<PAGE>
(Background photo of South Carolina state flag)
(logo)
CAROLINA FIRST
1997 Annual Report
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Net Income Per Common Share
($ per share)
(Bar graph appears here with the following plot points.)
93 94 95 96 97
$0.63 $0.76* $0.84 $0.92 $1.18
5-Year Compound Growth Rate: 28%
*Excluding 1994 restructuring charges.
Asset Growth
($ in billions)
(Bar graph appears here with the following plot points.)
93 94 95 96 97
$0.9 $1.2 $1.4 $1.6 $2.2
5-Year Compound Growth Rate: 28%
Contents
Financial Highlights inside cover
We are South Carolina 1
Letter to Shareholders 2
Lines of Business 6
Five-Year Financial Summary 12
Management's Discussion and Analysis 13
Report of Independent Auditors 23
Report of Management 23
Consolidated Financial Statements 24
Notes to Consolidated Financial
Statements 28
Directory 46
Shareholder Information 48
Financial Highlights
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Percent
1997 1996 Change
.......................................................................................
<S> <C> <C> <C>
Per Common Share
Net income-diluted $ 1.18 $ 0.92 28.3%
...........................................
Net income-diluted, before SAIF
special assessment 1.18 0.99 19.2
...........................................
Cash dividends declared 0.29 0.25 16.0
...........................................
Book value 12.88 9.26 39.1
...........................................
Common stock closing market price (Nasdaq) 21.50 16.15 33.1
...........................................
For the Year
Total revenue $ 155,321 $ 138,213 12.4%
...........................................
Net income 14,340 10,474 36.9
...........................................
After-tax SAIF special assessment (in 1996) -- 746 n/m
...........................................
Net income, before SAIF special assessment 14,340 11,220 27.8
...........................................
At Year End
Total assets $2,156,346 $1,574,204 37.0%
...........................................
Loans-net of unearned income 1,602,415 1,124,775 42.5
...........................................
Deposits 1,746,542 1,281,050 36.3
...........................................
Shareholders' equity 201,659 104,964 92.1
...........................................
Market capitalization 336,676 182,244 84.7
...........................................
Financial Ratios
Return on average assets 0.84% 0.71%
...........................................
Return on average equity 11.62 10.56
...........................................
Asset Quality Ratios
Nonperforming assets as a % of loans and
other real estate owned 0.23% 0.52%
...........................................
Allowance for loan losses times
nonperforming loans 6.62x 3.94x
...........................................
Operations Data
Banking offices 65 55
...........................................
Number of ATMs 39 30
...........................................
Full-time equivalent employees 709 609
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We are South Carolina.
From the coast to the mountains, South Carolina is vibrant with entrepreneurial
energy. It's an energy that Carolina First not only understands, but thrives on.
We are driven to feed that energy, to nourish the people in our State who create
that energy, and to do so with boundless commitment.
This Annual Report presents the results of that commitment. And you can be
certain that as you read these pages, the people of Carolina First are out
there, across the State, putting our customers' interests first and delivering
on our promise to be the bank that puts South Carolina first.
CORPORATE PROFILE
Carolina First Corporation, headquartered in Greenville, South Carolina, is the
largest independent bank holding company in South Carolina with $2.2 billion in
assets, $337 million in market capitalization and 65 banking offices throughout
the State. Since its inception in 1986, the Company has experienced exceptional
growth and consistently excellent credit quality. Carolina First is a
high-growth franchise based on the "super community bank" strategy serving
individuals and small-to medium-sized businesses.Through its subsidiaries,
Carolina First provides a full range of banking services designed to meet
substantially all of the financial needs of its customers.
The subsidiaries are Carolina First Bank (CFB), a state-chartered
commercial bank; Carolina First Mortgage Company (CFMC), a mortgage banking
operation; Blue Ridge Finance Company, a finance company; and CF Investment
Company, a small business investment company. CFB is the largest South
Carolina-based commercial bank, and CFMC is the second largest mortgage loan
servicer in South Carolina.
Carolina First also has bank technology investments, owning approximately
17% of the common stock of Affinity Technology Group, Inc. (a developer and
marketer of automated lending technologies) and approximately 18% of the common
stock of NetB@nk, Inc. (one of the first on-line, real-time Internet banks).
CAROLINA FIRST CORPORATION 1 1997 ANNUAL REPORT
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(logo)
To Our Shareholders
(Photo of Mack I. Whittle, Jr.)
Mack I. Whittle, Jr.
President and Chief Executive Officer
Pictured in front of the historic Poinsett Hotel,
currently being renovated, in Greenville, South Carolina.
We are South Carolina. From the founding of Carolina First in 1986, we were
determined to become the premier bank in South Carolina. We wanted a significant
presence in every market of choice in the State. To get there, Carolina First
had to be built with growth in mind. And so, growth has always been an integral
part of our culture --a focus that we believe serves your best interest as a
shareholder.
This focus on growth has delivered exceptional results. Carolina First's
assets, loans and deposits have all grown at compound rates in excess of 20% per
year over Carolina First's lifetime. Carolina First has the distinction of
holding more than $2 billion in assets and having a market capitalization of
more than $335 million, even though we are only a little more than 11 years old.
We have become South Carolina's premier bank. So it is with pride that we
celebrate our growth, and the dynamic State that has made it possible, with this
Annual Report's theme: "We are South Carolina."
Our earnings have grown along with assets, loans and deposits. During each
of the last eight years, our operating earnings have increased. This year we
attained a record net income of $14.3 million, or $1.18 per diluted common
share. Over the latest five-year period, Carolina First's earnings per share
have grown at an annualized rate of 28%.
Carolina First's market capitalization at the end of 1997 was more than
$335 million -- a growth of 85% since the end of 1996. This increase had two
primary components. First, Carolina First issued additional shares of common
stock in connection with the Lowcountry Savings Bank, Inc. and First Southeast
Financial Corporation mergers. Second, our market price per share rose 33%
during the year. The 1997 year was a banner year for bank stocks, and Carolina
First was no exception. We are receiving a great deal of attention from the
investment community, and we believe that Carolina First's size (in total assets
and market
CAROLINA FIRST CORPORATION 2 1997 ANNUAL REPORT
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capitalization) makes us more visible to potential investors. The liquidity of
our stock, as measured by trading volume, was among the highest in our peer
group; such increased trading is an advantage to all of our shareholders.
1997 was a successful year by other measures as well. Credit quality
continues to be one of Carolina First's greatest accomplishments. Our ratio of
nonperforming assets to loans was 0.23% at December 31, 1997. Our philosophy is
that superior knowledge of our State and our customers gives us a tremendous
advantage over banks that make credit decisions based solely on "the numbers."
Finally, the Board of Directors increased the quarterly cash dividend by
14%, to $0.08 per share. With this December 17, 1997 increase, Carolina First
continued its record of increasing its cash dividend every year since the
inception of cash dividends five years ago. The annual compounded increase has
been approximately 18%.
These financial performance figures tell only a part of the story of Carolina
First's continuing drive for excellence in South Carolina. We are proud of the
many services we have rendered to our shareholders, our customers and the State
of South Carolina over the past year.
GROWTH IN SOUTH CAROLINA
"We are South Carolina." With the completion of two successful mergers -- one in
the Low Country, the other in the Upstate -- Carolina First exemplified its
commitment to growth, service and recognition of market opportunities.
Lowcountry Savings Bank, with assets of $80 million and 5 branches in the
Low Country, fit well with our strategy of expansion in profitable markets like
Charleston.
First Southeast added $350 million in assets and 13 branches as we
solidified our presence in the Upstate. With this acquisition, Carolina First is
now the market share leader in the very desirable Anderson County market.
Anderson, located along the Interstate 85 corridor between Atlanta and
Charlotte, is the fourth largest metropolitan statistical area in South
Carolina.
Of course, acquisitions are about service as well as synergy. We are
particularly proud of how smoothly the operations of these newly acquired
entities were integrated into the Carolina First family. In both cases,
operations and data processing conversions took place over a weekend, with the
new branches opening under the Carolina First banner the first business day
after closing the merger transaction.
The phenomenal growth in our loans has continued. Our total loan volume
increased by more than 42% in 1997. We are particularly encouraged by our
internal loan growth -- that is, loan growth adjusted for loan purchases and
sales -- which increased 35% during the year. This growth comes from a number of
factors: experienced and talented lenders, Carolina First's emphasis on
fostering flexible and creative banking relationships, the prosperous South
Carolina economy, and the agility and responsiveness that allows us to win and
keep customers.
Deposits have grown along with loans; in recent years, Carolina First's
deposits have grown far faster than the South Carolina average. We believe this
performance flows from our strategy of maintaining branches in the areas of
greatest opportunity. As part of that focus, in the spring of 1997 we divested
ourselves of five branches that did not fit into our strategy, in markets that
could be better served by another South Carolina-based financial institution.
And that strategy is serving us well. Average deposits per branch continue to
rise, increasing 15% in 1997 to close the year at $28.5 million. We are striving
to continue this trend of improving the efficiency of our branch network. In
February 1998, we entered into an agreement to sell an additional three
branches. Our growth will be disciplined, concentrating on markets with the
greatest potential.
Carolina First now has more than 6% of the total banking market in South
Carolina and ranks sixth in total deposit market share. In many ways, and across
the
CAROLINA FIRST CORPORATION 3 1997 ANNUAL REPORT
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State, we continue to grow and prosper in tandem with South Carolina.
BANKING ON TECHNOLOGY
One of the biggest obstacles in the banking industry is the inability of some
bankers to embrace change. Like our many dynamic customers in South Carolina, we
are not content to let change happen around us. We are committed to adding value
for our shareholders, and to changing the face of banking, by innovative
investments in technology that are designed to avoid large financial risks.
Carolina First assisted in the development of Atlanta Internet Bank -- one
of the first on-line, real-time Internet banks in the world -- which opened in
the fall of 1996 as a service of Carolina First Bank. Following an initial
public offering in July 1997, Carolina First now owns approximately 18% of the
common stock of Net.B@nk, Inc., the parent company of Atlanta Internet Bank.
This investment appears on Carolina First's year-end balance sheet at its book
value of $1 million. However, its market value at the same date was roughly $14
million.
Carolina First also continues to hold common stock of Affinity Technology
Group, Inc. Affinity develops and markets automated lending technologies. In
December 1997, Carolina First exercised a portion of the warrant it holds for
Affinity stock, acquiring 2,400,000 shares, which were recorded in investments
at its year-end market value of about $6 million. Carolina First continues to
hold an unexercised portion of the warrant, which does not appear on the balance
sheet, and which has a year-end value of about $9 million.
Our commitment to banking technology received another boost in September
with the licensing by the Small Business Administration of our subsidiary, CF
Investment Company, as a Small Business Investment Company. CF Investment
Company's goal is to invest in small businesses that are in the bank technology
business. These are businesses that we understand and that we expect will
develop products that we can use to help serve our customers. We also believe
that these investments will create long-term value for Carolina First and its
shareholders.
We believe in using technology to know and serve our customers better. We
at Carolina First know that innovation is a key to prosperity.
FOCUS ON THE CUSTOMER
We will not forget who made us the largest independent bank in South Carolina --
our customers. "Putting customers first" is what sets Carolina First apart. Our
purpose is to bring our customers creative, flexible, reliable and timely
solutions for their business and personal needs.
We are proud of the variety of products we offer
Five-Year Return to Shareholders
(Assumes initial investment of $1,000 with reinvestment of dividends.)
(Graph appears here with the following plot points.)
92 93 94 95 96 97
$1,000 $1,071 $1,227 $1,627 $1,822 $2,436
Compound Annual Growth Rate: 1-Year: 35%; 3-Year: 28%; 5-Year: 20%
CAROLINA FIRST CORPORATION 4 1997 ANNUAL REPORT
<PAGE>
and are convinced that many of our customers would do even more business with us
if they were fully aware of all Carolina First can do for them. Our goal is to
reach these customers in 1998. We will use the marketing information at our
fingertips to expand our relationships with existing customers.
Our customers demand convenience, and the challenge for us is to satisfy
that demand at a reasonable cost. We seek to do this by delivering services
through a variety of means: telephone banking, grocery store banking, workplace
banking and personal computer-based banking.
Our commitment is to use these technological enhancements to provide
customers with increased convenience and a wider range of alternatives, but
never as a substitute for the high level of personal service that is our
trademark.
SERVING SOUTH CAROLINA'S COMMUNITIES
Our commitment to South Carolina's communities is fundamentally different from
that of the out-of-state banks doing business in South Carolina. A central part
of our strategy is the reinvestment of local funds into South Carolina
communities, promoting local economic growth. This fall, Carolina First Bank
received its third consecutive "outstanding" rating (the highest level
attainable) under federal community reinvestment regulations. Carolina First was
also recognized in 1998 as the top producer in South Carolina for the "Main
Street Investment Program," a program designed to promote the growth of existing
small businesses and assist in the start-up of new businesses.
We are proud of the things we have done to enhance the business environment
and quality of life in the communities we serve. During 1997, two new major
downtown office building developments -- one in Columbia and one in Greenville
- -- were announced. Carolina First is a lead participant in both developments; we
think it is important to be at the forefront of opportunities to boost the
downtown vitality in two major South Carolina cities. Carolina First continues
to be a significant supporter of cultural arts in our local communities. In
1997, Carolina First was recognized with a national award for its Habitat for
Humanity project in Georgetown, which added affordable housing and sparked
economic development. And we are extending our focus to future generations of
South Carolinians through sponsorship of programs like the "Carolina First
Palmetto's Finest," which recognizes excellence in South Carolina's public
schools.
We are South Carolina. Our State is thriving because of its commitment to
sensible and diversified growth. Carolina First will continue to thrive because
it has the same commitment. We have recently completed a private offering which
raised approximately $40 million in new capital. These funds will allow Carolina
First to continue to take advantage of attractive acquisition possibilities
without sacrificing internal growth strategies. Growth is a part of the way we
do business, and one of our key principles is to ensure that we have the capital
and the infrastructure in place to support additional growth.
These are exciting times in South Carolina. We have grown to $2 billion in
assets in just 11 years. That is a fast pace, but we like being at the head of
the pack. We are privileged to serve shareholders who share that preference, and
we thank you for your continued support. We look forward to the challenge of
leading South Carolina banking in 1998 and beyond.
/s/ Mack I. Whittle, Jr.
Mack I. Whittle, Jr.
President and Chief Executive Officer
CAROLINA FIRST CORPORATION 5 1997 ANNUAL REPORT
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(Full page photo)
"To serve an entrepreneur like Sam,
you've got to be a bit of one yourself," says Jim Terry,
President of Carolina First Bank.
"When we see a need, we respond."
----------
Sam Turrentine, along with older brother, Bill, steers a business on the move.
At Smith Dray Line, Greenville, SC standing still is not an option.
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South Carolina's Business Bank
From the hauling of freight by horse and wagon almost a century ago, to the
electronic warehousing of digital information today, the roots of innovation
run deep at family-owned Smith Dray Line.
In the past five years, Smith Dray Line has grown its business over 300%,
expanding to seven offices supporting one-half million square feet of warehouses
in the Carolinas and a fleet of over 70 vans. The firm operates five hard-copy
record centers while its new electronic data storage company, ITS, serves a
client base ranging from Fortune 500 companies to small, local businesses.
"We needed a bank that could keep up with us," says Sam Turrentine who
drives the business along with his older brother, Bill. In search of a more
personal and responsive banking relationship, Mr. Turrentine called Jim Terry,
President of Carolina First Bank.
When stress fractures develop between mega-regional banks and their
clients, Carolina First is uniquely positioned to deliver the necessary products
and services, but with a markedly different attitude. "Business clients find
themselves face-to-face with seasoned decision makers," explains Mr. Terry.
"When you've got 20 years of experience you can simply respond faster and
smarter. The machinations are invisible to the customer. All he or she knows is
this is working."
The opportunity inherent in the digital storage area of Mr. Turrentine's
business caught the attention of CF Investment Company, a small business
investment company. CF Investment makes equity investments in bank technologies
that could give Carolina First an edge in the industry and deepen customer
relationships. ITS is itself now a valued business partner.
In addition, Carolina First is an investor in Affinity Technology Group,
Inc., which develops and markets consumer lending technologies, and in Net.B@nk,
Inc., one of the first on-line, real-time Internet banks.
Mr. Terry says that to serve an entrepreneur like Mr. Turrentine you've got
to be a bit of one, too. He points to the establishment of an international
banking department as another case in point. Now two years old, it serves as a
door opener to global opportunities for local small to mid-size businesses.
Noting that few banks the size of Carolina First provide direct international
services, Mr. Terry says, "We saw a need, and we responded."
But it's not enough to do just the big things right, cautions Mr. Terry.
For instance, Carolina First mails statements on the first day following a
calendar month-end, giving business clients accurate and important information
for monthly planning.
From corporate cash management, investments, lending, investment and trust
services to international expertise, Carolina First is South Carolina's
business bank.
Our goal is to forge a
business relationship that
helps both parties grow.
Our experience helps us
develop creative, flexible,
reliable and timely solu-
tions for our customers'
business needs.
(Photo)
CAROLINA FIRST CORPORATION 7 1997 ANNUAL REPORT
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(Full page photo)
"Our relationship with Carolina First just
couldn't be any better," says Howard Lavin.
"Many of our customers are repeat customers,
like Gwen, mainly because we show her how
much we appreciate her business.
Carolina First has always shown us that
same appreciation."
----------
Since 1995, Howard Lavin has exclusively recommended Carolina First automobile
loans to clients like Gwendolyn Parrish. Mr. Lavin, whose family owns and
operates Lavin Cars in Myrtle Beach, SC, credits a streamlined credit approval
process for his enthusiasm.
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South Carolina's Consumer Bank
Howard Lavin was not surprised to learn that Carolina First consumer loan volume
rose 12.5% over 1996. In fact, he's part of the reason. When Gwendolyn Parrish
fell for a mini van on his lot, she didn't really care where her loan
originated. But Mr. Lavin did. He's one of a network of over one hundred dealers
responsible for generating high quality automobile loans through Carolina
First. Since 1995, his company has recommended Carolina First products
exclusively to its mid-to-upper income clients.
"Howard didn't just sell me a car, he sold me on Carolina First, too," says
Mrs. Parrish whose husband, Tommy, just happens to carry a Carolina First credit
card.
Charged with selling the rest of South Carolina's banking public on our
full range of consumer banking products and services is Roger Bower, Director of
Retail Banking for Carolina First. "Our aim is to be the total banking solution
for the people of this State," he says. "We want the checking account, the car
loan, the credit card, the mortgage, the equity line, the whole banking
relationship." And the bank is doing it, Mr. Bower explains, one customer and
one service at a time.
In addition to 65 banking offices (including seven full-service in-store
locations) situated in high-growth markets, and with a full complement of
drive-through facilities and ATMs, Carolina First is also taking advantage of a
rapidly expanding array of technology-driven delivery systems.
"We have to be where and when our customer wants us," explains Mr. Bower,
alluding to home banking by phone, work place banking, on-line banking, and
automated loan machines. But, he sounds a cautionary note. "We feel it is unwise
to penalize people who want to bank the traditional way," he warns, referring to
the recent habit some competitors have developed for levying service charges on
customers who prefer a face-to-face meeting to automation.
Mr. Bower calls the punitive practice shortsighted and points out, "A
machine is just not as effective at expanding a banking relationship as any one
of our people." Carolina First chooses instead to let customers gravitate
naturally to the delivery system of their choice. The strategy appears to be
working. Deposits have risen 15% at Carolina First, easily outpacing the 4%
average for other financial institutions operating in the State.
"Our relationship with Carolina First just couldn't be any better," says
Mr. Lavin who also does his business and personal banking with Carolina First.
"Many of our customers are repeat customers, like Gwen, mainly because we show
her how much we appreciate her business," he continues. "Carolina First has
always shown us that same appreciation."
We will continue to grow as South Carolina's consumer bank -- one customer
at a time.
Carolina First is taking
advantage of efficient
new delivery systems,
but not at the expense of
customer preferences.
"We feel it is unwise
to penalize people who
want to bank the
traditional way."
(Photo)
CAROLINA FIRST CORPORATION 9 1997 ANNUAL REPORT
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(Full page photo)
"You must seek out what your customer
wants and provide it," says Mrs. Wang whose
restaurant, Miyo's, was named Best of Columbia.
"Carolina First does this also."
----------
Michelle and Yong Wang of Columbia, SC financed their home and a condominium
through Carolina First. "I do not like to borrow money, but I trust the people
at Carolina First," she says.
<PAGE>
(logo)
South Carolina's Mortgage Bank
In Columbia, East increasingly meets West at Miyo's, a wildly popular restaurant
recently voted Best of Columbia by devotees of the fine art of Chinese cuisine
as presented by Michelle Wang. Her success, she explains, is in giving customers
what they want. She calls it designer dining. Customers can order from the menu
or design their own dish, selecting from over 30 sparkling fresh vegetables and
a choice of impeccably fresh seafood, beef, or chicken.
The concept proved so successful that Mrs. Wang and her husband, Yong, made
the move to buy their first home. Mr. Yong, a concert violinist finishing his
degree at USC, already had a checking account with Carolina First. That, coupled
with positive feedback about the bank from friends and family, led to a meeting
with mortgage lending officer, Toby Goodlett.
