, and certificates of deposit
are suddenly as accessible as a gallon of milk or a loaf of bread. Some of our
grocery store branches even feature automated loan machines which make loans
available seven days a week, whenever the grocery store is open. These machines
let qualified customers get bank loans, after hours, without visiting a lending
officer.
(Picture of two people at a BiLo grocery store.)
9
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
Banking Solutions
Carolina First is an innovator, constantly seeking better, more flexible
ways to meet our customers' banking needs. We aren't so much a single, big,
billion-dollar institution, but a team of related entities, each nimble and
independent enough to react quickly to market signals. We are a commercial bank,
a retail bank, and a mortgage bank, with ownership interests in other lines of
business related to banking. We look for and invest in banking solutions that
serve our customers and benefit our shareholders.
(Picture of a person at an ATM machine.)
Carolina First is affiliated with Affinity Technology Group, Inc., both as
an investor and as the first bank to offer its products. Carolina First owns
approximately 17% of Affinity's common shares, principally in the form of
warrants. Affinity develops and markets technologies to provide consumer
financial services electronically. Carolina First served as the test site for
Affinity's first product, an automated loan machine, and now has 18 of these
loan machines. The Affinity loan machines permit customers to obtain a loan,
with the proceeds deposited into their bank account, in less than 10 minutes.
Carolina First is currently assisting Affinity with the development of other
state-of-the-art electronic lending services, such as auto loans, mortgages, and
lending via the Internet.
ALM Banking
Getting a loan is now as easy as making
a cash withdrawal from an ATM. Using an
automated lending machine, Carolina First
customers can apply for an unsecured loan in
10 minutes. When approved, the money is
automatically deposited into their checking
account.
Carolina First also has participated in the development of Atlanta Internet
Bank, one of the first on-line, real-time Internet banks in the world. Atlanta
Internet Bank is presently offered as a product line of Carolina First Bank.
Ultimately, Atlanta Internet Bank is expected to be a stand-alone entity in
which Carolina First will initially own 40%. Atlanta Internet Bank offers
deposit products and bill-paying services
10
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
to customers who have personal computers with access to the Internet. Since its
introduction in October 1996, accounts have been opened nationwide and beyond,
including England. In 1997, Atlanta Internet Bank plans to add over 10 new
products and services, including credit and debit cards, mortgage originations,
and loan products. Atlanta Internet Bank is the first financial institution to
be featured on AT&T WorldNet Service and has immediate access to the hundreds of
thousands of current WorldNet subscribers through banner advertising on both the
"at home" and the "at work" pages.
Internet Banking
With the explosion of the
Internet, it was a natural choice to
introduce Atlanta Internet Bank,
one of the first on-line, real-time
banks. Internet services include
deposit products and bill-paying
services with expanded products to be
introduced in 1997.
Carolina First has formed a new subsidiary, CF Investments, to seek
opportunities to support new technologies related to financial services and to
make venture capital investments. We have recently launched a site for Carolina
First on the World Wide Web. Our site provides information for investors and
information on our products, services, and locations. Our address is
http://www.carolinafirst.com. Come visit us.
(Picture of a person standing by a computer.)
Carolina First ... Customers First. It sounds so simple. But it is not an
easy task to stay abreast of the latest technology, ensuring that our customers
have every advantage that their busy lives and flourishing businesses demand,
while at the same time maintaining the small-town banker's touch that truly sets
us apart. So every day we dedicate ourselves anew to putting our customers
first, in large ways and small. It is the only path we know to our goal - to be
South Carolina's premier bank.
..............................................................................
As a tribute to the dedication and commitment of all our employees, we have
featured employees in the photography. Featured employees, in order of
appearance, are: Keith Dreher, Facilities; Elaine Bowers, Investments; Mike
Strickland, Loan Review; Suzan Shaprio, Accounting; Diane Glaser, Branch
Administration; Joan Fried, Citadel Mall Branch; J. Huggins, Myrtle Beach
Branch; Jim Wilson, Operations; Sonya Scott, Cleveland Street Branch; Heidi
Humphries, Mortgage; and Richard Byrd, Lexington Branch.
11
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
TEN-YEAR FINANCIAL SUMMARY
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FIVE-YEAR
YEARS ENDED DECEMBER 31, COMPOUND
1996 1995 1994 1993 1992 GROWTH RATE
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income..................................... $ 57,070 $ 50,772 $ 43,260 $ 29,358 $ 20,749 30.0%
Provision for loan losses............................... 10,263 6,846 1,197 1,106 2,318 40.3
Noninterest income...................................... 21,341 17,326 8,226 6,765 4,116 50.7
Noninterest expenses (1)................................ 51,675 46,882 51,839 27,294 18,897 30.1
Net income (loss) (1)................................... 10,474 9,414 (1,740) 5,418 2,466 41.1
PER COMMON SHARE DATA (2)
Net income (loss) - primary (1)......................... $ 0.96 $ 0.87 $ (0.59) $ 0.63 $ 0.34 23.1%
Net income (loss) - fully diluted (1)................... 0.92 0.85 (0.59) 0.63 0.34 22.0
Book value (December 31)................................ 9.26 7.61 6.61 7.70 7.27 5.3
Closing market price (December 31)...................... 16.15 14.58 11.11 9.83 9.18 22.6
Cash dividends declared................................. 0.25 0.21 0.17 0.04 -- --
Stock dividend declared................................. 20% 5% 5% 5% 5% --
BALANCE SHEET DATA (YEAR END)
Total assets............................................ $1,574,204 $1,414,922 $1,204,350 $904,474 $616,288 24.4%
Loans - net of unearned income.......................... 1,124,775 1,062,660 923,068 623,646 455,650 23.3
Allowance for loan losses............................... 11,290 8,661 6,002 6,679 5,276 20.1
Nonperforming assets.................................... 5,880 4,868 4,722 5,366 5,631 11.9
Total earning assets.................................... 1,396,171 1,249,689 1,059,455 814,579 555,871 23.7
Deposits................................................ 1,281,050 1,095,491 1,001,748 804,549 555,624 21.7
Long-term debt.......................................... 26,442 26,347 1,162 1,274 1,492 72.1
Shareholders' equity.................................... 104,964 94,967 86,482 70,415 51,288 21.9
Market capitalization (December 31)..................... 182,244 160,227 121,168 87,949 66,057 40.9
BALANCE SHEET DATA (AVERAGES)
Total assets............................................ $1,480,694 $1,269,757 $1,056,954 $782,551 $562,369 26.3%
Loans - net of unearned income.......................... 1,085,680 965,632 781,503 548,619 432,282 25.0
Total earning assets.................................... 1,320,658 1,130,245 941,155 711,138 520,125 25.4
Deposits................................................ 1,180,751 1,023,029 925,615 635,582 476,291 25.1
Shareholders' equity.................................... 99,186 90,242 87,377 65,518 47,206 21.0
FINANCIAL RATIOS
Return on average assets................................ 0.71% 0.74% (0.16)% 0.69% 0.44%
Return on average equity................................ 10.56 10.43 (1.99) 8.27 5.22
Net interest margin..................................... 4.35 4.54 4.65 4.16 4.01
ASSET QUALITY RATIOS
Nonperforming assets as a % of loans and foreclosed
property.............................................. 0.52% 0.46% 0.51% 0.86% 1.23%
Allowance for loan losses times nonperforming loans..... 3.94X 3.67x 2.20x 2.69x 1.87x
OPERATIONS DATA
Banking offices......................................... 55 55 51 42 21
Full-time equivalent employees.......................... 609 589 551 477 275
</TABLE>
(1) Includes third quarter 1996 nonrecurring Savings Association Insurance Fund
(SAIF) assessment of $1,184 (pre-tax) and fourth quarter 1994 restructuring
charges of $12,214 (pre-tax).
(2) Share data have been restated to reflect the stock dividends and the
six-for-five stock split declared 12/18/96.
12
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
TEN-YEAR FINANCIAL SUMMARY
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income.................................................. $ 15,351 $ 12,413 $ 9,445 $ 7,080 $ 5,420
Provision for loan losses............................................ 1,890 926 1,319 687 810
Noninterest income................................................... 2,743 1,504 1,194 729 566
Noninterest expenses................................................. 13,875 10,945 8,322 5,281 3,765
Net income........................................................... 1,871 1,464 483 996 886
PER COMMON SHARE DATA (1)
Net income - primary................................................. $ 0.34 $ 0.28 $ 0.09 $ 0.18 $ 0.18
Net income - fully diluted........................................... 0.34 0.28 0.09 0.18 0.18
Book value (December 31)............................................. 7.16 6.87 6.36 6.28 6.38
Closing market price (December 31)................................... 5.83 6.04 9.64 7.11 7.70
Cash dividends declared.............................................. -- -- -- -- --
Stock dividend declared.............................................. 5% 5% 5% -- --
BALANCE SHEET DATA (YEAR END)
Total assets......................................................... $528,472 $411,308 $371,111 $281,595 $208,254
Loans - net of unearned income....................................... 395,136 318,880 262,886 199,743 155,799
Allowance for loan losses............................................ 4,519 2,961 2,425 1,580 1,006
Nonperforming assets................................................. 3,350 2,183 2,886 2,347 1,238
Total earning assets................................................. 482,130 377,491 347,021 255,140 197,026
Deposits............................................................. 480,058 357,388 323,381 231,024 167,320
Long-term debt....................................................... 1,753 791 4,052 5,458 5,889
Shareholders' equity................................................. 38,989 37,157 35,339 34,830 30,707
Market capitalization (December 31).................................. 32,800 33,818 53,542 39,434 37,045
BALANCE SHEET DATA (AVERAGES)
Total assets......................................................... $459,900 $382,995 $314,449 $228,813 $162,925
Loans - net of unearned income....................................... 355,944 291,880 230,071 174,837 118,717
Total earning assets................................................. 426,518 358,128 294,448 216,223 154,535
Deposits............................................................. 384,791 310,667 249,905 178,825 131,891
Shareholders' equity................................................. 38,279 36,217 35,261 31,495 22,102
FINANCIAL RATIOS
Return on average assets............................................. 0.41% 0.38% 0.15% 0.44% 0.54%
Return on average equity............................................. 4.89 4.04 1.37 3.16 4.01
Net interest margin.................................................. 3.62 3.50 3.22 3.28 3.51
ASSET QUALITY RATIOS
Nonperforming assets as a % of loans and foreclosed
property........................................................... 0.84% 0.68% 1.10% 1.17% 0.79%
Allowance for loan losses times nonperforming loans.................. 2.40x 2.00x 0.89x 0.83x 0.86x
OPERATIONS DATA
Banking offices...................................................... 20 13 12 11 6
Full-time equivalent employees....................................... 250 174 158 133 83
</TABLE>
(1) Share data have been restated to reflect the stock dividends and the
six-for-five stock split declared 12/18/96.
13
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion is presented to assist in understanding the financial
condition and results of operations of Carolina First Corporation (the
"Company") and its subsidiaries, Carolina First Bank, Carolina First Mortgage
Company ("CF Mortgage") and Blue Ridge Finance Company ("Blue Ridge"). This
discussion should be read in conjunction with the consolidated financial
statements and accompanying notes presented elsewhere in this report.
Overview
The Company, which commenced banking operations in December 1986, currently
conducts business through 55 locations in South Carolina. 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 December 31, 1996, the Company had
approximately $1.574 billion in assets, $1.125 billion in loans, $1.281 billion
in deposits and $105.0 million in shareholders' equity.
At its December 18, 1996 meeting, the Board of Directors declared a
six-for-five stock split effected in the form of a 20% common stock dividend
which was issued on January 30, 1997 to shareholders of record as of January 15,
1997. Share and per share data for all periods presented have been retroactively
restated to reflect the additional shares outstanding resulting from the stock
dividend.
On January 29, 1997, the Company announced the signing of a non-binding
letter of intent to acquire Lowcountry Savings Bank, Inc. ("Lowcountry"). The
Company plans to merge Lowcountry into Carolina First Bank, a wholly-owned
subsidiary of the Company. This transaction is valued at approximately $13.3
million, with 60% payable with the Company's Common Stock and 40% payable in
cash. Lowcountry has five offices in the greater Charleston area and had
approximately $76 million in assets and $62 million in deposits at December 31,
1996. This transaction, which is subject to the execution of a definitive
agreement and the receipt of regulatory and Lowcountry shareholder approval, is
expected to be completed in the third quarter of 1997. The Company will record
the acquisition using the purchase method of accounting.
In October 1996, the Company announced the Atlanta Internet Bank's
introduction of "anytime-anywhere" banking in cyberspace. Atlanta Internet Bank,
which is a product of Carolina First Bank, opened its electronic doors on AT&T's
WorldNet Service and offers banking products primarily by means of a secured
Internet web site. The Company has an agreement with certain persons, which
provides for the transfer of the Company's Atlanta Internet Bank operation to a
thrift institution, upon compliance with certain conditions. After such
transfer, Atlanta Internet Bank will be a stand-alone entity in which the
Company is expected to be a lead investor, owning an estimated 40% of its stock.
In September 1996, the Company announced the divestiture of five branches
located in Barnwell, Blackville, Salley, Springfield and Williston with
approximately $50 million in deposits. The branches are being sold to the Bank
of Barnwell County (in organization), expected to be a wholly-owned subsidiary
of Community Capital Corporation, a South Carolina corporation headquartered in
Greenwood, South Carolina. This transaction is scheduled to be completed in the
first quarter of 1997 and is subject to regulatory approval among other
conditions.
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 at the time it was award-
14
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
ed 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 was
measured as of the date of grant, January 24, 1996, by an independent third
party appraisal. Fair value of the Affinity stock award, as determined by the
independent third party appraisal based on information known at that time, was
$0.88 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 offset the gain on disposition
of equity investments, resulting in no impact on the Company's net income.
On April 15, 1996, the Company transferred its Affinity common stock and
Affinity Warrant to Blue Ridge, a wholly-owned subsidiary of the Company.
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 17% of Affinity's outstanding common stock.
As of December 31, 1996, the investment in Affinity's common stock, included in
securities available for sale, was recorded at its book value of $12. The
Affinity Warrant was not reported on the Company's balance sheet as of December
31, 1996.
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 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. The Affinity Warrant may
not be transferred without the approval of the Federal Reserve Board. The
Affinity Warrant has been filed as an exhibit in the Company's periodic filings
with the Securities and Exchange Commission.
The Company has reviewed its options with respect to its investment in
Affinity and currently has no plans to distribute or sell at the current price.
The Company's Board of Directors will continue to periodically review the
investment in Affinity and may decide to sell shares as market conditions
change.
Income Statement Review
The Company reported record earnings in 1996. Net income totaled $10.5
million, or $0.92 per fully diluted share, in 1996 compared with $9.4 million,
or $0.85 per fully diluted share, in 1995 and $7.7 million before restructuring
charges, or $0.76 per fully diluted share, in 1994. Earnings, excluding the
impact of a one-time special Savings
Income Statement Review
Summary of Changes
<TABLE>
<CAPTION>
For the Years Ended December 31,
($ in thousands) Change 1996 vs. 1995 Change 1995 vs. 1994
1996 $ % 1995 $ % 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $57,070 $6,298 12.4% $50,772 $ 7,512 17.4% $ 43,260
Provision for loan losses 10,263 3,417 49.9 6,846 5,649 471.9 1,197
Net interest income after provision for loan leases 46,807 2,881 6.6 43,926 1,863 4.4 42,063
Noninterest income, excluding certain gains 15,968 2,354 17.3 13,614 5,463 67.0 8,151
Gains from sales of certain items 5,373 1,661 44.7 3,712 3,637 n/m 75
Noninterest expenses, excluding nonrecurring items 49,904 3,515 7.6 46,389 6,764 17.1 39,625
Nonrecurring noninterest expenses 1,771 1,278 259.2 493 (11,721) n/m 12,214
Income (loss) before income taxes 16,473 2,103 14.6 14,370 15,920 n/m (1,550)
Income taxes 5,999 1,043 21.0 4,956 4,766 n/m 190
Net income (loss) $10,474 $1,060 11.3% $ 9,414 $ 11,154 n/m ($ 1,740)
</TABLE>
15
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
Association Insurance Fund ("SAIF") assessment, rose 19% in 1996 to $11.2
million, or $0.99 per fully diluted share. On September 30, 1996, the President
signed into law legislation requiring a special assessment to recapitalize the
SAIF. In the third quarter of 1996, net income included an after-tax charge of
$746,000 to cover a special SAIF assessment. Thrift institutions or non-thrift
institutions, such as Carolina First Bank, which have acquired deposits through
acquisitions from thrift institutions over past years were levied this one-time
charge. Net income in 1994 included a one-time restructuring charge of $9.4
million (net of tax) related to the initiation of a program of credit card
securitization and the merger of two subsidiaries. Including this restructuring
charge, the net loss for 1994 was $1.7 million, or $0.59 per common share.
