The more things change,
the more they stay the same.
Change is Constant.
Change is Good.
(LOGO)
CAROLINA FIRST
1998 Annual Report
1998 Annual Report
www.carolinafirst.com
<PAGE>
Contents
Corporate
Profile 1
Letter to
Shareholders 2
Change is Good 6
Five-Year
Financial Summary 12
Management's
Discussion
and Analysis 13
Summary of
Quarterly
Financial Data 26
Independent
Auditors' Report 27
Statement of
Financial
Responsibility 27
Consolidated
Financial
Statements 28
Notes to
Consolidated
Financial
Statements 32
Directors and
Executive
Management 50
Advisory Board
Members 51
Shareholder
Information 52
Banking Offices Inside back
cover
Financial Highlights
($ in thousands, except per share data)
Percent
1998 1997 Change
- --------------------------------------------------------------------------------
FOR THE YEAR
Total revenue $ 203,407 $ 155,321 31.0%
Net income 22,443 14,340 56.5
Average common shares-diluted (000's) 18,871 12,176 55.0
PER COMMON SHARE
Net income-diluted $ 1.19 $ 1.18 0.9%
Cash dividends declared 0.33 0.29 13.8
Book value 15.65 12.88 21.5
Common stock closing market price (Nasdaq) 25.31 21.50 17.7
AT YEAR END
Total assets $2,725,934 $2,156,346 26.4%
Loans-net of unearned income 1,859,138 1,602,415 16.0
Deposits 2,125,236 1,746,542 21.7
Shareholders' equity 344,363 201,659 70.8
Market capitalization 557,011 336,676 65.4
FINANCIAL RATIOS
Return on average assets 0.95% 0.84%
Return on average equity 8.34 11.62
CASH EARNINGS (EXCLUDING INTANGIBLE
AMORTIZATION AND BALANCES)
Net income $ 26,095 $ 15,420 69.2%
Net income per common share-diluted 1.38 1.27 8.7
Return on average tangible assets 1.13% 0.92%
Return on average tangible equity 12.40 15.26
ASSET QUALITY RATIOS
Nonperforming assets 0.28% 0.23%
Net charge-offs 0.71 0.84
OPERATIONS DATA
Banking offices 73 65
Number of ATMs 46 39
Full-time equivalent employees 847 709
- --------------------------------------------------------------------------------
ASSET GROWTH
($ in millions)
Compound Growth Rate:
10-year 25%
5-year 25%
(A bar graph appears here. See the table below for plot points.)
89 90 91 92 93 94 95 96 97 98
$371 $411 $528 $616 $904 $1,204 $1,415 $1,574 $2,156 $2,726
NET INCOME
($ in millions)
Compound Growth Rate:
10-year 36%
5-year 33%
(A bar graph appears here. See the table below for plot points.)
89 90 91 92 93 94 95 96 97 98
$0.5 $1.5 $1.9 $2.5 $5.4 $7.7* $9.4 $10.5 $14.3 $22.4
*Excluding 1994 restructuring charges
<PAGE>
Change should never be a surprise. Yet many companies fear change. At best, they
only react to it. But at Carolina First, we embrace change because we believe
change creates opportunities -- opportunities we capitalize on for the benefit
of our customers, shareholders and employees. That's how we grew to our present
$2.7 billion. That's how we'll continue to grow in the days ahead. We've built a
company that is flexible and nimble, a company that can embrace change and
profit from it because, after all, change is good.
CORPORATE PROFILE
Carolina First Corporation, headquartered in Greenville, South Carolina, is a
financial services company with $2.7 billion in assets, $557 million in market
capitalization and 73 banking offices throughout South Carolina. 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.
Carolina First operates Carolina First Bank, the largest South Carolina-based
commercial bank, and Carolina First Mortgage Company, the second largest
mortgage loan servicer in South Carolina. Other subsidiaries include a savings
bank, a full service brokerage company, an automobile finance company, a credit
card servicing company and a small business investment company which invests in
bank technology companies.
Carolina First is also unique because of its passion for using technology to
develop better ways of delivering products and services. At Carolina First,
technology and community banking fit together. Carolina First's bank technology
investments include two public companies. As of December 31, 1998, Carolina
First owned 19% of the common stock of Net.B@nk, Inc. (one of the first on-line,
real-time Internet banks) and had an 18% ownership interest in Affinity
Technology Group, Inc. (a developer and marketer of loan processing and
automated lending products).
CHANGE IS GOOD
<PAGE>
2 Carolina First Corporation 1998 Annual Report
To Our Shareholders
Banking is a rapidly evolving business. Customers enjoy conveniences and
services that were unheard of a decade ago. Improvements in technology allow
nimble banks to gather information in new ways to enhance customer service,
increase efficiency, and improve profitability. Indeed, the very definition of a
bank has shifted, as banks now offer a full array of financial services and
compete with the broad range of companies that also provide those services.
This change is good for Carolina First. Our culture thrives on change,
which means that change is a strategic advantage for us. Just look at our past.
In 12 years, we have created the largest independent bank in South Carolina,
with nearly $3 billion in assets. We've completed 11 mergers, purchased 27
branches, and completed two loan securitizations. We've evolved from a holding
company with one bank to a holding company with two banks, a mortgage company, a
brokerage company, an automobile finance company, a credit card servicing
company, and a small business investment company. And there's more to come.
This year's annual report features a timeline of Carolina First's
milestones. I think you will agree, as you retrace our history, that we can be
proud of our record for embracing change -- while remaining focused on doing
what we do best. This report also highlights how Carolina First uses change to
serve our customers better and to build value for our shareholders.
Change was certainly evident in 1998, one of the most eventful years in
our history. We completed three bank mergers -- First National Bank of Pickens
County, Poinsett Financial Corporation, and Colonial Bank of South Carolina,
Inc. -- which expanded our presence in South Carolina. We opened a brokerage
subsidiary, Carolina First Securities, Inc., and acquired Resource Processing
Group, Inc., a credit card servicing company. We successfully raised $39 million
in capital in a stock offering to overseas institutional investors. Our stock
was chosen for inclusion in a major Standard & Poor's Market Index, the S&P
SmallCap 600 Index, a selection that is a tribute to our outstanding record of
growth. Carolina First Bank now has investment grade debt ratings from Fitch
IBCA, Moody's and Standard & Poor's. We announced a 12.5% dividend increase;
this is the sixth consecutive year (every year since dividends were instituted)
that we
(LOGO)
1986
OCTOBER
Carolina First Corporation is founded, creating South Carolina's largest bank
holding company.
DECEMBER
Banking operations commence at Haywood Road location in Greenville.
1989
JUNE
New Trust Division formed to expand product offerings.
OCTOBER
Total Assets: $200 million
Branch opens in S.C. coastal region. (Total assets exceed $200 million with 5
branch locations.)
<PAGE>
Carolina First Corporation 1998 Annual Report 3
(Photo)
Mack I. Whittle, Jr.
President and Chief Executive Officer
have increased dividends. The annual compound increase over that period is
approximately 17%.
During each of the last nine years, our operating earnings have
increased. This year we attained record net income of $22.4 million. Our "cash
basis" results, which exclude the impact of intangible assets and related
amortization expense, are also impressive. For companies like Carolina First,
which have active merger and acquisition strategies, the "cash basis" results
provide meaningful comparative information. Our cash earnings increased 69% to
$26.1 million, or $1.38 per diluted share. Our cash basis efficiency ratio
improved to 53.7% which shows marked improvement over 1997's 58.3% and bodes
well for the future.
Building Efficiency, Building Value
One of our goals in 1998 was to build value for our shareholders by increasing
the volume of business being delivered through our branch network. Increasing
the efficiency of our branch network leads directly to improving our overall
profitability. We measure our success in this area by looking at average
deposits per branch. We are pleased to report that our average deposits per
branch have increased to $32.8 million, 15% higher than last year and 60% higher
than three years ago. Our goal for the year 2000 is to exceed $40 million.
For 1999, we also intend to focus on increasing our fee-based income.
Historically, our fee income has come largely from service charges and
deposit-related fees. We can increase our fee income by providing services
through our mortgage banking operation, trust business, and new nonbank
businesses. For example, we have formed an investment brokerage area and now
have investment representatives covering each of our branch locations. We can
better serve our customers, and our shareholders, by offering additional
products to our existing banking customers.
Superior Growth, Superior Markets
An important part of Carolina First's strategy is to achieve superior growth in
superior markets. Growth has always been an integral part of our culture. We
have delivered exceptional growth: increasing assets,
1990
AUGUST
Carolina First merges with First Federal Savings and Loan Association of
Georgetown. (Merger adds 4 branches and $119 million in assets.)
1992
SEPTEMBER
Total Assets: $500 million
Total assets reach $500 million mark, with branches in 16 locations.
1993
MARCH
(Map) Counties served by Carolina First
Carolina First purchases 12 Midlands branches. (Entry into the Midlands brings
total number of branches to 30.)
<PAGE>
4 Carolina First Corporation 1998 Annual Report
loans, and deposits at compound rates in excess of 20% per year over Carolina
First's lifetime.
Our objective is to continue this exceptional growth. We recognize that
growth alone is inadequate, if we do not have the best people to manage and
direct that growth. In 1998, we added three new members to our leadership team
- -- John C. DuBose, William J. Moore, and Michael W. Sperry. Each of these new
managers brings years of banking experience at larger organizations with
multi-state operations. We are putting in place the leadership for Carolina
First's future.
We are also encouraged by the strength of the Southeast's economy. South
Carolina is definitely a desirable place to run a banking business. With over 6%
of South Carolina's deposit market share, Carolina First is well-positioned in
one of the most attractive markets in the country. It's being in the right place
with the right people doing the right things.
We continue to look for new markets where our "super community bank"
strategy -- which combines the personalized service of community banks with the
back office efficiencies, broad array of products, and technological innovation
of larger banks -- will succeed. One location that meets this definition is
northern Florida, a market with many of the same characteristics as South
Carolina.
Embracing Technology,
Embracing Change
Our "super community bank" strategy sets us apart from many of our competitors.
But Carolina First is also unique because of its passion for using technol-ogy
to develop better ways of delivering products and services. At Carolina First,
technology and community banking fit together. Customers want both "high tech"
solutions to speed them through routine transactions and "high touch" attention
to their more complex personal financial needs. Carolina First provides both
sorts of service exceptionally well. This is another way in which we embrace
change and make it part of our bank.
Carolina First is benefiting from technology in another way. When we
see the right opportunity, we invest in companies that are developing new
technologies for banking. We invest only in companies that make products
Carolina First can use; we want to invest in what we know. By using the product,
we gain
1993
SEPTEMBER
Carolina First acquires First Sun Mortgage Company, creates Carolina First
Mortgage Company (currently the second largest mortgage loan servicer in S.C.).
NOVEMBER
Quarterly cash dividend policy inaugurated for common shareholders.
[BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS:]
94 $.17
95 $.21
96 $.25
97 $.29
98 $.33
1994
JUNE
Total Assets:
$1 billion
Just seven years after its founding, Carolina First becomes a billion dollar
bank.
<PAGE>
Carolina First Corporation 1998 Annual Report 5
firsthand knowledge that the technology is working. And there is another
advantage; our people learn a great deal about the development of new
technologies when we make these investments. This strategy gives us the
competitive advantage of cutting-edge technology, with the added possibility
of significant appreciation in our investment.
Carolina First's investments include two public companies: we own 9.9%
of Net.B@nk, Inc. (one of the first on-line, real-time Internet banks) and have
an 18% ownership interest in Affinity Technology Group, Inc. (a developer and
marketer of loan processing and automated lending technologies). In February
1999, we sold and transferred shares of Net.B@nk, Inc. common stock, which
reduced our ownership to 9.9%, in connection with Net.B@nk's secondary public
offering. This sale generated a significant gain, while allowing us to remain
the largest shareholder of Net.B@nk. Our wholly-owned small business investment
company, CF Investment Company, has also made investments in companies
specializing in electronic document management, Internet development, and credit
decision systems.
Change is sweeping through every aspect of the financial services
industry. We are committed to growing and changing for the benefit of our
customers, our shareholders, and our employees. Carolina First's place is at the
forefront of change, where the route to the next millennium is ours to explore.
/s/ Mack I. Whittle, Jr.
Mack I. Whittle, Jr.
President and Chief Executive Officer
1995
APRIL/JUNE
(Map) Counties served by Carolina First
Completed two mergers -- Aiken County National Bank and Midlands National Bank.
Carolina First now operates 54 banking offices.
1996
(Pie chart)
Carolina First ownership interest as of 12/31/98 18%
Affinity Technology Group, Inc.
APRIL
Carolina First's initial bank technology investment, Affinity Technology Group,
Inc., completes IPO.
<PAGE>
6 Carolina First Corporation 1998 Annual Report
Change is Good
Change Brings Opportunity
When Carolina First was founded in 1986, the banking industry was in the midst
of radical change. Local banks suddenly found themselves part of regional and
super regional conglomerates, losing their identities in the process. Instead of
viewing this as a threat, we saw the wave of mega-mergers as a wonderful
opportunity. Why? Because of the vast number of disgruntled customers and
dissatisfied bankers.
Customers were left with no place to turn. They were too small for the
"super regionals" and too large for the remaining community banks. Likewise,
experienced bankers wanted to maintain local decision-making authority to give
their customers quick responses. They wanted an environment that put customers
first, and they weren't finding it with the larger banks.
By embracing these two groups, we were able to create a new type of
financial institution -- one that meets the personal needs of customers while
drawing on a wealth of big bank experience. The formula has proven to be
successful in every Carolina First market throughout the years, a formula based
on recognizing change and reacting to it in a positive, customer-focused
fashion.
The More Things Change,
The More They Stay the Same
Since our creation more than a decade ago, Carolina First's mission has been
solidly grounded in a simple belief: always put our customers first. That's one
thing that will never change. On the other hand, our customers are constantly
changing. Their life styles, preferences, habits and needs are steadily
evolving. To meet these changes head on -- and to continue to fulfill our
mission -- we must be more versatile and adaptable than ever before. In essence,
we must stay a step ahead of our customers' wants and desires.
This year, perhaps more than any other in our history, we've met that
challenge. We've strengthened our original "super community bank" strategy by
offering customers innovative, technologically
At Right: The Evolving Bank diagram illustrates how bank delivery channels are
changing from the least convenient/most expensive (traditional branches) to the
most convenient/least expensive (online real-time banking).
1996
OCTOBER
Carolina First introduces "anytime, anywhere" banking in cyberspace, through
Net.B@nk, FSB (originally called Atlanta Internet Bank).
1997
APRIL
Carolina First sells five branches to increase efficiency of bank network.
(Average deposits per branch increase to $32.8 by the end of 1998, a 60%
increase over three years.)
<PAGE>
(A full-page diagram appears on this page with the following text. See the
previous page for the caption.)
CUSTOMER CONVENIENCE
BANK COST SAVINGS
Online Real-Time Banking
Banking By Computer
Banking By Telephone
Automated Teller Machines
In-Store Banking
Traditional Branches
THE EVOLVING BANK
<PAGE>
8 Carolina First Corporation 1998 Annual Report
superior, consumer-friendly services, combined with the personal touches
Carolina First customers have come to expect.
