LOWCOUNTRY SAVINGS BANK, INC.
875 LOWCOUNTRY BOULEVARD
MT. PLEASANT, SOUTH CAROLINA 29464
June 4, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Lowcountry Savings Bank, Inc. ("Lowcountry") to be
held at the main office of Lowcountry located at 875 Lowcountry Boulevard, Mt.
Pleasant, South Carolina 29464, on July 3, 1997 at 6:00 p.m., local time.
At the Special Meeting you will be asked to consider and vote upon the
Plan of Merger between Lowcountry and Carolina First Bank and the related
Reorganization Agreement (the "Merger Agreement"), dated as of March 14, 1997,
among Carolina First Corporation, Carolina First Bank, and Lowcountry, which
Merger Agreement is described in the accompanying Proxy Statement/Prospectus. If
the Merger Agreement is approved by holders of two-thirds of the outstanding
stock of Lowcountry, Lowcountry will be merged with and into Carolina First Bank
(the "Merger"). At the effective time of the Merger (the "Effective Time"),
Lowcountry shareholders will become entitled to receive $14.75 per share
(payable in the form of cash and/or Carolina First Corporation common stock as
described herein) for the shares of Lowcountry common stock owned by them. As a
result of the Merger, the Lowcountry common stock will be canceled and Carolina
First Bank will be the surviving corporation. The current Lowcountry offices
will continue in operation as branch offices of Carolina First Bank.
Enclosed herewith are the Notice of Special Meeting of Shareholders, a
Proxy Statement/Prospectus and a Proxy for use in connection with the Special
Meeting. The Proxy Statement/Prospectus includes a description of the terms and
conditions of the Merger and related agreements, financial and other information
about Carolina First Corporation, Carolina First Bank and Lowcountry, and other
information. You are urged to consider carefully the entire Proxy
Statement/Prospectus, including the exhibits thereto.
THE BOARD OF DIRECTORS OF LOWCOUNTRY BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF LOWCOUNTRY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
Because the affirmative vote of holders of at least two-thirds of the
issued and outstanding shares of Lowcountry common stock is required to approve
the Merger, it is important that your shares of Lowcountry common stock be
represented at the Special Meeting, whether or not you are personally able to
attend. You are therefore urged to complete, date and sign the enclosed Proxy,
and return it promptly in the enclosed return envelope, which does not require
any postage if mailed in the United States. If you attend the Special Meeting,
you may vote shares of which you are the record owner in person, even if you
have already returned your Proxy.
Sincerely,
/s/ L. Wayne Pearson
L. WAYNE PEARSON
President and CEO
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LOWCOUNTRY SAVINGS BANK, INC.
875 LOWCOUNTRY BOULEVARD
MT. PLEASANT, SOUTH CAROLINA 29464
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 3, 1997
TO THE SHAREHOLDERS OF LOWCOUNTRY SAVINGS BANK, INC.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the
"Special Meeting") of Lowcountry Savings Bank, Inc. ("Lowcountry") will be held
at the main office of Lowcountry located at 875 Lowcountry Boulevard, Mt.
Pleasant, South Carolina 29464, on July 3, 1997 at 6:00 p.m., local time, for
the following purposes:
1. Consideration of the Merger. To consider and vote upon a proposal to
adopt the Agreement and Plan of Reorganization (the "Merger Agreement") dated as
of March 14, 1997, between Carolina First Corporation, Carolina First Bank and
Lowcountry pursuant to which Lowcountry will be merged with and into Carolina
First Bank (the "Merger").
2. Other Business. To transact such other business as may properly come
before the Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 15, 1997,
are entitled to notice of and to vote at the Special Meeting or any adjournment
thereof. All shareholders, whether or not they expect to attend the Special
Meeting in person, are requested to complete, date, sign and return the enclosed
Proxy in the accompanying envelope. The Proxy may be revoked by the record
shareholder by giving written notice to the Secretary of Lowcountry at any time
before it is voted by submitting a proxy having a later date, by such person
appearing at the Special Meeting and giving notice of revocation to the
corporate officers responsible for maintaining the list of shareholders, or by
giving notice of such revocation in the open meeting of the shareholders.
In connection with the transaction pursuant to which Lowcountry will be
merged into Carolina First Bank (the "Merger"), shareholders are entitled to
assert dissenters' rights under Chapter 13 of Article 33 of the Code of Laws of
South Carolina 1976, as amended. A copy of such Chapter 13 is attached hereto as
Exhibit B.
By Order of the Board of Directors,
/s/ L. Wayne Pearson
L. WAYNE PEARSON
President and CEO
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
<PAGE>
PROXY STATEMENT/PROSPECTUS
CAROLINA FIRST CORPORATION
PROSPECTUS
867,714 SHARES
COMMON STOCK $1 PAR VALUE
LOWCOUNTRY SAVINGS BANK, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
This Proxy Statement/Prospectus relates to the issuance by Carolina
First Corporation of up to 867,714 shares (the "CFC Shares") of its $1 par value
common stock ("CFC common stock") in connection with the proposed merger (the
"Merger") of Lowcountry Savings Bank, Inc. ("Lowcountry") with and into Carolina
First Bank, a wholly-owned subsidiary of Carolina First Corporation. The CFC
Shares are offered to the Lowcountry shareholders as contemplated in the
Reorganization Agreement, dated as of March 14, 1997 (the "Merger Agreement")
and entered into by and among Carolina First Corporation, Carolina First Bank
and Lowcountry. The Merger Agreement provides that in connection with the
Merger, Lowcountry common stockholders will be entitled to receive consideration
equaling $14.75 per share for each outstanding share of Lowcountry common stock.
This consideration will be payable in the form of cash and/or CFC common stock.
Of the aggregate consideration paid by Carolina First Corporation, 40% will be
payable in the form of cash and 60% will be payable in the form of CFC common
stock. Lowcountry shareholders will have the opportunity to elect to receive
their consideration in (1) all cash, (2) 50% cash and 50% stock or (3) all
stock. However, due to the number of Lowcountry shareholders which may elect a
particular option, the mix of the consideration actually paid to a particular
shareholder may vary from the election selected by that shareholder. Cash will
be paid in lieu of fractional shares to which a Lowcountry shareholder becomes
entitled. See "THE PROPOSED TRANSACTION--General Description of the Terms of the
Merger."
This Proxy Statement/Prospectus also serves as the Proxy Statement of
Lowcountry in connection with the solicitation of proxies to be used at the
Special Meeting of Shareholders of Lowcountry (the "Special Meeting") to be held
on July 3, 1997 for the purposes described herein. This Proxy
Statement/Prospectus is first being sent to Lowcountry shareholders on or about
June 4, 1997.
The Merger is subject to certain conditions, including, among others,
approval by the shareholders of Lowcountry at the Special Meeting and approval
by applicable regulatory authorities. Conditions to the Merger not required by
state or federal law may be waived by the respective parties. Any shareholder of
Lowcountry who, at or prior to the Special Meeting, gives written notice that he
dissents from the Merger and does not vote in favor of the Merger shall be
entitled, upon strict compliance with certain statutory procedures, to receive
the value of the Lowcountry common stock owned by such shareholder at the time
and in the manner set forth herein. See "THE PROPOSED TRANSACTION -- Rights of
Dissenting Shareholders of Lowcountry."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY SHAREHOLDERS OF LOWCOUNTRY.
THE LOWCOUNTRY BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE MERGER. FAILURE TO VOTE IS EQUIVALENT TO VOTING AGAINST
THE MERGER.
The CFC common stock is traded on the Nasdaq National Market under
the Nasdaq market symbol "CAFC." On May 28, 1997, the closing bid price of the
CFC common stock, as reported by Nasdaq, was $15.13 per share. There is no
established public trading market for Lowcountry's common stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE CFC SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is June 4, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION.....................................................................................................4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.........................................................................4
OTHER INFORMATION.........................................................................................................5
SUMMARY...................................................................................................................6
Introduction ..........................................................................................................6
Time, Place and Purpose of the Special Meeting.........................................................................6
Parties to the Merger..................................................................................................6
Terms of the Proposed Transaction......................................................................................6
Vote Required and Record Date..........................................................................................7
Recommendation of Board of Directors...................................................................................7
Rights of Dissenting Shareholders......................................................................................7
Certain Differences in Shareholders' Rights............................................................................7
Conditions and Regulatory Approvals....................................................................................7
Termination of the Merger..............................................................................................8
Effective Time of the Merger...........................................................................................8
Opinion of Financial Adviser...........................................................................................8
Certain Income Tax Consequences........................................................................................8
Restrictions on Resales by Affiliates..................................................................................8
Accounting Treatment...................................................................................................8
Market Prices and Dividends............................................................................................8
Selected Consolidated Financial Data..................................................................................10
Comparative Per Share Data............................................................................................13
RISK FACTORS.............................................................................................................14
INFORMATION CONCERNING THE SPECIAL MEETING...............................................................................14
Purpose of the Special Meeting........................................................................................15
Record Date and Voting Rights.........................................................................................15
Proxies .........................................................................................................15
Recommendation........................................................................................................16
THE PROPOSED TRANSACTION.................................................................................................17
General Description of the Terms of the Merger........................................................................17
Background of and Reasons for the Merger..............................................................................18
Opinion of Financial Advisor..........................................................................................21
Exchange of Lowcountry Stock Certificates.............................................................................25
Conditions to Consummation of the Merger..............................................................................25
Termination .........................................................................................................26
Amendment .........................................................................................................26
Conduct of Lowcountry's and Carolina First Corporation's Business Prior to the Effective Time.........................26
Required Regulatory Approvals.........................................................................................27
Operations After the Merger...........................................................................................27
Interests of Certain Persons in the Merger............................................................................28
Accounting Treatment..................................................................................................28
Certain Federal Income Tax Consequences...............................................................................28
Restrictions on Resales by Affiliates.................................................................................30
Rights of Dissenting Shareholders of Lowcountry.......................................................................30
Recommendation of Board of Directors..................................................................................32
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.......................................................................33
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INFORMATION ABOUT CAROLINA FIRST CORPORATION.............................................................................38
In General .........................................................................................................38
Market Prices of and Dividends Paid on CFC Common Stock...............................................................39
Incorporation of Certain Information By Reference.....................................................................40
Certain Regulatory Matters............................................................................................41
INFORMATION ABOUT LOWCOUNTRY.............................................................................................49
General .........................................................................................................49
Market Area and Competition...........................................................................................49
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................50
Monetary Policies.....................................................................................................65
Legal Proceedings.....................................................................................................65
Market for Common Stock and Dividends.................................................................................65
MANAGEMENT INFORMATION...................................................................................................66
Management and Principal Shareholders of Lowcountry...................................................................66
Certain Transactions..................................................................................................67
Management and Principal Shareholders of Carolina First Corporation...................................................67
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................................................................................67
CAROLINA FIRST CORPORATION CAPITAL STOCK.................................................................................69
Common Stock .........................................................................................................69
Preferred Stock.......................................................................................................69
Certain Matters.......................................................................................................70
LEGAL MATTERS............................................................................................................73
EXPERTS..................................................................................................................73
OTHER MATTERS............................................................................................................74
INDEX TO FINANCIAL STATEMENTS OF LOWCOUNTRY SAVINGS BANK, INC...........................................................F-1
EXHIBITS
Merger Agreement.................................................................................................Exhibit A
Sections 33-13-101 ET SEQ. of the SCBCA..........................................................................Exhibit B
Opinion of Trident Financial Corporation.........................................................................Exhibit C
Certain Financial Statements of Carolina First Bank..............................................................Exhibit D
</TABLE>
3
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AVAILABLE INFORMATION
Carolina First Corporation is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon the payment of fees at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
(including Carolina First Corporation) that file electronically with the
Commission.
Carolina First Corporation has filed with the Commission a
Registration Statement (which shall include any amendments thereto) on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the CFC Shares offered hereby. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement and the
exhibits and schedules thereto are available for inspection and copying as set
forth in the preceding paragraph. For further information with respect to
Carolina First Corporation, Lowcountry and the CFC Shares offered hereby,
reference is hereby made to the Registration Statement, including the exhibits
and schedules thereto.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WITH RESPECT TO CAROLINA FIRST CORPORATION WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH A
DOCUMENT UNLESS SUCH EXHIBIT IS SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH
DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON ORAL OR WRITTEN REQUEST TO WILLIAM S.
HUMMERS III, EXECUTIVE VICE PRESIDENT, CAROLINA FIRST CORPORATION, 102 SOUTH
MAIN STREET, GREENVILLE, SC 29601, TELEPHONE NUMBER 864-255-7900. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 27,
1997.
The following documents filed with the Commission are incorporated
herein by reference: Carolina First Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 filed with the Commission pursuant to
Section 13 of the Exchange Act; the description of the CFC common stock which is
contained in Carolina First Corporation's Form 8-A filed with the Securities and
Exchange Commission on or about October 20, 1986, including any amendment or
report filed for the purpose of updating such description; and all other reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of
the fiscal year ended December 31, 1996.
All documents filed by Carolina First Corporation pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained herein or in a
document incorporated herein shall be deemed to be modified or superseded for
purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or
4
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in any other subsequently-filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
OTHER INFORMATION
This Proxy Statement/Prospectus does not cover any resales of the
CFC common stock offered hereby to be received by the shareholders deemed to be
"affiliates" of Carolina First Corporation or Lowcountry upon consummation of
the Merger. No person is authorized to make use of this Proxy
Statement/Prospectus in connection with such resales, although such securities
may be traded without the use of this Proxy Statement/Prospectus by those
shareholders of Carolina First Corporation not deemed to be "affiliates" of
Carolina First Corporation or Lowcountry.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANY
ONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CAROLINA FIRST CORPORATION OR LOWCOUNTRY SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE
A COMPLETE STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THE
ACCOMPANYING EXHIBITS, AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
INTRODUCTION. This Proxy Statement/Prospectus is furnished in
connection with the issuance by Carolina First Corporation of the CFC Shares and
the solicitation of proxies by the Board of Directors of Lowcountry with respect
to the Special Meeting to be held on July 3, 1997 and at any adjournment(s)
thereof, for the purpose of considering and voting upon the Merger of Lowcountry
with and into Carolina First Bank. This Proxy Statement/Prospectus is first
being mailed to shareholders of Lowcountry on or about June 4, 1997.
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING. The Special Meeting
will be held on July 3, 1997 at 6:00 p.m. at Lowcountry's main office, 875
Lowcountry Boulevard, Mt. Pleasant, South Carolina. At the Special Meeting,
shareholders of Lowcountry will consider and vote on the proposal to approve the
Merger Agreement, which provides for the Merger of Lowcountry into Carolina
First Bank and the exchange of Lowcountry common stock for CFC common stock
and/or cash. See "INFORMATION CONCERNING THE SPECIAL MEETING."
PARTIES TO THE MERGER. CAROLINA FIRST CORPORATION. Carolina First
Corporation is a bank holding company headquartered in Greenville, South
Carolina which engages in a general banking business through its three operating
subsidiaries: (1) Carolina First Bank, a South Carolina-chartered commercial
bank headquartered in Greenville, South Carolina, (2) Carolina First Mortgage
Company, a mortgage loan origination and servicing company headquartered in
Columbia, South Carolina and (3) Blue Ridge Finance Company, Inc., an automobile
finance company headquartered in Greenville, South Carolina ("Blue Ridge").
Carolina First Corporation is a South Carolina corporation which was organized
in 1986. At March 31, 1997, it had total assets of approximately $1.6 billion.
Its principal executive offices are located are 102 South Main Street,
Greenville, South Carolina 29601, and its telephone number is (864) 255-7900.
See "INFORMATION ABOUT CAROLINA FIRST CORPORATION."
CAROLINA FIRST BANK. Carolina First Bank is a South
Carolina-chartered bank which is a wholly-owned subsidiary of Carolina First
Corporation. It engages in a general banking business through 47 locations which
are located throughout South Carolina. It began its operations in December 1986
and at March 31, 1997, had total assets of approximately $1.6 billion, total
loans of approximately $1.2 billion and total deposits of approximately $1.3
billion. Carolina First Bank's deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). See "INFORMATION ABOUT CAROLINA FIRST
CORPORATION." The Merger will be effected through the merger of Lowcountry with
and into Carolina First Bank.
LOWCOUNTRY. Lowcountry is a South Carolina-chartered savings
association, the deposit accounts of which are insured by the FDIC. Lowcountry's
principal office is located at 875 Lowcountry Boulevard, Mt. Pleasant, South
Carolina 29464, and its telephone number is (803) 881-0715. As of March 31,
1997, Lowcountry had total assets of approximately $77.7 million, total loans of
approximately $70.9 million, and total deposits of approximately $63.8 million
and operated through five locations. See "INFORMATION ABOUT LOWCOUNTRY."
TERMS OF THE PROPOSED TRANSACTION. Pursuant to the terms of the
Merger Agreement, upon consummation of the Merger, holders of Lowcountry's
common stock will be entitled to receive $14.75 per share for each share of
Lowcountry common stock. This consideration will be payable in the form of cash
and/or CFC common stock. Of the aggregate consideration paid by Carolina First
Corporation, 40% will be payable in the form of cash and 60% will be payable in
the form of CFC common stock. Lowcountry shareholders will have the opportunity
to elect to receive their consideration in (1) all cash, (2) 50% cash and 50%
stock or (3) all stock. However, due to the number of Lowcountry shareholders
which may elect a particular option, the mix of the cash and stock actually paid
to a particular shareholder may vary from the election selected by that
shareholder. Cash will be paid in lieu of fractional shares to which a
Lowcountry shareholder becomes entitled. For purposes of the consideration paid
in the form of stock, the CFC common
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stock will be initially valued at $15.729 per share (resulting in an exchange
ratio of .9377 shares of CFC common stock for each share of Lowcountry common
stock) (the "Exchange Ratio"). However, in the event that the "fair market
value" of the CFC common stock two business days before closing of the Merger is
above $17.29 or below $14.17, the Exchange Ratio shall be recalculated using
such "fair market value", except that the CFC common stock shall never be valued
at more than $19.67 or less than $12.58. Furthermore, in the event that the
"fair market value" of the CFC common stock two business days before closing of
the Merger is more than $19.67 or less than $12.58, either party can elect to
terminate the proposed transaction. For purposes of the foregoing calculations,
"fair market value" of the CFC common stock is defined as the average of the
closing prices as quoted on the Nasdaq National Market for the day in question
and the immediately preceding 29 trading days. See "THE PROPOSED TRANSACTION --
General Description of the Terms of the Merger."
VOTE REQUIRED AND RECORD DATE. Only Lowcountry shareholders of
record at the close of business on May 15, 1997 (the "Record Date") will be
entitled to notice of and to vote at the Special Meeting. The Merger must be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Lowcountry common stock eligible to vote at the Special
Meeting. As of the Record Date, there were 903,576 shares of Lowcountry's common
stock entitled to vote. As of the date hereof, the directors and executive
officers of Lowcountry and their affiliates beneficially owned 374,334 shares,
or approximately 30.4%, of Lowcountry's common stock. Upon consummation of the
transactions contemplated hereby, such persons will beneficially own 351,012
shares of CFC common stock, or 3.1% of the outstanding CFC common stock
(assuming that such shares are exchanged solely for CFC common stock). CFC owns
39,600 shares, or approximately 4.4%, of Lowcountry's outstanding common stock.
These shares will be voted in favor of the Merger.
No shareholder vote is required on behalf of Carolina First
Corporation. Carolina First Corporation will vote all shares of Carolina First
Bank in favor of the Merger. See "THE PROPOSED TRANSACTION."
RECOMMENDATION OF BOARD OF DIRECTORS. THE BOARD OF DIRECTORS OF
LOWCOUNTRY HAS APPROVED THE MERGER AGREEMENT AND BELIEVES THAT THE MERGER IS IN
THE BEST INTERESTS OF LOWCOUNTRY AND ITS SHAREHOLDERS. IT RECOMMENDS THAT
LOWCOUNTRY'S SHAREHOLDERS VOTE FOR THE MERGER. SEE "THE PROPOSED TRANSACTION --
RECOMMENDATION OF BOARD OF DIRECTORS."
RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of Lowcountry who
give written notice at or prior to the Special Meeting that they dissent to the
proposed Merger and who do not vote in favor of the proposed Merger, will be
entitled to obtain payment of the value of their shares of Lowcountry common
stock under South Carolina law. Failure to comply strictly with certain
statutory procedures may result in the forfeiture of such rights. See "THE
PROPOSED TRANSACTION -- Rights of Dissenting Shareholders of Lowcountry."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS. Upon effectiveness of
the Merger, and to the extent that holders of Lowcountry common stock receive
CFC common stock, the Lowcountry shareholders will become shareholders of
Carolina First Corporation, and their rights as shareholders will be determined
by Carolina First Corporation's Articles of Incorporation and Bylaws. The rights
of shareholders of Carolina First Corporation differ from the rights of
shareholders of Lowcountry in several important respects, including with respect
to the right to remove directors and the required shareholder votes on certain
matters, as well as differences resulting from Carolina First Corporation's
implementation of a shareholders' rights plan. See "COMPARATIVE RIGHTS OF
SHAREHOLDERS."
CONDITIONS AND REGULATORY APPROVALS. Consummation of the
transactions contemplated by the Merger Agreement is subject to various
conditions, including receipt of the approval by the FDIC and the South Carolina
State Board of Financial Institutions (the "State Board"), and the shareholders
of Lowcountry. Applications to the FDIC and the State Board seeking approval of
the proposed transaction have been filed. The parties expect that such
applications will be approved. Carolina First Corporation and Lowcountry may
waive certain of the conditions to their respective obligations to consummate
the Merger, other than conditions required by law. See "THE PROPOSED TRANSACTION
- -- Conditions to Consummation of the Merger" and "THE PROPOSED TRANSACTION --
Required Regulatory Approvals."
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TERMINATION OF THE MERGER. The Merger Agreement may be terminated
at any time prior to the closing date (i) by mutual consent of Carolina First
Corporation, Lowcountry and Carolina First Bank; (ii) by either Carolina First
Corporation or Lowcountry if any order preventing consummation of the Merger is
entered by any state or federal governmental or regulatory body; (iii) by either
Carolina First Corporation or Lowcountry if the other party has failed to comply
with the agreements or fulfill the conditions of the Merger Agreement in a way
that is material to the consolidated businesses of either party and has not
cured the failure to comply within a reasonable period of time after being given
notice thereof; (iv) by either Carolina First Corporation or Lowcountry if the
closing has not occurred by September 30, 1997; or (v) by either Carolina First
Corporation or Lowcountry if the fair market value of the CFC common stock two
business days prior to the Closing Date is less than $12.58 per share or greater
than $19.67 per share. The "fair market value" of the CFC common stock means,
with respect to a particular day in question, the average of the high and low
sale prices as quoted on the Nasdaq National Market for that particular day and
the immediately preceding 29 business days. The Merger Agreement may be amended
by mutual written consent of all the parties.
EFFECTIVE TIME OF THE MERGER. The Effective Time of the Merger will
be the time and date specified in the Articles of Merger that are delivered for
filing to the Secretary of State of South Carolina. The Effective Time will
occur as soon as practicable following the date that all conditions specified in
the Merger Agreement have been satisfied or waived. The Effective Time currently
is anticipated to be approximately July 3, 1997, although delays in the
satisfaction of the conditions to consummation of the Merger could result in a
later Effective Time. See "THE MERGER -- Conditions to Consummation of the
Merger."
OPINION OF FINANCIAL ADVISER. Trident Financial Corporation
("Trident") has served as financial adviser to Lowcountry in connection with the
Merger and has rendered an opinion to the Lowcountry Board of Directors that the
exchange ratio of CFC common stock for Lowcountry common stock is fair from a
financial point of view to the Lowcountry shareholders. For additional
information concerning Trident and its opinion, see "THE MERGER -- Opinion of
Financial Adviser" and the opinion of Trident attached as Exhibit C to this
Proxy Statement/Prospectus.
CERTAIN INCOME TAX CONSEQUENCES. Lowcountry will receive an opinion
of counsel to Carolina First Corporation stating that the Merger will constitute
a tax-free reorganization within the meaning of Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"), subject to certain
conditions. However, this opinion of counsel is not binding on the Internal
Revenue Service (the "IRS"). In such opinion, counsel will opine that if certain
conditions are met, no taxable gain or loss for federal income tax purposes will
be recognized by Lowcountry shareholders upon the exchange of Lowcountry common
stock solely for CFC common stock. To the extent that shareholders receive cash
consideration for whole or fractional shares, such shareholders will be taxed to
the extent that the cash exceeds such shareholder's allocated basis in such
Lowcountry common stock. See "THE PROPOSED TRANSACTION - - Certain Federal
Income Tax Consequences." BECAUSE OF THE COMPLEXITIES OF THE FEDERAL INCOME TAX
LAWS AND BECAUSE THE TAX CONSEQUENCES MAY VARY DEPENDING UPON A HOLDER'S
INDIVIDUAL CIRCUMSTANCES OR TAX STATUS, IT IS RECOMMENDED THAT EACH SHAREHOLDER
OF LOWCOUNTRY CONSULT HIS OR HER TAX ADVISOR CONCERNING THE FEDERAL (AND ANY
APPLICABLE STATE, LOCAL OR OTHER) TAX CONSEQUENCES OF THE MERGER.
RESTRICTIONS ON RESALES BY AFFILIATES. Lowcountry has agreed that,
prior to closing, it will use its best efforts to cause certain affiliates of
Lowcountry to deliver written agreements to Carolina First Corporation that they
will not dispose of any shares of CFC common stock received upon consummation of
the Merger except in compliance with Rule 145 under the Securities Act or
otherwise in compliance with the Securities Act and rules and regulations
promulgated thereunder. See "THE MERGER -- Restrictions on Resales by
Affiliates."
ACCOUNTING TREATMENT. The Merger is expected to be accounted for as
a "purchase" of Lowcountry by Carolina First Corporation under generally
accepted accounting principles. See "THE PROPOSED TRANSACTION--Accounting
Treatment."
MARKET PRICES AND DIVIDENDS. CFC common stock is traded on the
Nasdaq National Market. Carolina First Corporation currently pays a regular
quarterly dividend of $.07 per share. Although Carolina First Corporation
currently expects to continue payment of its regular cash dividend on the CFC
common stock, there can be no assurance that Carolina First Corporation's
current dividend policy will continue unchanged after
8
<PAGE>
consummation of the Merger. The declaration and payment of dividends on CFC
common stock is subject to legal restrictions and further depends upon business
conditions, operating results, capital and reserve requirements and the Carolina
First Corporation Board of Directors' consideration of other relevant factors.
Trading in Lowcountry common stock is limited. There are no market
makers for the Lowcountry common stock, and it is not listed on any exchange or
with the Nasdaq Stock Market. Management is aware of transactions in the
Lowcountry common stock at prices ranging from $8.10 to $9.50 per share since
July 3, 1996. These transactions occurred in connection with Lowcountry's stock
offering in August 1996 in which shares were sold at $9.00 and $9.50, with a 10%
discount being given to purchases of at least $100,000. Such trades may not be
indicative of the market value of the Lowcountry common stock. The most recent
trades of which Lowcountry management is aware were the sales of Lowcountry
common stock in the August 1996 offering at the prices ranging from $8.10 to
$9.50.
The information presented in the following table reflects the last
reported sales prices for CFC common stock on January 28, 1997, the last trading
day prior to the public announcement of the proposed Merger, and the Lowcountry
common stock on an equivalent per share basis, calculated by multiplying the
closing price of the CFC common stock on such date by the .9377 Exchange Ratio.
As noted above, the Exchange Ratio is subject to adjustment based on the "fair
market value" of CFC common stock two business days prior to the closing of the
Merger. For purposes of the foregoing calculations, "fair market value" of the
CFC common stock is defined as the average of the closing prices as quoted on
the Nasdaq National Market for the day in question and the immediately preceding
29 trading days. The table also reflects the last reported sales price for CFC
common stock on May 28, 1997:
Market Values Per Share
Carolina First Corporation Lowcountry
Historical Historical Equivalent
January 28, 1997 $17.25 * $16.18
May 28, 1997 $15.75 * $14.77
* Management is aware of transactions in the Lowcountry
common stock at prices ranging from $8.10 to $9.50 per
share since July 3, 1996. These transactions occurred in
connection with Lowcountry's stock offering in August
1996 in which shares were sold at $9.00 and $9.50, with
a 10% discount being given to purchases of at least
$100,000. Such trades may not be indicative of the
market value of the Lowcountry common stock.
Lowcountry shareholders are advised to obtain current market
quotations for the CFC common stock. The market price of CFC common stock at the
Effective Time may be higher or lower than the market price at the time the
Merger Agreement was executed, at the date of mailing this Proxy
Statement/Prospectus, or at the time of the Special Meeting.
Lowcountry paid cash dividends of $.044 per share in 1994 and $0.05
per share in each of 1995, 1996 and 1997. (All dividend information has been
adjusted to reflect stock splits.) South Carolina and federal banking
regulations restrict the amount of dividends that Lowcountry can pay to
shareholders, and all of Lowcountry's dividends to shareholders are subject to
the prior approval of the South Carolina Commissioner of Banking. See
"INFORMATION ABOUT LOWCOUNTRY -- Market for Common Stock and Dividends."
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected unaudited historical financial
information and selected unaudited combined pro forma financial information of
Carolina First Corporation (consolidated) and Lowcountry. This information is
derived from the historical financial statements of Carolina First Corporation
(consolidated) and Lowcountry, and should be read in conjunction with such
historical financial statements and the notes thereto either contained elsewhere
in this Proxy Statement/Prospectus or incorporated herein by reference. The pro
forma financial data is presented using the purchase method of accounting. The
selected pro forma combined unaudited financial information showing the combined
results of Carolina First Corporation (consolidated) and Lowcountry is provided
for informational purposes only. It is not necessarily indicative of actual
results that would have been achieved had the Merger been consummated on the
dates or at the beginning of the periods presented, nor is it necessarily
indicative of future results. For additional pro forma information, see "PRO
FORMA COMBINED FINANCIAL INFORMATION."
CAROLINA FIRST CORPORATION
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data and footnotes)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 20,749 $ 29,358 $ 43,260 $ 50,772 $ 57,070 $ 13,427 $ 15,452
Provision for loan losses 2,318 1,106 1,197 6,846 10,263 1,500 2,952
Noninterest income, excluding
securities transactions 3,483 6,085 8,151 16,557 20,955 4,207 3,008
Securities transactions 633 680 75 769 386 83 84
Noninterest income 4,116 6,765 8,226 17,326 21,341 4,290 3,092
Noninterest expense (1) 18,897 27,294 51,839 46,882 51,675 12,679 12,866
Net income (loss) (1) 2,466 5,418 (1,740) 9,414 10,474 2,228 1,717
Dividends on preferred stock 625 1,930 2,433 2,752 63 16 --
Net income (loss) applicable
to common shareholders (1) 1,841 3,488 (4,173) 6,662 10,411 2,212 1,717
BALANCE SHEET DATA (Period End)
Total assets $616,288 $904,474 $1,204,350 $1,414,922 $1,574,204 $1,401,739 $1,613,906
Debt securities and temporary
investments 100,221 190,683 137,091 187,029 271,396 194,700 278,185
Loans, net of unearned income 455,650 623,646 923,068 1,062,660 1,124,775 1,029,602 1,183,443
Allowance for loan losses 5,276 6,679 6,002 8,661 11,290 9,093 12,039
Nonperforming assets 5,631 5,366 4,722 4,868 5,880 4,819 5,109
Total earning assets 555,871 814,579 1,059,455 1,249,689 1,396,171 1,224,302 1,461,628
Total deposits 555,624 804,549 1,001,748 1,095,491 1,281,050 1,156,921 1,257,005
Borrowed funds 2,591 16,779 106,074 186,789 145,189 108,525 171,379
Long-term debt 1,492 1,274 1,162 26,347 26,442 26,355 26,476
Preferred stock 10,319 15,662 37,014 32,909 943 1,002 --
Shareholders' equity 51,288 70,415 86,482 94,967 104,964 96,564 105,339
PER SHARE DATA (1)(2)
Net income (loss)
per common share:
Primary $ 0.34 $ 0.63 $ (0.59) $ 0.87 $ 0.96 $ 0.23 $ 0.15
Fully diluted 0.34 0.63 (0.59) 0.85 0.92 0.20 0.15
Cash dividends declared -- 0.04 0.14 0.21 0.25 0.06 0.07
Book value per common
share (period end) 7.27 7.70 6.61 7.61 9.26 8.63 9.28
Common shares outstanding:
Weighted average - primary 5,453,681 5,505,461 7,004,214 7,676,206 10,839,708 9,540,718 11,443,468
Weighted average - fully diluted 6,401,692 8,208,935 10,114,812 11,129,623 11,371,547 11,323,128 11,478,383
Period end 5,472,979 6,969,484 7,079,866 7,820,839 11,225,568 9,224,149 11,355,443
FINANCIAL RATIOS
Return on average assets 0.44% 0.69% (0.16)% 0.74% 0.71% 0.62% 0.44%
Return on average equity 5.22 8.27 (1.99) 10.43 10.56 9.29 6.50
Net interest margin 4.01 4.16 4.65 4.54 4.35 4.26 4.52
</TABLE>
- ---------------------------
(1) Includes fourth quarter 1994 restructuring charges of $12,214,000 (pre-tax).
(2) Adjusted for stock dividends and the six-for-five stock split declared
December 18, 1996.
10
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
<TABLE>
<CAPTION>
Six Months Ended
Years ended September 30, March 31,
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- --------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 1,417 $ 1,916 $ 1,885 $ 1,801 $ 2,300 $ 952 $ 1,515
Provision for loan losses 96 130 40 88 47 0 43
Noninterest income 380 758 647 567 956 515 382
Noninterest expense 1,238 1,660 1,614 2,016 2,833 1,150 1,375
Extraordinary item -- -- 100 -- -- -- --
Net income 400 509 656 183 252 215 301
Dividends on common stock -- -- 36 42 42 42 63
BALANCE SHEET DATA (period end)
Total assets $46,372 $48,332 $56,374 $65,053 $75,361 $77,222 $77,659
Temporary investments 2,029 2,926 1,568 1,322 1,576 5,659 2,227
Loans 42,223 43,702 51,868 58,915 68,616 65,186 71,387
Allowance for loan losses 156 281 280 283 368 352 359
Total earning assets 44,252 46,628 53,436 60,237 70,192 70,845 73,614
Total deposits 42,351 42,476 43,791 54,748 61,606 64,108 63,751
Borrowed funds 0 1,000 7,000 4,500 5,500 7,000 6,250
Shareholders' equity 3,323 3,833 4,755 4,896 6,009 5,069 6,247
PER SHARE DATA
Net income per
common share:
Primary $ 0.54 $ 0.68 $ 0.82 $ 0.22 $ 0.30 $ 0.26 $ 0.31
Fully diluted 0.54 0.68 0.82 0.22 0.29 0.26 0.31
Book value per common share
(period end) 4.45 5.14 6.00 6.18 6.65 6.40 6.91
Common shares outstanding:
Weighted average-primary 746,049 746,049 801,533 818,893 843,239 818,893 958,641
Weighted average-fully
diluted 746,049 746,049 792,476 793,476 903,576 903,576 966,160
Period end 746,049 746,049 801,533 818,893 863,643 966,160 903,576
</TABLE>
11
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
OF CAROLINA FIRST CORPORATION AND LOWCOUNTRY SAVINGS BANK, INC.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 AND MARCH 31, 1997 AND
SEPTEMBER 30, 1996 DECEMBER 31, 1996
--------------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 58,707 $ 16,031
Provision for loan losses 10,310 2,976
Noninterest income 22,297 3,286
Noninterest expense 54,878 13,648
Net income 9,946 1,664
Dividends on preferred stock 63 --
Net income applicable to common shareholders 9,883 1,664
PER SHARE DATA (1)
Net income per common share:
Primary $ 0.88 $ 0.14
Fully diluted 0.84 0.14
Cash dividends declared 0.25 0.07
Book value per common share (period end) 9.80 9.81
Common shares outstanding:
Weighted average - primary 11,291,851 11,960,539
Weighted average - fully diluted 11,835,171 11,995,454
Period end 11,711,658 11,841,533
BALANCE SHEET DATA DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------
Total assets $1,655,939 $1,697,284
Debt securities and temporary investments 245,580 263,864
Loans, net of unearned income 1,195,161 1,255,026
Allowance for loan losses 11,686 12,398
Total earning assets 1,466,778 1,535,699
Total deposits 1,343,555 1,320,756
Borrowed funds 177,381 177,973
Long-term debt 26,442 26,476
Preferred stock 943 --
Shareholders' equity 115,744 116,117
- ---------------------------
</TABLE>
(1) Adjusted for stock dividends and stock splits.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables present at the dates and for the periods
indicated (i) certain consolidated historical and pro forma combined per share
data for the CFC common stock after giving effect to the Merger and (ii) certain
historical and pro forma data for the Lowcountry common stock. The pro forma
financial data is presented using the purchase method of accounting, and an
exchange ratio of .9377 shares of CFC common stock for each share of Lowcountry
common stock. The data presented should be read in conjunction with the
historical financial statements and the related notes thereto included elsewhere
herein or incorporated herein by reference and in conjunction with the pro forma
combined condensed financial information included elsewhere herein. The data are
not necessarily indicative of actual results that would have been achieved had
the Merger been consummated at the beginning of the periods presented and are
not indicative of future results.
<TABLE>
<CAPTION>
Carolina First Corporation Lowcountry
Year Ended Year Ended Pro Forma Lowcountry
December 31, 1996 September 30, 1996 Combined Equivalent(1)
----------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Fully diluted earnings per
common share $ 0.92 $ 0.29 $ 0.84 $ 0.79
Cash dividends declared per
common share 0.25 0.05 0.25 0.23
Book value per common
share (year end) 9.26 6.65 9.80 9.19
- -----
</TABLE>
(1) Calculated by multiplying the Pro Forma Combined by the .9377 Exchange
Ratio.
<TABLE>
<CAPTION>
Carolina First Corporation Lowcountry
Three Months Ended Three Months Ended Pro Forma Lowcountry
March 31, 1997 December 31, 1996 Combined Equivalent(1)
--------------------- ------------------- -------- ----------
<S> <C> <C> <C> <C>
Fully diluted earnings per
common share $ 0.15 $ 0.15 $ 0.14 $ 0.13
Cash dividends declared per
common share 0.07 -- 0.07 0.07
Book value per common
share (year end) 9.28 6.81 9.81 9.20
- -----
</TABLE>
(1) Calculated by multiplying the Pro Forma Combined by the .9377 Exchange
Ratio.
13
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the following factors should be considered carefully when
evaluating Carolina First Corporation and the CFC common stock.
DEPENDENCE ON SENIOR MANAGEMENT. Carolina First Corporation is
dependent upon the services of certain of the senior executive officers of
Carolina First Corporation and its subsidiaries. The loss of the services of one
or more of such individuals could have an adverse effect on Carolina First
Corporation. No assurance can be given that replacements for any of these
officers could be employed if their services were no longer available. Carolina
First Corporation maintains key employee insurance on Mack I. Whittle, Jr.,
Carolina First Corporation's Chief Executive Officer.
GROWTH THROUGH ACQUISITIONS. Carolina First Corporation has experienced
significant growth in assets as a result of acquisitions. Moreover, Carolina
First Corporation anticipates engaging in selected acquisitions of financial
institutions and branch locations in the future. There are certain risks
associated with Carolina First Corporation's acquisition strategy that could
adversely impact net income. Such risks include, among others, incorrectly
assessing the asset quality of a particular institution being acquired,
encountering greater than anticipated costs of incorporating acquired businesses
into Carolina First Corporation and being unable to profitably deploy funds
acquired in an acquisition. Furthermore, there can be no assurance as to the
extent that Carolina First Corporation can continue to grow through
acquisitions. In the past, Carolina First Corporation has engaged in
acquisitions accounted for by the purchase method of accounting. Acquisitions
accounted for by the purchase method of accounting may lower the capital ratios
of the entities involved. Consequently, in the event that Carolina First
Corporation engages in significant acquisitions accounted for by the purchase
method of accounting in the future, Carolina First Corporation may be required
to raise additional capital in order to maintain capital levels required by the
Board of Governors of the Federal Reserve System (the "Federal Reserve"). In the
future, Carolina First Corporation may issue capital stock in connection with
additional acquisitions accounted for as a pooling of interests. Such
acquisitions and related issuances of stock may have a dilutive effect on
earnings per share and ownership.
ANTI-TAKEOVER MEASURES. Carolina First Corporation has certain
anti-takeover measures in place. These include (i) a Shareholders' Rights Plan
which, among other things, provides for the dilution of the CFC common stock
holdings of certain shareholders who acquire 20% or more of the CFC common stock
and attempt to acquire Carolina First Corporation without the consent of
management, (ii) certain management contracts which provide for additional
management compensation in the event that executive officers who are a party
thereto are terminated after a change in control of Carolina First Corporation,
and (iii) various charter provisions providing for, among other things, a
"staggered" board of directors and supermajority voting requirements in
connection with the removal of directors without cause and certain business
combinations involving Carolina First Corporation. Any one or more of these
measures may impede the takeover of Carolina First Corporation without the
approval of Carolina First Corporation's Board of Directors. See "CAROLINA FIRST
CORPORATION CAPITAL STOCK."