Given the vagaries of the restaurant business, the Wangs had no idea what
they might be able to afford. Mr. Goodlett was able to help. "His judgment was
very wise," said Mrs. Wang. "He listened to me and offered the best advice
without question. I don't like to borrow money, but I trust Carolina First."
It didn't hurt the Wang's cause that Mr. Goodlett and his wife are frequent
diners at Miyo's. "They both love the chicken with vegetables and General Tsao
sauce," confides Mrs. Wang.
So pleased were the Wangs with the initial mortgage package, that when they
purchased a condominium to provide housing for employees of Miyo's, they relied
again on Mr. Goodlett and Carolina First.
"We don't have to force a customer to fit a cookie-cutter loan package,"
explains Joe Reynolds, President of Carolina First Mortgage Company. "Our people
have the depth of experience to be flexible when it makes sense to be, and we
have the technology to be super responsive." Mr. Reynolds feels flexibility is a
key reason the bank enjoys ever-deepening relationships with all its clients. In
fact, over 30% of retail loans originate as inside referrals, a testimony to the
importance of the total relationship concept.
With interest rates at near record lows and residential starts in the
State up 14% over a very strong 1996, and with retail bases in six high-growth
locations (Anderson, Greenville, Columbia, Charleston, Litchfield and Myrtle
Beach), growth in mortgage loan originations is dramatic. Still, management is
also fully engaged in developing other profitable areas of mortgage banking. For
instance, CFMC operates the second-largest mortgage servicing portfolio in the
State with $1.7 billion under contract.
But perhaps the most promising aspect of mortgage banking is its ability to
tell us more about customers like Mr. and Mrs. Wang. More detailed and reliable
information leads to more creative and profitable marketing solutions. And
that's one more reason we are South Carolina's mortgage bank.
Technology designed to
speed credit approval
coupled with experienced
loan officers and staff
gives Carolina First
Mortgage Company an
enviable origination-to-
close time of under 35
days and helps deliver
delinquency rates consis-
tently below average for
the Southeast.
(Photo)
CAROLINA FIRST CORPORATION 11 1997 ANNUAL REPORT
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Five-Year Financial Summary
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
..........................................................................................................................
INCOME STATEMENT DATA
Net interest income $ 66,706 $ 57,070 $ 50,772 $ 43,260 $ 29,358
.......................................................
Provision for loan losses 11,646 10,263 6,846 1,197 1,106
.......................................................
Noninterest income 19,615 21,341 17,326 8,226 6,765
.......................................................
Noninterest expenses (1) 52,243 51,675 46,882 51,839 27,294
.......................................................
Net income (loss) (1) 14,340 10,474 9,414 (1,740) 5,418
.......................................................
PER COMMON SHARE DATA (2)
Net income (loss) - basic (1) $ 1.19 $ 0.97 $ 0.89 $ (0.59) $ 0.63
.......................................................
Net income (loss) - diluted (1) 1.18 0.92 0.84 (0.59) 0.63
.......................................................
Book value (December 31) 12.88 9.26 7.61 6.61 7.70
.......................................................
Common stock closing market price
(December 31) 21.50 16.15 14.58 11.11 9.83
.......................................................
Cash dividends declared 0.29 0.25 0.21 0.17 0.04
.......................................................
BALANCE SHEET DATA (YEAR END)
Total assets $2,156,346 $1,574,204 $1,414,922 $1,204,350 $904,474
.......................................................
Loans - net of unearned income 1,602,415 1,124,775 1,062,660 923,068 623,646
.......................................................
Allowance for loan losses 16,211 11,290 8,661 6,002 6,679
.......................................................
Nonperforming assets 3,767 5,880 4,868 4,722 5,366
.......................................................
Total earning assets 1,935,651 1,396,171 1,249,689 1,059,455 814,579
.......................................................
Deposits 1,746,542 1,281,050 1,095,491 1,001,748 804,549
.......................................................
Long-term debt 39,119 26,442 26,347 1,162 1,274
.......................................................
Shareholders' equity 201,659 104,964 94,967 86,482 70,415
.......................................................
Market capitalization 336,676 182,244 160,227 121,168 87,949
.......................................................
BALANCE SHEET DATA (AVERAGES)
Total assets $1,701,958 $1,480,694 $1,269,757 $1,056,954 $782,551
.......................................................
Loans - net of unearned income 1,286,503 1,085,680 965,632 781,503 548,619
.......................................................
Total earning assets 1,546,238 1,320,658 1,130,245 941,155 711,138
.......................................................
Deposits 1,368,220 1,180,751 1,023,029 925,615 635,582
.......................................................
Shareholders' equity 123,358 99,186 90,242 87,377 65,518
.......................................................
FINANCIAL RATIOS
Return on average assets 0.84% 0.71% 0.74% (0.16)% 0.69%
.......................................................
Return on average equity 11.62 10.56 10.43 (1.99) 8.27
.......................................................
Net interest margin 4.36 4.35 4.54 4.65 4.16
.......................................................
ASSET QUALITY RATIOS
Nonperforming assets as a % of loans and other real
estate owned 0.23% 0.52% 0.46% 0.51% 0.86%
.......................................................
Allowance for loan losses times nonperforming
loans 6.62X 3.94x 3.67x 2.20x 2.69x
.......................................................
OPERATIONS DATA
Banking offices 65 55 55 51 42
.......................................................
Full-time equivalent employees 709 609 589 551 477
.......................................................
<CAPTION>
FIVE-YEAR
COMPOUND
GROWTH RATE
<S> <C>
.......................................................................
INCOME STATEMENT DATA
Net interest income 26.3%
.......................................................
Provision for loan losses 38.1
.......................................................
Noninterest income 36.7
.......................................................
Noninterest expenses (1) 22.6
.......................................................
Net income (loss) (1) 42.2
.......................................................
PER COMMON SHARE DATA (2)
Net income (loss) - basic (1) 28.5%
.......................................................
Net income (loss) - diluted (1) 28.3
.......................................................
Book value (December 31) 12.1
.......................................................
Common stock closing market price
(December 31) 18.6
.......................................................
Cash dividends declared --
.......................................................
BALANCE SHEET DATA (YEAR END)
Total assets 28.5%
.......................................................
Loans - net of unearned income 28.6
.......................................................
Allowance for loan losses 25.2
.......................................................
Nonperforming assets (7.7)
.......................................................
Total earning assets 28.3
.......................................................
Deposits 25.7
.......................................................
Long-term debt 81.2
.......................................................
Shareholders' equity 31.5
.......................................................
Market capitalization 38.5
.......................................................
BALANCE SHEET DATA (AVERAGES)
Total assets 24.8%
.......................................................
Loans - net of unearned income 24.4
.......................................................
Total earning assets 24.3
.......................................................
Deposits 23.5
.......................................................
Shareholders' equity 21.2
.......................................................
FINANCIAL RATIOS
Return on average assets
.......................................................
Return on average equity
.......................................................
Net interest margin
.......................................................
ASSET QUALITY RATIOS
Nonperforming assets as a % of loans and other real
estate owned
.......................................................
Allowance for loan losses times nonperforming
loans
.......................................................
OPERATIONS DATA
Banking offices
.......................................................
Full-time equivalent employees
.......................................................
</TABLE>
(1) Includes 1996 SAIF special assessment of $1,184 (pre-tax) and 1994
restructuring charges of $12,214 (pre-tax).
(2) Share data have been restated to reflect the stock dividends and stock
split.
CAROLINA FIRST CORPORATION 12 1997 ANNUAL REPORT
<PAGE>
(logo)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis are presented to assist in understanding
the financial condition and results of operations of Carolina First Corporation
and its subsidiaries (the "Company," except where the context requires
definition otherwise). This discussion should be read in conjunction with the
consolidated financial statements and accompanying notes presented elsewhere in
this report. Management's discussion and analysis contain forward-looking
statements that are provided to assist in the understanding of anticipated
future financial performance. However, such performance involves risks and
uncertainties which may cause actual results to differ materially from those in
such statements. For a discussion of certain factors that may cause such
forward- looking statements to differ materially from the Company's actual
results, see the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
OVERVIEW
The Company, which commenced banking operations in December 1986, currently
conducts business through 65 locations in South Carolina. The Company operates
through four subsidiaries: Carolina First Bank, a state-chartered commercial
bank; Carolina First Mortgage Company ("CF Mortgage"), a mortgage banking
operation; Blue Ridge Finance Company, Inc. ("Blue Ridge"), a consumer finance
company; and CF Investment Company ("CF Investment"), a small business
investment company. Through its subsidiaries, the Company provides a full range
of banking services designed to meet substantially all of the financial needs of
its customers. At December 31, 1997, the Company had approximately $2.2 billion
in assets, $1.6 billion in loans, $1.7 billion in deposits, $201.7 million in
shareholders' equity and $336.7 million in market capitalization.
On April 6, 1997, the Company completed the sale of five branches located
in Barnwell, Blackville, Salley, Springfield and Williston to The Bank of
Barnwell County, a wholly-owned subsidiary of Community Capital Corporation
("Community Capital"), headquartered in Greenwood, South Carolina. In connection
with this transaction, Carolina First Bank recorded a gain of $2.3 million, sold
loans of approximately $15 million and transferred deposits of approximately $55
million.
On July 18, 1997, the Company acquired Lowcountry Savings Bank, Inc., a
South Carolina-chartered savings bank headquartered in Mt. Pleasant, South
Carolina ("Lowcountry"), through the merger of Lowcountry into Carolina First
Bank. The Lowcountry transaction was accounted for as a purchase and resulted in
the payment of approximately $13 million for the outstanding shares of
Lowcountry common stock. Of this amount, approximately $4.8 million was paid in
cash, and approximately $8.2 million was paid in the form of 508,415 shares of
the Company's $1.00 par value common stock ("Common Stock"). At June 30, 1997,
Lowcountry operated through five locations in the Charleston area and had
approximately $80 million in assets, $73 million in loans and $64 million in
deposits. Three branches were subsequently consolidated to achieve operating
efficiencies.
On November 21, 1997, the Company acquired First Southeast Financial
Corporation ("First Southeast"), the holding company for First Federal Savings
and Loan Association of Anderson ("First Federal"), a thrift based in Anderson,
South Carolina. At September 30, 1997, First Southeast had approximately $350
million in assets, $275 million in loans and $285 million in deposits. First
Federal had 13 offices located in Anderson, Greenville, Greenwood and Abbeville
counties in South Carolina which were converted into Carolina First Bank offices
upon consummation of the merger. Two of Carolina First Bank's branches were
subsequently consolidated with two of First Federal's branches to achieve
operating efficiencies. In connection with such acquisition, 3,497,400 shares of
the Company's Common Stock valued (as of the closing date of the acquisition) at
approximately $70 million were exchanged for all outstanding shares of First
Southeast common stock. The transaction was accounted for using the purchase
method of accounting.
On February 13, 1998, the Company completed the sale of 2.0 million shares
of its Common Stock to certain overseas investors. The shares were offered and
sold only to non-U.S. persons under an exemption from registration provided by
Regulation S under the Securities Act of 1933. In connection with this offering,
the Company received net proceeds of approximately $39 million which will be
used to support internal growth, acquisitions, the expansion of its finance
subsidiary and for general corporate purposes.
In the first quarter of 1998, the Company signed a definitive agreement to
acquire Resource Processing Group, Inc. ("RPG"),
CAROLINA FIRST CORPORATION 13 1997 ANNUAL REPORT
<PAGE>
a credit card services company with total assets of approximately $18.5 million
and total equity of approximately $10.8 million. In connection with the merger,
the Company will issue to RPG's shareholders shares of Common Stock valued at
the time of closing at approximately $11.3 million. Substantially all of RPG's
activities are related to the origination and servicing of credit cards on
behalf of third parties, one of which is the Company. RPG does not have any
receivables associated with credit cards or other loans. At this time, no
assurance can be given as to whether this transaction will be consummated or, if
consummated, the precise terms thereof. The Company expects that the closing of
this transaction, if such occurs, will occur in the second quarter of 1998.
In February 1998, the Company announced the divestiture of three branches
located in Belton, Calhoun Falls and Honea Path, South Carolina with
approximately $45 million in deposits. The branches are being sold to Community
Capital. This transaction is scheduled to be completed in the second quarter of
1998 and is subject to regulatory approval, among other conditions.
EQUITY INVESTMENTS
Investment in Net.B@nk, Inc.
On July 31, 1997, Net.B@nk, Inc. ("Net.B@nk") completed its initial public
offering in which it sold 3,450,000 shares of its common stock. Net.B@nk owns
and operates the Atlanta Internet Bank, FSB ("Atlanta Internet Bank"), a
FDIC-insured federal savings bank that provides banking services to consumers
utilizing the Internet for their commercial and financial services. Carolina
First Bank assisted with the development of Atlanta Internet Bank, including
offering of Atlanta Internet Bank as a service of Carolina First Bank prior to
the completion of Net.B@nk's initial public offering. Upon consummation of the
offering, the Internet banking deposits of Carolina First Bank were transferred
to the Atlanta Internet Bank. In connection with such agreement, the Company was
issued 1,325,000 shares of Net.B@nk's common stock, 150,000 of which were sold
in the initial public offering as a selling shareholder for a net gain of
approximately $1.25 million.
The Company currently owns 1,175,000 shares of Net.B@nk common stock, or
approximately 18% of the outstanding shares. These shares are carried on the
Company's books (as securities available for sale) at a basis of approximately
$979,000. In connection with these transactions, the Company also received
approximately $2.1 million as reimbursement for funds invested in the start-up
of Net.B@nk. Under the terms of the Office of Thrift Supervision's approval of
Atlanta Internet Bank, certain affiliates of Net.B@nk, including the Company,
may not sell their shares in Net.B@nk until July 31, 2000.
Investment in Affinity Technology Group, Inc.
At December 31, 1997, the Company owned 2,528,366 shares
of common stock of Affinity Technology Group, Inc. ("Affinity") and a warrant to
purchase an additional 3,471,340 shares for approximately $0.0001 per share
("Affinity Warrant"). These Affinity shares and the shares represented by the
Affinity Warrant constitute approximately 17% of Affinity's outstanding common
stock. The investment in Affinity's common stock, included in securities
available for sale, was recorded at its market value of approximately $6
million. The Affinity Warrant was not reported on the Company's balance sheet as
of December 31, 1997.
On December 29, 1997, the Company exercised a portion of the Affinity
Warrant and was issued 2,400,000 shares of common stock of Affinity for an
exercise price of $226.
As a result of this exercise of the Affinity Warrant, total shareholders'
equity of the Company increased by approximately $3.8 million from recording the
unrealized gain (net of taxes) related to reporting the Affinity common stock
(classified as
Income Statement Review Summary of Changes
<TABLE>
<CAPTION>
($ in thousands) For the Years Ended December 31,
Change 1997 vs. 1996 Change 1996 vs. 1995
1997 $ % 1996 $ % 1995
...................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $66,706 $9,636 16.9% $57,070 $6,298 12.4% $50,772
..............................................................
Provision for loan losses 11,646 1,383 13.5 10,263 3,417 49.9 6,846
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 55,060 8,253 17.6 46,807 2,881 6.6 43,926
..............................................................
Noninterest income, excluding certain gains
and loan securitization income 14,687 1,584 12.1 13,103 2,264 20.9 10,839
..............................................................
Gains from sales of certain items 5,473 100 1.9 5,373 1,661 44.7 3,712
..............................................................
Loan securitization income (545) (3,410) (119.0) 2,865 90 3.2 2,775
..............................................................
Noninterest expenses, excluding nonrecurring items 52,243 2,339 4.7 49,904 3,515 7.6 46,389
..............................................................
Nonrecurring noninterest expenses -- (1,771) (100.0) 1,771 1,278 259.2 493
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 22,432 5,959 36.2 16,473 2,103 14.6 14,370
..............................................................
Income taxes 8,092 2,093 34.9 5,999 1,043 21.0 4,956
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $14,340 $3,866 36.9% $10,474 $1,060 11.3% $ 9,414
===================================================================================================================================
</TABLE>
CAROLINA FIRST CORPORATION 14 1997 ANNUAL REPORT
<PAGE>
securities available for sale) at its market value.
The Company's shares in Affinity and the shares issuable upon the exercise
of the Affinity Warrant are "restricted" securities, as that term is defined in
federal securities laws.
Investments in Community Banks
The Company has also made equity investments in five community banks in South
Carolina and North Carolina. In each case, the Company owns less than 5% of the
community bank's outstanding common stock. The Company has made these
investments to develop correspondent banking relationships and to promote
community banking in the Carolinas.
CF Investment Company
In September 1997, the Company's subsidiary, CF Investment, became licensed
through the Small Business Administration to operate as a Small Business
Investment Company. CF Investment will principally focus on companies that offer
bank-related products, technology or services. In 1997, the Company capitalized
CF Investment with a contribution of $3.0 million. CF Investment made its first
investment in December 1997 investing in ITS, Inc. ("ITS"), which specializes in
electronic document management. CF Investment has agreed to lend up to $1.2
million to ITS and has received a 49% equity ownership position.
EARNINGS REVIEW
Net income in 1997 increased 37% to a record level of $14.3 million, or $1.18
per diluted share, over 1996's net income of $10.5 million, or $0.92 per diluted
share (or a 28% increase over 1996's net income of $11.2 million, or $0.99 per
diluted share, excluding the one-time special Savings Association Insurance Fund
("SAIF") assessment). This reflected a 16.9% increase in net interest income and
a 9.1% increase in noninterest income excluding loan securitization income.
These increases were partially offset by significantly lower loan securitization
income and a higher provision for loan losses, which resulted primarily from
higher credit card charge-offs than those historically experienced. Contributing
to the 1997 increase in net interest income was a 17.1% increase in average
earning assets, reflecting strong loan growth.
Net Interest Income
The largest component of the Company's net income is Carolina First Bank's net
interest income. Net interest income is the difference between the interest
earned on assets and the interest paid for the liabilities used to support such
assets. Fully tax-equivalent net interest income adjusts the yield for assets
earning tax-exempt income to a comparable yield on a taxable basis. Fully
tax-equivalent net interest income increased $10.0 million, or 17%, to $67.4
million in 1997 from $57.4 million in 1996 and increased $6.0 million, or 12%,
in 1996 from $51.4 million in 1995. The increase resulted principally from a
higher level of average earning assets. The growth in average earning assets,
which increased $225.6 million, or 17%, to approximately $1.5 billion in 1997
from $1.3 billion in 1996 and $1.1 billion in 1995, resulted from an increase in
both loans and investment securities. Average loans, net of unearned income,
were $1.3 billion in 1997, $1.1 billion in 1996 and $965.6 million in 1995.
Average investment securities were $241.7 million, $214.4 million and $157.8
million in 1997, 1996 and 1995, respectively.
The net interest margin, defined as net interest income divided by average
earning assets was 4.36% in 1997, 4.35% in 1996 and 4.54% in 1995. The 1997 net
interest margin included the benefit of leverage from higher levels of
noninterest-bearing deposits associated with Carolina First Bank's agreement
with Net.B@nk to offer Atlanta Internet Bank as a service of Carolina First
Bank. These deposits were transferred to Atlanta Internet Bank on July 31, 1997
resulting in a $43 million decrease in noninterest-bearing deposits. The First
Southeast merger had an unfavorable impact on the margin in the fourth quarter
of 1997, which is expected to continue into 1998. The net interest margin for
the fourth quarter 1997 was 4.25%, the lowest level for the year and lower than
fourth quarter 1996's margin of 4.41%. Approximately 89% of First Southeast's
loans were mortgage loans, and 73% of total deposits were CDs or IRAs. Since the
yields on mortgage loans tend to be lower than commercial or consumer loans and
the rates paid on CDs and IRAs tend to be higher than those paid on transaction
accounts, the margin was negatively impacted. The Company plans to adjust the
mix in both of these portfolios going forward to more closely resemble a
commercial bank. The decrease in the margin from 1995 to 1997 was partially
attributable to a competitive deposit rate environment, which is expected to
continue. The Company's deposit markets have remained competitive with many
institutions, including the Company, running above-market promotions.
Provision for Loan Losses
The provision for loan losses was $11.6 million in 1997, $10.3 million in 1996
and $6.8 million in 1995. The higher 1997 and 1996 provisions for loan losses
reflected both loan growth and higher levels of net charge-offs, particularly in
credit cards. Net credit card charge-offs totaled $5.3 million in 1997 and $3.7
million in 1996, both of which were considerably higher than the level of
charge-offs historically experienced. The 1996 provision for loan losses also
included $1.3 million for fraudulent loans acquired in the acquisition of
Midlands National Bank, of which approximately $600,000 was recovered in 1997.
CAROLINA FIRST CORPORATION 15 1997 ANNUAL REPORT
<PAGE>
Management currently anticipates that loan growth will continue into 1998.
New market areas are expected to contribute to 1998 portfolio growth. Management
intends to monitor economic trends and the potential effect on Carolina First
Bank's loan portfolio.