Our delivery systems offer a number of options designed for convenience
and efficiency. We have strategically located ATMs and branches, including
time-saving supermarket branches. Our 24-hour phone support provides account
information around the clock. Our Access Personal Computer Banking lets
customers pay bills, check balances, transfer funds and much more, all without
leaving the house. Combined, our delivery systems have made "banker's hours" a
24-hour-a-day, 7-day-a-week proposition. Most importantly, the efficiency of our
technology gives our people the chance to do what they do best: develop personal
relationships with their customers and provide the level of service each
customer desires.
So while technology continues to advance at a breakneck pace, we'll make
sure Carolina First customers and shareholders reap all the benefits
technology provides. We'll lower the cost of doing business with us. We'll offer
new, innovative services. In short, we'll continue to do whatever it takes to
put customers first and build value for our shareholders.
Investing in Changing Technology
At Carolina First, we've never been content simply to allow change to occur
around us. We feel that we can add value for our shareholders by leading and
creating the change in our industry. That's why we develop innovative
partnerships in technology that are designed to avoid large financial risks.
We research and invest in cutting edge technology companies that
specialize in the banking industry. We purchase an equity stake in their
(A bar chart appears here with the following plot points.)
Cost per Banking Transaction
Branch $1.07
Telephone $ .54
ATM $ .27
Internet $ .01
1997
JULY
(Pie chart) Owned by Carolina First as of 12/31/98 19%
NetB@nk, Inc.
Net.B@nk, Inc. completes IPO. (At December 31, 1998, Carolina First owned
approximately 19% of Net.B@nk's common stock.)
SEPTEMBER
Carolina First forms CF Investment Company, a Small Business Investment Company,
to gain access to innovative technologies through investment in the technology
developers and through the use of their products.
<PAGE>
Carolina First Corporation 1998 Annual Report 9
business, put their products to use, and pass the benefits on to our customers
and our shareholders.
We've found this method of outsourcing technological "development" a
much wiser investment than funding in-house research and development. Our
customers benefit from the convenience it provides. Our employees experience
firsthand how the enhanced technology performs. And our shareholders have the
opportunity for upside appreciation from our investments.
New Leadership for the Future
Carolina First is poised to make a leap to a new level of growth. And to ensure
that leap is a successful one, we've created a new level of leadership, a trio
of executive vice presidents who represent a rare commodity in banking: managers
with decades of Big Bank experience tempered by a dissatisfaction with Big Bank
bureaucracy. Most importantly, they thrive on fast-paced, aggressive growth, the
type of growth that has become a hallmark of Carolina First.
In other words, they've been where Carolina First is headed. They know
what the view is like from the next level. And they have the skills to help
Carolina First get there.
Our Changing Landscape
One thing we've learned in South Carolina is that the "super community bank"
strategy works. Customers love the advantages of big bank services. But what
brings them back again and again are the personal touches. No other bank can
provide this combination better than Carolina First . . . and now we're going to
do it in more places, in locations that have attractive banking environments and
potential customers who
Bank Technology Investments
(As of December 31, 1998)
<TABLE>
<CAPTION>
Company Primary Business Ownership %
<S> <C> <C>
Affinity Technology Group, Inc. (AFFI) Automated lending technologies 18% or 6 million shares
Net.B@nk, Inc. (NTBK) Internet banking 19% or 1.175 million shares
ITS Electronic document management 49%
Syneractive Marketing Internet development 48%
Corporate Solutions International Credit decision systems 10%
</TABLE>
NOVEMBER
(Map) Counties served by Carolina First
Carolina First completes its largest acquisition; adds First Southeast Financial
Corporation. (Acquisition represents 13 new branches and $350 million in
assets.)
DECEMBER
Total Assets:
$2 billion
Carolina First reaches the $2 billion mark in assets and a market capitalization
of more than $335 million in just 11 years.
1998
APRIL
Carolina First creates Carolina First Securities, Inc., a full service brokerage
company.
<PAGE>
10 Carolina First Corporation 1998 Annual Report
appreciate a true community bank. Our first destination? Northern Florida.
The Northern Florida area has recently experienced a mega-bank merger,
leaving an extraordinary number of potential customers longing for a bank that
focuses on their individual needs. Also, many experienced banking managers are
dissatisfied with the loss of local authority. The current banking environment
in northern Florida presents Carolina First with the opportunity to enter the
market, acquiring both the customer base and the management expertise. (In other
words, the same scenario upon which Carolina First was founded exists right now
in northern Florida.)
At Right: We are pleased to introduce our corporate management team. In
evaluating where we are and where we are headed, we determined the need to
prepare our organization for the next level of growth. During 1998, we
strengthened our team by adding three executives -- William J. Moore, Michael W.
Sperry, and John C. DuBose. The three new members of our team bring banking
experience at larger organizations with multi-state operations and add the depth
needed to move into new markets and develop new products.
The Challenges of Change
When Carolina First was built, its foundation was the changing banking industry.
We capitalized upon the inherent opportunities like no other financial
institution in South Carolina. And with change as an ally, we've created a
reputation of placing customers at the forefront of our operations, a focus that
ultimately benefits each of our shareholders.
Now, we are poised for the future, ready to face the challenges of
bringing our customers the most innovative banking services available. We're
ready to lead the changes of our industry, not just react to them. We're
prepared to seek out the positive opportunities that accompany a changing
marketplace. Because if we've learned one thing in a dozen years, it's that
change is good for our customers and our shareholders.
1998
JULY
Standard & Poor's SmallCap 600 Market Index includes Carolina First.
SEPTEMBER/OCTOBER
Carolina First completes mergers with First National Bank of Pickens County,
Poinsett Financial Corporation and Colonial Bank of South Carolina. (Since 1986:
11 mergers, adding $924 million in assets; 27 branch purchases in 6
transactions, adding $420 million in deposits; and 8 branch sales in 2
transactions, selling $99 in deposits.)
(Map) Counties served by Carolina First
<PAGE>
(Photo appears here of the following people.)
William J. Moore
Consumer Banking
John C. DuBose
Technology and Operations
Thomas C. "Nap" Vandiver
Chairman Emeritus
William S. Hummers III
Finance
Mack I. Whittle, Jr.
President and Chief Executive Officer,
Carolina First Corporation
James W. Terry, Jr.
President,
Carolina First Bank
Michael W. Sperry
Credit Policy and
Risk Management
LEADERSHIP
<PAGE>
12 Carolina First Corporation 1998 Annual Report
Five-Year Financial Summary
($ in thousands, except share data)
<TABLE>
<CAPTION>
Five-Year
Years Ended December 31, Compound
1998 1997 1996 1995 1994 Growth Rate
-------------- -------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income $ 89,136 $ 66,706 $ 57,070 $ 50,772 $ 43,260 24.9%
..................................
Provision for loan losses 11,129 11,646 10,263 6,846 1,197 58.7
..................................
Noninterest income 22,531 19,615 21,341 17,326 8,226 27.2
..................................
Noninterest expenses (1) 64,844 52,243 51,675 46,882 51,839 18.9
..................................
Net income (loss) (1) 22,443 14,340 10,474 9,414 (1,740) 32.9
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA (2)
Net income (loss) - basic (1) $ 1.21 $ 1.19 $ 0.97 $ 0.89 $ (0.59) 13.8%
..................................
Net income (loss) - diluted (1) 1.19 1.18 0.92 0.84 (0.59) 13.4
..................................
Book value (December 31) 15.65 12.88 9.26 7.61 6.61 15.2
..................................
Common stock closing market price
(December 31) 25.31 21.50 16.15 14.58 11.11 20.8
..................................
Cash dividends declared 0.33 0.29 0.25 0.21 0.17 --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (YEAR END)
Total assets $2,725,934 $2,156,346 $1,574,204 $1,414,922 $1,204,350 24.7%
..................................
Loans - net of unearned income 1,859,138 1,602,415 1,124,775 1,062,660 923,068 24.4
..................................
Allowance for loan losses 17,509 16,211 11,290 8,661 6,002 21.3
..................................
Nonperforming assets 5,204 3,767 5,880 4,868 4,722 (0.6)
..................................
Total earning assets 2,367,156 1,935,651 1,396,171 1,249,689 1,059,455 23.8
..................................
Deposits 2,125,236 1,746,542 1,281,050 1,095,491 1,001,748 21.4
..................................
Long-term debt 63,081 39,119 26,442 26,347 1,162 118.3
..................................
Shareholders' equity 344,363 201,659 104,964 94,967 86,482 37.4
..................................
Market capitalization 557,011 336,676 182,244 160,227 121,168 44.7
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AVERAGES)
Total assets $2,362,948 $1,701,958 $1,480,694 $1,269,757 $1,056,954 24.7%
..................................
Loans - net of unearned income 1,633,813 1,286,503 1,085,680 965,632 781,503 24.4
..................................
Total earning assets 2,125,130 1,546,238 1,320,658 1,130,245 941,155 24.5
..................................
Deposits 1,901,568 1,368,220 1,180,751 1,023,029 925,615 24.5
..................................
Shareholders' equity 268,944 123,358 99,186 90,242 87,377 32.6
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets 0.95% 0.84% 0.71% 0.74% (0.16)%
..................................
Return on average equity 8.34 11.62 10.56 10.43 (1.99)
..................................
Net interest margin 4.24 4.36 4.35 4.54 4.65
- ---------------------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS
Nonperforming assets as a % of
loans and other real estate owned 0.28% 0.23% 0.52% 0.46% 0.51%
..................................
Allowance for loan losses times
nonperforming loans 8.60 x 6.62 x 3.94 x 3.67 x 2.20 x
- ---------------------------------------------------------------------------------------------------------------------------
OPERATIONS DATA
Banking offices 73 65 55 55 51
..................................
Full-time equivalent employees 847 709 609 589 551
- ---------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
Carolina First Corporation 1998 Annual Report 13
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
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, 1998.
Overview
The Company, a South Carolina corporation head-quartered in Greenville, South
Carolina, is a financial institutions holding company, which commenced banking
operations in December 1986, and currently conducts business through 73
locations in South Carolina. The Company operates through the following
principal subsidiaries: Carolina First Bank, a state-chartered commercial bank;
Carolina First Mortgage Company ("CF Mortgage"), a mortgage banking company;
Carolina First Bank, F.S.B., a Federal savings bank; Blue Ridge Finance Company,
Inc. ("Blue Ridge"), a consumer finance company; and Resource Processing Group,
Inc. ("RPGI"), a credit card servicing company. Through its subsidiaries, the
Company provides a full range of banking services, including mortgage, trust and
investment services, designed to meet substantially all of the financial needs
of its customers. At December 31, 1998, the Company had approximately $2.7
billion in assets, $1.9 billion in loans, $2.1 billion in deposits and $344.4
million in shareholders' equity.
The following table summarizes acquisitions completed during the past
three years. All acquisitions, except for RPGI (a credit card servicing
company), were bank acquisitions which expanded the Company's presence in or
gained access to South Carolina markets. The Company's acquisitions are
discussed in further detail in Note 3 of the financial statements.
Acquisitions
<TABLE>
<CAPTION>
Total Assets Shares Method of Intangible
Acquisition Date Acquired Issued Accounting Recorded
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lowcountry Savings Bank, Inc. ("Lowcountry")
Mt. Pleasant, South Carolina July 1997 $80 million 508,415 Purchase $7.2 million
...................................................................................................................................
First Southeast Financial Corporation
("First Southeast")
Anderson, South Carolina November 1997 $350 million 3,497,400 Purchase $34.6 million
...................................................................................................................................
Resource Processing Group, Inc. ("RPGI")
Columbia, South Carolina June 1998 $15 million 398,610 Purchase $3.4 million
...................................................................................................................................
First National Bank of Pickens County
("First National")
Easley, South Carolina September 1998 $121 million 2,817,350 Purchase $45.4 million
...................................................................................................................................
Poinsett Financial Corporation ("Poinsett")
Travelers Rest, South Carolina September 1998 $89 million 753,530 Purchase $11.7 million
...................................................................................................................................
Colonial Bank of South Carolina, Inc.
("Colonial Bank")
Camden, South Carolina October 1998 $61 million 651,455 Purchase $10.4 million
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
14 Carolina First Corporation 1998 Annual Report
On February 13, 1998, the Company completed the sale of 2.0 million
shares of its $1.00 par common stock ("Common Stock") to certain overseas
investors (the "Regulation S Offering"). 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 $38.5 million. Subsequent to the
consummation of the Regulation S Offering, the Company filed a registration
statement with the Securities and Exchange Commission registering the further
sale of such shares by the institutional investors which purchased the shares in
the Regulation S Offering. This registration statement became effective on March
11, 1998.
In the fourth quarter of 1998, the Company repurchased 394,874 shares of
common stock in connection with the acquisition of First National Bank of
Pickens County.
The Company's growth strategy is to target markets where banking
relationships are in a state of flux due to bank mergers. The Company plans to
expand into northern Florida. This represents an extension of the Company's
existing strategy, which has proven to be successful in South Carolina, to
another southeastern market with similar conditions. On January 13, 1999, the
Company signed a definitive agreement to acquire Citizens First National Bank
("Citizens"), a national bank headquartered in Crescent City, Florida. Citizens
will become a wholly-owned subsidiary of the Company and is expected to serve as
a platform for expansion into other Florida markets. The transaction is valued
at approximately $12 million, payable in the form of the Company's common stock.
At December 31, 1998, Citizens operated through 4 branches and had approximately
$57 million in assets and $52 million in deposits. This transaction, which is
subject to regulatory and shareholder approvals, is expected to be completed
during the second quarter of 1999. The proposed merger is anticipated to be
accounted for using the pooling of interests method of accounting. In addition,
Carolina First Bank, F.S.B. has filed an application with the Office of Thrift
Supervision ("OTS") to open a de novo branch location in Jacksonville, Florida.
Equity Investments
Investment in Net.B@nk, Inc.
At December 31, 1998, the Company owned 1,175,000 shares of Net.B@nk, Inc.
("Net.B@nk") common stock, or approximately 19% of the outstanding shares. These
shares are carried on the Company's books at a basis of approximately $979,000.
Net.B@nk owns and operates Net.B@nk, FSB (which changed its name from Atlanta
Internet Bank, FSB), an FDIC-insured Federal savings bank that provides banking
services to consumers utilizing the Internet. Under the terms of the OTS's
regulatory ruling on Net.B@nk in 1997, certain affiliates of Net.B@nk, including
the Company, may not sell their shares in Net.B@nk until July 31, 2000. On
January 8, 1999, the OTS granted the Company permission to sell or transfer
370,000 shares in order to reduce its ownership to less than 10%.
In January 1999, the Company contributed 290,000 shares of Net.B@nk
common stock to Carolina First Foundation, a non-profit corporation organized
for charitable purposes. In February 1999, the Company contributed capital in
the form of 30,000 shares of Net.B@nk common stock to its wholly-owned
subsidiary, Carolina First Guaranty Reinsurance, Ltd., a company which will be
engaged in the reinsurance of credit insurance to customers of the Company's
banking subsidiaries.
On February 10, 1999, the Company and Carolina First Guaranty
Reinsurance, Ltd. sold 50,000 shares and 30,000 shares, respectively, of
Net.B@nk common stock at a net price of $43.47 per share in connection with
Net.B@nk's secondary public offering. After this sale, the Company owned 805,000
shares, or 9.9% of Net.B@nk's outstanding common stock, and was the largest
shareholder.
Investment in Affinity Technology Group, Inc.