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 $6.0 million, or 12%, to $57.4
million in 1996 from $51.4 million in 1995 and increased $7.6 million, or 17%,
in 1995 from $43.8 million in 1994. The increases in net interest income were
primarily attributable to loan growth. Average loans increased 12% in 1996 and
24% in 1995.
The net interest margin, defined as net interest income divided by average
earning assets, decreased to 4.35% in 1996 compared with 4.54% in 1995 and 4.65%
in 1994. The decline in the net interest margin is primarily due to a decrease
in the prime interest rate without the realization of a comparable decrease in
deposit pricing and an especially competitive deposit rate environment. The
prime interest rate was decreased from 9.00% to 8.75% in July 1995 and decreased
further to 8.50% in December 1995. In February 1996, the prime rate was lowered
to 8.25%. Approximately half of the loan portfolio has variable rates and
immediately repriced downward following each of the decreases in the prime rate.
While deposit rates were lowered somewhat, the full impact of the reduction in
the prime interest rate was not realized in interest expense savings. During
1996, many financial institutions offered deposit promotions above the market
rates, creating upward pressure on the Company's cost of funds. Also, the
Company has instituted deposit promotions and kept its deposit rates competitive
in an effort to increase its liquidity levels. The Company expects the
competitive deposit rate environment to continue.
The provision for loan losses was $10.3 million in 1996, $6.8 million in
1995, and $1.2 million in 1994. The Company increased the 1996 provision as a
result of its credit card activities, increased charge-offs and consumer credit
concerns. The 1996 provision for loan losses also included $1.3 million for
fraudulent loans acquired in the merger with Midlands National Bank. The 1995
provision for loan losses was increased principally as a result of the growth in
commercial and commercial real estate loans and an increase in credit card
activities. Escrow balances for credit card losses which related to purchased
credit cards also were fully expired starting in
Average Yields and Rates
(on a fully tax-equivalent basis)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Earning Assets:
Loans 9.49% 9.60% 8.76% 8.44% 9.20%
Securities 5.99 5.83 5.04 5.15 6.41
Short-term investments 6.36 6.35 3.84 3.10 3.82
Total earning assets 8.87% 9.05% 8.11% 7.62% 8.64%
Interest-bearing Liabilities:
Interest-bearing deposits 4.74% 4.62% 3.73% 3.80% 5.00%
Short-term borrowings 5.47 6.00 3.96 3.05 5.57
Long-term debt 9.47 9.50 9.25 8.66 7.54
Total interest-bearing liabilities 4.94% 4.87% 3.75% 3.79% 5.02%
Net Interest Margin 4.35% 4.54% 4.65% 4.16% 4.01%
Prime Interest Rate 8.27% 8.83% 7.14% 6.00% 6.26%
</TABLE>
16
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation)
1995. In the second half of 1996, the Company had loans to 72 borrowers having
principal amounts ranging from $2 million to $5 million, which accounted for
$219 million, or 21%, of the Company's loan portfolio. The Company had loans to
7 borrowers having principal amounts in excess of $5 million, which accounted
for $45 million, or 4%, of the Company's loan portfolio in the second half of
1996. Any material deterioration in the quality of any of these larger loans
could have a significant impact on the Company's earnings. Management currently
anticipates that loan growth will continue in 1997.
Noninterest income increased $4.0 million, or 23%, to $21.3 million in 1996
from $17.3 million in 1995 and $8.2 million in 1994. Noninterest income in 1996
and 1995 included gains from asset sales and nonrecurring items which are
described below. A gain of $4.3 million from the sale of approximately $55
million in credit cards was recorded during the third quarter of 1996. The
Company sold mortgage servicing rights for a gain of $107,000 in 1996 and $2.9
million in 1995. There were no such sales in 1994. The large gain in 1995
resulted from sales of servicing rights related to approximately $760 million in
loans. The Company recognized gains on the sale of securities of $386,000,
$769,000 and $75,000 in 1996, 1995 and 1994, respectively. A $587,000 gain on
the disposition of equity investments (offset by $587,000 recorded as
compensation expense) for the first quarter of 1996, included in sundry
noninterest income, related to the transfer of Affinity stock to certain
officers of the Company. Excluding the items discussed above, noninterest income
increased $2.4 million, or 17%, to $16.0 million in 1996 compared with $13.6
million in 1995 and $8.2 million in 1994. This increase resulted primarily from
increases in service charges on deposit accounts, mortgage banking income, fees
for trust services and servicing fee income for commercial real estate loans.
Service charges on deposit accounts, the largest contributor to noninterest
income, rose 17% to $6.5 million in 1996 from $5.5 million in 1995 and $4.1
million in 1994. Average deposits increased 15% in 1996 and 11% in 1995. The
increase in service charges was attributable to new deposit accounts, improved
collection results and new service charges for automated teller machine
transactions.
During 1996, the Company received loan securitization income of $2.9
million from its interests in the credit card and commercial real estate loan
trusts, which was an increase over the $2.8 million received in 1995 and none
received in 1994. 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 to
a trust in connection with a securitization of such loans (the "Commercial Loan
Securitization"). During 1996, loan securitization income was negatively
impacted by higher credit card charge-offs associated with the credit card
trust.
Mortgage banking income includes origination fees, gains from the sale of
loans and servicing fees (which are net of the related amortization of the
mortgage servicing rights and subservicing payments). Mortgage banking income
increased 29% to $2.8 million compared with $2.2 million in 1995 and $1.6
million in 1994. The increase was attributable to higher loan originations and
increased average loan servicing volume during 1996 partially offset by lower
gains on mortgage loans sold. Mortgage loans totaling approximately $172
million, $116 million and $55 million were sold in 1996, 1995 and 1994,
respectively. Gains on mortgage loans sold were lower in 1996 despite a higher
volume of sales due to a stable interest rate environment in 1996. On January 1,
1995, the Company adopted Statement of Financial Accounting Standards 122,
"Accounting for Mortgage Servicing Rights" ("SFAS 122"), and began recording
assets to reflect the value of servicing for its originated and sold mortgage
loans. In connection with SFAS 122, the Company recorded gains of $532,000 and
$281,000 in 1996 and 1995, respectively, which were included in mortgage banking
income.
CF Mortgage's mortgage servicing operations consist of servicing loans that
are owned by Carolina First Bank and subservicing loans, to which the right to
service is owned by Carolina First Bank and other non-affiliated financial
institutions. At December 31, 1996, CF Mortgage was servicing or subservicing
13,679 loans having an aggregate principal balance of approximately $1.209
billion compared with $1.279 billion at December 31, 1995 and $800 million at
December 31, 1994. During 1996, the Company purchased mortgage servicing rights
to service mortgage loans with balances totaling approximately $687 million and
sold mortgage servicing rights with loan balances totaling approximately $761
million. Mortgage banking income does not include the benefit of interest-free
escrow balances related to mortgage loan servicing activities.
Fees for trust services in 1996 of $1.3 million were 30% above the $1.0
million earned in 1995. Fees for trust services in 1994 were $919,000. At
December 31, 1996, the trust department had assets under management of
approximately
17
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
$450 million compared with $343 million at year end 1995 and $214 million at
year end 1994. Fees for trust services increased as a result of the generation
of new trust business and additional assets under management.
Sundry income, excluding the gain on the disposition of equity investments,
was $430,000 higher in 1996 than in 1995. Sundry income in 1995 included
approximately $300,000 in nonrecurring income from programming services provided
for an outside company. The increase in 1996 sundry income was primarily
attributable to higher customer service fees and servicing fee income for
servicing commercial real estate loans for the Commercial Loan Securitization.
Noninterest expenses totaled $51.7 million in 1996, $46.9 million in 1995
and $51.8 million in 1994. Noninterest expenses in 1996 included a one-time
charge of $1.2 million for a special SAIF assessment. In the first quarter of
1996, approximately $587,000 was recorded as compensation expense related to a
nonrecurring award of Affinity's stock to certain officers of the Company. The
1995 noninterest expenses included $493,000 in nonrecurring acquisition costs
related to the acquisitions of Aiken County National Bank and Midlands National
Bank, both of which closed during the second quarter of 1995. Included in 1994
noninterest expense was a $12.2 million one-time restructuring charge associated
with the credit card securitization and the write-down of other intangible
assets. Excluding the nonrecurring items described above, noninterest expenses
increased $3.5 million, or 8%, to $49.9 million in 1996 from $46.4 million in
1995 and $39.6 million in 1994. The increased expenditures primarily reflected
the costs of additional personnel hired to support the Company's current and
anticipated growth, professional fees and the write-off in 1996 of a property
held as other real estate owned.
Salaries, wages and employee benefits totaled $25.2 million in 1996, $22.1
million in 1995 and $19.4 million in 1994. Salaries and wages and employee
benefits, excluding $587,000 in non-recurring compensation expense, increased
$2.5 million, or 11%, to $24.6 million in 1996. Full-time equivalent employees
rose to 609 as of the end of 1996 from 589 at the end of 1995 and 551 at the end
of 1994. The staffing cost increases were principally attributable to the
opening of the Charleston main office and the Hilton Head office, the opening of
three grocery store branches, the acquisition of Blue Ridge and the additional
personnel hired to support the internal growth in loans and deposits.
Occupancy and furniture and equipment expenses increased $566,000, or 8%,
to $8.0 million in 1996 from $7.4 million in 1995 and $6.3 million in 1994. The
increase in 1996 resulted principally from the addition of five new banking
offices. Five new offices, including a main office in Charleston, have been
added since the third quarter of 1995. Twelve new automated teller machines have
also been added since the end of 1995.
Sundry noninterest expenses decreased $186,000 to $15.4 million in 1996
from $15.6 million in 1995 and increased $4.1 million in 1995 from $11.5 million
in 1994. The overall decrease in sundry noninterest expenses was principally
attributable to a $1.5 million reduction in the Federal Deposit Insurance
Corporation ("FDIC") assessment discussed below and a $1.5 million reduction in
the amortization of solicitation fees associated with direct mail credit card
solicitations. This decrease was partially offset by increases in professional
fees (including legal fees related to certain pending litigation), the $586,000
write-off in 1996 of a property held as other real estate owned and costs
associated with higher lending and deposit activities. The largest items of
sundry noninterest expense were other real estate owned expenses, stationery,
supplies, printing, telephone, postage, professional fees and advertising.
FDIC insurance premiums, excluding a one-time special SAIF assessment
explained below, were $469,000 in 1996, approximately $1.5 million lower than in
1995. 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 applied only to BIF-insured deposits and did not
include deposits insured by the SAIF. In connection with the merger of Carolina
First Savings Bank into Carolina First Bank and Carolina First Bank's assumption
of other SAIF-insured deposits in connection with various acquisitions,
approximately 22% of Carolina First Bank's total deposits are subject to SAIF
insurance assessments imposed by the FDIC. Through September 30, 1996, Carolina
First Bank's SAIF-insured deposits were assessed at 0.23% of the average
assessment base, excluding the special assessment discussed below.
On September 30, 1996, the President signed into law legislation requiring
a special assessment to recapitalize the
18
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
SAIF. This assessment was applied at a rate of 0.657% of SAIF-insured deposits
as of March 31, 1995. Banks that have acquired "Oakar" deposits before March 31,
1995 were allowed a 20% reduction to the assessment base. The result for
Carolina First Bank was a charge of $1.2 million pre-tax ($746,000 after-tax)
based on approximately $223 million of SAIF deposits. The legislation also
changed future annual assessment rates for both BIF-insured deposits and
SAIF-insured deposits. For 1997 through 1999, the annual assessment rates will
be 0.0129% for BIF-insured deposits and 0.0644% for SAIF-insured deposits.
Balance Sheet Review
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 December 31, 1996, the Company had total loans outstanding of
$1.125 billion which equaled approximately 88% of the Company's total deposits
and approximately 71% of the Company's total assets. The composition of the
Company's loan portfolio at December 31, 1996 follows: commercial and commercial
mortgage 52%, residential mortgage 21%, consumer 13%, lease receivables 7%,
credit cards 4% and construction 3%.
The Company's loans increased $62.1 million, or 6%, to $1.125 billion at
December 31, 1996 from $1.063 billion at December 31, 1995. This increase was
net of loan sales of approximately $331 million and loan purchases of
approximately $66 million completed during 1996. Adjusting for the 1996 loan
sales and purchases, internal loan growth was approximately $328 million, or
31%, during the past year.
In June 1996 and December 1996, the Company purchased approximately $66
million, net of related unearned income, in lease receivables from a related
third party. The leases are primarily for general office equipment. The
portfolio is diversified by type of business, geographic location of leases and
broker. The Company purchased the leases to earn an attractive yield (after
adjusting for credit risk) and to diversify its existing portfolio.
In August 1996, Carolina First Bank sold approximately $55 million in
credit card loans to an unrelated commercial bank. As a result of this
transaction, Carolina First Bank recorded a gain on the sale of credit cards of
$4.3 million. The remaining available-for-sale credit card portfolio was written
down to the lower of cost or market.
For 1996, the Company's loans averaged $1.086 billion with a yield of 9.49%
compared with $965.6 million and a yield of 9.60% in 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 interest rate during 1995 and 1996.
Approximately half of the loan portfolio has variable rates and immediately
repriced downward with the decline in the prime interest rate.
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,
Carolina First Bank sold approximately $116 million in the Commercial Loan
Securitization. In connection with the Commercial Loan Securitization, certain
interests in the trust were sold to institutional investors, while
YEAR END LOANS
($ in millions)
(Year end loans chart appears here. Plot points are below.)
'92 '93 '94 '95 '96
Net Loans $456 $624 $923 $1,063 $1,125
Loans Securitized $80 $95
Credit Cards Sold $55
19
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
Carolina First Bank retained certificates representing certain subordinated and
residual interests in trust assets. In connection with the sale of such loans,
Carolina First Bank received cash proceeds of approximately $95 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 sale of certain credit card receivables into the trust
created in connection with the securitization.
Management maintains an allowance for loan losses which it believes is
adequate to cover inherent 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 $11.3 million, or 1.00% of loans less
unearned income, at the end of 1996, compared with $8.7 million, or 0.82% of
loans less unearned income, at the end of 1995. Net charge-offs in 1996 totaled
$8.9 million, or 0.82% of average loans. Excluding $1.3 million in charge-offs
related to fraudulent loans acquired in the merger with Midlands National Bank,
net charge-offs as a percentage of average loans in 1996 were 0.70% compared
with 0.51% in 1995. Credit card charge-offs account for a significant portion of
the charge-offs. Excluding credit card charge-offs and fraudulent acquired
loans, net charge-offs as a percentage of average loans were 0.36% and 0.24% in
1996 and 1995, respectively. Non-performing assets as a percentage of loans and
foreclosed property remained low at 0.52% as of December 31, 1996 and 0.46% as
of December 31, 1995. The allowance for loan losses as a percentage of
non-performing loans was 394% and 367% as of the end of 1996 and 1995,
respectively.