Noninterest Income
Noninterest income decreased $1.7 million, or 8%, to $19.6 million in 1997 from
$21.3 million in 1996 and increased from $17.3 million in 1995. The decrease
from 1996 to 1997 was largely attributable to lower loan securitization income,
which declined $3.4 million as a result of higher credit card charge-offs
associated with the Company's securitized credit cards. This decrease was
partially offset by increases in service charge income, mortgage banking income
and fees for trust services.
Noninterest income in all three years included gains from asset sales. The
Company recognized gains on the sale of securities of $3.0 million, $973,000 and
$769,000 in 1997, 1996 and 1995, respectively. The securities gain in 1997
included $745,000 from the sale of ComSouth Bankshares, Inc. stock and
approximately $1.5 million from the sale of Net.B@nk stock. The securities gain
in 1996 included $587,000 from the disposition of equity investments (offset by
$587,000 recorded as compensation expense) related to the award of Affinity
stock to certain officers. Other significant gains from asset sales included: a
$2.3 million gain on the sale of branches in 1997, a $4.3 million gain on the
sale of sale of credit cards in 1996 and a $2.9 million gain on the sale of
mortgage servicing rights in 1995.
Service charges on deposit accounts, the largest contributor to noninterest
income, rose 8% to $7.0 million in 1997 from $6.5 million in 1996 and $5.5
million in 1995. The increase in service charges was attributable to attracting
new transaction accounts and improved collection results. In addition, effective
March 1, 1997, Carolina First Bank implemented increases in some of its existing
service charges.
During 1997, the Company had a net loss of $545,000 from its interests in
the credit card and commercial real estate loan trusts, compared with income of
$2.9 million in 1996 and $2.8 million in 1995. Loan securitization income is net
of charge-offs associated with the loans in the trusts. Loan securitization
income related to credit cards declined significantly to a loss of $992,000
during 1997, compared with income of $2.1 million in 1996 and income of $2.8
million in 1995. The loan securitization income was negatively impacted by
greater than expected charge-offs in the credit card securitization. At December
31, 1997, the off-balance-sheet balance in the credit card securitization was
approximately $84 million. The Company completed the securitization of
approximately $116 million in commercial real estate loans in March 1996.
Securitization income for the commercial real estate loan trust, which has not
experienced charge-off problems, totaled $447,000 in 1997 compared with $749,000
in 1996 and none in 1995. Total balances in the commercial real estate loan
trust decline as loans are paid off, resulting in lower income. At December 31,
1997, the off-balance-sheet balance in the commercial real estate loan trust was
approximately $41 million.
Mortgage banking income includes origination fees, gains from the sale of
loans and servicing fees (which are net of the related amortization for the
mortgage servicing rights and subservicing payments). Mortgage banking income in
1997 increased 23% to $3.4 million compared with $2.8 million in 1996 and $2.2
million in 1995. The increase was attributable to higher gains on the sale of
loans and higher origination income but was partially offset by lower servicing
income.
Average Yields and Rates
<TABLE>
<CAPTION>
(on a fully tax-equivalent basis)
1997 1996 1995 1994 1993
...................................................................................................................................
<S> <C> <C> <C> <C> <C>
Earning Assets:
Loans 9.36% 9.49% 9.60% 8.76% 8.44%
................................................................................
Securities 6.22 5.99 5.83 5.04 5.15
................................................................................
Short-term investments 5.61 6.36 6.35 3.84 3.10
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 8.82% 8.87% 9.05% 8.11% 7.62%
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing Liabilities:
Interest-bearing deposits 4.86% 4.74% 4.62% 3.73% 3.80%
................................................................................
Short-term borrowings 5.61 5.47 6.00 3.96 3.05
................................................................................
Long-term debt 9.67 9.47 9.50 9.25 8.66
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5.05% 4.94% 4.87% 3.75% 3.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (4.36% 4.35% 4.54% 4.65% 4.16%)
................................................................................
Prime Interest Rate 8.44% 8.27% 8.83% 7.14% 6.00%
................................................................................
</TABLE>
CAROLINA FIRST CORPORATION 16 1997 ANNUAL REPORT
<PAGE>
Income from originations and sales of mortgage loans, including sales of
loans originated by Carolina First Bank, totaled $3.0 million in 1997, up from
$1.9 million in 1996 and $2.1 million in 1995. The increase in 1997 resulted
from higher gains on mortgage loans sold as well as increased origination volume
resulting from the positive mortgage rate environment. Loans totaling
approximately $235 million, $172 million and $116 million were sold in 1997,
1996 and 1995, respectively.
CF Mortgage's mortgage servicing operations consist of servicing loans that
are owned by Carolina First Bank and subservicing loans, to which the rights to
service are owned by Carolina First Bank or other non-affiliated financial
institutions. At December 31, 1997, CF Mortgage was servicing or subservicing
20,187 loans having an aggregate principal balance of approximately $1.7
billion.
Servicing income from non-affiliated companies, net of the related
amortization for the mortgage servicing rights and subservicing payments, was
$374,000 in 1997 compared with $862,000 in 1996 and $96,000 in 1995. Although
the volume of loans serviced increased to $1.7 billion at December 31, 1997 from
$1.2 billion at December 31, 1996 and $1.3 billion at December 31, 1995, the
related amortization for the mortgage servicing rights increased due to
accelerated prepayments leading to a decline in servicing income. The servicing
income does not include the benefit of interest-free escrow balances related to
mortgage loan servicing activities.
Fees for trust services in 1997 of $1.4 million were 9% above the $1.3
million earned in 1996. Fees for trust services in 1995 were $1.0 million. At
December 31, 1997, Carolina First Bank's trust department had assets under
management of approximately $257 million. During 1997, the trust department
concentrated on improving the profitability of its accounts and elected to
terminate relationships and certain trust products.
Sundry noninterest income increased 13% to $2.9 million in 1997 compared
with $2.5 million in 1996 and $2.1 million in 1995. Sundry income in 1997
included a $649,000 gain on the sale of approximately $26 million of installment
and home equity loans to Net.B@nk.
Noninterest Expenses
Noninterest expenses increased $568,000, or 1%, to $52.2 million in 1997
compared with $51.7 million in 1996 and $46.9 million in 1995. In 1996,
noninterest expenses included $1.2 million for the one-time special SAIF
assessment and $587,000 as compensation expense related to a non-recurring award
of Affinity stock to certain officers of the Company. The 1995 noninterest
expenses included $493,000 in nonrecurring acquisition costs related to the
acquisitions of Aiken County National Bank and Midlands National Bank. Excluding
these non-recurring expense items, noninterest expenses increased $2.3 million,
or 5%, to $52.2 million in 1997 from $49.9 million in 1996 and $46.4 million in
1995. The increase in expenditures reflects the cost of operating in new markets
and operating the acquired branches, costs associated with the purchase of
additional automated teller machines ("ATMs") and higher advertising expenses
related to campaigns to attract new deposit balances.
Salaries and wages and employee benefits, excluding $587,000 in
non-recurring compensation expense in 1996, increased $1.5 million, or 6%, to
$26.1 million in 1997 from $24.6 million in 1996 and $22.1 million in 1995.
Full-time equivalent employees increased to 709 at December 31, 1997 from 609 at
December 31, 1996 and 589 at December 31, 1995. The staffing cost increases were
primarily due to the costs of expanding in existing and new markets (including
the Lowcountry and First Southeast acquisitions), back office
support functions to support growth, costs to support new retail banking
initiatives and the expansion of international product offerings.
Occupancy and furniture and equipment expenses increased $1.2 million, or
15%, to $9.2 million in 1997 from $8.0 million in 1996 and $7.4 million in 1995.
This increase resulted principally from additional costs associated with the
Lowcountry and First Southeast branches, the opening of a new Hilton Head office
in fourth quarter 1996 and the addition of fourteen new ATMs since the beginning
of 1996 (which increased the total number of ATMs to 39).
In connection with the acquisition of Lowcountry, which closed July 18,
1997, the Company recorded approximately $7.8 million in intangible assets ($7.2
million in goodwill and $0.6 million in core deposit intangibles). Approximately
$35.3 million in intangible assets ($34.6 million in goodwill and $0.7 million
in core deposit intangibles) were recorded in connection with the First
Southeast acquisition which closed on November 21, 1997. Intangible amortization
for the Lowcountry and First Southeast acquisitions led to approximately
$318,000 in additional intangible amortization during 1997. Intangible
amortization will be higher in 1998 as a result of the full-year impact of these
mergers.
Sundry noninterest expenses were $15.4 million in 1997, $15.4 million in
1996 and $15.6 million in 1995. Sundry noninterest expenses in 1997 included
additional costs associated with the Lowcountry and First Southeast mergers,
offset by reductions in legal fees and sundry item losses. In the third quarter
of 1996, the Company wrote off approximately $586,000 of a property held as
other real estate owned resulting in higher sundry item losses for that quarter.
The largest items of sundry non-interest expense were stationery, supplies,
printing, telephone and advertising.
CAROLINA FIRST CORPORATION 17 1997 ANNUAL REPORT
<PAGE>
Year End Loans
($ in millions)
(Bar graph appears here with the following plot points.)
93 94 95 96 97
$624 $923 $1,063 $1,125 $1,602
5-Year Compound Growth Rate: 28.6%
Year 2000
The Company recognizes that there is a business risk in computerized systems as
the calendar rolls over into the next century. If the computer systems
misinterpret the date, items such as interest calculations on loans and deposits
will be incorrect. This problem is commonly called the "Year 2000 Problem." A
number of computer systems used by the Company in its day-to-day operations will
be affected by this problem. Management has established a committee (the "Y2K
Project Team") which has identified all affected systems and is currently
working to ensure that this event will not disrupt operations. The Y2K Project
Team reports regularly to the Audit Committee of the Company's Board of
Directors. The Company is also working closely with all outside computer vendors
to ensure that all software corrections and warranty commitments are obtained
and to arrange mock conversion testing. The estimated cost to the Company for
these corrective actions is $250,000, all of which is included in the Company's
1998 budget. Incomplete or untimely compliance, however, would have a material
adverse effect on the Company, the dollar amount of which cannot be accurately
quantified at this time because of the inherent variables and uncertainties
involved.
BALANCE SHEET REVIEW
Loans
The Company's loan portfolio consists of commercial mortgage loans, commercial
loans, consumer loans and one-to-four family residential mortgage loans. A
substantial majority of these borrowers are located in South Carolina and are
concentrated in the Company's market areas. The Company has no foreign loans or
loans for highly leveraged transactions. The loan portfolio does not contain any
industry concentrations of credit risk exceeding 10% of the portfolio. At
December 31, 1997, the Company had total loans outstanding of $1.6 billion,
which equaled approximately 92% of the Company's total deposits and
approximately 74% of the Company's total assets. The composition of the
Company's loan portfolio at December 31, 1997 was as follows: commercial and
commercial mortgage 54%, residential mortgage 23%, consumer 10%, lease
receivables 6%, credit card 4% and construction 3%.
The Company's loans increased $477.6 million, or 42%, to approximately $1.6
billion at December 31, 1997 from $1.1 billion at December 31, 1996. Loan sales
in 1997 included $235 million in mortgage loans sold, $36 million in consumer
and home equity loans sold to Net.B@nk and $15 million in loans sold in
connection with the sale of branches. The following loan purchases were made
during 1997: $277 million associated with the First Southeast acquisition, $73
million associated with the Lowcountry acquisition and lease receivables
totaling $25 million. Adjusting for the 1997 loan sales and purchases, 1997
internal loan growth was approximately $389.8 million, or 35%.
The Company had loans to 66 borrowers having principal amounts ranging from
$2 million to $5 million, which loans accounted for $204.5 million, or 13%, of
the Company's loan portfolio in 1997. The Company had loans to 13 borrowers
having principal amounts in excess of $5 million, which loans accounted for
$85.7 million, or 5%, of the Company's loan portfolio in 1997. During 1996, the
Company had loans to 72 borrowers with principal amounts ranging from $2 million
to $5 million, which accounted for $219.0 million, or 19%, of the Company's loan
portfolio. The Company had loans to 7 borrowers having principal amounts in
excess of $5 million, which loans accounted for $45.0 million, or 4%, of the
Company's loan portfolio in 1996. In dealing with these larger loans, the
Company has attempted in certain instances to limit its risk exposure through
participations. Any material deterioration in the quality of any of these larger
loans could have a significant impact on the Company's earnings.
For 1997, the Company's loans averaged $1.3 billion with a yield of 9.36%,
compared with $1.1 billion and a yield of 9.49% for the same period of 1996. The
decline in loan yield was partially attributable to a lower credit card yield,
primarily from a teaser rate on newly-solicited cards which expired in August
1997, and a shift in the composition of the loan portfolio to a higher
concentration of mortgage loans, related to the 1997 acquisitions of Lowcountry
and First Southeast. In 1997, the average yield for the Company's mortgage loan
portfolio was lower than the overall portfolio yield. During the first quarter
of 1998, the Company plans to sell approximately $165 million of mortgage loans
and has classified these loans as held for sale as of December 31, 1997. The
Company will attempt to reinvest the proceeds from the sale of the mortgage
loans in higher yielding assets. The interest rates charged on loans vary with
the degree of risk and the maturity and amount of the loan. Competitive
pressures, money market rates, availability of funds and government regulations
also influence interest rates.
CAROLINA FIRST CORPORATION 18 1997 ANNUAL REPORT
<PAGE>
Allowance for Loan Losses
Management maintains an allowance for loan losses which it believes is adequate
to cover possible losses in the loan portfolio. However, management's judgment
is based upon a number of assumptions about future events which are believed to
be reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required.
The allowance for loan losses is established through charges in the form of
a provision for loan losses. Loan losses and recoveries are charged or credited
directly to the allowance. The amount charged to the provision for loan losses
by the Company is based on management's judgment as to the amount required to
maintain an allowance adequate to provide for potential losses in the Company's
loan portfolio. The level of this allowance is dependent upon the total amount
of past due loans, general economic conditions and management's assessment of
potential losses. The allowance for loan losses totaled $16.2 million, or 1.01%
of loans net of unearned income, at the end of 1997 and $11.3 million, or 1.00%
of loans net of unearned income, at the end of 1996. The allowance for loan
losses as a percentage of nonperforming loans was 662% and 394% as of December
31, 1997 and 1996, respectively.
Securities
At December 31, 1997, the Company's total investment portfolio had a book value
of $291.5 million and a market value of $299.2 million for an unrealized net
gain of approximately $7.7 million. This unrealized net gain included the
Company's investment in Affinity's common stock which is discussed below. The
investment portfolio had a weighted average maturity of approximately 2.1 years.
Securities averaged $241.7 million in 1997, 13% above the 1996 average of $214.4
million. The average portfolio yield increased to 6.22% in 1997 from 5.99% in
1996 and 5.83% in 1995. The portfolio yield increased as a result of changing
the mix of securities. As securities matured, they were reinvested in higher
yielding agencies and mortgage-backed securities. At December 31, 1997,
securities totaled $298.5 million, up $53.1 million from the $245.4 million
invested at the end of 1996.
At December 31, 1997, the Company owned 2,528,366 shares of common stock of
Affinity and the Affinity Warrant entitling the Company to purchase an
additional 3,471,340 shares for approximately $0.0001 per share, or
approximately 17% of Affinity's outstanding common stock. The investment in
Affinity's common stock, included in securities available for sale, was recorded
at its market value of approximately $6 million. The Affinity Warrant was not
reported on the Company's balance sheet as of December 31, 1997.
On December 29, 1997, the Company exercised a portion of the Affinity
Warrant and was issued 2,400,000 shares of common stock of Affinity for an
exercise price of $226. As a result of the exercise of part of the Affinity
Warrant, securities available for sale increased by approximately $5.7 million
from recording the 2,400,000 shares of Affinity common stock at its market
value.
The Company currently owns 1,175,000 shares of Net.B@nk's common stock, or
approximately 18% of the outstanding shares. These shares are carried on the
Company's books (as securities available for sale) at a basis of approximately
$979,000. The Net.B@nk investment is not marked to market value since certain
regulators have precluded certain affiliates of Net.B@nk, including the Company,
from selling their shares until July 31, 2000.
Intangible Assets and Other Assets
The intangible assets balance at December 31, 1997 of $58.2 million was
attributable to goodwill of $49.0 million, core deposit balance premiums of $9.1
million and purchased credit card premiums of $138,000. In connection with the
acquisition of Lowcountry, the Company recorded approximately $7.8 million in
intangible assets ($7.2 million in goodwill and $0.6 million in core deposit
intangibles). Approximately $35.3 million in intangible assets ($34.6 million in
goodwill and $0.7 million in core deposit intangibles) were recorded in
connection with the First Southeast acquisition. At December 31, 1997, other
assets included other real estate owned of $1.3 million and mortgage servicing
rights of $19.8 million. At December 31, 1996, other assets included other real
estate owned of $3.0 million and mortgage servicing rights of $17.6 million.
Interest-Bearing Liabilities
During 1997, interest-bearing liabilities averaged $1.4 billion, compared with
$1.2 billion in 1996. This increase resulted principally from internal deposit
growth related to account promotions and sales efforts,
Year End Deposits
($ in millions)
(Bar graph appears here with the following plot points.)
93 94 95 96 97
$804 $1,002 $1,095 $1,281 $1,747
5-Year Compound Growth Rate: 25.7%
CAROLINA FIRST CORPORATION 19 1997 ANNUAL REPORT
<PAGE>
Shareholders' Equity vs.
Market Capitalization
($ in millions)
(Bar graph appears here with the following plot points.)
93 94 95 96 97
Shareholders' Equity $70 $ 86 $ 95 $105 $202
Market Capitalization $88 $121 $160 $182 $337
acquisitions and the de novo entry into new markets. The average interest rates
were 5.05% and 4.94% in 1997 and 1996, respectively. At December 31, 1997,
interest-bearing deposits comprised approximately 88% of total deposits and 90%
of interest-bearing liabilities. For 1997, average borrowed funds, which
included Federal Home Loan Bank ("FHLB") advances and other short-term
borrowings, totaled $169.2 million, compared with $158.3 million for 1996. The
Company decreased its FHLB advances to $10.0 million at December 31, 1997 from
$40.0 million at December 31, 1996. FHLB advances are a source of funding which
the Company uses depending on the current level of deposits and management's
willingness to raise deposits through market promotions given the
competitiveness of the deposit market and the Company's cost of funds.
Carolina First Bank's primary source of funds for loans and investments is
its deposits which are gathered through its branch network. Deposits grew 36% to
$1.7 billion at December 31, 1997 from $1.3 billion at December 31, 1996. During
the second quarter of 1997, approximately $55 million in deposits were sold as
part of the sale of five branch offices. The Company acquired approximately $64
million in deposits from the Lowcountry acquisition and $285 million in deposits
from the First Southeast acquisition. Internal growth, particularly from account
promotions and new markets, generated the remainder of the new deposits. During
1997, total interest-bearing deposits averaged $1.2 billion with a rate of
4.86%, compared with $1.0 billion with a rate of 4.74% in 1996. During 1997,
deposit pricing was very competitive in Carolina First Bank's market areas,
resulting in upward pressure on deposit interest rates. The Company expects this
competitive deposit environment to continue. The Company does not believe that
it has any brokered deposits.
Average noninterest-bearing deposits, which increased 28% during the year,
increased to 14.4% of average total deposits during 1997 from 13.1% in 1996.
This increase was primarily attributable to new deposits associated with the
Atlanta Internet Bank held by Carolina First Bank during the first seven months
of the year, commercial loan customers and escrow balances related to mortgage
servicing operations. Atlanta Internet Bank deposits were transferred to
Net.B@nk on July 31, 1997 which reduced Carolina First Bank's total deposits by
approximately $43 million and decreased Carolina First Bank's
noninterest-bearing deposit balances.
The Company's core deposit base consists of consumer time deposits,
savings, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both the
Company and the industry as a whole, these core deposits continue to provide the
Company with a large and relatively stable source of funds. Core deposits as a
percentage of average total deposits averaged approximately 86% in 1997. The
Company closely monitors its reliance on certificates of deposit greater than
$100,000, which are generally considered less stable and less reliable than core
deposits.
Capital Resources and Dividends
Total shareholders' equity amounted to $201.7 million, or 9.35%, of total assets
at December 31, 1997, compared with $105.0 million, or 6.67% of total assets, at
December 31, 1996. The $96.7 million increase in total shareholders' equity
resulted principally from the issuance of Common Stock related to the Lowcountry
and First Southeast acquisitions, retention of earnings and an increase in the
unrealized gain on securities available for sale. The Company's capital needs
have been met principally through public offerings of common stock, preferred
stock and subordinated debt and through the retention of earnings. In addition,
the Company has issued capital stock in connection with acquisitions.
Book value per share at December 31, 1997 and 1996 was $12.88 and $9.26,
respectively. Tangible book value per share at December 31, 1997 and 1996 was
$9.17 and $7.80, respectively. Tangible book value was below book value as a
result of the purchase premiums associated with branch acquisitions and the
acquisitions of CF Mortgage, Lowcountry and First Southeast (which were
accounted for as purchases).
At December 31, 1997, the Company and Carolina First Bank were in
compliance with each of the applicable regulatory capital requirements and met
or exceeded the "well capitalized" regulatory standards. The preceding table
sets forth various capital ratios for the Company and Carolina First Bank.