At December 31, 1998, the Company (through its subsidiary CF Investment Company)
owned 2,528,366 shares of common stock of Affinity Technology Group, Inc.
("Affinity") and a warrant to purchase an addi-tional 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 18% of
Affinity's outstanding common stock. The investment in Affinity's common stock,
which is included in securities available for sale and has a basis of
approximately of $160,000, was recorded at its market value of approximately
$1.6 million. During 1998, the market value of Affinity's common stock declined
substantially, decreasing the Company's net unrealized gain on securities
available for sale by
<PAGE>
Carolina First Corporation 1998 Annual Report 15
approximately $4.6 million. The Affinity Warrant was not reported on the
Company's balance sheet as of December 31, 1998.
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
As of December 31, 1998, the Company had equity investments in the following
community banks located in the Southeast: Capital Bank in Raleigh, North
Carolina; Carolina Savings Bank, Incorporated, S.S.B. in Greensboro, North
Carolina; Community Capital Corporation in Greenwood, South Carolina;
FirstSpartan Financial Corporation in Spartanburg, South Carolina; Florida
Banks, Incorporated in Jacksonville, Florida; Heritage Bancorp, Incorporated in
Laurens, South Carolina; and People's Community Capital Corporation in Aiken,
South 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 Southeast.
CF Investment Company
In September 1997, the Company's subsidiary, CF Investment Company, became
licensed through the Small Business Administration to operate as a Small
Business Investment Company. CF Investment Company is a wholly-owned subsidiary
of Blue Ridge. CF Investment Company's principal focus is investing in companies
that have a bank-related technology or service the Company and its subsidiaries
can use. In 1997, the Company capitalized CF Investment Company with a
contribution of $3 million. As of December 31, 1998, CF Investment Company had
invested approximately $2 million in companies specializing in electronic
document management, Internet development and credit decision systems.
Earnings Review
Net income in 1998 increased to a record $22.4 million, or $1.19 per diluted
share, compared with $14.3 million, or $1.18 per diluted share, in 1997 and
$10.5 million, or $0.92 per diluted share, in 1996. Net income in 1997 included
a $1.4 million (after-tax) gain on the sale of branches and a $1.9 million
(after-tax) gain on the sale of securities. Net income in 1996 included a
one-time special Savings Association Insurance Fund ("SAIF") assessment of $0.8
million (after-tax). Net income increased 56% from 1997 to 1998 while the
average number of shares outstanding increased 55% over the same time period
resulting in a smaller increase in earnings per diluted share compared to net
income. The increase in the number of shares outstanding resulted principally
from the completion of bank mergers and a secondary stock offering in 1998. The
increase in net income in 1998 resulted from increases in net interest income
and noninterest income, partially offset by an increase in noninterest expenses.
Net Interest Income
The largest component of the Company's net income is Carolina First Bank's net
interest income. Net interest income is the difference between the interest
earned on assets and the interest paid for the liabilities
Income Statement Review Summary of Changes
($ in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
Change 1998 vs. 1997 Change 1997 vs. 1996
-------------------- --------------------
1998 $ % 1997 $ % 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $89,136 $22,430 33.6% $ 66,706 $ 9,636 16.9% $57,070
Provision for loan losses 11,129 (517) (4.4) 11,646 1,383 13.5 10,263
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 78,007 22,947 41.7 55,060 8,253 17.6 46,807
Noninterest income, excluding certain gains 21,951 7,809 55.2 14,142 (1,826) (11.4) 15,968
Gains from sales of certain items 580 (4,893) (89.4) 5,473 100 1.9 5,373
Noninterest expenses, excluding
amortization of intangibles 60,376 9,674 19.1 50,702 916 1.8 49,786
Amortization of intangibles 4,468 2,927 189.9 1,541 (348) (18.4) 1,889
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 35,694 13,262 59.1 22,432 5,959 36.2 16,473
Income taxes 13,251 5,159 63.8 8,092 2,093 34.9 5,999
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $22,443 $8,103 56.5% $14,340 $ 3,866 36.9% $10,474
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
16 Carolina First Corporation 1998 Annual Report
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 $22.6 million,
or 34%, to $90.0 million in 1998 from $67.4 million in 1997 and increased $10.0
million, or 17%, from $57.4 million in 1996. The increase resulted principally
from a higher level of average earning assets partially offset by a lower net
interest margin. The growth in average earning assets, which increased $578.9
million, or 37%, to approximately $2.1 billion in 1998 from $1.5 billion in 1997
and $1.3 billion in 1996 resulted from an increase in both loans and investment
securities primarily related to acquisitions completed in the second half of
1997. Average loans, net of unearned income, were $1.6 billion in 1998, $1.3
billion in 1997 and $1.1 billion in 1996. Average investment securities were
$382.5 million, $241.7 million and $214.4 million in 1998, 1997 and 1996,
respectively.
The net interest margin of 4.24% in 1998 was lower than the margin of
4.36% in 1997 and 4.35% in 1996. The lower net interest margin in 1998 resulted
from lower earning asset yields and slightly higher deposit costs. The yield on
earning assets was lower in 1998 as a result of a change in the mix of loans, a
higher level of investments and a 0.75% reduction in the prime interest rate
during the fourth quarter. Approximately $246 million, or 89%, of the loans
acquired in the First Southeast acquisition (which closed in November 1997) were
mortgage loans which typically have a lower yield than commercial or consumer
loans. During the first quarter of 1998, the Company made significant progress
in restructuring the balance sheet by selling approximately $153 million of
First Southeast mortgage loans. The proceeds were deployed into higher-yielding
commercial and consumer loans. During the first half of 1998, the Company's
average investments increased due to temporarily investing proceeds from the
sales of First Southeast mortgage loans and growth in deposits. Average
investments, including temporary investments, as a percentage of average earning
assets were 23.1%, 16.8% and 17.8% in 1998, 1997 and 1996, respectively. The
prime interest rate decreased from 8.50% to 8.00% in October 1998 and from 8.00%
to 7.75% in November 1998. Approximately 54% of the commercial loan portfolio is
variable and immediately repriced downward with the decreases in the prime
interest rate. The earning asset yield was enhanced somewhat by higher credit
card loan yields from repricing the credit card portfolio as well as higher loan
fee income.
The large number of certificates of deposit acquired from First
Southeast increased the cost of deposits. Approximately 73% of First Southeast's
total deposits were certificates of deposit or individual retirement accounts.
Certificates of deposit typically have higher rates than transaction accounts.
During 1998, the Company focused on shifting the deposit mix to more closely
resemble a commercial bank by increasing deposit transaction accounts. During
the fourth quarter of 1998, the Company's cost of deposits decreased with the
declining interest rate
<TABLE>
Average Yields and Rates
(on a fully tax-equivalent basis)
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans 9.30% 9.36% 9.49% 9.60% 8.76%
Securities 6.29 6.22 5.99 5.83 5.04
Short-term investments 5.26 5.61 6.36 6.35 3.84
- -----------------------------------------------------------------------------------------------------------------
Total earning assets 8.55% 8.82% 8.87% 9.05% 8.11%
- ------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits 4.88% 4.86% 4.74% 4.62% 3.73%
Short-term borrowings 5.32 5.61 5.47 6.00 3.96
Long-term debt 7.84 9.67 9.47 9.50 9.25
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4.99% 5.05% 4.94% 4.87% 3.75%
- -----------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.24% 4.36% 4.35% 4.54% 4.65%
.................................................................................................................
Prime Interest Rate 8.36% 8.44% 8.27% 8.83% 7.14%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Carolina First Corporation 1998 Annual Report 17
environment and the Company's rate reductions. The rate paid on CDs and IRAs
should decline in 1999 as CDs mature and reprice downward due to the reduction
in interest rates.
Provision for Loan Losses
The provision for loan losses was $11.1 million in 1998, $11.6 million in 1997
and $10.3 million in 1996. The slightly higher 1997 provision for loan losses
reflected higher levels of net credit card charge-offs. During 1998, credit card
charge-offs totaled $4.3 million compared with $5.3 million in 1997 and $4.1
million in 1996.
Management currently anticipates that significant loan growth will continue
in 1999. New market areas are expected to contribute to 1999 portfolio growth.
Management intends to closely monitor economic trends and the potential effect
on the banking subsidiaries' loan portfolios. In addition, management is
discussing Year 2000 readiness with loan customers to assess the related loan
collection risk.
Noninterest Income
Noninterest income increased $2.9 million, or 15%, to $22.5 million in 1998 from
$19.6 million in 1997 and $21.3 million in 1996. During the second quarter of
1997, the Company recorded a gain on the sale of five branches of $2.3 million.
The Company recognized gains on the sale of securities of $580,000, $3.0 million
and $973,000 in 1998, 1997 and 1996, 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. See "EQUITY
INVESTMENTS -- Investment in Net.B@nk, Inc." 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. Noninterest income in 1996 also included a $4.3 million gain
on the sale of credit cards. Excluding the asset sales and securities
transactions discussed above, noninterest income increased $7.6 million to $22.0
million in 1998 from $14.4 million in 1997 and $16.1 million in 1996. This
increase was primarily attributable to higher service charges on deposit
accounts, loan securitization income and other income.
Service charges on deposit accounts, the largest contributor to
noninterest income, rose 24% to $8.6 million in 1998 from $7.0 million in 1997
and $6.5 million in 1996. Average deposits for the same period increased 39.0%.
The increase in service charges was attributable to attracting new transaction
accounts and improved collection results. In addition, effective June 1, 1998,
Carolina First Bank implemented a new service charge on accounts with overdraft
protection.
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
1998 increased 25% to $4.5 million compared with $3.6 million in 1997 and $2.9
million in 1996. The increase is attributable to higher origination fees and
gains on the sale of loans partially offset by lower servicing income.
Income from originations and sales of mortgage loans, including sales of
loans originated by Carolina First Bank, totaled $4.4 million in 1998, up
significantly from $3.0 million in 1997 and $1.9 million in 1996. The increase
in 1998 resulted from increased origination volumes primarily from exceptionally
high refinancing volumes related to lower mortgage interest rates and higher
gains on mortgage loans sold. Mortgage originations totaled approximately $490
million in 1998 compared with approximately $243 million in 1997 and $168
million in 1996. These mortgage originations are net of mortgage loans acquired
through acquisition. Mortgage loans totaling approximately $542 million, $235
million and $172 million were sold in 1998, 1997 and 1996, respectively.
Approximately $153 million of the loans sold in 1998 were First Southeast loans.
The gain on the sale of these loans was not included in the gain on sale of
mortgage loans but instead reduced the goodwill associated with the First
Southeast acquisition.
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, 1998, CF Mortgage was servicing or
subservicing 23,224 loans having an aggregate principal balance of approximately
$2.0 billion.
Servicing income from non-affiliated companies, net of the related
amortization for the mortgage servicing rights and subservicing payments, was
$100,000 in 1998, compared with $586,000 in 1997
<PAGE>
18 Carolina First Corporation 1998 Annual Report
and $969,000 in 1996. Although the volume of loans serviced increased to $2.0
billion at December 31, 1998 from $1.7 billion at December 31, 1997 and $1.2
billion at December 31, 1996, 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 1998 of $1.6 million were 12% above the $1.4
million earned in 1997 and $1.3 million in 1996. At December 31, 1998 and 1997,
the market value of assets administered by Carolina First Bank's trust
department totaled approximately $357 million and $257 million, respectively.
The trust department has generated new business in personal trust and employee
benefits.
During 1998, the Company had income of $1.6 million from its interests
in the credit card and commercial real estate loan trusts, compared to a loss of
$545,000 in 1997 and income of $2.9 million in 1996. Loan securitization income
is net of charge-offs associated with the loans in the trusts. Effective June 1,
1998 with the acquisition of RPGI, fees that RPGI receives for servicing trust
credit cards, which totaled $957,000 in 1998, were included in loan
securitization income. Loan securitization income related to credit cards
increased to $1.6 million in 1998 compared with a loss of $992,000 in 1997 and
income of $2.1 million in 1996. Loan securitization income in 1997 was
negatively impacted by greater than expected charge-offs in the credit card
securitization. During 1998, credit card charge-offs declined significantly from
the previous year. Beginning in February 1999, loans in the credit card trust
totaling approximately $4.4 million per month will amortize and move from the
off-balance-sheet credit card trust to the Company's credit card loan portfolio
(included in the Company's balance sheet). The commercial real estate loan trust
showed income of $6,000 during 1998 compared with $447,000 in 1997 and $749,000
in 1996. Income associated with the commercial real estate loan trust has
declined, and will continue to decline, as loan balances are paid off and the
amortization of expenses related to the formation of the trust continues.
Other noninterest income was $5.5 million in 1998 compared with $2.9
million in 1997 and $2.5 million in 1996. The increase was due to higher
customer service fees, insurance commissions, fees received by RPGI (beginning
in June 1998), lease fee income due to higher terminations from a more aged
portfolio and merchant processing fees.
During the second quarter of 1998, the Company expanded its brokerage
service offerings through Carolina First Securities, Inc. ("CF Securities"), a
subsidiary of Carolina First Bank. CF Securities offers a complete line of
investment products and services, including mutual funds, stocks, bonds and
annuities. Income in 1998 from CF Securities was not significant.
Noninterest Expenses
Noninterest expenses increased $12.6 million, or 24%, to $64.8 million in 1998
from $52.2 million in 1997 and $51.7 million in 1996. This increase resulted
principally from significant increases in intangible amortization and moderate
increases in other categories of noninterest expenses related mainly to the six
mergers completed in the last half of 1997 and 1998. Excluding intangible
amortization, noninterest expenses on a cash basis increased $9.7 million, or
19%, to $60.4 million in 1998 from $50.7 million in 1997 and $49.8 million in
1996. In 1996, noninterest expenses included $1.2 million for the one-time
special SAIF assessment and $587,000 recorded as compensation expense related to
a non-recurring award of Affinity stock to certain officers of the Company. The
increase in expenditures reflects operational costs associated with acquired
branches, new markets and additional automated teller machines ("ATMs").
Salaries and wages and employee benefits increased $5.0 million to $31.1
million in 1998 compared with $26.1 million in 1997 and $25.2 million in 1996.
Full-time equivalent employees increased to 847 at December 31, 1998 from 709 at
December 31, 1997. The staffing cost increases were primarily due to the costs
of expanding in existing and new markets and back office support functions to
support growth.
Occupancy and furniture and equipment expenses increased $1.7 million,
or 19%, to $10.9 million in 1998 from $9.2 million in 1997 and $8.0 million in
1996. This increase resulted principally from additional costs associated with
the branches acquired through acquisitions in 1997 and 1998 and the operating
costs associated with additional ATMs.
Amortization of intangibles increased to $4.5 million in 1998 from $1.5
million in 1997 and $1.9 million in 1996. The increase is due to the
acquisitions completed in both 1997 and 1998. Amortization of
<PAGE>
Carolina First Corporation 1998 Annual Report 19
IMPROVING EFFICIENCY RATIO
[BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS:]
94 77.0%
95 68.8%
96 65.9%
97 60.5%
98 57.7%
Efficiency Ratio: Noninterest expenses
as a % of net interest income and
noninterest income
intangibles was $1.7 million in the fourth quarter of 1998. This level of
amortization is expected to continue in 1999. Other noninterest expenses
increased $3.0 million, or 19%, to $18.4 million in 1998 from $15.4 million in
both 1997 and 1996. The overall increase in other noninterest expenses was
principally attributable to the overhead and operating expenses associated with
higher lending and deposit activities. The largest items of other noninterest
expense were telephone, servicing fees, stationery, supplies, printing and
postage.