INFORMATION CONCERNING THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to shareholders
of Lowcountry as of the Record Date in connection with the solicitation of
proxies by the Board of Directors of Lowcountry for use at the Special Meeting
and at any adjournment thereof. The Special Meeting is to be held on July 3,
1997 at 6:00 p.m. at the main office of Lowcountry, 875 Lowcountry Boulevard,
Mt. Pleasant, South Carolina. This Proxy Statement/Prospectus also serves as the
Prospectus of Carolina First Corporation with regard to the offering of the CFC
Shares to shareholders of Lowcountry.
Holders of Lowcountry common stock are requested to complete, date
and sign the accompanying Proxy and return it promptly to Lowcountry in the
enclosed postage-paid envelope.
14
<PAGE>
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and take action
with respect to approval of the Merger Agreement. As required by South Carolina
law, approval of the Merger Agreement will require the affirmative vote of the
holders of two-thirds of the outstanding shares of Lowcountry common stock
entitled to vote on the Merger Agreement. See "Record Date and Voting Rights."
This Proxy Statement/Prospectus, Notice of Special Meeting and the
Proxy are first being mailed to shareholders of Lowcountry on or about June 4,
1997.
RECORD DATE AND VOTING RIGHTS
Only the holders of Lowcountry common stock on the Record Date are
entitled to receive notice of and to vote at the Special Meeting and at any
adjournments thereof. On the Record Date, there were 903,576 shares of
Lowcountry common stock outstanding, which were held by approximately 360
holders of record. Each share of Lowcountry common stock outstanding on the
Record Date is entitled to one vote as to each of the matters submitted at the
Special Meeting.
A majority of the shares entitled to be voted at the Special
Meeting constitutes a quorum. If a share is represented for any purpose at the
Special Meeting by the presence of the registered owner or a person holding a
valid proxy for the registered owner, it is deemed to be present for purposes of
establishing a quorum. Therefore, valid proxies which are marked "Abstain" as to
which no vote is marked, including proxies submitted by brokers that are the
record owners of shares (so-called "broker non-votes"), will be included in
determining the number of shares present or represented at the Special Meeting.
APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
TWO-THIRDS OF THE OUTSTANDING SHARES OF LOWCOUNTRY COMMON STOCK. ACCORDINGLY,
PROXIES MARKED "ABSTAIN" AND SHARES THAT ARE NOT VOTED (INCLUDING BROKER
NON-VOTES) WILL HAVE THE SAME EFFECT AS VOTES AGAINST THE MERGER AGREEMENT.
At May 15, 1997, the directors and executive officers of Lowcountry
and their affiliates owned a total of 374,334 shares, or approximately 30.4% of
Lowcountry common stock. At May 15, 1997, Carolina First Corporation owned
39,600 shares, or approximately 4.4% of Lowcountry common stock, all of which
will be voted in favor of the Merger Agreement.
PROXIES
The accompanying Proxy is for use at the Special Meeting. A record
shareholder may use this Proxy if he is unable to attend the Special Meeting in
person or wishes to have his shares voted by proxy even if he does attend the
Special Meeting. All shares represented by valid proxies received pursuant to
this solicitation that are not revoked before they are exercised will be voted
in the manner specified therein. If no specification is made, the proxies will
be voted FOR approval of the Merger Agreement. The Board of Directors of
Lowcountry is not aware of any other matters that may be presented for action at
the Special Meeting of Shareholders, but if other matters do properly come
before the Special Meeting, it is intended that shares represented by proxies in
the accompanying form will be voted by the persons named in the Proxy in
accordance with their best judgment.
If a quorum is not obtained, or if fewer shares of Lowcountry
common stock are voted in favor of approval of the Merger than the number
required for approval, it is expected that the Special Meeting will be postponed
or adjourned for the purpose of allowing additional time for obtaining
additional proxies or votes, and, at any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the meeting (except for any proxies
which have theretofore effectively been revoked).
15
<PAGE>
The presence of a record shareholder at the Special Meeting will
not automatically revoke such shareholder's proxy. The proxy may be revoked by a
record shareholder (1) by written notice to the Secretary of Lowcountry at any
time before it is voted, (2) by submitting a proxy having a later date, (3) by
such person appearing at the Special Meeting and giving notice of revocation to
the corporate officers responsible for maintaining the list of shareholders, or
(4) by giving notice of such revocation in the open meeting of the shareholders.
Solicitation of proxies may be made in person or by mail, or by
telephone or other electronic means by directors, officers and regular employees
of Lowcountry, who will not be specially compensated in such regard. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
solicitation materials to beneficial owners and secure their voting
instructions, if necessary, and will be reimbursed for the expenses incurred in
sending proxy materials to beneficial owners. Lowcountry will bear the costs
associated with the solicitation of proxies and other expenses associated with
the Special Meeting.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus and, if given or made, such information or representation
should not be relied upon as having been authorized by Lowcountry, Carolina
First Corporation or any other person. The delivery of this Proxy
Statement/Prospectus will not, under any circumstances, create any implication
that there has been no change in the affairs of Lowcountry or Carolina First
Corporation since the date of this Proxy Statement/Prospectus.
RECOMMENDATION
THE LOWCOUNTRY BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT
AND BELIEVES THAT THE PROPOSED TRANSACTION IS FAIR TO AND IN THE BEST INTERESTS
OF LOWCOUNTRY AND ITS SHAREHOLDERS. THE LOWCOUNTRY BOARD OF DIRECTORS RECOMMENDS
THAT LOWCOUNTRY'S SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
16
<PAGE>
THE PROPOSED TRANSACTION
THE FOLLOWING DESCRIPTION OF THE TERMS AND PROVISIONS OF THE MERGER
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS SET
FORTH IN FULL AS EXHIBIT A TO THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED
HEREIN BY REFERENCE.
GENERAL DESCRIPTION OF THE TERMS OF THE MERGER
The Merger Agreement provides for the Merger of Lowcountry with and
into Carolina First Bank. As a result of the Merger, the separate corporate
existence of Lowcountry will cease and Carolina First Bank, as the surviving
entity, will possess all rights, franchises and interests of Lowcountry. As of
the Effective Time of the Merger, certificates of Lowcountry common stock will
represent only the right to receive the requisite number of shares of CFC common
stock and/or cash based on the shareholders' elections. At the Effective Time,
all outstanding options and warrants to purchase Lowcountry common stock will be
converted into the right to receive CFC common stock based on the Exchange
Ratio.
Pursuant to the terms of the Merger Agreement, upon consummation of
the Merger, holders of Lowcountry's common stock will be entitled to receive
$14.75 per share for each share of Lowcountry common stock. This consideration
will be payable in the form of cash and/or CFC common stock. Of the aggregate
consideration paid by Carolina First Corporation to all Lowcountry shareholders,
40% will be payable in the form of cash ("Cash Consideration") and 60% will be
payable in the form of CFC common stock ("Stock Consideration"). Lowcountry
shareholders will have the opportunity to elect to receive their consideration
in (1) all cash, (2) 50% cash and 50% stock or (3) all stock. A holder of
Lowcountry common stock may make only one election with respect to all of such
holder's shares of Lowcountry common stock (although for purposes of this
election, each separate account maintained on the stock transfer books of
Lowcountry shall be deemed to be a separate holder).
For purposes of the Stock Consideration, such CFC common stock
will be initially valued at $15.729 per share (resulting in an initial Exchange
Ratio of .9377 shares of CFC common stock for each share of Lowcountry common
stock). However, in the event that the fair market value of CFC common stock two
business days before closing of the Merger is above $17.29 or below $14.17, the
Exchange Ratio shall be recalculated using such fair market value, except that
the CFC common stock shall never be valued at more than $19.67 or less than
$12.58. Furthermore, in the event that the fair market value of the CFC common
stock two business days before closing of the Merger is more than $19.67 or less
than $12.58, either party can elect to terminate the proposed transaction. For
purposes of the foregoing calculations, "fair market value" of the CFC common
stock is defined as the average of the closing prices as quoted on the Nasdaq
National Market for the day in question and the immediately preceding 29 trading
days.
The priority of the Lowcountry shareholders with respect to the
Cash Consideration will be as follows:
(1) Lowcountry shareholders electing to receive all cash ("Cash
Shareholders") will be paid in all cash to the extent of the
aggregate Cash Consideration (as such aggregate Cash
Consideration is subject to diminution by virtue of
Lowcountry shareholders perfecting dissenters' rights as
described below) or, if the Cash Consideration is
over-subscribed, pro rata among the Cash Shareholders, with
the balance of the Merger consideration payable to such Cash
Shareholders being paid in the form of CFC common stock.
(2) Any portion of the Cash Consideration remaining after payment
of the Cash Shareholders shall be allocated pro rata to the
Lowcountry shareholders electing to receive 50% cash and 50%
stock ("Cash-Stock Shareholders") up to a maximum of 50% of
the Merger consideration to be paid to the Cash-Stock
Shareholders (with the balance of the Merger consideration
owing to the Cash-Stock Shareholders being paid in the form
of CFC common stock).
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(3) With respect to Lowcountry shareholders who elect all stock
("Stock Shareholders"), any portion of the Cash Consideration
remaining after payment of all cash due the Cash Shareholders
and the Cash-Stock Shareholders will be allocated pro rata
among the Stock Shareholders, with the balance of the Merger
consideration owing to the Stock Shareholders being paid in
the form of CFC common stock.
Carolina First Corporation shall be entitled to reduce the Cash
Consideration by $14.75 for each share held by Lowcountry shareholders who
perfect dissenters' rights. After determination of the Merger consideration
payable to each Lowcountry shareholders as contemplated above, CFC may, at its
sole election, elect to pay any Lowcountry shareholder who is only entitled to
receive less than 10 shares of CFC common stock, cash equal to the fair market
value (as defined above) of such shares, in lieu of such shares.
The initial allocation of Cash Consideration and Stock
Consideration will be made immediately following the close of business on the
15th business day after Closing based upon the elections received at that time.
Thereafter, allocations will be made semi-monthly for three months based on
elections received, after which time the remaining Cash Consideration and Stock
Consideration will be allocated pro rata with respect to all shares of
Lowcountry common stock for which no elections have been received.
Consequently, depending upon the number of Lowcountry shareholders
which elect each of the three options, the mix of the consideration actually
paid to a particular shareholder may vary somewhat from the election selected by
that shareholder. (For example, if a large number of Lowcountry shareholders
elect all cash, then there may not be enough cash to fund the entire 50% cash
portion of those shareholders who elected 50% cash-50% stock. Consequently, such
shareholders would receive a greater proportion of their Merger consideration in
the form of CFC common stock.)
Cash will be paid to holders of Lowcountry common stock in lieu of
any fractional share that would otherwise be issuable. The amount of such cash
to be paid in lieu of fractional shares will be based on the fair market value
of the CFC common stock on the last trading day immediately preceding the
Effective Time. The "fair market value" of the CFC common stock means, with
respect to a particular day in question, the average of the high and low sale
prices as quoted on the Nasdaq National Market for that particular day and the
immediately preceding 29 business days.
The Merger Agreement provides that Carolina First Corporation and
Lowcountry will each bear and pay their own costs and expenses incurred in
connection with the transactions contemplated in the Merger Agreement, including
fees of attorneys and accountants.
The Merger will become effective at the Effective Time, which will
be specified in the articles of merger to be filed with the South Carolina
Secretary of State. At the Effective Time, by operation of law, Lowcountry
shareholders will no longer be owners of Lowcountry common stock and (to the
extent that they receive CFC common stock as consideration) will automatically
become owners of CFC common stock. After the Effective Time, each outstanding
certificate representing shares of Lowcountry common stock prior to the
Effective Time shall be deemed for all corporate purposes (other than the
payment of dividends and other distributions by Lowcountry to which the former
shareholders of Lowcountry common stock may be entitled) to evidence only the
right of the holder thereof to surrender such certificate and receive the
consideration as provided in Merger Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Since the passage of legislation in 1986 permitting bank holding
companies in the Southeast to operate in more than one state, the banking
industry in the Southeast has undergone a great deal of consolidation. This
consolidation has resulted in the acquisition of substantially all of the large
South Carolina banks by the larger out-of-state regional banking concerns. It
was in this consolidating environment that both Carolina First Corporation and
Lowcountry were created. Both institutions sought to target individuals and
small to medium-sized businesses in South Carolina that were believed to be
ignored by the larger regional banking
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concerns.
Carolina First Corporation's objective is to become the leading
South Carolina banking institution headquartered in the state. It believes that
it can accomplish this goal by being a "super-community" bank which offers both
the personalized service and "relationship" banking typically found in community
banks, as well as the sophisticated banking products offered by the regional and
super-regional institutions. Since its inception, it has pursued a strategy of
growth both internally and through acquisitions. As a result of such strategy,
Carolina First Corporation has engaged in numerous acquisitions of financial
institutions, branch locations and other financial assets since 1990. To effect
such strategy, Carolina First Corporation continually reviews potential
acquisition candidates and markets.
Over the years, the Lowcountry Board of Directors and/or its chief
executive officer, have had informal discussions with various parties regarding
possible acquisitions of Lowcountry. The Lowcountry Board of Directors has also
monitored the merger activity of other financial institutions in South Carolina
and the southeast. In the third quarter of 1994, Lowcountry had preliminary
discussions with several financial institutions, including Carolina First
Corporation, regarding the potential acquisition of Lowcountry. After these
preliminary discussions, the Lowcountry Board of Directors determined that,
based on the tentative terms that were discussed, it was not in the best
interest of the Lowcountry shareholders to pursue a sale of the institution at
that time. Nevertheless, Lowcountry continued to receive occasional expressions
of interest by other financial institutions.
In the fourth quarter of 1996, the Lowcountry Board of Directors
retained T. Stephen Johnson & Associates ("Johnson & Associates"), a bank
consulting firm in Atlanta, Georgia, to advise the Board with respect to
strategic planning. As a part of that planning process, the Board reexamined the
issue of remaining independent and decided to explore again the possibilities of
being acquired by another institution. In November 1996, the Board retained
Johnson & Associates to explore potential transactions. An informational
memorandum regarding Lowcountry was prepared and provided to a number of
financial institutions during December 1996. Lowcountry then solicited
indications of interest, including contemplated acquisition terms, from these
financial institutions. Based on responses to this solicitation, Lowcountry
determined to engage in further discussions with Carolina First Corporation.
After considering various relevant factors, including the amount
and type of consideration to be paid (compared with the consideration proffered
by other institutions), the post-merger prospects of the surviving entity, the
level of services to be delivered post-merger, and the treatment of Lowcountry
employees, the Board of Directors of Lowcountry determined that the Carolina
First Corporation proposal could potentially result in the most favorable
transaction from Lowcountry's point of view, from a monetary as well as a
non-monetary perspective. These discussions between Lowcountry and Carolina
First Corporation resulted in the execution of a letter of intent, which set
forth the principal terms of this transaction. Following such letter of intent,
Carolina First Corporation engaged in a preliminary due diligence review of
Lowcountry in January 1997. The parties engaged in further negotiations during
February and March 1997, which negotiations resulted in the execution of the
definitive Merger Agreement on March 14, 1997, which had been approved in
principle by the Lowcountry Board of Directors on February 18, 1997. A copy of
the Merger Agreement is attached hereto as Exhibit A.
The terms of the Merger Agreement, including the consideration to
be paid to Lowcountry shareholders, were the result of arm's length negotiations
between Carolina First Corporation and Lowcountry.
LOWCOUNTRY REASONS. In reaching its determination that the Merger
Agreement is fair to, and in the best interests of, Lowcountry and its
shareholders, the Lowcountry Board of Directors consulted with its legal
advisors, as well as with Lowcountry management and Johnson & Associates, and
considered a number of factors, including the following:
(i) Lowcountry's business, operations, earnings, managerial
requirements and resources, prospects and financial condition;
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(ii) Carolina First Corporation's business, operations,
earnings and financial condition, on both an historical and a
prospective basis, the enhanced opportunities for operating
efficiencies that could result from the Merger, the enhanced
opportunities for growth in Lowcountry's market areas that the
Merger would make possible, and the respective contributions the
parties would bring to a combined institution;
(iii) its belief that Carolina First Corporation will
generally retain Lowcountry employees and make substantial
contributions in the communities served by Lowcountry;
(iv) the terms of the Merger Agreement, including that a
portion of the Merger consideration was cash, that the Lowcountry
shareholders could choose, within limits, the mixture of cash and
stock each would receive and Johnson & Associates' assessment that,
based on historical stock prices and the prevailing market price of
the CFC common stock (approximately $15.00) during the week
immediately preceding March 14, 1997 (the date of the signing of
the Merger Agreement) and the conversion ratio of .9377, the
consideration to be received by the Lowcountry shareholders was
favorable to the Lowcountry shareholders;
(v) Carolina First Corporation as an ongoing institution and
its asset quality, reserve coverage, capital adequacy and
profitability;
(vi) the liquidity of the CFC common stock;
(vii) alternatives to the Merger, including the alternatives
of remaining independent and growing internally, remaining
independent for a period of time and then selling the bank, and
remaining independent and growing through future acquisitions;
(viii) possible affiliation partners for Lowcountry (other
than Carolina First Corporation), the prospects of such other
possible affiliation partners and the likelihood of any such
affiliation;
(ix) the expectation that the Merger (to the extent of stock
consideration) will be a tax-free transaction to Lowcountry and its
shareholders (see "--Certain Income Tax Consequences of the
Merger");
(x) the current and prospective economic environment,
competitive constraints and regulatory burdens facing financial
institutions, including Lowcountry; and
(xi) the Lowcountry Board of Directors' appraisal of the
benefits of the Merger to the employees of Lowcountry and the
communities served by Lowcountry.
The Lowcountry Board of Directors did not assign any specific or
relative weight to the foregoing factors in their consideration.
Subsequent to entering into the Merger Agreement and pursuant to
the requirements of the Merger Agreement, Lowcountry obtained the financial
opinion of Trident, dated April 25, 1997, to the effect that the consideration
to be paid Lowcountry shareholders by Carolina First Corporation is fair, from a
financial perspective, to the Lowcountry shareholders. A copy of this opinion is
attached hereto as Exhibit C.
After receiving the opinion of Trident, the Lowcountry Board of
Directors met again, and after further considering the Merger and consulting
with Trident, Lowcountry's Board of Directors reaffirmed its conclusion that the
Merger and the Merger Agreement are in the best interests of Lowcountry and its
shareholders and recommended that the Lowcountry shareholders vote for approval
of the Merger Agreement.
CAROLINA FIRST CORPORATION REASONS. After consideration of relevant
business, financial, and market factors, the Board of Directors of Carolina
First Corporation believes that the Merger will provide it with a favorable
means for strengthening its presence in the Charleston/Mt. Pleasant area.
Carolina First Corporation's goal is to be the leading South
Carolina-headquartered, state-wide financial institution, and having a strong
market presence in Lowcountry's market areas is an important step in achieving
this goal. Carolina First
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Corporation believes that acquiring an existing institution is a superior means
of entry into a market, as compared to beginning operations DE NOVO, primarily
because of the acquisition of the established customer relationships. Carolina
First Corporation believes that Lowcountry has valuable community relationships
which it will be able to use to expand its banking operations in Lowcountry's
market areas. Carolina First Corporation also believes that terms of the
proposed Merger are fair from its point of view and from a financial
perspective.
OPINION OF FINANCIAL ADVISOR
Lowcountry retained Trident to serve as its financial advisor and
to render a fairness opinion in connection with the Merger. As part of its
engagement, Trident performed a valuation analysis of Lowcountry in an
acquisition context. On April 29, 1997, Trident delivered its valuation and due
diligence report (the "Valuation and Due Diligence Report") to Lowcountry's
Board of Directors. In its report Trident reviewed the terms of the Merger
Agreement, provided market information with respect to thrift mergers and
acquisitions, compared Carolina First Corporation's offer to its valuation of
Lowcountry, and estimated the pro forma effect of the Merger. Trident further
reported on its financial analysis and on-site due diligence examination of
Carolina First Corporation. In addition, Trident rendered its written opinion to
Lowcountry's Board of Directors to the effect that, as of that date, the
consideration to be received by Lowcountry's stockholders pursuant to the Merger
Agreement was fair from a financial point of view.
Trident delivered its updated written opinion to Lowcountry's Board
of Directors as of the date of this Proxy Statement/Prospectus stating that, as
of such date, the consideration to be received by the stockholders of Lowcountry
in the Merger is fair from a financial point of view. Trident has consented to
the inclusion of such opinion and the related disclosure in this Proxy
Statement/Prospectus.
The consideration was determined pursuant to a competitive bidding
process conducted by Lowcountry and its financial advisor, T. Stephen Johnson &
Associates, and was approved by Lowcountry's Board of Directors. Trident did not
advise Lowcountry during the bidding process.
TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF
LOWCOUNTRY AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW,
OF THE CONSIDERATION TO BE RECEIVED BY LOWCOUNTRY'S STOCKHOLDERS BASED ON
CONDITIONS AS THEY EXISTED AND COULD BE EVALUATED AS OF THE DATE OF THE OPINION.
TRIDENT'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY LOWCOUNTRY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING, NOR
DOES TRIDENT'S OPINION ADDRESS THE UNDERLYING BUSINESS DECISION TO EFFECT THE
MERGER. THIS SUMMARY OF TRIDENT'S OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS EXHIBIT C. STOCKHOLDERS ARE URGED TO READ TRIDENT'S
OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE AND MATTERS
CONSIDERED AND THE LIMITS ON THE REVIEW UNDERTAKEN IN RENDERING SUCH OPINION.
In connection with rendering its opinion, Trident reviewed and
analyzed, among other things, the following: (i) the Merger Agreement; (ii) this
Proxy Statement/Prospectus; (iii) certain publicly available information
concerning Lowcountry, including its audited financial statements for each of
the years in the three-year period ended September 30, 1996 and unaudited
financial statements for the three months ended December 31, 1996; (iv) certain
publicly available information concerning Carolina First Corporation, including
its audited financial statements for each of the years in the three-year period
ended December 31, 1996, and unaudited financial statements for the three months
ended March 31, 1997; (v) certain other internal information, primarily
financial in nature, concerning the business and operations of Lowcountry and
Carolina First Corporation furnished to Trident by Lowcountry and Carolina First
Corporation for purposes of Trident's analysis; (vi) certain information with
respect to the limited trading market for Lowcountry common stock; (vii) certain
information with respect to the pricing and trading of CFC common stock; (viii)
certain publicly available information with respect to other companies that
Trident believed to be comparable to Carolina First Corporation and the trading
markets for such other companies' securities; and (ix) certain publicly
available information
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concerning the nature and terms of other transactions that Trident considered
relevant to its inquiry. Trident also met with certain officers and employees of
Lowcountry and Carolina First Corporation to discuss the foregoing, as well as
other matters which it believed relevant to its inquiry.
In its review and analysis, and in arriving at its opinion, Trident
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it, or that was publicly available, and did
not attempt independently to verify any such information. Trident did not
conduct a physical inspection of the properties or facilities of Lowcountry or
Carolina First Corporation, nor did it make or obtain any independent valuations
or appraisals of any of such properties or facilities.
In conducting its analyses and arriving at its opinion, Trident
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial condition and results of operations of Lowcountry and Carolina
First Corporation, including interest income, interest expense, net interest
income, net interest margin, interest sensitivity, non-interest expense,
earnings, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets and the reserve for
loan losses; (ii) the business prospects of Lowcountry and Carolina First
Corporation; (iii) the economies in Lowcountry's and Carolina First
Corporation's market areas; (iv) the historical and current market for
Lowcountry common stock and CFC common stock and for the equity securities of
certain other companies that Trident believed to be comparable to Lowcountry and
Carolina First Corporation; and (v) the nature and terms of certain other
acquisition transactions that Trident believed to be relevant. Trident also took
into account its assessment of general economic, market, financial and
regulatory conditions and trends, as well as its knowledge of the financial
institutions industry, its experience in connection with similar transactions,
and its knowledge of securities valuation generally. Trident's opinion
necessarily was based upon conditions in existence and subject to evaluation on
the respective dates of its opinion. Trident's opinion is, in any event, limited
to the fairness, from a financial point of view, of the consideration to be
received by the holders of Lowcountry common stock in the Merger and does not
address Lowcountry's underlying business decision to effect the Merger.
The following is a brief summary of the Valuation and Due Diligence
Report presented by Trident to the Lowcountry Board of Directors on April 29,
1997:
FINANCIAL ANALYSIS OF LOWCOUNTRY. Trident examined Lowcountry's
financial performance for the period September 30, 1993 through December 31,
1996 by analyzing the composition of its balance sheet, adjusting and
normalizing its earnings, and calculating a variety of operating and financial
ratios for Lowcountry.
PEER GROUP ANALYSIS. Trident evaluated Lowcountry's strengths and
weaknesses by comparing its financial performance to that of the following
groups of SAIF-insured, OTS-regulated thrift institutions: (i) all United States
institutions; (ii) all institutions in the Southeast; (iii) all South Carolina
institutions; (iv) all United States institutions with total assets between $50
million and $100 million; and (v) Southeast institutions with total assets
between $50 million and $100 million (the "Aggregates"). This analysis compared
a number of Lowcountry's historical financial ratios at December 31, 1996 to
those of the Aggregates, including but not limited to: (i) the balance sheet
composition as a percentage of total assets; (ii) the loan portfolio as a
percentage of total assets; (iii) the investment portfolio as a percentage of
total assets; and (iv) asset quality. Trident also compared Lowcountry's growth
rates between December 31, 1993 and December 31, 1996, its yields on assets and
costs of liabilities and its income and expense data for 1995 and 1996 to those
of the Aggregates.
VALUATION OF LOWCOUNTRY. Trident estimated the fair market value of
Lowcountry in an acquisition context. In valuing Lowcountry, Trident considered
three different approaches to value: the asset approach, the income approach and
the market approach.
The asset approach considers the market value of a company's assets
and liabilities, as well as any intangible value the company may have. Trident
estimated Lowcountry's net asset value by adjusting the carrying value of its
assets and liabilities to reflect current market values (rather than liquidation
values). In addition, the net asset value of Lowcountry was adjusted downward
based on an estimate of transaction and other costs. Finally, Trident increased
Lowcountry's net asset value for the proceeds and tax effect of exercising all
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outstanding options to purchase Lowcountry common stock. Based on the
adjustments discussed above, Trident estimated Lowcountry's fully-diluted net
asset value to be approximately $7.9 million or $7.21 per share. After
determining Lowcountry's net asset value, Trident added an intangible premium to
reflect the estimated value of its customer relationships. According to the
asset approach, the total value of Lowcountry is the sum of its net asset value
and its intangible value. Based on a branch purchase methodology and intangible
("core deposit") premiums observed in the market for thrift acquisitions, as
well as Trident's knowledge of Lowcountry, Trident applied premiums equal to
7.5% and 13.5% of core deposits to Lowcountry's estimated fully-diluted net
asset value. Using the asset approach, Trident established a reference range of
$10.00 to $12.25 per share for Lowcountry common stock.
Trident also used an income approach in its valuation of Lowcountry
by capitalizing its previous twelve months earnings (adjusted to exclude
non-recurring income and expense items) plus merger cost savings of 35% to 50%
as a result of its assumed acquisition (the "Normalized Earnings"). The
Normalized Earnings were capitalized at rates of 6% to 13%. The capitalization
rates chosen were estimates of the required rates of return for holders or
prospective holders of shares of financial institutions similar to Lowcountry,
based on a number of factors including prevailing interest rates, the pricing
ratios of publicly traded financial institutions, the financial condition and
operating results of Lowcountry, as well as Trident's general knowledge of
valuation, the securities markets, and acquisition values in other mergers of
financial institutions. Trident adjusted the resulting values to reflect the
exercise of stock options and certain merger-related expenses. Using the income
approach, Trident established a reference range of $8.00 to $13.50 per share for
Lowcountry common stock.
In the market approach, Trident analyzed certain median pricing
ratios (e.g., price to book value, price to tangible book value, price to
reported earnings, price to assets, and the premium paid over tangible book
value as a percentage of core deposits) resulting from selected completed thrift
merger transactions, as well as recently announced pending transactions. In
applying the market approach, Trident considered the pricing ratios for the
following groups of thrift merger transactions: (i) all pending thrift merger
transactions (42 transactions); (ii) all pending thrift mergers announced during
the 90 days prior to April 14, 1997 (the date of the market data) (25
transactions); (iii) all pending thrift mergers involving Southeastern thrifts
(5 transactions); (iv) all pending thrift mergers involving thrifts located in
South Carolina, North Carolina and Georgia (4 transactions); (v) all pending
thrift mergers in which the aggregate consideration was between $10 million and
$25 million (5 transactions); (vi) all pending thrift mergers in which the
target thrift had assets between $50 million and $100 million (5 transactions);
(vii) all pending thrift mergers in which the target thrift had a return on
assets of between 0.25% and 0.75% (20 transactions); (viii) all pending thrift
mergers in which the target thrift had a return on equity of between 4% and 8%
(13 transactions); and (ix) all pending thrift mergers in which the target
thrift had a tangible equity ratio of between 6% and 10% of assets (19
transactions). Trident also considered the pricing ratios for six pending or
completed thrift merger transactions in which the target thrift was of similar
size and capital structure as Lowcountry, and in which the target thrift had
similar profitability and asset quality. Trident then compared a number of
financial ratios for Lowcountry to those of the target thrift institutions.
Based on Lowcountry's financial condition and results of operations, as well as
other factors relative to the groups of thrift mergers noted above, Trident
chose ranges of pricing ratios to apply to Lowcountry. Trident chose price to
book value ratios of 160% to 190%, resulting in per share values of $11.00 to
$13.00; price to tangible book value ratios of 160% to 190%, resulting in per
share values of $11.00 to $13.00; price to earnings multiples of 25 to 32 times
earnings, resulting in per share values of $8.75 to $11.00; price to assets
ratios of 12% to 18%, resulting in per share values of $10.00 to $15.00; and
premiums over tangible book value as a percentage of core deposits of 7% to 10%,
resulting in per share values of $10.00 to $11.50. Based on these derived ranges
of value, Trident established a reference range of $10.00 to $13.00 per share
using the market approach.
Trident then reviewed the results from the three approaches, and
after consideration of all relevant facts, reconciled the acquisition values
generated by each approach and determined a final range of $11.00 to $13.00 per
share for the acquisition value of Lowcountry. Trident did not apply specific
weights to the three individual approaches, but rather applied its judgment and
experience in determining the final range of value for Lowcountry. On April 23,
1997, the Merger Consideration ($14.69 per share of Lowcountry common stock) was
in excess of Trident's valuation range for Lowcountry.
SUMMARY OF PROPOSED TRANSACTION. Trident presented a summary of the
financial terms of the Merger.
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Trident also compared the pricing ratios for the Merger with the median pricing
ratios for selected groups of pending thrift mergers and acquisitions.
REVIEW OF DUE DILIGENCE EXAMINATION OF CAROLINA FIRST CORPORATION.
Trident presented a summary of its on-site due diligence examination of Carolina
First Corporation. Carolina First Corporation's historical balance sheets and
income statements were presented, along with a variety of financial ratios that
analyzed Carolina First Corporation's financial condition and operating results
through March 31, 1997. Trident discussed Carolina First Corporation's current
operating strategy, strengths and weaknesses, peer group comparisons,
profitability, dividends, financial condition, loan portfolio composition, asset
quality, loan loss reserve coverage, stock price, growth, previous mergers and
acquisitions, recent regulatory examinations, recent analysts' reports, and
other issues. Trident reported that during its investigation, no conditions were
discovered that would prevent it from rendering its fairness opinion to
Lowcountry's Board of Directors. As discussed above, Trident relied, without
independent verification, upon the accuracy and completeness of all of the
financial and other information provided by Carolina First Corporation.
CAROLINA FIRST CORPORATION'S STOCK PRICING. Trident examined the
trading of activity of CFC common stock between April 23, 1996 and April 23,
1997, and compared its performance to the S&P 500 index and to an index of all
actively-traded commercial banks published by SNL Securities, LP. Trident also
compared Carolina First Corporation and the pricing of its common stock to
median pricing ratios for nine actively-traded commercial banks with financial
characteristics similar to Carolina First Corporation, other actively-traded
Southeast and South Carolina commercial banks, actively-traded commercial banks
with assets between $1 billion and $2 billion and all actively-traded commercial
banks as of April 23, 1997. At that date, CFC common stock was generally trading
at comparable book value measures to peers and an above-average reported
earnings multiple. These pricing levels reflected its capital level and
profitability during the last twelve months. However, after adjusting earnings
to exclude non-recurring income, CFC common stock was trading at earnings
multiples above peers. However, Carolina First Corporation possesses some unique
opportunities due to its off-balance sheet investments which are reflected in
the stock price.
The summaries of Trident's Valuation and Due Diligence Report and
opinion set forth above reflect all the material analysis, factors and
assumptions considered by Trident and the material valuation methodologies used
by Trident in arriving at its opinion as to fairness described above. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial or summary description. Trident believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses, without considering all of the analyses, or
all of the above summary, without considering all factors and analyses, would
create an incomplete view of the processes underlying the analyses set forth in
Trident's reports and its opinion. Therefore, the ranges of valuations resulting
from any single analysis described above should not be taken to be Trident's
view of the actual value of Lowcountry or the combined company. In performing
its analyses, Trident made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Lowcountry or Carolina First Corporation. The
results of the specific analyses performed by Trident may differ from
Lowcountry's actual values or actual future results as a result of changing
economic conditions, changes in company strategy and policies, as well as a
number of other factors. Such individual analyses were prepared to provide
valuation guidance solely as part of Trident's overall valuation analysis and
the determination of the fairness of the consideration to be received by
Lowcountry's stockholders, and were provided to Lowcountry's Board of Directors
in connection with the delivery of Trident's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
Trident, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwriting, and valuations for corporate
and other purposes. Trident has extensive experience with the valuation of
financial institutions. Lowcountry's Board of Directors selected Trident to
provide assistance in evaluating the Merger proposal and to render a fairness
opinion because Lowcountry was familiar with Trident, and because Trident is a
nationally recognized investment banking firm, specializing in financial
institutions, with substantial experience in transactions similar to the Merger.
Trident is not affiliated with either Lowcountry or Carolina First Corporation.
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For its services, Lowcountry paid Trident a retainer of $7,500, a
fee of $7,500 upon delivery of its Valuation and Due Diligence Report and
initial fairness opinion. Lowcountry is obligated to pay Trident an additional
$10,000 upon consummation of the Merger. Lowcountry has also agreed to reimburse
Trident for its reasonable out-of-pocket expenses and to indemnify Trident
against certain liabilities, including certain liabilities under federal
securities laws.
EXCHANGE OF LOWCOUNTRY STOCK CERTIFICATES
As soon as practicable after the Effective Time, Lowcountry
shareholders will be sent transmittal forms for use in making their elections
with respect to the Merger consideration.
LOWCOUNTRY SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL FORMS.
After the surrender of Lowcountry stock certificates by a
Lowcountry shareholder, Reliance Trust Company, as transfer agent for Carolina
First Corporation (the "Agent"), will deliver cash and/or CFC common stock
certificates to such shareholder representing the aggregate consideration to
which such shareholder is entitled under the Merger Agreement. No fractional
shares will be issued. In lieu of issuing fractional shares, Carolina First
Corporation will pay cash based upon the fair market value of the CFC common
stock (as defined in the Plan of Merger attached to the Merger Agreement).
Merger consideration distributable to the former shareholders of Lowcountry
shall not be delivered to any shareholder except upon surrender by such
shareholder of the certificate or certificates for shares of Lowcountry common
stock with respect to which such consideration is payable, or upon appropriate
arrangements with respect to missing certificates, which may include the
furnishing of a satisfactory indemnity bond. Any cash consideration, and any
dividends or other distributions payable with respect to CFC common stock
issuable with respect to certificates which have not been delivered, will be
remitted by Carolina First Corporation to the Agent and held by the Agent until
the expiration of one year after the Effective Time. During such one year
period, upon the subsequent delivery by Lowcountry shareholders of certificates
or the making of appropriate arrangements with respect to missing certificates,
such cash consideration, dividends or other distributions shall be paid by the
Agent to the former Lowcountry shareholders, without any interest thereon. After
the expiration of such one-year period, any remaining funds deposited by
Carolina First Corporation with the Agent shall be returned to Carolina First
Corporation and any former Lowcountry shareholder entitled thereto shall look
only to Carolina First Corporation for payment.
Because the initial allocation of the Merger consideration will be
made at the close of business on the 15th business day following Closing,
Lowcountry shareholders should return their Lowcountry certificates and election
with respect to payment prior to that time. Allocations and payments will be
made semi-monthly thereafter for three months, after which time, the remaining
Cash Consideration and Stock Consideration will be allocated pro rata with
respect to all Lowcountry shares for which elections have not been received.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of Carolina First Corporation, Carolina
First Bank and Lowcountry to consummate the Merger are subject to the
satisfaction of certain conditions, including, without limitation, the taking of
all necessary corporate action with respect to the Merger Agreement, including
the approval of the Merger Agreement by the shareholders of Lowcountry; the
continuing effectiveness of the registration statement under the Securities Act
and applicable state securities or "Blue Sky" laws or exemptions to those laws;
the receipt of all necessary regulatory approvals for the Merger and expiration
of all notice periods and waiting periods required after the granting of any
such approvals; the receipt of an opinion from Wyche, Burgess, Freeman & Parham,
P.A., in form and substance reasonably satisfactory to Lowcountry, substantially
to the effect that the Merger will, upon compliance with reasonable conditions,
qualify as a tax free reorganization under Section 368(a)(2)(D) of the Code and
the receipt by Lowcountry of an acceptable fairness opinion from a reputable
investment banking firm; the absence of any order, writ decree or injunction of
a judicial authority or agency which enjoins or prohibits consummation of the
transactions contemplated by the Merger Agreement;
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the receipt of all permits, consents or other authorizations necessary to the
consummation of the Merger; the accuracy of the representations and warranties
set forth in the Merger Agreement in all material respects as of the Effective
Time as though made on and as of such date; the performance by Lowcountry and
Carolina First Corporation in all material respects of all material obligations
and compliance with all material covenants required by the Merger Agreement; the
resignation of L. Wayne Pearson as an officer of Lowcountry and the receipt by
Carolina First Corporation and Lowcountry of a release from Mr. Pearson with
respect to his employment at Lowcountry; and the receipt of certain opinions of
counsel and certificates from officers of Carolina First Corporation and
Lowcountry.
Consummation of the Merger also is subject to the conditions that,
from the date of the Merger Agreement through the Effective Time, the business
of Lowcountry shall have been conducted in the usual and customary manner, and
neither Carolina First Corporation nor Lowcountry shall have suffered a material
casualty or a material adverse change in their business or financial condition.
Carolina First Corporation and Lowcountry may waive certain of the
conditions imposed with respect to their respective obligations to consummate
the Merger.
TERMINATION
The Merger Agreement may be terminated at any time on or prior to
the closing date by the mutual consent in writing of the parties. Either party
may elect to terminate the Merger Agreement prior to the closing date (i) if a
permanent injunction or other order shall have been issued by any state or
federal court, or governmental or regulatory body preventing consummation of the
transactions contemplated by the Merger Agreement; (ii) if the other party has
failed to comply with the agreements or fulfill the conditions contained in the
Merger Agreement if such failure of compliance or fulfillment is material to the
consolidated businesses of either Carolina First Corporation or Lowcountry and
the breaching party has been given notice of the failure to comply and a
reasonable time to cure; (iii) if the Closing has not occurred by September 30,
1997; or (iv) if the fair market value of the CFC common stock two business days
prior to the Closing Date is less than $12.58 per share or greater than $19.67
per share. The "fair market value" of the CFC common stock means, with respect
to a particular day in question, the average of the high and low sale prices as
quoted on the Nasdaq National Market for that particular day and the immediately
preceding 29 business days.
AMENDMENT
The Merger Agreement may be amended or supplemented in writing by
mutual agreement of Carolina First Corporation, Carolina First Bank and
Lowcountry.
CONDUCT OF LOWCOUNTRY'S AND CAROLINA FIRST CORPORATION'S BUSINESS PRIOR TO THE
EFFECTIVE TIME
Under the terms of the Merger Agreement, Lowcountry has agreed with
respect to the conduct of its business pending closing, among other things: (a)
to carry on its business only in the ordinary course; (b) not to amend its
Articles of Incorporation or Bylaws; (c) except for the issuance of capital
stock reflected in the Merger Agreement and other limited exceptions, not to
issue or acquire any shares of its capital stock of any class or any securities
convertible into its capital stock or declare or pay any dividends or
distributions, or make any change in its capital structure; (d) to promptly
advise Carolina First Corporation of any material adverse change in the business
of Lowcountry; (e) not to breach the Merger Agreement or cause any of the
representations of Lowcountry contained in the Merger Agreement to become
untrue; (f) not to incur any indebtedness other than in the ordinary course of
business; (g) except for Merger-related expenses and current contractual
obligations, not to incur any expense in excess of $25,000; (h) not to grant any
executive officers any increase in compensation (except in the ordinary course
of business) or enter into any employment agreement; and (i) not to engage in
acquisitions, mergers or other reorganizations.