At December 31, 1996, the Company's total investment portfolio had a book
value of $243.7 million and a market value of $245.8 million for an unrealized
net gain of $2.1 million.The investment portfolio has a weighted average
maturity of approximately 1.7 years. Securities averaged $214.4 million in 1996,
36% above the 1995 average of $157.8 million. The securities balance increased
due to the investment of a portion of the funds from the Commercial Loan
Securitization in the securities portfolio to increase liquidity. The average
portfolio yield increased to 5.99% in 1996 from 5.83% in 1995. The portfolio
yield increased due to maturities of lower yielding government securities which
were reinvested at higher rates. At December 31, 1996, securities totaled $245.4
million, up $67.0 million from the $178.4 million invested as of year end 1995.
At December 31, 1996, the Company owned 128,366 shares of common stock of
Affinity and the Affinity Warrant to purchase an additional 5,871,340 shares of
Affinity's common stock at a purchase price of $0.0001 per share. As of December
31, 1996, the investment in Affinity's common stock, included in securities
available for sale, was recorded at its book value of $12. The Affinity Warrant
was not included in securities at December 31, 1996.
YEAR END DEPOSITS
($ in millions)
(Year end deposits chart appears here. Plot points are below.)
'92 '93 '94 '95 '96
$556 $804 $1,002 $1,095 $1,281
20
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
During 1996, interest-bearing liabilities averaged $1.211 billion, compared
with $1.046 billion for 1995. This increase resulted principally from account
promotions and entrance into new markets. The average interest rates were 4.94%
and 4.87% for 1996 and 1995, respectively. At December 31, 1996,
interest-bearing deposits comprised approximately 85% of total deposits and 86%
of interest-bearing liabilities. During 1996, the Company decreased Federal Home
Loan Bank ("FHLB") advances to $40.0 million at December 31, 1996 from $90.0
million at December 31, 1995. While FHLB advances remain a source of funding,
Carolina First Bank has increased its emphasis on retail banking and raised
deposits through market promotions and sales efforts, thereby decreasing FHLB
advances. The Company believes that potential benefits of cross-selling these
customers other products and services would offset any increase in the cost of
funds. For 1996, average borrowed funds, which include FHLB advances, securities
sold under repurchase agreements and other short-term borrowings, totaled $184.6
million compared with $153.7 million for 1995.
Carolina First Bank's primary source of funds for loans and investments is
its deposits which are gathered through Carolina First Bank's branch network.
Deposits grew 17% to $1.281 billion at December 31, 1996 from $1.095 billion at
December 31, 1995. Internal growth, particularly from account promotions and new
markets, generated the new deposits. During 1996, total interest-bearing
deposits averaged $1.026 billion with a rate of 4.74%, compared with $892.3
million with a rate of 4.62% in 1995. During 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. Carolina First Bank has also been running a
checking account promotion to attract new deposit relationships. The Company
does not believe that it has any brokered deposits.
Average noninterest-bearing deposits, which increased 18% during the year,
increased to 13.1% of average total deposits in 1996 from 12.8% in 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 86% in 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 $105.0 million, or 6.67% of total
assets, at December 31, 1996 compared with $95.0 million, or 6.71% of total
assets, at December 31, 1995. The $10.0 million increase in total shareholders'
equity resulted principally from retention of earnings less cash dividends paid.
The Company's capital needs have been met principally through public
offerings of common stock, preferred stock and subordinated notes and through
the retention of earnings.
SHAREHOLDERS' EQUITY VS.
MARKET CAPITALIZATION
($ in millions)
(Shareholders' equity vs. market capitalization chart appears here. Plot points
are below.)
'92 '93 '94 '95 '96
Market Capitalization $66 $88 $121 $160 $182
Shareholders' Equity $51 $70 $86 $95 $105
21
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
In addition, the Company issued capital stock in connection with the
acquisitions of CF Savings Bank, CF Mortgage, Aiken County National Bank,
Midlands National Bank and Blue Ridge.
On May 18, 1995, the Company completed a $26.5 million public offering of
its 9.00% Subordinated Notes due 2005 (the "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.
At December 31, 1996, the Company and Carolina First Bank were in
compliance with each of the applicable regulatory capital requirements and met
or exceeded the "well capitalized" regulatory standards. The following table
sets forth various capital ratios for the Company and Carolina First Bank.
In February 1996, the Company redeemed its 7.50% Noncumulative Convertible
Preferred Stock Series 1993 ("Series 1993 Preferred Stock") and its 7.32%
Noncumulative Convertible Preferred Stock Series 1994 ("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"). As a result of the redemptions of the
preferred stock, dividends on preferred stock declined substantially to $63,000
in 1996 from $2.8 million in 1995.
Book value per share at December 31, 1996 and 1995 was $9.26 and $7.61,
respectively. Tangible book value per share at December 31, 1996 and 1995 was
$7.80 and $5.30, respectively. A significant portion of the increase in book
value and tangible book value since 1995 was attributable to the conversions of
the Series 1993 Preferred Stock and the 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.
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 Company presently intends to continue to pay this quarterly cash
dividend on the Common Stock; however, future dividends will depend upon the
Company's financial performance and capital requirements.
In each year from 1989 through 1995, the Company issued 5% common stock
dividends to common shareholders. At the December 18, 1996 meeting, the Board of
Directors declared a six-for-five stock split effected in the form of a 20%
common stock dividend which was issued on January 30, 1997 to shareholders of
record as of January 15, 1997. At the December 1996 meeting, the Board of
Directors also approved a $0.07 per share cash dividend on the common stock,
which represents an effective increase of 20%. The Company has increased the
cash dividend every year since the initiation of cash dividends resulting in a
four-year annual compound increase in excess of 22%.
Interest Rate Sensitivity
Achieving consistent growth in net interest income is the primary goal of
the Company's asset/liability function. The Company attempts to control the mix
and maturities of assets and liabilities to achieve consistent growth in net
interest income despite changes in market interest rates. The Company seeks to
accomplish this goal while maintaining adequate liquidity and capital. The
Company's asset/liability mix is sufficiently balanced so that the effect of
interest rates moving in either direction is not expected to be significant over
time.
The Company's Asset/Liability Committee uses a simulation model to assist
in achieving consistent growth in net interest income while managing interest
rate risk. The model takes into account interest rate changes as well as changes
in
Capital Ratios
As of Well Capitalized
12/31/96 Requirement
The Company
Total risk-based capital 10.39% 10.0%
Tier 1 risk-based capital 7.34 6.0
Leverage ratio 5.64 5.0
Carolina First Bank
Total risk-based capital 10.06% 10.0%
Tier 1 risk-based capital 9.11 6.0
Leverage ratio 6.98 5.0
22
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
the mix and volume of assets and liabilities. The model simulates the
Company's balance sheet and income statement under several different rate
scenarios. The model's inputs (such as interest rates and levels of loans and
deposits) are updated on a monthly basis in order to obtain the most accurate
forecast possible. The forecast presents information over a twelve month period.
It reports a base case in which interest rates remain flat and reports
variations that occur when rates increase and decrease 200 basis points.
According to the model, the Company is presently positioned so that net interest
income will increase slightly if interest rates rise in the near term and will
decrease slightly if interest rates decline in the near term.
The static interest sensitivity gap position, while not a complete measure
of interest sensitivity, is also reviewed periodically to provide insights
related to the static repricing structure of assets and liabilities. At December
31, 1996, on a cumulative basis through twelve months, rate-sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position at the end of 1996 of $288,445,000.
Liquidity
Liquidity management involves meeting the cash flow requirements of the
Company both at the holding company level as well as at the subsidiary level.
The holding company and non-banking subsidiaries of the Company require cash for
various operating needs including general operating expenses, payment of
dividends to shareholders, interest on borrowing, extensions of credit at Blue
Ridge, business combinations and capital infusions into subsidiaries. Sources of
liquidity for the Company's holding company and non-banking subsidiaries include
dividends from Carolina First Bank and non-banking subsidiaries to the holding
company, sale of the Company's commercial paper, existing cash reserves and
earnings.
Carolina First Bank's cash flow requirements involve withdrawals of
deposits, extensions of credit and payment of operating expenses. Carolina First
Bank's principal sources of funds for liquidity purposes are customer deposits,
principal and interest payments on loans, loan sales or securitizations,
securities available for sale, maturities of securities, temporary investments
and earnings. Carolina First Bank's liquidity is also enhanced by the ability to
acquire new deposits through its established branch network of 52 branches in
South Carolina. Carolina First Bank's liquidity needs are a factor in developing
its deposit pricing structure; deposit pricing may be altered to retain or grow
deposits if deemed necessary. Carolina First Bank has access to borrowing from
FHLB and maintains unused short-term lines of credit from unrelated banks.
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, 1996,
Carolina First Bank's liquidity ratio was approximately 12%. At December 31,
1996, Carolina First Bank had unused short-term lines of credit totaling
approximately $33 million (which are withdrawable at the lender's option). In
addition, Carolina First Bank has unused borrowing capacity from the FHLB
totaling approximately $93 million with an outstanding balance of $40 million.
Management believes that these sources are adequate to meet its liquidity needs.
The Company has signed contracts to purchase mortgage servicing rights for
approximately $50 million in mortgage loans for a purchase price of
approximately $1 million. These purchases of mortgage servicing rights are
expected to close during the first quarter of 1997. In connection with the
proposed acquisition of Lowcountry, 40% of the purchase price, or approximately
$5 million, is payable in cash. The acquisition of Lowcountry, which is subject
to receipt of shareholder and regulatory approval, is expected to close in the
third quarter of 1997.
Blue Ridge is currently being funded principally using the proceeds from
the sale of the Company's commercial paper in the retail market. The Company is
actively exploring alternative methods to fund Blue Ridge as the Federal Reserve
Board considers the funding of Blue Ridge to be an inappropriate use of
commercial paper proceeds. The Company expects alternate funding for Blue Ridge
would be at a higher cost.
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
23
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
NONPERFORMING ASSETS AS A % OF
LOAN AND FORECLOSED PROPERTY
(in percentages)
(Nonperforming Assets chart appears here. Plot points are below.)
<TABLE>
<CAPTION>
'92 '93 '94 '95 '96
<S> <C> <C> <C> <C>
Federal Reserve Bank Holding Company Peer Group ** 2.78% 2.33% 1.35% 1.21% 1.15%*
Carolina First 1.23% 0.86% 0.51% 0.46% 0.52%
</TABLE>
* As of September 30, 1996
** Source: Federal Reserve Bank Holding Company Performance Report
placed in a special review status. Loans that are placed in special review
status are required to have a plan under which they will be either repaid or
restructured in a way that reduces credit risk. Loans in this special review
status are reviewed monthly by the loan committee of the Board of Directors.
As demonstrated by the following analytical measures of asset quality,
management believes the Company has effectively managed its credit risk. Net
loan charge-offs totaled $8.9 million in 1996. Excluding fraudulent loans
acquired in the merger with Midlands National Bank, net loan charge-offs totaled
$7.6 million in 1996 and $4.9 million in 1995, or 0.70% and 0.51%, respectively,
as a percentage of average loans. Nonperforming assets as a percentage of loans
and foreclosed property were 0.52% and 0.46% as of December 31, 1996 and 1995,
respectively.
Forward-looking Statements
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, but are not limited to, the
following: risks from changes in economic and industry conditions; changes in
interest rates; risks inherent in making loans including repayment risks and
value of collateral; and recently-enacted or proposed legislation.
Asset Quality
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 960 $1,275 $2,051 $2,487 $2,474
Restructured loans 1,909 1,085 675 -- --
Total nonperforming loans 2,869 2,360 2,726 2,487 2,474
Other real estate 3,011 2,508 1,996 2,879 2,804
Total nonperforming assets $5,880 $4,868 $4,722 $5,366 $5,278
Nonperforming assets as a % of loans and foreclosed property 0.52% 0.46% 0.51% 0.86% 1.23%
Accruing loans past due 90 days $2,371 $2,748 $1,285 $2,060 $2,127
Allowance for loans losses to nonperforming loans 3.94x 3.67x 2.20x 2.69x 1.87x
</TABLE>
24
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
Report of Independent Auditors
The Board of Directors of Carolina First Corporation
We have audited the consolidated balance sheets of Carolina First
Corporation and subsidiaries (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The accompanying consolidated statements of
income, changes in shareholders' equity and cash flows of Carolina First
Corporation and subsidiaries for the year ended December 31, 1994 were audited
by other auditors whose report thereon dated February 3, 1995 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carolina First Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
January 21, 1997
Report of Management
Management of Carolina First Corporation (the "Company") is committed to
quality customer service, enhanced shareholder value, financial stability and
integrity in all dealings. Management has prepared the accompanying consolidated
financial statements in conformity with generally accepted accounting
principles. The statements include amounts that are based on management's best
estimates and judgements. Other financial information contained in this report
is presented on a basis consistent with the financial statements.
To ensure the integrity, objectivity and fairness of data in these
statements, management of the Company has established and maintains an internal
control structure that is supplemented by a program of internal audits. The
internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed, recorded and reported in
accordance with management's intentions and authorizations.
The financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors, in accordance with generally accepted auditing standards.
KPMG Peat Marwick LLP reviews the results of its audit with both management and
the Audit Committee of the Board of Directors of the Company. The Audit
Committee, composed entirely of outside directors, meets periodically with
management, internal auditors and KPMG Peat Marwick LLP (separately and jointly)
to determine that each is fulfilling its responsibilities and to consider
recommendations for enhancing internal controls. The financial statements have
not been reviewed, or confirmed for accuracy or relevance, by the Federal
Deposit Insurance Corporation.
/s/ Mack I. Whittle, Jr. /s/ William S. Hummers III
Mack I. Whittle, Jr. William S. Hummers III
President and Executive Vice President
Chief Executive Officer and Chief Financial Officer
25
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks...................................................................... $ 86,322 $ 75,770
Interest-earning deposits with banks......................................................... 26,037 8,663
Securities
Trading................................................................................... 2,005 5,805
Available for sale........................................................................ 213,889 146,272
Held for investment (market value $29,861 in 1996 and $26,670 in 1995).................... 29,465 26,289
Total securities........................................................................ 245,359 178,366
Loans held for sale.......................................................................... 10,449 125,000
Loans........................................................................................ 1,128,537 944,716
Less unearned income...................................................................... 14,211 7,056
Less allowance for loan losses............................................................ 11,290 8,661
Net loans............................................................................... 1,113,485 1,053,999
Premises and equipment....................................................................... 32,418 40,320
Accrued interest receivable.................................................................. 11,913 10,829
Other assets................................................................................. 58,670 46,975
$1,574,204 $1,414,922
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing..................................................................... $ 194,067 $ 160,394
Interest-bearing........................................................................ 1,086,983 935,097
Total deposits.......................................................................... 1,281,050 1,095,491
Federal funds purchased and repurchase agreements......................................... 87,144 91,532
Other short-term borrowings............................................................... 58,045 95,257
Long-term debt............................................................................ 26,442 26,347
Accrued interest payable.................................................................. 9,672 6,737
Other liabilities......................................................................... 6,887 4,591
Total liabilities....................................................................... 1,469,240 1,319,955
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred stock - no par value; authorized 10,000,000 shares; issued and outstanding
49,141 shares (Series 1993B) in 1996 and 917,200 shares (Series 1994), 456,521 shares
(Series 1993) and 53,575 shares (Series 1993B) in 1995; liquidation preference $20 per
share (Series 1993B) and $25 per share (Series 1994 and 1993)............................ 943 32,909
Common stock - par value $1 per share; authorized 20,000,000 shares; issued and
outstanding 11,225,568 shares* in 1996 and 6,517,366 shares in 1995...................... 11,226 6,517
Surplus................................................................................... 83,598 54,432
Retained earnings......................................................................... 9,546 1,778
Guarantee of Employee Stock Ownership Plan debt and nonvested restricted stock............ (832) (821)
Unrealized gain on securities available for sale, net of tax.............................. 483 152
Total shareholders' equity.............................................................. 104,964 94,967
$1,574,204 $1,414,922
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
* Restated to reflect the six-for-five stock split declared 12/18/96.