Year 2000
The Company recognizes a business risk in computerized systems when the calendar
rolls over into the new century. Some computer programs, particularly older
ones, use two digits rather than four digits for dates. Such programs recognize
"00" as the year 1900 rather than the year 2000, causing interest calculations
to be incorrect or possibly causing the program or computer system on which it
runs to cease functioning alto-gether. This problem will occur in any system
containing a computer chip, even a telephone system. This problem is commonly
called the "Year 2000 Problem." All computer systems used by the Company in its
day-to-day operations could be affected.
Management has established a committee (the "Y2K Project Team") which
has identified affected systems and is currently working to ensure that this
event will not disrupt operations. A full-time staff member has been assigned to
the Y2K Project Team to assist in record keeping and disseminating information.
The Y2K Project Team reports regularly to the Audit Committee of the Company's
Board of Directors who report to the entire Board of Directors on a quarterly
basis on Year 2000 compliance. At its June 1998 meeting, the Company's Board of
Directors approved a Year 2000 Project Plan and the membership of the Y2K
Project Team. The Company is also working closely with outside vendors to obtain
Year 2000 software corrections and warranty commitments and to arrange mock
conversion testing.
The Company's Year 2000 efforts include comprehensive testing of all
hardware and software to ensure that computer systems do not negatively affect
operations. Software applications testing began during the second quarter of
1998. The Company's current core banking software, mortgage software and
operating systems have been vendor-certified as Year 2000 compliant and have
been tested extensively in a User Group environment. The results of User Group
testing have been provided for the Company to review. In addition, the Company
has scheduled its own internal Year 2000 testing of these systems. The testing
phase on the core operating system and software applications is expected to be
completed by the end of the first quarter of 1999. All third-party providers of
non-information technology systems which include elevators, alarm systems and
utilities have been contacted. The Company continues to perform due diligence in
seeking information from all vendors regarding their Year 2000 initiatives.
The current estimated cost to the Company for all Year 2000 activities
is $3.4 million. This revised estimate has increased due to additional costs
associated with upgrading and testing of personal computers and associated
software applications. Incomplete or untimely compliance would have a material
adverse effect on the Company, the dollar amount of which cannot be accurately
quantified because of the inherent variables and uncertainties involved.
The Company has included contingency and business resumption plans in
its Year 2000 compliance efforts. The Company has identified several potential
replacements in the unlikely event that current software is not functional in
the year 2000. If testing during the first quarter of 1999 indicates that the
Company's core banking systems are not Year 2000 compliant and there is no
reasonable assurance that they can be compliant by the end of 1999, the Company
will convert its core banking system to a new version that is Year 2000
compliant at a cost of several million dollars. The trigger date for such
replacement is March 31, 1999. In the event the Company encounters operational
difficulty and cannot process data at the Columbia Operations Center
<PAGE>
20 Carolina First Corporation 1998 Annual Report
on January 1, 2000, the Company has an agreement with an outside provider to use
its off-site facilities to operate core banking systems for the purpose of
business resumption.
Year 2000 surveys have been sent to all commercial loan customers with
relationships greater than $1 million to assist in assessing their Year 2000
compliance. In addition, an analysis is being performed on the entire loan
portfolio based on Standard Industry Codes to determine if the Company has any
concentrations of loans in industries which are considered high risk due to Year
2000 exposure. In the fourth quarter of 1998, the Company hosted customer
seminars to educate customers in the Company's three major markets.
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, 1998, the Company had total loans outstanding of $1.9 billion which
equaled approximately 87% of the Company's total deposits and approximately 68%
of the Company's total assets. The composition of the Company's loan portfolio
at December 31, 1998 follows: commercial and commercial mortgage 55%,
residential mortgage 26%, consumer 10%, credit card 4%, construction 3% and
lease receivables 2%.
The Company's loans increased $256.7 million, or 16%, to approximately
$1.9 billion at December 31, 1998 from $1.6 billion at December 31, 1997. Loan
sales in 1998 included $293 million in mortgage loans sold, excluding loans
originated by correspondents, and $2 million in loans sold in connection with
the sale of branches. All of the loan purchases in 1998 were associated with
mergers and totaled $180 million. Adjusting for the 1998 loan sales and
purchases, internal loan growth was approximately $371.9 million, or an
annualized rate of 23.2%, during 1998.
The Company had loans to 86 borrowers having principal amounts ranging
from $2 million to $5 million, which loans accounted for $268.4 million, or 14%,
of the Company's loan portfolio at December 31, 1998. The Company had loans to
25 borrowers having principal amounts in excess of $5 million, which loans
accounted for $170.4 million, or 9%, of the Company's loan portfolio at December
31, 1998. At December 31, 1997, the Company had loans to 66 borrowers with
principal amounts ranging from $2 million to $5 million, which accounted for
$204.5 million, or 13%, of the Company's loan portfolio. 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 at December
31, 1997. Any material deterioration in the quality of any of these larger loans
could have a significant impact on the Company's earnings.
In 1998, the Company's loans averaged $1.6 billion with a yield of 9.30%,
compared with $1.3 billion and a yield of 9.36% in 1997. The decline in loan
yield was attributable to a decrease in the prime interest rate in 1998
partially offset by an increase in the credit card yield and in loan fee income.
The interest rates charged on loans vary with the degree of risk and the
maturity and amount of the loan. Competitive pressures, money market rates,
availability of funds and government regulations also influence interest rates.
Allowance for Loan Losses
Management maintains an allowance for loan losses which it believes is adequate
to cover inherent losses in the loan portfolio. However, management's judgment
is based upon a number of assumptions about future events which are believed to
be reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
Year End Loans
($ in millions)
[BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS:]
94 $923
-------------------------
95 $1,063
-------------------------
96 $1,125
-------------------------
97 $1,602
-------------------------
98 $1,859
-------------------------
5-Year Compound Growth Rate: 24.4%
<PAGE>
Carolina First Corporation 1998 Annual Report 21
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 inherent 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 probable losses.
The allowance for loan losses totaled $17.5 million, or 1.00% of loans
held for investment net of unearned income at December 31, 1998, compared with
$16.2 million, or 1.17% of loans held for investment net of unearned income at
December 31, 1997. The allowance for loan losses as a percentage of
nonperforming loans was 860% and 662% as of December 31, 1998 and 1997,
respectively. As a result of decreasing credit card charge-offs and decreasing
nonperforming loans, the Company's allowance for loan losses model required an
allowance that was lower as a percentage of outstanding loans as of December 31,
1998 compared with December 31, 1997.
Securities
At December 31, 1998, the Company's total investment portfolio had a book
value of $446.7 million and a market value of $448.9 million for an unrealized
net gain of approximately $2.2 million. The investment portfolio had a weighted
average maturity of approximately 5.4 years. Securities (i.e., securities held
for investment, securities available for sale and trading securities) averaged
$382.5 million in 1998, 58% above the 1997 average of $241.7 million. The
increase in the securities balance was primarily attributable to proceeds from
the sale of First Southeast mortgage loans. The average portfolio yield
increased to 6.28% in 1998 from 6.22% in 1997. 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, 1998, securities totaled $448.0 million, up $149.5 million from the
$298.5 million invested at the end of 1997.
At December 31, 1998, securities available for sale included equity
investments, including 2,528,366 shares of common stock of Affinity (recorded at
its market value of approximately $1.6 million) and 1,175,000 shares of common
stock of Net.B@nk (recorded at its basis of approximately $979,000). See "EQUITY
INVESTMENTS." The Affinity Warrant, which entitles the Company to purchase an
additional 3,471,340 shares of common stock at a purchase price of $0.0001 per
share, was not included in securities at December 31, 1998.
Intangible Assets and Other Assets
The intangible assets balance at December 31, 1998 of $130.4 million was
attributable to goodwill of $116.3 million, core deposit balance premiums of
$10.6 million and credit card intangibles of $3.5 million. 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 credit card
intangibles of $138,000. The Company recorded approximately $7.2 million in
intangible assets related to its July 1997 acquisition of Lowcountry and $31.7
million in intangible assets (net of adjustments related to mortgage loans and
branch sales) related to its November 1997 acquisition of First Southeast. In
the last half of 1998, the Company recorded approximately $45.4 million, $11.7
million and $10.4 million in intangible assets related to the acquisitions of
First National, Poinsett Bank and Colonial Bank, respectively.
At December 31, 1998, other assets included other real estate owned of
$3.2 million and mortgage servicing rights of $25.1 million. At December 31,
1997, other assets included other real estate owned of $1.3 million and mortgage
servicing rights of $19.8 million. The increase in other real estate owned is
largely attributable to one-to-four family residential mortgages associated with
the acquisition of Poinsett.
Interest-Bearing Liabilities
During 1998, interest-bearing liabilities averaged $1.8 billion, compared
with $1.4 billion in 1997. This increase resulted principally from internal
deposit growth related to account promotions and sales efforts and acquisitions.
The average interest rates were 4.99% and 5.05% in 1998 and 1997, respectively.
At December 31, 1998, interest-bearing deposits comprised approximately 87% of
total deposits and 89% of interest-bearing liabilities. In 1998, average
borrowed funds which includes repurchase
<PAGE>
22 Carolina First Corporation 1998 Annual Report
Average Deposits Per Branch
($ in millions)
[BAR CHART WITH FOLLOWING PLOT POINTS APPEARS HERE:]
94 $21.3
-------------------
95 $20.4
-------------------
96 $24.8
-------------------
97 $28.5
-------------------
98 $32.8
agreements and commercial paper, totaled $121.9 million compared with $111.8
million in 1997. This increase was attributable to an increase in repurchase
agreements from an average of $91.3 million in 1997 to $117.3 in 1998. This
increase was partially offset by a decrease in average commercial paper
balances. In 1998, the Company stopped offering commercial paper resulting in a
decline in the average balance from $20.4 million in 1997 to $4.4 million in
1998. Advances from the Federal Home Loan Bank ("FHLB") increased to $35.1
million during 1998 from $10.0 million at the end of 1997. This increase was due
to additional borrowings from FHLB for the purpose of hedging fixed rate
commercial loans. 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.
The Company's primary source of funds for loans and investments is its
deposits which are gathered through the banking subsidiaries' branch network.
Deposits grew 22% to $2.1 billion at December 31, 1998 from $1.7 billion at
December 31, 1997. The Company acquired approximately $285 million in deposits
from the First Southeast acquisition during the fourth quarter of 1997.
Approximately $44 million in deposits were sold as part of the sale of branch
offices during the second quarter of 1998. During the last half of 1998, the
Company acquired approximately $220.7 million in deposits from the First
National, Poinsett Bank and Colonial Bank acquisitions. Internal growth,
particularly from account promotions, generated the remainder of the new
deposits. During 1998, total interest-bearing deposits averaged $1.7 billion
with a rate of 4.88%, compared with $1.2 billion with a rate of 4.86% in 1997.
During 1998, deposit pricing remained very competitive, a pricing environment
which the Company expects to continue.
The Company has filed applications with the appropriate regulatory
agencies to open a branch in the Cayman Islands. The branch is to be a "shell"
branch of Carolina First Bank, and accordingly, will involve minimal start-up
costs. The primary function of the branch will be to obtain deposits from the
Eurocurrency interbank markets, which will be utilized in funding Carolina First
Bank's domestic loan portfolio. The bank views this branch primarily as a
vehicle for entrance into a funds market in which it is not currently active.
Average noninterest-bearing deposits, which increased 19% during the
year, decreased to 12.3% of average total deposits in 1998 from 14.4% in 1997.
During the first half of 1997, noninterest-bearing deposits included deposits of
Net.B@nk, FSB (formerly known as Atlanta Internet Bank) which were transferred
to Net.B@nk on July 31, 1997 resulting in a $43 million reduction in Carolina
First Bank's total deposits. The deposits acquired from First Southeast and
Lowcountry in the second half of 1997 had a lower level of noninterest-bearing
deposits which contributed to 1998's lower average noninterest-bearing deposit
percentage. By the end of 1998, however, noninterest-bearing deposits increased
to 13.5%, reflecting the Company's progress in attracting transaction accounts
and improving the mix of acquired deposits.
Time deposits of $100,000 or more represented 14% and 13% of total
deposits at December 31, 1998 and 1997, respectively. The Company's large
denomination time deposits are generally from customers within the local market
areas of its banks and, therefore, provide a greater degree of stability than is
typically associated with this source of funds. The Company does not pursue
brokered deposits; however the Company acquired an immaterial amount of brokered
deposits through its Colonial acquisition.
Capital Resources and Dividends
Total shareholders' equity amounted to $344.4 million, or 12.63% of total
assets, at December 31, 1998, compared with $201.7 million, or 9.35% of total
assets, at December 31, 1997. The $142.7 million increase in total shareholders'
equity since December 31, 1997 resulted principally from the $38.5 million in
new capital raised in the Regulation S Offering of the Company's Common Stock,
$99.2 million in capital related to
<PAGE>
Carolina First Corporation 1998 Annual Report 23
Shareholders' Equity vs.
Market Capitalization
($ in millions)
[BAR CHART WITH THE FOLLOWING PLOT POINTS APPEAR HERE:]
Shareholders' Equity Market Capitalization
94 $86 $121
95 $95 $160
96 $105 $182
97 $202 $337
98 $344 $557
<TABLE>
Capital Ratios
As of Well Capitalized
12/31/98 Requirement
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
THE COMPANY
Total risk-based capital 12.88% n/a
Tier 1 risk-based capital 10.66 n/a
Leverage ratio 8.26 n/a
CAROLINA FIRST BANK
Total risk-based capital 10.59% 10.0%
Tier 1 risk-based capital 9.84 6.0
Leverage ratio 7.64 5.0
CAROLINA FIRST BANK, F.S.B.
Total risk-based capital 13.58% 10.0%
Tier 1 risk-based capital 12.33 6.0
Leverage ratio 7.16 5.0
- ----------------------------------------------------------------------------------------------
</TABLE>
acquisitions and the retention of earnings less cash dividends paid and stock
repurchased. In the fourth quarter of 1998, the Company repurchased 394,874
shares of common stock, which decreased shareholders' equity $9.8 million, in
connection with the acquisition of First National.
Book value per share at December 31, 1998 and 1997 was $15.65 and
$12.88, respectively. Tangible book value per share at December 31, 1998 and
1997 was $9.72 and $9.16, 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, RPGI and five banks (all of which were accounted
for as purchases).
At December 31, 1998, the Company, Carolina First Bank and Carolina
First Bank, F.S.B. were in compliance with each of the applicable regulatory
capital requirements and exceeded the well capitalized requirements. The Capital
Ratios table sets forth various capital ratios for the Company, Carolina First
Bank and Carolina First Bank, F.S.B.
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 16, 1998 meeting, the Board of Directors
approved a $0.09 per share cash dividend on the common stock, which represents
an effective annual increase of approximately 11%. The Company presently intends
to pay a quarterly cash dividend on the Common Stock; however, future dividends
will depend upon the Company's financial performance and capital requirements.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises principally from interest rate risk inherent in
its lending, deposit and borrowing activities. Management actively monitors and
manages its interest rate risk exposure. Although the Company manages other
risks, such as credit quality and liquidity risk, in the normal course of
business, management considers interest rate risk to be its most significant
market risk and could potentially have the largest material effect on the
Company's financial condition and results of operations. Other types of market
risks, such as foreign currency exchange risk and commodity price risk, do not
arise in the normal course of the Company's business activities.