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Under the terms of the Merger Agreement, Carolina First Corporation
has agreed, with respect to the conduct of its business pending closing, among
other things: (i) to carry on its business in substantially the same manner as
heretofore conducted; (ii) not to amend its Articles of Incorporation or Bylaws
in any manner that will adversely affect the Lowcountry shareholders in any
material respect; (iii) to promptly advise Lowcountry of any material adverse
change in its business; and (iv) not to take any action that would be contrary
to or breach any of the terms or provisions of the Merger Agreement, or which
would cause Carolina First Corporation's representations in the Merger Agreement
to become untrue in any material respect.
REQUIRED REGULATORY APPROVALS
The Merger is subject to certain regulatory approvals as set forth
below. To the extent that the following information describes statutes and
regulations, it is qualified in its entirety by reference to the particular
statutes and regulations promulgated under such statutes.
The Merger of Lowcountry with Carolina First Bank is subject to
approval of the FDIC pursuant to the Bank Merger Act (12 U.S.C. 1828 ET SEQ.).
The Bank Merger Act requires that the FDIC take into consideration the financial
and managerial resources and future prospects of the existing and proposed
institutions and the convenience and needs of the communities to be served.
Further, the FDIC may not approve the Merger if it would result in a monopoly or
if it would be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the United States,
or if the effect in any section of the country may be substantially to lessen
competition or to tend to create a monopoly, or if the Merger would be in any
other manner in restraint of trade, unless the FDIC finds that the
anticompetitive effects of the Merger are clearly outweighed in the public
interest by the probable effect of the transactions in meeting the convenience
and needs of the communities to be served. In addition, the FDIC must take into
account the record of performance of the existing and proposed institutions
under the Community Reinvestment Act of 1977 ("CRA") in meeting the credit needs
of the entire community, including low- and moderate-income neighborhoods,
served by such institutions. Applicable regulations also require publication of
notice of the application for approval of the Merger and provide an opportunity
for the public to comment on the application in writing and to request a
hearing. Subject to certain exceptions, the Bank Merger Act provides that no
bank merger may be consummated until the 15th day after approval, during which
time the United States Department of Justice (the "DOJ") may challenge the
merger on antitrust grounds. Carolina First Corporation has submitted an
application to the FDIC for approval to consummate the Merger.
The Merger also is subject to approval by the State Board under
Section 34-24-30 of the South Carolina Bank Holding Company Act ("SCBHCA").
Under Section 34-24-50 of the SCBHCA, the State Board may approve the Merger
only after determining that the Merger would not create anticompetitive or
monopolistic effects on the South Carolina banking business. The State Board
also must take into consideration the financial and managerial resources and
future prospects of the companies and banks involved as well as the convenience
and needs of the communities to be served. In making its determination, the
State Board will wait until after the FDIC makes its determination and will deny
the application only if the State Board finds that the FDIC's determination is
not supported by evidence that is substantial when viewed in light of the whole
record considered by the FDIC. Carolina First Corporation has submitted an
application to the State Board for approval to consummate the Merger.
Carolina First Corporation and Lowcountry are not aware of any
other governmental approvals or actions that are required for consummation of
the Merger except as described above. Should any such approval or action be
required, it is presently contemplated that such approval or action would be
sought or taken. There can be no assurance that any such approval or action, if
needed, could be obtained or would not delay consummation of the Merger.
OPERATIONS AFTER THE MERGER
After consummation of the Merger, the former Lowcountry banking
locations will be operated as branch
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locations of Carolina First Bank and such locations are expected to conduct
their business in substantially the same manner as prior to the Merger. It is
expected that most of the Lowcountry officers and employees will continue as
officers and employees of Carolina First Bank in an at-will employment capacity.
L. Wayne Pearson will not continue as an employee of Carolina First Bank. In
connection with the Merger, Carolina First Corporation will pay all amounts owed
to Mr. Pearson under his existing employment contract with Lowcountry, which
amounts become payable as a result of the Merger. See "--Interests of Certain
Persons in the Merger." Other Lowcountry officers and employees will continue at
approximately their current levels of compensation and will be eligible for
benefits available to other similarly situated officers and employees of
Carolina First Bank. The former Lowcountry directors will constitute an Advisory
Board for Carolina First Bank. After consummation of the Merger, it is
anticipated that Carolina First Bank will continue to conduct its business in
substantially the same manner in which it is now conducted.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All directors of Lowcountry own options to purchase Lowcountry
common stock granted in consideration of their service on the Lowcountry Board
of Directors. At the Effective Time, such options to purchase Lowcountry common
stock will be converted into the right to purchase CFC common stock at an
equivalent price based on the Exchange Ratio. The expiration date of such
options will be extended to 10 years from the Closing Date.
L. Wayne Pearson, the chief executive officer of Lowcountry, has an
employment contract with Lowcountry which provides for certain payments, among
other things, in connection with the termination of his employment other than
for cause. Carolina First Corporation expects to pay Mr. Pearson approximately
$411,000 at closing in connection with his termination of employment.
ACCOUNTING TREATMENT
Carolina First Corporation expects to account for the acquisition
of Lowcountry as a "purchase" under generally accepted accounting principles.
Under the purchase method of accounting, the assets and liabilities of
Lowcountry will be adjusted to their estimated market values and combined with
the assets and liabilities of Carolina First Bank. Shareholders' equity and cash
will be adjusted to reflect common stock and cash issued for the purchase price.
The excess of the purchase price over the estimated market value of the net
assets acquired will be recorded as intangible assets, which will be amortized
over 10 to 25 years using the accelerated and straight-line methods. Prior
period statements will not be restated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material federal income tax
consequences of the Merger, including certain consequences to holders of the
Lowcountry common stock who are citizens or residents of the United States and
who hold their shares as capital assets. It does not discuss all tax
consequences that may be relevant to Lowcountry shareholders subject to special
federal income tax treatment (such as insurance companies, dealers in
securities, certain retirement plans, financial institutions, tax exempt
organizations or foreign persons), or to Lowcountry shareholders who acquired
their shares of Lowcountry's common stock pursuant to the exercise of employee
stock options or rights or otherwise as compensation. Shareholders are urged to
consult their own tax advisors as to the specific tax consequences to them of
the Merger, including the applicability and effect of state, local and other tax
laws. The summary does not address the state, local or foreign tax consequences
of the Merger, if any.
Pursuant to the terms of the Merger Agreement, Lowcountry will
receive the opinion of Wyche, Burgess, Freeman & Parham, P.A., dated as of the
Effective Time, to the effect that based upon the Code and regulations
thereunder and rulings issued by the IRS in transactions similar to those
contemplated by the Merger Agreement and assuming the Merger occurs in
accordance with the Merger Agreement and conditioned on the accuracy of certain
representations made by Lowcountry and Carolina First Corporation, for federal
income tax purposes:
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1. The Merger will qualify as a reorganization under the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986 provided that
substantially all of the assets of Lowcountry are
acquired in such a Merger.
2. No gain or loss will be recognized either to Carolina
First Corporation or Lowcountry as a result of the
Merger.
3. No gain or loss will be recognized to the shareholders
of Lowcountry upon their receipt of shares of CFC common
stock in the Merger (disregarding for this purpose any
cash received for whole or fractional shares or
otherwise in connection with the Merger).
4. The receipt of cash by Lowcountry shareholders in the
Merger in exchange for all or a portion of their stock
in Lowcountry will be treated as a distribution in
exchange for all or a portion of such shareholders'
stock. Gain or loss will be recognized measured by the
difference between the amount of cash received and the
basis of the Lowcountry stock surrendered therefor. A
Lowcountry shareholder who receives both cash and CFC
common stock in exchange for his Lowcountry common stock
in the Merger will be required to allocate his basis in
his Lowcountry common stock between the cash received
and CFC common stock received in proportion to their
relative values.
5. The tax basis of the CFC common stock so received by
Lowcountry shareholder in connection with the Merger
will be the same as the basis in the Lowcountry common
stock surrendered in exchange for such CFC common stock
as set forth above. A Lowcountry shareholder who
receives both cash and CFC common stock in exchange for
his Lowcountry common stock in the Merger will be
required to allocate his basis in his Lowcountry common
stock between the cash received and CFC common stock
received in proportion to their relative values.
6. The holding period of the CFC common stock received by a
Lowcountry shareholder will include the holding period
of the shares of Lowcountry surrendered therefor
provided that the Lowcountry shares are capital assets
in the hand of the shareholder at the time of the
Merger.
CASH RECEIVED BY HOLDERS OF LOWCOUNTRY COMMON STOCK. A
shareholder of Lowcountry who receives a portion of his Merger consideration in
the form of cash will be treated as having received such payment in redemption
of such stock. Such redemption will be subject to the conditions and limitations
of Section 302 of the Code, including the attribution rules of Section 318 of
the Code. In general, if the shares of Lowcountry common stock are held by the
holder as a capital asset at the Effective Time, such holder will recognize
capital gain or loss measured by the difference between the amount of cash
received by such holder and the basis for such shares.
CASH RECEIVED BY HOLDERS OF LOWCOUNTRY COMMON STOCK WHO DISSENT.
A shareholder of Lowcountry who perfects his dissenter's rights under South
Carolina law and who receives payment of the value of his shares of Lowcountry
common stock will be treated as having received such payment in redemption of
such stock. Such redemption will be subject to the conditions and limitations of
Section 302 of the Code, including the attribution rules of Section 318 of the
Code. In general, if the shares of Lowcountry common stock are held by the
holder as a capital asset at the Effective Time, such holder will recognize
capital gain or loss measured by the difference between the amount of cash
received by such holder and the basis for such shares. Each holder of Lowcountry
common stock who contemplates exercising his dissenter's rights should consult
his own tax advisor as to the possibility that any payment to him will be
treated as dividend income.
FRACTIONAL SHARE INTERESTS. A Lowcountry shareholder who receives
cash in lieu of a fractional share interest in CFC common stock will be treated
as having received the cash in redemption of the fractional share interest. The
receipt of cash in lieu of a fractional share interest should generally result
in capital gain or loss to the holder equal to the difference between the amount
of cash received and the portion of the holder's federal income tax basis in the
Lowcountry common stock allocable to the fractional share interest. Such capital
gain or loss will be long-term capital gain or loss if the holder's holding
period for the CFC common stock received, determined as set forth above, is
longer than one year.
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THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON THE CODE (AND AUTHORITIES THEREUNDER) AS IN
EFFECT ON THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, WITHOUT CONSIDERATION OF
THE PARTICULAR FACTS OR CIRCUMSTANCES OF ANY SHAREHOLDER. SHAREHOLDERS ARE URGED
TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR SITUATIONS, AS WELL AS
CONSEQUENCES UNDER ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
RESTRICTIONS ON RESALES BY AFFILIATES
The issuance of the CFC Shares has been registered under the
Securities Act. Accordingly, resales of the CFC Shares by non-affiliates of
Lowcountry will not require registration. However, under existing law, any
person who is an "affiliate" of Lowcountry (as defined below) at the time the
proposed exchange is submitted to a vote of the Lowcountry shareholders who
wishes to sell CFC Shares will be required to either (a) register the sale of
the CFC Shares under the Securities Act, (b) sell in compliance with Rule 145
promulgated under the Securities Act (permitting limited sales under certain
circumstances), or (c) utilize an exemption (if any) from registration. Rule
145(d) requires that persons deemed to be Lowcountry affiliates resell their CFC
Shares pursuant to certain of the requirements of Rule 144 under the Securities
Act if such CFC Shares are sold within one year after receipt thereof. After one
year, if such person is not an affiliate of Carolina First Corporation and
Carolina First Corporation is current in the filing of its periodic securities
law filings, a former Lowcountry affiliate may freely sell the CFC Shares
without limitation. After two years from the issuance of the CFC Shares, if such
person is not a Carolina First Corporation affiliate at the time of sale or for
at least three months prior to such sale, such person may freely sell such CFC
Shares without limitation, regardless of the status of Carolina First
Corporation's periodic securities law filings. Lowcountry has agreed that it
will use its best efforts to cause affiliates of Lowcountry to agree in writing
that they will not sell the CFC common stock to be received by them except as
provided above. Stop transfer instructions will be given by Carolina First
Corporation to the Agent with respect to the CFC common stock to be received by
persons subject to the restrictions described above, and the certificates for
such stock may be appropriately legended. An "affiliate" of Lowcountry, as
defined by the rules promulgated pursuant to the Securities Act, is a person who
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, Lowcountry at the time of
consummation of the Merger Agreement. In this context, an "affiliate" will
generally include the following persons: directors or executive officers, and
the holders of 10% or more of Lowcountry common stock (and any relative or
spouse of any such person having the same home as such person and any trusts,
estates, corporations, or other entities in which such persons have a 10% or
greater beneficial or equity interest).
RIGHTS OF DISSENTING SHAREHOLDERS OF LOWCOUNTRY
THE FOLLOWING DISCUSSION IS MERELY A SUMMARY OF RIGHTS OF
DISSENTING SHAREHOLDERS PURSUANT TO SOUTH CAROLINA LAW AND IS QUALIFIED IN ITS
ENTIRETY BY THE PROVISIONS OF SECTION 13-13-101 ET SEQ. OF THE SOUTH CAROLINA
BUSINESS CORPORATION ACT OF 1988, AS AMENDED (THE "SCBCA"), A COPY OF WHICH IS
INCLUDED HEREWITH AS EXHIBIT B. DISSENTING SHAREHOLDERS HAVE ONLY THOSE RIGHTS
PROVIDED BY SUCH LAW. ANY SHAREHOLDER WISHING TO EXERCISE DISSENTERS' RIGHTS IS
STRONGLY ADVISED TO CONSULT WITH AN ATTORNEY.
Any shareholder of Lowcountry entitled to vote on the Merger has
the right to dissent from the Merger and receive payment of the fair value of
his shares of Lowcountry common stock upon compliance with Sections 33-13-101 ET
SEQ. of the SCBCA. A shareholder may not dissent as to less than all of the
shares that he beneficially owns, regardless of the number of accounts
maintained for the benefit of such shareholder. A nominee or fiduciary may not
dissent on behalf of any beneficial owner as to less than all of the shares of
such beneficial owner held of record by such nominee or fiduciary. A beneficial
owner asserting dissenters' rights to shares held on his behalf must notify
Lowcountry in writing of the names and addresses of the record holders of the
shares, if known to him. Any Lowcountry shareholder intending to enforce this
right may not vote in favor of the Merger and must file a written notice of
intent to demand payment for his shares (the "Objection Notice") with the
Corporate Secretary of Lowcountry either before the Special Meeting or before
the vote is taken at the
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Special Meeting. The Objection Notice must state that the shareholder intends to
demand payment for his shares of Lowcountry common stock if the Merger is
effected. Although any Lowcountry shareholder who has filed an Objection Notice
must not vote in favor of the Merger, a vote in favor of the Merger cast by the
holder of a proxy appointment solicited by Lowcountry (whether pursuant to the
instruction of the shareholder or otherwise) will not disqualify the shareholder
from demanding payment for his shares under the SCBCA. A vote against approval
of the Merger will not, in and of itself, constitute an Objection Notice
satisfying the requirements of Section 33-13-210 of the SCBCA. If the Merger is
approved by Lowcountry's shareholders at the Special Meeting, each shareholder
who has filed an Objection Notice will be notified by Lowcountry of such
approval within 10 days after the Special Meeting (the "Dissenters' Notice").
The Dissenters' Notice will (i) state where dissenting shareholders must (a)
send the Payment Demand (as defined below) and (b) deposit their Lowcountry
common stock certificates (the "Certificates"); (ii) inform holders of
uncertificated shares of Lowcountry common stock of the extent of any
restrictions on the transferability of such shares; (iii) be accompanied by a
form for demanding payment that includes the date of the first announcement to
the news media or to shareholders of the terms of the proposed Merger; (iv) set
a date by which (x) Lowcountry must receive the Payment Demand, which may not be
fewer that 30 or more than 60 days after the date the Dissenters' Notice is
delivered and (y) the Certificates must be deposited as instructed in the
Dissenters' Notice, which may not be earlier than 20 days after the date the
Payment Demand is received by Lowcountry; and (v) be accompanied by a copy of
Sections 33-13-101 through 33-13-310 of the SCBCA. Within the time prescribed in
the Dissenters' Notice, a shareholder electing to dissent must make a demand for
payment (the "Payment Demand"), certify whether he (or the beneficial
shareholder on whose behalf he is asserting dissenters' rights) acquired
beneficial ownership of the shares of Lowcountry common stock before January 29,
1997 (the date of the first public announcement of the terms of the Merger) and
deposit his Certificates in accordance with the terms of the Dissenter's Notice.
Upon filing the Payment Demand and depositing the Certificates, the shareholder
will retain all other rights of a shareholder until these rights are canceled or
modified by consummation of the Merger. FAILURE TO COMPLY SUBSTANTIALLY WITH
THESE PROCEDURES WILL CAUSE THE SHAREHOLDER TO LOSE HIS DISSENTERS' RIGHTS TO
PAYMENT FOR THE SHARES. CONSEQUENTLY, ANY LOWCOUNTRY SHAREHOLDER WHO DESIRES TO
EXERCISE HIS RIGHTS TO PAYMENT FOR HIS SHARES IS URGED TO CONSULT HIS LEGAL
ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
As soon as the Merger is consummated, or upon receipt of a
Payment Demand, Carolina First Corporation shall, pursuant to Section 33-13-250
of the SCBCA, pay to each dissenting shareholder who has substantially complied
with the requirements of Section 33-13-230 of the SCBCA, the amount that
Carolina First Corporation estimates to be the fair value of the shares of
Lowcountry common stock plus accrued interest. Section 33-13-250 of the SCBCA
requires that payment to be accompanied by (i) certain of Lowcountry's financial
statements, (ii) a statement of Carolina First Corporation's estimate of fair
value of the shares and explanation of how Carolina First Corporation's estimate
of fair value and the interest were calculated, (iii) notification of rights to
demand additional payment, and (iv) a copy of Sections 33-13-101 through
33-13-310 of the SCBCA. As authorized by Section 33-13-270, Carolina First
Corporation intends to delay any payments with respect to any shares (the
"After-acquired sales") held by a dissenting shareholder which were not held by
such shareholder on January 29, 1997, the date of the first public announcement
of the terms of the Merger, unless the beneficial ownership devolved upon him by
operation of law from a person who was the beneficial owner on such date. Where
payments are so withheld, Sections 33-13-270(b) and 33-13-280(a) of the SCBCA
will require Carolina First Corporation, after the Merger, to send to the holder
of the After-acquired shares an offer to pay the holder an amount equal to
Carolina First Corporation's estimate of their fair value plus accrued interest,
together with an explanation of the calculation of fair value and interest and a
statement of the holder's right to demand additional payment under Section
33-13-280 of the SCBCA.
If the Merger is not consummated within 60 days after the date
set for demanding payment and depositing Certificates, Lowcountry, within the
60-day period, shall return the deposited Certificates and release the transfer
restrictions imposed on the uncertificated shares. If, after returning deposited
Certificates and releasing transfer restrictions, the Merger is consummated,
Lowcountry must send a new Dissenters' Notice and repeat the payment demand
procedure.
If the dissenting shareholder believes that the amount paid by
Carolina First Corporation pursuant to Section 33-13-250 of the SCBCA or offered
under Section 33-13-270 of the SCBCA is less than the fair value of his shares
or that the interest due is calculated incorrectly, or if Carolina First
Corporation fails to make
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payment or offer payment (or, if the Merger has not been consummated, Lowcountry
does not return the deposited Certificates or release the transfer restrictions
imposed on uncertificated shares), within 60 days after the date set in the
Dissenters' Notice, then the dissenting shareholder may within 30 days after (i)
Carolina First Corporation made or offered payment for the sales or failed to
pay for the shares or (ii) Lowcountry failed to return deposited Certificates or
release restrictions on uncertificated shares timely, notify Carolina First
Corporation in writing of his own estimate of the fair market value of such
shares (including interest due) and demand payment of such estimate (less any
payment previously received). FAILURE TO NOTIFY CAROLINA FIRST CORPORATION IN
WRITING OF ANY DEMAND FOR ADDITIONAL PAYMENT WITHIN 30 DAYS AFTER CAROLINA FIRST
CORPORATION MADE PAYMENT FOR SUCH SHARES WILL CONSTITUTE A WAIVER OF THE RIGHT
TO DEMAND ADDITIONAL PAYMENT.
If Carolina First Corporation and the dissenting shareholder
cannot agree on a fair price within 60 days after Lowcountry receives such a
demand for additional payment, the statute provides that Carolina First
Corporation will institute judicial proceedings in the South Carolina Court of
Common Pleas in Charleston County (the "Court") to fix (i) the fair value of the
shares immediately before consummation of the Merger, excluding any appreciation
or depreciation in anticipation of the Merger, unless such exclusion would be
inequitable and (ii) the accrued interest. The "fair value" of the Lowcountry
common stock could be more than, the same as, or less than that produced by the
exchange ratio set by the Merger. Carolina First Corporation must make all
dissenters whose demands for additional payment remain unsettled parties to the
proceeding and all such parties must be served with a copy of the petition. The
Court may, in its discretion, appoint an appraiser to receive evidence and
recommend a decision on the question of fair value. The Court is required to
issue a judgment for the amount, if any, by which the fair value of the shares,
as determined by the Court, plus interest, exceeds the amount paid by Carolina
First Corporation. If Carolina First Corporation does not institute such
proceeding within such 60-day period, Carolina First Corporation shall pay each
dissenting shareholder whose demand remains unsettled the respective amount
demanded by each shareholder.
The Court will assess the costs and expenses of such proceeding
(including reasonable compensation for and the expenses of the appraiser but
excluding fees and expenses of counsel and experts) against Carolina First
Corporation, except that the Court may assess such costs and expenses as it
deems appropriate against any or all of the dissenting shareholders if it finds
that their demand for additional payment was arbitrary, vexatious or otherwise
not in good faith. The Court may award fees and expenses of counsel and experts
in amounts the Court finds equitable: (i) against Carolina First Corporation if
the Court finds that Carolina First Corporation did not comply substantially
with the relevant requirements of the SCBCA or (ii) against either Carolina
First Corporation or any dissenting shareholder, if the Court finds that the
party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTIONS
33-13-101 THROUGH 33-13-310 OF THE SCBCA IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF SUCH PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH SECTIONS, WHICH ARE INCLUDED AS EXHIBIT B HEREOF.
RECOMMENDATION OF BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF LOWCOUNTRY HAS CONCLUDED THAT THE
MERGER IS IN THE BEST INTERESTS OF LOWCOUNTRY AND HAS AUTHORIZED CONSUMMATION
THEREOF, SUBJECT TO APPROVAL OF THE SHAREHOLDERS, RECEIPT OF ALL REQUISITE
REGULATORY APPROVALS, AND SATISFACTION OF CERTAIN OTHER CONDITIONS.
32
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited Pro Forma Combined Condensed Balance Sheets are
based on combining the historical consolidated balance sheet for Carolina First
Corporation at March 31, 1997 with the balance sheet of Lowcountry at March 31,
1997, adjusting for the issuance of additional shares expected to be issued in
the Merger. See "INFORMATION ABOUT CAROLINA FIRST CORPORATION -- Recent
Developments."
The unaudited Pro Forma Combined Capitalization is based on
combining the historical consolidated capitalization of Carolina First
Corporation at March 31, 1997 with the capitalization of Lowcountry at March 31,
1997, adjusting for the issuance of additional shares expected to be issued in
the Merger.
The unaudited Pro Forma Combined Condensed Statement of Earnings
combines the historical consolidated statements of income of Carolina First
Corporation for the year ended December 31, 1996 with the statements of income
of Lowcountry for the year ended September 30, 1996, and the historical
consolidated statements of income of Carolina First Corporation for the three
months ended March 31, 1997 with the statements of income of Lowcountry for the
three months ended December 31, 1996.
The Merger is expected to be accounted for under the purchase
method of accounting, and pro forma data are derived in accordance with such
method.
Information set forth below should be read in conjunction with
such historical and pro forma financial statements and the notes thereto. The
unaudited pro forma information is provided for informational purposes only and
is not necessarily indicative of actual results that would have been achieved
had the Merger been consummated at the beginning of the period presented, nor is
it necessarily indicative of future results.
33
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Purchase
March 31, 1997 Accounting Pro Forma
CFC Lowcountry Adjustments Combined
(dollars in thousands, except share data and footnotes)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 78,920 $ 1,002 $ (5,232)(a) $ 74,690
Investment securities 261,376 2,740 (252)(b) 263,864
Loans 1,198,332 71,827 709 (c) 1,270,868
Less unearned income (14,889) (440) -- (15,329)
Less allowance for loan losses (12,039) (359) -- (12,398)
----------- ----------- ----------- ----------
Net loans 1,171,404 71,028 709 1,243,141
Premises and equipment 30,509 1,347 135 (d) 31,991
Intangible assets 16,014 -- 10,359 (e) 26,373
Other assets 55,683 1,542 -- 57,225
----------- ----------- ----------- -----------
Total assets $ 1,613,906 $ 77,659 $ 5,719 $ 1,697,284
=========== =========== =========== ===========
Liabilities and Shareholders' equity:
Liabilities
Deposits
Noninterest-bearing $ 210,350 $ 11,128 $ -- $ 221,478
Interest bearing 1,046,655 52,623 -- 1,099,278
----------- ----------- ----------- -----------
Total deposits 1,257,005 63,751 -- 1,320,756
Borrowed funds 197,855 6,594 -- 204,449
Other liabilities 53,707 1,067 777 (f) 55,962
-- -- 411 (g) --
----------- ----------- ----------- -----------
Total liabilities 1,508,567 71,412 1,188 1,581,167
Total shareholders' equity 105,339 6,247 1,531 (h) 116,117
----------- ----------- -----------
3,000 (i)
-----------
Total liabilities and
shareholders' equity $ 1,613,906 $ 77,659 $ 5,719 $ 1,697,284
=========== =========== =========== ===========
</TABLE>
(a) To record the total cash price ($5,097,000), plus pay the 1%
transaction fee ($135,000) payable to T. Stephen
Johnson & Associates.
(b) To remove the carrying value of Carolina First Corporation's
investment in Lowcountry.
(c) To record the loans of Lowcountry at estimated market value.
(d) To record the fixed assets of Lowcountry at estimated market value.
(e) To record the excess cost of acquisition over the estimated market
value of the net assets acquired (goodwill of $6,159,000), the
valuation of options acquired (goodwill of $3,000,000) and the core
deposit premium ($1,200,000).
(f) To adjust the deferred tax liabilities as a result of the purchase
accounting adjustments using Carolina First Corporation's statutory
tax rate of 38%.
(g) To record the buyout of L. Wayne Pearson's employment contract.
(h) To give effect to the acquisition of Lowcountry, assuming the
issuance of 486,090 shares of CFC common stock, based on an assumed
market price of $16.00 per share of CFC common stock and an
exchange ratio of 0.9377. The total value of CFC common stock
exchanged would be $7,778,000.
(i) To record the valuation of options acquired.
34
<PAGE>
UNAUDITED PRO FORMA COMBINED CAPITALIZATION
AT MARCH 31, 1997
<TABLE>
<CAPTION>
Purchase
March 31, 1997 Accounting Pro Forma
-------------------
CFC Lowcountry Adjustments Combined
--- ---------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Long-term debt:
Subordinated notes................................ $ 25,393 $ -- $ -- $ 25,393
Mortgage debt..................................... 1,083 -- -- 1,083
-------- --------
Total long-term debt........................ 26,476 -- -- 26,476
-------- --------
Shareholders' equity:
Common stock...................................... 11,355 4,518 (4,032) (a) 11,841
Surplus........................................... 84,721 347 6,945 (a) 95,013
3,000 (b)
Retained earnings................................. 10,337 1,382 (1,382) (a) 10,337
Nonvested restricted stock and
guarantee of ESOP debt.......................... (697) -- -- (697)
Unrealized loss on securities
available for sale.............................. (377) -- -- (377)
---------- ------- -------- --------
Total shareholders' equity...................... 105,339 6,247 4,531 116,117
-------- ------ -------- --------
Total capitalization.......................... $131,815 $6,247 $4,531 $142,593
======== ====== ====== ========
- ----------------------------------
</TABLE>
(a) To reflect the effect of issuing 486,090 shares of CFC common stock based on
an assumed market price of $16.00 per share of CFC common stock.
(b) To record the valuation of options acquired.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Twelve Twelve
Months Ended Months Ended Purchase
December 31, 1996 September 30, 1996 Accounting Pro Forma
CFC Lowcountry Adjustments Combined
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
(dollars in thousands, except share data)
Interest income $ 116,872 $ 5,627 $ (347) (a) $ 122,054
(98) (b)
Interest expense 59,802 3,327 218 (c) 63,347
------------ ------------ ---------- ------------
Net interest income 57,070 2,300 (663) 58,707
Provision for loan losses 10,263 47 -- 10,310
------------ ------------ ---------- ------------
Net interest income after
provision for loan losses 46,807 2,253 (663) 48,397
Noninterest income 21,341 956 -- 22,297
Noninterest expense 51,675 2,833 4 (d) 54,878
------------ ------------ ----------
366 (e)
-----------
Income before income taxes 16,473 376 (1,033) 15,816
Income taxes 5,999 124 (253) (f) 5,870
------------ ------------ ---------- -----------
Net income 10,474 252 (780) 9,946
Dividends on preferred stock 63 -- -- 63
------------ ------------ ---------- -----------
Net income applicable to
common shareholders $ 10,411 $ 252 $ (780) $ 9,883
============ ============ ============ ============
Net income per common share
Primary $ 0.96 $ 0.30 $ -- $ 0.88
Fully diluted 0.92 0.29 -- 0.84
Average shares outstanding
Primary 10,839,708 843,239 -- 11,291,851
Fully diluted 11,371,547 863,645 -- 11,835,171
- ------------
</TABLE>
(a) To reflect reduced earnings on investment securities for cash portion of
purchase price at an assumed rate of 6.36%.
(b) To amortize the loan market-to-market adjustment over a period of seven
years.
(c) To amortize the core deposit premium on a sum-of-the-year's digits method
over 10 years.
(d) Increased depreciation expense arising from the mark-up of Lowcountry
premises and equipment to an estimated market value.
(e) Amortization of goodwill over a 25-year period using the straight-line
method.
(f) To show impact of taxes at 38% tax rate.
36
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
[zz]
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended Purchase
March 31, 1997 December 31, 1996 Accounting Pro Forma
CFC Lowcountry Adjustments Combined
------------- ----------------- ----------------- --------------
(dollars in thousands, except share data)
<S> <C> <C> <C> <C>
Interest income $ 30,392 $ 1,591 $ (83) (a) $ 31,875
(25) (b)
Interest expense 14,940 849 55 (c) 15,844
------------ ------------ ------------ ------------
Net interest income 15,452 742 (163) 16,031
Provision for loan losses 2,952 24 -- 2,976
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 12,500 718 (163) 13,055
Noninterest income 3,092 194 -- 3,286
Noninterest expense 12,866 689 1 (d) 13,648
------------ ------------ ------------
92 (e)
------------
Income before income taxes 2,726 223 (256) 2,693
Income taxes 1,009 82 (62) (f) 1,029
------------ ------------ ------------ ------------
Net income 1,717 141 (194) 1,664
Dividends on preferred stock -- -- -- --
------------ ------------ ------------ ------------
Net income applicable to
common shareholders $ 1,717 $ 141 $ (194) $ 1,664
============ ============ ============ ============
Net income per common share
Primary $ 0.15 $ 0.15 $ -- $ 0.14
Fully diluted 0.15 0.15 -- 0.14
Average shares outstanding
Primary 11,443,468 958,641 -- 11,960,539
Fully diluted 11,478,383 958,641 -- 11,995,454
</TABLE>
- ------------
(a) To reflect reduced earnings on investment securities for cash portion
of purchase price at an assumed rate of 6.36%.
(b) To amortize the loan market-to-market adjustment over a period of
seven years.
(c) To amortize the core deposit premium on a sum-of-the-year's digits
method over 10 years.
(d) Increase depreciation expense arising from the mark-up of Lowcountry
premises and equipment to an estimated market value.
(e) Amortization of goodwill over a 25-year period using the
straight-line method.
(f) To show impact of taxes at 38% tax rate.
37
<PAGE>
INFORMATION ABOUT CAROLINA FIRST CORPORATION
IN GENERAL
CAROLINA FIRST CORPORATION. Carolina First Corporation is a bank
holding company headquartered in Greenville, South Carolina which engages in a
general banking business through its three operating subsidiaries: (1) Carolina
First Bank, a South Carolina-chartered bank headquartered in Greenville, South
Carolina, (2) Carolina First Mortgage Company, a mortgage loan origination and
servicing company headquartered in Columbia, South Carolina, and (3) Blue Ridge
Finance Company, Inc., an automobile finance company headquartered in
Greenville, South Carolina. Through its subsidiaries, Carolina First Corporation
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. Carolina First Corporation, which commenced operations in
December 1986, currently conducts business in 50 locations in South Carolina and
is one of the largest independent South Carolina-headquartered financial
institutions. At March 31, 1997, it had total assets of approximately $1.6
billion, total loans of approximately $1.2 billion, total deposits of
approximately $1.3 billion and approximately $105 million in shareholders'
equity.
Carolina First Corporation 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
Carolina First Corporation'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 Carolina First
Corporation's loan and deposit growth. Carolina First Corporation targets
individuals and small- to medium-sized businesses in South Carolina that require
a full range of quality banking services typically provided by larger regional
banking concerns, but that prefer the personalized service afforded by a South
Carolina-based institution.
Carolina First Corporation's objective is to become the leading South
Carolina-based banking institution headquartered in the state. It believes that
it can accomplish this goal by being a "super-community" bank which offers both
the personalized service and "relationship" banking typically found in community
banks, as well as the sophisticated banking products offered by the regional and
super-regional institutions. Carolina First Corporation 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). Carolina First Corporation's market
areas are located in the four largest Metropolitan Statistical Areas of the
state. Carolina First Corporation also has branch locations in other counties in
South Carolina.
Carolina First Corporation 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 the acquisition in August 1990 of First Federal
Savings and Loan Association of Georgetown (subsequently renamed Carolina First
Savings Bank, which was subsequently merged into Carolina First Bank on February
3, 1995) and the acquisition of 12 branch locations of Republic National Bank in
March 1993, in which deposits of approximately $190 million were assumed.
Approximately half of Carolina First Corporation's total deposits have been
generated through acquisitions. Carolina First Corporation anticipates that it
will continue to expand in the future and is frequently in discussions regarding
possible acquisitions. See "--Recent Developments."
Carolina First Corporation is a legal entity separate and distinct
from its subsidiary bank and non-banking subsidiary. Accordingly, the right of
Carolina First Corporation, and thus the right of Carolina First
38
<PAGE>
Corporation's creditors and shareholders, to participate in any distribution of
the assets or earnings of any subsidiary is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of
Carolina First Corporation in its capacity as a creditor may be recognized. The
principal source of Carolina First Corporation's revenues is dividends from its
subsidiaries. See "--Certain Regulatory Matters" for a discussion of regulatory
restrictions on the ability of certain subsidiaries to pay dividends to Carolina
First Corporation.
CAROLINA FIRST BANK. Carolina First Bank is a South
Carolina-chartered, non-member bank and a wholly-owned subsidiary of Carolina
First Corporation. It currently engages in a general banking business through 47
locations, which are located throughout South Carolina. It began its operations
in December 1986 and at March 31, 1997, had total assets of approximately $1.6
billion, total loans of approximately $1.2 billion and total deposits of
approximately $1.3 billion. Its deposits are insured by the FDIC.
CAROLINA FIRST MORTGAGE COMPANY. Carolina First Mortgage Company is a
South Carolina corporation which principally originates and services one-to-four
family mortgage loans through its six offices located in South Carolina. It is
headquartered in Columbia, South Carolina. At March 31, 1997, Carolina First
Mortgage Company was servicing or subservicing approximately 15,000 loans having
an aggregate principal balance of approximately $1.3 billion.
BLUE RIDGE FINANCE COMPANY. On December 29, 1995, Carolina First
Corporation acquired Blue Ridge, an automobile finance company headquartered in
Greenville, South Carolina. Blue Ridge operates from one location and, at March
31, 1997, had approximately $15 million in total assets. Blue Ridge is engaged
primarily in indirect automobile lending.
OTHER ACQUISITIONS. Carolina First Corporation continues to explore
opportunities to acquire banks and other companies engaging in financial
institutions-related activities. It is not presently known whether, or on what
terms, such discussions will result in further acquisitions. Carolina First
Corporation's acquisition strategy is flexible in that it does not require
Carolina First Corporation to effect specific acquisitions so as to enter
certain markets or to attain specified growth levels. Rather than being market
driven or size motivated, Carolina First Corporation's acquisition strategy
reflects its willingness to consider potential acquisitions wherever and
whenever such opportunities arise based on the then-existing market conditions
and other circumstances. Carolina First Corporation's acquisitions may be made
by the exchange of stock, through cash purchases, or with other consideration.
Other than as described above, Carolina First Corporation does not currently
have any definitive understandings or agreements for any acquisitions material
to Carolina First Corporation. However, Carolina First Corporation anticipates
that it will continue to expand by acquisition in the future.
MARKET PRICES OF AND DIVIDENDS PAID ON CFC COMMON STOCK
The CFC common stock is, and the CFC Shares offered hereby will be,
traded on the Nasdaq National Market. The following table sets forth, for the
periods indicated, the high and low reported closing sale prices per share of
CFC common stock as reported by the Nasdaq Stock Market and the cash dividends
per share of the CFC common stock. The dividend and stock price information has
been adjusted to reflect stock dividends.
39
<PAGE>
Price Range of CFC Common Stock (1)
High Low Dividends (1)
1994
First Quarter $ 10.21 $ 9.08 $ 0.04
Second Quarter 11.91 9.08 0.04
Third Quarter 12.50 11.11 0.04
Fourth Quarter 11.11 10.52 0.05
1995
First Quarter $ 12.10 $ 10.91 $ 0.05
Second Quarter 12.10 10.12 0.05
Third Quarter 13.96 11.71 0.05
Fourth Quarter 16.15 11.25 0.06
1996
First Quarter $ 20.52 $ 13.54 $ 0.06
Second Quarter 19.58 13.96 0.06
Third Quarter 17.08 12.92 0.06
Fourth Quarter 16.67 14.38 0.07
1997
First Quarter $ 18.00 $ 15.50 $ 0.07
Second Quarter (through
May 28, 1997) $ 16.25 $ 15.25 (2)
(1) Share data have been restated to reflect stock dividends and the
six-for-five stock split declared December 18, 1996.
(2) Dividends have historically been declared during the third month of the
quarter.
Carolina First Corporation intends to continue its present policy of
paying quarterly cash dividends to its shareholders. However, the timing and
amount of future dividends will depend upon earnings, cash requirements, the
financial condition of Carolina First Corporation and its subsidiaries,
applicable government regulations and other factors deemed relevant by Carolina
First Corporation management. As described under "--Certain Regulatory Matters,"
various state and federal laws limit the ability of Carolina First Bank to pay
dividends to Carolina First Corporation.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are hereby incorporated by reference:
Carolina First Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996;
Carolina First Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997; and
the description of the CFC common stock which is contained
in Carolina First Corporation's Form 8-A filed with the
Securities and Exchange Commission on or about October 20,
1986, including any amendment or report filed for the
purpose of updating such description.
40
<PAGE>
All documents filed by Carolina First Corporation pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the respective
dates of filing of such documents.
Any statement contained herein or in a document incorporated herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently-filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
CERTAIN REGULATORY MATTERS
GENERAL
Carolina First Corporation 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 Carolina First Corporation. The operations of Carolina First
Corporation may be affected by possible legislative and regulatory changes and
by the monetary policies of the United States.
Carolina First Corporation. As a bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), Carolina
First Corporation is subject to regulation and supervision by the Federal
Reserve. Under the BHCA, Carolina First Corporation'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 banks as to be a proper incident
thereto. The BHCA prohibits Carolina First Corporation 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 Carolina First Corporation 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 " -- Certain Regulatory Matters
- -- Interstate Banking."
Additionally, the BHCA prohibits Carolina First Corporation 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
41
<PAGE>
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 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.
Carolina First Corporation 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, Carolina First Corporation also is subject to regulation by
the State Board. Consequently, Carolina First Corporation must receive the
approval of the State Board prior to engaging in the acquisitions of banking or
nonbanking institutions or assets. Carolina First Corporation must also file
with the State Board periodic reports with respect to its financial condition
and operations, management, and intercompany relationships between Carolina
First Corporation 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 CFC common stock are entitled to receive
dividends when and if declared
42
<PAGE>
by the Board of Directors out of funds legally available therefor. Carolina
First Corporation 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 Carolina First Corporation.
CAPITAL ADEQUACY
Carolina First Corporation. 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 March 31, 1997, Carolina First Corporation 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%. At March 31, 1997,
Carolina First Corporation and Carolina First Bank were both in compliance with
each of the applicable regulatory capital requirements.
Pro Forma Regulatory Capital. The following tables sets forth
Carolina First Bank's and Carolina First Corporation's regulatory capital
position at March 31, 1997, on a historical basis as well as a pro forma basis
assuming consummation of the merger. See "PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION."