26
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................. $ 103,163 $ 92,731 $ 68,474
Interest and dividends on securities
Taxable............................................................. 10,953 7,500 5,623
Exempt from Federal income taxes.................................... 1,228 1,088 1,020
Total interest on securities...................................... 12,181 8,588 6,643
Interest on short-term investments..................................... 1,528 431 652
Total interest income............................................. 116,872 101,750 75,769
INTEREST EXPENSE
Interest on deposits................................................... 48,649 41,179 30,750
Interest on short-term borrowings...................................... 8,657 8,196 1,638
Interest on long-term debt............................................. 2,496 1,603 121
Total interest expense............................................ 59,802 50,978 32,509
Net interest income............................................... 57,070 50,772 43,260
PROVISION FOR LOAN LOSSES................................................ 10,263 6,846 1,197
Net interest income after provision for loan losses............... 46,807 43,926 42,063
NONINTEREST INCOME
Service charges on deposit accounts.................................... 6,490 5,524 4,089
Loan securitization income............................................. 2,865 2,775 --
Mortgage banking income................................................ 2,786 2,162 1,638
Fees for trust services................................................ 1,286 1,042 919
Gain on sale of credit cards........................................... 4,293 -- --
Gain on sale of securities............................................. 386 769 75
Gain on sale of mortgage servicing rights.............................. 107 2,943 --
Sundry................................................................. 3,128 2,111 1,505
Total noninterest income.......................................... 21,341 17,326 8,226
NONINTEREST EXPENSES
Salaries and wages..................................................... 20,573 17,524 15,023
Employee benefits...................................................... 4,649 4,584 4,375
Occupancy.............................................................. 4,336 4,209 3,728
Furniture and equipment................................................ 3,621 3,182 2,577
Amortization of intangibles............................................ 1,889 1,774 2,410
Savings Association Insurance Fund assessment.......................... 1,184 -- --
Credit card restructuring charges...................................... -- -- 12,214
Sundry................................................................. 15,423 15,609 11,512
Total noninterest expenses........................................ 51,675 46,882 51,839
Income (loss) before income taxes................................. 16,473 14,370 (1,550)
Income taxes........................................................... 5,999 4,956 190
Net income (loss)................................................. 10,474 9,414 (1,740)
Dividends on preferred stock........................................... 63 2,752 2,433
Net income (loss) applicable to common shareholders............... $ 10,411 $ 6,662 $ (4,173)
NET INCOME (LOSS) PER COMMON SHARE:*
Primary........................................................... $ 0.96 $ 0.87 $ (0.59)
Fully diluted..................................................... 0.92 0.85 (0.59)
AVERAGE COMMON SHARES OUTSTANDING:*
Primary........................................................... 10,839,708 7,676,206 7,004,214
Fully diluted..................................................... 11,371,547 11,129,623 10,114,812
CASH DIVIDENDS DECLARED PER COMMON SHARE*................................ $ 0.25 $ 0.21 $ 0.17
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
* Share data have been restated to reflect the stock dividends and the
six-for-five stock split declared 12/18/96.
27
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
SHARES OF EARNINGS
COMMON PREFERRED COMMON AND
STOCK STOCK STOCK SURPLUS OTHER* TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993........................................ 5,317,350 $ 15,662 $5,317 $41,863 $ 7,573 $ 70,415
Net loss........................................................ -- -- -- -- (1,740 ) (1,740)
Transfer of undivided profits to surplus........................ -- -- -- 56 (56 ) --
Issuance of Series 1994 preferred stock......................... -- 21,444 -- -- -- 21,444
Common stock issued pursuant to:
Stock dividend................................................ 214,380 -- 214 2,466 (2,689 ) (9)
Restricted stock plan......................................... 40,768 -- 41 570 (611 ) --
Dividend reinvestment plan.................................... 44,055 -- 44 559 -- 603
Employee stock purchase plan.................................. 2,247 -- 3 28 -- 31
Exercise of stock options..................................... 141 -- -- 1 -- 1
Cash dividends paid/accrued by Carolina First:
Preferred stock............................................... -- -- -- -- (2,433 ) (2,433)
Common stock.................................................. -- -- -- -- (1,024 ) (1,024)
Treasury shares purchased....................................... -- (92) -- -- -- (92)
Vesting recognized as salary expense............................ -- -- -- -- 236 236
Payment on Employee Stock Ownership Plan debt................... -- -- -- -- 50 50
Unrealized loss on securities available for sale, net of tax.... -- -- -- -- (1,000 ) (1,000)
BALANCE, DECEMBER 31, 1994........................................ 5,618,941 37,014 5,619 45,543 (1,694 ) 86,482
Net income...................................................... -- -- -- -- 9,414 9,414
Common stock issued pursuant to:
Stock dividend................................................ 291,603 -- 292 4,082 (4,393 ) (19)
Blue Ridge merger............................................. 154,141 -- 154 (22) 672 804
Exercise of stock warrants.................................... 12,598 -- 13 60 -- 73
Dividend reinvestment plan.................................... 43,322 -- 43 555 -- 598
Employee stock purchase plan.................................. 6,595 -- 6 82 -- 88
Exercise of stock options..................................... 51,250 -- 51 274 -- 325
Conversion of preferred stock................................. 338,916 (4,197) 339 3,858 (113 ) (113)
Cash dividends paid/accrued by Carolina First:
Preferred stock............................................... -- -- -- -- (2,752 ) (2,752)
Common stock.................................................. -- -- -- -- (1,565 ) (1,565)
Treasury shares sold............................................ -- 92 -- -- -- 92
Vesting recognized as salary expense............................ -- -- -- -- 338 338
Payment on Employee Stock Ownership Plan debt................... -- -- -- -- 50 50
Unrealized gain on securities available for sale, net of tax.... -- -- -- -- 1,152 1,152
BALANCE, DECEMBER 31, 1995........................................ 6,517,366 32,909 6,517 54,432 1,109 94,967
Net income.................................................... -- -- -- -- 10,474 10,474
Common stock issued pursuant to:
Exercise of stock warrants.................................. 38,982 -- 39 186 -- 225
Long-term incentive compensation plan....................... 27,938 -- 28 461 (489 ) --
Dividend reinvestment plan.................................. 55,304 -- 56 628 -- 684
Employee stock purchase plan................................ 10,524 -- 11 167 -- 178
Exercise of stock options................................... 57,993 -- 58 335 -- 393
Conversion and redemption of preferred stock................ 2,647,331 (31,966) 2,647 29,259 -- (60)
Stock split................................................. 1,870,130 -- 1,870 (1,870) (17 ) (17)
Cash dividends paid/accrued by Carolina First:
Preferred stock............................................. -- -- -- -- (63 ) (63)
Common stock................................................ -- -- -- -- (2,626 ) (2,626)
Vesting recognized as salary expense.......................... -- -- -- -- 428 428
Payment on Employee Stock Ownership Plan debt................. -- -- -- -- 50 50
Unrealized gain on securities available for sale, net of
tax......................................................... -- -- -- -- 331 331
BALANCE, DECEMBER 31, 1996...................................... 11,225,568 $ 943 $11,226 $83,598 $ 9,197 $104,964
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
*Other includes unrealized gain (loss) on securities available for sale,
guarantee of Employee Stock Ownership Plan debt and nonvested restricted stock.
28
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................................ $ 10,474 $ 9,414 $ (1,740)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operations
Depreciation................................................................... 3,257 3,284 2,756
Amortization of intangibles.................................................... 1,889 1,774 2,410
Provision for loan losses...................................................... 10,263 6,846 1,197
Deferred income tax expense (benefit).......................................... 472 (967) 1,017
Gain on sale of credit cards................................................... (4,293) -- --
Gain on sale of securities..................................................... (386) (769) (75)
Gain on sale of mortgage servicing rights...................................... (107) (2,943) --
Unrealized loss (gain) on trading securities................................... 44 (51) --
Originations of mortgage loans held for sale................................... (167,510) (110,190) (49,562)
Sale of mortgage loans held for sale........................................... 171,619 116,109 55,099
Proceeds from sale of trading securities....................................... 543,144 452,666 420,378
Proceeds from maturity of trading securities................................... 63,008 23,493 31,176
Purchase of trading securities................................................. (602,144) (480,758) (452,459)
Increase in accrued interest receivable........................................ (1,769) (3,155) (2,299)
Increase in accrued interest payable........................................... 2,935 2,596 775
Increase in other assets....................................................... (11,212) (4,339) (17,410)
Increase (decrease) in other liabilities....................................... 634 (668) (3,439)
Federal Home Loan Bank stock dividend.......................................... -- -- (150)
Net cash provided by (used for) operating activities......................... 20,318 12,342 (12,326)
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-earning deposits with banks............................. (17,374) (7,959) (454)
Net decrease in federal funds sold and resale agreements......................... -- 4,420 55,450
Proceeds from sale of securities available for sale.............................. 30,906 77,570 26,429
Proceeds from maturity of securities available for sale.......................... 169,938 72,160 162,709
Proceeds from maturity of securities held for investment......................... 2,798 10,135 8,110
Purchase of securities available for sale........................................ (268,177) (160,232) (173,712)
Purchase of securities held for investment....................................... (5,974) (39,041) (24,777)
Purchase of loans................................................................ (65,924) (32,911) --
Net increase in loans............................................................ (163,153) (118,663) (264,738)
Securitization and sale of commercial loans...................................... 95,182 -- --
Proceeds from sale of mortgage servicing rights.................................. 900 5,026 --
Proceeds from sale of credit cards............................................... 64,219 -- --
Proceeds from sale of premises and equipment..................................... 8,430 30 424
Capital expenditures............................................................. (3,785) (3,811) (11,209)
Blue Ridge merger................................................................ -- 804 --
Net cash used for investing activities......................................... (152,014) (192,472) (221,768)
CASH FLOWS FROM FINANCING ACTIVITIES
Acquired deposits (net).......................................................... -- -- 97,735
Net increase in deposits......................................................... 185,559 93,743 56,024
Net (decrease) increase in federal funds purchased and repurchase agreements..... (4,388) 57,546 17,261
(Decrease) increase in short-term borrowings..................................... (37,212) 23,169 71,976
Issuance of long-term debt....................................................... -- 25,237 --
Payments of long-term debt....................................................... (34) (52) (78)
Issuance of preferred stock...................................................... -- -- 21,352
Redemption of preferred stock.................................................... (60) -- --
Cash dividends paid.............................................................. (3,130) (4,221) (3,025)
Other common stock activity...................................................... 1,513 1,432 629
Net cash provided by financing activities...................................... 142,248 196,854 261,874
Net increase in cash and due from banks............................................ 10,552 16,724 27,780
Cash and due from banks at beginning of year....................................... 75,770 59,046 31,266
Cash and due from banks at end of year............................................. $ 86,322 $ 75,770 $ 59,046
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
29
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
NOTES TO 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, Blue Ridge Finance Company ("Blue Ridge") and Carolina First
Mortgage Company ("CF Mortgage"). All significant intercompany accounts and
transactions have been eliminated.
The accounting principles followed by the Company and its subsidiaries
and the methods of applying these principles conform with generally accepted
accounting principles and with general practices within the banking industry.
Certain principles which significantly affect the determination of financial
position, results of operations and cash flows are summarized below.
The 1994 financial statements have been restated to reflect
acquisitions consummated during 1995 accounted for using the
pooling-of-interests method of accounting. Acquisitions during 1995 and 1994
that were accounted for as purchases are reflected in the financial position and
results of operations of the Company since the date of their acquisition.
Certain prior year amounts have been reclassified to conform with 1996
presentations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 fair 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 fair value. Such
securities are used to execute asset/liability management strategy and to manage
liquidity. Adjustments for unrealized gains or losses, net of the income tax
effect, are made through shareholders' equity.
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
Loans receivable are stated at unpaid principal balances adjusted for
unamortized premiums and unearned discounts. Carolina First Bank recognizes
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. Loans are considered to be impaired when, in management's
judgment, the collection of principal or interest is not collectible in
accordance with the terms of the obligation. An impaired loan is put on
non-accrual status and future cash receipts are applied to principal only. The
accrual of interest resumes only when the loan returns to performing status.
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 certain mortgage loans, credit card loans
and commercial loans secured by real estate and are carried at the lower of
aggregate cost or market value.
LOAN SALES
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 mortgage 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. The resulting excess
servicing rights, included in other assets, are amortized to operations over the
remaining life of the loans. Management periodically reviews and adjusts the
amortization as necessary.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 122,
30
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
"Accounting for Mortgage Servicing Rights." The statement eliminates the
distinction between originated and purchased mortgage servicing rights. Since
the adoption of SFAS 122, the Company capitalizes the allocated cost of
originated mortgage servicing rights and records a corresponding increase in
mortgage banking income.
The rights to service mortgage loans for others ("mortgage servicing
rights" or "MSRs") are included in other assets. Purchased mortgage servicing
rights are recorded at lower of cost or market. Originated mortgage servicing
rights are capitalized based on the allocated cost which is determined when the
underlying loans are sold or securitized. MSRs are amortized in proportion to
and over the period of estimated net servicing income using a method that is
designed to approximate a level-yield method, taking into consideration the
estimated prepayment of the underlying loans. For purposes of measuring
impairment, MSRs are periodically reviewed for impairment based upon quarterly
external valuations. Such valuations are based on projections 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 inherent 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
inherent 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. In addition, various regulatory agencies periodically review
the Company's allowance for loan losses as part of their examination process and
could require the Company to adjust its allowance for loan losses based on
information available to them at the time of their examination.
CONCENTRATIONS OF CREDIT RISK
The Company makes loans to individuals and small businesses for various
personal and commercial purposes primarily 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.
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, included in other 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.
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
31
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
charged against the allowance for loan losses. Subsequent write-downs that may
be required to the carrying value of these properties are charged to noninterest
expenses. Gains and losses realized from the sale of other real estate owned are
included in noninterest income.
LOAN ORIGINATION FEES
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.
STOCK-BASED COMPENSATION
SFAS 123, "Accounting for Stock-Based Compensation," issued in October
1995, allows a company to either adopt the fair value method of valuation or
continue using the intrinsic valuation method presented under Accounting
Principles Board ("APB") Opinion 25 to account for stock-based compensation. The
fair value method recommended in SFAS 123 requires a company to recognize
compensation expense based on the fair value of the option on the grant date.
The intrinsic value method measures compensation expense as the difference
between the quoted market price of the stock and the exercise price of the
option on the date of grant. The Company has elected to continue using APB
Opinion 25 and has disclosed in the footnotes pro forma net income and earnings
per share information as if the fair value method had been applied.
INCOME TAXES
The Company computes its income taxes in accordance with the provisions
of SFAS 109, "Accounting for Income Taxes." Under SFAS 109, deferred tax
liabilities are recognized on all taxable temporary differences (reversing
differences where tax deductions initially exceed financial statement expense,
or income is reported for financial statement purposes prior to being reported
for tax purposes). In addition, deferred tax assets are recognized on all
deductible temporary differences (reversing differences where financial
statement expense initially exceeds tax deductions, or income is reported for
tax purposes prior to being reported for financial statement purposes) and
operating loss and tax credit carryforwards. Valuation allowances are
established to reduce deferred tax assets if it is determined to be "more likely
than not" that all or some portion of the potential deferred tax assets will not
be realized. Under SFAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
PER SHARE DATA
Primary earnings per share are computed by dividing net income (loss)
applicable to common shareholders by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. Fully
diluted earnings per share are computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period, with common stock equivalents calculated based on
the ending market price, if higher than the average market price. Common stock
equivalents consist of convertible preferred stock, stock warrants and options
and are computed using the treasury stock method. The weighted average number of
shares outstanding during prior periods for primary and fully diluted earnings
per share was adjusted retroactively for pooling-of-interests acquisitions.