Achieving consistent growth in net interest income is the primary goal
of the Company's asset/ liability function. The Company attempts to control the
mix and maturities of assets and liabilities to achieve consistent growth in net
interest income despite changes in market interest rates. The Company seeks to
accomplish this goal while maintaining adequate liquidity and capital. The
Company's asset/liability mix is sufficiently balanced so that the effect of
interest rates moving in either direction is not expected to be significant over
time.
The Company's Asset/Liability Committee uses a simulation model to
assist in achieving consistent
<PAGE>
24 Carolina First Corporation 1998 Annual Report
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 as of December
31, 1998, the Company is positioned so that net interest income will increase
$7.6 million if interest rates rise in the next twelve months and will decrease
$6.2 million if interest rates decline in the next twelve months. Computation of
prospective effects of hypothetical interest rate changes are based on numerous
assumptions, including relative levels of market interest rates and loan
prepayments, and should not be relied upon as indicative of actual results.
Further, the computations do not contemplate any actions the Company could
undertake in response to changes in interest rates.
The Market Risk table at the bottom of this page shows the Company's
financial instruments that are sensitive to changes in interest rates. The
Company uses certain assumptions to estimate fair values and expected
maturities. For assets, expected maturities are based upon contractual maturity,
projected repayments, prepayment of principal and potential calls. For core
deposits without contractual maturity (i.e., interest checking, savings and
money market accounts), the table presents principal cash flows based on
management's judgment concerning their most likely runoff. The actual maturities
and runoff could vary substantially if future prepayments, runoff and calls
differ from the Company's historical experience.
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, 1998, on a cumulative basis through twelve months, rate-sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $416.5 million. This liability sensitive position is largely
attributable to assuming that the Company's deposit transaction accounts, which
totaled $753 million at December 31, 1998, will reprice within one year. This
assumption may or may not hold true as the Company believes its transaction
accounts are generally not price sensitive.
Liquidity
Liquidity management involves meeting the cash flow requirements of the Company
both at the holding company level as well as at the subsidiary level. The
holding company and non-banking subsidiaries of the Company require cash for
various operating needs, including general operating expenses, payment of
dividends to shareholders, interest on borrowing, extensions of credit at Blue
Ridge, business combinations and capital infusions into subsidiaries. The
primary
<TABLE>
Market Risk
($ in thousands)
Expected Maturity/Principal Repayments at December 31,
Average After Fair
Rate 1999 2000 2001 2002 2003 2003 Balance Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans (net of unearned income) 9.30% $675,356 $ 345,094 $165,278 $ 154,162 $167,906 $351,342 $1,859,138 $1,896,940
Mortgage-backed securities 5.97 24,977 2,200 1,900 1,100 8,246 111,028 149,451 149,451
Investment securities 6.42 165,388 12,028 8,987 7,263 9,964 94,949 298,579 299,424
Federal funds sold and resale
agreements 5.58 17,622 2,531 -- -- -- 39,835 59,988 59,988
INTEREST-BEARING LIABILITIES
Interest checking 3.56% $194,518 $92,396 $58,355 $43,767 $34,041 $63,218 $486,295 $486,295
Savings 2.61 23,504 18,984 17,176 12,656 9,944 8,136 90,400 90,400
Money market 4.19 61,753 42,345 31,759 15,879 14,115 10,586 176,437 176,437
Certificates of deposit 5.70 919,155 105,481 47,219 4,563 8,724 131 1,085,273 1,120,566
Short-term borrowings 5.32 154,576 -- -- -- -- -- 154,576 154,576
Long-term borrowings
(including current portion) 7.84 1,247 11,290 1,416 2,867 20,945 26,563 64,328 64,181
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Carolina First Corporation 1998 Annual Report 25
source of liquidity for the Company's holding company is dividends from the
banking and non-banking subsidiaries.
The Company's banking subsidiaries, Carolina First Bank and Carolina
First Bank, F.S.B., have cash flow requirements involving withdrawals of
deposits, extensions of credit and payment of operating expenses. The principal
sources of funds for liquidity purposes for the banking subsidiaries 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 and Carolina First
Bank, F.S.B.'s liquidity is also enhanced by the ability to acquire new deposits
through its established branch network of 70 branches in South Carolina. The
liquid-ity ratio is an indication of a company's ability to meet its short-term
funding obligations. At December 31, 1998, Carolina First Bank's liquidity ratio
was approx-imately 20% and Carolina First Bank, F.S.B.'s liquidity ratio was
approximately 31%. The liquidity needs of the banking subsidiaries are a factor
in developing their deposit pricing structure; deposit pricing may be altered to
retain or grow deposits if deemed necessary. Carolina First Bank and Carolina
First Bank, F.S.B. have access to borrowing from the FHLB and maintain unused
short-term lines of credit from unrelated banks. At December 31, 1998, the
banking subsidiaries had unused short-term lines of credit totaling
approximately $53 million (which are withdrawable at the lender's option). At
December 31, 1998, unused borrowing capacity from the FHLB totaled approximately
$199 million with an outstanding balance of $35 million. Management believes
that these sources are adequate to meet its liquidity needs.
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 $11.7 million and
$10.9 million in 1998 and 1997, respectively, or 0.71% and 0.84%, respectively,
as an annualized percentage of average loans. Excluding credit card receivables,
annualized net loan charge-offs as a percentage of average loans were 0.47% and
0.45% during 1998 and 1997, respectively. In 1998, net charge-offs for credit
cards totaled $4.3 million compared with $5.3 million in 1997. The majority of
the increase in accruing loans past due 90 days is attributable to one-to-four
family residential loans acquired through mergers.
Asset Quality
($ in thousands)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 753 $ 1,165 $ 960 $ 1,275 $2,051
Restructured loans 1,283 1,283 1,909 1,085 675
Total nonperforming loans 2,036 2,448 2,869 2,360 2,726
Other real estate 3,168 1,319 3,011 2,508 1,996
Total nonperforming assets $ 5,204 $ 3,767 $5,880 $ 4,868 $4,722
- ------------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets as % of loans and foreclosed property 0.30% 0.24% 0.52% 0.46% 0.51%
- ------------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs as a % of average loans (annualized) 0.71 0.84 0.82 0.51 0.38
- ------------------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 7,023 $ 4,125 $2,371 $ 2,748 $1,285
Allowance for loan losses to nonperforming loans 8.60x 6.62x 3.94x 3.67x 2.20x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
26 Carolina First Corporation 1998 Annual Report
Quarterly Financial Data
($ in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
1998
FOR THE QUARTER
Interest income $ 50,010 $ 45,236 $ 43,503 $ 42,127
..........................
Interest expense 24,909 22,777 22,154 21,900
..........................
Net interest income 25,101 22,459 21,349 20,227
..........................
Provision for loan losses 2,443 3,103 3,447 2,136
..........................
Noninterest income 6,678 6,157 5,083 4,613
..........................
Noninterest expenses 18,847 16,515 14,223 15,259
..........................
Net income 6,574 5,639 5,536 4,694
..........................
Shares outstanding:
Average - basic 21,903,465 18,052,647 17,682,632 16,588,163
..........................
Average - diluted 22,252,635 18,371,205 18,088,100 16,922,202
..........................
At quarter end 22,005,391 21,728,599 18,142,554 17,709,935
- ---------------------------------------------------------------------------------------------
PER SHARE DATA
Net income - basic $ 0.30 $ 0.31 $ 0.31 $ 0.28
..........................
Net income - diluted 0.30 0.31 0.31 0.28
..........................
Cash dividend declared 0.09 0.08 0.08 0.08
..........................
Common Stock Price:
High 26.25 27.13 30.63 26.00
..........................
Low 16.81 19.88 25.00 19.88
..........................
Close 25.31 22.13 25.38 25.38
..........................
Volume Traded 3,656,410 4,612,822 4,598,827 4,333,100
- ---------------------------------------------------------------------------------------------
1997
FOR THE QUARTER
Interest income $ 38,445 $ 34,919 $ 31,950 $ 30,392
..........................
Interest expense 20,004 17,967 16,089 14,940
..........................
Net interest income 18,441 16,952 15,861 15,452
..........................
Provision for loan losses 2,043 3,610 3,041 2,952
..........................
Noninterest income 4,393 5,526 6,604 3,092
..........................
Noninterest expenses 13,965 13,173 12,239 12,866
..........................
Net income 4,324 3,638 4,661 1,717
..........................
Shares outstanding:
Average - basic 13,426,341 11,855,443 11,371,845 11,304,437
..........................
Average - diluted 13,716,837 12,059,301 11,484,690 11,478,383
..........................
At quarter end 15,659,338 12,150,453 11,379,286 11,355,443
- ---------------------------------------------------------------------------------------------
PER SHARE DATA
Net income - basic $ 0.32 $ 0.31 $ 0.41 $ 0.15
..........................
Net income - diluted 0.32 0.30 0.41 0.15
..........................
Cash dividend declared 0.08 0.07 0.07 0.07
..........................
Common Stock Price:
High 25.25 22.13 16.50 18.50
..........................
Low 18.50 14.63 14.75 15.25
..........................
Close 21.50 21.88 14.75 15.50
..........................
Volume Traded 4,743,947 4,354,117 1,850,055 2,104,502
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Carolina First Corporation 1998 Annual Report 27
Independent Auditors' Report
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, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
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, 1998 and 1997, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
January 22, 1999
Statement of Financial Responsibility
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 gener-ally accepted auditing standards. KPMG Peat Marwick LLP
reviews the results of its audit with both management and the Audit Committee of
the Board of Directors of the Company. The Audit Committee, composed entirely of
outside directors, meets periodically with management, internal auditors and
KPMG Peat Marwick LLP (separately and jointly) to determine that each is
fulfilling its responsibilities and to consider recommendations for enhancing
internal controls. The financial statements have not been reviewed, or confirmed
for accuracy or relevance, by the Federal Deposit Insurance Corporation.
/s/ Mack I. Whittle, Jr. /s/ William S. Hummers III
Mack I. Whittle, Jr. William S. Hummers III
President and Executive Vice President
Chief Executive Officer
<PAGE>
28 Carolina First Corporation 1998 Annual Report
Consolidated Balance Sheets
($ in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 102,516 $ 73,326
.............................................................................
Interest-bearing bank balances 54,988 34,703
.............................................................................
Federal funds sold and resale agreements 5,000 --
.............................................................................
Securities
Trading 3,543 2,349
.............................................................................
Available for sale 395,140 262,329
.............................................................................
Held for investment (market value $50,192 in 1998 and $34,494 in 1997) 49,347 33,855
- ----------------------------------------------------------------------------------------------------------
Total securities 448,030 298,533
- ----------------------------------------------------------------------------------------------------------
Loans
Loans held for sale 112,918 235,151
.............................................................................
Loans held for investment 1,753,778 1,379,039
.............................................................................
Less unearned income 7,558 11,775
.............................................................................
Less allowance for loan losses 17,509 16,211
- ----------------------------------------------------------------------------------------------------------
Net loans 1,841,629 1,586,204
- ----------------------------------------------------------------------------------------------------------
Premises and equipment, net 46,953 39,682
.............................................................................
Accrued interest receivable 19,702 15,484
.............................................................................
Intangible assets 130,402 58,228
.............................................................................
Other assets 76,714 50,186
- -----------------------------------------------------------------------------------------------------------
$2,725,934 $2,156,346
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 286,831 $ 206,938
.............................................................................
Interest-bearing 1,838,405 1,539,604
- ----------------------------------------------------------------------------------------------------------
Total deposits 2,125,236 1,746,542
.............................................................................
Federal funds purchased and repurchase agreements 154,065 112,161
.............................................................................
Other short-term borrowings 1,758 27,578
.............................................................................
Long-term debt 63,081 39,119
.............................................................................
Accrued interest payable 16,373 13,518
.............................................................................
Other liabilities 21,058 15,769
- ----------------------------------------------------------------------------------------------------------
Total liabilities 2,381,571 1,954,687
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred stock - no par value; authorized 10,000,000 shares; issued and
outstanding none -- --
.............................................................................
Common stock - par value $1 per share; authorized 100,000,000 shares; issued
and outstanding 22,005,391 shares in 1998 and 15,659,338 shares in 1997 22,005 15,659
.............................................................................
Surplus 288,577 164,517
.............................................................................
Retained earnings 35,914 20,059
.............................................................................
Guarantee of employee stock ownership plan debt and nonvested restricted
stock (2,963) (3,129)
.............................................................................
Accumulated other comprehensive income, net of tax 830 4,553
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 344,363 201,659
- ----------------------------------------------------------------------------------------------------------
$2,725,934 $2,156,346
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
<PAGE>
Carolina First Corporation 1998 Annual Report 29
Consolidated Statements of Income
($ in thousands, except share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 151,989 $ 120,385 $ 103,163
......................................................
Interest and dividends on securities
Taxable 21,497 12,824 10,953
......................................................
Exempt from Federal income taxes 1,662 1,446 1,228
- ---------------------------------------------------------------------------------------------------
Total interest on securities 23,159 14,270 12,181
......................................................
Interest on short-term investments 5,728 1,051 1,528
- ---------------------------------------------------------------------------------------------------
Total interest income 180,876 135,706 116,872
- ---------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 81,434 56,920 48,649
......................................................
Interest on short-term borrowings 6,488 9,488 8,657
......................................................
Interest on long-term debt 3,818 2,592 2,496
- ---------------------------------------------------------------------------------------------------
Total interest expense 91,740 69,000 59,802
- ---------------------------------------------------------------------------------------------------
Net interest income 89,136 66,706 57,070
......................................................
PROVISION FOR LOAN LOSSES 11,129 11,646 10,263
- ---------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 78,007 55,060 46,807
- ---------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 8,673 6,997 6,490
......................................................
Mortgage banking income 4,535 3,633 2,893
......................................................
Loan securitization income 1,635 (545) 2,865
......................................................
Fees for trust services 1,570 1,407 1,286
......................................................
Gain on sale of securities 580 3,011 973
......................................................
Gain on sale of branches -- 2,250 --
......................................................
Gain on sale of credit cards -- -- 4,293
......................................................
Other 5,538 2,862 2,541
- ---------------------------------------------------------------------------------------------------
Total noninterest income 22,531 19,615 21,341
- ---------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and wages 25,435 21,154 20,573
......................................................
Employee benefits 5,683 4,967 4,649
......................................................
Occupancy 6,130 5,221 4,336
......................................................
Furniture and equipment 4,739 3,951 3,621
......................................................
Amortization of intangibles 4,468 1,541 1,889
......................................................
Savings Association Insurance Fund special assessment -- -- 1,184
......................................................
Other 18,389 15,409 15,423
- ---------------------------------------------------------------------------------------------------
Total noninterest expenses 64,844 52,243 51,675
- ---------------------------------------------------------------------------------------------------
Income before income taxes 35,694 22,432 16,473
......................................................
Income taxes 13,251 8,092 5,999
- ---------------------------------------------------------------------------------------------------
Net income 22,443 14,340 10,474
......................................................