43
<PAGE>
<TABLE>
<CAPTION>
CAROLINA FIRST BANK At March 31, 1997
-----------------------------------------------
Historical Pro Forma
(dollars in thousands)
<S> <C> <C> <C> <C>
Shareholders' Equity............... $ 123,183 7.74% $ 139,193 8.29%
========== ===== =========== =====
REGULATORY CAPITAL
Tier I risk-based:
Actual................$ 109,822 8.85% $ 115,473 8.88%
Required*............. 49,609 4.00 52,033 4.00
---------- ----- ---------- -----
Excess................$ 60,213 4.85% $ 63,440 4.88%
---------- ----- ---------- -----
Total risk-based:
Actual................$ 120,859 9.74% $ 126,869 9.75%
Required*............. 99,218 8.00 104,065 8.00
---------- ----- ---------- -----
Excess................$ 21,641 1.74% $ 22,804 1.75%
---------- ----- ---------- -----
Leverage:
Actual................$ 109,822 6.96% $ 115,473 6.97%
Required*............. 63,101 4.00 66,231 4.00
---------- ----- ---------- -----
Excess................$ 46,721 2.96% $ 49,242 2.97%
---------- ----- ---------- -----
Total risk-based assets.............$1,240,277 $1,300,819
========== ===========
Total assets..........$1,591,135 $1,679,745
========== ===========
</TABLE>
- --------------------------
* For capital adequacy purposes.
<TABLE>
<CAPTION>
CAROLINA FIRST CORPORATION At March 31, 1997
------------------------------------------
Historical Pro Forma
------------------- --------------------
<S> <C> <C> <C> <C>
Shareholders' Equity........................$ 105,339 6.53% $ 116,117 6.84%
======= ===== ========== =====
REGULATORY CAPITAL
Tier I risk-based:
Actual............................$ 89,204 7.07% $ 87,589 6.63%
Required*......................... 50,439 4.00 52,821 4.00
--------- ------ ---------- -----
Excess............................$ 38,765 3.07% $ 34,768 2.63%
--------- ------ ---------- -----
Total risk-based:
Actual............................$ 126,636 10.04% $ 125,380 9.49%
Required*......................... 100,878 8.00 105,643 8.00
--------- ------ ---------- -----
Excess............................$ 25,758 2.04% $ 19,737 1.49%
--------- ------ ---------- -----
Leverage:
Actual............................$ 89,204 5.58% $ 87,589 5.24%
Required*......................... 63,916 4.00 66,836 4.00
--------- ------ ---------- -----
Excess............................$ 25,288 1.58% $ 20,753 1.24%
--------- ------ ---------- -----
Total risk-based assets.....................$1,260,970 $1,320,532
========== ==========
Total assets......................$1,613,906 $1,697,284
========== ==========
</TABLE>
- ---------------------------------
* For capital adequacy purposes.
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 rule
amending the capital standards to specify that the banking agencies will include
in their evaluations of a bank's capital adequacy an assessment of the exposure
to declines in the economic value of the bank's capital due to changes in
interest rates. The agencies have also issued a joint policy statement that
provides bankers guidance on sound practices for managing interest rate risk.
The policy
44
<PAGE>
statement identifies the key elements of sound interest rate risk management and
describes prudent principles and practices for each element, emphasizing the
importance of adequate oversight by a bank's board of directors and senior
management and of a comprehensive risk management process.
As an FDIC-insured institution, Carolina First Bank is subject to
insurance assessments imposed by 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 maintain the FDIC insurance fund's
reserve ratio at 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 December 11, 1996, the FDIC implemented a risk-based
assessment schedule imposing assessments ranging from 0.00% to 0.27% of an
institution's average assessment base. 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. The FDIC
insurance assessment reduction applies only to BIF-insured deposits and does not
include deposits insured by the Savings Association Insurance Fund ("SAIF").
As a result of the assumption of 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.
45
<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 internal controls over financial reporting.
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). On
September 23, 1994, the Riegle Community Development and Regulatory Improvement
Act of 1994 amended the 1991 Banking Law to authorize the agencies to establish
safety and soundness standards by regulation or by guideline. Accordingly, the
federal banking agencies have issued Interagency Guidelines Establishing
Standards for Safety and Soundness, which set 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 Guidelines also
prohibit payment of excessive compensation as an unsafe and unsound practice.
Compensation is defined as excessive if it is unreasonable or disproportionate
to the services actually performed. Bank holding companies are not subject to
the Guidelines. The Guidelines contemplate that each federal agency will
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.
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.
The federal banking agencies, including the FDIC, have recently issued
a joint rule that changes the method of evaluating an institution's CRA
performance. The new rule evaluates institutions based on their actual
performance (rather than efforts) in meeting community credit needs. Subject to
certain exceptions, the FDIC assesses the CRA performance of a bank by applying
lending, investment and service tests. The lending test evaluates a bank's
record of helping to meet the credit needs of its assessment area through its
lending activities by considering a bank's home mortgage, small business, small
farm, community development, and consumer lending. The investment test evaluates
a bank's record of helping to meet the credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or
46
<PAGE>
regional area that includes the bank's assessment area. The service test
evaluates a bank's record of helping to meet the credit needs of its assessment
area by analyzing both the availability and effectiveness of a bank's systems
for delivering retail banking services and the extent and innovativeness of its
community development services. The FDIC assigns a rating to a bank of
"outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance" based on the bank's performance under the lending, investment and
service tests. To evaluate compliance with the tests, subject to certain
exceptions, banks will be required to collect and report to the FDIC extensive
demographic and loan data.
For banks with total assets of less than $250 million that are
affiliates of a holding company with banking and thrift assets of less than $1
billion, the FDIC evaluates the bank's record of helping to meet the credit
needs of its assessment area pursuant to the following criteria: (1) the bank's
loan-to-deposit ratio, adjusted for seasonal variation and, as appropriate,
other lending-related activities, such as loan originations for sale to the
secondary markets, community development loans, or qualified investments; (2)
the percentage of loans and, as appropriate, the other lending-related
activities located in the bank's assessment area; (3) the bank's record of
lending to and, as appropriate, engaging in other lending related activities for
borrowers of different income levels and businesses and farms of different
sizes; (4) the geographic distribution of the bank's loans; and (5) the bank's
record of taking action, if warranted, in response to written complaints about
its performance in helping to meet credit needs in its assessment area. Small
banks may also elect to be assessed under the generally applicable standards of
the rule, but to do so a small bank must collect and report extensive data. A
bank may also submit a strategic plan to the FDIC and be evaluated on its
performance under the plan.
TRANSACTIONS BETWEEN CAROLINA FIRST CORPORATION, ITS SUBSIDIARIES AND AFFILIATES
Carolina First Corporation'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. Carolina First Corporation'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 Carolina First Corporation'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 Carolina First Corporation, 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.
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.
47
<PAGE>
In July 1994, South Carolina enacted legislation which effectively
provides that, after September 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, Carolina First
Corporation 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 Carolina First Corporation 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. Carolina First Corporation believes that this
legislation may result in increased takeover activity of South Carolina
financial institutions by out-of-state financial institutions. However, Carolina
First Corporation 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 Carolina First Mortgage Company are subject to state
usury laws and certain federal laws concerning interest rates. Carolina First
Bank's and Carolina First 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
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.
48
<PAGE>
INFORMATION ABOUT LOWCOUNTRY
GENERAL
Lowcountry conducts a general savings association business under a
state charter approved by the South Carolina State Board of Financial
Institutions (the "State Board") and granted by the Secretary of State of South
Carolina on August 25, 1987. Its business primarily consists of accepting
savings deposits and originating first mortgage loans on single-family
residential properties. Lowcountry conducts its activities from its main office
located in Mt. Pleasant, South Carolina and four branches located in Moncks
Corner, Isle of Palms, Summerville, and Charleston, South Carolina.
Lowcountry seeks savings deposits and transaction accounts from
households and businesses in its primary market area by offering a full range of
savings accounts, retirement accounts (including Individual Retirement Accounts
and Keogh plans), checking accounts, money market accounts, and time
certificates of deposit. It also originates mortgage loans and, to a lesser
extent, commercial and consumer loans, primarily on a secured basis, and makes
other authorized investments. Mortgage loans are primarily made for resale in
the secondary market and most are at variable rates. As of March 31, 1997,
Lowcountry employed 38 persons.
MARKET AREA AND COMPETITION
Competition between commercial banks and thrift institutions
(savings and loan associations) and credit unions has intensified significantly
as a result of the elimination of many previous distinctions between the various
types of financial institutions, and the expanded powers and increased activity
of thrift institutions in areas of banking that previously had been the sole
domain of commercial banks. Recent legislation, together with other regulatory
changes by the primary regulators of the various financial institutions, has
resulted in the elimination of many distinctions between a commercial bank and
thrift institution. Consequently, competition among financial institutions of
all types is virtually unlimited with respect to legal authority to provide most
financial services.
Lowcountry competes in the South Carolina Counties of Berkeley,
Charleston, and Dorchester, for which the most recent market share data
available is as of June 1996. At that time, in Berkeley County, 12 banks,
savings and loans, credit unions, and savings banks with 16 branch locations
competed for aggregate deposits of approximately $286 million. Lowcountry has
one branch in Berkeley County, its Moncks Corner office, which had approximately
$15 million in deposits, for a county-wide deposit market share of 5.31% and a
market share rank of seventh out of the 12 competitors. In Charleston County, 24
banks, savings and loans, credit unions, and savings banks with 116 branch
locations competed for aggregate deposits of approximately $3.4 billion.
Lowcountry had two offices in Charleston County, its Mount Pleasant Office and
its West Ashley Office, with approximately $42 million in deposits, for a
county-wide deposit market share of 1.24% and a market share rank of fourteenth
out of the 24 competitors. Since this data was compiled, Lowcountry has opened
another office in Charleston County, its Isle of Palms Office, in December 1996.
In Dorchester County, 12 banks, savings and loans, credit unions, and savings
banks with 25 branch locations competed for aggregate deposits of approximately
$443 million. Lowcountry had one office in Dorchester County, its Summerville
Office, with approximately $7 million in deposits, for a county-wide deposit
market share of 1.58%, and a market share rank of eleventh out of the 12
competitors.
Savings associations generally compete with other financial
institutions through the savings products and services offered, the pricing of
services, the level of service provided, the convenience and availability of
services, and the degree of expertise and personal concern with which services
are offered. In the conduct of certain areas of its business, Lowcountry
competes with commercial banks, credit unions, consumer finance companies,
insurance companies, money market mutual funds and other financial institutions,
some of which are not subject to the same degree of regulation and restriction
imposed upon Lowcountry. Many of these competitors have substantially greater
resources and lending limits than Lowcountry and offer certain services, such as
international banking services and trust services, that Lowcountry does not
provide. Moreover, most
49
<PAGE>
of these competitors have more numerous branch offices located throughout their
market areas, a competitive advantage that Lowcountry does not have to the same
degree.
The savings and loan industry is significantly affected by
prevailing economic conditions as well as by government policies and regulations
concerning, among other things, monetary and fiscal affairs, the housing
industry and financial institutions. Deposits at savings institutions are
influenced by a number of economic factors, including interest rates, competing
instruments, levels of personal income and savings, and the extent to which
interest on retirement savings accounts is tax deferred. Lending activities are
also influenced by a number of economic factors, including demand for and supply
of housing, conditions in the construction industry, and availability of funds.
Primary sources of funds for lending activities include savings deposits, income
from investments, loan principal repayments, proceeds from sales of loans to
conventional participating lenders, and the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion is intended to assist in understanding the
financial condition and results of operations of Lowcountry, and should be read
in conjunction with the financial statements and related notes contained
elsewhere herein. All per share data has been retroactively restated to reflect
a 4 for 3 stock split effective March 5, 1996.
EARNINGS PERFORMANCE
SIX MONTHS ENDED MARCH 31, 1997 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1996
Net income for the six months ended March 31, 1997 was $301,174 or
$.31 per share, compared with net income of $214,529 or $.26 per share for the
same period ended March 31, 1996. This was an increase of $86,645 or $.09 per
share. The increase in earnings reflects a rise in net interest income of
$562,860 or 59.1%, generated by increased average earning assets of $71,767,417
and a net interest margin of 4.22% up from 3.07% at March 31, 1996. Offsetting
this increase in net interest income was a decrease in other income of $133,112
and increased operating expenses of $224,103.
1996 COMPARED WITH 1995
Net income for the year ended September 30, 1996 was $251,858 or
$.30 per share, compared with net income of $182,892 or $.22 per share for the
year ended September 30, 1995. This was an increase of $68,966 or $.08 per
share, a 37% increase. The increase in earnings was mainly generated by an
increase in net interest income of $498,560. The increase in average interest
earning assets to $65,246,258, coupled with an increase in the net yield on
these assets to 3.53%, accounts for the increase in net interest income.
Other income increased $388,926, generated mainly by increases in
service charges on deposits of $153,245 and the gain on sale of loans of
$162,834. Offsetting the additional income was an increase in operating expenses
of $816,943 caused by the move into a permanent facility in Moncks Corner, the
acquisition and opening of the Summerville and West Ashley branch offices and
the one time assessment of $322,025 by the FDIC to recapitalize the Savings
Association Insurance Fund.
1995 COMPARED WITH 1994
Net income for the year ended September 30, 1995 was $182,892 or
$.22 per share, compared with net income of $655,727 or $.82 per share for the
year ended September 30, 1994. This was a decline of $472,835, or $.60 per
share, both representing a 72% drop from 1994. Lowcountry's earnings in 1994
were enhanced by a change in accounting for income taxes with a cumulative
positive effect in 1994 of $100,000
50
<PAGE>
or $.13 per share.
In 1995 net interest income declined $83,968 to $1,801,439, a 4%
decrease from 1994. This decrease in net interest income resulted primarily from
a reduced interest rate spread. Lowcountry's earnings from its loan portfolio
for 1995 were further negatively affected by a $48,000 or 120% increase in the
provision for loan losses compared with 1994. Lowcountry increased the provision
for loan losses to cover increased charge-offs. Net loan charge-offs for 1995
were $85,861 compared to $40,369 in 1994.
Other income decreased $80,355 or 12% in 1995 compared with 1994,
primarily due to a decline in gains on sale of loans. This overall decline in
non-interest income for 1995 was despite a $52,491 or 30% increase in service
fees on deposits attributable to an increased number of accounts as well as an
increase in various charges for services.
General and administrative expenses for 1995 increased $401,512 or
25% over the 1994 period, primarily because of the move into a permanent
facility in Moncks Corner and the acquisition and opening of the Summerville
branch office.
As a result of the 70% decline in operating earnings, Lowcountry
recorded $81,000 for income taxes, a $241,000 or 75% reduction in the year ended
September 30, 1995 from the prior year.
NET INTEREST INCOME
Net interest income is the amount of interest earned on interest
earning assets (loans, investment securities, time deposits in other banks and
federal funds sold), less the interest expense incurred on interest bearing
liabilities (interest bearing deposits and FHLB advances), and is the principal
source of Lowcountry's earnings. Net interest income is affected by the level of
interest rates, volume and mix of interest earning assets and interest bearing
liabilities and the relative funding of these assets.
For the year ended September 30, 1996, net interest income
increased $498,560 or 27.7% to $2,299,999. Average earning assets grew 10.5% to
$65,246,258, while the net rate of return on average earning assets grew to
8.62% from 7.87% for September 30, 1995. Total cost of funds increased by only
.25% to 5.49%. This increase only partially offset the increased rate of return
on earning assets and resulted in a net interest margin of 3.53%, up from 3.05%
for year ended September 30, 1995.
Net interest income was $1,801,439 and $1,885,407 for the years
ended September 30, 1995 and 1994, respectively. The $83,968 or 4% decrease in
1995 from 1994 was primarily attributable to a rising interest rate environment.
The average rate paid on interest bearing liabilities increased 146 basis points
to 5.24%. The average yield on interest earning assets also increased during
1995 by 63 basis points to 7.87%. Increases in the volumes of both interest
earning assets and interest bearing liabilities also affected net interest
income. Average interest earning assets increased $10,386,536 or 21%, and
average interest bearing liabilities increased $11,107,783 or 26% for 1995
compared to 1994. Net yield on interest earning assets decreased 82 basis points
to 3.05% in 1995. The primary reason for this change was that interest bearing
liabilities increased in the high yielding deposits resulting in a change of mix
and higher cost of funds. The overall cost of funds rose to 5.24% from 3.78% in
1994.
For the six months ended March 31, 1997, net interest income
increased $562,860 or 59% to $1,515,167 from the six months ended March 31,
1996. Average interest earning assets increased to $71,767,417 with an average
yield of 8.91%. Average interest bearing liabilities were $65,041,233 at an
average cost of 5.18%. The net yield on average earning assets at March 31, 1997
was 4.22%.
The table "Average Balances, Yields and Rates" provides a detailed
analysis of the effective yields and rates on the categories of interest earning
assets and interest bearing liabilities for the years ended September 30, 1994,
1995 and 1996 and the six months ended March 31, 1997.
51
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended September 30, 1994 Year Ended September 30, 1995 Year Ended September 30, 1996
----------------------------- ----------------------------- ----------------------------
Interest Interest Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances(1) Expense Rates Balances(1) Expense Rates Balances(1) Expense Rates
----------- ------- ----- ----------- ------- ----- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits in other banks $ 1,102 $ 39 3.55% $ 1,111 $ 65 5.85% $ 953 $ 56 5.90%
Federal funds sold 876 48 5.51 1,244 68 5.53 1,518 90 5.49
Loans (2) 46,695 3,434 7.35 56,704 4,516 7.96 62,775 5,481 9.02
Total interest earning assets 48,673 3,521 7.24 59,060 4,649 7.87 65,246 5,627 8.91
Cash and due from banks 483 762 1,893
Allowance for loan losses (285) (251) (268)
REO and Other 0 145 208
Repossessions
Premises and equipment 763 1,216 1,347
Other assets 580 1,109 1,962
Total assets 50,214 62,231 70,388
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest bearing transaction 4,523 87 2.05 4,805 108 2.50 5,478 126 2.30
accounts
Savings 2,509 55 2.20 2,317 68 2.92 4,431 172 3.89
Wholesale Certificates 18,616 824 4.40 22,353 1,315 5.83 20,846 1,274 6.11
Retail Certificates 16,113 598 3.71 17,592 899 5.11 26,700 1,571 5.88
Total interest bearing
deposits 41,761 1,564 3.75 47,067 2,390 5.08 57,455 3,143 5.47
FHLB advances 1,525 72 4.72 7,328 458 6.25 3,090 184 5.99
Total interest bearing 43,287 1,636 3.78 54,395 2,848 5.24 60,545 3,327 5.49
liabilities
Noninterest bearing demand 1,494 1,988 3,114
deposits
Other liabilities 1,085 1,007 1,443
Shareholders' equity 4,348 4,840 5,286
Total liabilities and
shareholders' equity 50,214 62,231 70,388
Interest rate spread (3) 3.46 2.63 3.13
Net interest income and net 48,673 1,885 3.87 59,060 1,801 3.05 65,246 2,300 3.53
yield on earning assets (4)
Interest free funds supporting 5,387 4,665 4,701
earning assets (5)
<CAPTION>
Six Months Ended March 31, 1997
-------------------------------
Interest
Average Income/ Yields/
Balances(1) Expense Rates
----------- ------- -----
<S> <C> <C> <C>
ASSETS
Time deposits in other banks $895 $ 24 5.37%
Federal funds sold 1,237 34 5.49
Loans (2) 69,635 3,140 9.02
Total interest earning assets 71,767 3,198 8.91
Cash and due from banks 2,219
Allowance for loan losses (387)
REO and Other 0
Repossessions
Premises and equipment 1,346
Other assets 1,991
Total assets 76,936
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest bearing transaction 6,010 55 1.83
accounts
Savings 3,832 58 3.03
Wholesale Certificates 15,171 462 6.09
Retail Certificates 34,269 959 5.60
Total interest bearing
deposits 59,282 1,534 5.18
FHLB advances 5,759 149 5.18
Total interest bearing 65,041 1,683 5.18
liabilities
Noninterest bearing demand 3,798
deposits
Other liabilities 1,809
Shareholders' equity 6,288
Total liabilities and
shareholders' equity 76,936
Interest rate spread (3) 3.73
Net interest income and net 71,767 1,515 4.22
yield on earning assets (4)
Interest free funds supporting 6,726
earning assets (5)
</TABLE>
(1) Average balances are computed on a daily basis.
(2) Nonaccruing loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(3) Total interest earning assets yield less the total interest
bearing liabilities rate.
(4) Net interest income divided by total interest earning assets.
(5) Total interest earning assets less total interest bearing liabilities.
52
<PAGE>
The table "Volume and Rate Variance Analysis" provides a summary
of changes in net interest income resulting from changes in volumes of interest
earning assets and interest bearing liabilities, and the rates earned and paid
on such assets and liabilities.
VOLUME AND RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
1995 compared to 1994 1996 compared to 1995
--------------------------- -----------------------
Volume Rate Total Volume Rate Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ 0 $ 26 $ 26 $ (9) $ 0 $ (9)
Federal funds sold 39 (19) 20 15 7 22
Loans 478 604 1,082 483 481 964
------- ------- ------- ------- ------- -------
Total interest income 517 611 1,128 489 488 977
------- ------- ------- ------- ------- -------
Interest bearing deposits
Interest bearing
transaction accounts 7 21 28 17 (11) 6
Savings (6) 19 13 62 42 104
Wholesale 218 266 484 (88) 59 (29)
Retail 76 225 301 465 207 672
FHLB advances 118 268 386 (265) (10) (275)
------- ------- ------- ------- ------- -------
Total interest expense 413 799 1,212 191 287 478
------- ------- ------- ------- ------- -------
Net interest income 104 (188) (84) 298 201 499
</TABLE>
The rate/volume variance for each category has been allocated on a consistent
basis between rate and volume variances based on the percentage of rate or
volume variance to the sum of the two absolute variances except in categories
having balances in only one period. In such cases, the entire variance is
attributed to volume differences.
During the remainder of 1997, management expects that interest
rates will not radically change. Therefore, any improvements in net interest
income for 1997 are expected to be largely the result of increases in the volume
and changes in the mix of interest earning assets and liabilities.
INTEREST RATE SENSITIVITY
Interest rate sensitivity management is concerned with the timing
and magnitude of repricing assets compared to liabilities and is an important
part of asset/liability management. It is the objective of interest rate
sensitivity management to generate stable growth in net interest income, and to
control the risks associated with interest rate movement. Management constantly
reviews interest rate risk exposure and the expected interest rate environment
so that adjustments in interest rate sensitivity can be timely made.
The table "Interest Sensitivity Analysis" indicates that, on a
cumulative basis through twelve months, rate sensitive liabilities exceeded rate
sensitive assets, resulting in a liability sensitive position at September 30,
1996 of $1,308,000 for a cumulative ratio of interest earning assets to interest
bearing liabilities of 98%. When interest sensitive assets exceed interest
sensitive liabilities for a specific repricing "horizon", a positive interest
sensitivity gap results. The gap is negative when interest sensitive liabilities
exceed interest sensitive assets, as was the case at the end of 1996 with
respect to the one year time horizon. For a bank with a negative gap, falling
interest rates would be expected to have a positive effect on net interest
income and rising rates would be expected to have the opposite effect.
53
<PAGE>
The table below reflects the balances of interest earning assets
and interest bearing liabilities at the earlier of their repricing or maturity
dates. Scheduled payment amounts of amortizing fixed rate loans are reflected at
each scheduled payment date. Variable rate amortizing loans reflect scheduled
payments at each scheduled payment date until the loan may be repriced
contractually; the unamortized balance is reflected at that point. Deposits in
other banks and debt securities are reflected at each instrument's ultimate
maturity date. Overnight federal funds sold are reflected in the earliest
repricing interval due to the immediately available nature of these funds.
Interest bearing liabilities with no contractual maturity, such as interest
bearing transaction accounts and savings deposits are reflected in the earliest
repricing interval due to contractual arrangements which give management the
opportunity to vary the rates paid on these deposits within a thirty-day or
shorter period. However, Lowcountry is under no obligation to vary the rates
paid on those deposits within any given period. Fixed rate time deposits,
principally certificates of deposit, are reflected at their contractual maturity
dates. Variable rate time deposits, principally individual retirement accounts,
are reflected at the earlier of their next repricing or maturity dates.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
September 30, 1996
Within 4-12 1-5 Over 5
3 Months Months Years Years Total
-------- ------ ------- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest earning assets
Time deposits in other banks $ 500 $ 400 $ 0 $ 0 $ 900
Federal funds sold 676 0 0 0 676
Loans (1)
Fixed rate
Single family 714 335 2,138 485 3,672
Construction and land 575 925 359 0 1,859
Second mortgage 3 9 49 46 107
Commercial mortgage 6 18 491 725 1,240
Commercial other 130 190 418 0 738
Construction other 740 1,940 1,168 160 4,008
Variable rate
Single family 9,927 31,263 4,688 268 46,146
Construction and land 435 850 714 0 1,999
Second mortgage 15 446 0 0 461
Commercial mortgage 279 3,000 1,250 0 4,529
Commercial other 1,931 0 0 0 1,931
Construction other 1,056 0 0 0 1,056
-------- -------- -------- -------- --------
Total interest earning assets $ 16,987 $ 39,376 $ 11,275 $ 1,684 $ 69,322
======== ========= ======== ======== ========
Interest bearing liabilities
Interest bearing transaction accounts $ 5,580 $ 0 $ 0 $ 0 $ 5,580
Savings 4,279 0 0 0 4,279
Certificates 16,807 25,505 5,877 0 48,189
Obligations under capital leases 5,500 0 0 0 5,500
-------- -------- -------- -------- --------
Total interest bearing liabilities $ 32,166 $ 25,505 $ 5,877 $ 0 $ 63,548
======== ========= ======== ======== ========
Interest sensitivity gap (15,179) 13,871 5,398 1,684 5,774
Cumulative interest sensitivity gap (15,179) (1,308) 4,090 5,774
Cumulative ratio of interest-sensitive assets
to interest-sensitive liabilities .53x .98x 1.06x 1.09x
</TABLE>
(1) There were $499,000 of nonaccruing loans at September 30, 1996.
54
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. Provisions for loan losses were $40,000, $88,000 and
$47,000 for the years ended September 30, 1994, 1995, and 1996, respectively.
The larger provision in 1995 was due to increased charge-offs. Lowcountry,
during 1996, added $80,826 to the reserve for loan losses in conjunction with
the purchase of mortgage loans at a discount.
Net loan charge-offs for 1996 totaled $41,744, compared with $85,861 in
1995, and $40,369 in 1994. Management is not aware of any trend toward
significantly higher charge-offs in any particular loan category in 1997. See
"Nonperforming Loans; Other Problem Assets" and "Allowance for Loan Losses" for
a discussion of the factors management considers in its review of the adequacy
of the allowance and provisions for loan losses.
For the six months ended March 31, 1997, the provision for loan losses
was $43,000 and for the same period, net charge-offs were $52,128.
OTHER INCOME
For the year ended September 30, 1996, other income increased $388,926
or 68% from the 1995 period. This increase primarily resulted from an increase
in gains on the sale of loans of $162,834 or 97%, a $153,245 or 64% increase in
service fees on deposits and a $63,618 or 70% increase in other fees.
For the year ended September 30, 1995, other income decreased $80,355
or 12% from the comparable period in 1994, primarily resulting from a decline in
gains on the sale of loans. Gains on the sale of loans for 1995 decreased
$122,615 or 42% from 1994, more than offsetting an increase of $61,000 or 30% in
service fees on deposits.
For the six months ended March, 31, 1997 other income decreased
$133,112 or 26% over the corresponding period in 1996. This change resulted from
lower gains on the sale of loans of $93,612 or 55% and reduced service charges
on deposits of $21,360 or 12%.
GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended September 30, 1996, general and administrative
expenses grew $816,943 or 40.5% to $2,833,389. The increased expenses reflect
the salaries, occupancy and operating cost of the West Ashley branch opened in
February 1996 and the Summerville branch opened in May 1995. Lowcountry also
incurred a charge of $322,025 associated with a one-time assessment of the
Savings Association Insurance Fund. In exchange for this one-time assessment,
qualifying members of the SAIF will receive a reduction in their annual
assessment in future years starting in 1997.
General and administrative expenses for the year ended September 30,
1995 increased $401,512 or 25% over the 1994 period. Compensation and benefits
increased $120,420 or 13% for 1995 due to the opening of the Summerville Branch
facility. Occupancy expense increased $68,219 or 21% due to the same facility.
Data processing costs rose $35,220 or 33% due to higher volumes of accounts
processed. Marketing costs rose $11,214 or 33% on higher outlays for
advertising. Professional fees rose $36,433 or 145%, and office supplies,
telephone, and postage rose $44,583 or 58% due to the increased level of
business and branch facilities. Other operating expenses rose 78,423 or 342% due
to higher levels of business and various consulting fees related to branch
acquisitions and financial strategies.
For the six months ended March 31, 1997, general and administrative
expenses increased $224,103 or 19% compared with the same period in 1996.
Salaries and employee benefits rose $125,076 or 20%, occupancy expense rose
$37,874 or 17% and data processing expenses increased $26,090 or 30%, all due to
opening of the West Ashley Branch facility in February 1996 and the Isle of
Palms branch in December 1996.
55
<PAGE>
INCOME TAXES
For 1996, federal and state income tax expense increased $43,000 or 53%
from the 1995 period due to the decrease in operating earnings. Income taxes for
1996 were charged to expense at the regular income tax rates. Management
estimates that the effective combined federal and state income tax rates on
income before income taxes will be approximately 38% for 1997.
Lowcountry adopted Statement of Financial Accounting Standards (SFAS)
No. 109 as of October 1, 1993. The cumulative effect of the adoption of SFAS 109
was an increase of $100,000 in net income for 1994, and a corresponding decrease
in the net deferred tax liability.
INVESTMENT PORTFOLIO
At September 30, 1995 and 1996 and March 31, 1997, Lowcountry did not
hold any investment securities.
LOAN PORTFOLIO
Management believes the loan portfolio is adequately diversified
within the parameters of the qualified thrift lender test. There are no
significant concentrations of loans in any particular individuals or industry or
group of related individuals or industries, and there are no foreign loans.
The amount of loans outstanding at September 30, 1995 and 1996 are
shown in the following table according to type of loan:
56
<PAGE>
LOAN PORTFOLIO COMPOSITION
September 30, September 30,
-------------------- -------------------
1995 % 1996 %
-------- ----- -------- ------
(dollars in thousands)
Residential real estate $50,228 85.66% $53,465 78.34%
Residential construction 2,284 3.90% 2,922 4.28%
Commercial real estate 2,635 4.49% 6,375 9.34%
Less loans in process 1,501 2.56% 2,121 3.11%
Less deferred fees 107 0.18% 447 0.65%
------- ------
Total mortgage loans 53,539 91.31% 60,194 88.20%
------- ------
Other loans
Consumer loans 3,038 5.18% 4,689 6.87%
Commercial loans 2,229 3.80% 3,593 5.26%
Loans of savings accounts 109 0.19% 140 0.21%
------- ------
Total other loans 5,376 9.17% 8,422 12.34%
------- ------
Loans receivable 58,915 100.48% 68,616 100.54%
Less allowance for loan losses 283 0.48% 368 0.54%
------- ------
Loans receivable, net $58,632 100.00% $68,248 100.00%
======= ======
A certain degree of risk taking is inherent in the extension of
credit. Management has established loan and credit policies designed to control
both the types and amounts of risks assumed and to ultimately minimize losses.
Such policies include limitations on loan-to-collateral values for various types
of collateral, requirements for appraisals of real estate collateral, problem
loan management practices and collection procedures, and nonaccrual and
charge-off guidelines.
Lowcountry's general policy is to review individually and on its
own merits each request for credit. Credit decisions are based on an assessment
of the capacity of the borrower to repay the debt and the value of the security
in relation to the amount of debt for which the application is made. Lowcountry
has a loan committee that meets weekly to review all loan requests. Lowcountry's
general policy is to require that property and/or title insurance be obtained
with respect to secured loans. Although loans may be granted with loan-to-value
ratios of up to 95%, Lowcountry's policy is to require private mortgage
insurance for mortgage loans with loan-to-value ratios in excess of 80%.
Loans are originated primarily through Lowcountry's in-house loan
originators and solicited through advertisements in local newspapers.
Lowcountry's long-range investment strategy is to fund for its
own portfolio only those mortgages that are floating rate investments with an
annual cap of 2% and a lifetime cap of 6%. The normal maturities of these loans
are either 15 or 30 years. Lowcountry reviews its interest sensitivity gap (the
difference between interest sensitive assets and interest sensitive liabilities)
on a quarterly basis and funds only those loans that meet the guidelines
established by the Asset Liability Committee. The loans that Lowcountry places
that do not meet its investment criteria are sold in the secondary market to
purchasers such as FHLMC, FNMA or private investors.
Lowcountry has no plans to change this strategy in the future.
Commercial loans primarily represent loans made to businesses,
and may be made on either a secured or an unsecured basis. When taken,
collateral consists of liens on receivables, equipment, inventories, furniture
and fixtures. Unsecured business loans are generally short-term with emphasis on
repayment strengths and low debt to worth ratios. During 1996, total commercial
and industrial loans increased $1,364,000 or 61%. Also, loans for business
purposes that are secured by real estate (nonfarm, nonresidential) increased by
$3,740,000 or 141% during 1996. Commercial lending involves significant risk
because repayment usually depends on the cash flows generated by a borrower's
business, and the debt service capacity of a business can deteriorate because of
57
<PAGE>
downturns in national and local economic conditions. To control risk,
sophisticated initial and continuing financial analysis of a borrower's
financial information is required.
Real estate construction loans generally consist of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan to cost ratios are limited to 75% and permanent financing
commitments are required prior to the advancement of loan proceeds.
Loans secured by real estate mortgages comprised over 90% of
Lowcountry's loan portfolio at the end of both 1995 and 1996. Real estate
mortgage loans of all types grew $7,615,000 during 1996. Residential real estate
loans consist mainly of first and second mortgages on single family homes, with
some multifamily loans. Loan-to-value ratios for these instruments are generally
limited to 95%. Nonfarm, nonresidential loans are secured by business and
commercial properties with loan-to-value ratios generally limited to 80%. The
repayment of both residential and business real estate loans is dependent
primarily on the income and cash flows of the borrowers, with the real estate
serving as a secondary or liquidation source of repayment.
NONPERFORMING LOANS; OTHER PROBLEM ASSETS
NONACCRUAL AND PAST DUE LOANS
(dollars in thousands)
September 30,
-------------------
1995 1996
---- ----
Nonaccrual loans $348 $499
Accruing loans 90 days or more past due -- --
------ ------
Total $348 $499
==== ====
Percent of total loans .6% .7%
When a loan is 90 days past due as to interest or principal or
there is serious doubt as to collectibility, the accrual of interest income is
generally discontinued unless the estimated net realizable value of collateral
is sufficient to assure collection of the principal balance and accrued
interest. Previously accrued interest on loans placed in a nonaccrual status is
reversed against current income, and subsequent interest income is recognized
when received. When the collectibility of a significant amount of principal is
in serious doubt, the principal balance is reduced to the estimated fair value
of collateral by charge-off to the allowance for loan losses and any subsequent
collections are credited first to the remaining principal balance and then to
the allowance for loan losses as a recovery of the amount charged off. A
nonaccrual loan is not returned to accrual status unless principal and interest
are current and the borrower has demonstrated the ability to continue making
payments as agreed.
58
<PAGE>
POTENTIAL PROBLEM LOANS
Management has identified and maintains a list of potential
problem loans. These are loans that are not included in the nonaccrual or the
past due 90 days or more and still accruing categories. A loan is added to the
potential problem list when management becomes aware of information about
possible credit problems of borrow ers that causes serious doubts as to the
ability of such borrowers to comply with the current loan repayment terms. The
total amount of loans determined by management to be potential problem loans was
$834,357 at September 30, 1995 and $936,134 at September 30, 1996. These amounts
do not represent management's estimate of potential losses since a large
proportion of such loans is secured by various types of collateral.
The following table presents information about the categories and
types of collateral with respect to potential problem loans as of September 30,
1995 and September 30, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 30, 1995 September 30, 1996
--------------------- -----------------------
Amount % Amount %
-------- --------- ------ -----
(Dollars in Thousands)
Commercial and industrial $ 51 * $ 48 *
Equipment, inventory and vehicles 49 * 0 *
Real estate - mortgage
1-4 family residential 683 1.2% 853 1.2%
Consumer installment 40 * 35 *
Unsecured 11 * 0 *
------ ------ ----- -----
Total $834 1.4% $936 1.3%
==== ==== ==== ====
</TABLE>
- ----------------
*Less than .1%.
REAL ESTATE OWNED
Real estate owned consists of foreclosed and in-substance
foreclosed properties and was $516,794 at September 30, 1995 and $0 at September
30, 1996 and March 31, 1997. Real estate owned is located in the Charleston
County area, where sales of the property are expected to be moderate to quick.
Real estate owned is initially recorded at the lower of net loan principal
balance or its estimated fair market value less estimated selling costs. The
estimated fair value is determined by appraisal at the time of acquisition.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by direct charges to
operating expense. Losses on loans are charged against the allowance in the
period in which management has determined that it is more likely than not such
loans have become uncollectible. Recoveries of previously charged off loans are
credited to the allowance. The table "Summary of Loan Loss Experience"
summarizes loan balances at the end of each period indicated, averages for each
period, changes in the allowance arising from charge-offs and recoveries by loan
category, and additions to the allowance which have been charged to expense.
In reviewing the adequacy of the allowance for loan losses at
each year end, management took into consideration the historical loan losses
experienced by Lowcountry, current economic conditions affecting the borrowers'
ability to repay, the volume of loans, the trends in delinquent, nonaccruing,
and potential problem loans, and the quality of collateral securing
nonperforming and problem loans. After charging off all known losses, management
considers the allowance for loan losses adequate to cover its estimate of
possible future loan losses inherent in the loan portfolio as of September 30,
1996 and at March 31, 1997.
59
<PAGE>
In calculating the amount required in the allowance for loan
losses, management applies a consistent methodology that is updated monthly. The
methodology utilizes a loan risk grading system, detailed loan reviews to assess
credit risks, mix of the loan portfolio and the overall quality of the loan
portfolio, as well as other off- balance-sheet credit risks such as loan
commitments and standby letters of credit. Also, the calculation provides for
management's assessment of trends in national and local economic conditions that
might affect the general quality of the loan portfolio. Regulators review the
adequacy of the allowance for loan losses as part of their examination of
Lowcountry and may require adjustments to the allowance based upon information
available to them at the time of the examination. Although management's
calculation of the allowance for loan losses does not provide an allocation by
individual loan categories, the various categories have differing degrees of
risk.
Commercial lending generally has the highest degree of risk among
the loan categories because repayment usually depends on cash flows generated by
a borrower's business, and the debt service capacity of a business can
deteriorate because of internal problems with a particular business or because
of downturns in national and local economic conditions. Real estate lending
generally has a significantly lower degree of risk than commercial lending. The
degree of risk in a real estate loan depends primarily on the loan-to-value
ratio, the interest rate and, to a lesser extent, the borrower's ability to
repay in an orderly fashion. Real estate construction loans may involve a
somewhat higher degree of risk than other real estate mortgage loans because of
the necessity of completing projects within specified time and cost limits. This
risk can, however, be reduced by limiting the type and extent of Lowcountry's
involvement. Home equity lending generally is considered to be relatively
low-risk because these loans are secured by housing assets, the value of which
has historically performed well. Installment lending to individuals generally
carries a moderate risk, which is to some degree offset by higher rates of
interest charged and the relatively small amount of such loans.
Charge-offs for fiscal 1997 are expected to be approximately the
same amounts as in prior years. See "Allocation of Allowance by Loan Type" and
"Summary of Loan Loss Experience" below.