In the first quarter of 1998, the Company raised approximately $39 million
in new capital through the sale of 2.0 million shares of its Common Stock to
certain overseas investors which complied with Regulation S of the Securities
Act of 1933. As a result of this offering, the Company's capital ratios and book
CAROLINA FIRST CORPORATION 20 1997 ANNUAL REPORT
<PAGE>
Capital Ratios
As of Well Capitalized
12/31/97 Requirement
................................................................................
The Company
Total risk-based capital 11.15% 10.0%
Tier 1 risk-based capital 8.57 6.0
.....................................
Leverage ratio 6.60 5.0
.....................................
Carolina First Bank
Total risk-based capital 10.31% 10.0%
Tier 1 risk-based capital 9.40 6.0
.....................................
Leverage ratio 7.51 5.0
.....................................
value per share are expected to increase.
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay. The Company
has paid a cash dividend each quarter since the initiation of cash dividends on
February 1, 1994. At the December 17, 1997 meeting, the Board of Directors
approved an $0.08 per share cash dividend on the common stock, which represents
an effective annual increase of approximately 14%. The Company presently intends
to continue to pay a quarterly cash dividend on the Common Stock; however,
future dividends will depend upon the Company's financial performance and
capital requirements.
The Board of Directors declared a six-for-five stock split effected in the
form of a 20% common stock dividend effective January 30, 1997 for shareholders
of record as of January 15, 1997. Share and per share data for all periods
presented have been retroactively restated to reflect the additional shares
outstanding resulting from the stock split. On February 1, 1997, all outstanding
shares of the Series 1993B Cumulative Convertible Preferred Stock were converted
into the Company's Common Stock.
INTEREST RATE SENSITIVITY
Achieving consistent growth in net interest income is the
primary goal of the Company's asset/liability function. The Company attempts to
control the mix and maturities of assets and liabilities to achieve consistent
growth in net interest income despite changes in market interest rates. The
Company seeks to accomplish this goal while maintaining adequate liquidity and
capital. The Company's asset/liability mix is believed to be sufficiently
balanced so that the effect of interest rates moving in either direction is not
expected to be significant over time.
The Company's Asset/Liability Committee uses a simulation model to assist
in achieving consistent growth in net interest income while managing interest
rate risk. The model takes into account interest rate changes as well as changes
in the mix and volume of assets and liabilities. The model simulates the
Company's balance sheet and income statement under several different rate
scenarios. The model's inputs (such as interest rates and levels of loans and
deposits) are updated on a monthly basis in order to obtain the most accurate
forecast possible. The forecast presents information over a twelve month period.
It reports a base case in which interest rates remain flat and reports
variations that occur when rates increase and decrease 200 basis points.
According to the model, the Company is presently positioned so that net interest
income will increase slightly if interest rates rise in the near term and will
decrease slightly if interest rates decline in the near term.
The static interest sensitivity gap position, while not a complete measure
of interest sensitivity, is also reviewed periodically to provide insights
related to the static repricing structure of assets and liabilities. At December
31, 1997, on a cumulative basis through twelve months, rate-sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $151.1 million.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the Company
both at the holding company level as well as at the subsidiary level. The
holding company and non-banking subsidiaries of the Company require cash for
various operating needs including general operating expenses, payment of
dividends to shareholders, interest on borrowing, extensions of credit at Blue
Ridge, business combinations and capital infusions into subsidiaries. Sources of
liquidity for the Company's holding company and non-banking subsidiaries include
dividends from Carolina First Bank and non-banking subsidiaries to the holding
company, sale of the Company's commercial paper, existing cash reserves and
earnings.
Carolina First Bank's cash flow requirements involve withdrawals of
deposits, extensions of credit and payment of operating expenses. Carolina First
Bank's principal sources of funds for liquidity purposes are customers'
deposits, principal and interest payments on loans, loan sales or
securitizations, securities available for sale, maturities of securities,
temporary investments and earnings. Carolina First Bank's liquidity is also
enhanced by the ability to acquire new deposits through its branch network.
Carolina First Bank's liquidity needs are a factor in developing its deposit
pricing structure; deposit pricing may be altered to retain or increase deposits
if deemed necessary. Carolina First Bank has access to borrowing from FHLB and
maintains unused short-term lines of credit from unrelated banks.
The liquidity ratio is an indication of a company's ability to meet its
short-term funding obligations. At December 31, 1997, Carolina First Bank's
liquidity ratio was approximately 24%. At
CAROLINA FIRST CORPORATION 21 1997 ANNUAL REPORT
<PAGE>
Nonperforming Assets
as a % of Loans and
Other Real Estate Owned
(in percentages)
(Bar graph appears here with the following plot points.)
93 94 95 96 97
FRB Holding Co. Peer
Group** 2.33% 1.35% 1.21% 1.21% 1.04%
Carolina First .86% .51% .46% .52% .23%
*As of September 30, 1997
**Source: Federal Reserve Bank Holding
Company Performance Report
December 31, 1997, Carolina First Bank had unused short-term lines of credit
totaling approximately $48 million (which are withdrawable at the lender's
option). In addition, Carolina First Bank has unused borrowing capacity from the
FHLB totaling approximately $144 million with an outstanding balance of $10
million. Management believes that these sources are adequate to meet its
liquidity needs.
Blue Ridge is currently being funded partially from the proceeds of the
sale of the Company's commercial paper. The Company expects to phase out this
funding source over a period of time replacing it with the proceeds from the
February 1998 Common Stock offering which complied with Regulation S of the
Securities Act of 1933.
The Company has plans to sell approximately $165 million in mortgage loans
acquired in its acquisition of First Southeast. These loan sales are expected to
be completed by the end of the first quarter of 1998. The Company plans to
redeploy the proceeds from the mortgage loan sales into alternative earning
assets.
ASSET QUALITY
Prudent risk management involves assessing risk and managing it effectively.
Certain credit risks are inherent in making loans, particularly commercial, real
estate and consumer loans. The Company attempts to manage credit risks by
adhering to internal credit policies and procedures. These policies and
procedures include a multi-layered loan approval process, officer and customer
limits, periodic documentation examination and follow-up procedures for any
exceptions to credit policies. Loans are assigned a grade and those that are
determined to involve more than normal credit risk are placed in a special
review status. Loans that are placed in special review status are required to
have a plan under which they will be either repaid or restructured in a way that
reduces credit risk. Loans in this special review status are reviewed monthly by
the Loan Committee of the Board of Directors.
As demonstrated by the following analytical measures of asset quality,
management believes the Company has effectively managed its credit risk. Net
loan charge-offs, including credit card receivables, totaled $10.9 million and
$8.9 million in 1997 and 1996, respectively, or 0.84% and 0.82%, respectively,
of average loans. Excluding credit card receivables, net loan charge-offs as a
percentage of average loans were 0.45% and 0.52% during 1997 and 1996,
respectively. During 1997, net charge-offs for credit cards totaled $5.3
million, a higher level than those historically experienced.
Asset Quality
<TABLE>
<CAPTION>
($ in thousands)
1997 1996 1995 1994 1993
..................................................................................................................................
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,165 $ 960 $ 1,275 $ 2,051 $ 2,487
...........................................................................
Restructured loans 1,283 1,909 1,085 675 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,448 2,869 2,360 2,726 2,487
...........................................................................
Other real estate 1,319 3,011 2,508 1,996 2,879
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 3,767 $ 5,880 $ 4,868 $ 4,722 $ 5,366
- -----------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets as % of loans and other real estate owned 0.23% 0.52% 0.46% 0.51% 0.86%
- -----------------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 4,125 $ 2,371 $ 2,748 $ 1,285 $ 2,060
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses to nonperforming loans 6.62x 3.94x 3.67x 2.20x 2.69x
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAROLINA FIRST CORPORATION 22 1997 ANNUAL REPORT
<PAGE>
(logo)
Report of Independent Auditors
The Board of Directors
Carolina First Corporation
We have audited the consolidated balance sheets of Carolina First Corporation
and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's managment. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carolina
First Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
January 22, 1998
Report of Management
Management of Carolina First Corporation (the "Company") is committed to quality
customer service, enhanced shareholder value, financial stability and integrity
in all dealings. Management has prepared the accompanying consolidated financial
statements in conformity with generally accepted accounting principles. The
statements include amounts that are based on management's best estimates and
judgements. Other financial information contained in this report is presented on
a basis consistent with the financial statements.
To ensure the integrity, objectivity and fairness of data in these
statements, management of the Company has established and maintains an internal
control structure that is supplemented by a program of internal audits. The
internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed, recorded and reported in
accordance with management's intentions and authorizations.
The financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors, in accordance with generally accepted auditing standards.
KPMG Peat Marwick LLP reviews the results of its audit with both management and
the Audit Committee of the Board of Directors of the Company. The Audit
Committee, composed entirely of outside directors, meets periodically with
management, internal auditors and KPMG Peat Marwick LLP (separately and jointly)
to determine that each is fulfilling its responsibilites and to consider
recommendations for enhancing internal controls. The financial statements have
not been reviewed, or confirmed for accuracy or relevance, by the Federal
Deposit Insurance Corporation.
/s/ Mack I. Whittle, Jr.
Mack I. Whittle, Jr.
President and Chief Executive Officer
/s/ William S. Hummers III
William S. Hummers III
Executive Vice President and Chief Financial Officer
CAROLINA FIRST CORPORATION 23 1997 ANNUAL REPORT
<PAGE>
Consolidated Balance Sheets
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1997 1996
<S> <C> <C>
....................................................................................................................................
ASSETS
Cash and due from banks $ 73,326 $ 86,322
.....................................................................................................
Interest-bearing bank balances 34,703 26,037
......................................................................................................
Securities
Trading 2,349 2,005
......................................................................................................
Available for sale 262,329 213,889
......................................................................................................
Held for investment (market value $34,494 in 1997 and $29,861 in 1996) 33,855 29,465
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities 298,533 245,359
- ------------------------------------------------------------------------------------------------------------------------------------
Loans
Loans held for sale 235,151 10,449
......................................................................................................
Loans held for investment 1,379,039 1,128,537
......................................................................................................
Less unearned income 11,775 14,211
......................................................................................................
Less allowance for loan losses 16,211 11,290
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 1,586,204 1,113,485
- ------------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 39,682 32,418
......................................................................................................
Accrued interest receivable 15,484 11,913
......................................................................................................
Intangible assets 58,228 16,621
......................................................................................................
Other assets 50,186 42,049
- ------------------------------------------------------------------------------------------------------------------------------------
$2,156,346 $1,574,204
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 206,938 $ 194,067
......................................................................................................
Interest-bearing 1,539,604 1,086,983
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,746,542 1,281,050
......................................................................................................
Federal funds purchased and repurchase agreements 112,161 87,144
......................................................................................................
Other short-term borrowings 27,578 58,045
......................................................................................................
Long-term debt 39,119 26,442
......................................................................................................
Accrued interest payable 13,518 9,672
......................................................................................................
Other liabilities 15,769 6,887
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,954,687 1,469,240
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred stock - no par value; authorized 10,000,000 shares; issued and outstanding Series 1993B
(liquidation preference $20 per share) none in 1997 and 49,141 shares in 1996 -- 943
......................................................................................................
Common stock - par value $1 per share; authorized 100,000,000 shares; issued and outstanding
15,659,338 shares in 1997 and 11,225,568 shares in 1996 15,659 11,226
......................................................................................................
Surplus 164,517 83,598
......................................................................................................
Retained earnings 20,059 9,546
......................................................................................................
Guarantee of employee stock ownership plan debt and nonvested restricted stock (3,129) (832)
......................................................................................................
Unrealized gain on securities available for sale, net of tax 4,553 483
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 201,659 104,964
- -----------------------------------------------------------------------------------------------------------------------------------
$2,156,346 $1,574,204
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
CAROLINA FIRST CORPORATION 24 1997 ANNUAL REPORT
<PAGE>
Consolidated Statements of Income
($ IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
...................................................................................................................................
INTEREST INCOME
Interest and fees on loans $ 120,385 $ 103,163 $ 92,731
...............................................................................
Interest and dividends on securities
Taxable 12,824 10,953 7,500
...............................................................................
Exempt from Federal income taxes 1,446 1,228 1,088
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest on securities 14,270 12,181 8,588
...............................................................................
Interest on short-term investments 1,051 1,528 431
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 135,706 116,872 101,750
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 56,920 48,649 41,179
...............................................................................
Interest on short-term borrowings 9,488 8,657 8,196
...............................................................................
Interest on long-term debt 2,592 2,496 1,603
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 69,000 59,802 50,978
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 66,706 57,070 50,772
...............................................................................
PROVISION FOR LOAN LOSSES 11,646 10,263 6,846
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 55,060 46,807 43,926
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 6,997 6,490 5,524
...............................................................................
Mortgage banking income 3,421 2,786 2,162
...............................................................................
Fees for trust services 1,407 1,286 1,042
...............................................................................
Loan securitization income (545) 2,865 2,775
...............................................................................
Gain on sale of securities 3,011 973 769
...............................................................................
Gain on sale of branches 2,250 -- --
...............................................................................
Gain on sale of mortgage servicing rights 212 107 2,943
...............................................................................
Gain on sale of credit cards -- 4,293 --
...............................................................................
Sundry 2,862 2,541 2,111
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 19,615 21,341 17,326
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and wages 21,154 20,573 17,524
...............................................................................
Employee benefits 4,967 4,649 4,584
...............................................................................
Occupancy 5,221 4,336 4,209
...............................................................................
Furniture and equipment 3,951 3,621 3,182
...............................................................................
Amortization of intangibles 1,541 1,889 1,774
...............................................................................
Savings Association Insurance Fund special assessment -- 1,184 --
...............................................................................
Sundry 15,409 15,423 15,609
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 52,243 51,675 46,882
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 22,432 16,473 14,370
...............................................................................
Income taxes 8,092 5,999 4,956
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 14,340 10,474 9,414
...............................................................................
Dividends on preferred stock -- 63 2,752
- -----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shareholders $ 14,340 $ 10,411 $ 6,662
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:*
Basic $ 1.19 $ 0.97 $ 0.89
...............................................................................
Diluted 1.18 0.92 0.84
...............................................................................
AVERAGE COMMON SHARES OUTSTANDING:*
Basic 11,989,517 10,705,107 7,516,620
...............................................................................
Diluted 12,175,561 11,368,035 11,183,726
...............................................................................
CASH DIVIDENDS DECLARED PER COMMON SHARE* $ 0.29 $ 0.25 $ 0.21
...............................................................................
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
* SHARE DATA HAVE BEEN RESTATED TO REFLECT STOCK DIVIDEND AND STOCK SPLIT.
CAROLINA FIRST CORPORATION 25 1997 ANNUAL REPORT
<PAGE>
Consolidated Statements of Changes
in Shareholders' Equity
($ IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
SHARES OF EARNINGS
COMMON PREFERRED COMMON AND
STOCK STOCK STOCK SURPLUS OTHER*
<S> <C> <C> <C> <C> <C>
............................................................................................................................
BALANCE, DECEMBER 31, 1994 5,618,941 $ 37,014 $5,619 $ 45,543 $ (1,694)
..................................................................
Net income -- -- -- -- 9,414
..................................................................
Common stock issued pursuant to:
Stock dividend 291,603 -- 292 4,082 (4,393)
..................................................................
Acquisition 154,141 -- 154 (22) 672
..................................................................
Dividend reinvestment plan 43,322 -- 43 555 --
..................................................................
Employee stock purchase plan 6,595 -- 6 82 --
..................................................................
Exercise of stock options and stock warrants 63,848 -- 64 334 --
..................................................................
Conversion of preferred stock 338,916 (4,197) 339 3,858 (113)
..................................................................
Cash dividends paid/accrued by Carolina First:
Preferred stock -- -- -- -- (2,752)
..................................................................
Common stock -- -- -- -- (1,565)
..................................................................
Miscellaneous -- 92 -- -- 388
..................................................................
Unrealized gain on securities available for sale, net of tax -- -- -- -- 1,152
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 6,517,366 32,909 6,517 54,432 1,109
..................................................................
Net income -- -- -- -- 10,474
..................................................................
Common stock issued pursuant to:
Stock split 1,870,130 -- 1,870 (1,870) (17)
..................................................................
Long-term incentive compensation plan 27,938 -- 28 461 (489)
..................................................................
Dividend reinvestment plan 55,304 -- 56 628 --
..................................................................
Employee stock purchase plan 10,524 -- 11 167 --
..................................................................
Exercise of stock options and stock warrants 96,975 -- 97 521 --
..................................................................
Conversion and redemption of preferred stock 2,647,331 (31,966) 2,647 29,259 --
..................................................................
Cash dividends paid/accrued by Carolina First:
Preferred stock -- -- -- -- (63)
..................................................................
Common stock -- -- -- -- (2,626)
..................................................................
Miscellaneous -- -- -- -- 478
..................................................................
Unrealized gain on securities available for sale, net of tax -- -- -- -- 331
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 11,225,568 943 11,226 83,598 9,197
..................................................................
Net income -- -- -- -- 14,340
..................................................................
Common stock issued pursuant to:
Purchase accounting acquisitions 4,005,815 -- 4,006 75,762 --
..................................................................
Dividend reinvestment plan 52,495 -- 53 818 --
..................................................................
Employee stock purchase plan 9,226 -- 9 150 --
..................................................................
Employee stock ownership plan debt 176,471 -- 176 2,824 (2,750)
..................................................................
Exercise of stock options and stock warrants 81,422 -- 81 530 --
..................................................................
Conversion of preferred stock 108,341 (943) 108 835 --
..................................................................
Cash dividends paid/accrued by Carolina First:
Preferred stock -- -- -- -- --
..................................................................
Common stock -- -- -- -- (3,826)
..................................................................
Miscellaneous -- -- -- -- 452
..................................................................
Unrealized gain on securities available for sale, net of tax -- -- -- -- 4,070
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 15,659,338 $ -- $15,659 $164,517 $ 21,483
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL
<S> <C> <C>
..................................................................
BALANCE, DECEMBER 31, 1994 $ 86,482
..................................................................
Net income 9,414
..................................................................
Common stock issued pursuant to:
Stock dividend (19)
..................................................................
Acquisition 804
..................................................................
Dividend reinvestment plan 598
..................................................................
Employee stock purchase plan 88
..................................................................
Exercise of stock options and stock warrants 398
..................................................................
Conversion of preferred stock (113)
..................................................................
Cash dividends paid/accrued by Carolina First:
Preferred stock (2,752)
..................................................................
Common stock (1,565)
..................................................................
Miscellaneous 480
..................................................................
Unrealized gain on securities available for sale, net of tax 1,152
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 94,967
..................................................................
Net income 10,474
..................................................................
Common stock issued pursuant to:
Stock split (17)
..................................................................
Long-term incentive compensation plan --
..................................................................
Dividend reinvestment plan 684
..................................................................
Employee stock purchase plan 178
..................................................................
Exercise of stock options and stock warrants 618
..................................................................
Conversion and redemption of preferred stock (60)
..................................................................
Cash dividends paid/accrued by Carolina First:
Preferred stock (63)
..................................................................
Common stock (2,626)
..................................................................
Miscellaneous 478
..................................................................
Unrealized gain on securities available for sale, net of tax 331
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 104,964
..................................................................
Net income 14,340
..................................................................
Common stock issued pursuant to:
Purchase accounting acquisitions 79,768
..................................................................
Dividend reinvestment plan 871
..................................................................
Employee stock purchase plan 159
..................................................................
Employee stock ownership plan debt 250
..................................................................
Exercise of stock options and stock warrants 611
..................................................................
Conversion of preferred stock --
..................................................................
Cash dividends paid/accrued by Carolina First:
Preferred stock --
..................................................................
Common stock (3,826)
..................................................................
Miscellaneous 452
..................................................................
Unrealized gain on securities available for sale, net of tax 4,070
- ----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $201,659
- ------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
* OTHER INCLUDES UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, GUARANTEE OF
EMPLOYEE STOCK OWNERSHIP PLAN DEBT AND NONVESTED RESTRICTED STOCK.
CAROLINA FIRST CORPORATION 26 1997 ANNUAL REPORT
<PAGE>
Consolidated Statements of Cash Flows
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
.....................................................................................................................
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,340 $ 10,474
.........................................................................................
Adjustments to reconcile net income to net cash provided by operations
Depreciation 3,181 3,257
.........................................................................................
Amortization of intangibles 1,541 1,889
.........................................................................................
Provision for loan losses 11,646 10,263
.........................................................................................
Deferred income tax (benefit) expense (1,677) 472
.........................................................................................
Gain on sale of mortgage servicing rights (212) (107)
.........................................................................................
Gain on sale of branches (2,250) --
.........................................................................................
Gain on sale of credit cards -- (4,293)
.........................................................................................
Gain on sale of securities (3,011) (973)
.........................................................................................
Unrealized (gain) loss on trading securities (14) 44
.........................................................................................
Originations of mortgage loans held for sale (268,855) (167,510)
.........................................................................................
Sale of mortgage loans held for sale 235,110 171,619
.........................................................................................