Dividends on preferred stock -- -- 63
- ---------------------------------------------------------------------------------------------------
Net income applicable to common shareholders $ 22,443 $ 14,340 $ 10,411
- ---------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:*
Basic $ 1.21 $ 1.19 $ 0.97
......................................................
Diluted 1.19 1.18 0.92
......................................................
AVERAGE COMMON SHARES OUTSTANDING:*
Basic 18,556,727 11,989,517 10,705,107
......................................................
Diluted 18,871,153 12,175,561 11,368,035
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
* Share data have been restated to reflect the six-for-five split declared
12/18/96.
<PAGE>
30 Carolina First Corporation 1998 Annual Report
Consolidated Statements of Changes
in Shareholders' Equity and
Comprehensive Income
($ in thousands)
<TABLE>
<CAPTION>
Shares of
Common Preferred Common
Stock Stock Stock
------------- ------------ ----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 6,517,366 $ 32,909 $ 6,517
.......................................................
Net income -- -- --
.......................................................
Other comprehensive income, net of tax of $253 -- -- --
.......................................................
Comprehensive income -- -- --
.......................................................
Cash dividends declared:
Preferred stock -- -- --
.......................................................
Common stock ($0.25 per common share) -- -- --
.......................................................
Common stock issued pursuant to:
Stock split 1,870,130 -- 1,870
.......................................................
Dividend reinvestment plan 55,304 -- 56
.......................................................
Employee stock purchase plan 10,524 -- 11
.......................................................
Long-term incentive compensation plan 27,938 -- 28
.......................................................
Exercise of stock options and stock warrants 96,975 -- 97
.......................................................
Conversion and redemption of preferred stock 2,647,331 (31,966) 2,647
.......................................................
Miscellaneous -- -- --
- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 11,225,568 943 11,226
.......................................................
Net income -- -- --
.......................................................
Other comprehensive income, net of tax of $2,193 -- -- --
.......................................................
Comprehensive income -- -- --
.......................................................
Cash dividends declared ($0.29 per common share) -- -- --
.......................................................
Common stock issued pursuant to:
Purchase accounting acquisitions 4,005,815 -- 4,006
.......................................................
Dividend reinvestment plan 52,495 -- 53
.......................................................
Employee stock purchase plan 9,226 -- 9
.......................................................
Employee stock ownership plan 176,471 -- 176
.......................................................
Exercise of stock options and stock warrants 81,422 -- 81
.......................................................
Conversion and redemption of preferred stock 108,341 (943) 108
.......................................................
Miscellaneous -- -- --
- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 15,659,338 -- 15,659
.......................................................
Net income -- -- --
.......................................................
Other comprehensive income (loss), net of tax of $2,023 -- -- --
.......................................................
Comprehensive income -- -- --
.......................................................
Cash dividends declared ($0.33 per common share) -- -- --
.......................................................
Common stock issued pursuant to:
Stock offering 2,000,000 -- 2,000
.......................................................
Purchase accounting acquisitions 4,569,706 -- 4,570
.......................................................
Repurchase of stock (394,874) -- (394)
.......................................................
Dividend reinvestment plan 56,455 -- 56
.......................................................
Employee stock purchase plan 9,376 -- 9
.......................................................
Restricted stock plan 30,457 -- 30
.......................................................
Exercise of stock options and stock warrants 74,933 -- 75
.......................................................
Miscellaneous -- -- --
- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 22,005,391 $ -- $22,005
- -------------------------------------------------------------------------------------------
<CAPTION>
Retained Accumulated
Earnings Other
and Comprehensive
Surplus Other* Income Total
----------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 54,432 $ 957 $ 152 $ 94,967
.......................................................
Net income -- 10,474 -- 10,474
.......................................................
Other comprehensive income, net of tax of $253 -- -- 331 331
.......................................................
Comprehensive income -- -- -- 10,805
.......................................................
Cash dividends declared:
Preferred stock -- (63) -- (63)
.......................................................
Common stock ($0.25 per common share) -- (2,626) -- (2,626)
.......................................................
Common stock issued pursuant to:
Stock split (1,870) (17) -- (17)
.......................................................
Dividend reinvestment plan 628 -- -- 684
.......................................................
Employee stock purchase plan 167 -- -- 178
.......................................................
Long-term incentive compensation plan 461 (489) -- --
.......................................................
Exercise of stock options and stock warrants 521 -- -- 618
.......................................................
Conversion and redemption of preferred stock 29,259 -- -- (60)
.......................................................
Miscellaneous -- 478 -- 478
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 83,598 8,714 483 104,964
.......................................................
Net income -- 14,340 -- 14,340
.......................................................
Other comprehensive income, net of tax of $2,193 -- -- 4,070 4,070
.......................................................
Comprehensive income -- -- -- 18,410
.......................................................
Cash dividends declared ($0.29 per common share) -- (3,826) -- (3,826)
.......................................................
Common stock issued pursuant to:
Purchase accounting acquisitions 75,762 -- -- 79,768
.......................................................
Dividend reinvestment plan 818 -- -- 871
.......................................................
Employee stock purchase plan 150 -- -- 159
.......................................................
Employee stock ownership plan 2,824 (2,750) -- 250
.......................................................
Exercise of stock options and stock warrants 530 -- -- 611
.......................................................
Conversion and redemption of preferred stock 835 -- -- --
.......................................................
Miscellaneous -- 452 -- 452
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 164,517 16,930 4,553 201,659
.......................................................
Net income -- 22,443 -- 22,443
.......................................................
Other comprehensive income (loss), net of tax of $2,023 -- -- (3,723) (3,723)
.......................................................
Comprehensive income -- -- -- 18,720
.......................................................
Cash dividends declared ($0.33 per common share) -- (6,588) -- (6,588)
.......................................................
Common stock issued pursuant to:
Stock offering 36,375 -- -- 38,375
.......................................................
Purchase accounting acquisitions 94,665 -- -- 99,235
.......................................................
Repurchase of stock (9,430) -- -- (9,824)
.......................................................
Dividend reinvestment plan 1,253 -- -- 1,309
.......................................................
Employee stock purchase plan 204 -- -- 213
.......................................................
Restricted stock plan 592 (622) -- --
.......................................................
Exercise of stock options and stock warrants 330 -- -- 405
.......................................................
Miscellaneous 71 788 -- 859
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $288,577 $ 32,951 $ 830 $ 344,363
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
* Other includes guarantee of employee stock ownership plan debt and nonvested
restricted stock.
<PAGE>
Carolina First Corporation 1998 Annual Report 31
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22,443 $ 14,340 $ 10,474
......................................................................
Adjustments to reconcile net income to net cash provided by operations
Depreciation 4,071 3,181 3,257
......................................................................
Amortization of intangibles 4,468 1,541 1,889
......................................................................
Provision for loan losses 11,129 11,646 10,263
......................................................................
Deferred income taxes (952) (1,677) 472
......................................................................
Gain on sale of branches -- (2,250) --
......................................................................
Gain on sale of credit cards -- -- (4,293)
......................................................................
Gain on sale of securities (580) (3,011) (973)
......................................................................
Trading account assets, net (809) (66) 4,052
......................................................................
Originations of mortgage loans held for sale (490,019) (268,855) (167,510)
......................................................................
Sale of mortgage loans held for sale 542,402 235,110 171,619
......................................................................
Sale of consumer loans -- 25,862 --
......................................................................
Other assets, net (9,980) (3,214) (11,601)
......................................................................
Other liabilities, net (1,973) 689 3,569
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 80,200 13,296 21,218
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Interest-bearing bank balances (20,285) 7,026 (17,374)
......................................................................
Federal funds sold and resale agreements (25,050) -- --
......................................................................
Sale of securities available for sale 37,989 116,583 30,906
......................................................................
Maturity of securities available for sale 348,528 137,447 169,938
......................................................................
Maturity of securities held for investment 7,094 1,632 2,798
......................................................................
Purchase of securities available for sale (480,240) (246,927) (268,177)
......................................................................
Purchase of securities held for investment (11,495) (6,022) (5,974)
......................................................................
Purchase of loans -- (25,793) (65,924)
......................................................................
Origination of loans, net (156,153) (119,115) (163,153)
......................................................................
Securitization and sale of commercial loans -- -- 95,182
......................................................................
Sale of credit cards -- -- 64,219
......................................................................
Sale of premises and equipment 1,160 312 8,430
......................................................................
Capital expenditures (5,414) (4,649) (3,785)
......................................................................
Acquisitions accounted for under the purchase method of accounting 29,939 6,265 --
......................................................................
Sale of branches (38,480) (35,656) --
- ------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (312,407) (168,897) (152,914)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase in deposits, net 202,363 169,276 185,559
......................................................................
Federal funds purchased and repurchase agreements, net 41,904 10,017 (4,388)
......................................................................
Short-term borrowings (32,939) (38,491) (37,212)
......................................................................
Issuance of long-term debt 25,080 2,700 --
......................................................................
Payments of long-term debt (300) (127) (34)
......................................................................
Cash dividends paid (5,860) (2,688) (3,130)
......................................................................
Issuance of common stock 38,375 -- --
......................................................................
Repurchase of common stock (9,824) -- --
......................................................................
Other common and preferred stock activity 2,598 1,918 1,453
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 261,397 142,605 142,248
- ------------------------------------------------------------------------------------------------------------------
Net change in cash and due from banks 29,190 (12,996) 10,552
......................................................................
Cash and due from banks at beginning of year 73,326 86,322 75,770
- ------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 102,516 $ 73,326 $ 86,322
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
Consolidated Financial Statements
<PAGE>
32 Carolina First Corporation 1998 Annual Report
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"), Carolina First Bank, F.S.B. and Resource Processing Group, Inc.
("RPGI"). Carolina First Corporation and its subsidiaries are collectively
defined as the "Company," except where the context requires otherwise. All
significant intercompany accounts and transactions have been eliminated.
The accounting principles followed by the Company 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 1998 and 1997 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 1998 presentations.
SECURITIES
Management determines the appropriate classification of securities at the time
of purchase. Securities, primarily debt securities, are classified as trading,
available for sale and 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 a separate component of 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.
The Company evaluates securities for other-than-temporary impairment
periodically and, if necessary, charges the unrealized loss to operations. 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. The Company recognizes interest on
loans using the simple 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 simple 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.
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.
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.
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
the servicing income over the estimated life of the related mortgage loan. The
amortization method is designed to approximate a level-yield
<PAGE>
Carolina First Corporation 1998 Annual Report 33
method, taking into consideration the estimated prepayment of the underlying
loans. For purposes of measuring impairment, MSRs are 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, interest rates, servicing costs and other factors.
Impairment is measured on a disaggregated basis for each strata of rights which
are segregated by predominant risk characteristics, including interest rate and
loan type.
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 cash flows related to
the securitizations are recorded during the life of the transaction. The
interest-only strip security is computed 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 term 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 to determine that the
recorded asset is recoverable from future undiscounted cash flows.
Core deposit intangibles are amortized over 10 years using the
sum-of-the-years' digits method. Goodwill is generally amortized over 25 years
using the straight-line method.
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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap transactions as part of its overall
interest rate risk management activities. There must be a correlation of
interest rate movements between these derivative instruments and the underlying
assets or liabilities to qualify for hedge accounting. The impact of a swap is
accrued over the life of the agreement based on expected settlement payments
and is recorded as an adjustment to interest income or expense in the period in
which it accrues and in the category appropriate to the related asset or
liability. Changes in the fair values of the swaps are not recorded in the
consolidated statements of income because the swap is designated with
<PAGE>
34 Carolina First Corporation 1998 Annual Report
a specific asset or liability or finite pool of assets or liabilities.
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 assets and
liabilities are recognized on all temporary book/tax differences, operating loss
carryforwards and tax credit carryforwards. Temporary book/tax differences occur
when income and expenses are recognized in different periods for financial
reporting purposes and for purposes of computing income taxes currently payable.
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
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. Share and per share data have been restated to
reflect the December 1996 six-for-five stock split, which was effective January
30, 1997.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted 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 balances of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position.
The following summarizes other comprehensive income (loss), net of tax
for the years ended December 31:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (5,551) $8,997 $1,305
........................................
Income Taxes 1,951 (3,205) (521)
........................................
Less: Reclassification adjustment
for gains included in net income (195) (2,734) (721)
........................................
Income Taxes 72 1,012 268
- ---------------------------------------------------------------------------------
$ (3,723) $4,070 $ 331
- ---------------------------------------------------------------------------------
</TABLE>
BUSINESS SEGMENTS
Effective January 1, 1998, the Company adopted 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 assess 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 Company has two reportable
operating segments, Carolina First Bank and CF Mortgage (see Note 27).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company does not anticipate
that adoption of SFAS 133 will have a material effect on its financial
statements.
RISK AND UNCERTAINTIES
In the normal course of its business the Company encounters two significant
types of risk: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or on different bases, than
its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results
<PAGE>
Carolina First Corporation 1998 Annual Report 35
from borrowers' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral underlying
loans receivable, the valuation of real estate held by the Company, and the
valuation of loans held for sale, mortgage-backed securities available for sale
and mortgage servicing rights.
The Company is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies, which
may subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions resulting from the
regulators' judgments based on information available to them at the time of
their examination.
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 as of the dates of the Consolidated
Balance Sheets and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ signifi
cantly from those estimates and assumptions.
NOTE 2 STATEMENTS 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) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $88,885 $65,154 $56,867
.....................................
Income taxes paid 13,943 9,701 4,504
.....................................
Significant non-cash transactions are
summarized as follows:
Purchase accounting acquisitions 99,235 79,768 --
.....................................
Conversion of preferred stock into
common stock -- 943 31,966
.....................................
Loans transferred to other real
estate owned 454 554 2,800
- --------------------------------------------------------------------------
</TABLE>
NOTE 3 BUSINESS COMBINATIONS
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, which included 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
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, which
included 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.
On June 1, 1998, the Company completed the acquisition of Resource
Processing Group, Inc., a credit card origination and servicing company
headquartered in Columbia, South Carolina. In connection with such acquisition,
RPGI became a wholly-owned subsidiary of the Company. The RPGI transaction was
accounted for as a purchase and resulted in the issuance of 398,610 shares of
the Company's Common Stock for the outstanding shares of RPGI common stock.
Additional shares of the Company's Common Stock may become issuable in the
event that certain performance related criteria are met. The excess of the
purchase price over the fair market value of the net identifiable assets
acquired of approximately $3.4 million has been recorded as goodwill and is
being amortized on a straight-line basis over 10 years.
On September 29, 1998, Carolina First Bank acquired First National Bank
of Pickens County ("First National"), a national bank headquartered in Easley,
South Carolina. The First National transaction was accounted for as a purchase
and resulted in the issuance of 2,817,350 shares of the Company's Common Stock
in exchange for all the outstanding common shares of First National. This
transaction was valued at approximately $60 million (as of the closing date of
the acquisition). The excess of the purchase price over the fair market value
of the net identifiable assets
<PAGE>
36 Carolina First Corporation 1998 Annual Report
acquired of approximately $45 million has been recorded as goodwill and core
deposit premium. First National operated through four locations and had total
assets, loans, deposits and shareholders' equity of approximately $121 million,
$62 million, $95 million and $16 million, respectively.