<TABLE>
<CAPTION>
Allocation of Allowance by Loan Type
September 30, 1995 September 30, 1996
------------------ ------------------
(dollars in thousands)
<S> <C> <C>
Commercial and industrial $ 123 $ 150
Real estate - construction 8 8
Real estate - mortgage 49 134
Installment and other loans to individuals 30 46
Unassigned portion 73 30
----- ------
Total $ 283 $ 368
===== ======
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
Year Ended September 30,
------------------------ Six Months Ended
1995 1996 March 31, 1997
---- ---- --------------
(dollars in thousands)
<S> <C> <C> <C>
Total loans outstanding at end of period $ 58,915 $ 68,616 $ 71,387
Average amount of loans outstanding 56,704 62,775 69,635
Balance of allowance for loan losses - beginning 281 283 368
Loans charged off
Commercial and industrial 72 35 54
Real estate - mortgage -- -- --
Consumer installment 14 9 2
---- --- ---
Total charge-offs 86 44 56
---- ---- ----
Recoveries of loans previously charged-off
Commercial and industrial -- 2 4
----- ---- ----
Net charge-offs 86 42 52
---- ---- ----
Additions to allowance charged to expense 88 47 43
Allowance of acquired loans -- 80 --
----- ----- -----
Balance of allowance for loan losses - ending $ 283 $ 368 $ 359
======= ======= =====
Ratios
Net charge-offs during period to average
loans outstanding during period .1% .1% .1%
Net charge-offs to loans at end of period .1% .1% .1%
Allowance for loan losses to average loans .5% .6% .5%
Allowance for loan losses to loans at end of period .5% .5% .5%
Allowance for loan losses to nonperforming loans
at end of period 81.3% 73.7% 101.4%
Net charge-offs to allowance for loan losses 30.0% 11.0% 14.0%
Net charge-offs to provision for loan losses 98.0% 89.0% 121.0%
</TABLE>
61
<PAGE>
DEPOSITS
The average amounts and percentage composition of deposits held
by Lowcountry for the years ended September 30, 1995 and 1996 are summarized
below:
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
September 30,
-------------------------------------------------------------
1995 1996
-------------------------- -------------------------
Amount % Amount %
-------------------------- -------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand $ 1,988 4.1% $ 3,114 5.1%
Interest bearing transaction accounts 4,805 9.8 5,478 9.1
Savings 2,317 4.7 4,431 7.3
Time deposits - wholesale 22,353 45.6 20,846 34.4
Other time deposits 17,592 35.8 26,700 44.1
------- ----- ------- -----
Total deposits $49,055 100.0% $60,569 100.0%
======= ====== ======= ======
</TABLE>
The following table sets forth the amounts of time deposit
accounts by categories of interest rates as of September 30, 1995 and 1996.
<TABLE>
<CAPTION>
TIME DEPOSITS
September 30, 1995 September 30, 1996
------------------ ------------------
(dollars in thousands)
<S> <C> <C>
Categories of rates
2.00-3.99% $ 193 $ 307
4.00-4.99% 1,665 32
5.00-5.99% 16,024 29,419
6.00-6.99% 19,984 15,674
7.00-8.99% 6,608 2,757
-------- --------
Total Time Deposits $ 44,385 $ 48,189
======== =========
Maturities
Within one year $ 42,312
After one but within two years 3,853
After two but within three years 493
After three years 1,531
--------
Total Time Deposits $ 48,189
=========
</TABLE>
As of September 30, 1996, Lowcountry held $3,095,000 in time
deposits of $100,000 or more. Average wholesale time deposits (certificates
generated through corporations, banks, credit unions, etc., on a national level)
were $18,616,256 in 1994, $22,352,902 in 1995, and $20,846,107 in 1996. This
fluctuation in wholesale time deposits, as well as other deposits, can be
attributed to a planned strategy by management. It is a common industry practice
not to consider these types of deposits as core deposits because their retention
can be expected to be heavily influenced by rates offered, and therefore they
have the characteristics of
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shorter-term purchased funds. Wholesale time deposits involve the maintenance of
an appropriate matching of maturity distribution and a diversification of
sources to achieve an appropriate level of liquidity. Such deposits are
generally more volatile and interest rate sensitive than other deposits.
RETURN ON EQUITY AND ASSETS
The following table shows the return on assets (net income
divided by average total assets), return on equity (net income divided by
average equity), dividend payout ratio (dividends declared per share divided by
net income per share), and equity to assets ratio (average equity divided by
average total assets) for each period indicated.
<TABLE>
<CAPTION>
Period Ended September 30,
--------------------------
1995 1996
----------- ----------
<S> <C> <C>
Return on average assets .29% .36%
Return on average equity 3.78% 4.76%
Dividend payout ratio 22.75% 16.52%
Average equity to average assets ratio 7.78% 7.51%
</TABLE>
LIQUIDITY
Liquidity is the ability to meet current and future obligations
through liquidation or maturity of existing assets or the acquisition of
additional liabilities. Adequate liquidity is necessary to meet the requirements
of customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost (amounts due from banks and federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within Lowcountry's service area. Core deposits (total
deposits less wholesale time deposits) provide a relatively stable funding base,
and were equal to 79.7% of total assets at September 30, 1996 compared with
52.6% at the end of fiscal 1995. Asset liquidity is provided from several
sources, including amounts due from banks and federal funds sold, and funds from
maturing loans. Lowcountry also has a $10.5 million line of credit with the FHLB
of Atlanta as an additional source of liquidity funding. Management believes
that Lowcountry's overall liquidity sources are adequate to meet its operating
needs.
CAPITAL RESOURCES
The equity capital of Lowcountry increased by $141,289 and
$1,112,636 during 1995 and 1996, respectively, as the result of net income minus
dividends paid. During the 1996 fiscal year, Lowcountry also increased equity
capital $902,380 from the sale of common stock.
Lowcountry is subject to regulatory capital adequacy standards.
Under these standards, financial institutions are required to maintain certain
minimum ratios of capital to risk-weighted assets and average total assets.
Under the provisions of the FDICIA, federal financial institution regulatory
authorities are required to implement prescribed "prompt corrective actions"
upon the deterioration of the capital position of a bank. If the capital
position of an affected institution were to fall below certain levels,
increasingly stringent regulatory corrective actions are mandated.
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<PAGE>
Lowcountry's September 30, 1996 and March 31, 1997 capital ratios
are presented in the following table, compared with the "well capitalized" and
minimum ratios under the FDIC regulatory definitions and guidelines:
<TABLE>
<CAPTION>
As a Percentage of As a Percentage of
Adjusted Total Assets Risk Weighted Assets
--------------------- --------------------
Core Tangible Adjusted Core
---- -------- -------- ----
Lowcountry:
<S> <C> <C> <C> <C>
September 30, 1996 7.9% 7.9% 13.5% 12.8%
March 31, 1997 8.0% 8.0% 13.3% 12.6%
"Well Capitalized" requirement 5.0% n/a 10.0% 6.0%
Minimum requirement 3.0% 1.5% 8.0% n/a
</TABLE>
INFLATION
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
While the effect of inflation on banks is normally not as
significant as is its influence on those businesses which have large investments
in plant and inventories, it does have an effect. During periods of high
inflation, there are normally corresponding increases in the money supply, and
banks will normally experience above-average growth in assets, loans and
deposits. Also, general increases in the prices of goods and services will
result in increased operating expenses.
PROPERTIES
Lowcountry leases the real property at 875 Lowcountry Boulevard, Mt.
Pleasant, South Carolina, where its main offices are located, and at 1202-A,
Palm Boulevard, Isle of Palms, South Carolina where a branch is located. Both
leases expire October 1998, and are expected to be renewed. Lowcountry opened a
branch at 601 E. Main Street, Moncks Corner, South Carolina in June 1993, a
branch at 1900 Trolley Road, Summerville, South Carolina in March 1995, and a
branch at 1645 Sam Rittenburg Boulevard, Charleston, South Carolina in January
1996. Lowcountry owns the properties on which each of these branches is located.
The net book values of the branch properties are as follow: Moncks Corner -
$541,662; Summerville - $345,552; and Charleston - $273,340. Management of
Lowcountry believes that all of Lowcountry's offices are suitable and adequate
for the business of Lowcountry.
EMPLOYEES
At March 31, 1997, Lowcountry employed 38 persons on a full-time
basis.
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<PAGE>
MONETARY POLICIES
The results of operations of Lowcountry are affected by credit
policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time,
and savings deposits. In view of changing conditions in the national economy and
in the money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Lowcountry.
LEGAL PROCEEDINGS
Lowcountry is from time to time engaged in routine litigation in the
ordinary course of its business, but is not engaged in any litigation that is
expected to have a material adverse effect on Lowcountry's business or results
of operations. There are no material proceedings known to Lowcountry, pending or
contemplated, in which any director, officer or affiliate of Lowcountry or any
holder of 5% or more of Lowcountry's outstanding stock, or any associate of any
of the foregoing, is a party or has an interest adverse to Lowcountry.
MARKET FOR COMMON STOCK AND DIVIDENDS
Although the Lowcountry common stock is traded from time to time on
an individual basis, no established trading market has developed and none is
expected to develop in the foreseeable future. The common stock is not a NASDAQ
quoted stock, nor is it quoted by the National Quotation Bureau, Inc., nor are
there any market makers known to Lowcountry management.
Management is aware of transactions in the Lowcountry common stock
at prices ranging from $8.10 to $9.50 per share to date since June 30, 1996
(although there have been no transactions during 1997 of which management is
aware). These transactions occurred in connection with Lowcountry's stock
offering in August 1996 in which shares were sold at $9.00 and $9.50, with a 10%
discount being given to purchasers of at least $100,000. (The most recent trades
of which Lowcountry management were aware were the sales of Lowcountry common
stock in the August 1996 offering at prices ranging from $8.10 to $9.50.) Such
trades may not be indicative of the market value of the Lowcountry common stock.
On the Record Date, there were approximately 360 holders of record
of Lowcountry's common stock, excluding individual participants in security
position listings. There are outstanding options to purchase a total of 197,911
shares of Lowcountry's common stock.
Lowcountry paid cash dividends totaling $35,659 ($.044 per share) in
1994 and $41,603 ($.05 per share) in 1995 and 1996 and $63,250 ($0.07 per share)
in 1997. In July 1993, Lowcountry effected a 3 for 2 stock split, and in March
1996, Lowcountry effected a 4 for 3 stock split (dividends per share have been
adjusted to reflect these stock splits). South Carolina and federal banking
regulations restrict the amount of dividends that Lowcountry can pay to
shareholders, and all of Lowcountry's dividends to shareholders are subject to
the prior approval of the South Carolina Commissioner of Banking.
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<PAGE>
MANAGEMENT INFORMATION
MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF LOWCOUNTRY
The following table sets forth (i) as of May 15, 1997, the number and
percent of total outstanding shares of Lowcountry common stock beneficially
owned by all directors and executive officers of Lowcountry individually and by
all directors and executive officers of Lowcountry as a group, and (ii) pro
forma upon consummation of the Merger, the number and percent of total
outstanding shares of CFC common stock beneficially owned by such persons
individually and as a group. The pro forma calculation assumes that all shares
of Lowcountry common stock held by such persons are converted solely into CFC
common stock.
<TABLE>
<CAPTION>
Pro Forma After Merger
Number of ------------------------------
Name and address of Lowcountry Shares Percent Number of CFC Shares Percent
5% Beneficial Owner Beneficially Owned of Class Beneficially Owned of Class
- -------------------- ------------------ -------- ------------------ --------
<S> <C> <C> <C> <C>
Henry W. Hoseberg (1) 50,575 5.1% 47,424 *
P. O. Box 5397
Greenville, SC 29615
John W. Kornahrens (2) 39,365 4.0% 36,912 *
Gordon L. McCay (3) 43,310 4.4% 40,611 *
Dewey B. Nettles, Jr. (4) 42,603 4.3% 39,948 *
Robert A. Patterson (5) 31,992 3.2% 29,998 *
Robert B. Webb (6) 28,926 2.9% 27,123 *
Gary R. Lamberson (7) 84,584 8.5% 79,314 *
2121 Cosgrove Avenue
Charleston Heights, SC 29405
L. Wayne Pearson (8) 69,949 7.0% 65,591 *
P. O. Box 1544
Mount Pleasant, SC 29465
Michael C. Robinson (9) 80,941 8.2% 75,898 *
25 Cumberland Street, Suite 100
Charleston, SC 29401
ALL EXECUTIVE OFFICERS AND DIRECTORS
AS A GROUP (11 PERSONS) (10) 472,245 43.0% 442,819 3.78%
</TABLE>
- ----
* Less than 1%.
(1) Includes presently exercisable options to purchase 15,275 shares.
(2) Includes presently exercisable options to purchase 22,632 shares.
(3) Includes presently exercisable options to purchase 22,631 shares.
(4) Includes presently exercisable options to purchase 22,183 shares.
(5) Includes presently exercisable options to purchase 19,313 shares.
(6) Includes presently exercisable options to purchase 13,126 shares.
(7) Includes presently exercisable options to purchase 29,490 shares.
(8) Includes presently exercisable options to purchase 25,057 shares;
16,333 shares owned jointly with Mr. Pearson's wife; 7,898 shares held
in Mr. Pearson's IRA; and an aggregate of 8,985 shares owned by Mr.
Pearson's wife and his children.
(9) Includes presently exercisable options to purchase 28,204 shares;
15,934 shares owned by a trust of which Mr. Robinson is a beneficiary;
2,500 shares held in Mr. Robinson's IRA; and an aggregate of 6,156
shares owned by Mr. Robinson's wife and his children.
(10) Includes presently exercisable options to purchase 197,911 shares.
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<PAGE>
CERTAIN TRANSACTIONS
Lowcountry had outstanding loans to certain of Lowcountry's directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. None of these loans are nonaccrual, past
due, restructured, or potential problems. These loans were all made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with persons not affiliated with Lowcountry and did not
involve more than the normal risk of collectibility or present other unfavorable
features.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF CAROLINA FIRST CORPORATION
Information concerning the directors and executive officers of Carolina
First Corporation, compensation of directors and executive officers of Carolina
First Corporation and any related transactions in which they have an interest,
together with information related to principal shareholders of Carolina First
Corporation, is set forth in the Carolina First Corporation Annual Report on
Form 10-K for the year ended December 31, 1996, which is incorporated herein by
reference. See "INCORPORATION BY REFERENCE."
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time, the shares of Lowcountry common stock not
exchanged for cash will be converted into CFC common stock. Accordingly, certain
shareholders of Lowcountry will become shareholders of Carolina First
Corporation, and certain of their rights as Carolina First Corporation
shareholders will be determined by Carolina First Corporation's Articles of
Incorporation and Bylaws. The rights of Carolina First Corporation shareholders
differ from the rights of Lowcountry's shareholders with respect to certain
matters, including the required shareholder votes as to mergers, consolidations,
exchanges, sales of assets or dissolution, removal of directors and amendments
to the articles of incorporation, nomination of directors, and statutory and
other restrictions on certain business combinations and control share
acquisitions.
A comparison of the respective rights of Lowcountry's shareholders and
Carolina First Corporation's shareholders with respect to these matters is set
forth immediately below. A description of the CFC common stock is set forth
below under "CAROLINA FIRST CORPORATION CAPITAL STOCK."
COMPARISON OF CFC COMMON STOCK AND LOWCOUNTRY COMMON STOCK
The rights of Carolina First Corporation shareholders are governed by
Carolina First Corporation's Articles of Incorporation and Bylaws. By contrast,
the rights of Lowcountry shareholders are governed by Lowcountry's Articles of
Incorporation and Bylaws. Both entities are governed by South Carolina law. If
the holders of Lowcountry common stock approve the Merger Agreement and the
Merger is subsequently consummated, holders of Lowcountry common stock (to the
extent that they do not receive cash in exchange for their Lowcountry shares)
will become holders of CFC common stock. Although it is impracticable to note
all the differences between the applicable governing documents of Carolina First
Corporation and Lowcountry, the following is intended to be a summary of certain
significant differences between the rights of holders of CFC common stock and
Lowcountry common stock. This comparison of the rights of holders of Lowcountry
common stock and CFC common stock is based on the current terms of the governing
documents of the respective companies and is qualified in its entirety thereby.
CAPITALIZATION. Lowcountry is authorized to issue (i) 50,000,000
shares of common stock ($5.00 par value), of which 903,576 shares are issued and
outstanding, (ii) 50,000,000 shares of preferred stock, none of which is
outstanding, and (iii) 50,000,000 shares of special stock, none of which is
outstanding. Carolina First Corporation has (i) 100,000,000 shares of $1 par
value common stock authorized, of which 11,372,228 shares of CFC common stock
were outstanding as of May 15, 1997, and (ii) 10,000,000 shares of "blank check"
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<PAGE>
preferred stock authorized, none of which is outstanding.
VOTING IN GENERAL. In general, holders of both Lowcountry common stock
and CFC common stock are entitled to one vote per share and to the same and
identical voting rights as other holders of such common stock.
MERGERS, CONSOLIDATIONS, EXCHANGES, SALES OF ASSETS OR DISSOLUTION. A
vote of two-thirds of the outstanding shares of Lowcountry is required to
approve any merger, consolidation, exchange, sale of substantially all of the
assets of, or dissolution of Lowcountry. Carolina First Corporation's Articles
of Incorporation require the affirmative vote of holders of at least 80% of the
outstanding stock of Carolina First Corporation entitled to vote for approval
before Carolina First Corporation may (a) merge or consolidate with any other
corporation, (b) sell or exchange all or a substantial part of its assets to or
with any other corporation, or (c) issue or deliver any stock or other
securities in exchange or payment for any properties or assets of any other
corporation, or securities issued by any other corporation, or in a merger of
any subsidiary of Carolina First Corporation with or into any other corporation
(the foregoing being hereinafter referred to as a "business combination"). This
80% supermajority is reduced to the percentage required by applicable law if
such business combination was approved and recommended without condition by the
affirmative vote of at least 80% of the directors.
DIRECTORS. The bylaws of Lowcountry provide for a Board of Directors
having not less than five or more than fifteen members as determined from time
to time by vote of a majority of the members of the Board of Directors or by
resolution of the shareholders of Lowcountry. Carolina First Corporation's
Articles of Incorporation provide that the number of directors shall be set by
the Board of Directors or the shareholders. The Carolina First Corporation Board
of Directors currently has ten members. The Boards of Directors of both Carolina
First Corporation and Lowcountry are divided into three classes of directors
(with each class having as close to an equal number as possible). The members of
each class are elected for staggered three-year terms. The Board of Directors of
Carolina First Corporation may be removed other than for cause only upon the
vote of holders of at least 80% of the outstanding voting stock. The Lowcountry
Board of Directors may be removed with or without cause upon the vote of holders
of a majority of the outstanding shares of voting stock.
NOMINATION OF DIRECTORS. The Bylaws of Lowcountry provide that
nominations for election to the board of directors must be in writing and
delivered to the Secretary of Lowcountry at least five days prior to the date of
the annual meeting. Carolina First Corporation's Articles of Incorporation
provide that, in addition to the Board of Directors, any shareholder entitled to
vote for the election of directors may make nominations for the election of
directors only by giving written notice to the Secretary of Carolina First
Corporation at least 30 days but not more than 60 days prior to the annual
meeting of shareholders at which directors are to be elected, unless such
requirement is waived in advance of the meeting by the Board of Directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The governing documents of
both Carolina First Corporation and Lowcountry generally provide that the
parties have the power to indemnify any director, officer or employee, his or
her heirs, executors or administrators, and agents for expenses, judgments,
decrees and any liability incurred in actions to which the director, officer or
employee is a party, or potential party, by reason of the performance of his
official duties, assuming he conducted himself in good faith and reasonably
believed his conduct in his official capacity to be in the parties' best
interest. Such indemnification provisions do not apply in instances where such
person acted in bad faith or engaged in conduct against the interest of
Lowcountry or Carolina First Corporation.
CONVERSION; REDEMPTION; SINKING FUND. Neither CFC common stock nor
Lowcountry common stock is convertible, redeemable nor entitled to any sinking
fund.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or
winding-up of the affairs of Lowcountry, holders of outstanding shares of
Lowcountry common stock are entitled to share, in proportion to their respective
interests, in Lowcountry's assets and funds remaining after payment, or
provision for payment, of all debts and other liabilities of Lowcountry. In the
event of the liquidation, dissolution or winding-up of the affairs of Carolina
First Corporation, holders of CFC common stock are entitled to share, pro rata,
in Carolina
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<PAGE>
First Corporation's assets and funds remaining after payment, or provision for
payment, of all debts and other liabilities of Carolina First Corporation, and
after payment of all amounts due upon liquidation to holders of any security
which is senior to the CFC common stock.
DIVIDENDS. Holders of Lowcountry common stock and CFC common stock are
entitled to receive such dividends as the respective Board of Directors may
declare out of funds legally available therefor.
AMENDMENT. Lowcountry's Articles of Incorporation provide that they
may be amended by the affirmative vote of two-thirds of the outstanding shares
entitled to vote, unless a greater vote is required by law. Carolina First
Corporation's Articles of Incorporation generally may be amended only upon the
approval of holders of two-thirds of the outstanding shares entitled to vote,
and in certain circumstances, such two-thirds requirement is increased to 80%.
ANTI-TAKEOVER MEASURES. Lowcountry has not implemented any material
anti-takeover measures. By contrast, Carolina First Corporation has implemented
a number of provisions, including a rights plan, which have the effect of
impeding a takeover of Carolina First Corporation that is not favored by
Carolina First Corporation management.
REDEMPTION OF SHARES. Generally, Lowcountry is prohibited from
purchasing its own shares. Carolina First Corporation, however, may purchase,
hold and dispose of its own shares subject only to restrictions on distributions
by a corporation which prohibit any distribution which would render a company
insolvent.
CAROLINA FIRST CORPORATION CAPITAL STOCK
COMMON STOCK
Carolina First Corporation has 100,000,000 shares of common stock
authorized, of which 11,372,228 shares were outstanding as of May 15, 1997. The
holders of the CFC common stock are entitled to dividends when, as and if
declared by the Board of Directors in their discretion out of funds legally
available therefor. The principal source of funds for Carolina First Corporation
is dividends from its subsidiaries. Carolina First Corporation's subsidiaries
are subject to certain legal restrictions on the amount of dividends they are
permitted to pay. See "INFORMATION ABOUT CAROLINA FIRST CORPORATION - Certain
Regulatory Matters." All outstanding shares of CFC common stock are fully paid
and nonassessable. No holder of CFC common stock has any redemption or sinking
fund privileges, any preemptive or other rights to subscribe for any other
shares or securities, or any conversion rights. In the event of liquidation, the
holders of CFC common stock are entitled to receive pro rata any assets
distributable to shareholders in respect of shares held by them, subject to the
rights of any senior stock which may be issued in the future. Holders of the CFC
common stock are entitled to one vote per share.
PREFERRED STOCK
Carolina First Corporation has 10,000,000 shares of "blank check"
preferred stock authorized (the "Preferred Stock"), none of which is
outstanding. Carolina First Corporation's Board of Directors has the sole
authority, without shareholder vote, to issue shares of authorized but unissued
Preferred Stock to whomever and for whatever purposes it, in its sole
discretion, deems appropriate. The relative rights, preferences and limitations
of the Preferred Stock are determined by Carolina First Corporation's Board of
Directors in its sole discretion. Among other things, the Board may designate
with respect to the Preferred Stock, without further action of the shareholders
of Carolina First Corporation, the dividend rate and whether dividends shall be
cumulative or participating or possess other special rights, the voting rights,
Carolina First Corporation's rights and terms of redemption, the liquidation
preferences, any rights of conversion and any terms related thereto, and the
price or other consideration for which the Preferred Stock shall be issued. The
Preferred Stock could
69
<PAGE>
be utilized by Carolina First Corporation to impede the ability of third parties
who attempt to acquire control of Carolina First Corporation without the
cooperation of Carolina First Corporation's Board of Directors.
CERTAIN MATTERS
SHAREHOLDERS' RIGHTS AGREEMENT
In 1993, the Carolina First Corporation Board of Directors adopted a
Shareholders' Rights Agreement, which was subsequently amended and restated in
December 1996 (the "Rights Agreement"). Under the Rights Agreement, the Board of
Directors declared a distribution of one common stock purchase right (a "Right")
for each outstanding share of CFC common stock outstanding on November 23, 1993
and each share to be issued by Carolina First Corporation thereafter. Each Right
entitles the registered holder to purchase from Carolina First Corporation
one-half share of CFC common stock at a cash exercise price of $30.00, subject
to adjustment.
Initially, the Rights are not exercisable and no separate right
certificates are distributed. However, the Rights will separate from the CFC
common stock and a "Distribution Date" will occur upon the earlier of (i) the
close of business on the 10th calendar day after the Share Acquisition Date (as
defined below), or (ii) the close of business on the 10th business day after the
date of (x) the commencement, by any person, other than an "exempt person", of,
or (y) the first public announcement of the intention of any person (other than
an exempt person) to commence, a tender or exchange offer if, upon consummation
thereof, such person would be an Acquiring Person (defined as a person or group
which has acquired beneficial ownership of 20% or more of the outstanding shares
of the CFC common stock) (the date of said announcement being referred to as the
"Share Acquisition Date"). Until the Distribution Date, (i) the Rights will be
evidenced by the CFC common stock certificates and will be transferred with and
only with such certificates, and (ii) the surrender for transfer of any
certificates for CFC common stock will also constitute the transfer of the
Rights associated with the CFC common stock represented by such certificate. The
Rights are not exercisable until the Distribution Date and will expire at the
close of business on December 18, 2006, unless previously redeemed by Carolina
First Corporation as described below. As soon as practicable after the
Distribution Date, rights certificates will be mailed to holders of record of
CFC common stock as of the close of business on the Distribution Date and,
thereafter, the separate rights certificates alone will represent the Rights.
Except as otherwise determined by the Board of Directors, only shares of CFC
common stock issued prior to the Distribution Date will be issued with Rights.
ln the event that (i) a person acquires beneficial ownership of 20% or
more of the CFC common stock, (ii) Carolina First Corporation is the surviving
corporation in a merger with an Acquiring Person or any Affiliate or Associate
(as defined in the Rights Agreement) and the CFC common stock is not changed or
exchanged, (iii) an Acquiring Person engages in one of a number of self-dealing
transactions specified in the Rights Agreement, or (iv) an event occurs which
results in an Acquiring Person's ownership interest being increased by more than
1% (e.g., a reverse stock split), proper provision will be made so that each
holder of a Right will thereafter have the right to receive upon exercise
thereof at the then current exercise price, that number of shares of CFC common
stock (or in certain circumstances, cash, property, or other securities of
Carolina First Corporation) having a market value of two times such exercise
price. However, the Rights are not exercisable following the occurrence of any
of the events set forth above until such time as the Rights are no longer
redeemable as set forth below. Notwithstanding any of the foregoing, Rights that
are or were beneficially owned by an Acquiring Person shall become null and
void. In the event that following the Share Acquisition Date, (i) Carolina First
Corporation is acquired in a merger or other business combination transaction,
or (ii) 50% or more of Carolina First Corporation's assets or earning power is
sold, each holder of a Right shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a market value equal to
two times the exercise price of the Right. At any time after any person becomes
an Acquiring Person and prior to such time such Acquiring Person, together with
its Affiliates and Associates, becomes the Beneficial Owner of 50% or more of
the outstanding CFC common stock, the Board of Directors may exchange the Rights
(other than Rights which have become void), in whole or in part, at the exchange
rate
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<PAGE>
of one share of CFC common stock per Right, subject to adjustment as provided in
the Rights Agreement.
The exercise price payable, and the number of shares of CFC common
stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
CFC common stock, (ii) if holders of the CFC common stock are granted certain
rights or warrants to subscribe for CFC common stock or securities convertible
into CFC common stock at less than the current market price of the CFC common
stock, or (iii) upon the distribution to holders of the CFC common stock of
evidence of indebtedness or assets (excluding regular quarterly cash dividends)
or of subscription rights or warrants (other than those referred to above).
The Rights may be redeemed in whole, but not in part, at a price of
$.001 per Right (payable in cash, CFC common stock or other consideration deemed
appropriate by the Board of Directors) by the Board of Directors at any time
prior to a Share Acquisition Date or the final expiration Date of the Rights
(whichever is earlier); provided that under certain circumstances, the Rights
may not be redeemed unless there are Disinterested Directors (as defined in the
Rights Agreement) in office and such redemption is approved by a majority of
such Disinterested Directors. After the redemption period has expired, Carolina
First Corporation's right of redemption may be reinstated upon the approval of
the Board of Directors if an Acquiring Person reduces his beneficial ownership
to 15% or less of the outstanding shares of CFC common stock in transaction or
series of transactions not involving Carolina First Corporation and there are no
other Acquiring Persons. Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and thereafter the
only right of the holders of Rights will be to receive the redemption price.
Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of Carolina First Corporation prior to the Distribution Date.
After the Distribution Date, the provisions of the Rights Agreement, other than
those relating to the principal economic terms of the Rights, may be amended by
the Board to cure any ambiguity, defect or inconsistency, to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement. Amendments adjusting time periods may, under certain
circumstances, require the approval of a majority of Disinterested Directors, or
otherwise be limited. This summary description of the Rights does not purport to
be complete and is qualified in its entirety by reference to the Shareholder
Rights Agreement, a copy of which has been included in Carolina First
Corporation's public filings with the Securities and Exchange Commission.
MANAGEMENT CONTRACTS
Carolina First Corporation has entered into Noncompetition, Severance
and Employment Agreements with Mack I. Whittle, Jr., William S. Hummers III,
James W. Terry, Jr. and David L. Morrow. These agreements set forth general
provisions regarding compensation, confidentiality, termination and
noncompetition. However, they also provide that in the event that the named
executive's employment with Carolina First Corporation is voluntarily or
involuntarily terminated after a "change in control" (as defined in such
agreement), then, except in very limited instances, the named executive becomes
entitled to receive immediately amounts substantially equal to three years'
compensation (including bonus compensation).
BOARD OF DIRECTORS
Classification of Board of Directors. Carolina First Corporation's
Board of Directors currently consists of ten persons. In accordance with the
Articles of Incorporation, whenever the Board consists of nine or more persons,
the Board shall be divided into three classes of directors (with each class
having as close to an equal number as possible). The members of each class are
elected for staggered three-year terms. The staggering of Board terms has the
effect of making it more difficult to replace current Directors than would
otherwise be the case. Accordingly, unless the shareholders vote to remove one
or more Directors as described below, it would
71
<PAGE>
take three annual meetings for shareholders to change the members of the entire
Board of Directors. Carolina First Corporation's Articles of Incorporation also
provide that any shareholder entitled to vote for the election of directors may
make nominations for the election of directors only by giving written notice to
the Secretary of Carolina First Corporation at least 30 days but not more than
60 days prior to the annual meeting of shareholders at which directors are to be
elected, unless such requirement is waived in advance of the meeting by the
Board of Directors.
Removal of Directors. Carolina First Corporation's Articles of
Incorporation require the affirmative vote of the holders of not less than 80%
of the outstanding voting securities of Carolina First Corporation to remove any
Director or the entire Board of Directors without cause. Directors may be
removed for cause as provided in the SCBCA.
Limitation of Director Liability. The members of the Board of
Directors of Carolina First Corporation are exempt under Carolina First
Corporation's Articles of Incorporation from personal monetary liability to the
extent permitted by Section 33-2-102(e) of the SCBCA. This statutory provision
provides that a director of the corporation shall not be personally liable to
the corporation or any of its shareholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision shall not be deemed
to eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involved gross negligence, intentional
misconduct, or a knowing violation of law, (iii) imposed under Section 33-8-330
of the SCBCA (improper distribution to shareholder), or (iv) for any transaction
from which the director derived an improper personal benefit.
Evaluation of Proposed Business Combinations. Carolina First
Corporation's Articles of Incorporation provide that the Board of Directors,
when evaluating any proposed business combination with Carolina First
Corporation, shall give due consideration to (i) all relevant factors, including
without limitation, the social, legal, environmental and economic effects on the
employees, customers, suppliers and other constituencies of Carolina First
Corporation, and on its subsidiaries, the communities and geographical areas in
which Carolina First Corporation and its subsidiaries operate or are located,
and on any of the businesses and properties of Carolina First Corporation or any
of its subsidiaries, as well as such other factors as the directors deem
relevant, and (ii) not only the consideration being offered in relation to the
then current market price for Carolina First Corporation's outstanding shares,
but also in relation to the then current value of Carolina First Corporation in
a freely-negotiated transaction and in relation to the Board of Directors'
estimate of the future value of Carolina First Corporation (including the
unrealized value of its properties and assets) as an independent going concern.
VOTING
Voting For Directors. Carolina First Corporation's Articles of
Incorporation provide that shareholders may not cumulate votes for the election
of directors. Accordingly, holders of more than 50% of the shares voting at the
election of directors can elect all of the directors if they choose to do so
and, in such event, the holders of the remaining shares (less than 50%) voting
are not able to elect any board members. In cases where there are more nominees
for Directors than positions available, the nominees receiving the largest
number of votes are elected.
Supermajority Voting Requirements. Carolina First Corporation's
Articles of Incorporation require the affirmative vote of holders of at least
80% of the outstanding stock of Carolina First Corporation entitled to vote for
approval before Carolina First Corporation may (i) merge or consolidate with any
other corporation, (ii) sell or exchange all or a substantial part of its assets
to or with any other corporation, or (iii) issue or deliver any stock or other
securities of its issue in exchange or payment for any properties or assets of
any other corporation, or securities issued by any other corporation, or in a
merger of any subsidiary of Carolina First Corporation with or into any other
corporation (the foregoing being hereinafter referred to as a "business
combination"). This 80% supermajority is reduced to the percentage required by
applicable law if such business
72
<PAGE>
combination was approved (or adopted) and recommended without condition by the
affirmative vote of at least 80% of the directors. The Articles of Incorporation
expressly permit the Board of Directors to condition its approval (or adoption)
of any business combination upon the approval of holders of 80% of the
outstanding stock of Carolina First Corporation entitled to vote on such
business combination. The 80% supermajority provision is not applicable to any
transaction solely between Carolina First Corporation and another corporation,
50% or more of the voting stock of which is owned by Carolina First Corporation.
Under present South Carolina law, a merger or the sale of substantially all the
assets requires the approval of holders of two-thirds of the outstanding shares
entitled to vote. The amendment of the foregoing business combination provisions
requires the approval of holders of 80% of the outstanding shares entitled to
vote. The foregoing supermajority voting provision could impede the ability of
third parties who attempt to acquire control of Carolina First Corporation
without the cooperation of Carolina First Corporation's Board of Directors.
CONTROL SHARE ACQUISITION / BUSINESS COMBINATION STATUTES
The SCBCA has business combination and control share acquisition
statutes which may serve to impede takeovers not favored by management.
TRANSFER AGENT
The transfer agent for the CFC common stock is Reliance Trust Company.
DIVIDEND REINVESTMENT PLAN
Carolina First Corporation has in place a dividend reinvestment plan
with respect to the CFC common stock. As set forth in the plan, holders of such
shares may elect to receive CFC common stock in lieu of receiving the cash
dividends to which such holder may otherwise be entitled. The plan also provides
for purchases of CFC common stock through optional cash payments.
LEGAL MATTERS
Certain legal matters in connection with the Merger, including the
validity of the CFC Shares offered hereby, will be passed upon for Carolina
First Corporation by Wyche, Burgess, Freeman & Parham, P.A., Greenville, South
Carolina. Wyche, Burgess, Freeman & Parham, P.A. is also rendering a tax opinion
to Lowcountry regarding the Merger. As of May 15, 1997, members and attorneys of
Wyche, Burgess Freeman & Parham, P.A. beneficially owned a total of 17,668
shares of CFC common stock.
Certain legal matters in connection with the Merger will be passed
upon for Lowcountry by Sinkler & Boyd, P.A., Columbia, South Carolina.
EXPERTS
The financial statements of Lowcountry as of September 30, 1995 and
1996, and for each of the years in the three-year period ended September 30,
1996, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. KPMG Peat Marwick LLP's report refers to the
fact that Lowcountry changed its method of accounting for income taxes in 1994
to adopt the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
73
<PAGE>
The consolidated financial statements of Carolina First Corporation as
of December 31, 1996 and 1995, and for the years then ended, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Carolina First Corporation as
of and for the year ended December 31, 1994, have been incorporated by reference
herein and in the registration statement in reliance upon the report of Elliott,
Davis & Company, L.L.P., independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
OTHER MATTERS
The Board of Directors of Lowcountry is not aware of any other matters
which may be presented for action at the Special Meeting, but if other matters
do properly come before the meeting, it is intended that the shares of
Lowcountry common stock represented by proxies in the accompanying form will be
voted by the persons named in the proxies in accordance with their best
judgment.
74
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Index to Financial Statements of Lowcountry Savings Bank F-1
Independent Auditors' Report F-2
Balance Sheets as of September 30, 1996 and 1995 F-3
Statements of Operations for the years ended September 30, 1996, 1995 and 1994 F-4
Statements of Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the years ended September 30, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-7
Balance Sheets as of March 31, 1997 (unaudited) and September 30 1996 F-22
Statements of Operations for the three and six months ended
March 31, 1997 and 1996 (unaudited) F-23
Statements of Changes in Stockholders' Equity for the six months ended
March 31, 1997 and 1996 (unaudited) F-24
Statements of Cash Flows for the six months ended
March 31, 1997 and 1996 (unaudited) F-25
Notes to Interim Financial Statements (unaudited) F-26
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Lowcountry Savings Bank, Inc.:
We have audited the balance sheets of Lowcountry Savings Bank, Inc. (the "Bank")
as of September 30, 1996 and 1995 and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1996. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Bank at September 30, 1996
and 1995, and the results of its operations and its cash flows for each of the
years in the three-year period ended September 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 8, the Bank changed its method of accounting for
income taxes in 1994 to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Greenville, South Carolina
November 8, 1996
F-2
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Balance Sheets
September 30, 1996 and 1995
(Dollars in thousands, except per share information)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash and cash equivalents (including interest-bearing
deposits of $676 and $322, respectively) $ 2,880 2,577
Certificates of deposit in other depository institutions 900 1,000
Loans receivable (net of the allowance for loan losses of
$368 and $283, respectively) 68,248 58,632
Federal Home Loan Bank stock, at cost 472 459
Real estate owned -- 516
Premises and equipment, net 1,321 1,317
Accrued interest receivable 473 390
Other assets 1,067 162
------- -------
$75,361 65,053
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Deposits $61,606 54,748
Advances from Federal Home Loan Bank 5,500 4,500
Advance payments by borrowers for taxes and insurance 659 698
Accrued interest payable 8 7
Other liabilities 1,579 204
------- -------
Total liabilities 69,352 60,157
------- -------
Stockholders' equity:
Preferred stock no par value, 50,000,000 shares authorized,
none issued -- --
Special stock no par value, 50,000,000 shares authorized,
none issued -- --
Common stock $5 par value, 50,000,000 shares authorized,
903,576 and 792,424 shares issued and
outstanding, respectively 4,518 2,971
Additional paid-in capital 347 877
Retained earnings 1,144 1,048
------- -------
Total stockholders' equity 6,009 4,896
------- -------
Commitments and contingencies
$75,361 65,053
======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Statements of Operations
For the years ended September 30, 1996, 1995 and 1994
(Dollars in thousands, except per share information)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans $ 5,480 4,516 3,434
Interest and dividends on investments and deposits 147 133 87
--------------- --------------- ---------------
5,627 4,649 3,521
--------------- --------------- ---------------
Interest expense:
Deposits 3,143 2,390 1,564
Borrowings 184 458 72
--------------- --------------- ---------------
3,327 2,848 1,636
--------------- --------------- ---------------
Net interest income 2,300 1,801 1,885
Provision for loan losses 47 88 40
--------------- --------------- ---------------
Net interest income after provision for loan losses 2,253 1,713 1,845
--------------- --------------- ---------------
Other income:
Gain on sale of loans 331 168 290
Loan brokerage fees 81 71 103
Service fees on deposits 391 238 177
Other 153 90 77
--------------- --------------- ---------------
956 567 647
--------------- --------------- ---------------
General and administrative expenses:
Salaries and employee benefits 1,305 1,052 932
Occupancy 478 392 324
Data processing 181 141 105
Marketing 31 45 34
Professional fees 104 61 25
Deposit insurance premium 456 103 96
Office supplies, telephone and postage 128 121 76
Other 150 101 22
--------------- --------------- ---------------
2,833 2,016 1,614
--------------- --------------- ---------------
Income before income taxes 376 264 878
Income taxes 124 81 322
--------------- --------------- ---------------
Net income before cumulative effect of change
in accounting for income taxes 252 183 556
Cumulative effect of change in accounting for income taxes - - 100
--------------- --------------- ---------------
Net income $ 252 183 656
=============== =============== ===============
Earnings per share:
Primary:
Before cumulative effect of change in
accounting for income taxes $ .30 .22 .69
Cumulative effect of change in accounting
for income taxes - - .13
--------------- --------------- ---------------
$ .30 .22 .82
=============== =============== ===============
Fully diluted:
Before cumulative effect of change in
accounting for income taxes $ .29 .22 .69
Cumulative effect of change in accounting
for income taxes - - .13
--------------- --------------- ---------------
$ .29 .22 .82
=============== =============== ===============
Weighted average shares outstanding:
Primary 843,239 818,893 801,533
=============== =============== ===============
Fully diluted 863,645 818,893 801,533
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Statements of Stockholders' Equity
For the years ended September 30, 1996, 1995 and 1994
(Dollars in thousands, except per share information)
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------ ------ ------ -----------
Balance at September 30, 1993 $2,797 749 287 3,833
Sale of common stock 174 128 -- 302
Cash dividends ($.044 per share) -- -- (36) (36)
Net income -- -- 656 656
------ ------ ------ ------
Balance at September 30, 1994 $2,971 877 907 4,755
Cash dividends ($.05 per share) -- -- (42) (42)
Net income -- -- 183 183
------ ------ ------ ------
Balance at September 30, 1995 2,971 877 1,048 4,896
Stock split (4/3 shares) 991 (877) (114) --
Sale of common stock 556 347 -- 903
Cash dividends ($.05 per share) -- -- (42) (42)
Net income -- -- 252 252
------ ------ ------ ------
Balance at September 30, 1996 $4,518 347 1,144 6,009
====== ====== ====== ======
See accompanying notes to financial statements.