Share and per share data have been restated to reflect the December 1996
six-for-five stock split, which was effective January 30, 1997, and 5% stock
dividends issued in August 1995 and April 1994.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. Those
standards are based on consistent application of the financial components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished.
This statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996 and is to be
applied prospectively. In December 1996, the FASB issued SFAS 127,
32
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125," which defers for one year the applications of certain requirements under
SFAS 125. The Company does not expect SFAS 125 to have a significant impact on
its financial condition or results of operations.
2 STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash includes currency and coin,
cash items in process of collection and due from banks.
The following summarizes supplemental cash flow data for the years
ended December 31:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Interest paid....................... $56,867 $53,574 $31,734
Income taxes paid................... 4,504 6,194 2,868
Significant non-cash transactions
are summarized as follows:
Conversion of preferred stock into
common stock...................... 31,966 4,197 --
Loans transferred to other real
estate owned...................... 2,800 1,876 647
Change in unrealized gain (loss) on
securities available for sale, net
of tax............................ 331 1,152 (1,000)
One time reclassification of
securities from held for
investment to available for
sale.............................. -- 75,499 --
Transfer of securities from
available for sale to held for
investment in relation to
pooling-of-interests merger....... -- 2,618 --
Blue Ridge merger................... -- 804 --
</TABLE>
3 BUSINESS COMBINATIONS
On February 3, 1995, Carolina First Savings Bank was merged into
Carolina First Bank.
On April 10, 1995, Aiken County National Bank ("ACNB"), a national bank
headquartered in Aiken, South Carolina, was merged into Carolina First Bank.
Carolina First Bank acquired all the outstanding common shares of ACNB in
exchange for 570,349 shares (adjusted for stock dividends and split) of the
Company's common stock. At the merger date, ACNB had approximately $39 million
in total assets, year-to-date net interest income of approximately $569,000 and
year-to-date net income of approximately $117,000.
On June 30, 1995, Midlands National Bank ("MNB"), a national bank
headquartered in Prosperity, South Carolina, was merged into Carolina First
Bank. Carolina First Bank acquired all the outstanding common shares of MNB in
exchange for 737,059 shares (adjusted for stock dividends and split) of the
Company's common stock. At the merger date, MNB had approximately $44 million in
total assets, year-to-date net interest income of approximately $926,000 and
year-to-date net income of approximately $12,000.
The consolidated financial statements of the Company for all prior
periods give effect to these two mergers, each of which has been accounted for
as a pooling-of-interests. Accordingly, financial statements for all prior
periods have been restated to reflect the results of operations of the companies
on a combined basis from the earliest period presented, except for dividends per
share.
The Company's consolidated financial data for the year ended December
31, 1994 has been restated as follows:
<TABLE>
<CAPTION>
AS
PREVIOUSLY CURRENTLY
($ IN THOUSANDS) REPORTED ACNB MNB REPORTED
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net interest income............ $ 39,423 $1,844 $1,993 $43,260
Provision for loan losses...... 950 140 107 1,197
Net income (loss).............. (1,869) (306 ) 435 (1,740)
</TABLE>
On December 29, 1995, the Company acquired all the outstanding shares
of Blue Ridge Finance Company, an automobile finance company based in
Greenville, South Carolina, in exchange for 184,969 (adjusted for stock
dividends and split) shares of the Company's common stock. At the merger date,
Blue Ridge had approximately $4 million in total assets. The transaction was
accounted for as a pooling-of-interests; however, due to the immateriality of
the transaction in relation to the Company's consolidated financial position and
operating results, prior period financial statements have not been restated.
On April 29, 1994, Carolina First 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 $5.8 million, on which a premium of approximately
$533,000 was paid.
On May 2, 1994, Carolina First Bank and Carolina First 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, Carolina First Bank acquired only the deposits and select loans
from Republic National Bank's main office branch
33
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
in Columbia. With this transaction, Carolina First Bank and
Carolina First Savings Bank acquired loans of approximately $37.5 million and
deposits of about $135.3 million, on which a premium of approximately $5.4
million was paid.
The acquisitions in 1994 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 January 29, 1997, the Company announced the signing of a non-binding
letter of intent to acquire Lowcountry Savings Bank, Inc. ("Lowcountry"). The
Company plans to merge Lowcountry into Carolina First Bank, a wholly-owned
subsidiary of the Company. This transaction is valued at approximately $13.3
million with 60% payable with the Company's $1 par value common stock ("Common
Stock") and 40% payable in cash. Lowcountry has five offices in the greater
Charleston area and had approximately $76 million in assets and $62 million in
deposits at December 31, 1996. This transaction, which is subject to the
execution of a definitive agreement and the receipt of regulatory and Lowcountry
shareholder approval, is expected to be completed in the third quarter of 1997.
The Company will record the acquisition using the purchase method of accounting.
In September 1996, the Company announced the divestiture of five
branches located in Barnwell, Blackville, Salley, Springfield and Williston. The
branches are being sold to the Bank of Barnwell County (in organization),
expected to be a wholly-owned subsidiary of Community Capital Corporation, a
South Carolina corporation headquartered in Greenwood, South Carolina. This
transaction is scheduled to be completed in the first quarter of 1997 and is
subject to regulatory approval among other conditions.
4 RESTRICTIONS ON CASH AND DUE FROM BANKS
Carolina First 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, 1996 and 1995
were approximately $20,454,230 and $16,067,000, respectively.
5 SECURITIES
The aggregate amortized cost and fair values of securities at December
31 were as follows:
<TABLE>
<CAPTION>
1996
AMORTIZED GROSS UNREALIZED FAIR
($ IN THOUSANDS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR
SALE
U.S. treasury securities.... $ 166,923 $ 512 $ 5 $167,430
Obligations of U.S.
government agencies and
corporations.............. 39,494 -- 260 39,234
Other securities............ 6,740 979 494 7,225
$ 213,157 $1,491 $759 $213,889
SECURITIES HELD FOR
INVESTMENT
Obligations of states and
political subdivisions.... $ 29,113 $ 396 $ -- $ 29,509
Other securities............ 352 -- -- 352
$ 29,465 $ 396 $ -- $ 29,861
</TABLE>
<TABLE>
<CAPTION>
1995
GROSS
AMORTIZED UNREALIZED FAIR
($ IN THOUSANDS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE
FOR SALE
U.S. treasury securities...... $ 97,118 $ 71 $ 49 $ 97,140
Obligations of U.S. government
agencies and corporations... 36,741 63 98 36,706
Other securities.............. 12,322 115 11 12,426
$ 146,181 $249 $158 $146,272
SECURITIES HELD FOR INVESTMENT
Obligations of states and
political subdivisions...... $ 25,937 $381 $ -- $ 26,318
Other securities.............. 352 -- -- 352
$ 26,289 $381 $ -- $ 26,670
</TABLE>
In November 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," which allowed entities a one-time reclassification of
their investment securities without tainting their investment portfolio. This
was to be done before December 31, 1995. In December 1995, the Company
reclassified $75,499,000 of its held for investment portfolio to its available
for sale portfolio in accordance with this Special Report.
The amortized cost and estimated fair value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual
34
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Fair value of securities was
determined using quoted market prices.
<TABLE>
<CAPTION>
1996
<S> <C> <C>
AMORTIZED FAIR
($ IN THOUSANDS) COST VALUE
SECURITIES AVAILABLE FOR SALE
Due in one year or less.................... $ 54,324 $ 54,352
Due after one year through five years...... 152,093 152,312
No contractual maturity.................... 6,740 7,225
$ 213,157 $213,889
SECURITIES HELD FOR INVESTMENT
Due in one year or less.................... $ 1,464 $ 1,467
Due after one year through five years...... 16,786 16,962
Due after five years through ten years..... 9,786 9,984
Due after ten years........................ 1,429 1,448
$ 29,465 $ 29,861
</TABLE>
Gross realized gains and losses on sales of securities for the years
ended December 31 were:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Gross realized gains..................... $449 $1,156 $ 252
Gross realized losses.................... (63 ) (387) (177)
Net gain on sale of securities........... $386 $ 769 $ 75
</TABLE>
The change in the unrealized gain on securities available for sale, as
recorded in shareholders' equity, for the year ended December 31, 1996 was
$331,000. Securities with an approximate book value of $122,627,000 and
$120,851,000 at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits and for other purposes. Estimated market values of securities
pledged were $122,943,000 and $121,213,000 at December 31, 1996 and 1995,
respectively.
6 EQUITY INVESTMENTS
At December 31, 1996, the Company owned 128,366 shares of common stock
of Affinity Technology Group, Inc. ("Affinity") and a warrant to purchase an
additional 5,871,340 shares for a purchase price of approximately $0.0001 per
share. At December 31, 1996, the investment in Affinity's common stock, included
in securities available for sale, was recorded at its book value of $12. The
warrant to purchase Affinity shares was not reported on the Company's balance
sheet as of December 31, 1996. The Company's shares in Affinity are, and the
shares issuable upon the exercise of the warrant to purchase Affinity shares
will be, "restricted" securities as that term is defined in federal securities
laws. On April 15, 1996, the Company transferred its Affinity common stock and
the warrant to purchase Affinity stock to Blue Ridge.
The Company is participating in the development of Atlanta Internet
Bank, an on-line, real-time Internet bank. Atlanta Internet Bank commenced
operations in October 1996 as a service of Carolina First Bank. The organizers
of Atlanta Internet Bank are planning an initial public offering for completion
in 1997. Upon completion of the public offering and receipt of regulatory
approvals, Carolina First Bank will transfer the assets and liabilities related
to the operation of Atlanta Internet Bank to the newly-formed entity, in which
the Company is expected to own approximately 40%. Related to the development of
Atlanta Internet Bank, Carolina First Bank has funded approximately $1,058,000
in start-up costs which are included in other assets and are expected to be
reimbursed following the completion of the initial public offering for Atlanta
Internet Bank.
7 LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December
31:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
Real estate -- mortgage................. $ 245,096 $ 217,899
Real estate -- construction............. 36,757 31,552
Commercial and industrial............... 196,206 188,255
Commercial and industrial secured by
real estate........................... 378,471 234,153
Consumer................................ 140,206 149,216
Credit cards............................ 40,480 86,901
Lease financing receivables............. 91,321 36,740
Loans held for sale..................... 10,449 125,000
Gross loans............................. 1,138,986 1,069,716
Less unearned income.................... 14,211 7,056
Less allowance for loan losses.......... 11,290 8,661
Net loans............................... $1,113,485 $1,053,999
</TABLE>
On January 1, 1995, the Company adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan." SFAS 114 requires that impaired loans and
certain restructured loans be measured at the present value of expected future
cash flows discounted at the loan's effective interest rate, at the loan's
observable market price or at the fair value of the collateral if the loan is
collateral dependent. A specific reserve is set up for each impaired loan.
35
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
Also on January 1, 1995, the Company adopted 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.
At December 31, 1996 and 1995, nonaccrual loans were $960,000 and
$1,275,000, respectively. Foregone interest income was approximately $180,000 in
1996, $269,000 in 1995 and $220,000 in 1994. Interest income recognized on these
loans during 1996, 1995 and 1994 was approximately $317,000, $373,000 and
$49,000, respectively. The nonaccrual loans were considered to be impaired loans
under SFAS 114. The average recorded investment in impaired loans in 1996 and
1995 was $1,664,000 and $1,261,000, respectively. The related allowances for
these impaired loans were $680,000 and $669,000, respectively.
Foreclosed loans included in other real estate owned amounted to
$3,097,000 and $2,348,000 at December 31, 1996 and 1995, respectively. At
December 31, 1996 and 1995, loans included $1,909,000 and $1,085,000 in
restructured loans.
Changes in the allowance for loan losses were:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year......... $ 8,661 $ 6,002 $ 6,679
Blue Ridge merger.................... -- 128 --
Valuation allowance for loans
purchased.......................... 1,261 633 1,077
Provision for loan losses............ 10,263 6,846 1,197
Recoveries on loans previously
charged off........................ 565 311 140
Charge-offs:
Credit cards....................... (4,072) (2,536) (1,641)
Acquired fraudulent loans.......... (1,303) -- --
Other.............................. (4,085) (2,723) (1,450)
Balance at end of year............... $11,290 $ 8,661 $ 6,002
</TABLE>
Carolina First Bank securitized approximately $116 million in
commercial real estate loans on March 14, 1996 and approximately $97 million of
credit card receivables on January 24, 1995. These transaction were recorded as
sales in accordance with SFAS 77, "Reporting by Transferor of Receivables with
Recourse." During 1995, additional credit card receivables totaling
approximately $14 million were securitized. Excess servicing fees related to the
securitizations are recorded during the life of the transaction. The excess
servicing fee is based upon the difference between interest income received from
the borrower less the yield paid to investors, credit losses and normal
servicing fees.
In August 1996, Carolina First Bank sold approximately $55 million in
credit card loans. As a result of this transaction, Carolina First Bank recorded
a gain on the sale of credit cards of $4,293,000. The remaining
available-for-sale credit card portfolio was written down to the lower of cost
or market.
During 1996, the Company purchased approximately $66 million, net of
related unearned income, in lease receivables from a related third party.
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 $14,796,000 and $15,478,000 (which included $2,973,000 relating to
former directors) at December 31, 1996 and 1995, respectively. During 1996, new
loans of approximately $14,955,000 were made, and payments totaled approximately
$12,664,000.
8 PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
Land......................................... $ 4,194 $ 6,948
Buildings.................................... 14,196 20,176
Furniture, fixtures and equipment............ 19,983 17,784
Leasehold improvements....................... 7,754 7,479
Construction in progress..................... 62 74
46,189 52,461
Less accumulated depreciation
and amortization........................... 13,771 12,141
$32,418 $40,320
</TABLE>
Depreciation and amortization charged to operations totaled $3,257,000,
$3,284,000 and $2,756,000 in 1996, 1995 and 1994, respectively.
During 1996, the Company sold and leased back seven operating locations
for an aggregate sales price of approximately $8.3 million.
At December 31, 1996, approximately $1,998,000 of land and buildings
was pledged as collateral for long-term debt obligations (Note 15).
36
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
9 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31 are
included in other assets and summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
Goodwill..................................... $ 7,601 $ 8,168
Core deposit premium......................... 8,813 9,938
Credit card premium.......................... 207 276
$16,621 $18,382
</TABLE>
10 MORTGAGE OPERATIONS
Mortgage servicing rights which are included in other assets at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
Servicing rights.............................. $17,595 $9,932
Excess servicing rights....................... 19 27
</TABLE>
The Company paid $14,236,000 for mortgage servicing rights to
approximately $884,878,000 of loans in 1996. The amortization of servicing
rights and excess servicing rights included in loan servicing fees amounted to
$2,574,000, $1,447,000 and $908,000 in 1996, 1995 and 1994, respectively.
Mortgage servicing rights in 1996 were reduced by approximately $4,628,000
related to the sales of mortgage servicing rights.
The fair value of mortgage servicing rights at December 31, 1996 was
approximately $20,413,000. No valuation allowance for capitalized servicing
rights or excess servicing rights was required during the year ended December
31, 1996.
Mortgage banking income includes income from originations and sales of
mortgage loans of $1,392,000, $1,785,000 and $1,066,000 in 1996, 1995 and 1994,
respectively.
In accordance with SFAS 122, the Company capitalized $532,000 and
$281,000 in 1996 and 1995, respectively, representing the allocated cost of
originated mortgage servicing rights, and recorded a corresponding increase in
mortgage banking income. Prior to the adoption of the statement, the allocated
costs of originated mortgage servicing rights were not capitalized.