On September 30, 1998, the Company acquired Poinsett Financial
Corporation ("Poinsett"), the thrift holding company for Poinsett Bank, a
Federal savings bank headquartered in Travelers Rest, South Carolina. Poinsett
Bank changed its name to Carolina First Bank, F.S.B. and operates as a
wholly-owned subsidiary of the Company. In connection with such acquisition,
753,530 shares of the Company's Common Stock valued at approximately $16
million (as of the closing date of the acquisition) were exchanged for all
outstanding shares of Poinsett common stock. This transaction was accounted for
using the purchase method of accounting. The excess of the purchase price over
the fair market value of the net identifiable assets acquired of approximately
$12 million has been recorded as goodwill and core deposit premium. Poinsett
Bank operated through three locations with total assets, loans, deposits and
shareholders' equity of approximately $89 million, $67 million, $82 million and
$5 million, respectively.
On October 19, 1998, the Company acquired all the outstanding common
shares of Colonial Bank of South Carolina, Inc. ("Colonial"), a state-chartered
banking corporation headquartered in Camden, South Carolina, in exchange for
651,455 shares of the Company's Common Stock. This transaction was accounted for
using the purchase method of accounting and was valued at approximately $14
million (as of the closing date of the acquisition). The excess of the purchase
price over the fair market value of the net identifiable assets acquired of
approximately $10 million has been recorded as goodwill and core deposit
premium. Colonial Bank operated through three locations and had total assets,
loans, deposits and shareholders' equity of approximately $61 million, $51
million, $43 million and $5 million, respectively.
Because the 1997 and 1998 business combinations were accounted for as
purchases, the consolidated financial statements include the results of
operations of those companies only from their respective dates of acquisition.
The following unaudited pro forma financial information presents the combined
results of operations of the Company as if the 1998 mergers had occurred as of
the beginning of 1997, after giving effect to certain adjustments, including
amortization of intangible assets. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company and the acquired companies constituted a single entity during such
periods. In addition, the pro forma financial information does not reflect any
potential cost savings or synergies expected to be achieved following the
merger.
<TABLE>
<CAPTION>
Years ended
December 31,
($ in thousands, except share data) 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Total revenue $229,654 $195,555
....................................
Net income 16,215 11,037
....................................
Earnings per share, diluted 0.70 0.66
- --------------------------------------------------------------------
</TABLE>
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 June 12, 1998, Carolina First Bank completed the sale of three
branches located in Belton, Calhoun Falls and Honea Path, South Carolina to two
bank subsidiaries of Community Capital. All three branches were former
locations of First Federal, which was acquired by the Company in November 1997.
The deposit premium received of approximately $2.7 million was used to reduce
intangible asset balances (recorded in connection with the First Southeast
acquisition), and accordingly no gain was recorded. In connection with this
sale, Carolina First Bank sold loans of approximately $2 million and
transferred deposits of approximately $44 million.
In January 1999, the Company signed a definitive agreement to acquire
Citizens First National Bank ("Citizens"), headquartered in Crescent City,
Florida. At December 31, 1998, Citizens operated through four locations and had
total assets of approximately $57 million. The purchase price is $12 million,
payable in the form of the Company's Common Stock. The proposed merger is
anticipated to be accounted for using the pooling-of-interests method of
accounting and is expected to close in the second quarter of 1999.
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, 1998 and 1997 were
approximately $18,815,000 and $16,744,000, respectively.
<PAGE>
Carolina First Corporation 1998 Annual Report 37
NOTE 5 SECURITIES
The aggregate amortized cost and fair value of securities at December 31 were
as follows:
<TABLE>
<CAPTION>
1998
------------------------------------------
Gross
Unrealized
Amortized ------------------ Fair
($ in thousands) Cost Gains Losses Value
- ------------------------------ ----------- --------- -------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. treasury securities $ 8,412 $ -- $ 3 $ 8,409
..............................
Obligations of U.S. government
agencies and corporations 342,712 710 8 343,414
..............................
Other securities 42,767 1,429 879 43,317
- ------------------------------ -------- ------ ---- --------
$393,891 $2,139 $890 $395,140
-------- ------ ---- --------
SECURITIES HELD FOR INVESTMENT
Obligations of states and
political subdivisions $ 49,047 $ 845 $ -- $ 49,892
- -----------------------------------------------------------------------
Other securities 300 -- -- 300
- ------------------------------ -------- ------ ---- --------
$ 49,347 $ 845 $ -- $ 50,192
-------- ------ ---- --------
</TABLE>
<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>
The amortized cost and estimated fair value of debt securities at December 31,
1998, by contractual maturity, are shown in the following table. 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.
<TABLE>
<CAPTION>
1998
------------------------
Amortized Fair
($ in thousands) Cost Value
- -------------------------------------- ----------- ----------
<S> <C> <C>
SECURITIES AVAILABLE FOR SALE
Due in one year or less $ 24,655 $ 24,657
......................................
Due after one year through five years 91,319 91,281
......................................
Due after five years through ten years 261,541 262,288
......................................
Due after ten years 425 426
......................................
No contractual maturity 15,951 16,488
- -------------------------------------- -------- --------
$393,891 $395,140
-------- --------
SECURITIES HELD FOR INVESTMENT
Due in one year or less $ 6,553 $ 6,569
......................................
Due after one year through five years 24,594 25,069
......................................
Due after five years through ten years 13,348 13,709
......................................
Due after ten years 4,852 4,845
- -------------------------------------- -------- --------
$ 49,347 $ 50,192
-------- --------
</TABLE>
Gross realized gains and losses on sales of securities for the years
ended December 31 were:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- ------------------------------ -------- --------- ---------
<S> <C> <C> <C>
Gross realized gains $654 $3,286 $1,036
..............................
Gross realized losses (74) (275) (63)
- ------------------------------ ---- ------ ------
Net gain on sale of securities $580 $3,011 $ 973
- ------------------------------ ---- ------ ------
</TABLE>
The change in the unrealized gain on securities available for sale, net
of tax (as recorded in shareholders' equity) for the year ended December 31,
1998 was a decrease of $3,723,000. Securities with an approximate book value of
$246 million and $139 million at December 31, 1998 and 1997, respectively, were
pledged to secure public deposits and for other purposes. Estimated market
values of securities pledged were $247 million and $140 million at December 31,
1998 and 1997, respectively.
Carolina First Bank and Carolina First Bank, F.S.B., as members of the
Federal Home Loan Bank ("FHLB") of Atlanta, are required to own capital stock
in the FHLB of Atlanta based generally upon their 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, 1998, 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, which was included in securities available for sale
with a basis of approximately $160,000, was recorded at its market value of
approximately $1.6 million. 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
<PAGE>
38 Carolina First Corporation 1998 Annual Report
securities laws.The Affinity Warrant was not reported on the Company's balance
sheet as of December 31, 1998.
At December 31, 1998, 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, certain affiliates of Net.B@nk,
including the Company, may not sell their shares in Net.B@nk until July 31,
2000. On January 8, 1999, the Office of Thrift Supervision granted the Company
permission to sell or transfer 370,000 shares in connection with Net.B@nk's
secondary public offering (Note 30).
The Company has made equity investments in seven community banks in the
Southeast. 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. CF Investment Company is a wholly-owned subsidiary
of Blue Ridge. In 1997, the Company capitalized CF Investment Company with a
contribution of $3.0 million. CF Investment Company has invested approximately
$2 million in companies specializing in electronic document management,
Internet development and credit decision systems.
NOTE 7 LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December 31:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- ------------------------------------ ------------- -------------
<S> <C> <C>
Real estate -- mortgage $ 422,003 $ 321,572
....................................
Real estate -- construction 52,762 42,229
....................................
Commercial and industrial 280,552 225,021
....................................
Commercial and industrial secured by
real estate 703,323 516,253
....................................
Consumer 189,422 141,842
....................................
Credit cards 65,266 52,525
....................................
Lease financing receivables 40,450 79,597
....................................
Loans held for sale 112,918 235,151
- ------------------------------------ ---------- ----------
Gross loans 1,866,696 1,614,190
....................................
Less unearned income 7,558 11,775
....................................
Less allowance for loan losses 17,509 16,211
- ------------------------------------ ---------- ----------
Net loans $1,841,629 $1,586,204
- ------------------------------------ ---------- ----------
</TABLE>
At December 31, 1998 and 1997, nonaccrual loans were $753,000 and
$1,165,000, respectively. Foregone interest income was approximately $92,000 in
1998, $77,000 in 1997 and $180,000 in 1996. Interest income recognized on these
loans during 1998, 1997 and 1996 was approximately $170,000, $111,000 and
$317,000, respectively. The nonaccrual loans were considered to be impaired
loans. The average recorded investment in impaired loans in 1998 and 1997 was
$725,000 and $1,000,000, respectively. The related allowances for these
impaired loans were $646,000 and $812,000, respectively.
Foreclosed loans included in other real estate owned amounted to
$1,809,000 and $867,000 at December 31, 1998 and 1997, respectively. At both
December 31, 1998 and 1997, loans included $1,283,000 in restructured loans.
Changes in the allowance for loan losses were:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- -------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Balance at beginning of year $16,211 $11,290 $ 8,661
................................
Purchase accounting acquisitions 1,822 3,550 --
................................
Valuation allowance for loans
purchased -- 658 1,261
................................
Provision for loan losses 11,129 11,646 10,263
................................
Recoveries on loans previously
charged off 1,122 1,186 565
................................
Charge-offs:
Credit cards (4,309) (5,325) (4,072)
................................
Acquired fraudulent loans -- -- (1,303)
................................
Other (8,466) (6,794) (4,085)
- -------------------------------- ------- ------- -------
Balance at end of year $17,509 $16,211 $11,290
- -------------------------------- ------- ------- -------
</TABLE>
Directors, executive officers and associates of such persons were
customers of and had transactions with the Company in the ordinary course of
business. Included in such transactions are outstanding loans and commitments,
all of which were made under normal credit terms and did not involve more than
normal risk of collection. The aggregate dollar amount of these loans was
approximately $6,040,000 and $17,387,000 at December 31, 1998 and 1997,
respectively. During 1998, new loans of approximately $2,371,000 were made, and
payments totaled approximately $13,718,000.
NOTE 8 PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- --------------------------------- --------- ---------
<S> <C> <C>
Land $ 9,093 $ 6,243
.................................
Buildings 22,120 17,977
.................................
Furniture, fixtures and equipment 29,215 22,188
.................................
Leasehold improvements 7,800 8,203
.................................
Construction in progress 230 1,377
- --------------------------------- ------- -------
68,458 55,988
Less accumulated depreciation and
amortization 21,505 16,306
- --------------------------------- ------- -------
$46,953 $39,682
------- -------
</TABLE>
Depreciation and amortization charged to operations totaled $4,071,000,
$3,181,000 and $3,257,000 in 1998, 1997 and 1996, respectively.
<PAGE>
Carolina First Corporation 1998 Annual Report 39
At December 31, 1998, the net book value of land and buildings pledged as
collateral for long-term debt obligations totaled approximately $1,875,000 (Note
15).
NOTE 9 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- -------------------- ----------- ----------
<S> <C> <C>
Goodwill $116,336 $49,026
....................
Core deposit premium 10,557 9,064
....................
Credit card premium 3,509 138
- -------------------- -------- -------
$130,402 $58,228
-------- -------
</TABLE>
NOTE 10 MORTGAGE OPERATIONS
Mortgage servicing rights totaled $25,151,000 and $19,831,000 at December 31,
1998 and 1997, respectively, and are included in other assets.
The Company paid $9,248,000 for mortgage servicing rights to
approximately $594 million of loans in 1998. The amortization of servicing
rights included in loan servicing fees amounted to $5,791,000, $4,115,000 and
$2,574,000 in 1998, 1997 and 1996, respectively. There were no sales of
mortgage servicing rights during 1998.
The fair value of mortgage servicing rights at December 31, 1998 was
approximately $25,617,000. No valuation allowance for capitalized servicing
rights was required during the year ended December 31, 1998.
Mortgage banking income includes income from originations and sales of
mortgage loans of $3,662,000, $2,360,000 and $1,392,000 in 1998, 1997 and 1996,
respectively.
In accordance with SFAS 125, the Company capitalized $1,863,000 and
$734,000 in 1998 and 1997, respectively, representing the allocated cost of
originated mortgage servicing rights, and recorded a corresponding increase in
mortgage banking income.
NOTE 11 DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- ----------------------------------- ------------- -------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 286,831 $ 206,938
...................................
Interest-bearing demand deposits 485,382 314,994
...................................
Money market accounts 177,350 183,032
...................................
Savings accounts 90,400 74,248
...................................
Time deposits 1,085,273 967,330
- ----------------------------------- ---------- ----------
$2,125,236 $1,746,542
---------- ----------
</TABLE>
Time deposits in excess of $100,000 totaled $295 million and $231 million at
December 31, 1998 and 1997, respectively.
NOTE 12 INCOME TAXES
Income tax expense for the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- --------------------- ---------- ------------- ---------
<S> <C> <C> <C>
CURRENTLY PAYABLE
Federal $13,333 $ 9,131 $5,009
.....................
State 870 638 518
- --------------------- ------- -------- ------
14,203 9,769 5,527
------- -------- ------
DEFERRED
Federal (907) (1,673) 432
.....................
State (45) (4) 40
- --------------------- ------- ---------- ------
(952) (1,677) 472
------- --------- ------
Total income taxes $13,251 $ 8,092 $5,999
- --------------------- ------- --------- ------
</TABLE>
Income taxes are different than tax expense computed by applying the statutory
federal income tax rate of 35% for 1998, 1997 and 1996 to income before income
taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- ------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Tax expense at statutory rate $12,493 $7,851 $5,766
.....................................
Differences resulting from:
Nondeductible goodwill amortization 889 41 97
.....................................
Low-income housing tax credit (97) (97) (100)
.....................................
Change in valuation allowance for
deferred tax assets (99) 56 23
.....................................
State tax, net of federal benefit 536 412 363
.....................................
Nontaxable interest (503) (445) (402)
.....................................
Other, net 32 274 252
- ------------------------------------- ------- ------ ------
$13,251 $8,092 $5,999
- ------------------------------------- ------- ------ ------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31 are
presented below:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- ------------------------------------------------- --------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Loan loss allowance deferred for tax purposes $6,494 $5,386
................................................
Excess basis of intangible assets for financial
reporting purposes over tax basis 2,180 689
................................................
Net operating loss carryforwards 554 607
................................................
Compensation expense deferred for tax
reporting purposes 1,343 1,192
................................................
Other 290 355
- ------------------------------------------------- ------ ------
10,861 8,229
Less valuation allowance 197 296
- ------------------------------------------------- ------ ------
10,664 7,933
- ------------------------------------------------- ------ ------
DEFERRED TAX LIABILITIES
Net loan fees/costs deferred for tax purposes 1,316 1,094
................................................
Tax depreciation in excess of book depreciation 3,583 2,190
................................................
Unrealized gain on securities available for sale 420 2,443
................................................
Tax bad debt reserve recapture adjustment 952 1,233
................................................
Excess carrying value of assets acquired for
financial reporting purposes over tax basis 4,021 1,092
................................................