F-5
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Statements of Cash Flows
For the years ended September 30, 1996, 1995 and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 252 183 656
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of loans (331) (168) --
Proceeds from the sale of loans 18,708 9,774 12,489
Originations of loans held for sale (17,574) (10,676) (12,489)
Increase (decrease) in net deferred loan fees 340 (106) (18)
Provision for loan losses 47 88 40
Federal Home Loan Bank stock dividends -- -- (5)
Gain on sale of real estate owned (2) -- --
Depreciation and amortization 192 138 91
Increase in accrued interest receivable (83) (96) (89)
Increase in other assets (906) (16) (92)
Increase (decrease) in accrued interest payable 2 (2) 2
Increase (decrease) in other liabilities 1,375 70 (36)
Decrease in income taxes payable -- -- (281)
-------- -------- --------
Net cash provided by (used in) operating activities 2,020 (811) 268
-------- -------- --------
Cash flows from investing activities:
Proceeds from matured certificates of deposit at other
depository institutions 1,000 1,100 400
Purchase of certificates of deposit at other depository institutions (900) (1,000) (1,100)
Loan disbursements (30,458) (23,933) (24,526)
Principal collected on loans 24,747 17,461 16,338
Loans purchased (5,308) -- --
Purchase of furniture, fixtures and equipment (196) (700) (631)
Purchase of FHLB stock (14) (89) --
Proceeds from sales of other real estate 733 -- --
-------- -------- --------
Net cash used in investing activities (10,396) (7,161) (9,519)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 6,857 10,957 1,315
Increase (decrease) in Federal Home Loan Bank advances 1,000 (2,500) 6,000
Increase (decrease) in advance payments by
borrowers for taxes and insurance (39) 13 120
Cash dividends on common stock (42) (42) (36)
Proceeds from common stock offering, net 903 -- 302
-------- -------- --------
Net cash provided by financing activities 8,679 8,428 7,701
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 303 456 (1,550)
Cash and cash equivalents - beginning of year 2,577 2,121 3,671
-------- -------- --------
Cash and cash equivalents - end of year $ 2,880 2,577 2,121
======== ======== ========
Supplemental information:
Interest paid on deposits and borrowings $ 3,325 2,850 1,883
======== ======== ========
Income taxes paid $ 38 140 603
======== ======== ========
Supplemental disclosure of noncash investing activities:
Real estate acquired in settlement of loans $ 221 517 --
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
The following is a summary of the significant accounting and reporting
policies used in the preparation and presentation of the accompanying
financial statements.
(a) Cash and Cash Equivalents
Cash and cash equivalents include cash and overnight deposits.
(b) Interest Income
Interest on loans is accrued monthly based on the principal
outstanding. The Bank generally provides an allowance for possible
uncollectible accrued interest on loans which are delinquent for 90
days or more. For financial statement reporting this allowance is
included as a reduction of accrued interest receivable.
(c) Loan Fees and Costs
The Bank defers all loan origination fees, as well as certain direct
loan origination costs incurred in the origination of loans. Such
costs and fees are amortized to interest income over the contractual
life of the related loans using a method approximating the interest
method.
(d) Loan Sales
The Bank originates certain loans for sale to other financial
institutions. Sales are completed at or near the loan origination
date. All fees and other income from these activities are recognized
in income when loan sales are completed. The Bank's loans held for
sale are carried at the lower of cost or market.
(e) Provision for Loan Losses
The Bank adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
on October 1, 1995. This standard requires that all creditors value
loans at the loan's fair value if it is probable that the creditor
will be unable to collect all amounts due according to the terms of
the loan agreement. Fair value may be determined based upon the
present value of expected cash flows, market price of the loan, if
available, or value of the underlying collateral. Expected cash
flows are required to be discounted at the loan's effective interest
rate. SFAS No. 114 was amended by SFAS No. 118 to allow a creditor
to use existing methods for recognizing interest income on an
impaired loan and require additional disclosures about how a
creditor recognizes interest income on an impaired loan. The
adoption of the standards required no increase in the allowance for
loan losses and had no impact on net income for the year ended
September 30, 1996.
When the ultimate collectibility of an impaired loan's principal is
in doubt, wholly or partially, all cash receipts are applied to
principal. When this doubt does not exist, cash receipts are applied
under the contractual terms of the loan agreement first to principal
then to interest income. Once the recorded principal balance has
been reduced to zero, future cash receipts are applied to interest
income, to the extent that any interest has been foregone. Further
cash receipts are recorded as recoveries of any amounts previously
charged off.
A loan is also considered impaired if its terms are modified in a
troubled debt restructuring after October 1, 1995. For these
accruing impaired loans, cash receipts are typically applied to
principal and interest receivable in accordance with the terms of
the restructured loan agreement. Interest income is recognized on
these loans using the accrual method of accounting. As of September
30, 1996, the Bank had no impaired loans.
F-7
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(e) Provision for Loan Losses, Continued
The Bank provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance
and all recoveries are credited to the allowance for loan losses.
Additions to the allowance for loan losses are provided by charges
to operations based on various factors which, in management's
judgment, deserve current recognition in estimating possible losses.
Such factors considered by management include the market value of
the underlying collateral, stated guarantees by the borrower if
applicable, the borrower's ability to repay from other economic
resources, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans,
industry loss experience for similar lending categories, actual loss
experience, delinquency trends, and general economic conditions.
While management uses the best information available to make
evaluations, future adjustment to the allowance may be necessary if
economic conditions differ substantially from the assumptions used
in making the evaluations. Allowances for loan losses are subject to
periodic evaluations by various regulatory authorities and may be
subject to adjustments based upon information available to them at
the time of their examinations.
(f) Real Estate Owned
Real estate owned represents real estate acquired through
foreclosure and is initially recorded at the lower of cost or fair
value. Subsequent improvements are capitalized. Costs of holding
real estate, such as property taxes, insurance, general maintenance
and interest expense, are expensed as incurred. Fair values are
reviewed regularly and allowances for possible losses are
established when the cost of the real estate owned exceeds the fair
value less estimated costs to sell.
(g) Premises and Equipment
Premises and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided principally on a
straight-line method over the estimated useful lives (5-40 years) of
the assets.
(h) Income Taxes
On February 10, 1992, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 109,
entitled ACCOUNTING FOR INCOME TAXES ("SFAS 109"), which superseded
Statement of Financial Accounting Standards No. 96 ("SFAS 96").
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 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.
Other significant changes made by SFAS 109 include: (1) the complex
scheduling of temporary differences required by SFAS 96 is generally
not required, (2) a deferred tax asset may be recognized for the
financial statement general valuation allowance for loans and REO,
while a deferred tax liability must be recognized for that portion
of the tax bad debt reserve exceeding the "base year" reserves, and
(3) current tax benefits based upon the future implementation of tax
planning strategies should be net of any expense or losses, and the
underlying strategy must be prudent and feasible.
F-8
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, Continued
The Company adopted SFAS 109 as of October 1, 1993. The cumulative
effect of the adoption of SFAS 109 was an increase of $100,000 in
net income for 1994, and a corresponding decrease in the net
deferred tax liability. Prior year's financial statements have not
been restated in connection with the adoption of SFAS 109.
(i) Earnings Per Share
Earnings per share is computed by dividing net earnings by the
weighted average number of shares and share equivalents outstanding
during the year. Share equivalents include dilutive stock option
share equivalents determined using the modified treasury stock
method. For the years ended September 30, 1996, 1995 and 1994, the
stock options were considered to be dilutive.
(j) Mortgage Servicing Rights
SFAS No. 122, "Accounting for Mortgage Servicing Rights", was issued
in May 1995. This Statement requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. A
mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and
sells or securitizes those loans with servicing rights retained
should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values if it is practicable to
estimate those fair values.
SFAS No. 122 also requires that a mortgage banking enterprise assess
its capitalized mortgage servicing rights for impairment based on
the fair value of those rights. Impairment should be recognized
through a valuation allowance for each impaired stratum. This
statement applies prospectively in fiscal years beginning after
December 15, 1995 with earlier application encouraged. Management
does not expect that the adoption of SFAS No. 122 will have a
material effect on the financial statements.
The FASB has also issued SFAS No. 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 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. The statement
supersedes SFAS No. 122 and management does not expect that its
adoption will have a material effect on the financial statements.
(k) Accounting for Stock-Based Compensation
The FASB has issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which applies to all transactions in which an entity
acquires goods or services by issuing equity instruments or by
incurring liabilities where the payment amounts are based on the
entity's common stock price, except for employee stock ownership
plans ("ESOPs"). SFAS No. 123 covers transactions with employees
and nonemployees.
F-9
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies, Continued
A new method of accounting for stock-based compensation
arrangements with employees is established by SFAS No. 123. The new
method is a fair value based method rather than the intrinsic value
based method that is contained in Accounting Principles Board
Opinion No. 25. However, SFAS No. 123 does not require an entity to
adopt the new fair value based method for purposes of preparing its
basic financial statements. Entities are allowed (1) to continue to
use the Opinion 25 method or (2) to adopt the SFAS No. 123 fair
value based method. Also, the selected method applies to all of an
entity's stock-based compensation plans and transactions.
The SFAS No. 123 fair value based method will result in higher
compensation cost than the Opinion 25 intrinsic value based method
for fixed stock option compensation plans and will result in a
different compensation cost for variable stock option compensation
plans. Sometimes the amount will be higher and sometimes the amount
will be lower. Also, many employee stock purchase plans that are
considered noncompensatory under Opinion 25 will be compensatory
and result in the recognition of compensation costs under the fair
value based method, if adopted.
For entities not adopting the SFAS No. 123 fair value based method,
it creates a unique financial reporting situation. It requires
entities that retain the Opinion 25 method for preparing the basic
financial statements to display in the footnotes pro forma net
income and earnings per share information as if the fair value
based method has been adopted. SFAS No. 123 is effective for the
Bank beginning October 1, 1996. The Bank anticipates that it will
continue its current method of accounting for stock-based
compensation, and therefore, will have expanded financial statement
disclosure requirements.
(l) Use of Estimates
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities as of the dates of the balance sheets and revenues and
expenses for the periods covered. Actual results could differ
significantly from those estimates and assumptions.
(m) Reclassifications
Certain reclassifications of accounts previously reported for 1995
and 1994 have been made in these financial statements. Such
reclassifications had no impact on net income or stockholders'
equity as previously reported.
(2) Certificates of Deposit in Other Depository Institutions
Certificates of deposit are held at other federally insured depository
institutions. At September 30, 1996, there were $100,000 certificates of
deposit in 9 separate depository institutions with an average interest
rate of 5.67% maturing by March 1997. At September 30, 1995, there were
$100,000 certificates of deposit in 10 separate depository institutions
with an average interest rate of 6.14% maturing by April 1996.
F-10
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(3) Loans Receivable, Net
Loans receivable at September 30, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Mortgage loans:
Residential real estate $ 53,466 50,228
Residential construction 2,922 2,284
Commercial real estate 6,375 2,635
Other loans:
Consumer loans 4,829 3,147
Commercial loans 3,593 2,229
------------- ------------
71,185 60,523
Less:
Loans in process 2,122 1,501
Allowance for loan losses 368 283
Deferred loan fees 447 107
------------- ------------
$ 68,248 58,632
============= ============
</TABLE>
Changes in the allowance for loan losses for the years ended September
30, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 283 280 280
Provision for loan losses 47 88 40
Addition due to purchase of loans 81 - -
Loans charged off, net (43) (85) (40)
----------- ----------- ------------
Ending balance $ 368 283 280
=========== =========== ============
</TABLE>
At September 30, 1996 and 1995, the Bank serviced loans sold to others of
approximately $5,765,000 and $4,900,000, respectively. The Bank had loans
held for sale at September 30, 1996 and 1995 of approximately $514,000
and $1,070,000, respectively.
Most of the Bank's business activity is with customers located in South
Carolina. As of September 30, 1996, the Bank had no significant
concentrations of credit risk in its loan portfolio. The Bank principally
originates residential real estate loans in its market area. The ability
of the borrowers to perform is partially dependent on the market's real
estate economy. The commercial real estate and consumer and commercial
loans generally represent credit risks that are greater than mortgage
loans secured by residential real estate. Management has continued to
emphasize lending in the commercial and consumer sectors.
F-11
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(3) Loans Receivable, Net, Continued
At September 30, 1996, the Bank had commitments outstanding of
approximately $1,929,000 to originate loans (excluding undisbursed
portions of loans in process). Loan commitments generally expire within
45 days. Commitments for undisbursed lines of credit amounted to
approximately $1,219,000. Standby letters of credit commit the Bank to
make payments on behalf of customers when certain specified future events
occur. These arrangements have credit risk essentially the same as that
involved in extending loans to customers and are subject to the Bank's
normal credit policies. Standby letters of credit totaled approximately
$388,000 at September 30, 1996.
During fiscal 1996, the Bank purchased 96 residential mortgage loans with
a principal balance of approximately $5,388,000. The loans were purchased
at a discount of approximately $512,000, $81,000 of which was established
as an allowance for loan losses.
(4) Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank is required by law of
every Federally-insured savings and loan association. No ready market
exists for the stock and it has no quoted market value.
(5) Premises and Equipment, Net
Premises and equipment, net at September 30, is summarized as follows:
1996 1995
---- ----
(dollars in thousands)
Land $ 280 280
Building and leasehold improvements 840 788
Furniture, fixtures and equipment 852 709
------- -------
1,972 1,777
Less accumulated depreciation (651) (460)
------- -------
$ 1,321 1,317
======= =======
The Bank leases its home office space under an operating lease. The lease
agreement provides for an initial lease term of ten years and renewal
options for two additional five-year terms. Annual rent will be adjusted
based on the Consumer Price Index.
Future minimum lease payments under noncancellable operating leases at
September 30, 1996 are as follows (dollars in thousands):
For the year ending September 30:
1997 $ 125
1998 125
1999 61
2000 -
Thereafter -
----------
$ 311
=============
F-12
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(5) Premises and Equipment, Net, Continued
Future minimum lease payments have been reduced by minimum sublease
rentals of approximately $27,000 due in the future under noncancellable
subleases.
Total rent expense for the years ended September 30, 1996, 1995, and 1994
was approximately $150,000, $146,000, and $151,000, respectively.
(6) Deposits
Deposits at September 30, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- -----------------------------
Weighted Weighted
Balance Average Rate Balance Average Rate
---------------- ------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposits:
NOW accounts $ 1,682 1.79% 1,814 1.99%
Commercial checking 1,794 1.59 1,331 1.49
Money market deposits 2,102 2.46 1,974 3.06
Non-interest-bearing deposits 3,560 - 2,729 -
---------------- -------- ------------ -------
9,138 1.21 7,848 1.48
---------------- -------- ------------ --------
Savings deposits - passbook 4,279 3.26 2,516 2.80
Certificates of deposit:
2.00 - 3.99% 307 193
4.00 - 4.99% 32 1,665
5.00 - 5.99% 29,419 16,024
6.00 - 6.99% 15,674 19,894
7.00 - 8.99% 2,757 6,608
---------------- ------------
48,189 5.87 44,384 6.13
---------------- -------- ------------ --------
$ 61,606 5.00% 54,748 5.31%
================ ======== ============ ========
</TABLE>
Certificate accounts by maturity consisted of:
September 30,
1996 1995
---- ----
(dollars in thousands)
Within 1 year $42,312 33,344
After 1 but within 2 years 3,853 9,391
After 2 but within 3 years 493 819
After 3 but within 4 years 20 135
After 4 but within 5 years 1,511 687
Over 5 years -- 8
------- -------
$48,189 44,384
======= =======
F-13
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(6) Deposits, Continued
The aggregate amount of certificates of deposit with balances greater
than $100,000 was approximately $3,095,000 and $1,622,000 at September
30, 1996 and 1995, respectively.
Interest expense by type of deposit is summarized as follows:
<TABLE>
<CAPTION>
Years ended
September 30,
1996 1995 1994
---- ----- ----
(dollars in thousands)
<S> <C> <C> <C>
Demand deposits $ 112 108 87
Savings deposits 171 68 55
Certificates of deposit 2,860 2,214 1,422
-------------- -------------- ---------------
$ 3,143 2,390 1,564
============== ============== ===============
</TABLE>
(7) Advances from Federal Home Loan Bank
At September 30, 1996, the Bank had $5,500,000 in advances from the
Federal Home Loan Bank of Atlanta (FHLB) with a weighted average interest
rate of 6.05% and a maturity date of October 4, 1996. At September 30,
1995, the Bank had $4,500,000 in advances from the FHLB with a weighted
average interest rate of 6.84% and maturity dates ranging from October
1995 through March 1996.
Pursuant to collateral agreements with the FHLB, advances are secured by
all stock in the FHLB and qualifying first mortgage loans. The Bank had a
borrowing capacity of approximately $10,200,000 at September 30, 1996
based on qualifying collateral.
(8) Income Taxes
As discussed in Note 1, the Bank adopted SFAS 109 as of October 1, 1993.
The cumulative effect of the change in accounting for income taxes of
$100,000 was determined as of October 1, 1993 and is reported separately
in the statement of operations for the year ended September 30, 1994.
Prior years' financial statements have not been restated to apply the
provisions of SFAS 109.
F-14
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(8) Income Taxes, Continued
Income tax expense for the years ended September 30, 1996, 1995 and 1994
is comprised of the following:
Federal State Total
---------- --------- --------
(dollars in thousands)
1996:
Current $189 28 217
Deferred (87) (6) (93)
----------- ----------- -----------
Total $102 22 124
=========== =========== ===========
1995:
Current (4) - (4)
Deferred 78 7 85
----------- ----------- -----------
Total $ 74 7 81
=========== =========== ===========
1994:
Current 189 41 230
Deferred 78 14 92
----------- ----------- -----------
Total $267 55 322
=========== =========== ===========
A reconciliation from expected federal income tax expense to actual
income tax expense for the periods indicated follows. The statutory
federal income tax rate for the years 1996, 1995 and 1994 is 34%.
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
----------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Expected federal income tax expense $ 128 89 299
Increases (reductions) in income taxes
resulting from:
South Carolina income tax expense,
net of federal income tax benefit 15 5 36
Other, net (19) (13) (13)
----------- ---------- -----------
Total $ 124 81 322
=========== ========== ===========
Effective tax rate 32.9% 30.7% 36.7%
=========== ========== ===========
</TABLE>
Savings associations that meet certain definitional tests and other
conditions prescribed by the Internal Revenue Code are allowed to deduct,
within limitations, a bad debt deduction computed as a percentage of
taxable income before such deduction. The deduction percentage is 8% for
the years ended September 30, 1996, 1995, and 1994. Alternately, a
qualified savings association may compute its bad debt deduction based
upon actual loan loss experience (the "Experience Method"). The Bank
computed its bad debt deduction utilizing the "Percentage of Taxable
Income Method" for fiscal 1996, 1995, and 1994. As a result of recent tax
legislation, the Bank will be required to change its overall tax method
of accounting for bad debts to the "Experience Method" beginning in
fiscal 1997.
F-15
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(8) Income Taxes, Continued
Under SFAS 109, deferred tax assets are initially recognized for
differences between the financial statement carrying amount and the tax
bases of assets and liabilities which will result in future deductible
amounts and operating loss and tax credit carryforwards. A valuation
allowance is then established to reduce the deferred tax asset to the
level at which it is "more likely than not" that the tax benefits will be
realized. Realization of tax benefits of deductible temporary differences
and operating loss or credit carryforwards depends on having sufficient
taxable income of an appropriate character within the carryback and
carryforward periods. Sources of taxable income that may allow for the
realization of tax benefits include (1) taxable income in the current
year or prior years that is available through carryback, (2) future
taxable income that will result from the reversal of existing taxable
temporary differences, and (3) future taxable income generated by future
operations. Based upon past earnings and projections of future taxable
income, the Bank has not established a valuation allowance. Management
believes that it is more likely than not that the Bank will realize these
tax benefits.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30 are presented below:
<TABLE>
<CAPTION>
1996 1995
---- ---
(dollars in thousands)
Deferred tax assets:
<S> <C> <C>
Loan loss allowances deferred for tax purposes $ 56 79
Deferred fees recognized for tax purposes
as received 4 10
Interest income and miscellaneous expenses
recognized on the cash basis for tax purposes 12 -
----------- ----------
Total gross deferred tax assets 72 89
Less valuation allowance - -
----------- ----------
Net deferred tax assets 72 89
----------- ----------
Deferred tax liabilities:
Interest income and miscellaneous expenses
recognized on the cash basis for tax purposes - 117
FHLB stock dividends deferred for tax purposes 17 17
Depreciation for tax purposes in excess of such
amount for financial reporting purposes 10 3
----------- ----------
Total gross deferred tax liabilities 27 137
----------- ----------
Net deferred tax asset (liability) $ 45 (48)
=========== ==========
</TABLE>
The net deferred tax asset (liability) is included in other assets (other
liabilities) in the accompanying balance sheets.
F-16
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(9) Employee Benefits
The Bank established two stock option plans in 1986, a Non-qualified
Stock Option Plan for its Directors and Officers, and an Employee
Incentive Stock Option Plan. Under each plan, 100,000 shares of common
stock were reserved for issuance pursuant to grants issued by the Board
of Directors. There were an additional 100,000 shares of common stock
reserved for issuance pursuant to grants under the Non-qualified Stock
Option Plan in fiscal 1995. The options have a maximum duration of ten
years and may not be exercised at less than the market value of the
Bank's common stock on the date of grant of the option. The amount of
options available for grant under the aforementioned plans at September
30, 1996 were 12,799 for the Non-qualified Stock Option Plan and 89,290
for the Employee Incentive Stock Option Plan.
At September 30, 1996, the Bank had the following options outstanding:
NON-QUALIFIED STOCK OPTION PLAN
<TABLE>
<CAPTION>
Options Option
Granted and Options Price Expiration
Grant Date Exercisable Exercised Per Share Date
---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C>
April 27, 1989 68,779 - $ 5.00 April 27, 1999
June 20, 1994 31,221 - 7.50 June 20, 2004
April 27, 1995 87,201 - 7.50 April 27, 2005
----------- -------- -------
187,201 - $ 6.58
=========== ======== =======
</TABLE>
EMPLOYEE INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
Options Option
Granted and Options Price Expiration
Grant Date Exercisable Exercised Per Share Date
---------- ----------- --------- --------- --------
<S> <C> <C> <C> <C>
April 27, 1989 10,710 - $ 5.00 April 27, 1999
</TABLE>
(10) Stockholders' Equity
Preferred stock and special stock are issuable in separate series. The
preferences, limitations and relative rights of these classes of stock
are determined by the board of directors before issuance. No preferred or
special stock shares have been issued. The Board of Directors of the Bank
declared a 4 for 3 stock split effective March 5, 1996. All share and per
share amounts have been retroactively restated for the 4 for 3 split.
(11) Deferred Compensation Plan
In September 1996, the Company adopted a deferred compensation plan for
the benefit of the Directors. While the plan is to be funded from the
general assets of the company, life insurance policies were acquired for
the purpose of serving as the primary funding source. The cost of the
policies was $900,000. This amount is included in other assets as of
September 30. 1996.
F-17
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(12) Disclosures Regarding Fair Value of Financial Instruments
SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
issued in December, 1991, and effective beginning with the Company's 1996
financial statements, requires disclosure of fair value information about
financial instruments whether or not recognized in the balance sheet, for
which it is practicable to estimate fair value. Fair value estimates are
made as of a specific point in time based on the characteristics of the
financial instruments and the relevant market information. Where
available, quoted market prices are used. In other cases, fair values are
based on estimates using present value or other valuation techniques.
These techniques involve uncertainties and are significantly affected by
the assumptions used and the judgments made regarding risk
characteristics of various financial instruments, discount rates,
prepayments, estimates of future cash flows, future expected loss
experience and other factors. Changes in assumptions could significantly
affect these estimates. Derived fair value estimates cannot be
substantiated by comparison on independent markets and, in many cases,
may or may not be realized in an immediate sale of the instrument.
Under SFAS No. 107, fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated
future business and the value of the assets and liabilities that are not
financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following describes the methods and assumptions used by the Company
in examining the fair values of financial instruments.
a. Cash and Cash Equivalents, Interest Bearing Deposits in Other
Banks, Certificates of Deposit, and FHLB Stock
The carrying value approximates fair value.
b. Loans
The fair value of fixed rate loans is estimated by discounting
cash flows by applying interest rates currently being offered
on similar loan products. The fair value of variable loans is
the current carrying value of the loans.
c. Deposits
Under SFAS No. 107, the estimated fair value of deposits with
no stated maturity is equal to the carrying amount. The fair
value of time deposits is estimated by discounting contractual
cash flows by applying interest rates currently being offered
on the deposit products. Under SFAS No. 107, the fair value
estimates for deposits do not include the benefit that results
from the low cost funding provided by the deposit liabilities
as compared to the cost of alternative forms of funding.
d. Short-term Borrowings
The carrying amount approximates fair value due to the
short-term nature of these instruments.
F-18
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(12) Disclosures Regarding Fair Value of Financial Instruments, Continued
The carrying value and estimated fair value of the Company's financial
instruments at September 30, 1996, are as follows:
Carrying Estimated
Amount Fair Value
-------- ----------
(dollars in thousands)
Cash and cash equivalents $ 2,204 2,204
Interest bearing deposits 676 676
Certificates of deposit 900 900
Loans 68,248 68,272
FHLB Stock 472 472
Deposits 61,606 61,729
Advances FHLB 5,500 5,500
(13) Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The 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 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 September 30, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
As of the most recent regulatory examination, the Bank was deemed well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized the 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.
F-19
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(13) Regulatory Capital Requirements, Continued
Following are the required and actual capital amounts and ratios for the
Bank as of September 30, 1996 and 1995.
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions:
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996
Total capital to risk
weighted assets $ 6,342 13.48% $ 3,765 8.00% $ 4,706 10.00%
Tier 1 capital to risk
weighted assets 6,009 12.77 1,883 4.00 2,824 6.00
Tier 1 capital to
average assets 6,009 8.94 2,837 4.00 3,546 5.00
As of September 30, 1995
Total capital to risk
weighted assets 4,995 13.16 3,036 8.00 3,794 10.00
Tier 1 capital to risk
weighted assets 4,896 12.90 1,518 4.00 2,277 6.00
Tier 1 capital to
average assets 4,896 7.91 2,477 4.00 3,095 5.00
</TABLE>
(14) Regulatory Matters
On September 30, 1996 the Government signed into law a plan 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 are required to pay a one-time assessment of $.657 per
every $100 of deposit balances as of March 31, 1995 and payable on
November 30, 1996. In exchange for this one-time assessment, qualifying
members of the SAIF will receive a reduction in their annual assessment
in future years starting in 1997 to $.064 per every $100 of assessable
deposits. Based on the Bank's deposit balances as of March 31, 1995, the
one time assessment was approximately $322,000 and has been accrued in
the fiscal 1996 financial statements.
F-20
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Financial Statements
(15) Subsequent Event
On March 20, 1997, the Bank signed a definitive agreement to sell all of
its outstanding shares of common stock to Carolina First Corporation
("Carolina First") for approximately $13.3 million, with 60% payable in
Carolina First common stock and 40% payable in cash. The purchase price
per Lowcountry Savings Bank, Inc. common share is $14.75. The Bank's
shareholders can elect to receive all common stock, 50% common stock and
50% cash, or all cash from the transaction. However, due to the number of
the Bank's shareholders who may elect a particular option, the mix of the
consideration actually paid to a particular shareholder may vary from the
election selected by that shareholder. The common stock portion of the
exchange is expected to be tax-free for the Bank's shareholders, while
the cash portion is expected to be taxable to the shareholders. Carolina
First plans to merge the Bank into Carolina First Bank, a wholly-owned
subsidiary of Carolina First. The transaction, which is subject to the
receipt of regulatory approval and the approval of the Bank's
shareholders, is expected to be completed in the second quarter of
calendar year 1997.
F-21
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Balance Sheets
Unaudited
March 31, 1997 and September 30, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
--------- -------------
Assets
<S> <C> <C>
Cash and cash equivalents (including interest-bearing
deposits of $1,427 and $676 respectively) $ 2,429 2,880
Certificates of deposit in other depository institutions 800 900
Loans receivable (net of the allowance for loan losses
of $359 and $368 respectively) 71,028 68,248
Federal Home Loan Bank stock, at cost 513 472
Premises and equipment, net 1,347 1,321
Accrued interest receivable 513 473
Other assets 1,029 1,067
------- -------
Total assets $77,659 75,361
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Deposits $63,751 61,606
Advances from Federal Home Loan Bank 6,250 5,500
Advance payments by borrowers for taxes
and insurance 344 659
Accrued interest payable 8 8
Other liabilities 1,059 1,579
------- -------
Total liabilities 71,412 69,352
------- -------
Stockholders equity:
Preferred stock no par value, 50,000,000 shares
authorized, none issued -- --
Special stock no par value, 50,000,000 shares
authorized, none issued -- --
Common stock $5 par value, 50,000,000 shares
authorized, 903,576 shares issued and outstanding 4,518 4,518
Additional paid-in capital 347 347
Retained earnings 1,382 1,144
------- -------
Total stockholders' equity 6,247 6,009
------- -------
Total liabilities and stockholders' equity $77,659 75,361
======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Statements of Operations
Unaudited
For the three and six months ended March 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,584 1,258 3,140 2,496
Interest and dividends on
investments and deposits 32 34 58 79
-------- -------- -------- --------
1,616 1,292 3,198 2,575
-------- -------- -------- --------
Interest expense:
Deposits 765 775 1,534 1,557
Borrowings 69 16 149 66
-------- -------- -------- --------
834 791 1,683 1,623
-------- -------- -------- --------
Net interest income 782 501 1,515 952
Provision for loan losses 19 -- 43 --
-------- -------- -------- --------
Net interest income after provision
for loan losses 763 501 1,472 952
-------- -------- -------- --------
Other income:
Gain on sale of loans 34 77 76 169
Loan brokerage fees 1 15 47 56
Service fees on deposits 69 82 153 174
Gain on sale of real estate owned 3 36 5 37
Other 72 47 101 79
-------- -------- -------- --------
179 257 382 515
-------- -------- -------- --------
General and administrative expenses:
Salaries and employee benefits 383 331 766 640
Occupancy 133 119 263 225
Data processing 67 45 112 85
Marketing 15 10 40 17
Professional fees 14 9 26 24
Insurance 8 24 45 60
Office supplies, telephone and postage 43 31 81 63
Other 23 22 42 36
-------- -------- -------- --------
686 591 1,375 1,150
-------- -------- -------- --------
Income before income taxes 256 167 479 317
Income taxes 96 54 178 102
-------- -------- -------- --------
Net income $ 160 113 301 215
======== ======== ======== ========
Earnings per share:
Primary $ .17 .14 .31 .26
Fully diluted $ .16 .14 .31 .26
Weighted-average shares outstanding
Primary 958,641 818,893 958,641 818,893
Fully diluted 973,679 818,893 966,160 818,893
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Statements of Changes in Stockholders' Equity
Unaudited
For the six months ended March 31, 1997 and 1996
(Dollars in Thousands)
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------- ------- -------- -----------
Balance at September 30, 1995 $2,971 877 1,048 4,896
Stock split (4/3 shares) 991 (877) (114) --
Net income -- -- 215 215
Cash dividend ($.05 per share) -- -- (42) (42)
------ ------ ------ ------
Balance at March 31, 1996 $3,962 -- 1,107 5,069
====== ====== ====== ======
Balance at September 30, 1996 $4,518 347 1,144 6,009
Net income -- -- 301 301
Cash dividend ($.07 per share) -- -- (63) (63)
------ ------ ------ ------
Balance at March 31, 1997 $4,518 347 1,382 6,247
====== ====== ====== ======
See accompanying notes to financial statements
F-24
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Statements of Cash Flows
Unaudited
For the six months ended March 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 301 215
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of loans (76) --
Proceeds from sale of loans 5,552 10,336
Originations of loans held for sale (5,476) (11,038)
Increase (decrease) in net deferred loan fees (33) 326
Provision for loan losses 43 --
Depreciation and amortization 121 90
(Increase) in accrued interest receivable (40) (16)
Decrease (increase) in other assets 38 (191)
Decrease in accrued interest payable -- 4
Increase (decrease) in other liabilities (520) 308
-------- --------
Net cash provided by (used in) operating activities (90) 34
-------- --------
Cash flows from investing activities:
Proceeds from matured certificates of deposit at other
depository institutions 900 1,000
Purchase of certificates of deposit at other depository institutions (800) (1,000)
Loan disbursements (13,837) (15,787)
Loans purchased -- (4,957)
Principal collected on loans 11,047 14,216
Purchase of furniture, fixtures and equipment (147) (140)
Purchase of FHLB stock (41) --
Sale of other real estate -- 361
-------- --------
Net cash used in investing activities (2,878) (6,307)
-------- --------
Cash flows from financing activities:
Net increase in deposits 2,145 9,360
Increase (decrease) in Federal Home Loan Bank advances 750 2,500
(Decrease) in advance payments by borrowers for
taxes and insurance (315) (176)
Cash dividends on common stock (63) (42)
-------- --------
Net cash provided by financing activities 2,517 11,642
-------- --------
Net increase (decrease) in cash and cash equivalents (451) 5,369
Cash and cash equivalents - beginning of period 2,880 2,577
-------- --------
Cash and cash equivalents - end of period $ 2,429 7,946
======== ========
Supplemental information:
Interest paid on deposits and borrowings $ 1,683 1,604
======== ========
Income taxes paid $ 297 11
======== ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
LOWCOUNTRY SAVINGS BANK, INC.
Notes to Interim Financial Statements
1. Summary of Significant Accounting Policies
A summary of Lowcountry Savings Bank, Inc.'s significant accounting
policies is included in the 1996 Annual Report to Shareholders.
2. Management's Opinion
In the opinion of management, the accompanying interim financial
statements reflect all normal recurring adjustments which are necessary
for a fair presentation of the financial position of Lowcountry Savings
Bank, Inc. at March 31, 1997, and the results of their operations and
their cash flows for the six months ended March 31, 1997 and 1996.
F-26
<PAGE>
EXHIBIT A
REORGANIZATION AGREEMENT
BY AND AMONG
CAROLINA FIRST CORPORATION,
CAROLINA FIRST BANK,
AND
LOWCOUNTRY SAVINGS BANK, INC.
DATED AS OF MARCH 14, 1997
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION I. DEFINITIONS...........................................................................................5
1.1. Agreement..........................................................................................5
1.2. Articles of Merger.................................................................................5
1.3. BCA................................................................................................5
1.4. Benefit Plans......................................................................................5
1.5. CFC................................................................................................5
1.6. CFC Common Stock...................................................................................5
1.7. CFB................................................................................................5
1.9. Code...............................................................................................5
1.10. Confidential Information..........................................................................5
1.11. Merger.............................................................................................5
1.12. ERISA..............................................................................................5
1.13. Effective Time.....................................................................................5
1.14. FDIC...............................................................................................5
1.15. Federal Reserve Board..............................................................................5
1.16. LSB Common Stock...................................................................................5
1.17. OTS................................................................................................5
1.18. Plan of Merger.....................................................................................5
1.19. Proxy Statement....................................................................................5
1.20. Registration Statement.............................................................................5
1.21. Regulations........................................................................................5
1.22. Reorganization Agreement...........................................................................5
1.23. SEC................................................................................................5
1.24. Securities Act.....................................................................................5
1.25. State Board........................................................................................5
1.26. Shareholder Approvals..............................................................................6
1.27. Shareholders' Meeting..............................................................................6
1.28. Surviving Corporation..............................................................................6
SECTION II. THE MERGER...........................................................................................6
2.1. General Provisions.................................................................................6
2.2. The Closing........................................................................................6
2.3. Consideration for the Merger.......................................................................6
2.4. Approval of LSB Shareholders.......................................................................6
2.5. Tax Treatment......................................................................................6
SECTION III. REPRESENTATIONS AND WARRANTIES OF LSB...............................................................6
3.1. Organization, Good-Standing and Conduct of Business................................................6
3.2. Corporate Authority................................................................................6
3.3. Binding Effect.....................................................................................6
3.4. Capitalization of LSB..............................................................................7
3.5. Absence of Defaults................................................................................7
3.6. Non-Contravention and Defaults; No Liens...........................................................7
3.7. Necessary Approvals................................................................................7
3.8. Financial Statements...............................................................................7
3.9. Tax Returns........................................................................................7
3.10. Undisclosed Liabilities............................................................................8
3.11. Title to Properties, Encumbrances..................................................................8
3.12. Litigation.........................................................................................8
3.13. Reports............................................................................................8
3.14. Brokers............................................................................................8
3.15. Expenditures.......................................................................................8
3.16. Insurance..........................................................................................8
3.17. Contracts and Commitments..........................................................................8
3.18. Employee Benefit Plans.............................................................................9
3.19. Environmental Matters..............................................................................9
3.20. LSB Information...................................................................................10
3.21. Due Diligence.....................................................................................10
3.22. Resale of CFC Common Stock........................................................................10
2
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SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC AND CFB.......................................................10
4.1. Organization, Good-Standing and Conduct of Business...............................................10
4.2. Corporate Authority...............................................................................10
4.3. Binding Effect....................................................................................10
4.4. Capitalization of CFC.............................................................................10
4.5. Subsidiaries of CFC...............................................................................11
4.6. Absence of Defaults...............................................................................11
4.7. Non-Contravention and Defaults; No Liens..........................................................11
4.8. Necessary Approvals...............................................................................11
4.9. Financial Statements..............................................................................11
4.10. Tax Returns.......................................................................................11
4.11. Undisclosed Liabilities...........................................................................12
4.12. Litigation........................................................................................12
4.13. Reports...........................................................................................12
4.14. CFC Information...................................................................................12
4.15. Due Diligence.....................................................................................12
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING.................................................................12
5.1. Conduct of LSB Pending Closing....................................................................12
5.2. Conduct of CFC Pending Closing....................................................................13
SECTION VI. COVENANTS OF THE PARTIES............................................................................13
6.1. Access to Properties and Records..................................................................13
6.2. Regulatory Filings................................................................................13
6.3. Registration Statement/Proxy Statement............................................................13
6.4. Affiliates' Letters...............................................................................13
6.5. Listing of CFC Common Stock.......................................................................14
6.6. Letters from Accountants..........................................................................14
6.7. Tax Treatment.....................................................................................14
6.8. Expenses..........................................................................................14
6.9. Material Events...................................................................................14
6.10. Public Announcements..............................................................................14
6.11. Pearson Employment Contract.......................................................................14
6.12. Director Compensation.............................................................................14
SECTION VII. CONDITIONS TO CFC'S OBLIGATION TO CLOSE...........................................................14
7.1. Performance of Acts and Representations by LSB....................................................14
7.2. Opinion of Counsel for LSB........................................................................14
7.3. Conduct of Business...............................................................................15
7.4. Consents..........................................................................................15
7.5. Certificate.......................................................................................15
7.6. Due Diligence.....................................................................................15
7.7. Pearson Employment Contract........................................................................15
SECTION VIII. CONDITIONS TO THE OBLIGATION OF LSB TO CLOSE.......................................................15
8.1. Performance of Acts and Representations by CFC and CFB............................................15
8.2. Opinion of Counsel for CFC........................................................................15
8.3. Conduct of Business...............................................................................15
8.4. Consents..........................................................................................15
8.5. Certificate.......................................................................................16
8.6. Tax Opinion.......................................................................................16
8.7. Fairness Opinion..................................................................................16
8.8. Shareholder Approvals.............................................................................16
8.9. Due Diligence.....................................................................................16
8.10. Pearson Employment Contract.......................................................................16
SECTION IX. TERMINATION........................................................................................16
9.1. Termination.......................................................................................16
9.2. Effect of Termination.............................................................................16
3
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SECTION X. INDEMNIFICATION.....................................................................................16
10.1. Information for Application and Statements.......................................................16
10.2. Indemnification of Officers and Directors........................................................17
SECTION XI. MISCELLANEOUS......................................................................................17
11.1. Survival of Representations and Warranties.......................................................17
11.2. Entire Agreement.................................................................................17
11.3. Binding Agreement................................................................................17
11.4. Notices..........................................................................................17
11.5. Counterparts.....................................................................................17
11.6. Headings.........................................................................................17
11.7. Law Governing....................................................................................17
11.8. Amendment........................................................................................17
11.9. Waiver...........................................................................................17
APPENDICES
Appendix A Plan of Merger
</TABLE>
4
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<PAGE>
This REORGANIZATION AGREEMENT is entered into as of this 14th day of
March, 1997 among Carolina First Corporation ("CFC"), a corporation organized
and existing under the laws of the State of South Carolina, Carolina First Bank
("CFB"), a corporation organized and existing under the laws of the State of
South Carolina, and Lowcountry Savings Bank, Inc. ("LSB"), a state savings
association organized and existing under the laws of South Carolina.
WHEREAS, CFC desires to acquire LSB through the merger of LSB with and
into CFB (the "Merger");
WHEREAS, the respective Boards of Directors of CFC, CFB and LSB have
approved such Merger pursuant to the terms and conditions of this
Agreement and the Plan of Merger attached hereto as Appendix A (the
"Plan of Merger");
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended; and
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, CFC, CFB and LSB
hereby agree as follows:
SECTION I. DEFINITIONS
1.1. AGREEMENT. This Reorganization Agreement between CFC, CFB and LSB,
together with all schedules, exhibits and appendices attached hereto.