Sale of consumer loans 25,862 --
.........................................................................................
Proceeds from sale of trading securities 861,093 543,144
.........................................................................................
Proceeds from maturity of trading securities 17,568 63,008
.........................................................................................
Purchase of trading securities (878,713) (602,144)
.........................................................................................
Increase in accrued interest receivable (591) (1,769)
.........................................................................................
Increase in accrued interest payable 1,962 2,935
.........................................................................................
Increase in other assets (2,678) (10,625)
.........................................................................................
(Decrease) increase in other liabilities (1,273) 634
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,029 20,318
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing bank balances 7,026 (17,374)
.........................................................................................
Net decrease in federal funds sold and resale agreements -- --
.........................................................................................
Proceeds from sale of securities available for sale 116,583 30,906
.........................................................................................
Proceeds from maturity of securities available for sale 137,447 169,938
.........................................................................................
Proceeds from maturity of securities held for investment 1,632 2,798
.........................................................................................
Purchase of securities available for sale (246,927) (268,177)
.........................................................................................
Purchase of securities held for investment (6,022) (5,974)
.........................................................................................
Purchase of loans (25,793) (65,924)
.........................................................................................
Net increase in loans (119,115) (163,153)
.........................................................................................
Securitization and sale of commercial loans -- 95,182
.........................................................................................
Proceeds from sale of credit cards -- 64,219
.........................................................................................
Proceeds from sale of mortgage servicing rights 267 900
.........................................................................................
Proceeds from sale of premises and equipment 312 8,430
.........................................................................................
Capital expenditures (4,649) (3,785)
.........................................................................................
Net cash acquired in transactions accounted for under the purchase method of accounting 6,265 --
.........................................................................................
Net cash outflow from sale of branches (35,656) --
- ---------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (168,630) (152,014)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 169,276 185,559
.........................................................................................
Net increase (decrease) in federal funds purchased and repurchase agreements 10,017 (4,388)
.........................................................................................
(Decrease) increase in short-term borrowings (38,491) (37,212)
.........................................................................................
Issuance of long-term debt 2,700 --
.........................................................................................
Payments of long-term debt (127) (34)
.........................................................................................
Cash dividends paid (2,688) (3,130)
.........................................................................................
Other common and preferred stock activity 1,918 1,453
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 142,605 142,248
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash and due from banks (12,996) 10,552
.........................................................................................
Cash and due from banks at beginning of year 86,322 75,770
- ---------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 73,326 $ 86,322
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995
<S> <C>
....................................................................................................
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,414
.........................................................................................
Adjustments to reconcile net income to net cash provided by operations
Depreciation 3,284
.........................................................................................
Amortization of intangibles 1,774
.........................................................................................
Provision for loan losses 6,846
.........................................................................................
Deferred income tax (benefit) expense (967)
.........................................................................................
Gain on sale of mortgage servicing rights (2,943)
.........................................................................................
Gain on sale of branches --
.........................................................................................
Gain on sale of credit cards --
.........................................................................................
Gain on sale of securities (769)
.........................................................................................
Unrealized (gain) loss on trading securities (51)
.........................................................................................
Originations of mortgage loans held for sale (110,190)
.........................................................................................
Sale of mortgage loans held for sale 116,109
.........................................................................................
Sale of consumer loans --
.........................................................................................
Proceeds from sale of trading securities 452,666
.........................................................................................
Proceeds from maturity of trading securities 23,493
.........................................................................................
Purchase of trading securities (480,758)
.........................................................................................
Increase in accrued interest receivable (3,155)
.........................................................................................
Increase in accrued interest payable 2,596
.........................................................................................
Increase in other assets (4,339)
.........................................................................................
(Decrease) increase in other liabilities (668)
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,342
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing bank balances (7,959)
.........................................................................................
Net decrease in federal funds sold and resale agreements 4,420
.........................................................................................
Proceeds from sale of securities available for sale 77,570
.........................................................................................
Proceeds from maturity of securities available for sale 72,160
.........................................................................................
Proceeds from maturity of securities held for investment 10,135
.........................................................................................
Purchase of securities available for sale (160,232)
.........................................................................................
Purchase of securities held for investment (39,041)
.........................................................................................
Purchase of loans (32,911)
.........................................................................................
Net increase in loans (118,663)
.........................................................................................
Securitization and sale of commercial loans --
.........................................................................................
Proceeds from sale of credit cards --
.........................................................................................
Proceeds from sale of mortgage servicing rights 5,026
.........................................................................................
Proceeds from sale of premises and equipment 30
.........................................................................................
Capital expenditures (3,811)
.........................................................................................
Net cash acquired in transactions accounted for under the purchase method of accounting 804
.........................................................................................
Net cash outflow from sale of branches --
- ----------------------------------------------------------------------------------------------------
Net cash used for investing activities (192,472)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 93,743
.........................................................................................
Net increase (decrease) in federal funds purchased and repurchase agreements 57,546
.........................................................................................
(Decrease) increase in short-term borrowings 23,169
.........................................................................................
Issuance of long-term debt 25,237
.........................................................................................
Payments of long-term debt (52)
.........................................................................................
Cash dividends paid (4,221)
.........................................................................................
Other common and preferred stock activity 1,432
- ----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 196,854
- ----------------------------------------------------------------------------------------------------
Net change in cash and due from banks 16,724
.........................................................................................
Cash and due from banks at beginning of year 59,046
- ----------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 75,770
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.
CAROLINA FIRST CORPORATION 27 1997 ANNUAL REPORT
<PAGE>
(logo)
Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant
Accounting Policies
PRINCIPLES OF CONSOLIDATION
..............................................................................
The consolidated financial statements include the accounts of Carolina First
Corporation and its wholly-owned subsidiaries, Carolina First Bank, Blue Ridge
Finance Company ("Blue Ridge"), Carolina First Mortgage Company ("CF Mortgage")
and CF Investment Company. Carolina First Corporation and its subsidiaries are
collectively defined as the "Company," except where the context requires
definition otherwise. All significant intercompany accounts and transactions
have been eliminated.
The accounting principles followed by the Company and its subsidiaries and
the methods of applying these principles conform with generally accepted
accounting principles and with general practices within the banking industry.
Certain principles which significantly affect the determination of financial
position, results of operations and cash flows are summarized below.
Acquisitions during 1997 and 1995 that were accounted for as purchases are
reflected in the financial position and results of operations of the Company
since the date of their acquisition. Certain prior year amounts have been
reclassified to conform with 1997 presentations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITIES
...............................................................................
Management determines the appropriate classification of securities at the time
of purchase. Securities, primarily debt securities, are classified as trading
securities, securities available for sale and securities held for investment,
defined as follows:
Trading securities are carried at fair value. The Company's policy is to
acquire trading securities only to facilitate their sale to customers.
Adjustments for unrealized gains or losses are included in noninterest income.
Securities available for sale are carried at fair value. Such securities are
used to execute asset/liability management strategy and to manage liquidity.
Adjustments for unrealized gains or losses, net of the income tax effect, are
made through shareholders' equity.
Securities held for investment are stated at cost, net of unamortized
balances of premiums and discounts. The Company intends to and has the ability
to hold such securities until maturity.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
LOANS
...............................................................................
Loans receivable are stated at unpaid principal balances adjusted for
unamortized premiums and unearned discounts. Carolina First Bank recognizes
interest on loans using the interest method. Income on certain installment loans
is recognized using the "Rule of 78's" method. The results from the use of the
"Rule of 78's" method are not materially different from those obtained by using
the interest method. Loans are considered to be impaired when, in management's
judgment, the collection of principal or interest is not collectible in
accordance with the terms of the obligation. An impaired loan is put on
nonaccrual status and future cash receipts are applied to principal only. The
accrual of interest resumes only when the loan returns to performing status.
The premium or discount on purchased loans is amortized over the expected
life of the loans and is included in interest and fees on loans.
LOANS HELD FOR SALE
...............................................................................
Loans held for sale include certain mortgage loans and certain credit card loans
and are carried at the lower of aggregate cost or market value.
LOAN SALES
...............................................................................
Gains or losses on sales of loans are recognized at the time of sale and are
determined by the difference between net sales proceeds and the carrying value
of the loans sold. When mortgage loans are sold with servicing rights retained,
additional gains or losses are realized if the actual servicing fees to be
CAROLINA FIRST CORPORATION 28 1997 ANNUAL REPORT
<PAGE>
received differ from the normal servicing fees. The resulting excess servicing
rights, included in other assets, are amortized to operations over the remaining
life of the loans. Management periodically reviews and adjusts the amortization
as necessary.
MORTGAGE SERVICING RIGHTS
...............................................................................
The Company capitalizes the allocated cost of originated mortgage servicing
rights and records a corresponding increase in mortgage banking income in
accordance with Statement of Financial Accounting Standards ("SFAS") 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." This statement eliminates the distinction between originated
and purchased mortgage servicing rights.
The rights to service mortgage loans for others ("mortgage servicing rights"
or "MSRs") are included in other assets. Purchased mortgage servicing rights are
recorded at lower of cost or market. Originated mortgage servicing rights are
capitalized based on the allocated cost which is determined when the underlying
loans are sold or securitized. MSRs are amortized in proportion to and over the
period of estimated net servicing income using a method that is designed to
approximate a level-yield method, taking into consideration the estimated
prepayment of the underlying loans. For purposes of measuring impairment, MSRs
are periodically reviewed for impairment based upon quarterly external
valuations. Such valuations are based on projections using a discounted cash
flow method that includes assumptions regarding prepayments, servicing costs and
other factors. Impairment is measured on a disaggregated basis for each pool of
rights.
ALLOWANCE FOR LOAN LOSSES
...............................................................................
The allowance for loan losses is based on management's ongoing evaluation of the
loan portfolio and reflects an amount that, in management's opinion, is adequate
to absorb inherent losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio and management's estimate of anticipated credit losses. Loans are
charged against the allowance at such time as they are determined to be losses.
Subsequent recoveries are credited to the allowance. Management considers the
year-end allowance appropriate and adequate to cover inherent losses in the loan
portfolio; however, management's judgment is based upon a number of assumptions
about future events, which are believed to be reasonable, but which may or may
not prove valid. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
increases in the allowance for loan losses will not be required. In addition,
various regulatory agencies periodically review the Company's allowance for loan
losses as part of their examination process and could require the Company to
adjust its allowance for loan losses based on information available to them at
the time of their examination.
CONCENTRATIONS OF CREDIT RISK
...............................................................................
The Company makes loans to individuals and small businesses for various personal
and commercial purposes primarily throughout South Carolina. The Company has a
diversified loan portfolio, and the borrowers' ability to repay their loans is
not dependent upon any specific economic segment.
LOAN SECURITIZATIONS
...............................................................................
The Company packages and sells loan receivables as securities to investors.
These transactions are recorded as sales in accordance with SFAS 125 when
control over these assets has been surrendered. Excess servicing fees related to
the securitizations are recorded during the life of the transaction. The excess
servicing fee is based upon the difference between interest income received from
the borrower less the yield paid to investors, credit losses and normal
servicing fees.
PREMISES AND EQUIPMENT
...............................................................................
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed over the estimated
useful lives of the assets primarily using the straight-line method. Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful life of the improvement or the terms of the respective lease.
Additions to premises and equipment and major replacements or improvements
are capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred.
INTANGIBLE ASSETS
...............................................................................
Intangible assets consist primarily of goodwill and core deposit premiums
resulting from the Company's acquisitions. On an ongoing basis, the Company
evaluates the carrying value of these intangible assets and charges to expense
any difference between the carrying value and the estimated fair market value.
Core deposit intangibles are amortized over 10 years using the
sum-of-the-years' digits method. Goodwill is amortized over 25 years using the
straight-line method.
CAROLINA FIRST CORPORATION 29 1997 ANNUAL REPORT
<PAGE>
OTHER REAL ESTATE OWNED
...............................................................................
Other real estate owned, included in other assets, is comprised of real estate
properties acquired in partial or total satisfaction of problem loans. The
properties are recorded at the lower of cost or fair market value at the date
acquired. Losses arising at the time of acquisition of such properties are
charged against the allowance for loan losses. Subsequent write-downs that may
be required to the carrying value of these properties are charged to noninterest
expenses. Gains and losses realized from the sale of other real estate owned are
included in noninterest income.
STOCK-BASED COMPENSATION
...............................................................................
The Company reports stock-based compensation using the intrinsic valuation
method presented under Accounting Principles Board ("APB") Opinion 25, which
measures compensation expense as the difference between the quoted market price
of the stock and the exercise price of the option on the date of grant (if any).
The Company has disclosed in the footnotes pro forma net income and earnings per
share information as if the fair value method had been applied in accordance
with SFAS 123, "Accounting for Stock-Based Compensation."
INCOME TAXES
...............................................................................
The Company computes its income taxes in accordance with the provisions of SFAS
109, "Accounting for Income Taxes." Under SFAS 109, deferred tax liabilities are
recognized on all taxable temporary differences (reversing differences where tax
deductions initially exceed financial statement expense, or income is reported
for financial statement purposes prior to being reported for tax purposes). In
addition, deferred tax assets are recognized on all deductible temporary
differences (reversing differences where financial statement expense initially
exceeds tax deductions, or income is reported for tax purposes prior to being
reported for financial statement purposes) and operating loss and tax credit
carryforwards. Valuation allowances are established to reduce deferred tax
assets if it is determined to be "more likely than not" that all or some portion
of the potential deferred tax assets will not be realized. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
PER SHARE DATA
...............................................................................
The Company has adopted the provisions of SFAS 128, "Earnings per Share"
("EPS"), for the year ended December 31, 1997. The presentation of primary and
fully-diluted EPS has been replaced with basic and diluted EPS. All prior-period
EPS data have been restated to reflect the adoption of SFAS 128. Basic earnings
per share are computed by dividing net income applicable to common shareholders
by the weighted-average number of common shares outstanding. Diluted earnings
per share are computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period, with common stock equivalents calculated based on the average market
price. Common stock equivalents consist of convertible preferred stock, stock
warrants and options and are computed using the treasury stock method. The
weighted average number of shares outstanding during prior periods for basic and
diluted earnings per share was adjusted retroactively for pooling-of-interests
acquisitions. Share and per share data have been restated to reflect the
December 1996 six-for-five stock split, which was effective January 30, 1997,
and a 5% stock dividend issued in August 1995.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
...............................................................................
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 requires that all items that are
required to be recognized under accounting standards as comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 requires that an enterprise classify items
of other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the equity section of a
statement of financial position. The Statement is effective for fiscal years
beginning after December 15, 1997. The Company does not anticipate that adoption
of SFAS 130 will have a material effect on its financial statements.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS 131 requires that a public enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the way that the operating segments were
determined and other items. The Statement is effective for fiscal years
beginning after December 15, 1997. The Company does not anticipate that adoption
of SFAS 131 will have a material effect on its financial statements.
CAROLINA FIRST CORPORATION 30 1997 ANNUAL REPORT
<PAGE>
NOTE 2 Statement of Cash Flows
For purposes of reporting cash flows, cash includes currency and coin, cash
items in process of collection and due from banks.
The following summarizes supplemental cash flow data for the years ended
December 31:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
................................................................................
Interest paid $65,154 $56,867 $53,574
......................................
Income taxes paid 9,701 4,504 6,194
......................................
Significant non-cash transactions are
summarized as follows:
Purchase accounting acquisitions 79,768 -- 804
......................................
Change in unrealized gain on
securities available for sale, net
of tax 4,070 331 1,152
......................................
Conversion of preferred stock into
common stock 943 31,966 4,197
......................................
Loans transferred to other real estate
owned 554 2,800 1,876
......................................
One time reclassification of
securities from held for investment
to available for sale -- -- 75,499
......................................
Transfer of securities from available
for sale to held for investment in
relation to pooling-of-interests
merger -- -- 2,618
......................................
</TABLE>
NOTE 3 Business Combinations
On February 3, 1995, Carolina First Savings Bank was merged into Carolina First
Bank.
On April 10, 1995, Aiken County National Bank ("ACNB"), a national bank
headquartered in Aiken, South Carolina, was merged into Carolina First Bank.
Carolina First Bank acquired all the outstanding common shares of ACNB in
exchange for 570,349 shares (adjusted for stock dividends and split) of the
Company's $1.00 par value common stock ("Common Stock"). At the merger date,
ACNB had approximately $39 million in total assets, year-to-date net interest
income of approximately $569,000 and year-to-date net income of approximately
$117,000.
On June 30, 1995, Midlands National Bank ("MNB"), a national bank
headquartered in Prosperity, South Carolina, was merged into Carolina First
Bank. Carolina First Bank acquired all the outstanding common shares of MNB in
exchange for 737,059 shares (adjusted for stock dividends and split) of the
Company's Common Stock. At the merger date, MNB had approximately $44 million in
total assets, year-to-date net interest income of approximately $926,000 and
year-to-date net income of approximately $12,000.
The consolidated financial statements of the Company for all prior periods
give effect to the mergers with ACNB and MNB, each of which has been accounted
for as a pooling-of-interests. Accordingly, financial statements for all prior
periods have been restated to reflect the results of operations of the companies
on a combined basis from the earliest period presented, except for dividends
per share.
On December 29, 1995, the Company acquired all the outstanding shares of
Blue Ridge Finance Company, an automobile finance company based in Greenville,
South Carolina, in exchange for 184,969 (adjusted for stock dividends and split)
shares of the Company's Common Stock. At the merger date, Blue Ridge had
approximately $4 million in total assets. The transaction was accounted for as a
pooling-of-interests; however, due to the immateriality of the transaction in
relation to the Company's consolidated financial position and operating results,
prior period financial statements have not been restated.
On April 6, 1997, the Company completed the sale of five branches located in
Barnwell, Blackville, Salley, Springfield and Williston, South Carolina to The
Bank of Barnwell County, a wholly-owned subsidiary of Community Capital
Corporation ("Community Capital"), headquartered in Greenwood, South Carolina.
In connection with this transaction, Carolina First Bank recorded a gain of
$2,250,000, sold loans of approximately $15 million and transferred deposits of
approximately $55 million.
On July 18, 1997, the Company acquired Lowcountry Savings Bank, Inc.
("Lowcountry"), a South Carolina-chartered savings bank headquartered in Mt.
Pleasant, South Carolina, through the merger of Lowcountry into Carolina First
Bank. The Lowcountry transaction was accounted for as a purchase and resulted in
the payment of approximately $13 million for the outstanding shares of
Lowcountry common stock. Of this amount, approximately $4.8 million was paid in
cash, and approximately $8.2 million was paid in the form of 508,415 shares of
the Company's Common Stock. In connection with the acquisition of Lowcountry, a
core deposit premium of approximately $600,000 was recorded. The excess of the
purchase price over the fair market value of the net identifiable assets
acquired (including the core deposit premium) of approximately $7.2 million has
been recorded as goodwill. At June 30, 1997, Lowcountry operated through five
locations in the Charleston area and had approximately $80 million in assets,
$73 million in loans and $64 million in deposits.
On November 21, 1997, the Company completed its acquisition of First
Southeast Financial Corporation ("First Southeast"), the holding company for
First Federal Savings and Loan Association of Anderson ("First Federal") based
in Anderson, South Carolina, through the merger of First Federal into Carolina
First Bank. The First Southeast transaction was accounted for under the purchase
method of accounting. Under the terms of the agreement, the Company acquired all
the outstanding common shares of First Southeast in exchange for
CAROLINA FIRST CORPORATION 31 1997 ANNUAL REPORT
<PAGE>
3,497,400 shares of the Company's Common Stock, valued at approximately $70
million. In connection with the acquisition of First Southeast, a core deposit
premium of approximately $700,000 was recorded. The excess of the purchase price
over the fair market value of the net identifiable assets acquired (including
the core deposit premium) of approximately $34.6 million has been recorded as
goodwill. At September 30, 1997, First Southeast had total assets of
approximately $350 million, loans of $275 million and deposits of $285 million
with 13 branches located in Anderson, Abbeville, Greenwood and Greenville
counties.
The following unaudited pro forma financial information presents the
combined results of operations of the Company, Lowcountry and First Southeast as
if the mergers had occurred as of the beginning of 1997 and 1996, after giving
effect to certain adjustments, including amortization of intangible assets and
reduced earnings related to the lost interest on the cash portion of the
purchase price. The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had the Company, Lowcountry
and First Southeast constituted a single entity during such periods. In
addition, the pro forma financial information does not reflect any potential
cost savings or synergies expected to be achieved following the merger.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
($ IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
<S> <C> <C>
...............................................................................
Total revenue $178,660 $169,668
..............................................
Net income 15,462 7,892
..............................................
Earnings per share, diluted $ 0.99 $ 0.52
..............................................
</TABLE>
In the first quarter of 1998, the Company signed a definitive agreement to
acquire Resource Processing Group, Inc. ("RPG"), a credit card services company
with total assets of approximately $18.5 million and total equity of
approximately $10.8 million. The RPG transaction will be accounted for as a
purchase, and the Company will issue, to RPG's shareholders, shares of Common
Stock valued at the time of closing at approximately $11.3 million. The Company
expects that the closing of this transaction, if such occurs, will occur in the
second quarter of 1998.