11 DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
Noninterest-bearing demand deposits..... $ 194,067 $ 160,394
Interest-bearing demand deposits........ 184,450 132,063
Money market accounts................... 177,665 178,662
Savings accounts........................ 57,977 66,552
Time deposits........................... 666,891 557,820
$1,281,050 $1,095,491
</TABLE>
Time deposits in excess of $100,000 totaled $192,338,000 and
$153,907,000 at December 31, 1996 and 1995, respectively.
12
INCOME TAXES
Income tax expense for the years ended December 31 consisted of the
following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
CURRENTLY PAYABLE (REFUNDABLE)
Federal.............................. $5,009 $5,664 $ (827)
State................................ 518 259 --
5,527 5,923 (827)
DEFERRED
Federal.............................. 432 (999) 804
State................................ 40 32 213
472 (967) 1,017
Total income taxes................... $5,999 $4,956 $ 190
</TABLE>
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate of 35% for 1996 and 1995, and 34% for 1994, to
income before income taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Tax expense (benefit) at statutory
rate................................. $5,766 $5,030 $ (527)
Differences resulting from:
Rehabilitation tax credit............ (100) (30) (150)
Effect of Carolina First Savings Bank
merger............................. -- -- 1,005
Change in valuation allowance for
deferred tax assets................ 23 85 36
State tax net of federal benefit..... 363 189 141
Nontaxable interest.................. (402) (329) (227)
Other, net........................... 349 11 (88)
$5,999 $4,956 $ 190
</TABLE>
37
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31 are
presented below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Loan loss allowance deferred for tax
purposes................................... $3,302 $2,385
Excess basis of intangible assets for
financial reporting purposes over tax
basis...................................... 727 1,540
Net operating loss carryforwards............. 382 354
Compensation expense deferred for tax
reporting purposes......................... -- 289
Other........................................ 338 114
4,749 4,682
Less valuation allowance................... 240 217
4,509 4,465
DEFERRED TAX LIABILITIES
Net loan fees deferred for tax purposes...... 1,094 390
Tax depreciation in excess of book
depreciation............................... 1,561 1,205
Unrealized gain on securities available for
sale....................................... 249 47
Tax bad debt reserve recapture adjustment.... 1,183 1,695
Other........................................ 87 119
4,174 3,456
Net deferred tax assets.................... $ 335 $1,009
</TABLE>
A portion of the change in net deferred tax assets relates to
unrealized gains and losses on securities available for sale. The related
current period deferred taxes of $202,000 have been recorded directly to
shareholders' equity. The balance of the change in net deferred tax assets
results from the current period deferred tax expense of $472,000. The net
deferred tax asset is included in other assets in the accompanying consolidated
balance sheets.
The valuation allowance against the potential total deferred tax assets
as of December 31, 1996 and 1995 relates to deductible temporary differences for
state tax purposes. It is management's conclusion that the realization of the
net deferred tax asset recorded is more likely than not. This conclusion is
based upon taxable income in carryback years and conservative projections of
taxable income in future years.
The Company's income tax returns for 1993 and subsequent years are
subject to review by the taxing authorities. There are no significant pending
assessments from taxing authorities regarding taxation issues at the Company or
its subsidiaries.
13 BORROWED FUNDS
Short-term borrowings and their related weighted average interest rates
at December 31 were:
<TABLE>
<CAPTION>
1996 1995
($ IN THOUSANDS) AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Federal funds purchased........ $ 15,000 6.88 % $ 31,000 6.01 %
Repurchase agreements.......... 72,144 4.99 60,532 5.30
FHLB advances.................. 40,000 6.95 90,000 5.75
Commercial paper............... 18,016 6.40 2,405 6.76
Other.......................... 29 7.72 2,852 9.00
$145,189 5.90 % $186,789 5.71 %
</TABLE>
Total loans pledged to the Federal Home Loan Bank ("FHLB") for advances
at December 31, 1996 were $114,053,000.
Federal funds purchased represent unsecured overnight borrowings from
other financial institutions by Carolina First Bank. Repurchase agreements
represent short-term borrowings by Carolina First Bank with maturities ranging
from 1 to 182 days collateralized by securities of the United States government
or its agencies which are held by third-party safekeepers. FHLB advances
represent borrowings from the FHLB of Atlanta by Carolina First Bank pursuant to
lines of credit collateralized by a blanket lien on qualifying loans secured by
first mortgages on 1-4 family residences. These advances have an initial
maturity of one year or less with interest payable monthly. Commercial paper is
issued by the Company with maturities less than 270 days. Other short-term
borrowings represents the current portion of long-term debt.
The maximum short-term borrowings outstanding at any month end were:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
Federal funds purchased and repurchase
agreements............................... $ 95,013 $107,717
Advances from the FHLB..................... 115,000 90,000
Commercial paper and other short-term
borrowings............................... 18,587 5,205
Aggregate short-term borrowings............ 228,600 202,922
</TABLE>
Average short-term borrowings during 1996, 1995 and 1994 were
$158,294,000, $136,799,000 and $41,362,000, respectively. The average interest
rate on short-term borrowings during 1996, 1995 and 1994 were 5.47%, 6.00% and
3.96%, respectively.
38
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
Interest expense on short-term borrowings for the years ended December
31 related to the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Federal funds purchased and repurchase
agreements............................. $4,247 $3,613 $ 851
Advances from the FHLB................... 3,563 4,310 278
Other short-term borrowings.............. 847 273 509
$8,657 $8,196 $1,638
</TABLE>
14 UNUSED LINES OF CREDIT
At December 31, 1996, Carolina First Bank had unused short-term lines
of credit to purchase federal funds from unrelated banks totaling $33,000,000.
These lines of credit are available on a one-to-ten day basis for general
corporate purposes of Carolina First Bank. All of the lenders have reserved the
right to withdraw these lines at their option. At December 31, 1996, Carolina
First Bank had an unused line of credit with the FHLB of Atlanta totaling
$93,000,000.
15 LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995
<S> <C> <C>
9.00% Subordinated Notes; due September 1,
2005; interest payable quarterly........... $25,361 $25,237
Mortgage note payable; interest at 11.25% due
December 31, 2012, with current annual
payments of approximately $125,000......... 1,081 1,084
Employee Stock Ownership Plan note payable to
Wachovia Bank; due December 14, 1997;
interest at 90% of the prime rate, payable
annually................................... -- 26
$26,442 $26,347
</TABLE>
On May 18, 1995, the Company completed its public offering of the 9.00%
Subordinated Notes. The Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after September 1, 2000, at 100%
of the principal amount plus accrued interest to the date of redemption.
The principal maturities of long-term debt for the next five years
subsequent to December 31, 1996 are $29,000 in 1997, $24,000 in 1998, $27,000 in
1999, $17,000 in 2000 and $19,000 in 2001.
16
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of its business. Any litigation is vigorously
defended by the Company and, in the opinion of management based on consultation
with external legal counsel, any outcome of such litigation would not materially
affect the Company's consolidated financial position or results of operations.
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 filed a related action in federal court in Greenwood,
South Carolina 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. The Company believes that
its position with respect to both of these actions is meritorious.
39
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, Mack I. Whittle,
Jr., William S. Hummers III, Steve Powell and Edward J. Sebastian. The complaint
was subsequently amended by a First Amended Complaint, dated November 13, 1996,
Carolina First Corp., et al. v. Whittle, et al., Case No. 96-CP-23-3123
(Greenville County, South Carolina). The named plaintiffs in the amended
complaint are Carolina First Corporation, pursuant to Section 33-7-400 of the SC
Code of Laws, by and through its shareholders, Emory Lester, Beatrice Hutchinson
and John Wesley Purdie, Jr. Plaintiffs allege as causes of action the following:
conversion of corporate opportunity; fraud and constructive fraud (against
Defendants Whittle and Hummers); breach of fiduciary duty and constructive
fiduciary fraud; and negligent management. The factual basis upon which these
claims are made generally involves the payment to Messrs. Whittle, Hummers and
Powell of a bonus in stock held by the Company in Affinity (as reward for their
efforts in connection with the Affinity investment), statements to former
Midlands shareholders in connection with the acquisition of Midlands, alleged
misstatements in the Company's public filings, transactions between the Company
and entities affiliated with Mr. Sebastian, alleged mismanagement by Messrs.
Whittle, Hummers and Sebastian involving financial matters and employee matters.
The complaint seeks damages for the benefit of the Company as follows: for the
first cause of action, an amount that the Defendants have realized from the sale
of Affinity stock, director's fees from Mr. Sebastian, certain undetermined
amounts arising from conflicts of interest and excessive compensation
(summarized as $32 million and the costs of this action). With respect to the
second cause of action (for the benefit of certain former Midlands shareholders
only): damages as much as $3.6 million actual and punitive damages. With respect
to the third cause of action: damages as much as $9.0 million actual and
punitive damages. With respect to the fourth cause of action: damages as much as
$10.0 million actual and punitive damages. The Company believes that this
lawsuit is without merit and expects to defend it vigorously. A motion to
dismiss this action is pending. Since the filing of this motion, plaintiffs have
proposed further amendments to their complaint under which, among other things,
the claims of the second cause of action for the benefit of former Midlands
shareholders would be eliminated. Allegations with respect to these claims
appear in the class action referred to in the following paragraph.
In an action instituted by the same attorneys bringing the foregoing
derivative action, on December 31, 1996, Dan Beckman, Onida Beckman and Dale
Epting filed a class action lawsuit against Carolina First Corporation, Carolina
First Bank and a number of their officers and the majority of the directors of
Carolina First Corporation and Carolina First Bank. In this action, plaintiffs
allege that they are former shareholders of Midlands National Bank and seek to
represent a class of all Midlands shareholders involved in the merger of
Midlands into Carolina First Bank, asserting that the defendants committed
fraud, constructive fraud and breach of fiduciary duty against the defendants by
overstating earnings and thereby adversely affecting the consideration received
by the Midlands shareholders in connection with the merger of Midlands National
Bank into Carolina First Bank. The complaint seeks compensatory damages of
approximately $1.8 million and punitive damages in an amount to be determined by
a jury, attorneys' fees and other costs, Carolina First and the other named
defendants have filed a motion to dismiss all claims asserted in the lawsuit and
believe that there are a number of valid defenses available to them. Both this
case and the case discussed in the preceding paragraph have been designated as
complex litigation and have been assigned to a single judge for handling.
17 LEASE COMMITMENTS
Minimum rental payments under noncancelable operating leases at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
($ IN THOUSANDS)
1997................................................. $ 2,478
1998................................................. 2,385
1999................................................. 2,340
2000................................................. 2,072
2001................................................. 1,982
Thereafter........................................... 16,839
$28,096
</TABLE>
Leases on premises and equipment 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 $1,830,000, $1,484,000
and $1,138,000 in 1996, 1995 and 1994, respectively. The leases typically
provide that the lessee pay property taxes, insurance and maintenance cost.
40
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
18
PREFERRED STOCK
On January 4, 1996, the Company announced the redemption of the 7.50%
Noncumulative Convertible Preferred Stock Series 1993 ("Series 1993 Preferred
Stock"). The redemption date was February 5, 1996. Of the 435,121 shares of
Series 1993 Preferred Stock outstanding, holders of 432,915 shares elected to
convert into Common Stock. Consequently, the Company issued 871,425 shares of
Common Stock.
On January 25, 1996, the Company announced the redemption of the 7.32%
Noncumulative Convertible Preferred Stock Series 1994 ("Series 1994 Preferred
Stock"). The redemption date was February 29, 1996. Of the 909,750 shares of
Series 1994 Preferred Stock outstanding, holders of 903,299 shares elected to
convert into Common Stock. Consequently, the Company issued 1,700,670 shares of
Common Stock.
On February 1, 1997, all outstanding shares of the Series 1993B
Cumulative Convertible Preferred Stock ("Series 1993B Preferred Stock") were
converted into the Company's Common Stock. Consequently, the Company issued
108,341 shares of its Common Stock. Dividends declared on the Series 1993B
Preferred Stock during 1996 were $63,000.
19 PER SHARE INFORMATION
On December 18, 1996, the Company's Board of Directors declared a
six-for-five stock split effected in the form of a 20% common stock dividend.
This stock was issued on January 30, 1997, to common shareholders of record on
January 15, 1997. A total of 1,870,130 shares of Common Stock were issued in
connection with the six-for-five stock split. The stated par value of each share
was not changed from $1. Share and per share data have been restated to reflect
this stock split.
The following is a summary of the earnings per share calculation for
the years ended December 31:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT
SHARE DATA) 1996 1995 1994
<S> <C> <C> <C>
PRIMARY
Average common shares
outstanding............... 10,705,107 7,516,620 7,004,214
Dilutive common stock
options and warrants...... 134,601 159,586 --
Average primary shares
outstanding............... 10,839,708 7,676,206 7,004,214
Net income (loss)........... $10,474 $9,414 $(1,740)
Less dividends on preferred
stock..................... 63 2,752 2,433
Net income (loss) applicable
to common shareholders.... $10,411 $6,662 $(4,173)
Per share amount............ $ 0.96 $ 0.87 $ (0.59)
FULLY DILUTED
Average common shares
outstanding............... 10,705,107 7,516,620 7,004,214
Convertible preferred stock
assumed converted......... 527,745 3,443,787 3,110,598
Dilutive common stock
options and warrants...... 138,695 169,216 --
Average fully diluted shares
outstanding............... 11,371,547 11,129,623 10,114,812
Net income (loss)........... $10,474 $9,414 $(1,740)
Per share amount............ $ 0.92 $ 0.85 $ (0.59)
</TABLE>
20 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 its subsidiaries.
South Carolina's banking regulations restrict the amount of dividends that
Carolina First Bank can pay. All dividends paid from Carolina First Bank are
subject to the prior approval of the Commissioner of Banking and payable only
from the retained earnings of Carolina First Bank. At December 31, 1996,
Carolina First Bank's retained earnings were $29,665,000.
41
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
21 REGULATORY CAPITAL REQUIREMENTS
The Company and Carolina First Bank are 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 Company's and Carolina First Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Carolina First Bank must meet specific
capital guidelines that involve quantitative measures of the Company's and
Carolina First Bank's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's and Carolina
First Bank's capital amounts and classification are 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 Company and Carolina First Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulation) to risk-weighted assets (as defined) and to average
assets (as defined). Management believes, as of December 31, 1996, that the
Company and Carolina First Bank met all capital adequacy requirements.
As of the most recent regulatory examination, the Company and Carolina
First Bank were deemed well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Company and
Carolina First Bank must maintain minimum total risk-based, Tier 1 based and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events, since that examination that management believes have changed the
institution's category.
Following are the required and actual capital amounts and ratios for
the Company and Carolina First Bank as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES: PROVISIONS:
($ IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of December 31,
1996
The Company
Total capital to
risk weighted
assets............. $124,444 10.39% $95,792 8.00 % $119,740 10.00%
Tier 1 capital to
risk weighted
assets............. 87,874 7.34 47,896 4.00 71,844 6.00
Tier 1 capital to
average assets..... 87,874 5.64 62,312 4.00 77,889 5.00
Carolina First Bank
Total capital to
risk weighted
assets............. 118,523 10.06 94,257 8.00 117,821 10.00
Tier 1 capital to
risk weighted
assets............. 107,377 9.11 47,128 4.00 70,692 6.00
Tier 1 capital to
average assets..... 107,377 6.98 61,538 4.00 76,922 5.00
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
As of December 31,
1995
The Company
Total capital to
risk weighted
assets............. $110,607 10.22% $86,591 8.00 % $108,239 10.00%
Tier 1 capital to
risk weighted
assets............. 76,709 7.09 43,296 4.00 64,943 6.00
Tier 1 capital to
average assets..... 76,709 5.49 55,930 4.00 69,913 5.00
Carolina First Bank
Total capital to
risk weighted
assets............. 109,195 10.15 86,088 8.00 107,610 10.00
Tier 1 capital to
risk weighted
assets............. 100,660 9.35 43,044 4.00 64,566 6.00
Tier 1 capital to
average assets..... 100,660 7.23 55,678 4.00 69,598 5.00
</TABLE>
42
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
22 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 balance
sheets.