1.2. ARTICLES OF MERGER. The Articles of Merger to be executed by CFC,
CFB and LSB and in a form appropriate for filing with the Secretary of State of
South Carolina, and relating to the effective consummation of the Merger as
contemplated by the Plan of Merger.
1.3. BCA. The South Carolina Business Corporation Act of 1988, as
amended.
1.4. BENEFIT PLANS. All employee benefit plans within the meaning of
Section 3(3) of ERISA and any related or separate contracts, plans, trusts,
programs, policies, arrangements, practices, customs and understandings that
provide benefits of economic value to any present or former employee of, or
current or former beneficiary, dependent or assignee of any such employee or
former employee.
1.5. CFC. Carolina First Corporation, a bank holding company
headquartered in Greenville, South Carolina.
1.6. CFC COMMON STOCK. The common stock, par value $1.00 per share, of
CFC.
1.7. CFB. Carolina First Bank, a South Carolina corporation and a
wholly-owned subsidiary of CFC.
1.8. CLOSING; CLOSING DATE. The terms Closing and Closing Date shall
have the meanings ascribed to them in Section 2.2 hereof.
1.9. CODE. The Internal Revenue Code of 1986, as amended.
1.10. CONFIDENTIAL INFORMATION. The term "Confidential Information"
shall mean all information of any kind concerning a party hereto that is
furnished by such party or on its behalf pursuant to Section 6.1 hereof and
designated in writing as "Confidential Information", 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 with the Merger, or (v) which was independently developed by the
recipient without the benefit of Confidential Information.
1.11. MERGER. The merger of LSB with and into CFB as more particularly
set forth herein and in the Plan of Merger.
1.12. ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
1.13. EFFECTIVE TIME. The date and time which the Merger becomes
effective as set forth in the Articles of Merger.
1.14. FDIC. The Federal Deposit Insurance Corporation.
1.15. FEDERAL RESERVE BOARD. The Board of Governors of the Federal
Reserve System.
1.16. LSB COMMON STOCK. The common stock, par value $5.00 per share, of
LSB.
1.17. OTS. The Office of Thrift Supervision.
1.18. PLAN OF MERGER. The Plan of Merger attached to this
Reorganization Agreement as Appendix A.
1.19. PROXY STATEMENT. The proxy statement included in the Registration
Statement which shall be furnished to the LSB shareholders in connection with
the solicitation by the LSB Board of Directors of proxies for the approval of
this Agreement and the matters contemplated hereby.
1.20. REGISTRATION STATEMENT. The Registration Statement on Form S-4 to
be filed with the SEC registering the issuance of the CFC Common Stock to be
issued to the LSB shareholders in connection with the Merger.
1.21. REGULATIONS. The regulations issued by the Internal Revenue
Service under the Code.
1.22. REORGANIZATION AGREEMENT. This Reorganization Agreement,
including all schedules, appendices and exhibits attached hereto.
1.23. SEC. The Securities and Exchange Commission.
1.24. SECURITIES ACT. The Securities Act of 1933, as amended.
1.25. STATE BOARD. The South Carolina State Board of Financial
Institutions.
5
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<PAGE>
1.26. SHAREHOLDER APPROVALS. This term shall mean, as the context may
require, the duly authorized written consent of CFC to the Merger of LSB with
and into CFB and the approval by the requisite vote of the shareholders of LSB
at the Shareholders' Meeting of the Merger of LSB with and into CFB, all in
accordance with this Reorganization Agreement and the Plan of Merger.
1.27. SHAREHOLDERS' MEETING. The meeting of the shareholders of LSB at
which the Merger shall be voted upon.
1.28. SURVIVING CORPORATION. The surviving corporation after
consummation of the Merger, which shall be CFB.
SECTION II. THE MERGER
2.1. GENERAL PROVISIONS. Subject to the terms and conditions of this
Reorganization Agreement, including the Plan of Merger, at the Effective Time,
LSB shall be merged with and into CFB, which shall be the Surviving Corporation
and remain a wholly-owned subsidiary of CFC. At the Effective Time, the separate
corporate existence of LSB shall cease. CFC and LSB hereby agree that the Merger
will be effected pursuant to the terms set forth in the Plan of Merger.
2.2. THE CLOSING. The Closing of the transaction contemplated herein
shall be held as soon as reasonably practicable after fulfillment of all
conditions set forth in Section VII and Section VIII hereof (the "Closing
Date"), at the offices of Wyche, Burgess, Freeman & Parham, P.A. or at such
other place and time as the parties hereto may mutually agree; provided,
however, that in the event that Closing has not occurred by September 30, 1997,
either party hereto shall have the right to terminate this Reorganization
Agreement.
2.3. CONSIDERATION FOR THE MERGER. The manner of converting the shares
of LSB into shares of CFC shall be as set forth in the Plan of Merger.
2.4. APPROVAL OF LSB SHAREHOLDERS. CFC, CFB and LSB shall jointly
prepare the Proxy Statement, which shall be reasonably acceptable to all
parties. The Proxy Statement shall be mailed to LSB shareholders as soon as
reasonably practicable after the SEC's declaration of effectiveness of the
Registration Statement, with due consideration given to the anticipated length
of time that will be required to obtain the necessary regulatory approvals.
2.5. TAX TREATMENT. CFC and LSB intend that the Merger shall qualify as
a tax-free reorganization under Section 368(a) of the Code.
2.6. OPTIONS. At the Effective Time, all outstanding obligations,
commitments, options, warrants or other securities set forth on Schedule 3.4 of
the Reorganization Agreement which are exercisable for or convertible into, or
which require the issuance of, shares of any class of capital stock of LSB
("Options"), shall, after the Effective Date, represent only the right to
receive shares of CFC Common Stock based on the Conversion Ratio (as defined in
the Plan of Merger). In addition, the term of the Options shall be extended such
that they shall expire 10 years from the Closing Date.
SECTION III. REPRESENTATIONS AND WARRANTIES OF LSB
LSB hereby represents and warrants to CFC the following matters on and
as of the date of this Reorganization Agreement and at the Effective Time;
provided, however, that before any breach of or inaccuracy in any of the
representations or warranties given in this Section III shall be actionable or
shall constitute grounds for termination of or failure to perform under the
terms of this Reorganization Agreement by CFC, such breach or inaccuracy must be
materially adverse in the aggregate with respect to the business of LSB.
3.1. ORGANIZATION, GOOD-STANDING AND CONDUCT OF BUSINESS. LSB is a
state savings association, duly organized, validly existing and in good standing
under the laws of South Carolina, and has full power and authority and all
necessary governmental and regulatory authorization to own all of its properties
and assets and to carry on its business as it is presently being conducted, and
is properly licensed, qualified and in good standing as a foreign corporation in
all jurisdictions wherein the character of the properties or the nature of the
business transacted by LSB makes such license or qualification necessary.
3.2. CORPORATE AUTHORITY. The execution, delivery and performance of
this Reorganization Agreement have been duly authorized by the Board of
Directors of LSB. Other than approval of the Merger by the shareholders of LSB,
no other corporate acts or proceedings on the part of LSB are required or
necessary to authorize this Reorganization Agreement or the Merger.
3.3. BINDING EFFECT. Subject to receipt of Shareholder Approval and any
required regulatory approvals, when executed, this Reorganization Agreement will
constitute a valid and legally binding obligation of LSB, enforceable against
LSB 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. Each document
and instrument contemplated by this Reorganization Agreement, when executed and
delivered by LSB in accordance with the provisions hereof, shall be duly
authorized, executed and delivered by LSB and enforceable against LSB in
accordance with its terms, subject to the exceptions in the previous sentence.
6
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<PAGE>
3.4. CAPITALIZATION OF LSB. The authorized capital stock of LSB
consists solely of (i) 50,000,000 authorized shares of common stock ($5.00 par
value), of which 903,576 shares are issued and outstanding, (ii) 50,000,00
shares of preferred stock, none of which is outstanding, and (iii) 50,000,000
shares of special stock, none of which is outstanding. All of the issued and
outstanding shares of LSB are validly issued and fully paid and nonassessable.
Except for the items set forth on Schedule 3.4 attached hereto, 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 LSB, or pursuant to which LSB is or may become
obligated to issue any shares of its capital stock. None of the shares of the
LSB Common Stock is subject to any restrictions as to the transfer thereof,
except as set forth in LSB's Articles of Incorporation or Bylaws and except for
restrictions on account of applicable federal or state securities laws. LSB does
not hold 10% of any class of equity securities of any other company or legal
entity.
3.5. ABSENCE OF DEFAULTS. LSB is not in default under, or in violation
of, any provision of its Articles of Incorporation or Bylaws. LSB is not in
default under, or in violation of, any agreement to which LSB is a party, the
effect of which default or violation would have a material adverse effect on LSB
or its business operations or prospects. Except as disclosed in Schedule 3.5,
LSB is not in violation of any applicable law, rule or regulation, the effect of
which would have a material adverse effect on LSB or its business operations or
prospects.
3.6. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Reorganization 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 LSB 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 LSB, or (iv) violate any
provisions of LSB's Articles of Incorporation or Bylaws. To the best of LSB's
knowledge, no other party to any material agreement to which LSB is a party is
in default thereunder or in breach of any provision thereof. To the best of
LSB's knowledge, there exists no condition or event which, after notice or lapse
of time or both, would constitute a default by any party to any such agreement.
3.7. NECESSARY APPROVALS. LSB has obtained all certificates of
authority, licenses, permits, franchises, registrations of foreign ownership or
other regulatory approvals in every jurisdiction necessary for the continuing
conduct of its business and ownership of its assets. Except for those which may
be renewed or extended in the ordinary course of business, no such certificate,
license, permit, franchise, registration or other approval is about to expire,
lapse, has been threatened to be revoked or has otherwise become restricted by
its terms which would, upon such expiration, lapse, revocation or restriction,
have a material adverse effect on the financial circumstances of LSB. Further,
there is no reasonable basis for any such expiration, lapse, revocation, threat
of revocation or restriction. Except for any necessary filings with, and
approvals and authorizations of the OTS, State Board, the FDIC, no consent,
approval, authorization, registration, or filing with or by any governmental
authority, foreign or domestic, is required on the part of LSB in connection
with the execution and delivery of this Reorganization Agreement or the
consummation by LSB of the transactions contemplated hereby. Except for the
agencies in the preceding sentence or as disclosed in Schedule 3.7 attached
hereto, LSB is not required to procure the approval of any person, firm,
corporation, or other entity, foreign or domestic, in order to prevent the
termination of any right, privilege, license or contract of LSB as a result of
this Reorganization Agreement.
3.8. FINANCIAL STATEMENTS. The audited financial statements of LSB at
and for each of the fiscal years ended September 30, 1994, 1995 and 1996, and
the unaudited monthly statements subsequent to September 30, 1996 (the "LSB
Financial Statements") all of which have been provided to CFC, are true, correct
and complete in all material respects and present fairly, in conformity with
generally accepted accounting principles consistently applied, the financial
position of LSB at the dates indicated and the results of its operations for
each of the periods indicated, except as otherwise set forth in the notes
thereto and except, with respect to the unaudited statements' normal year end
adjustments. The books and records of LSB have been kept, and will be kept to
the Closing Date, in reasonable detail, and will fairly and accurately reflect
in all material respects to the Closing Date, the transactions of LSB.
3.9. TAX RETURNS. LSB files its income tax returns and maintains its
tax books and records on the basis of a taxable year ending September 30. LSB
has duly filed all tax reports and returns required to be filed by any federal,
state or local taxing authorities (including, without limitation, those due in
respect of its properties, income, franchises, licenses, sales and payrolls)
through the date hereof, and LSB has duly paid all taxes with respect to the
periods covered thereby and has established adequate reserves in accordance with
generally accepted accounting principles consistently applied for the payment of
all income, franchises, property, sales, employment or other taxes anticipated
to be payable after the date hereof. LSB is not delinquent in the payment of any
taxes, assessments or governmental charges and no deficiencies have been
asserted or assessed, which have not been paid or for which adequate reserves
have not been established. LSB does not have in effect any waiver relating to
any statute of limitations for assessment of taxes with respect to any federal,
state or local income, property, franchise, sales, license or payroll tax. LSB
does not know, or have reason to know, of any questions which have been raised
or which may be raised by any taxing authority relating to taxes or assessments
of LSB which, if determined adversely, would result in the assertion of any
deficiency.
7
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3.10. UNDISCLOSED LIABILITIES. Except for the liabilities which are
disclosed in the LSB Financial Statements or as set forth on Schedule 3.10, LSB
has no material liabilities or material obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due.
Since September 30, 1996, there has been (i) no material adverse change in the
business or operations of LSB, (ii) no incurrence by or subjection of LSB to any
obligation or liability (whether fixed, accrued or contingent) or commitment
material to LSB not referred to in this Reorganization Agreement, except such
obligations or liabilities as were or may be incurred in the ordinary course of
business and which are reflected on the LSB Financial Statements at and for the
periods subsequent to September 30, 1996.
3.11. TITLE TO PROPERTIES, ENCUMBRANCES. LSB has good and marketable
title to all of the real property and depreciable tangible personal property
owned by it, free and clear of any liens, claims, charges, options or other
encumbrances, except for any lien for (i) current taxes not yet due and payable,
(ii) pledges to secure deposits and other liens incurred in the ordinary course
of the banking business, (iii) such imperfections of title, easements and other
encumbrances, if any, as are not material in character, amount or extent, or
(iv) such items as are set forth on Schedule 3.11.
3.12. LITIGATION. Except as shown on Schedule 3.12, there are no
claims, actions, suits or proceedings pending or threatened against LSB, or to
its knowledge affecting LSB, 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 LSB, and LSB 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 LSB specifically or to which LSB is subject.
3.13. REPORTS. LSB has duly made all reports and filings required to be
made pursuant to applicable law, except for failures to file or reports which
would not have a material adverse effect on the business or financial condition
of LSB.
3.14. BROKERS. Except as provided in its contract with T. Stephen
Johnson & Associates (a copy of which has been provided to CFC), LSB has not
incurred any liability for any commission or fee in the nature of a finder's,
originator's or broker's fee in connection with the transaction contemplated
herein.
3.15. EXPENDITURES. Schedule 3.15 sets forth any single expenditure of
$25,000 or more proposed to be made by LSB after the date hereof and a summary
of the terms and conditions pertaining thereto. At least 20 business days prior
to the Closing Date, LSB will advise CFC of any changes to Schedule 3.15
reflecting additions or deletions thereto since the date hereof.
3.16. INSURANCE. Attached hereto as Schedule 3.16 is a true and
complete summary of the policies of fire, liability, life and other types of
insurance held by LSB, setting forth with respect to each such policy, the
policy number, name of the insured party, type of insurance, insurance company,
annual premium, expiration date, deductible amount, if any, and amount of
coverage. Each such policy is in an amount reasonably sufficient for the
protection of the assets and business covered thereby, and, in the aggregate,
all such policies are reasonably adequate for the protection of all the assets
and business of LSB taking into account the availability and cost of such
coverage. To the extent permissible pursuant to such policies, all such policies
shall remain in full force and effect for a period of at least 90 days following
the Closing Date. There is no reason known to LSB that any such policy will not
be renewable on terms and conditions as favorable as those set forth in such
policy.
3.17. CONTRACTS AND COMMITMENTS. Schedule 3.17 attached hereto sets
forth each contract or other commitment of LSB which requires an aggregate
payment by LSB after the date hereof of more than $25,000, and any other
contract or commitment that in the opinion of the LSB management materially
affects the business of LSB. Except for the contracts and commitments described
in this Reorganization Agreement or as set forth in Schedule 3.17, LSB is not
party to or subject to:
1. Any contracts or commitments which are material to
its business, operations or financial condition other than loans or
agreements with respect thereto entered into in the ordinary course of
business;
2. Any employment contract or arrangement, whether
oral or written, with any officer, consultant, director or employee
which is not terminable on 30 days' notice without penalty or liability
to make any payment thereunder for more than 30 days after such
termination;
3. Any plan or contract or other arrangement, oral or
written, providing for insurance for any officer or employee or members
of their families;
4. Any plan or contract or other arrangement, oral or
written, providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit-sharing or other benefits for
employees;
5. Any contract or agreement with any labor union;
6. Any contract or agreement with customers for the
sale of products or the furnishing of services, or any sales agency,
broker, distribution or similar contract, except contracts made in the
ordinary course of business;
7. Any contract restricting LSB from carrying on its
business anywhere in the United States;
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8. Any instrument or arrangement evidencing or
related to indebtedness for money borrowed or to be borrowed, whether
directly or indirectly, by way of purchase money obligation, guaranty,
conditional sale, lease-purchase, or otherwise;
9. Any joint venture contract or arrangement or any
other agreement involving a sharing of profits;
10. Any license agreement in which LSB is the
licensor or licensee;
11. Any material contract or agreement, not of the
type covered by any of the other items of this Section 3.17, which by
its terms is either (i) not to be performed prior to 30 days from the
date hereof, or (ii) does not terminate, or is not terminable without
penalty to LSB, or any successors or assigns prior to 30 days from the
date hereof.
3.18. EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.18 contains a complete list of all Benefit
Plans sponsored or maintained by LSB or under which LSB may be
obligated ("LSB Benefit Plans"). LSB has delivered to the Buyer (i)
accurate and complete copies of all LSB Benefit Plan documents and all
other material documents relating thereto, including all summary plan
descriptions, summary annual reports and insurance contracts, (ii)
accurate and complete detailed summaries of all unwritten LSB Benefit
Plans, (iii) accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all LSB Benefit Plans
for which financial statements or actuarial reports are required or
have been prepared and (iv) accurate and complete copies of all annual
reports for all LSB Benefit Plans (for which annual reports are
required) prepared within the last two years. Any LSB Benefit Plan
providing benefits that are funded through a policy of insurance is
indicated by the word "insured" placed by the listing of the LSB
Benefit Plan on Schedule 3.18.
(b) All LSB Benefit Plans conform in all material respects to,
and are being administered and operated in material compliance with,
the requirements of ERISA, the Code and all other applicable
Regulations. All returns, reports and disclosure statements required to
be filed or delivered under ERISA and the Code with respect to all LSB
Benefit Plans have been filed or delivered. There have not been any
"prohibited transactions," as such term is defined in Section 4975 of
the Code or Section 406 of ERISA involving any of the LSB Benefit
Plans, that could subject LSB to any material penalty or tax imposed
under the Code or ERISA.
(c) Except as set forth in Schedule 3.18, any LSB Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified, and such determination
remains in effect and has not been revoked. Nothing has occurred since
the date of any such determination that is reasonably likely to affect
adversely such qualification or exemption, or result in the imposition
of excise taxes or income taxes on unrelated business income under the
Code or ERISA with respect to any LSB Benefit Plan.
(d) Except as set forth in Schedule 3.18, LSB has no current
or contingent obligation to contribute to any multiemployer plan (as
defined in Section 3(37) of ERISA). LSB has no liability with respect
to any employee benefit plan (as defined in Section 3(3) of ERISA)
other than with respect to the LSB Benefit Plans.
(e) There are no pending or, threatened claims by or on behalf
of any LSB Benefit Plans, or by or on behalf of any individual
participants or beneficiaries of any LSB Benefit Plans, alleging any
breach of fiduciary duty on the part of LSB or any of such party's
officers, directors or employees under ERISA or any other applicable
Regulations, or claiming benefit payments other than those made in the
ordinary operation of such plans. The LSB Benefit Plans are not the
subject of any investigation, audit or action by the Internal Revenue
Service, the Department of Labor or the Pension Benefit Guaranty
Corporation ("PBGC"). LSB has made all required contributions under the
LSB Benefit Plans including the payment of any premiums payable to the
PBGC and other insurance premiums.
(f) With respect to any LSB Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a
"Welfare Plan"), (i) each such Welfare Plan for which contributions are
claimed as deductions under any provision of the Code is in material
compliance with all applicable requirements pertaining to such
deduction, (ii) with respect to any welfare benefit fund (within the
meaning of Section 419 of the Code) related to such a Welfare Plan,
there is no disqualified benefit (within the meaning of Section 4976(b)
of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any LSB Benefit Plan that is a group health
plan (within the meaning of Section 4980B(g)(2) of the Code) complies,
and in each and every case has complied, with all of the material
requirements of Section 4980B of the Code, ERISA, Title XXII of the
Public Health Service Act and the applicable provisions of the Social
Security Act, and (iv) such Welfare Plan may be amended or terminated
at any time on or after the Closing Date.
3.19. ENVIRONMENTAL MATTERS. LSB is in compliance with all local, state
and federal environmental statutes, laws, rules, regulations and permits,
including but not limited to the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq. LSB has not, nor to LSB's
knowledge have other parties, used, stored, disposed of or
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permitted any "hazardous substance" (as defined in CERCLA), petroleum
hydrocarbon, polychlorinated biphenyl, asbestos or radioactive material
(collectively, "Hazardous Substances") to remain at, on, in or under any of the
real property owned or leased by LSB (including, without limitation, the
buildings or structures thereon) (the "Real Property"). LSB has not, nor to
LSB's knowledge have other parties, installed, used, or disposed of any asbestos
or asbestos-containing material on, in or under any of the Real Property. LSB
has not, nor to LSB's knowledge have other parties, installed or used
underground storage tanks in or under any of the Real Property. LSB has provided
CFB with copies of all complaints, citations, orders, reports, written data,
notices or other communications sent or received by it with respect to any
local, state or federal environmental law, ordinance, rule or regulation as any
of them relate to LSB.
3.20. LSB INFORMATION. The written information with respect to LSB, and
its officers, directors, and affiliates which shall have been supplied by LSB
(or any of its accountants, counsel or other authorized representatives)
specifically for use in soliciting approval of the Merger by shareholders of
LSB, or which shall be contained in the Registration Statement, will not, on the
date the Proxy Statement is first mailed to shareholders of LSB or on the date
of the Shareholders' Meeting, contain any untrue statement of a material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, or necessary to correct any statement in any
earlier communication to LSB shareholders with respect to the Merger.
3.21. DUE DILIGENCE. All information provided by LSB in connection with
the due diligence investigation by CFC was, at the time that such information
was provided, fair, accurate and complete in all material respects. Since the
date of such provision of information, there have been no changes in such
information, which taken in the aggregate, represent a material adverse change
in the business, operations or prospects of LSB. LSB has not failed to provide
or make available to CFC all material information regarding LSB.
3.22. RESALE OF CFC COMMON STOCK. LSB knows of no present plan or
intention on the part of its shareholders to sell, assign, transfer or otherwise
dispose of shares of CFC Common Stock to be received by such shareholders in
connection with the Merger which would reduce said shareholders' holdings of CFC
common stock to a number of shares having, in the aggregate, a value of less
than 50% of the value of LSB Common Stock outstanding as of the Effective Time.
For purposes of this representation, the number of shares of CFC Common Stock
which would have been received by any dissenting shareholders of LSB had they
not dissented, and shares of LSB Common Stock sold, redeemed or otherwise
disposed of prior or subsequent to and as part of the Merger, will be considered
as shares received by shareholders of LSB and then disposed of by shareholders
of LSB.
SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC AND CFB
CFC and CFB hereby represent and warrant to LSB the following matters
on and as of the date of this Reorganization Agreement and at the Effective
Time; provided, however, that before any breach of or inaccuracy in any of the
representations or warranties given in this Section IV shall be actionable or
shall constitute grounds for termination of or failure to perform under the
terms of this Reorganization Agreement by LSB, such breach or inaccuracy must be
materially adverse in the aggregate with respect to the business of CFC.
4.1. ORGANIZATION, GOOD-STANDING AND CONDUCT OF BUSINESS. CFC and CFB
are corporations, duly organized, validly existing and in good standing under
the laws of the State of South Carolina, and have full power and authority and
all necessary governmental and regulatory authorization to own all of their
properties and assets and to carry on their business as they are presently being
conducted, and are properly licensed, qualified and in good standing as foreign
corporations in all jurisdictions wherein the character of the properties or the
nature of the business transacted by CFC and CFB makes such license or
qualification necessary.
4.2. CORPORATE AUTHORITY. The execution, delivery and performance of
this Reorganization Agreement have been duly authorized by the Boards of
Directors of CFC and CFB. No further corporate acts or proceedings on the part
of CFC or CFB are required or necessary to authorize this Reorganization
Agreement or the Merger.
4.3. BINDING EFFECT. When executed, this Reorganization Agreement will
constitute a valid and legally binding obligation of CFC and CFB, enforceable
against CFC and 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.
Each document and instrument contemplated by this Reorganization Agreement, when
executed and delivered by CFC and/or CFB in accordance with the provisions
hereof, shall be duly authorized, executed and delivered by CFC and/or CFB and
enforceable against CFC and/or CFB in accordance with its terms, subject to the
exceptions in the previous sentence.
4.4. CAPITALIZATION OF CFC. The authorized capital stock of CFC
consists solely of (i) 20,000,000 authorized shares of common stock ($1.00 par
value), of which 11,355,415 shares were issued and outstanding as of March 13,
1997 and (ii) 10,000,000 shares of preferred stock, none of which is currently
outstanding. All of the issued and outstanding shares of CFC are validly issued
and fully paid and nonassessable. Except for (i) stock or options to purchase
shares of CFC Common Stock granted under director or employee benefit plans,
(ii) shares which may be issued pursuant to CFC's Shareholders' Rights Plan
entered into as of November 9, 1993 between CFC and CFB, as amended and
restated, (iii) existing dividend reinvestment plans, or (iv) as otherwise set
forth on Schedule 4.4, there are no outstanding obligations, options, warrants
or commitments of any kind or nature or
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any outstanding securities or other instruments convertible into shares of any
class of capital stock of CFC, or pursuant to which CFC is or may become
obligated to issue any shares of its capital stock. None of the shares of the
CFC Common Stock is subject to any restrictions as to the transfer thereof,
except as set forth in CFC's Articles of Incorporation or Bylaws and except for
restrictions on account of applicable federal or state securities laws. The
Common Stock to be issued in connection with this Reorganization Agreement and
the Merger will, when issued, be validly issued, fully paid and nonassessable
and issued pursuant to an effective registration statement.
4.5. SUBSIDIARIES OF CFC. CFC owns 100% of the issued and outstanding
shares of CFB, Carolina First Mortgage Company and CF Investment Company
(collectively, the "Subsidiaries"). Other than CFC, no individual or entity has
rights to acquire shares of the Subsidiaries. CFC does not hold 10% of any class
of equity securities of any other company or legal entity other than the
Subsidiaries.
4.6. ABSENCE OF DEFAULTS. Neither CFC nor CFB is in default under, or
in violation of any provision of their Articles of Incorporation or Bylaws.
Neither CFC nor CFB is in default under, or in violation of, any agreement to
which they are a party, the effect of which default or violation would have a
material adverse effect on CFC or CFB or their business operations or prospects.
Neither CFC nor CFB is in violation of any applicable law, rule or regulation
the effect of which would have a material adverse effect on CFC or CFB or their
business operations or prospects.
4.7. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Reorganization 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 CFC or CFB is a party or by which they 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 CFC or CFB, or
(iv) violate any provisions of CFC's or CFB's Articles of Incorporation or
Bylaws. To the best of CFC's and CFB's knowledge, no other party to any material
agreement to which CFC or CFB is a party is in default thereunder or in breach
of any provision thereof. To the best of CFC's and CFB's knowledge, there exists
no condition or event which, after notice or lapse of time or both, would
constitute a default by any party to any such agreement.
4.8. NECESSARY APPROVALS. Each of CFC and CFB have obtained all
certificates of authority, licenses, permits, franchises, registrations of
foreign ownership or other regulatory approvals in every jurisdiction necessary
for the continuing conduct of its business and ownership of its assets. Except
for those which may be renewed or extended in the ordinary course of business,
no such certificate, license, permit, franchise, registration or other approval
is about to expire, lapse, has been threatened to be revoked or has otherwise
become restricted by its terms which would, upon such expiration, lapse,
revocation or restriction, have a material adverse effect on the financial
circumstances of CFC or CFB. Further, there is no basis for any such expiration,
lapse, revocation, threat of revocation or restriction. Except for (i) any
necessary filings with, and approvals and authorizations of the OTS, the FDIC,
the Federal Reserve Board and the State Board, and (ii) the filing with the SEC
of the Registration Statement and filings with blue sky authorities, no consent,
approval, authorization, registration, or filing with or by any governmental
authority, foreign or domestic, is required on the part of CFC or CFB in
connection with the execution and delivery of this Reorganization Agreement or
the consummation by CFC and CFB of the transactions contemplated hereby. Except
for the agencies and other entities in the preceding sentence, neither CFC nor
CFB is required to procure the approval of any person, firm, corporation, or
other entity, foreign or domestic, in order to prevent the termination of any
right, privilege, license or contract of CFC or CFB as a result of this
Reorganization Agreement.
4.9. FINANCIAL STATEMENTS. The audited financial statements of CFC at
and for each of the fiscal years ended December 31, 1994, 1995 and 1996, and the
unaudited monthly statements subsequent to December 31, 1996 (the "CFC Financial
Statements") all of which have been provided to LSB, are true, correct and
complete in all material respects and present fairly, in conformity with
generally accepted accounting principles consistently applied, the financial
position of CFC at the dates indicated and the results of its operations for
each of the periods indicated, except as otherwise set forth in the notes
thereto. The books and records of CFC have been kept, and will be kept to the
Closing Date, in reasonable detail, and will fairly and accurately reflect in
all material respects to the Closing Date, the transactions of CFC.
4.10. TAX RETURNS. CFC files its income tax returns and maintains its
tax books and records on the basis of a taxable year ending December 31. CFC has
duly filed all tax reports and returns required to be filed by any federal,
state or local taxing authorities (including, without limitation, those due in
respect of its properties, income, franchises, licenses, sales and payrolls)
through the date hereof, and CFC has duly paid all taxes with respect to the
periods covered thereby and has established adequate reserves in accordance with
generally accepted accounting principles consistently applied for the payment of
all income, franchises, property, sales, employment or other taxes anticipated
to be payable in respect of the period subsequent to the period ending after the
date hereof. CFC is not delinquent in the payment of any taxes, assessments or
governmental charges and no deficiencies have been asserted or assessed, which
have not been paid or for which adequate reserves have not been established and
which are not being contested in good faith. CFC does not have in effect any
waiver relating to any statute of limitations for assessment of taxes with
respect to any federal, state or local income, property, franchise, sales,
license or payroll
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tax. Except as set forth on Schedule 4.10, CFC does not know, or have reason to
know, of any questions which have been raised or which may be raised by any
taxing authority relating to taxes or assessments of CFC which, if determined
adversely, would result in the assertion of any deficiency.
4.11. UNDISCLOSED LIABILITIES. Except for the liabilities which are
disclosed in the CFC Financial Statements or as set forth on Schedule 4.11, CFC
has no material liabilities or material obligations of any nature, whether
absolute, accrued, contingent or otherwise, and whether due or to become due.
Since December 31, 1996, there has been no material adverse change in the
business or operations of CFC.
4.12. LITIGATION. Except as set forth on Schedule 4.12, there are no
claims, actions, suits or proceedings pending or threatened against or, to its
knowledge, affecting CFC 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 CFC, and CFC 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 CFC or to
which CFC is subject, except for certain agreements between CFC and the Federal
Reserve regarding ownership in certain corporations by CFC.
4.13. REPORTS. CFC has duly made all reports and filings required to be
made pursuant to applicable law, except for failures to file or reports which
would not have a material adverse effect on the business or financial condition
of CFC.
4.14. CFC INFORMATION. The written information with respect to CFC, and
its officers, directors, and affiliates which shall have been supplied by CFC
(or any of its accountants, counsel or other authorized representatives)
specifically for use in soliciting approval of the Merger by shareholders of
LSB, or which shall be contained in the Registration Statement, will not, on the
date the Proxy Statement is first mailed to shareholders of LSB or on the date
of the Shareholders' Meeting, or in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, or necessary to correct any statement in any
earlier communication to LSB shareholders with respect to the Merger. The
Registration Statement will comply as to form with all applicable laws,
including the provisions of the Securities Act.
4.15. DUE DILIGENCE. All information provided by CFC in connection with
the due diligence investigation by LSB was, at the time that such information
was provided, fair, accurate and complete in all material respects. Since the
date of such provision of information, there have been no changes in such
information, which taken in the aggregate, represent a material adverse change
in the business, operations or prospects of CFC. CFC has not failed to provide
or make available to LSB all material information regarding CFC.
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING
5.1. CONDUCT OF LSB PENDING CLOSING. During the period commencing on
the date hereof and continuing until the Closing Date, LSB covenants and agrees
to the following (except to the extent that CFC shall otherwise expressly
consent in writing; provided, however, that any breach of or inaccuracy in any
of the covenants given in this Section 5.1 must be material in the aggregate
with respect to the business of LSB before such breach shall be actionable or
shall constitute grounds for termination or failure to perform under this
Reorganization Agreement.
(a) LSB will carry on its business only in the ordinary course
in substantially the same manner as heretofore conducted and, to the
extent consistent with such business, use all reasonable efforts to
preserve intact its business organization, maintain the services of its
present officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it so
that its goodwill and going business shall be unimpaired at the Closing
Date. LSB shall not purchase or otherwise acquire or enter into a
contract to acquire servicing or subservicing rights with respect to
loans not originated by LSB without the written consent of CFC, which
consent shall not be unreasonably withheld.
(b) LSB will not amend its Articles of Incorporation or Bylaws
as in effect on the date hereof.
(c) Except for the issuance of capital stock in connection
with items set forth on Schedule 3.4, LSB will not issue, grant, pledge
or sell, or authorize the issuance of, reclassify or redeem, purchase
or otherwise acquire, any shares of its capital stock of any class or
any securities convertible into shares of any class, or any rights,
warrants or options to acquire any such shares (except for employee
stock options in the ordinary course in accordance with past practice
and only upon prior notice to CFC); nor will it enter into any
arrangement or contract with respect to the issuance of any such shares
or other convertible securities; nor will it declare, set aside or pay
any dividends (of any type) or make any other change in its equity
capital structure.
(d) LSB will promptly advise CFC orally and in writing of any
change in the businesses of LSB which is or may reasonably be expected
to be materially adverse to the business of LSB.
(e) LSB will not take, agree to take, or knowingly permit to
be taken any action or do or knowingly permit to be done anything in
the conduct of the business of LSB, or otherwise, which would be
contrary to or in breach of any of the terms or provisions of this
Reorganization Agreement, or which would cause any of the
representations of LSB contained herein to be or become untrue in any
material respect.
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(f) LSB will not incur any indebtedness for borrowed money,
issue or sell any debt securities, or assume or otherwise become
liable, whether directly, contingently or otherwise, for the obligation
of any other party, other than in the ordinary course of business.
(g) Except for expenses attendant to the Merger and current
contractual obligations, LSB will not incur any expense in an amount in
excess of $25,000 after the execution of this Reorganization Agreement
without the prior written consent of CFC.
(h) LSB will not grant any executive officers any increase in
compensation (except in the ordinary course in accordance with past
practice and only upon prior notice to CFC), or enter into any
employment agreement with any executive officer without the consent of
CFC except as may be required under employment or termination
agreements in effect on the date hereof which have been previously
disclosed to CFC in writing.
(i) LSB will not acquire or agree to acquire by merging or
consolidating with, purchasing substantially all of the assets of or
otherwise, any business or any corporation, partnership, association or
other business organization or division thereof.
5.2. CONDUCT OF CFC PENDING CLOSING. During the period commencing on
the date hereof and continuing until the Closing Date, CFC covenants and agrees
to the following (except to the extent that LSB shall otherwise expressly
consent in writing, which consent shall not be unreasonably delayed or
withheld); provided, however, that any breach of or inaccuracy in any of the
covenants given in this Section 5.2 must be material in the aggregate with
respect to the business of CFC before such breach shall be actionable or shall
constitute grounds for termination or failure to perform under this
Reorganization Agreement.
(a) CFC shall carry on its business in substantially the same
manner as heretofore conducted.
(b) CFC will not amend its Articles of Incorporation or Bylaws
as in effect on the date hereof in any manner that will adversely
affect the LSB shareholders in any material respect.
(c) CFC will promptly advise LSB orally and in writing of any
change in its business which is or may reasonably be expected to be
materially adverse to CFC.
(e) CFC will not take, agree to take, or knowingly permit to
be taken any action or do or knowingly permit to be done anything in
the conduct of its business or otherwise, which would be contrary to or
in breach of any of the terms or provisions of this Reorganization
Agreement, or which would cause any of the representations of CFC
contained herein to be or become untrue in any material respect.
SECTION VI. COVENANTS OF THE PARTIES
6.1. ACCESS TO PROPERTIES AND RECORDS. Between the date of this
Reorganization Agreement and the Closing Date, the parties will provide to each
other and to their respective accountants, counsel and other authorized
representatives reasonable access (with due consideration being given to the
fact that CFC is a company traded on the Nasdaq National Market, that CFC is
acquiring all of LSB and that LSB will constitute only a small portion of CFC
after the consummation of the transactions herein), during reasonable business
hours and upon reasonable notice, to their respective premises, properties,
contracts, commitments, books, records and other information and will cause
their respective officers to furnish to the other party and its authorized
representatives such financial, technical and operating data and other
information pertaining to their respective businesses, as the parties shall from
time to time reasonably request. 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 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. If this
Reorganization Agreement is terminated, each party hereto will promptly return
all documents received by it from each other party containing Confidential
Information. The covenants in this Section 6.1 shall survive the Closing Date
forever.
6.2. REGULATORY FILINGS. The parties hereto will use their respective
best efforts and cooperate with each other to obtain promptly all such
regulatory approvals and to make such filings as, in the opinion of their
respective counsels, may be necessary or advisable in connection with this
transaction. CFC shall be responsible for all filings fees required in
connection with such approvals or filings.
6.3. REGISTRATION STATEMENT/PROXY STATEMENT. CFC shall file the
Registration Statement with the SEC and shall pay the required filing fees. The
parties will use their respective best efforts and cooperate with each other to
obtain promptly the effectiveness of the Registration Statement. CFC shall also
take any reasonable action required to be taken under the blue sky laws in
connection with the issuance of CFC Common Stock in the Merger.
LSB shall mail, at its expense, the Proxy Statement to its shareholders.
6.4. AFFILIATES' LETTERS. LSB shall deliver to CFC a letter identifying
all persons who are, at the time the Merger is submitted to a vote of the
shareholders of LSB, "affiliates" of LSB for purposes of Rule 145 of the General
Rules and Regulations under the Securities Act. LSB shall use its best efforts
to cause each person who is identified as an "affiliate" in the letter referred
to above to deliver to CFC on or prior to the Effective Time a written
agreement, in form reasonably satisfactory to CFC, (a) that such person will not
offer to sell, transfer or otherwise dispose of any of the shares of CFC Common
Stock issued to such person pursuant to the Merger in such a manner so as to
destroy the tax-free status of the Merger, and (b) that such person will not
offer to sell, transfer
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or otherwise dispose of any of the shares of CFC Common Stock issued to such
person pursuant to the Merger, except in accordance with the applicable
provisions of Rule 145.
6.5. LISTING OF CFC COMMON STOCK. CFC shall cause the shares of CFC
Common Stock to be issued in the transactions contemplated by this
Reorganization Agreement to be approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, prior to the Effective Time. CFC
shall give such notice to Nasdaq as may be required to permit the listing of the
CFC Common Stock issued in connection with the Merger.
6.6. LETTERS FROM ACCOUNTANTS. Prior to the date the Registration
Statement is declared effective and prior to the Effective Time, LSB will
deliver to CFC letters from KPMG Peat Marwick addressed to CFC and dated not
more than two business days before the date on which such Registration Statement
shall have become effective and not more than two business days prior to the
Effective Time, respectively, in form and substance satisfactory to CFC, and CFC
will deliver to LSB letters from KPMG Peat Marwick, addressed to LSB and dated
not more than two business days before the Registration Statement shall have
become effective and not more than two business days prior to the Effective
Time, respectively, in form and substance satisfactory to LSB, in each case with
respect to the financial condition of the other party and such other matters as
are customary in accountants' comfort letters.
6.7. TAX TREATMENT. LSB and CFC shall each take such acts within their
power as may be reasonably necessary to cause the Merger to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, except to the
extent such performance or failure would be prohibited by law.
6.8. EXPENSES. The parties shall pay their own fees and expenses
(including legal and accounting fees) incurred in connection with this
transaction.
6.9. MATERIAL EVENTS. At all times prior to the Closing Date, each
party shall promptly notify the other in writing of the occurrence of any event
which will or may result in the failure to satisfy the conditions specified in
Section VI or Section VII of this Reorganization Agreement.
6.10. PUBLIC ANNOUNCEMENTS. At all times until after the Closing Date,
neither LSB nor CFC shall issue or permit any of its respective subsidiaries,
affiliates, officers, directors or employees to issue any press release or other
information to the press with respect to this Reorganization Agreement, without
the express prior consent of the other party, except as may be required by law
or the policies of NASDAQ.