In February 1998, the Company announced the sale of three branches located
in Belton, Calhoun Falls and Honea Path, South Carolina with approximately $45
million in deposits. The branches are being sold to Community Capital. This
transaction is scheduled to be completed in the second quarter of 1998 and is
subject to regulatory approval among other conditions.
NOTE 4 Restrictions on Cash and
Due From Banks
Carolina First Bank is required to maintain average reserve balances with the
Federal Reserve Bank based upon a percentage of deposits. The average amounts of
these reserve balances for the years ended December 31, 1997 and 1996 were
approximately $16,744,000 and $20,454,000, respectively.
NOTE 5 Securities
The aggregate amortized cost and fair value of securities at December 31 were as
follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------
GROSS
UNREALIZED
AMORTIZED ---------------- FAIR
($ IN THOUSANDS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
.....................................................................................
SECURITIES AVAILABLE FOR SALE
U.S. treasury securities $102,033 $ 228 $ -- $102,261
..............................
Obligations of U.S. government
agencies and corporations 140,219 50 72 140,197
..............................
Other securities 13,083 6,788 -- 19,871
- -------------------------------------------------------------------------------------
$255,335 $7,066 $ 72 $262,329
- -------------------------------------------------------------------------------------
SECURITIES HELD FOR INVESTMENT
Obligations of states and
political subdivisions $ 33,503 $ 639 $ -- $ 34,142
..............................
Other securities 352 -- -- 352
- -------------------------------------------------------------------------------------
$ 33,855 $ 639 $ -- $ 34,494
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
($ IN THOUSANDS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
......................................................................................
SECURITIES AVAILABLE FOR SALE
U.S. treasury securities $166,923 $ 512 $ 5 $167,430
...............................
Obligations of U.S. government
agencies and corporations 39,494 -- 260 39,234
...............................
Other securities 6,740 979 494 7,225
- --------------------------------------------------------------------------------------
$213,157 $1,491 $759 $213,889
- --------------------------------------------------------------------------------------
SECURITIES HELD FOR INVESTMENT
Obligations of states and
political subdivisions $ 29,113 $ 396 $ -- $ 29,509
...............................
Other securities 352 -- -- 352
- --------------------------------------------------------------------------------------
$ 29,465 $ 396 $ -- $ 29,861
- --------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. Fair value
of securities was determined using quoted market prices.
CAROLINA FIRST CORPORATION 32 1997 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
1997
---------------------
<S> <C> <C>
AMORTIZED FAIR
($ IN THOUSANDS) COST VALUE
................................................................................
SECURITIES AVAILABLE FOR SALE
Due in one year or less $163,446 $163,656
.............................................
Due after one year through five years 44,240 44,142
.............................................
Due after five years through ten years 31,071 31,149
.............................................
Due after ten years 3,495 3,511
.............................................
No contractual maturity 13,083 19,871
- --------------------------------------------------------------------------------
$255,335 $262,329
- --------------------------------------------------------------------------------
SECURITIES HELD FOR INVESTMENT
Due in one year or less $ 5,913 $ 5,927
.............................................
Due after one year through five years 17,693 17,957
.............................................
Due after five years through ten years 9,949 10,310
.............................................
Due after ten years 300 300
- --------------------------------------------------------------------------------
$ 33,855 $ 34,494
- --------------------------------------------------------------------------------
</TABLE>
Gross realized gains and losses on sales of securities for the years ended
December 31 were:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
..................................................................................
Gross realized gains $3,286 $1,036 $1,156
..........................................
Gross realized losses (275) (63) (387)
- ----------------------------------------------------------------------------------
Net gain on sale of securities $3,011 $ 973 $ 769
- ----------------------------------------------------------------------------------
</TABLE>
The change in the unrealized gain on securities available for sale, as
recorded in shareholders' equity, for the year ended December 31, 1997 was
$4,070,000. Securities with an approximate book value of $139 million and $123
million at December 31, 1997 and 1996, respectively, were pledged to secure
public deposits and for other purposes. Estimated market values of securities
pledged were $140 million and $123 million at December 31, 1997 and 1996,
respectively.
Carolina First Bank, as a member of the Federal Home Loan Bank ("FHLB") of
Atlanta, is required to own capital stock in the FHLB of Atlanta based generally
upon Carolina First Bank's balances of residential mortgage loans and FHLB
advances. FHLB capital stock is pledged to secure FHLB advances. No ready market
exists for this stock and it has no quoted market value. However, redemption of
this stock has historically been at par value.
NOTE 6 Equity Investments
At December 31, 1997, the Company (through its subsidiary Blue Ridge) owned
2,528,366 shares of common stock of Affinity Technology Group, Inc. ("Affinity")
and a warrant to purchase an additional 3,471,340 shares for approximately
$0.0001 per share ("Affinity Warrant"). The investment in Affinity's common
stock, included in securities available for sale, was recorded at its market
value of approximately $6 million. The Affinity Warrant was not reported on the
Company's balance sheet as of December 31, 1997.
On December 29, 1997, the Company exercised a portion of the Affinity
Warrant and was issued 2,400,000 shares of common stock of Affinity for an
exercise price of $226. As a result of the exercise of part of the Affinity
Warrant, securities available for sale increased by approximately $5.7 million
from recording the 2,400,000 shares of Affinity common stock at its market
value. The Company's shares in Affinity are, and the shares issuable upon the
exercise of the Affinity Warrant are, "restricted" securities as that term is
defined in federal securities laws.
At December 31, 1997, the Company owned 1,175,000 shares of common stock of
Net.B@nk, Inc. ("Net.B@nk"). These shares were included in securities available
for sale and reported at the cost of approximately $979,000, due to a
restriction on the sale of the securities. Under the terms of the Office of
Thrift Supervision's approval of Net.B@nk's subsidiary, Atlanta Internet Bank,
certain affiliates of Net.B@nk, including the Company, may not sell their shares
in Net.B@nk until July 31, 2000.
The Company has made equity investments in five community banks in South
Carolina and North Carolina. In each case, the Company owns less than 5% of the
community bank's outstanding common stock.
On September 30, 1997, the Company's subsidiary, CF Investment Company,
became licensed through the Small Business Administration to operate as a Small
Business Investment Company. In 1997, the Company capitalized CF Investment with
a contribution of $3.0 million. CF Investment made its first investment in
December 1997 agreeing to lend up to $1.2 million to ITS, a privately-held
company specializing in the document management business, and receiving a 49%
equity ownership position.
CAROLINA FIRST CORPORATION 33 1997 ANNUAL REPORT
<PAGE>
NOTE 7 Loans and Allowance for
Loan Losses
The following is a summary of loans outstanding by category at December 31:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
Real estate -- mortgage $ 321,572 $ 245,096
..........................................
Real estate -- construction 42,229 36,757
..........................................
Commercial and industrial 225,021 196,206
..........................................
Commercial and industrial secured by
real estate 516,253 378,471
..........................................
Consumer 141,842 140,206
..........................................
Credit cards 52,525 40,480
..........................................
Lease financing receivables 79,597 91,321
..........................................
Loans held for sale 235,151 10,449
- --------------------------------------------------------------------------------
Gross loans 1,614,190 1,138,986
..........................................
Less unearned income 11,775 14,211
..........................................
Less allowance for loan losses 16,211 11,290
- --------------------------------------------------------------------------------
Net loans $1,586,204 $1,113,485
- --------------------------------------------------------------------------------
</TABLE>
On January 1, 1995, the Company adopted SFAS 114, "Accounting by Creditors
for Impairment of a Loan." SFAS 114 requires that impaired loans and certain
restructured loans be measured at the present value of expected future cash
flows discounted at the loan's effective interest rate, at the loan's observable
market price or at the fair value of the collateral if the loan is collateral
dependent. A specific reserve is set up for each impaired loan.
Also on January 1, 1995, the Company adopted SFAS 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." SFAS
118 amends SFAS 114 in the areas of disclosure requirements and methods for
recognizing interest income on an impaired loan.
At December 31, 1997 and 1996, nonaccrual loans were $1,165,000 and
$960,000, respectively. Foregone interest income was approximately $77,000 in
1997, $180,000 in 1996 and $269,000 in 1995. Interest income recognized on these
loans during 1997, 1996 and 1995 was approximately $111,000, $317,000 and
$373,000, respectively. The nonaccrual loans were considered to be impaired
loans. The average recorded investment in impaired loans in 1997 and 1996 was
$1,000,000 and $1,664,000, respectively. The related allowances for these
impaired loans were $812,000 and $680,000, respectively.
Foreclosed loans included in other real estate owned amounted to $867,000
and $3,097,000 at December 31, 1997 and 1996, respectively. At December 31, 1997
and 1996, loans included $1,283,000 and $1,909,000 in restructured loans.
Changes in the allowance for loan losses were:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
..................................................................................
Balance at beginning of year $11,290 $ 8,661 $ 6,002
.......................................
Purchase accounting acquisitions 3,550 -- 128
.......................................
Valuation allowance for loans purchased 658 1,261 633
.......................................
Provision for loan losses 11,646 10,263 6,846
.......................................
Recoveries on loans previously charged
off 1,186 565 311
.......................................
Charge-offs:
Credit cards (5,325) (4,072) (2,536)
.......................................
Acquired fraudulent loans -- (1,303) --
.......................................
Other (6,794) (4,085) (2,723)
- ----------------------------------------------------------------------------------
Balance at end of year $16,211 $11,290 $ 8,661
- ----------------------------------------------------------------------------------
</TABLE>
Carolina First Bank entered into a commercial real estate loan
securitization in March 1996 and a credit card securitization in January 1995.
At December 31, 1997, the related off-balance sheet balances were $41,185,000
for the commercial real estate loan securitization and $84,000,000 for the
credit card securitization.
Directors, executive officers and associates of such persons were customers
of and had transactions with the Company in the ordinary course of business.
Included in such transactions are outstanding loans and commitments, all of
which were made under normal credit terms and did not involve more than normal
risk of collection. The aggregate dollar amount of these loans was approximately
$17,387,000 and $14,796,000 at December 31, 1997 and 1996, respectively. During
1997, new loans of approximately $9,440,000 were made, and payments totaled
approximately $6,849,000.
NOTE 8 Premises and Equipment
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
Land $ 6,243 $ 4,194
................................................
Buildings 17,977 14,196
................................................
Furniture, fixtures and equipment 22,188 19,983
................................................
Leasehold improvements 8,203 7,754
................................................
Construction in progress 1,377 62
- --------------------------------------------------------------------------------
55,988 46,189
Less accumulated depreciation and amortization 16,306 13,771
- --------------------------------------------------------------------------------
$39,682 $32,418
- --------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization charged to operations totaled $3,181,000,
$3,257,000 and $3,284,000 in 1997, 1996 and 1995, respectively.
At December 31, 1997, approximately $1,920,000 of land and buildings was
pledged as collateral for long-term debt obligations (Note 15).
CAROLINA FIRST CORPORATION 34 1997 ANNUAL REPORT
<PAGE>
NOTE 9 Intangible Assets
Intangible assets, net of accumulated amortization, at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
Goodwill $49,026 $ 7,601
................................................
Core deposit premium 9,064 8,813
................................................
Credit card premium 138 207
- --------------------------------------------------------------------------------
$58,228 $16,621
- --------------------------------------------------------------------------------
</TABLE>
NOTE 10 Mortgage Operations
Mortgage servicing rights, which are included in other assets at December 31,
are summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
Servicing rights $19,819 $17,595
................................................
Excess servicing rights 12 19
................................................
</TABLE>
The Company paid $5,634,000 for mortgage servicing rights to approximately
$725 million of loans in 1997. The amortization of servicing rights and excess
servicing rights included in loan servicing fees amounted to $4,115,000,
$2,574,000 and $1,447,000 in 1997, 1996 and 1995, respectively. Mortgage
servicing rights in 1997 were reduced by approximately $37,000 related to the
sales of mortgage servicing rights.
The fair value of mortgage servicing rights at December 31, 1997 was
approximately $21,344,000. No valuation allowance for capitalized servicing
rights or excess servicing rights was required during the year ended December
31, 1997.
Mortgage banking income includes income from originations and sales of
mortgage loans of $2,360,000, $1,392,000 and $1,785,000 in 1997, 1996 and 1995,
respectively.
In accordance with SFAS 122, the Company capitalized $734,000 and $532,000
in 1997 and 1996, respectively, representing the allocated cost of originated
mortgage servicing rights, and recorded a corresponding increase in mortgage
banking income.
NOTE 11 Deposits
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
Noninterest-bearing demand deposits $ 206,938 $ 194,067
..........................................
Interest-bearing demand deposits 314,994 184,450
..........................................
Money market accounts 183,032 177,665
..........................................
Savings accounts 74,248 57,977
..........................................
Time deposits 967,330 666,891
- --------------------------------------------------------------------------------
$1,746,542 $1,281,050
- --------------------------------------------------------------------------------
</TABLE>
Time deposits in excess of $100,000 totaled $231 million and $192 million at
December 31, 1997 and 1996, respectively.
NOTE 12 Income Taxes
Income tax expense for the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
..................................................................................
CURRENTLY PAYABLE
Federal $9,131 $5,009 $5,664
..........................................
State 638 518 259
- ----------------------------------------------------------------------------------
9,769 5,527 5,923
- ----------------------------------------------------------------------------------
DEFERRED
Federal (1,673) 432 (999)
..........................................
State (4) 40 32
- ----------------------------------------------------------------------------------
(1,677) 472 (967)
- ----------------------------------------------------------------------------------
Total income taxes $8,092 $5,999 $4,956
- ----------------------------------------------------------------------------------
</TABLE>
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate of 35% for 1997, 1996 and 1995, to income
before income taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
..................................................................................
Tax expense at statutory rate $7,851 $5,766 $5,030
..........................................
Differences resulting from:
Rehabilitation tax credit (97) (100) (30)
..........................................
Change in valuation allowance for
deferred
tax assets 56 23 85
..........................................
State tax, net of federal benefit 412 363 189
..........................................
Nontaxable interest (445) (402) (329)
..........................................
Other, net 315 349 11
- ----------------------------------------------------------------------------------
$8,092 $5,999 $4,956
- ----------------------------------------------------------------------------------
</TABLE>
CAROLINA FIRST CORPORATION 35 1997 ANNUAL REPORT
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31 are
presented below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
DEFERRED TAX ASSETS
Loan loss allowance deferred for tax purposes $ 5,386 $3,302
.................................................
Excess basis of intangible assets for financial
reporting purposes over tax basis 689 727
.................................................
Net operating loss carryforwards 607 382
.................................................
Compensation expense deferred for tax reporting
purposes 1,192 --
.................................................
Other 355 338
- --------------------------------------------------------------------------------
8,229 4,749
Less valuation allowance 296 240
- --------------------------------------------------------------------------------
7,933 4,509
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Net loan fees deferred for tax purposes 1,094 1,094
.................................................
Tax depreciation in excess of book depreciation 2,190 1,561
.................................................
Unrealized gain on securities available for sale 3,696 249
.................................................
Tax bad debt reserve recapture adjustment 1,233 1,183
.................................................
Excess carrying value of assets acquired for
financial reporting purposes over tax basis 1,092 --
.................................................
Other 682 87
- --------------------------------------------------------------------------------
9,987 4,174
- --------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $(2,054) $ 335
- --------------------------------------------------------------------------------
</TABLE>
A portion of the change in net deferred tax assets (liabilities) relates to
unrealized gains on securities available for sale. The related current period
deferred taxes of $3,447,000 have been recorded directly to shareholders'
equity. Purchase acquisitions also increased net deferred tax liability by
$619,000 during 1997. The balance of the change in net deferred tax assets
results from the current period deferred tax benefit of $1,677,000. The net
deferred tax asset (liability) is included in other assets (liabilities) in the
accompanying consolidated balance sheets.
The valuation allowance against the potential total deferred tax assets as
of December 31, 1997 and 1996 relates to deductible temporary differences for
state tax purposes. It is management's conclusion that the realization of the
net deferred tax asset recorded is more likely than not. This conclusion is
based upon taxable income in carryback years and conservative projections of
taxable income in future years.
The Company's income tax returns for 1994 and subsequent years are subject
to review by the taxing authorities. There are no significant pending
assessments from taxing authorities regarding taxation issues at the Company or
its subsidiaries.
NOTE 13 Borrowed Funds
Short-term borrowings and their related weighted average interest rates at
December 31 were:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
($ IN THOUSANDS) AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
..................................................................................
Federal funds purchased $ -- -- % $ 15,000 6.88 %
.............................
Repurchase agreements 112,161 5.22 72,144 4.99
.............................
FHLB advances -- -- 40,000 6.95
.............................
Commercial paper 27,254 6.33 18,016 6.40
.............................
Other 324 7.55 29 7.72
- ----------------------------------------------------------------------------------
$139,739 5.44 % $145,189 5.90 %
- ----------------------------------------------------------------------------------
</TABLE>
Total loans pledged to the FHLB for advances at December 31, 1997 were $154
million.
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions by Carolina First Bank. Repurchase agreements represent
short-term borrowings by Carolina First Bank with maturities ranging from 1 to
182 days collateralized by securities of the United States government or its
agencies which are held by third-party safekeepers. FHLB advances represent
borrowings from the FHLB of Atlanta by Carolina First Bank pursuant to lines of
credit collateralized by a blanket lien on qualifying loans secured by first
mortgages on 1-4 family residences. These advances have an initial maturity of
one year or less with interest payable monthly. Commercial paper is issued by
the Company with maturities less than 270 days. Other short-term borrowings
represent the current portion of long-term debt.
The maximum short-term borrowings outstanding at any month end were:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
Federal funds purchased and repurchase
agreements $113,421 $ 95,013
..............................................
FHLB advances 115,000 115,000
..............................................
Commercial paper and other short-term
borrowings 27,578 18,587
..............................................
Aggregate short-term borrowings 258,882 228,600
..............................................
</TABLE>
Average short-term borrowings during 1997, 1996 and 1995 were $169 million,
$158 million and $137 million, respectively. The average interest rate on
short-term borrowings during 1997, 1996 and 1995 were 5.61%, 5.47% and 6.00%,
respectively.
Interest expense on short-term borrowings for the years ended December 31
related to the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
.................................................................................
Federal funds purchased and repurchase
agreements $4,859 $4,247 $3,613
...........................................
FHLB advances 3,355 3,563 4,310
...........................................
Other short-term borrowings 1,274 847 273
- ---------------------------------------------------------------------------------
$9,488 $8,657 $8,196
- ---------------------------------------------------------------------------------
</TABLE>
CAROLINA FIRST CORPORATION 36 1997 ANNUAL REPORT
<PAGE>
NOTE 14 Unused Lines of Credit
At December 31, 1997, Carolina First Bank had unused short-term lines of credit
to purchase federal funds from unrelated banks totaling $48,000,000. These lines
of credit are available on a one-to-ten day basis for general corporate purposes
of Carolina First Bank. All of the lenders have reserved the right to withdraw
these lines at their option. At December 31, 1997, Carolina First Bank had an
unused line of credit with the FHLB of Atlanta totaling $144 million.
NOTE 15 Long-Term Debt
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996
<S> <C> <C>
................................................................................
9.00% Subordinated Notes; due September 1, 2005;
interest payable quarterly $25,489 $25,361
................................................
Mortgage note payable; interest at 11.25% due
December 31, 2012, with current annual
payments of approximately $125,000 1,055 1,081
................................................
Employee stock ownership plan note payable to
Centura Bank; due July 23, 2002; interest at
Centura Bank's prime rate less 1.25% with
monthly principal payments of $25,000 2,575 --
................................................
FHLB advances; interest at 5.87% due June 24,
2002; interest payable quarterly 10,000 --
- --------------------------------------------------------------------------------
$39,119 $26,442
- --------------------------------------------------------------------------------
</TABLE>
On May 18, 1995, the Company completed its public offering of the 9.00%
Subordinated Notes. The Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after September 1, 2000, at 100%
of the principal amount plus accrued interest to the date of redemption.
The principal maturities of long-term debt for the next five years
subsequent to December 31, 1997 are $324,000 in 1998, $327,000 in 1999, $317,000
in 2000, $319,000 in 2001 and $11,697,000 in 2002.
NOTE 16 Commitments and
Contingent Liabilities
The Company is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Any litigation is vigorously defended by
the Company and, in the opinion of management based on consultation with
external legal counsel, any outcome of such litigation would not materially
affect the Company's consolidated financial position or results of operations.
On November 4, 1996, a derivative shareholder action was filed in Greenville
County Court of Common Pleas against the Company, the majority of the Company's
and Carolina First Bank's directors and certain executive and other officers.
The named plaintiffs are the Company by and through certain minority
shareholders. The Company filed a motion to dismiss with respect to all claims
in this complaint, which was granted in December 1997. Plaintiffs have filed a
motion for reconsideration and have the right to appeal the grant of the motion
to dismiss. Plaintiffs allege as causes of action the following: conversion of
corporate opportunity; fraud and constructive fraud; breach of fiduciary duty
and constructive fiduciary fraud; and negligent management. The factual basis
upon which these claims are made generally involves the payment to Company
officers and other individuals of a bonus in stock held by the Company in
Affinity (as a reward for their efforts in connection with the Company's
procurement of stock in Affinity), statements to former shareholders in
connection with the Company's acquisition of MNB, alleged misstatements in the
Company's public filings, transactions between the Company and entities
affiliated with a former director, and alleged mismanagement by certain
executive officers involving financial matters and employee matters. The
complaint seeks damages for the benefit of the Company aggregating $41 million
and recision of the Affinity bonus.