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.
Loan commitments and letters of credit at December 31, 1996 include the
following:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
<S> <C>
Unused credit card lines............................. $183,588
Other loan commitments............................... 138,950
Standby letters of credit............................ 9,794
Documentary letters of credit........................ 308
</TABLE>
At December 31, 1996, the Company had executed simultaneous
repurchase/reverse repurchase transactions with customers with total principal
amounts of approximately $233,950,000 which are not reflected in the
accompanying balance sheets.
The total portfolios of loans serviced or sub-serviced for
non-affiliated parties at December 31, 1996 and 1995 were $1,141,111,000 and
$1,196,425,000, respectively.
23 RELATED PARTY TRANSACTIONS
The Company has entered into a series of transactions with entities
whose Chief Executive Officer was a director of the Company until 1996. These
transactions include the purchase of branches from Republic National Bank, the
purchase of the credit card receivables from Republic National Bank, the
purchase of mortgage servicing rights from Resource Bancshares Mortgage Group,
Inc. and the purchase of lease financing receivables from Republic Leasing
Company, Inc. Carolina First Bank has also entered into servicing and
solicitation agreements with Republic National Bank pursuant to its credit card
accounts.
During the years ended December 31, 1996, 1995 and 1994, lease payments
aggregating approximately $27,000, $167,000 and $163,000, respectively, were
made to affiliates of directors or companies in which certain directors have an
interest.
These transactions, agreements and lease payments were made in the
ordinary course of business and were on terms comparable to those which would
have been obtained between unrelated parties.
24 STOCK COMPENSATION PLANS
The Company has a Restricted Stock Plan for awards to certain key
employees. Under the Restricted Stock Plan, the Company may grant Common Stock
to its employees for up to 330,750 shares. 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, 1996,
there were 65,962 shares (adjusted for stock dividends and split) 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 $428,000 charged to expense in 1996, $338,000 in 1995 and $236,000
in 1994.
The Company has a Stock Option Plan, warrants to MNB organizers and a
Directors' Stock Option Plan (collectively referred to as stock-based option
plans). Under the Stock Option Plan, the Company may grant options to its
employees for up to 661,500 shares of Common Stock. The exercise price of each
option equals the fair market value of the Company's stock on the date of grant,
and an option's maximum term is
43
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
ten years. Options are exercisable as specified in the agreement, typically on a
cumulative basis over a three to five-year period. Each of MNB's organizers
received one nontransferable warrant to purchase one share of MNB's common stock
for each share they had committed to purchase in the 1988 initial offering. The
exercise price of the warrants is $4.81 per share, and the warrants are
exercisable at any time until their expiration on December 7, 1998. Under the
Directors' Stock Option Plan, non-employee directors of the Company and
subsidiaries receive an option to acquire 1,000 shares of Common Stock on May 1
of each year. The exercise price of each directors' option equals the fair
market value of the Company's stock on the date of grant. Directors' options are
exercisable at any time during the period of time beginning ten months from the
grant date and ending on the tenth anniversary of the grant date.
The Company applies APB Opinion 25 in accounting for the stock-based
option plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option plans. Had
compensation cost been recognized for the stock-based option plans applying the
fair-value-based method as prescribed by SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
<S> <C> <C>
Net income
As reported................................. $10,474 $9,414
Pro forma................................... 10,039 9,321
Primary earnings per share
As reported................................. 0.96 0.87
Pro forma................................... 0.92 0.86
Fully diluted earnings per share
As reported................................. 0.92 0.85
Pro forma................................... 0.88 0.84
</TABLE>
The effects of applying SFAS 123 may not be representative of the
effects on reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 3.25% for both
years; expected volatility of 38% for both years; risk-free interest rate of
6.59% and 6.57%, respectively; and expected lives of 7.5 years for all plans in
both years.
The following is a summary of the activity under the stock-based option
plans for the years 1996, 1995 and 1994. The information has been adjusted for
all stock dividends and the six-for-five stock split.
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January
1................... 390,376 $ 7.74 377,709 $ 6.43 323,769 $ 5.66
Granted.............. 147,950 15.35 93,270 11.54 54,118 11.07
Cancelled............ (36,222) 12.02 (3,925) 10.42 -- --
Exercised............ (117,460) 5.27 (76,678) 5.78 (178) 9.09
Outstanding, December
31.................. 384,644 $ 10.95 390,376 $ 7.74 377,709 $ 6.43
Exercisable, December
31.................. 234,045 $ 9.05 254,352 $ 5.86 242,283 $ 5.29
Weighted-average fair
value of options
granted during the
year................ $15.35 $11.54 $11.07
</TABLE>
The following table summarizes information about stock options
outstanding under the stock-based option plans at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OUTSTANDING AS CONTRACTUAL EXERCISE NUMBER EXERCISABLE EXERCISE
EXERCISE PRICES OF 12/31/96 LIFE PRICE AS OF 12/31/96 PRICE
<C> <C> <S> <C> <C> <C>
$4.81 to $4.81 71,160 2.0 years $ 4.81 71,160 $ 4.81
$6.35 to $7.47 44,185 3.3 6.81 42,642 6.78
$9.09 to $10.87 75,955 7.6 10.23 52,096 10.16
$11.26 to $12.71 56,139 8.3 12.17 14,582 12.09
$14.58 to $15.73 112,605 9.3 14.81 53,565 14.58
$16.20 to $19.58 24,600 9.3 17.87 -- --
$4.81 to $19.58 384,644 6.8 years $ 10.95 234,045 $ 9.05
</TABLE>
25 EMPLOYEE BENEFITS
The Company maintains the Carolina First Salary Reduction Plan and
Trust ("the Plan") for all eligible employees of Carolina First Bank, CF
Mortgage and Blue Ridge. Upon ongoing approval of the Board of Directors, the
Company matches employee contributions equal to five percent of compensation
subject to certain adjustments and limitations. Contributions of $777,000,
$496,000 and $458,000 were charged to operations in 1996, 1995 and 1994,
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, 1996, 1995
44
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
and 1994, contributions of $306,000, $901,000 and $813,000, 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 American Institute of Certified Public Accountants
Statements 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 15). Company contributions to the
ESOP are the primary source of funds used to service the debt.
On January 24, 1996, the Company's Board of Directors awarded 6,289
shares (before a 106-for-1 stock split) of Affinity common stock to certain
officers of the Company deemed most responsible for the Company's investment in
Affinity. Fair value of the Affinity stock award as determined by an independent
third party appraisal was $587,000 which was recorded as compensation expense
and gain on disposition of equity investments.
26 NONINTEREST EXPENSES
The significant components of sundry noninterest expenses for the years
ended December 31 are presented below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Other real estate owned &
other losses............. $ 2,120 $ 364 $ 593
Stationery, supplies, and
printing................. 1,183 1,037 1,223
Telephone.................. 1,144 1,066 940
Postage.................... 1,105 1,127 861
Legal fees, other than
loan-related............. 1,048 486 188
Professional fees.......... 917 783 972
Advertising................ 821 1,427 959
Federal deposit insurance
premiums................. 469 1,983 2,114
Credit card solicitation
charges.................. 383 1,910 --
Other...................... 6,233 5,426 3,662
$ 15,423 $ 15,609 $ 11,512
</TABLE>
27 SAVINGS ASSOCIATION INSURANCE FUND
ASSESSMENT
On September 30, 1996, the President signed into law legislation under
which the Bank Insurance Fund ("BIF"), which is the primary deposit insurance
fund for commercial banks, would be merged with the Savings Association
Insurance Fund ("SAIF"), which is the primary deposit insurance fund for thrifts
and savings banks. In connection with this merger, all members of the SAIF fund,
including non-thrift institutions such as Carolina First Bank which have
acquired deposits from thrift institutions over past years, were required to pay
a one-time assessment of 0.657% of SAIF-insured deposit balances as of March 31,
1995, which was paid on November 30, 1996. Banks that have acquired "Oakar"
deposits before March 31, 1995, such as Carolina First Bank, were allowed a 20%
reduction to the assessment base. In exchange for the one-time assessment,
qualifying members of the SAIF will receive a reduction in their annual
assessment in future years starting in 1997 to 0.0644% for SAIF-insured
deposits. Based on Carolina First Bank's SAIF-insured deposit balances as of
March 31, 1995, the one-time assessment was $1,184,000 in 1996.
28 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 wholly-owned subsidiary, Carolina First
Savings Bank, into Carolina First 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 Carolina First Savings Bank into Carolina First Bank, the
Company incurred income taxes of $1,005,000 due to the different tax treatment
accorded the allowance for loan losses at Carolina First Savings Bank.
45
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
29 PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Carolina First
Corporation (Parent Company only):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
<S> <C> <C>
DECEMBER 31,
($ IN THOUSANDS) 1996 1995
ASSETS
Cash............................................................................................. $ 5,987 $ 1,733
Investment in subsidiaries:
Bank subsidiary................................................................................ 121,722 116,158
Nonbank subsidiaries........................................................................... 3,351 897
Total investment in subsidiaries................................................................. 125,073 117,055
Receivable from subsidiaries..................................................................... 14,392 152
Premises and equipment........................................................................... 169 137
Other investments................................................................................ 120 2,014
Other assets..................................................................................... 3,598 2,785
$149,339 $123,876
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities........................................................... $ 972 $ 1,191
Borrowed funds................................................................................... 43,403 27,718
Shareholders' equity............................................................................. 104,964 94,967
$149,339 $123,876
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
($ IN THOUSANDS) 1996 1995 1994
INCOME
Equity in undistributed net income (loss) of subsidiaries.......................... $ 6,360 $11,272 $(1,646)
Interest income from subsidiaries.................................................. 787 71 98
Dividend income from subsidiaries.................................................. 6,500 -- 500
Sundry............................................................................. 1,810 907 181
15,457 12,250 (867)
EXPENSES
Interest on borrowed funds......................................................... 3,199 1,503 10
Deferred compensation.............................................................. 1,015 338 236
Shareholder communications......................................................... 276 255 287
Sundry............................................................................. 2,049 1,850 1,020
6,539 3,946 1,553
Income (loss) before taxes......................................................... 8,918 8,304 (2,420)
Income tax benefits................................................................ 1,556 1,110 680
Net income (loss).................................................................. $10,474 $ 9,414 $(1,740)
</TABLE>
46
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOW
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
($ IN THOUSANDS) 1996 1995 1994
OPERATING ACTIVITIES
Net income (loss)................................................................ $ 10,474 $ 9,414 $ (1,740)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operations
Equity in undistributed net income (loss) of subsidiaries........................ (6,360) (11,272) 1,646
Depreciation..................................................................... 18 16 18
Increase in other liabilities.................................................... 214 583 143
Decrease (increase) in other assets.............................................. 101 2,342 (4,919)
Net cash provided by (used for) operating activities............................. 4,447 1,083 (4,852)
INVESTING ACTIVITIES
Investment in bank subsidiary.................................................... -- (25,100) (14,000)
Investment in nonbank subsidiaries............................................... (1,235) -- --
Net decrease (increase) in loans to subsidiaries................................. (14,240) 76 --
Decrease (increase) in other investments......................................... 1,324 (441) (480)
Decrease (increase) in fixed assets, net......................................... (50) 210 (381)
Blue Ridge merger................................................................ -- 804 --
Net cash used for investing activities........................................... (14,201) (24,451) (14,861)
FINANCING ACTIVITIES
Increase in borrowings, net...................................................... 15,685 2,355 --
Issuance of Subordinated Notes................................................... -- 25,237 --
Net proceeds from sale of preferred stock........................................ -- -- 21,444
Redemption of preferred stock.................................................... (60) -- --
Cash dividends paid.............................................................. (3,130) (4,221) (3,025)
Other............................................................................ 1,513 1,432 764
Net cash provided by financing activities........................................ 14,008 24,803 19,183
Net change in cash and due from banks............................................ 4,254 1,435 (530)
Cash at beginning of year........................................................ 1,733 298 828
Cash at end of year.............................................................. $ 5,987 $ 1,733 $ 298
</TABLE>
47
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
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 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, accrued interest receivable and payable 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, interest-earning deposits with banks, federal funds purchased and
repurchase agreements and other short-term borrowings.
Fair value for variable rate loans that reprice frequently is based on
the carrying value. Fair value for mortgage loans, consumer loans and all other
loans (primarily commercial and industrial loans) with fixed rates of interest
is based on the discounted present value of the estimated future cash flows less
the allowance for loan losses. Discount rates used in these computations
approximate the rates currently offered for similar loans of comparable terms
and credit quality.
The carrying amount for loan commitments and letters of credit, which
are off-balance sheet financial instruments, approximates the fair value since
the obligations are typically based on current market rates.
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 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.
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>
CARRYING 1996 FAIR CARRYING 1995 FAIR
($ IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks.............................. $ 86,322 $ 86,322 $ 75,770 $ 75,770
Interest-earning deposits with banks................. 26,037 26,037 8,663 8,663
Trading securities................................... 2,005 2,005 5,805 5,805
Securities available for sale........................ 213,889 213,889 146,272 146,272
Securities held to maturity.......................... 29,465 29,861 26,289 26,670
Loans receivable..................................... 1,113,485 1,191,583 1,053,999 1,055,693
FINANCIAL LIABILITIES
Deposit liabilities.................................. 1,281,050 1,303,304 1,095,491 1,096,892
Federal funds purchased and repurchase
agreements......................................... 87,144 87,144 91,532 91,532
Short-term borrowings................................ 58,045 58,045 95,257 95,257
Long-term debt....................................... 26,442 27,594 26,347 27,314
</TABLE>
48
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
31 QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly
results of the Company and its subsidiaries for the years ended December 31:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
SHARE DATA) 1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $28,097 $22,913 $28,530 $24,001 $30,013 $26,351 $30,232 $28,485
Interest expense........ 14,670 10,506 14,617 12,143 15,278 13,746 15,237 14,583
Net interest income..... 13,427 12,407 13,913 11,858 14,735 12,605 14,995 13,902
Provision for loan
losses................ 1,500 3,400 1,775 990 4,896 1,000 2,092 1,456
Net interest income
after provision for
loan losses........... 11,927 9,007 12,138 10,868 9,839 11,605 12,903 12,446
Noninterest income...... 4,290 5,153 3,623 3,643 8,662 3,893 4,766 4,637
Noninterest expenses.... 12,679 10,825 11,677 11,119 14,792 11,824 12,527 13,114
Income before taxes..... 3,538 3,335 4,084 3,392 3,709 3,674 5,142 3,969
Income taxes............ 1,310 1,134 1,412 1,163 1,374 1,203 1,903 1,456
Net income.............. 2,228 2,201 2,672 2,229 2,335 2,471 3,239 2,513
Dividends on preferred
stock................. 16 727 16 685 16 687 15 653
Net income applicable to
common
shareholders.......... $ 2,212 $ 1,474 $ 2,656 $ 1,544 $ 2,319 $ 1,784 $ 3,224 $ 1,860
Net income per
common share:*
Primary............... $ 0.23 $ 0.20 $ 0.24 $ 0.20 $ 0.21 $ 0.23 $ 0.28 $ 0.24
Fully diluted......... 0.20 0.20 0.24 0.20 0.20 0.22 0.28 0.23
Average common shares
outstanding:*
Primary............... 9,540,718 7,453,642 11,234,497 7,662,574 11,254,182 7,723,943 11,316,826 7,867,074
Fully diluted......... 11,323,128 11,149,596 11,347,200 11,178,025 11,373,221 11,208,365 11,429,197 11,228,233
</TABLE>
*Per share data have been restated to reflect the stock dividends and the
six-for-five stock split declared 12/18/96.