6.11. PEARSON EMPLOYMENT CONTRACT. At Closing, CFC will pay to Wayne
Pearson under his existing employment contract (except as may be modified by
mutual agreement of CFC and Wayne Pearson), the amounts payable to him
thereunder upon a "change in control," at which time, Mr. Pearson shall resign
from all positions with LSB.
6.12. DIRECTOR COMPENSATION. For the three years following Closing, CFC
shall offer the directors of LSB positions as advisory board members of the LSB
branches and, in such capacity, pay them $400 per meeting attended, for a
minimum of 13 meetings per year. CFC will keep in place the currently existing
directors' non-qualified retirement plan and deferred compensation plan.
SECTION VII. CONDITIONS TO CFC'S OBLIGATION TO CLOSE
The obligation of CFC and CFB to consummate the transactions
contemplated in this Reorganization Agreement is subject to the satisfaction of
the following conditions at or before the Closing Date:
7.1. PERFORMANCE OF ACTS AND REPRESENTATIONS BY LSB. Each of the acts
and undertakings of LSB to be performed on or before the Closing Date pursuant
to the terms of this Reorganization Agreement shall have been duly authorized
and duly performed, and each of the representations and warranties of LSB set
forth in this Reorganization Agreement shall be true in all material respects on
the Closing Date, except as to transactions contemplated by this Reorganization
Agreement.
7.2. OPINION OF COUNSEL FOR LSB. LSB shall have furnished CFC with an
opinion of its counsel, dated as of the Closing Date, and in form and substance
reasonably satisfactory to CFC and its counsel, to the effect that, except as
disclosed herein: (i) LSB is duly organized, validly existing and in good
standing under the laws of South Carolina; (ii) the consummation of the
transactions contemplated by this Reorganization Agreement will not (A) violate
any provision of LSB's Articles of Incorporation or Bylaws, (B) violate any
provision of, result in the termination of, or result in the acceleration of any
obligation under, any mortgage, lien, lease, franchise, license, permit,
agreement, instrument, order, arbitration award, judgment or decree known to
counsel to which LSB is a party, or by which it is bound, except as such would
not, in the aggregate, have a material adverse effect on the business or
financial condition of LSB, except as disclosed on schedules to the
Reorganization Agreement, or (C) violate or conflict with any other restriction
of any kind or character of which such counsel has knowledge and to which LSB is
subject; (iii) all of the shares of LSB Common Stock are validly authorized and
issued, fully paid and non-assessable; (iv) LSB has the legal right and power,
and all authorizations and approvals required by law, to enter into this
Reorganization Agreement, and to consummate the transactions contemplated
herein; (v) LSB has full corporate power and authority to enter into this
Reorganization Agreement, and this Reorganization Agreement has been duly
authorized, executed and delivered by LSB and constitutes a valid and legally
binding obligation of LSB enforceable against LSB in accordance with its terms,
except as such enforceability may be limited by (x) 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, (y) laws relating to the safety and soundness of
depository institutions, and (z) general principles of equity; and (vi) to the
best knowledge
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of such counsel, no material suit or proceeding is pending or threatened against
LSB or other parties which would have a material adverse effect on LSB's
business or properties or its abilities to make the representations and
warranties and perform the obligations set forth herein.
7.3. CONDUCT OF BUSINESS. The business of LSB shall have been conducted
in the usual and customary manner, and there shall have been no material adverse
change in the business or financial condition of LSB from the date hereof
through the Closing Date.
7.4. CONSENTS. All permits, orders, consents, or other authorizations
necessary, in the reasonable opinion of counsel for CFC, to the consummation of
the transactions contemplated hereby shall have been obtained, and no
governmental agency or department or judicial authority shall have issued any
order, writ, injunction or decree prohibiting the consummation of the
transactions contemplated hereby. Approvals of all applicable regulatory
agencies shall have been obtained without the imposition of any condition or
requirements that, in the reasonable judgment of CFC, renders the consummation
of this transaction unduly burdensome.
7.5. CERTIFICATE. CFC shall have been furnished with such certificates
of officers of LSB and/or such certificates of LSB shareholders, in form and
substance reasonably satisfactory to CFC, dated as of the Closing Date,
certifying to such matters as CFC may reasonably request, including but not
limited to the fulfillment of the conditions specified in this Section VII.
7.6. DUE DILIGENCE. CFC shall have completed a due diligence
investigation of LSB, the results of which shall be reasonably satisfactory to
CFC.
7.7. PEARSON EMPLOYMENT CONTRACT. Upon payment to Mr. Pearson as
contemplated in Section 6.11 above, Mr. Pearson shall have resigned from all
positions with LSB and released CFC and LSB from all liability associated with
his employment with LSB and the transactions contemplated herein.
SECTION VIII. CONDITIONS TO THE OBLIGATION OF LSB TO CLOSE
The obligation of LSB to consummate the transactions contemplated in
this Reorganization Agreement is subject to the satisfaction of the following
conditions at or before the Closing Date:
8.1. PERFORMANCE OF ACTS AND REPRESENTATIONS BY CFC AND CFB. Each of
the acts and undertakings of CFC and CFB to be performed on or before the
Closing Date pursuant to the terms of this Reorganization Agreement shall have
been duly authorized and duly performed, and each of the representations and
warranties of CFC and CFB set forth in this Reorganization Agreement shall be
true in all material respects on the Closing Date, except as to transactions
contemplated by this Reorganization Agreement.
8.2. OPINION OF COUNSEL FOR CFC. CFC shall have furnished LSB with an
opinion of its counsel, dated as of the Closing Date, and in form and substance
reasonably satisfactory to LSB and its counsel, to the effect that, except as
disclosed herein: (i) CFC and CFB are duly organized, validly existing and in
good standing under the laws of the State of South Carolina; (ii) the
consummation of the transactions contemplated by this Reorganization Agreement
will not (A) violate any provision of CFC's or CFB's Articles of Incorporation
or Bylaws, (B) violate any provision of, result in the termination of, or result
in the acceleration of any obligation under, any mortgage, lien, lease,
franchise, license, permit, agreement, instrument, order, arbitration award,
judgment or decree known to counsel to which CFC or CFB is a party, or by which
it is bound, except as such would not, in the aggregate, have a material adverse
effect on the business or financial condition of CFC, or (C) violate or conflict
with any other restriction of any kind or character of which such counsel has
knowledge and to which CFC or CFB is subject; (iii) all of the shares of CFC
Common Stock to be issued in connection with the Merger will be, when issued,
validly authorized and issued, fully paid and non-assessable; (iv) CFC and CFB
have the legal right and power, and all authorizations and approvals required by
law, to enter into this Reorganization Agreement, and to consummate the
transactions contemplated herein; (v) CFC and CFB have full corporate power and
authority to enter into this Reorganization Agreement, and this Reorganization
Agreement has been duly authorized, executed and delivered by CFC and CFB and
constitutes a valid and legally binding obligation of CFC and CFB enforceable
against CFC and CFB in accordance with its terms, except as such enforceability
may be limited by (x) 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,
(y) laws relating to the safety and soundness of depository institutions, and
(z) general principles of equity; and (vi) to the best knowledge of such
counsel, no material suit or proceeding is pending or threatened against CFC or
other parties which would have a material adverse effect on CFC's business or
properties or its abilities to make the representations and warranties and
perform the obligations set forth herein.
8.3. CONDUCT OF BUSINESS. There shall have been no material casualty or
material adverse change in the business or financial condition of CFC from the
date hereof through the Closing Date.
8.4. CONSENTS. All permits, orders, consents, or other authorizations
necessary, in the reasonable opinion of counsel for LSB, to the consummation of
the transactions contemplated hereby shall have been obtained, and no
governmental agency or department or judicial authority shall have issued any
order, writ, injunction or decree prohibiting the consummation of the
transactions contemplated hereby. Approvals of all applicable regulatory
agencies shall have been obtained without the imposition of any condition or
requirements that, in the reasonable judgment of LSB, renders the consummation
of this transaction unduly burdensome.
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8.5. CERTIFICATE. LSB shall have been furnished with such certificates
of officers of CFC, in form and substance reasonably satisfactory to LSB, dated
as of the Closing Date, certifying to such matters as LSB may reasonably
request, including but not limited to the fulfillment of the conditions
specified in this Section VIII.
8.6. TAX OPINION. LSB shall have received from Wyche, Burgess, Freeman
& Parham, P.A. a tax opinion, reasonably satisfactory to LSB, opining, subject
to reasonable qualifications, that the Merger shall, upon compliance with
reasonable conditions, qualify as a tax-free reorganization under Section 368(a)
of the Code.
8.7. FAIRNESS OPINION. The Board of Directors of LSB shall have
received a fairness opinion from a reputable investment banking firm, which
opinion shall be reasonably acceptable to LSB.
8.8. SHAREHOLDER APPROVALS. The Shareholder Approvals shall have been
obtained.
8.9. DUE DILIGENCE. LSB shall have completed a due diligence
investigation of CFC, the results of which shall be reasonably satisfactory to
LSB.
8.10. PEARSON EMPLOYMENT CONTRACT. Upon payment to Mr. Pearson as
contemplated in Section 6.11 above, Mr. Pearson shall have resigned from all
positions with LSB and released CFC and LSB from all liability associated with
his employment with LSB and the transactions contemplated herein.
SECTION IX. TERMINATION
9.1. TERMINATION. This Reorganization Agreement may be terminated at
any time prior to the Closing Date:
(a) by mutual consent of the parties;
(b) by either CFC or LSB, 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
contemplated herein;
(c) by either CFC or LSB 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 to the consolidated businesses of either CFC or LSB
and the breaching party must be given notice of the failure to comply
and a reasonable period of time to cure;
(d) by either CFC or LSB as set forth in Section 2.2 hereof.
(e) by either party if the average of the closing sales price
of CFC Common Stock for the thirty consecutive trading days immediately
prior to second business day prior to the Closing Date shall be less
than $12.58 per share or greater than $19.67 per share.
9.2. EFFECT OF TERMINATION. In the event of termination of this
Reorganization Agreement by either CFC or LSB as provided above, this
Reorganization Agreement shall forthwith become void and there shall be no
liability hereunder on the part of CFC or LSB, or their respective officers or
directors, except for intentional breach. In the event this Reorganization
Agreement is terminated, any agreements between the two parties as to
Confidential Information shall survive such termination.
SECTION X. INDEMNIFICATION
10.1. INFORMATION FOR APPLICATION AND STATEMENTS. Each of CFC and LSB
represents and warrants that all information concerning it which is or will be
included in any statement and application made to any governmental agency
(including the Registration Statement) in connection with the transactions
contemplated by the Agreement shall be true and correct in all material respects
and shall not omit any material fact required to be stated therein or necessary
to make the statements made, in light of the circumstances under which they were
made, not misleading. Each of CFC and LSB so representing and warranting will
indemnify and hold harmless the other, each of its directors and officers, who
controls the other within the meaning of the Securities Act, from and against
any and all losses, claims, damages, expenses or liabilities to which any of
them may become subject under applicable laws and rules and regulations
thereunder and will reimburse them for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any actions
whether or not resulting in liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any such
application or statement or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing by the representing and
warranting party expressly for use therein. Each of CFC and LSB agrees, at any
time upon the request of the other, to furnish to the other a written letter or
statement confirming the accuracy of the information contained in any proxy
statement, registration statement, report or other application or statement, or
in any draft of any such document, and confirming that the information contained
in such document or draft was furnished expressly for use therein or, if such is
not the case, indicating the inaccuracies contained in such document or draft or
indicating the information not furnished expressly for use therein. The
indemnity agreement contained in this Section X shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
the other party.
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10.2. INDEMNIFICATION OF OFFICERS AND DIRECTORS. CFC covenants and
agrees that it will cause each person who is an officer or director of LSB (an
"indemnitee") on the Closing Date to be indemnified for any and all claims and
liabilities arising out of such person's service as an officer or director of
LSB to the maximum extent that a South Carolina corporation is permitted by law
to indemnify or insure its officers and directors, including indemnification for
the cost of defending such claims as well as any liability resulting therefrom.
Except for expenses associated with claims described in the immediately
succeeding sentence (and including, in particular, expenses associated with any
claims or threatened or actual litigation between indemnitees and CFC), CFC,
upon request of such indemnitees, shall advance expenses in connection with such
indemnification, provided that such advancement need be made if and only to the
extent that such advancement would have been proper under Section 33-8-530 if
such indemnitees had been directors or officers of CFC. Notwithstanding the
foregoing or anything to the contrary herein, this indemnification shall not
cover any breach of a LSB director's duty of loyalty or duty of care which
breach shall have caused a breach of this Reorganization Agreement by LSB. The
provisions of this Section X shall survive the closing and shall be enforceable
directly by each officer and director of LSB benefited by this Section X.
SECTION XI. MISCELLANEOUS
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and covenants contained in this Reorganization Agreement or in any
other documents delivered pursuant hereto, shall survive the Closing of the
transactions contemplated hereby for one year. Notwithstanding any investigation
made by or on behalf of the parties, whether before or after Closing Date, the
parties shall be entitled to rely upon the representations and warranties given
or made by the other party(ies) herein.
11.2. ENTIRE AGREEMENT. This Reorganization Agreement, including any
schedules, exhibits, lists and other documents referred to herein which form a
part hereof, 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.
11.3. BINDING AGREEMENT. This Reorganization 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.
11.4. NOTICES. Any notice given hereunder shall be in writing and shall
be deemed delivered and received upon reasonable proof of receipt. Unless
written designation of a different address is filed with each of the other
parties hereto, notice shall be transmitted to the following addresses:
For CFC: William S. Hummers III
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
Copy to: William P. Crawford, Jr.
Wyche, Burgess, Freeman & Parham, P.A.
Post Office Box 728
Greenville, South Carolina 29602
For LSB: L. Wayne Pearson
Lowcountry Savings Bank, Inc.
Lowcountry Lane
Mt. Pleasant, South Carolina 29464
Copies to: George S. King, Jr.
Sinkler & Boyd, P.A.
Post Office Box 11889
Columbia, South Carolina 29211
11.5. COUNTERPARTS. This Reorganization 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.
11.6. HEADINGS. The section and paragraph headings contained in this
Reorganization Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretations of this Reorganization Agreement.
11.7. LAW GOVERNING. This Reorganization Agreement shall be governed by
and construed in accordance with the laws of the State of South Carolina.
11.8. AMENDMENT. This Reorganization Agreement may not be amended
except by an instrument in writing signed on behalf of all of the parties.
11.9. WAIVER. Any term, provision or condition of this Reorganization
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.
END OF PAGE
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IN WITNESS WHEREOF, this Reorganization Agreement has been duly entered
as of the date first written above.
Witnesses CAROLINA FIRST CORPORATION
/s/ By: /s/
William S. Hummers III
/s/ Executive Vice President
Witnesses CAROLINA FIRST BANK
/s/ By: /s/
William S. Hummers III
/s/ Executive Vice President and Cashier
LOWCOUNTRY SAVINGS BANK, INC.
/s/ By: /s/
L. Wayne Pearson
/s/ Chief Executive Officer
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APPENDIX A
PLAN OF MERGER
OF
LOWCOUNTRY SAVINGS BANK, INC.
WITH AND INTO
CAROLINA FIRST BANK
Pursuant to this Plan of Merger (the "Plan of Merger"), Lowcountry
Savings Bank, Inc. ("LSB"), a state savings association existing under the laws
of South Carolina, shall be acquired by Carolina First Corporation ("CFC"), a
corporation existing under the laws of the State of South Carolina, by the
merger of LSB with and into Carolina First Bank ("CFB"), a banking corporation
existing under the laws of the State of South Carolina and a wholly-owned
subsidiary of CFC.
ARTICLE I. DEFINITIONS
The capitalized terms set forth below shall have the following
meanings:
1.1. "Articles of Merger" shall mean the Articles of Merger to be
executed by CFC, CFB and LSB in a form appropriate for filing with the Secretary
of State of South Carolina, relating to the effective consummation of the Merger
as contemplated by the Plan of Merger.
1.2. "CFC Common Stock" shall mean the common stock, par value $1.00
per share, of CFC.
1.3. "Conversion Ratio" shall mean the number of shares of CFC Common
Stock issuable in exchange for one share of LSB Common Stock, as calculated
pursuant to Section 3.1 hereof.
1.4. "Dissenting Shareholder" shall mean the holder of shares of LSB
Common Stock who has made a timely demand for payment of the fair value of his
or her shares by the effective exercise of dissenters' rights in the manner
provided in ss.33-13-101 ET SEQ. of the South Carolina Business Corporation Act
of 1988, as amended.
1.5. "Effective Time" shall mean the date and time which the Merger
becomes effective as more particularly set forth in Section 2.2 hereof.
1.6. "Merger" shall mean the merger of LSB with and into CFB as more
particularly set forth herein and in the Reorganization Agreement.
1.7. "Fair Market Value" shall mean, with respect to the CFC Common
Stock for a particular day in question, the average of the closing prices as
quoted on the Nasdaq National Market for that particular day and the immediately
preceding 29 trading days.
1.8. "Options" shall mean all outstanding obligations, commitments,
options, warrants or other securities set forth on Schedule 3.4 of the
Reorganization Agreement which are exercisable for or convertible into, or which
require the issuance of, shares of any class of capital stock of LSB.
1.9. "OTS" shall mean the Office of Thrift Supervision.
1.10. "Reorganization Agreement" shall mean the Agreement and Plan of
Reorganization among CFC, CFB and LSB dated the date hereof, to which this Plan
of Merger is attached as Appendix A.
1.11. "Shareholder Approvals" shall mean, as the context may require,
the duly authorized written consent of CFC to the merger of LSB with and into
CFB and the approval by the requisite vote of the shareholders of LSB at the
Shareholders' Meeting of the merger of LSB with and into CFB, all in accordance
with the Reorganization Agreement and this Plan of Merger.
1.12. "Shareholders' Meeting" shall mean the meeting of the
shareholders of LSB at which the Merger shall be voted upon.
1.13. "Surviving Corporation" shall mean CFB after consummation of the
Merger.
ARTICLE II. THE MERGER
2.1. MERGER. Subject to the terms and conditions set forth in the
Reorganization Agreement, unless effectively waived as provided therein, and in
accordance with all applicable laws, regulations and regulatory requirements, at
the Effective Time, LSB shall be merged with and into CFB. CFB shall be the
Surviving Corporation of the Merger and shall continue to be governed by the
laws of the State of South Carolina.
2.2. EFFECTIVE TIME. The Merger shall become effective on the date and
at the time specified in the Articles of Merger, and in the form to be filed
with the Secretary of State of the State of South Carolina.
2.3. CAPITALIZATION. The number of authorized shares of capital stock
of the Surviving Corporation shall be the same as immediately prior to the
Merger.
2.4. ARTICLES OF INCORPORATION. The articles of incorporation of CFB as
in effect at the Effective Time shall be and remain the articles of
incorporation of the Surviving Corporation.
2.5. BYLAWS. The Bylaws of CFB, as in effect at the Effective Time,
shall continue in full force and effect as the bylaws of the Surviving
Corporation until otherwise amended as provided by law or by such bylaws.
2.6. PROPERTIES AND LIABILITIES OF LSB AND CFB. At the Effective Time,
the separate existence and corporate organization of LSB shall cease, and CFB
shall thereupon and thereafter, to the extent consistent with applicable law and
with its articles of incorporation and the changes, if any, provided by the
Merger, possess all the rights, privileges, immunities, liabilities and
franchises, of a public as well as a private nature, of LSB without further act
or deed.
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ARTICLE III. CONSIDERATION
3.1. TOTAL CONSIDERATION. In connection with the Transaction, each
share of LSB Common Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be exchanged for and converted into merger consideration
equal to $14.75 per share (the "Merger Consideration"). Forty percent (40%) of
the aggregate Merger Consideration shall be paid in the form of cash (the "Cash
Consideration") and 60% shall be paid in the form of CFC Common Stock (the
"Stock Consideration").
3.2. STOCK CONSIDERATION. The Stock Consideration shall be based upon a
valuation of CFC Common Stock at $15.729 per share, which results in an exchange
ratio of .938 shares of CFC Common Stock for each share of LSB Common Stock (the
"Exchange Ratio"). The Exchange Ratio shall be subject to adjustment as follows:
In the event that the Fair Market Value of CFC Common Stock two business days
before closing is above $17.29 or below $14.17, the Exchange Ratio shall be
recalculated using such Fair Market Value, except that the maximum value that
shall be assigned to CFC common stock shall be $19.67 and the minimum value that
shall be assigned to CFC common stock shall be $12.58.
3.3. ELECTION OF LSB SHAREHOLDERS REGARDING MERGER CONSIDERATION. Each
LSB shareholder shall be given the opportunity to make one of three elections
with respect to the composition of his Merger Consideration:
(1) A shareholder may elect to receive all the Merger
Consideration in the form of cash ("Cash Shareholders");
(2) A shareholder may elect to receive 50% of the Merger
Consideration in the form of cash, and 50% in the form of CFC
Common Stock ("Cash-Stock Shareholders"); or
(3) A shareholder may elect to receive all the Merger
Consideration in the form of CFC Common Stock ("Stock
Shareholders").
A holder of LSB Common Stock may make only one election with respect to all the
shares of LSB Common Stock held of record by such holder; provided, however,
that for purposes of this section, each separate account maintained on the stock
transfer books of LSB shall be deemed to be a separate holder.
3.4. PRIORITY OF LSB SHAREHOLDERS REGARDING CASH CONSIDERATION. (a) The
priority of the LSB shareholders with respect to the Cash Consideration will be
as follows:
(1) Cash Shareholders will be paid in all cash to the extent of
the aggregate Cash Consideration (which aggregate Cash
Consideration is subject to diminution by virtue of LSB
shareholders perfecting dissenters' rights as provided below)
or, if the Cash Consideration is over-subscribed, pro rata
among the Cash Shareholders, with the balance of the Merger
Consideration payable to such Cash Shareholders being paid in
the form of CFC Common Stock.
(2) Any portion of the Cash Consideration remaining after payment
of the Cash Shareholders shall be allocated pro rata to the
Cash-Stock Shareholders up to a maximum of 50% of the Merger
Consideration to be paid to the Cash-Stock Shareholders (with
the balance of the Merger Consideration to be paid to the
Cash-Stock Shareholders being paid in the form of CFC Common
Stock).
(3) Any portion of the Cash Consideration remaining after payment
of all cash due the Cash Shareholders and the Cash-Stock
Shareholders will be allocated pro rata among the Stock
Shareholders.
(b) CFC shall be entitled to reduce the Cash Consideration
by $14.75 for each share held by LSB shareholders who perfect dissenters'
rights. After determination of the Merger Consideration payable to each LSB
shareholders as contemplated above, CFC may, at its sole election, elect to
pay any LSB Shareholder who is only entitled to receive less than 10 shares of
CFC Common Stock, cash equal to the Fair Market Value of such shares, in lieu
of such shares.
(c) The initial allocation of Cash Consideration and Stock
Consideration will be made immediately following the close of business on the
15th business day after Closing based upon the elections received at that time.
Thereafter, allocations will be made semi-monthly for six times based on
elections received, after which time the remaining Cash Consideration and Stock
Consideration will be allocated pro rata with respect to all shares of
Lowcountry common stock for which no elections have been received.
3.5. CFB COMMON STOCK. None of the shares of CFB shall be converted in
the Merger and the capitalization of CFB after the Merger shall remain
unchanged.
3.6. TREASURY SHARES. Any and all shares of LSB Common Stock held as
treasury shares by LSB shall be canceled and retired at the Effective Time, and
no consideration shall be issued or given in exchange therefor.
3.7. FRACTIONAL SHARES. No fractional shares of CFC Common Stock will
be issued as a result of the Merger. In lieu of the issuance of fractional
shares pursuant to Section 3.1 hereof, cash will be paid to the holders of the
LSB Common Stock in respect of any fractional share that would otherwise be
issuable based on the Fair Market Value of the CFC Common Stock on the last
trading day immediately preceding the Effective Time.
3.8. EQUITABLE ADJUSTMENTS. In the event of any change in the
outstanding CFC Common Stock by reason of a stock dividend, stock split, stock
consolidation, recapitalization, reorganization, merger, split up or the like,
the Conversation Ratio, all stock prices set forth in this Section 3, and the
number and kind of shares under
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option in the Options and the option price of such Options shall be
appropriately adjusted so as to preserve, but not increase, the benefits of this
Plan of Merger to the LSB Shareholders and the holders of the Options.
ARTICLE IV. EXCHANGE OF COMMON STOCK CERTIFICATES
4.1. ISSUANCE OF CFC CERTIFICATES; CASH FOR FRACTIONAL SHARES. After
the Effective Time, each holder of shares of LSB Common Stock issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to CFC or its transfer agent, and shall
promptly upon surrender receive in exchange therefor the consideration provided
in Section 3.1 of this Plan of Merger. To the extent required by Section 3.4 of
this Plan of Merger, each holder of shares of LSB Common Stock issued and
outstanding at the Effective Time also shall receive, upon surrender of the
certificate or certificates representing such shares, cash in lieu of any
fractional share of CFC Common Stock to which such holder might be entitled.
4.2. AUTHORIZED WITHHOLDINGS. CFC shall not be obligated to deliver the
consideration to which any former holder of LSB Common Stock is entitled as a
result of the Merger until such holder surrenders his or her certificate or
certificates representing the shares of LSB Common Stock for exchange as
provided in this Article IV, or, in default thereof, an appropriate affidavit of
loss and indemnity agreement and/or a bond as may be reasonably required in each
case by CFC or LSB. In addition, no dividend or other distribution payable to
the holders of record of CFC Common Stock as of any time subsequent to the
Effective Time shall be paid to the holder of any certificate representing
shares of LSB Common Stock issued and outstanding at the Effective Time until
such holder surrenders such certificate for exchange as provided in Section 4.1
above. However, upon surrender of the LSB Common Stock certificate both the CFC
Common Stock certificate, together with all such withheld dividends or other
distributions and any withheld cash payments in respect of fractional share
interest, but without any obligation for payment of interest by such
withholding, shall be delivered and paid with respect to each share represented
by such certificate.
4.3. LIMITED RIGHTS OF FORMER LSB SHAREHOLDERS. After the Effective
Time, each outstanding certificate representing shares of LSB Common Stock prior
to the Effective Time shall be deemed for all corporate purposes (other than
voting and the payment of dividends and other distributions to which the former
shareholder of LSB Common Stock may be entitled) to evidence only the right of
the holder thereof to surrender such certificate and receive the requisite
number of shares of CFC Common Stock in exchange therefor as provided in this
Plan of Merger.
ARTICLE V. STOCK OPTIONS
5.1. OPTIONS. At the Effective Time, all of the Options shall, after
the Effective Date, represent only the right to receive shares of CFC Common
Stock based on the Conversion Ratio. In addition, the term of the Options shall
be extended such that they shall expire 10 years from the Closing Date.
ARTICLE VI. MISCELLANEOUS
6.1. CONDITIONS PRECEDENT. Consummation of the Merger is conditioned
upon receipt of the Shareholder Approvals. In addition, consummation of the
Merger is conditioned upon the fulfillment of the conditions precedent set forth
in Section VII and Section VIII of the Reorganization Agreement, subject to
waiver of any such conditions, if appropriate, as provided thereunder.
6.2. TERMINATION. This Plan of Merger may be terminated at any time
prior to the Effective Time as provided in Section IX of the Reorganization
Agreement.
6.3. AMENDMENTS. To the extent permitted by law, this Plan of Merger
may be amended by a subsequent writing signed by all of the parties hereto upon
the approval of the board of directors of each of the parties hereto; provided,
however, that this Plan of Merger may not be amended after the Shareholders'
Meeting except in accordance with applicable law.
Dated as of this _____ day of _______________, 1997.
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EXHIBIT B
CHAPTER 13
DISSENTER'S RIGHTS
ARTICLE 1
Right to Dissent and Obtain Payment for Shares
SS. 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33- 13-102 and who exercises that
right when and in the manner required by Sections 33-13-200
through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. The value of the
shares is to be determined by techniques that are accepted
generally in the financial community.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans
or, if none, at a rate that is fair and equitable under all the
circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a nominee
certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SS. 33-13-102. RIGHT TO DISSENT.
A shareholder is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event of any of the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by
Section 33-11-103 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the
corporation is a subsidiary that is merged with its parent under
Section 33-11-104 or 33-11-108 or if the corporation is a parent
that is merged with its subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares are to be
acquired, if the shareholder is entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and
regular course of business, if the shareholder is entitled to
vote on the sale or exchange, including a sale in dissolution,
but not including a sale pursuant to court order or a sale for
cash pursuant to a plan by which all or substantially all of the
net proceeds of the sale must be distributed to the shareholders
within one year after the date of sale;
(4) an amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's shares
because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking
fund for the redemption or repurchase, of the shares;
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(iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder to
a fraction of a share if the fractional share so created
is to be acquired for cash under Section 33-6-104; or
(5) the approval of a control share acquisition under Article 1 of
Chapter 2 of Title 35;
(6) any corporate action to the extent the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
SS. 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if he dissents with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE 2
Procedure for Exercise of Dissenters' Rights
SS. 33-13-200. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
SS. 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) must give to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and (2) must not vote his shares in favor of
the proposed action. A vote in favor of the proposed action cast by the holder
of a proxy solicited by the corporation shall not disqualify a shareholder from
demanding payment for his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this chapter.
SS. 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after the
corporate action was taken and must:
(1) state where the payment demand must be sent and where
certificates for certificated shares must be deposited;
2
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(2) inform holders of uncertificated shares to what extent transfer
of the shares is to be restricted after the payment demand is
received;
(3) supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the
terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not he
or, if he is a nominee asserting dissenters' rights on behalf of
a beneficial shareholder, the beneficial shareholder acquired
beneficial ownership of the shares before that date;
(4) set a date by which the corporation must receive the payment
demand, which may not be fewer than thirty nor more than sixty
days after the date the subsection (a) notice is delivered and
set a date by which certificates for certificated shares must be
deposited, which may not be earlier than twenty days after the
demand date; and
(5) be accompanied by a copy of this chapter.
SS. 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.
SS. 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section 33-13-
260.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
SS. 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment,
an income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available
interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of
the shares and an explanation of how the fair value was
calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenters' right to demand additional
payment under Section 13-33-280; and
(5) a copy of this chapter.
SS. 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
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procedure.
SS. 33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by Section 33-13-250
from a dissenter as to any shares of which he (or the beneficial owner on whose
behalf he is asserting dissenters' rights) was not the beneficial owner on the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action,
unless the beneficial ownership of the shares devolved upon him by operation of
law from a person who was the beneficial owner on the date of the first
announcement.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after taking the proposed corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
SS. 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due and demand payment of
his estimate (less any payment under Section 33-13-250) or reject the
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section 33-13-250
or offered under Section 33-13-270 is less than the fair value
of his shares or that the interest due is calculated
incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or to
offer payment under Section 33-13- 270 within sixty days after
the date set for demanding payment; or
(3) corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty days
after the date set for demanding payment.
(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
ARTICLE 3
Judicial Appraisal of Shares
SS. 33-13-300. COURT ACTION.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of the
county where the corporation's principal office (or, if none in this State, its
registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any
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amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
SS. 33-13-310. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 33-13-280.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not comply substantially
with the requirements of Sections 33-13-200 through 33-13-280;
or
(2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or
not in good faith with respect to the rights provided by this
chapter.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by the dissenters to enforce the liability
under Section 33-13-300(a) of a corporation that has failed to commence an
appraisal proceeding within the sixty-day period, the court shall assess the
costs of the proceeding and the fees and expenses of dissenters' counsel against
the corporation and in favor of the dissenters.
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EXHIBIT C
Board of Directors
Lowcountry Savings Bank, Inc.
875 Lowcountry Boulevard
Mount Pleasant, SC 29464
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of shares of common stock (the "LSB Common Stock")
of Lowcountry Savings Bank, Inc. ("LSB") of the consideration to be received by
such stockholders in the Merger (the "Merger") of LSB with Carolina First
Corporation ("CFC"), pursuant to the Reorganization Agreement dated March 14,
1997 (the "Agreement"). Unless otherwise noted, all terms used herein shall have
the same meaning as defined in the Agreement.
As more specifically set forth in the Agreement, and subject to a
number of conditions and procedures described in the Agreement, in the Merger
each of the issued and outstanding shares of LSB Common Stock shall be converted
into merger consideration equal to $14.75 per share (the "Merger
Consideration"). Forty percent (40%) of the aggregate Merger Consideration shall
be paid in the form of cash (the "Cash Consideration") and 60% shall be paid in
the form of CFC Common Stock (the "Stock Consideration"). The Stock
Consideration shall be based upon a valuation of CFC Common Stock at $15.729 per
share, which results in an exchange ratio of .938 shares of CFC Common Stock for
each share of LSB Common Stock (the "Exchange Ratio"). The Exchange Ratio shall
be subject to adjustment as follows: In the event that the Fair Market Value of
CFC Common Stock two business days before closing is above $17.29 or below
$14.17, the Exchange Ratio shall be recalculated using such Fair Market Value,
except that the maximum value that shall be assigned to CFC Common Stock shall
be $19.67 and the minimum value shall be $12.58. All unexercised options for the
right to purchase shares of LSB Common Stock shall be exchanged for CFC options
based on the Exchange Ratio. The term of the options shall be extended to expire
ten years from the closing date.
Trident Financial Corporation ("Trident") is a financial consulting and
investment banking firm experienced in the valuation of business enterprises
with considerable experience in the valuation of thrift institutions. Trident is
not affiliated with LSB or CFC.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following: (i) the Agreement; (ii) certain
publicly available information concerning LSB, including the audited financial
statements of LSB for each of the years in the three year period ended September
30, 1996 and unaudited financial statements for the three months ended December
31, 1996; (iii) certain publicly available information concerning CFC, including
the audited financial statements of CFC for each of the years in the three year
period ended December 31, 1996 and unaudited financial statements for the three
months ended March 31, 1997; (iv) certain other internal information, primarily
financial in nature, concerning the business and operations of LSB and CFC
furnished to us by LSB and CFC for purposes of our analysis; (v) information
with respect to the limited trading market for LSB Common Stock; (vi)
information with respect to the trading market for CFC Common Stock; (vii)
certain publicly available information with respect to other companies that we
believe to be comparable to LSB and CFC and the trading markets for such other
companies' securities; and (viii) certain publicly available information
concerning the nature and terms of other transactions that we believe relevant
to our inquiry. We have also met with certain officers and employees of LSB and
CFC to discuss the foregoing as well as other matters we believe relevant to our
inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available. We have not
attempted independently to verify any such information. We have not conducted a
physical inspection of the properties or facilities of LSB or CFC, nor have we
made or obtained any independent evaluations or appraisals of any of such
properties or facilities. We did not specifically evaluate LSB's or CFC's loan
portfolio or the
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adequacy of LSB's or CFC's reserves for possible loan losses.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial condition and results of operations of LSB
and CFC, including interest income, interest expense, net interest income, net
interest margin, interest sensitivity, non-interest expenses, earnings,
dividends, book value, return on assets, return on equity, capitalization, the
amount and type of non-performing assets and the reserve for loan losses; (ii)
the business prospects of LSB and CFC; (iii) the economy in LSB's and CFC's
market areas; (iv) the historical and current market for CFC Common Stock and
for the equity securities of certain other companies that we believe to be
comparable to CFC; and (v) the nature and terms of certain other acquisition
transactions that we believe to be relevant. We have also taken into account our
assessment of general economic, market, financial and regulatory conditions and
trends, as well as our knowledge of the thrift industry, our experience in
connection with similar transactions, and our knowledge of securities valuation
generally. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof. Our opinion is, in any event, limited to
the fairness, from a financial point of view, of the consideration to be
received by the holders of LSB Common Stock in the Merger and does not address
LSB's underlying business decision to effect the Merger.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received by the holders of LSB Common Stock in the Merger is
fair, as of the date hereof, from a financial point of view, to such holders.
This opinion is being delivered to the Board of Directors of LSB for
its use and is not to be reproduced, disseminated or delivered to any third
party without the express written consent of Trident Financial Corporation,
except as required by law.
This opinion will be updated prior to the consummation of the Proposed
Merger.
Very truly yours,
TRIDENT FINANCIAL CORPORATION
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EXHIBIT D
CONDENSED SUMMARY OF EARNINGS
CAROLINA FIRST BANK
(UNAUDITED)
<TABLE>
<CAPTION>
Years Ended December 31,
(dollars in thousands)
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income........................... $ 42,988 $ 61,975 $ 100,770 $ 114,195
Interest expense.......................... 18,546 24,996 49,301 56,732
-------- --------- --------- ---------
Net interest income...................... 24,442 36,979 51,469 57,463
Provision for loan losses 1,006 1,096 6,718 9,787
--------- --------- --------- ---------
Net interest income after provision
for loan losses....................... 23,436 35,883 44,751 47,676
--------- --------- --------- ---------
Noninterest income........................ 5,906 5,784 16,136 17,682
Noninterest expenses...................... 23,145 45,174 44,457 46,399
--------- --------- --------- ---------
Income (loss) before
income taxes.......................... 6,197 (3,507) 16,430 18,959
Income taxes.............................. 1,841 (1,000) 5,827 7,016
-------- ---------- --------- ---------
Net income (loss)....................... $ 4,356 $ (2,507) $ 10,603 $ 11,943
========= ========== ========== ==========
</TABLE>
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CONDENSED BALANCE SHEET
CAROLINA FIRST BANK
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
(dollars in thousands)
1995 1996
---- ----
<S> <C> <C>
Assets:
Cash and due from banks ............................. $ 75,604 $ 86,312
Interest-earning deposits with banks ................ 8,663 26,037
Investment securities ............................... 176,352 243,182
Loans 1,065,039 1,123,006
Less unearned income.............................. (6,101) (12,731)
Less allowance for loan losses.................... (8,535) (11,146)
------------- -------------
Net loans....................................... 1,050,403 1,099,129
Premises and equipment............................... 40,150 32,211
Other assets......................................... 54,800 65,540
------------- -------------
Total assets............................................ $ 1,405,972 $ 1,552,411
============= =============
Liabilities and stockholders' equity:
Liabilities
Deposits
Noninterest-bearing............................ $ 160,490 $ 194,685
Interest bearing............................... 936,751 1,092,583
------------ ------------
Total deposits............................... 1,097,241 1,287,268
Borrowed funds....................................... 181,532 128,228
Other liabilities.................................... 11,041 15,193
------------- -------------
Total liabilities................................. 1,289,814 1,430,689
------------ ------------
Total stockholders' equity.............................. 116,158 121,722
------------- ------------
Total liabilities and stockholders' equity.............. $ 1,405,972 $ 1,552,411
============= ============
</TABLE>
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CONDENSED BALANCE SHEET
CAROLINA FIRST CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
(dollars in thousands)
1995 1996
---- ----
<S> <C> <C>
Assets:
Cash and due from banks ............................. $ 75,770 $ 86,322
Interest-earning deposits with banks ................ 8,663 26,037
Investment securities ............................... 178,366 245,359
Loans ............................................... 1,069,716 1,138,986
Less unearned income.............................. (7,056) (14,211)
Less allowance for loan losses.................... (8,661) (11,290)
------------- -------------
Net loans....................................... 1,053,999 1,113,485
Premises and equipment............................... 40,320 32,418
Other assets......................................... 57,804 70,583
------------ -------------
Total assets............................................ $ 1,414,922 $ 1,574,204
============= =============
Liabilities and stockholders' equity:
Liabilities
Deposits
Noninterest-bearing............................ $ 160,394 $ 194,067
Interest bearing............................... 935,097 1,086,983
------------ ----------
Total deposits............................... 1,095,491 1,281,050
Borrowed funds....................................... 213,136 171,631
Other liabilities.................................... 11,328 16,559
------------- -------------
Total liabilities................................. 1,319,955 1,469,240
------------ ------------
Total stockholders' equity.............................. 94,967 104,964
------------- ------------
Total liabilities and stockholders' equity ............. $ 1,414,922 $ 1,574,204
============= =============
</TABLE>
3
D-3
<PAGE>
CONDENSED SUMMARY OF EARNINGS
CAROLINA FIRST CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
Years Ended December 31,
(dollars in thousands)
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income........................... $ 53,965 $ 75,769 $ 101,750 $ 116,872
Interest expense.......................... 24,607 32,509 50,978 59,802
------ ------ --------- ---------
Net interest income...................... 29,358 43,260 50,772 57,070
Provision for loan losses 1,106 1,197 6,846 10,263
-------- --------- --------- ----------
Net interest income after provision
for loan losses....................... 28,252 42,063 43,926 46,807
------ ------ --------- ---------
Noninterest income........................ 6,765 8,226 17,326 21,341
Noninterest expenses...................... 27,294 51,839 46,882 51,675
-------- ------ --------- ---------
Income (loss) before
income taxes........................ 7,723 (1,550) 14,370 16,473
Income taxes.............................. 2,305 190 4,956 5,999
-------- ------ --------- ---------
Net income (loss)....................... 5,418 (1,740) 9,414 10,474
Dividends on preferred stock............. 1,930 2,433 2,752 63
-------- -------- -------- -------
Net income (loss) applicable
to common shareholders............... $ 3,488 $ (4,173) $ 6,662 $ 10,411
========== =========== ========= ==========
</TABLE>
4
D-4