In an action instituted by the same attorneys bringing the above-mentioned
derivative action, on December 31, 1996, certain individuals filed a class
action lawsuit against the Company, Carolina First Bank, and a number of
officers and directors of the Company and Carolina First Bank. In connection
with the judge's granting the motion to dismiss in the above-referenced
derivative action, the plaintiff's attorney has agreed to withdraw this lawsuit,
without prejudice. In this class action lawsuit, plaintiffs allege that they are
former shareholders of MNB and seek to represent a class of all MNB shareholders
involved in the merger of MNB into Carolina First Bank, asserting that the
defendants committed fraud, constructive fraud, and breach of fiduciary duty
against the defendants by overstating earnings and thereby adversely affecting
the consideration received by the MNB shareholders in connection with the merger
of MNB into Carolina First Bank. The complaint seeks compensatory damages of
approximately $1.8 million and punitive damages in an amount to be determined by
a jury, attorneys' fees and other costs.
CAROLINA FIRST CORPORATION 37 1997 ANNUAL REPORT
<PAGE>
NOTE 17 Lease Commitments
Minimum rental payments under noncancelable operating leases at December 31,
1997 are as follows:
<TABLE>
<S> <C>
($ IN THOUSANDS)
.............................................................................
1998 $ 2,646
.......................................................
1999 2,399
.......................................................
2000 2,255
.......................................................
2001 2,104
.......................................................
2002 2,056
.......................................................
Thereafter 19,008
- -----------------------------------------------------------------------------
$30,468
- -----------------------------------------------------------------------------
</TABLE>
Leases on premises and equipment have options for extensions under
substantially the same terms as in the original lease period with certain rate
escalations. Lease payments charged to expense totaled $2,284,000, $1,830,000
and $1,484,000 in 1997, 1996 and 1995, respectively. The leases typically
provide that the lessee pay property taxes, insurance and maintenance cost.
NOTE 18 Capital Stock
On January 4, 1996, the Company announced the redemption of the 7.50%
Noncumulative Convertible Preferred Stock Series 1993 ("Series 1993 Preferred
Stock"). The redemption date was February 5, 1996. Of the 435,121 shares of
Series 1993 Preferred Stock outstanding, holders of 432,915 shares elected to
convert into Common Stock. Consequently, the Company issued 871,425 shares of
Common Stock.
On January 25, 1996, the Company announced the redemption of the 7.32%
Noncumulative Convertible Preferred Stock Series 1994 ("Series 1994 Preferred
Stock"). The redemption date was February 29, 1996. Of the 909,750 shares of
Series 1994 Preferred Stock outstanding, holders of 903,299 shares elected to
convert into Common Stock. Consequently, the Company issued 1,700,670 shares of
Common Stock.
On February 1, 1997, all outstanding shares of the Series 1993B Cumulative
Convertible Preferred Stock ("Series 1993B Preferred Stock") were converted into
the Company's Common Stock. Consequently, the Company issued 108,341 shares of
its Common Stock. Dividends declared on the Series 1993B Preferred Stock during
1996 were $63,000. No dividends were declared or paid on the Series 1993B
Preferred Stock during 1997.
On February 13, 1998, the Company completed the sale of 2.0 million shares
of its Common Stock to certain overseas investors (exempt from registration
provided by Regulation S under Securities act of 1933) and received net proceeds
of approximately $39 million.
NOTE 19 Per Share Information
The Company has adopted the provisions of SFAS 128, "Earnings per Share"
("EPS"), for the year ended December 31, 1997. The presentation of primary and
fully-diluted EPS has been replaced with a presentation of basic and diluted
EPS. All prior-period EPS data have been restated to reflect the adoption of
SFAS 128.
The following is a summary of the earnings per share calculation for the
years ended December 31:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT SHARE
DATA) 1997 1996 1995
<S> <C> <C> <C>
...................................................................................
BASIC
Net income $ 14,340 $ 10,474 $ 9,414
...............................
Less dividends on preferred
stock -- 63 2,752
- -----------------------------------------------------------------------------------
Net income applicable to common
shareholders (numerator) $ 14,340 $ 10,411 $ 6,662
- -----------------------------------------------------------------------------------
Average common shares
outstanding (denominator) 11,989,517 10,705,107 7,516,620
...............................
Per share amount $ 1.19 $ 0.97 $ 0.89
...............................
DILUTED
Net income (numerator) $ 14,340 $ 10,474 $ 9,414
- -----------------------------------------------------------------------------------
Average common shares
outstanding 11,989,517 10,705,107 7,516,620
...............................
Convertible preferred stock
assumed converted 4,174 527,745 3,506,829
...............................
Dilutive common stock options
and warrants 181,870 135,183 160,277
- -----------------------------------------------------------------------------------
Average diluted shares
outstanding (denominator) 12,175,561 11,368,035 11,183,726
- -----------------------------------------------------------------------------------
Per share amount $ 1.18 $ 0.92 $ 0.84
...............................
</TABLE>
The following options were outstanding at December 31, 1997 but were
excluded from the calculation of diluted EPS because the exercise price was
greater than the average market price of the common shares:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE
<S> <C>
.....................................................
90,667 $21.56
49,417 24.79
49,417 28.03
49,417 31.26
</TABLE>
For the years ended 1996 and 1995, no options were outstanding with an exercise
price greater than the average market price of the common shares.
On December 18, 1996, the Company's Board of Directors declared a
six-for-five stock split effected in the form of a 20% common stock dividend.
This stock was issued on January 30, 1997, to common shareholders of record on
January 15, 1997. A total of 1,870,130 shares of Common Stock were issued in
connection with the six-for-five stock split. The stated par value of each share
was not changed from $1. Share and per share data have been restated to reflect
this stock split.
CAROLINA FIRST CORPORATION 38 1997 ANNUAL REPORT
<PAGE>
NOTE 20 Restriction of Dividends
The ability of the Company to pay cash dividends over the long term is dependent
upon receiving cash in the form of dividends from its subsidiaries. South
Carolina's banking regulations restrict the amount of dividends that Carolina
First Bank can pay. All dividends paid from Carolina First Bank are subject to
the prior approval of the Commissioner of Banking and payable only from the
retained earnings of Carolina First Bank. At December 31, 1997, Carolina First
Bank's retained earnings were $40,197,000.
NOTE 21 Regulatory Capital
Requirements
The Company and Carolina First Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and Carolina First Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Carolina First Bank must meet specific
capital guidelines that involve quantitative measures of the Company's and
Carolina First Bank's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's and Carolina
First Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Carolina First Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined in
the regulation) to risk-weighted assets (as defined) and to average assets (as
defined). Management believes, as of December 31, 1997, that the Company and
Carolina First Bank met all capital adequacy requirements.
As of the most recent regulatory examination, the Company and Carolina First
Bank were deemed well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Company and
Carolina First Bank must maintain minimum total risk-based, Tier 1 based and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events, since that examination that management believes have changed the
institution's category.
Following are the required and actual capital amounts and ratios for the
Company and Carolina First Bank as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES: PROVISIONS:
--------------- --------------- ---------------
($ IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
.....................................................................................
AS OF DECEMBER 31, 1997
THE COMPANY
Total capital to
risk weighted
assets $180,095 11.15% $129,190 8.00 % $161,487 10.00%
...................
Tier 1 capital to
risk weighted
assets 138,405 8.57 64,595 4.00 96,892 6.00
...................
Tier 1 capital to
average assets 138,405 6.60 83,930 4.00 104,913 5.00
...................
CAROLINA FIRST BANK
Total capital to
risk weighted
assets 170,736 10.31 132,483 8.00 165,604 10.00
...................
Tier 1 capital to
risk weighted
assets 155,673 9.40 66,241 4.00 99,362 6.00
...................
Tier 1 capital to
average assets 155,673 7.51 82,878 4.00 103,597 5.00
...................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
THE COMPANY
Total capital to
risk weighted
assets $124,444 10.39% $95,792 8.00 % $119,740 10.00%
....................
Tier 1 capital to
risk weighted
assets 87,874 7.34 47,896 4.00 71,844 6.00
....................
Tier 1 capital to
average assets 87,874 5.64 62,312 4.00 77,889 5.00
....................
CAROLINA FIRST BANK
Total capital to
risk weighted
assets 118,523 10.06 94,257 8.00 117,821 10.00
....................
Tier 1 capital to
risk weighted
assets 107,377 9.11 47,128 4.00 70,692 6.00
....................
Tier 1 capital to
average assets 107,377 6.98 61,538 4.00 76,922 5.00
....................
</TABLE>
NOTE 22 Financial Instruments With
Off-Balance-Sheet Risk
In the normal course of business, to meet the financing needs of its customers,
the Company is a party to financial instruments with off-balance-sheet risk.
These financial instruments include commitments to extend credit, standby
letters of credit, repurchase agreements and documentary letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheets.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
CAROLINA FIRST CORPORATION 39 1997 ANNUAL REPORT
<PAGE>
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit
evaluation.
Loan commitments and letters of credit at December 31, 1997 include the
following:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
<S> <C>
.............................................................................
Unused credit card lines $333,170
.......................................................
Other loan commitments 168,523
.......................................................
Standby letters of credit 16,152
.......................................................
Documentary letters of credit 5,139
.......................................................
</TABLE>
At December 31, 1997, the Company had executed simultaneous
repurchase/reverse repurchase transactions with customers with total principal
amounts of approximately $100 million which are not reflected in the
accompanying balance sheets.
The total portfolios of loans serviced or sub-serviced for non-affiliated
parties at December 31, 1997 and 1996 were $1,346 million and $1,141 million,
respectively.
NOTE 23 Related Party Transactions
The Company has entered into a series of transactions with entities whose Chief
Executive Officer was a director of the Company until 1996. These transactions
include the purchase of branches from Republic National Bank, the purchase of
the credit card receivables from Republic National Bank, the purchase of
mortgage servicing rights from Resource Bancshares Mortgage Group, Inc., the
purchase of lease financing receivables from Republic Leasing Company, Inc. and
the purchase of RPG. Carolina First Bank has also entered into servicing and
solicitation agreements with Republic National Bank pursuant to its credit card
accounts.
During the years ended December 31, 1997, 1996 and 1995, lease payments
aggregating approximately $27,000, $27,000 and $167,000, respectively, were made
to affiliates of directors or companies in which certain directors have an
interest.
These transactions, agreements and lease payments were made in the ordinary
course of business and were on terms comparable to those which would have been
obtained between unrelated parties.
NOTE 24 Stock Compensation Plans
The Company has a Restricted Stock Plan for awards to certain key employees.
Under the Restricted Stock Plan, the Company may grant Common Stock to its
employees for up to 500,000 shares. All shares granted under the Restricted
Stock Plan are subject to restrictions as to continuous employment for a
specified time period following the date of grant. During this period, the
holder is entitled to full voting rights and dividends. At December 31, 1997,
there were 39,505 shares (adjusted for stock dividends and split) of restricted
stock outstanding. Deferred compensation representing the fair market value of
the stock at the date of grant is being amortized over a five-year vesting
period, with $426,000 charged to expense in 1997, $428,000 in 1996 and $338,000
in 1995.
The Company has a Stock Option Plan, a Directors' Stock Option Plan,
warrants to MNB organizers and options acquired from Lowcountry (collectively
referred to as stock-based option plans). Under the Stock Option Plan, the
Company may grant options to its employees for up to 1,500,000 shares of Common
Stock. The exercise price of each option either equals or exceeds the fair
market value of the Company's Common Stock on the date of grant, and an option's
maximum term is ten years. Options are exercisable as specified in the
agreement, typically on a cumulative basis over a three to five-year period.
Under the Directors' Stock Option Plan, non-employee directors of the Company
and subsidiaries receive an option to acquire 1,000 shares of Common Stock on
May 1 of each year. The exercise price of each directors' option equals the fair
market value of the Company's Common Stock on the date of grant. Directors'
options are exercisable at any time during the period of time beginning ten
months from the grant date and ending on the tenth anniversary of the grant
date. Each of MNB's organizers received one nontransferable warrant to purchase
one share of MNB's common stock for each share they had committed to purchase in
the 1988 initial offering. The exercise price of the warrants is $4.81 per
share, and the warrants are exercisable at any time until their expiration on
December 7, 1998.
CAROLINA FIRST CORPORATION 40 1997 ANNUAL REPORT
<PAGE>
The Company applies APB Opinion 25 in accounting for the stock-based option
plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option plans. Had
compensation cost been recognized for the stock-based option plans applying the
fair-value-based method as prescribed by SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
<S> <C> <C>
...............................................................................
NET INCOME
As reported $14,340 $10,474
.............................................
Pro forma 12,566(1) 10,039
.............................................
BASIC EARNINGS PER SHARE
As reported 1.19 0.97
.............................................
Pro forma 1.05 0.93
.............................................
DILUTED EARNINGS PER SHARE
As reported 1.18 0.92
.............................................
Pro forma 1.03 0.88
.............................................
</TABLE>
(1) Approximately $1.5 million of the option expense (after-tax) in 1997 was
related to options acquired from Lowcountry.
The effects of applying SFAS 123 may not be representative of the effects on
reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: dividend yield of 3.25% for
all years; expected volatility of 38% for all years; risk-free interest rate of
6.06%, 6.59% and 6.57%, respectively; and expected lives of 7.5 years for all
plans in all years.
The following is a summary of the activity under the stock-based option
plans for the years 1997, 1996 and 1995. The information has been adjusted for
all stock dividends and the six-for-five stock split.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
...............................................................................................
Outstanding, January 1 384,644 $ 10.95 390,376 $ 7.74 377,709 $ 6.43
......................
Granted:
......................
Price = Fair Value 230,157 18.06 147,950 15.35 93,270 11.54
......................
Price > Fair Value 152,651 27.68
......................
Price < Fair Value
(from Lowcountry
acquisition) 185,639 6.93
......................
Cancelled (19,493) 12.59 (36,222) 12.02 (3,925) 10.42
......................
Exercised (81,422) 7.51 (117,460) 5.27 (76,678) 5.78
- -----------------------------------------------------------------------------------------------
Outstanding, December
31 852,176 $ 15.28 384,644 $ 10.95 390,376 $ 7.74
- -----------------------------------------------------------------------------------------------
Exercisable, December
31 386,528 $ 9.04 234,045 $ 9.05 254,352 $ 5.86
- -----------------------------------------------------------------------------------------------
Weighted-average fair
value of options
granted during the
year $ 18.69 $ 15.35 $11.54
- -----------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
under the stock-based option plans at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OUTSTANDING AS CONTRACTUAL EXERCISE NUMBER EXERCISABLE EXERCISE
EXERCISE PRICES OF 12/31/97 LIFE PRICE AS OF 12/31/97 PRICE
<C> <C> <S> <C> <C> <C>
.........................................................................................................................
$ 4.81 to $ 5.33 117,310 4.4 YEARS $ 5.01 117,310 $ 5.01
$ 6.35 to $ 8.00 115,681 7.0 7.57 115,681 7.57
$ 9.09 to $12.71 106,737 6.9 11.09 70,368 10.76
$14.58 to $15.69 213,682 9.0 15.25 61,689 14.62
$15.73 to $21.56 150,515 9.5 19.67 21,480 17.39
$24.79 to $31.26 148,251 10.0 28.03 -- --
- -------------------------------------------------------------------------------------------------------------------------
$ 4.81 to $31.26 852,176 8.1 YEARS $ 15.28 386,528 $ 9.04
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 25 Employee Benefits
The Company maintains the Carolina First Salary Reduction Plan and Trust for all
eligible employees of the Company. Upon ongoing approval of the Board of
Directors, the Company matches employee contributions equal to five percent of
compensation subject to certain adjustments and limitations. Contributions of
$873,000, $777,000 and $496,000 were charged to operations in 1997, 1996 and
1995, respectively.
The Company maintains the Carolina First Employee Stock Ownership Plan
("ESOP") for all eligible employees. Contributions are at the discretion of, and
determined annually by the Board of Directors, and may not exceed the maximum
amount deductible under the applicable section of the Internal Revenue Code. For
the years ended December 31, 1997, 1996 and 1995, contributions of $346,000,
$306,000 and $901,000, respectively, were charged to operations.
The ESOP has a loan used to acquire shares of stock of the Company. Such
stock is pledged as collateral for the loan. In accordance with the requirements
of the American Institute of Certified Public Accountants Statements of Position
76-3 and 93-6, the Company presents the outstanding loan amount as other
borrowed money and as a reduction of shareholders' equity in the accompanying
consolidated balance sheets (Note 15). Company contributions to the ESOP are the
primary source of funds used to service the debt.
On January 24, 1996, the Company's Board of Directors awarded 6,289 shares
(before a 106-for-1 stock split) of Affinity common stock to certain officers of
the Company deemed most responsible for the Company's investment in Affinity.
Fair value of the Affinity stock award as determined by an independent third
party appraisal was $587,000 which was recorded as compensation expense and gain
on sale of securities.
CAROLINA FIRST CORPORATION 41 1997 ANNUAL REPORT
<PAGE>
NOTE 26 Noninterest Expenses
The significant components of sundry noninterest expenses for the years ended
December 31 are presented below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
...................................................................................
Advertising $ 1,647 $ 821 $ 1,427
...........................
Telephone 1,362 1,144 1,066
...........................
Postage 1,349 1,105 1,127
...........................
Stationery, supplies and
printing 1,321 1,183 1,037
...........................
Professional fees 866 917 783
...........................
Legal fees, other than
loan-related 541 1,048 486
...........................
Other real estate owned &
other losses 416 2,120 364
...........................
Federal deposit insurance
premiums 494 469 1,983
...........................
Credit card solicitation
charges -- 383 1,910
...........................
Other 7,413 6,233 5,426
- -----------------------------------------------------------------------------------
$ 15,409 $ 15,423 $ 15,609
- -----------------------------------------------------------------------------------
</TABLE>
Noninterest expenses for 1996 include a Savings Association Insurance Fund
("SAIF") special assessment of $1,184,000 (pre-tax). This one-time assessment
was required due to the merger of the Bank Insurance Fund ("BIF"), the primary
deposit insurance fund for commercial banks, with the SAIF, the primary deposit
insurance fund for thrifts and savings banks. All members of the SAIF, including
non-thrift institutions such as Carolina First Bank which have acquired deposits
from thrift institutions, were required to pay a one-time assessment of 0.657%
of SAIF-insured deposit balances as of March 31, 1995. The Company paid this
special assessment in the fourth quarter of 1996.
NOTE 27 Parent Company Financial Information
The following is condensed financial information of Carolina First Corporation
(Parent Company only):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
YEARS ENDED DECEMBER 31,
($ IN THOUSANDS) 1997 1996
....................................................................................................................................
<S> <C> <C>
ASSETS
Cash $ 16,284 $ 5,987
..........................................................................................................
Investment in subsidiaries:
Bank subsidiary 212,273 121,722
..........................................................................................................
Nonbank subsidiaries 10,904 3,351
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in subsidiaries 223,177 125,073
..........................................................................................................
Receivable from subsidiaries 12,847 14,392
..........................................................................................................
Premises and equipment 203 169
..........................................................................................................
Other investments 3,716 120
..........................................................................................................
Other assets 4,307 3,598
- ------------------------------------------------------------------------------------------------------------------------------------
$260,534 $149,339
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 3,257 $ 972
..........................................................................................................
Borrowed funds 55,618 43,403
..........................................................................................................
Shareholders' equity 201,659 104,964
- ------------------------------------------------------------------------------------------------------------------------------------
$260,534 $149,339
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAROLINA FIRST CORPORATION 42 1997 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
($ IN THOUSANDS) 1997 1996 1995
...................................................................................................................................
<S> <C> <C> <C>
INCOME
Equity in undistributed net income of subsidiaries $11,454 $ 6,360 $ 11,272
.......................................................................................
Interest income from subsidiaries 1,407 787 71
.......................................................................................
Dividend income from subsidiaries 4,885 6,500 --
.......................................................................................
Sundry 1,755 1,810 907
- -----------------------------------------------------------------------------------------------------------------------------------
19,501 15,457 12,250
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Interest on borrowed funds 3,744 3,199 1,503
.......................................................................................
Deferred compensation 426 1,015 338
.......................................................................................
Shareholder communications 288 276 255
.......................................................................................
Sundry 1,810 2,049 1,850
- -----------------------------------------------------------------------------------------------------------------------------------
6,268 6,539 3,946
- -----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 13,233 8,918 8,304
.......................................................................................
Income tax benefits 1,107 1,556 1,110
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $14,340 $10,474 $ 9,414
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
($ IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
...................................................................................................................................
OPERATING ACTIVITIES
Net income $ 14,340 $ 10,474 $ 9,414
.....................................................................................
Adjustments to reconcile net income to net cash provided by operations
Equity in undistributed net income of subsidiaries (11,454) (6,360) (11,272)
.....................................................................................