49
1996 ANNUAL REPORT
<PAGE>
(Carolina First Corporation logo)
Directory
Boards of Directors
R. Cobb Bell *
Certified Public Accountant
Claude M. Epps, Jr. *
President and Managing Shareholder
Bellamy, Rutenberg, Copeland,
Epps, Gravely & Bowers, P.A.
Judd B. Farr +*
President
Greenco Beverage Co., Inc.
C. Claymon Grimes, Jr. +*
Attorney
M. Dexter Hagy +*
Principal, Vaxa Capital Management
Chairman, BPM Technology, Inc.
Keith C. Hinson *
President
Waccamaw Land and Timber
Michael R. Hogan *
President
Puckett, Scheetz & Hogan
William S. Hummers III +*
Executive Vice President
and Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
James J. Johnson *
President and Treasurer
Dargan Construction
Company, Inc.
David L. Morrow *
Executive Vice President
Carolina First Bank
John M. Palms, Ph.D. *
President
University of South Carolina
Walter J. Roberts, Jr., M.D. *
Internist
Medical Director SCMA-PCN
H. Earle Russell, Jr., M.D. +*
Surgeon
Greenville Surgical Associates
Jasper Salmond *
Senior Marketing Coordinator
Wilbur Smith Associates
Charles B. Schooler, O.D. +*
Optometrist
Elizabeth P. Stall +*
Investments
Eugene E. Stone, IV +*
Chief Executive Officer
Stone Manufacturing Company
James W. Terry, Jr. *
President
Carolina First Bank
William R. Timmons, Jr. +*
Chairman
Carolina First Corporation
Chairman
Canal Insurance Company
Mack I. Whittle, Jr. +*
President and Chief
Executive Officer
Carolina First Corporation
Chairman and Chief
Executive Officer
Carolina First Bank
Thomas C. "Nap" Vandiver +*
Chairman Emeritus
Carolina First Bank
Legend:
+ Carolina First Corporation
* Carolina First Bank
Advisory Board Members
Anderson
James W. Braswell, Jr.
A. Reese Fant
Daniel J. Fleming, M.D.
William W. Jones
D. Gray Suggs
Columbia/Midlands
Thomas N. Bagnal, Jr.
T. Moffatt Burriss
John Ducate, Jr.
S. Stanley Juk, Jr., M.D.,
FACC
Jerry Kline
Robert C. Pulliam
James T. Tharp
Grace G. Young
Georgetown County
Alan S. Altman
T.M. Andrews
James H. Call
William F. Fairey, M.D.
Douglas G. Mahon, III
Robert B. Plowden, Jr.
Julian A. Reynolds, Jr.
R. Frank Swinnie, Jr.
Greenville
Alfred N. Bell, Jr.
Steven R. Brandt
Nesbit Q. Cline, Sr.
R. Jack Dill, Sr.
R. Montague Laffitte, Jr., M.D.
A. Foster McKissick, III
Mary Louise Mims
James B. Orders, III
E. Hays Reynolds, III
Porter B. Rose
Jimmie Tate
Morris E. Williams, M.D.
Hardeeville
Edith Brown
Richard Crosby
Ronald Harvey
J. Willock Horton
David A. Lassiter
Gertrude Harvey Leonard
Horry County
W. Scott Brandon
H. Eugene Butler, III, DMD
Donald M. Carriker
Edward C. Cribb, Jr.
Roger E. Grigg
Debby Leonard
Luther O. McCutchen, III
Daniel W. R. Moore, Sr.
Edward L. Proctor, Jr. M.D.
Jonathan Smith
Lake City
Marlene T. Askins
Joe F. Boswell
Matthew C. Brown
Roger K. Kirby
Laura Landrum
James C. Lynch, Sr.
E. Leroy Nettles, Jr.
L. L. Propst, Jr.
William J. Sebnick
Newberry
Dan H. Hamm, Jr.
Terry L. Koon
Heyward D. Shealy
C. Gurnie Stuck
Piedmont
Max W. Kennedy
Al McAbee, Jr.
John McCoy
Ridgeland
G. Dwaine Malphrus, Jr.
F. A. Nimmer
R. Bailey Preacher
H. Klugh Purdy
Harold H. Wall
Swansea
Paul E. Argoe
J. E. Hendrix
Roy Lucas
Mary Lewis Smith
Lawrence Kit Spires
50
CAROLINA FIRST CORPORATION
<PAGE>
(Carolina First Corporation logo)
Principal Officers
Charles D. Chamberlain
Executive Vice President
Carolina First Bank
C. Daniel Dobson, Jr.
Executive Vice President
Carolina First
Mortgage Company
William S. Hummers III
Executive Vice President
and Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
David L. Morrow
Executive Vice President
Carolina First Bank
Joseph C. Reynolds
President
Carolina First
Mortgage Company
Wade H. Shugart
Executive Vice President
Carolina First Bank
H. Byrce Solomon, Jr.
President
Blue Ridge Finance Company
James W. Terry, Jr.
President
Carolina First Bank
Alan H. Verch
Executive Vice President
Carolina First
Mortgage Company
Mack I. Whittle, Jr.
President and Chief
Executive Officer
Carolina First Corporation
Chairman and Chief
Executive Officer
Carolina First Bank
Banking Offices
Aiken
Main Office
142 Chesterfield Street, S.E.
803-649-9991
2286 Whiskey Road
803-642-0300
Anderson
Main Office
1722 North Main Street
864-224-9520
110 West Shockley
Ferry Road
864-231-5971
Andrews
201 South Morgan Avenue
803-264-3571
Bennettsville
405 East Main Street
803-479-1121
Chapin
260 Columbia Avenue
803-345-1066
Charleston
Main Office
1 Broad Street
803-769-2929
556 E. Bay Street (Drive up)
(Opening in 1997)
Bi-Lo at Mt. Pleasant
923 Houston Northcutt Boulevard
803-769-2945
852 Orleans Road
803-763-0072
Bi-Lo at Savannah Highway
1621 Savannah Highway
803-769-2943
Columbia
Main Office
1225 Lady Street
803-540-2700
1940 Blossom Street
803-771-8919
Columbia Mall
7171 Two Notch Road
803-253-7873
Kroger at Decker Boulevard
2500 Decker Boulevard
803-929-5397
1420 Lady Street
803-929-5372
380 St. Andrews Road
803-929-5376
7389 Sumter Highway
803-253-8893
Trenholm Plaza
4840 Forest Drive
803-253-8890
10000 Two Notch Road
803-253-8888
Edgefield
309 Main Street
803-637-3147
Garden City
Kroger at Garden City
2939 Highway 17
(Opening in 1997)
Georgetown
Main Office
1031 Front Street
803-546-4163
706 North Fraser Street
803-546-6100
Greenville
Main Office
102 South Main Street
864-255-7900
101 Cleveland Street
864-255-7904
200 East Camperdown Way
864-255-4763
917 Haywood Road
864-255-7917
1295 South Pleasantburg Drive
864-239-6432
1450 Wade Hampton Boulevard
864-255-4900
1216 Woodruff Road
864-239-4650
Blue Ridge
Finance Company
355 Woodruff Road
Suite 210
864-458-7134
Hardeeville
114 North Coastal Highway
803-784-2216
Hilton Head
401 William Hilton Parkway
803-689-2707
Irmo
1265 Lake Murray Boulevard
803-748-7008
Johnston
406 Lee Street
803-275-4467
Lake City
133 West Main Street
803-394-8563
Lexington
575 Columbia Avenue
803-356-8500
Litchfield
1 Wall Street
803-237-9111
Mauldin
305 Neely Ferry Road
864-234-3180
McColl
114 Main Street
803-523-5381
Myrtle Beach
Main Office
2003 Oak Street
803-448-9458
Kroger at Galleria
9608 Highway 17 North
803-497-2567
Newberry
2633 Winnsboro Road
803-321-0433
North Myrtle Beach
Kroger at North
Myrtle Beach
781 Main Street
803-249-3781
Piedmont
15 Main Street
864-845-7563
Prosperity
305 Main Street
803-364-7300
Ridgeland
114 North Green Street
803-726-5518
Surfside
Kroger at Surfside
5900 Highway 17 South
803-238-0301
Swansea
200 South Brecon Avenue
803-568-2133
Taylors
3406 Wade Hampton Boulevard
864-239-4680
51
1996 Annual Report
<PAGE>
(Carolina First Corporation logo)
Shareholder Information
Stock Listing
Carolina First Corporation common
stock is traded on The Nasdaq Stock
Market's National Market under the
symbol, CAFC. At December 31, 1996,
there were 2,918 common shareholders
of record.
Market Makers
J.C. Bradford & Co.
Fox-Pitt, Kelton Inc.
Friedman, Billings, Ramsey & Co. Inc.
Interstate/Johnson Lane
Keefe, Bruyette & Woods, Inc.
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company, Inc.
Sterne, Agee & Leach
Wheat First Securities, Inc.
Dividend Calendar
Dividends, if approved by the Board of
Directors, are customarily paid to share-
holders of record as follows:
Record Dates: January 15, April 15, July 15
and October 15
Payment Dates: February 1, May 1,
August 1 and November 1.
Annual Meeting
The Annual Meeting of Shareholders of
Carolina First Corporation will be held at
10:30 a.m., May 8, 1997, at the Gunter
Theatre, Peace Center for the Performing
Arts, Greenville, South Carolina.
Dividend
Reinvestment Plan
Carolina First Corporation has a
Dividend Reinvestment Plan which allows
shareholders to purchase additional
shares of common stock at a 5% discount
by reinvesting their cash dividends.
Participants in the Plan may also invest
additional cash, up to a maximum of
$10,000 per month, for purchase of com-
mon stock at market value. For more
information, please fill out the card in the
back of this report or call Investor
Relations at (864) 255-4919.
Direct Deposit
of Dividends
Carolina First Corporation offers share-
holders the convenience of direct deposit
of dividend checks. Shareholders may
elect to have their dividend payments
automatically deposited into personal
bank accounts on the same day dividends
are paid. For more information, please fill
out the card in the back of this report or
call the Transfer Agent at 1-800-241-5568.
Shareholder Services
Shareholders seeking information regard-
ing stock transfer, lost certificates, divi-
dends and address changes should contact
the Transfer Agent by calling 1-800-241-
5568 or by writing: Reliance Trust
Company, P.O. Box 48449, Atlanta, GA
30340-4099.
Investor Relations
Analysts, investors and others seeking
financial information should contact:
Mary M. Gentry, Treasurer
Carolina First Corporation
P.O. Box 1029, Greenville, SC 29602
(864) 255-4919
Information about Carolina First
Corporation is now available on the
Internet at: http://www.carolinafirst.com
A copy of the Carolina First Corporation
Annual Report to the Securities and
Exchange Commission on Form 10-K is
available at no charge to shareholders by
contacting Investor Relations.
Quarterly Common Stock Summary
<TABLE>
<CAPTION>
1996 1995
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock price ranges: (1)
High $ 16.67 $ 17.08 $ 19.58 $ 20.52 $ 16.15 $ 13.96 $ 12.10 $ 12.10
Low 14.38 12.92 13.96 13.54 11.25 11.71 10.12 10.91
Close 16.15 15.52 14.58 17.92 14.58 13.54 11.90 11.21
Dividend declared (1) 0.07 0.06 0.06 0.06 0.06 0.05 0.05 0.05
Volume traded 2,608,122 2,989,958 5,341,541 5,162,038 1,792,590 778,306 742,581 468,223
Shares outstanding 11,225,568 9,331,598 9,264,199 9,224,149 6,517,366 6,131,722 5,831,724 5,673,860
</TABLE>
(1) Share data have been restated to reflect stock dividends and the
six-for-five stock split declared 12/18/96.
52
CAROLINA FIRST CORPORATION
<PAGE>
To help us mail more efficiently,
and to help you invest more efficiently,
please fill out and return the attached
cards.
Thank you,
DUPLICATE MAILING/CHANGE OF ADDRESS NOTIFICATION
If you would like to eliminate duplicate mailings, or change the address at
which you receive shareholders mailings, please check the appropriate item
below and complete the following information.
[ ] Eliminate duplicate mailings [ ] Address change
NAME______________________________________
COMPANY NAME______________________________
ADDRESS___________________________________
CITY_____________________ STATE__________ ZIP________________
SIGNATURE_________________________________
(Please sign this card if you are changing your address.)
SHAREHOLDER SERVICES -- DIVIDEND PLANS
Carolina First Corporation offers shareholders convenient plans to automatically
reinvest dividend payments or to automatically deposit payments into personal
bank accounts. For more information on these plans, please check the
appropriate item below and complete for following information.
[ ] Dividend Reinvestment Plan (This information is not an offer to sell or
solicitation of an offer to buy. The offering is made by means of the
Prospectus, which will be mailed upon receipt of this card.)
[ ] Direct Deposit of Dividends
NAME______________________________________
COMPANY NAME______________________________
ADDRESS___________________________________
CITY_____________________ STATE__________ ZIP________________
<PAGE>
(Carolina First logo)
CAROLINA FIRST
The bank that puts South Carolina first.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Carolina First Corporation
We consent to incorporation by reference into the registration statements (Nos.
33-82668, 33-82670, 33-80822, 33-25424, and 33-79668) on Form S-8 and
registration statement (No. 333-06975) on Form S-3 of Carolina First Corporation
of our report dated January 21, 1997, relating to the consolidated balance
sheets of Carolina First Corporation and subsidiaries as of December 31, 1996
and 1995 and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the years then ended, which report
appears in the December 31, 1996 annual report on Form 10-K of Carolina First
Corporation.
(signature of KPMG Peat Marwick LLP
appears here)
KPMG Peat Marwick
Greenville, South Carolina
March 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 86,322 86,322
<INT-BEARING-DEPOSITS> 26,037 26,037
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 2,005 2,005
<INVESTMENTS-HELD-FOR-SALE> 213,889 213,889
<INVESTMENTS-CARRYING> 29,465 29,465
<INVESTMENTS-MARKET> 29,861 29,861
<LOANS> 1,124,775 1,124,775
<ALLOWANCE> 11,290 11,290
<TOTAL-ASSETS> 1,574,204 1,574,204
<DEPOSITS> 1,281,050 1,281,050
<SHORT-TERM> 145,189 145,189
<LIABILITIES-OTHER> 16,542 16,542
<LONG-TERM> 26,442 26,442
0 0
943 943
<COMMON> 9,355 9,355
<OTHER-SE> 94,683 94,683
<TOTAL-LIABILITIES-AND-EQUITY> 1,574,204 1,574,204
<INTEREST-LOAN> 26,352 103,163
<INTEREST-INVEST> 3,230 12,181
<INTEREST-OTHER> 650 1,528
<INTEREST-TOTAL> 30,232 116,872
<INTEREST-DEPOSIT> 13,035 48,649
<INTEREST-EXPENSE> 15,237 59,802
<INTEREST-INCOME-NET> 14,995 57,070
<LOAN-LOSSES> 2,092 10,263
<SECURITIES-GAINS> 216 386
<EXPENSE-OTHER> 12,527 51,675
<INCOME-PRETAX> 5,142 16,473
<INCOME-PRE-EXTRAORDINARY> 3,239 10,474
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,239 10,474
<EPS-PRIMARY> .28 .96
<EPS-DILUTED> .28 .92
<YIELD-ACTUAL> 9.53 9.49
<LOANS-NON> 960 960
<LOANS-PAST> 2,371 2,371
<LOANS-TROUBLED> 1,909 1,909
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 10,541 8,661
<CHARGE-OFFS> 1,843 9,460
<RECOVERIES> (169) 565
<ALLOWANCE-CLOSE> 11,290 11,290
<ALLOWANCE-DOMESTIC> 11,290 11,290
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