Depreciation 20 18 16
.....................................................................................
Increase in other liabilities 1,007 214 583
.....................................................................................
(Increase) decrease in other assets (283) 101 2,342
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,630 4,447 1,083
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in bank subsidiary -- -- (25,100)
.....................................................................................
Investment in nonbank subsidiaries (2,820) (1,235) --
.....................................................................................
Net decrease (increase) in loans to subsidiaries 1,545 (14,240) 76
.....................................................................................
(Increase) decrease in other investments (3,449) 1,324 (441)
.....................................................................................
(Increase) decrease in fixed assets, net (54) (50) 210
.....................................................................................
Blue Ridge merger -- -- 804
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (4,778) (14,201) (24,451)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in borrowings, net 9,515 15,685 2,355
.....................................................................................
Issuance of long-term debt 2,700 -- 25,237
.....................................................................................
Cash dividends paid (2,688) (3,130) (4,221)
.....................................................................................
Other 1,918 1,453 1,432
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,445 14,008 24,803
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 10,297 4,254 1,435
.....................................................................................
Cash at beginning of year 5,987 1,733 298
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 16,284 $ 5,987 $ 1,733
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAROLINA FIRST CORPORATION 43 1997 ANNUAL REPORT
<PAGE>
NOTE 28 Fair Value of Financial
Instruments
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information, whether or not recognized in the statement
of financial position, when it is practicable to estimate the fair value. SFAS
107 defines a financial instrument as cash, evidence of an ownership interest in
an entity or contractual obligations which require the exchange of cash or other
financial instruments. Certain items are specifically excluded from the
disclosure requirements, including the Company's common and preferred stock,
premises and equipment, accrued interest receivable and payable and other assets
and liabilities.
Fair value approximates book value for the following financial instruments
due to the short-term nature of the instrument: cash and due from banks,
interest-bearing bank balances, federal funds purchased and repurchase
agreements and other short-term borrowings.
Fair value for variable rate loans that reprice frequently is based on the
carrying value. Fair value for mortgage loans, consumer loans and all other
loans (primarily commercial and industrial loans) with fixed rates of interest
is based on the discounted present value of the estimated future cash flows less
the allowance for loan losses. Discount rates used in these computations
approximate the rates currently offered for similar loans of comparable terms
and credit quality.
The carrying amount for loan commitments and letters of credit, which are
off-balance-sheet financial instruments, approximates the fair value since the
obligations are typically based on current market rates.
Fair value for demand deposit accounts and interest-bearing accounts with no
fixed maturity date is equal to the carrying value. Certificate of deposit
accounts are estimated by discounting cash flows from expected maturities using
current interest rates on similar instruments.
Fair value for long-term debt is based on discounted cash flows using the
Company's current incremental borrowing rate. Investment securities are valued
using quoted market prices.
The Company has used management's best estimate of fair value based on the
above assumptions. Thus, the fair values presented may not be the amounts which
could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair values
presented.
The estimated fair values of the Company's financial instruments at December
31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
($ IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
..................................................................................................................................
FINANCIAL ASSETS
Cash and due from banks $ 73,326 $ 73,326 $ 86,322 $ 86,322
.......................................................................
Interest-bearing bank balances 34,703 34,703 26,037 26,037
.......................................................................
Trading securities 2,349 2,349 2,005 2,005
.......................................................................
Securities available for sale 262,329 262,329 213,889 213,889
.......................................................................
Securities held to maturity 33,855 34,494 29,465 29,861
.......................................................................
Loans receivable 1,586,204 1,663,269 1,113,485 1,191,583
.......................................................................
FINANCIAL LIABILITIES
Deposit liabilities 1,746,542 1,785,360 1,281,050 1,303,304
.......................................................................
Federal funds purchased and repurchase agreements 112,161 112,161 87,144 87,144
.......................................................................
Short-term borrowings 27,578 27,772 58,045 58,045
.......................................................................
Long-term debt 39,119 39,301 26,442 27,594
.......................................................................
</TABLE>
CAROLINA FIRST CORPORATION 44 1997 ANNUAL REPORT
<PAGE>
NOTE 29 Quarterly Operating Results (Unaudited)
The following is a summary of the unaudited consolidated quarterly results of
the Company for the years ended December 31:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
($ IN THOUSANDS, ----------------------- ----------------------- ----------------------- -----------------------
EXCEPT SHARE DATA) 1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
....................................................................................................................................
Interest income $30,392 $28,097 $31,950 $28,530 $34,919 $30,013 $38,445 $30,232
.............................
Interest expense 14,940 14,670 16,089 14,617 17,967 15,278 20,004 15,237
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 15,452 13,427 15,861 13,913 16,952 14,735 18,441 14,995
.............................
Provision for loan losses 2,952 1,500 3,041 1,775 3,610 4,896 2,043 2,092
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 12,500 11,927 12,820 12,138 13,342 9,839 16,398 12,903
.............................
Noninterest income 3,092 4,290 6,604 3,623 5,526 8,662 4,393 4,766
.............................
Noninterest expenses 12,866 12,679 12,239 11,677 13,173 14,792 13,965 12,527
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 2,726 3,538 7,185 4,084 5,695 3,709 6,826 5,142
.............................
Income taxes 1,009 1,310 2,524 1,412 2,057 1,374 2,502 1,903
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,717 2,228 4,661 2,672 3,638 2,335 4,324 3,239
.............................
Dividends on preferred stock -- 16 -- 16 -- 16 -- 15
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to
common shareholders $ 1,717 $ 2,212 $ 4,661 $ 2,656 $ 3,638 $ 2,319 $ 4,324 $ 3,224
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per
common share:*
Basic $ 0.15 $ 0.23 $ 0.41 $ 0.24 $ 0.31 $ 0.21 $ 0.32 $ 0.29
.............................
Diluted 0.15 0.20 0.41 0.23 0.30 0.21 0.32 0.28
.............................
Average common shares
outstanding:*
Basic 11,304,437 9,372,229 11,371,845 11,087,197 11,855,443 11,143,303 13,426,341 11,217,697
.............................
Diluted 11,478,383 11,322,677 11,484,690 11,354,278 12,059,301 11,367,673 13,716,837 11,425,182
.............................
</TABLE>
*PER SHARE DATA HAVE BEEN RESTATED TO REFLECT THE STOCK SPLIT.
CAROLINA FIRST CORPORATION 45 1997 ANNUAL REPORT
<PAGE>
(logo)
Directory
BOARDS OF DIRECTORS
................................................................................
R. Cobb Bell(0)
Certified Public Accountant
Claude M. Epps, Jr.(0)
Shareholder
Bellamy, Rutenberg, Copeland, Epps, Gravely, Bowers P.A.
Attorneys at Law
Judd B. Farr+(0)
President
Greenco Beverage Co., Inc.
C. Claymon Grimes, Jr.+(0)
Attorney
M. Dexter Hagy+(0)
Principal, Vaxa Capital
Management
Chairman, BPM Technology, Inc.
Keith C. Hinson(0)
President
Waccamaw Land and Timber
Michael R. Hogan(0)
President
Puckett, Scheetz & Hogan
William S. Hummers III+(0)
Executive Vice President
and Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
James J. Johnson(0)
President and Treasurer
Dargan Construction Company, Inc.
Vernon E. Merchant, Jr., M.D.+(0)
Surgeon
David L. Morrow(0)
Executive Vice President
Carolina First Bank
William R. Phillips+(0)
Retired
Investment Advisor
Walter J. Roberts, Jr., M.D.(0)
Internist
Medical Director SCMA-PCN
H. Earle Russell, Jr., M.D.+(0)
Surgeon
Greenville Surgical Associates
Jasper Salmond(0)
Senior Marketing Coordinator
Wilbur Smith Associates
Charles B. Schooler, O.D.+(0)
Optometrist
Elizabeth P. Stall+(0)
Investments
Eugene E. Stone IV+(0)
Chief Executive Officer
Umbro International, Inc.
David H. Swinton, Ph.D.(0)
President
Benedict College
James W. Terry, Jr.(0)
President
Carolina First Bank
William R. Timmons, Jr.+(0)
Chairman
Carolina First Corporation
Chairman
Canal Insurance Company
David C. Wakefield III+(0)
Partner
Wakefield Associates
Mack I. Whittle, Jr.+(0)
President and
Chief Executive Officer
Carolina First Corporation
Chairman and
Chief Executive Officer
Carolina First Bank
Thomas C. "Nap" Vandiver
Chairman Emeritus
Carolina First Bank
ADVISORY BOARD MEMBERS
................................................................................
Anderson
James W. Braswell, Jr.
A. Reese Fant
Daniel J. Fleming, M.D.
William W. Jones
D. Gray Suggs
Columbia/Midlands
Thomas N. Bagnal, Jr.
T. Moffatt Burriss
John Ducate, Jr.
S. Stanley Juk, Jr., M.D., FACC
Jerry Kline
Robert C. Pulliam
James T. Tharp
Grace G. Young
Georgetown County
Alan S. Altman
T.M. Andrews
James H. Call
Douglas G. Mahon III
Robert B. Plowden, Jr.
Julian A. Reynolds, Jr.
R. Frank Swinnie, Jr.
Greenville
Alfred N. Bell, Jr.
Nesbit Q. Cline, Sr.
R. Jack Dill, Sr.
Henry W. Holseberg
R. Montague Laffitte, Jr., M.D.
A. Foster McKissick III
Mary Louise Mims
James B. Orders III
E. Hays Reynolds III
Porter B. Rose
Jimmie Tate
Morris E. Williams, M.D.
Hardeeville
Edith Brown
Richard Crosby
Ronald Harvey
J. Willock Horton
David A. Lassiter
Gertrude Harvey Leonard
Horry County
W. Scott Brandon
H. Eugene Butler III, D.M.D.
Donald M. Carriker
Edward C. Cribb, Jr.
Roger E. Grigg
Debby Leonard
Luther O. McCutchen III
Daniel W. R. Moore, Sr.
Edward L. Proctor, Jr., M.D.
Jonathan Smith
Lake City
Marlene T. Askins
Joe F. Boswell
Matthew C. Brown
Roger K. Kirby
Laura Landrum
James C. Lynch, Sr.
E. Leroy Nettles, Jr.
L.L. Propst, Jr.
William J. Sebnick
Newberry
Dan H. Hamm, Jr.
Terry L. Koon
Heyward D. Shealy
C. Gurnie Stuck
Piedmont
Max W. Kennedy
Al McAbee, Jr.
John McCoy
Ridgeland
G. Dwaine Malphrus, Jr.
F.A. Nimmer
R. Bailey Preacher
H. Klugh Purdy
Harold H. Wall
Swansea
Paul E. Argoe
J.E. Hendrix
Roy Lucas
Mary Lewis Smith
Lawrence Kit Spires
Legend: +Carolina First Corporation (0)Carolina First Bank
CAROLINA FIRST CORPORATION 46 1997 ANNUAL REPORT
<PAGE>
PRINCIPAL OFFICERS
................................................................................
Charles D. Chamberlain
Executive Vice President
Carolina First Bank
C. Daniel Dobson, Jr.
Executive Vice President
Carolina First Mortgage Company
William S. Hummers III
Executive Vice President and
Chief Financial Officer
Carolina First Corporation
Executive Vice President
Carolina First Bank
David L. Morrow
Executive Vice President
Carolina First Bank
Joseph C. Reynolds
President
Carolina First Mortgage Company
Merwin L. Rogers
Executive Vice President
Carolina First Bank
Wade H. Shugart
Executive Vice President
Carolina First Bank
H. Bryce Solomon, Jr.
President
Blue Ridge Finance Company
James W. Terry, Jr.
President
Carolina First Bank
Alan H. Verch
Executive Vice President
Carolina First Mortgage Company
Mack I. Whittle, Jr.
President and Chief Executive Officer
Carolina First Corporation
Chairman and Chief Executive Officer
Carolina First Bank
BANKING OFFICES
................................................................................
Abbeville
100 West Greenwood Street
864-459-5472
Aiken
Main Office
142 Chesterfield Street, S.E.
803-649-9991
2286 Whiskey Road
803-642-0300
Anderson
Main Office
201 North Main Street
864-224-3401
2918 North Main Street
864-260-6258
2808 South Main Street
864-260-6261
306 Highway 28 By-pass
864-260-6266
Wal-Mart
3812 Liberty Highway
864-231-5950
Andrews
201 South Morgan Avenue
803-264-3571
Belton
214 O'Neal Street
864-338-6313
Bennettsville
405 East Main Street
803-479-1121
Calhoun Falls
205 E. Savannah Street
864-447-8541
Chapin
260 Columbia Avenue
803-345-1066
Charleston
Main Office
1 Broad Street
803-769-2929
586 E. Bay Street (Drive-up)
803-769-2926
852 Orleans Road
803-763-0072
Columbia
Main Office
1225 Lady Street
803-540-2700
1940 Blossom Street
803-771-8919
Columbia Mall
7171 Two Notch Road
803-253-7873
Kroger at Decker Boulevard
2500 Decker Boulevard
803-929-5397
1420 Lady Street
803-929-5372
380 St. Andrews Road
803-929-5376
7389 Sumter Highway
803-253-8893
Trenholm Plaza
4840 Forest Drive
803-253-8890
10000 Two Notch Road
803-253-8888
Edgefield
309 Main Street
803-637-3147
Garden City
Kroger at Garden City
2939 Highway 17
803-357-4800
Georgetown
Main Office
1031 Front Street
803-546-4163
706 N. Fraser St. (Drive-up)
803-546-6100
Greenville
Main Office
102 South Main Street
864-255-7900
101 Cleveland Street
864-255-7904
200 East Camperdown Way
864-255-4763
917 Haywood Road
864-255-7917
1295 South Pleasantburg Drive
864-239-6432
1450 Wade Hampton Boulevard
864-255-4900
1216 Woodruff Road
864-239-4650
Blue Ridge Finance Company
355 Woodruff Road
Suite 210
864-458-7134
Greenwood
302 Hampton Avenue
864-229-4955
Hardeeville
114 North Coastal Highway
803-784-2216
Hilton Head
401 William Hilton Parkway
803-689-2707
Honea Path
509 East Greer Street
864-369-0037
Irmo
1265 Lake Murray Boulevard
803-748-7008
Isle of Palms
1202-A Palm Boulevard
803-886-9515
Johnston
406 Lee Street
803-275-4467
Lake City
133 West Main Street
803-394-8563
Lexington
575 Columbia Avenue
803-356-8500
Litchfield
1 WallStreet
803-237-9111
Mauldin
305 Neely Ferry Road
864-234-3180
McColl
114 Main Street
803-523-5381
Moncks Corner
601 East Main Street
803-761-1101
Mt. Pleasant
875 Lowcountry Boulevard
803-881-0715
Myrtle Beach
Main Office
2003 Oak Street
803-448-9458
Kroger at Galleria
9608 Highway 17 North
803-497-2567
Newberry
2633 Winnsboro Road
803-321-0433
North Myrtle Beach
Kroger at North
Myrtle Beach
781 Main Street
803-249-3781
Pendleton
1001 South Mechanic Street
864-646-8308
Piedmont
15 Main Street
864-845-7563
Highway 153
864-295-3777
Prosperity
305 Main Street
803-364-7300
Ridgeland
114 North Green Street
803-726-5518
Simpsonville
Wal-Mart
3950 Grandview Drive
864-963-1191
Summerville
1900 Old Trolley Road
803-871-1676
Surfside
Kroger at Surfside
5900 Highway 17 South
803-238-0301
Swansea
200 South Brecon Avenue
803-568-2133
Taylors
3406 Wade Hampton Boulevard
864-239-4680
CAROLINA FIRST CORPORATION 47 1997 ANNUAL REPORT
<PAGE>
(logo)
Shareholder Information
STOCK LISTING
Carolina First Corporation common stock is traded on The Nasdaq Stock Market's
National Market under the symbol, CAFC. At December 31, 1997, there were 3,893
common shareholders of record.
MARKET MAKERS
J.C. Bradford & Co.
Fox-Pitt, Kelton Inc.
Friedman, Billings, Ramsey & Co. Inc.
Interstate/Johnson Lane
Keefe, Bruyette & Woods, Inc.
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company, Inc.
Sterne, Agee & Leach
Wheat First Union
DIVIDEND CALENDAR
Dividends, if approved by the Board of Directors, are customarily paid to
shareholders of record as follows:
Record Dates: January 15, April 15, July 15 and October 15.
Payment Dates: February 1, May 1,
August 1 and November 1.
ANNUAL MEETING
The Annual Meeting of Shareholders of Carolina First Corporation will be held at
10:30 a.m., April 30, 1998, at the Gunter Theatre, Peace Center for the
Performing Arts, Greenville, South Carolina.
SHAREHOLDER SERVICES
Shareholders seeking information regarding stock transfer, lost certificates,
dividends and address changes should contact the Transfer Agent by calling
1-800-241-5568 or by writing: Reliance Trust Company, P.O. Box 48449, Atlanta,
GA 30340-4099.
DIVIDEND
REINVESTMENT PLAN
Carolina First Corporation has a Dividend Reinvestment Plan which allows
shareholders to purchase additional shares of common stock at a 5% discount by
reinvesting their cash dividends. Participants in the Plan may also invest
additional cash, up to a maximum of $10,000 per month, for purchase of common
stock at market value. For more information, please fill out the card in the
back of this report or call Investor Relations at (864) 255-4919.
DIRECT DEPOSIT
OF DIVIDENDS
Carolina First Corporation offers shareholders the convenience of direct deposit
of dividend checks. Shareholders may elect to have their dividend payments
automatically deposited into personal bank accounts on the same day dividends
are paid. For more information, please fill out the card in the back of this
report or call the Transfer Agent at 1-800-241-5568.
INVESTOR RELATIONS
Analysts, investors and others seeking financial information should contact:
Mary M. Gentry, Treasurer
Carolina First Corporation
P.O. Box 1029, Greenville, SC 29602
(864) 255-4919
Information about Carolina First Corporation is available on the Internet
at: http://www.carolinafirst.com
A copy of the Carolina First Corporation Annual Report to the Securities
and Exchange Commission on Form 10-K is available at no charge to shareholders
by contacting Investor Relations.
Quarterly Common Stock Summary
<TABLE>
<CAPTION>
1997 1996
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
...................................................................................................................................
Stock price ranges: (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $25.25 $22.13 $16.50 $18.50 $16.67 $17.08 $19.58 $20.52
.........................
Low 18.50 14.63 14.75 15.25 14.38 12.92 13.96 13.54
.........................
Close 21.50 21.88 14.75 15.50 16.15 15.52 14.58 17.92
.........................
Dividend declared (1) 0.08 0.07 0.07 0.07 0.07 0.06 0.06 0.06
.........................
Volume traded 4,743,947 4,354,117 1,850,055 2,104,502 2,608,122 2,989,958 5,341,541 5,162,038
.........................
Shares outstanding 15,659,338 12,150,453 11,379,286 11,355,443 11,225,568 9,331,598 9,264,199 9,224,149
.........................
</TABLE>
(1) Share data have been restated to reflect the six-for-five split declared
12/18/96.
CAROLINA FIRST CORPORATION 48 1997 ANNUAL REPORT
<PAGE>
To help us mail more efficiently,
and to help you invest more
efficiently, please fill out and
return the attached cards.
Thank you.
Duplicate Mailing/Change of Address Notification
If you would like to eliminate duplicate mailings, or change the address at
which you receive shareholders mailings, please check the appropriate item below
and complete the following information.
[ ] Eliminate duplicate mailings [ ] Address change
Name
................................................................................
Company Name
................................................................................
Address
................................................................................
City State Zip
................................................................................
Signature
................................................................................
(Please sign this card if you are changing your address.)
Shareholder Services -- Dividend Plans
Carolina First Corporation offers shareholders convenient plans to automatically
reinvest dividend payments or to automatically deposit dividend payments into
personal bank accounts. For more information on these plans, please check the
appropriate item below and complete the following information.
[ ] Dividend Reinvestment Plan (This information is not an offer to sell or the
solicitation of an offer to buy. The offering is made only by means of the
Prospectus, which will be mailed upon receipt of this card.)
[ ] Direct Deposit of Dividends
Name
................................................................................
Company Name
................................................................................
Address
................................................................................
City State Zip
................................................................................
<PAGE>
--------------
NO POSTAGE
NECESSARY IF
MAILED IN THE
UNITED STATES
--------------
- ---------------------------------------------------------
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 57 GREENVILLE, SC
- ---------------------------------------------------------
Postage to be paid by addressee
Carolina First Bank
Investor Relations Department
Post Office Box 1029
Greenville, SC 29602-97777
---------------
NO POSTAGE
NECESSARY IF
MAILED IN THE
UNITED STATES
---------------
- ---------------------------------------------------------
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 57 GREENVILLE, SC
- ---------------------------------------------------------
Postage to be paid by addressee
Reliance Trust Company
Post Office Box 48449
Atlanta, Georgia 30340-4099
<PAGE>
(logo)
CAROLINA FIRST
The bank that puts South Carolina first.
102 South Main Street, Greenville, South Carolina 29601
1-800-951-2699 o http://www.carolinafirst.com