Other 708 682
- ------------------------------------------------- ------ ------
11,000 8,734
- ------------------------------------------------- ------ ------
Net deferred tax liabilities $(336) $(801)
- ------------------------------------------------- ------ ------
</TABLE>
A portion of the change in net deferred tax liabilities relates to unrealized
gains on securities available for
<PAGE>
40 Carolina First Corporation 1998 Annual Report
sale. The related current period deferred tax benefit of $2,023,000 has been
recorded directly to shareholders' equity. Purchase acquisitions also increased
the net deferred tax liability by $2,510,000 during 1998. The balance of the
change in net deferred tax liabilities results from the current period deferred
tax benefit of $952,000. The net deferred tax liability is included in other
liabilities in the accompanying consolidated balance sheets.
The valuation allowance against the potential total deferred tax assets
as of December 31, 1998 and 1997 relates to deductible temporary differences
for state tax purposes. It is management's conclusion that the realization of
the net deferred tax asset recorded is more likely than not. This conclusion is
based upon taxable income in carryback years and conservative projections of
taxable income in future years.
NOTE 13 BORROWED FUNDS
Short-term borrowings and their related weighted average interest rates at
December 31 were:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
($ in thousands) Amount Rate Amount Rate
- ---------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Repurchase agreements $154,065 4.22% $112,161 5.22%
.....................
FHLB advances 920 5.82 -- --
.....................
Commercial paper -- -- 27,254 6.33
.....................
Other 838 7.79 324 7.55
- ---------------------- -------- ---- -------- ----
$155,823 4.25% $139,739 5.44%
- ---------------------- -------- ---- -------- ----
</TABLE>
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 one-to-four family
residences which totaled $309 million at December 31, 1998. These advances have
an initial maturity of one year or less with interest payable monthly.
Commercial paper, which is no longer issued, was issued by the Company with
maturities less than 270 days. Other short-term borrowings represent the
current portion of long-term debt.
The maximum short-term borrowings outstanding at any month end were:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- -------------------------------------- ----------- -----------
<S> <C> <C>
Federal funds purchased and repurchase
agreements $154,065 $113,421
......................................
FHLB advances 920 115,000
......................................
Commercial paper and other short-term
borrowings 21,198 27,578
......................................
Aggregate short-term borrowings 155,823 258,882
- -------------------------------------- -------- --------
</TABLE>
Average short-term borrowings during 1998, 1997 and 1996 were $122 million,
$169 million and $158 million, respectively. The average interest rate on
short-term borrowings during 1998, 1997 and 1996 were 5.32%, 5.61% and 5.47%,
respectively.
Interest expense on short-term borrowings for the years ended December 31
related to the following:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- --------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal funds purchased and repurchase
agreements $6,149 $4,859 $4,247
......................................
FHLB advances 15 3,355 3,563
......................................
Other short-term borrowings 324 1,274 847
- --------------------------------------- ------ ------ ------
$6,488 $9,488 $8,657
- --------------------------------------- ------ ------ ------
</TABLE>
NOTE 14 UNUSED LINES OF CREDIT
At December 31, 1998, Carolina First Bank had unused short-term lines of credit
to purchase federal funds from unrelated banks totaling $53 million. 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, 1998, Carolina First Bank
had an unused line of credit with the FHLB of Atlanta totaling $190 million.
NOTE 15 LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
- ----------------------------------------------- ---------- ----------
<S> <C> <C>
9.00% Subordinated Notes; due September 1,
2005; interest payable quarterly $25,618 $25,489
...............................................
Mortgage note payable; interest at 11.25% due
December 31, 2012, with current annual
payments of approximately $125,000 1,028 1,055
...............................................
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 2,275 2,575
...............................................
FHLB advances; fixed interest rates ranging
from 5.41% to 5.87% due from June 24, 2002
to August 14, 2008; interest payable
quarterly 34,160 10,000
- ----------------------------------------------- ------- -------
$63,081 $39,119
------- -------
</TABLE>
The principal maturities of long-term debt for the next five years subsequent
to December 31, 1999 are $1,307,000 in 2000, $1,399,000 in 2001, $12,867,000 in
2002, $945,000 in 2003 and $28,000 in 2004.
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.
<PAGE>
Carolina First Corporation 1998 Annual Report 41
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, a 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 appealed
the dismissal. Plaintiffs allege as causes of action the following: conversion
of corporate opportunity; fraud and constructive 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 connec-
tion with the Company's procurement of stock in Affinity), statements to former
shareholders of Midlands National Bank in connection with the Company's
acquisition of that bank, and alleged mismanagement by certain executive
officers involving financial matters. The complaint seeks damages for the
benefit of the Company aggregating $41 million and recision of the Affinity
bonus.
NOTE 17 LEASE COMMITMENTS
Minimum rental payments under noncancelable operating leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
($ in thousands)
- ------------------
<S> <C>
1999 $ 2,980
..................
2000 2,796
..................
2001 2,640
..................
2002 2,292
..................
2003 1,674
..................
Thereafter 13,452
- ---- -------
$25,834
-------
</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 $2,545,000, $2,284,000
and $1,830,000 in 1998, 1997 and 1996, 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 and 1998.
On February 13, 1998, the Company completed the sale of 2.0 million
shares of its Common Stock to certain overseas investors (the "Regulation S
Offering"). 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 $39 million. Subsequent to the consummation of the Regulation S
Offering, the Company filed a registration statement with the Securities and
Exchange Commission registering the further sale of such shares by the
institutional investors which purchased the shares in the Regulation S
Offering. This registration statement became effective on March 11, 1998.
During the fourth quarter of 1998, the Company repurchased 394,874 shares
of common stock for reissue in connection with the acquisition of First
National.
<PAGE>
42 Carolina First Corporation 1998 Annual Report
NOTE 19 PER SHARE INFORMATION
The following is a summary of the earnings per share calculation for the years
ended December 31:
<TABLE>
<CAPTION>
($ in thousands, except share data) 1998 1997 1996
- ------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
BASIC
Net income $ 22,443 $ 14,340 $ 10,474
.....................................
Less dividends on preferred
stock -- -- 63
- ------------------------------------- ---------- ---------- ----------
Net income applicable to
common shareholders
(numerator) $ 22,443 $ 14,340 $ 10,411
- ------------------------------------- ---------- ---------- ----------
Average common shares
outstanding
(denominator) 18,556,727 11,989,517 10,705,107
- ------------------------------------- ---------- ---------- ----------
Per share amount $ 1.21 $ 1.19 $ 0.97
- ------------------------------------- ---------- ---------- ----------
DILUTED
Net income (numerator) $ 22,443 $ 14,340 $ 10,474
- ------------------------------------- ---------- ---------- ----------
Average common shares
outstanding 18,556,727 11,989,517 10,705,107
.....................................
Convertible preferred stock
assumed converted -- 4,174 527,745
.....................................
Dilutive common stock
options and warrants 314,426 181,870 135,183
- ------------------------------------- ---------- ---------- ----------
Average diluted shares
outstanding
(denominator) 18,871,153 12,175,561 11,368,035
- ------------------------------------- ---------- ---------- ----------
Per share amount $ 1.19 $ 1.18 $ 0.92
- ------------------------------------- ---------- ---------- ----------
</TABLE>
The following options were outstanding for the years ended December 31
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>
1998 1997
- ----------------------------- ---------------------------
Number Number
of shares Option Price of shares Option Price
- -------------- -------------- ----------- -------------
<S> <C> <C> <C>
49,417 $ 24.79 90,667 $ 21.56
28,500 24.84 49,417 24.79
49,417 28.03 49,417 28.03
250 28.88 49,417 31.26
25,466 29.06 ------ --------
49,417 31.26
------ --------
</TABLE>
There were no options outstanding with an exercise price greater than the
average market price of the common shares for the year ended 1996.
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.
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, 1998,
Carolina First Bank's retained earnings were $53,845,000.
The Office of Thrift Supervision restricts the amount of dividends that
Carolina First Bank, F.S.B. can pay to the Company. These restrictions require
Carolina First Bank, F.S.B. to obtain prior approval of the Office of Thrift
Supervision and not pay dividends in excess of current earnings.
NOTE 21 REGULATORY CAPITAL REQUIREMENTS
The Company, Carolina First Bank and Carolina First Bank, F.S.B. 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 financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company, Carolina First Bank and Carolina First
Bank, F.S.B. must meet specific capital guidelines that involve quantitative
measures of the assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's, Carolina First
Bank's and Carolina First Bank, F.S.B.'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, Carolina First Bank and Carolina First Bank,
F.S.B. to maintain minimum amounts and ratios (set forth in the following
table) 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, 1998, that the Company, Carolina First
Bank and Carolina First Bank, F.S.B met all capital adequacy requirements.
As of the most recent regulatory examination, Carolina First Bank was
deemed well capitalized under the regulatory framework for prompt corrective
action. Carolina First Bank, F.S.B. has not been examined by regulators since
the Company acquired it in September 1998. To be categorized as well
capitalized, Carolina First Bank and Carolina First Bank, F.S.B must maintain
minimum total risk-based, Tier 1 based and Tier 1 leverage ratios as set forth
in the table. Management is not aware of the existence of any conditions or
events occuring since that examination to December 31, 1998 which would affect
the well capitalized classification.
<PAGE>
Carolina First Corporation 1998 Annual Report 43
Following are the required and actual capital amounts and ratios for the
Company, Carolina First Bank and Carolina First Bank, F.S.B. as of December 31,
1998, and for the Company and Carolina First Bank as of December 31, 1997:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes: Action Provisions:
------------------------- ------------------------ ---------------------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------- ----------- ----------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998
- -----------------------
THE COMPANY
Total capital to risk
weighted assets $259,258 12.88% $161,011 8.00% n/a n/a
......................
Tier 1 capital to risk
weighted assets 214,557 10.66 80,505 4.00 n/a n/a
......................
Tier 1 capital to
average assets 214,557 8.26 103,962 4.00 n/a n/a
......................
CAROLINA FIRST BANK
Total capital to risk
weighted assets $204,287 10.59% $154,262 8.00% $192,827 10.00%
......................
Tier 1 capital to risk
weighted assets 189,688 9.84 77,131 4.00 115,696 6.00
......................
Tier 1 capital to
average assets 189,688 7.64 99,357 4.00 124,197 5.00
CAROLINA FIRST BANK, F.S.B.
Total capital to risk
weighted assets $ 7,420 13.58% $ 4,372 8.00% $ 5,465 10.00%
......................
Tier 1 capital to risk
weighted assets 6,737 12.33 2,186 4.00 3,279 6.00
......................
Tier 1 capital to
average assets 6,737 7.16 3,762 4.00 4,703 5.00
......................
AS OF DECEMBER 31, 1997
- -----------------------
THE COMPANY
Total capital to risk
weighted assets $180,095 11.15% $129,190 8.00% n/a n/a
......................
Tier 1 capital to risk
weighted assets 138,405 8.57 64,595 4.00 n/a n/a
......................
Tier 1 capital to
average assets 138,405 6.60 83,930 4.00 n/a n/a
......................
CAROLINA FIRST BANK
Total capital to risk
weighted assets $170,736 10.31% $132,483 8.00% $165,604 10.00%
......................
Tier 1 capital to risk
weighted assets 155,673 9.40 66,241 4.00 99,362 6.00
......................
Tier 1 capital to
average assets 155,673 7.51 82,878 4.00 103,597 5.00
- ---------------------- -------- ----- -------- ---- -------- -----
</TABLE>
NOTE 22 FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
In the normal course of business, to meet the financing needs of its customers,
the Company is a party to financial instruments with off-balance-sheet risk.
These financial instruments include commitments to extend credit, standby
letters of credit, repurchase agreements and documentary letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheets.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument is represented by the contractual
amount of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation.
Loan commitments and letters of credit at December 31, 1998 include the
following:
<TABLE>
<CAPTION>
($ in thousands)
- -----------------------------
<S> <C>
Unused credit card lines $279,920
.............................
Other loan commitments 242,986
.............................
Standby letters of credit 21,725
.............................
Documentary letters of credit 12,705
- ----------------------------- --------
</TABLE>
At December 31, 1998, the Company had executed simultaneous
repurchase/reverse repurchase transactions with customers with total principal
amounts of approximately $200 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, 1998 and 1997 were $1,688 million and $1,346 million,
respectively.
Interest rate swap transactions generally involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into off-balance-sheet interest rate
contracts involves not only interest rate risk but also the risk of
counterparties' failure to fulfill their legal obligations. Notional principal
amounts often are used to express the volume of these transactions, but the
amounts potentially subject to credit risk are much smaller. The notional
principal amount of interest rate swaps was $22 million and none at December
31, 1998 and 1997, respectively. These interest rate contracts are being used
to hedge approximately $22 million in fixed rate loans in South Carolina.
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
<PAGE>
44 Carolina First Corporation 1998 Annual Report
Mortgage Group, Inc., the purchase of lease financing receivables from Republic
Leasing Company, Inc. and the purchase of RPGI. 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, 1998, 1997 and 1996, lease payments
aggregating approximately $37,000, $27,000 and $27,000, 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, 1998,
there were 29,590 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 $188,000 charged to expense in 1998, $426,000 in 1997 and $428,000
in 1996.
The Company has a Stock Option Plan, a Directors' Stock Option Plan and
options acquired from acquisitions (collectively referred to as stock-based
option plans). Under the Stock Option Plan, the Company may grant options to
its employees for up to 1,500,000 shares of Common Stock. The exercise price of
each option either equals or exceeds the fair market value of the Company's
Common Stock on the date of grant. During 1998, the Company amended its
Director's Stock Option plan. Under the amended plan, the Company may grant
options to its non-employee directors for up to 500,000 shares of Common Stock.
The exercise price of each directors' option equals the fair market value of
the Company's Common Stock on the date of grant.
The Company applies APB Opinion 25 in accounting for the stock-based
option plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option plans. Had
compensation cost been recognized for the stock-based option plans applying the
fair-value-based method as prescribed by SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the following table:
<TABLE>
<CAPTION>
($ in thousands, except share data) 1998 1997 1996
- ------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
NET INCOME
As reported $22,443 $14,340 $10,474
.....................................
Pro forma 20,953 14,030 10,039
.....................................
BASIC EARNINGS PER SHARE
As reported 1.21 1.19 0.97
.....................................
Pro forma 1.13 1.17 0.93
.....................................
DILUTED EARNINGS PER SHARE
As reported 1.19 1.18 0.92
.....................................
Pro forma 1.11 1.15 0.88
- ------------------------------------- ------- ------- -------
</TABLE>
The effects of applying SFAS 123 may not be representative of the effects on
reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 2.50% for 1998 and 3.25% for
1997 and 1996; expected volatility of 38% for all years; risk-free interest
rate of 5.11%, 6.06% and 6.59% for 1998, 1997 and 1996, respectively; and
expected lives of 7.5 years for all years.
The following is a summary of the activity under the stock-based option
plans for the years 1998, 1997 and 1996. The information has been adjusted for
the six-for-five stock split.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ---------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
January 1 852,176 $ 15.28 384,644 $ 10.95 390,376 $ 7.74
....................
Granted:
....................
Price = Fair Value 376,286 23.76 230,157 18.06 147,950 15.35
....................
Price > Fair Value -- -- 152,651 27.68 -- --
....................
Price < Fair Value
(from purchase
acquisitions) 115,137 6.52 185,639 6.93 -- --
....................
Cancelled (25,327) 19.88 (19,493) 12.59 (36,222) 12.02
....................
Exercised (74,933) 5.42 (81,422) 7.51 (117,460) 5.27
- --------------------- ------- -------- ------- -------- -------- -------
Outstanding,
December 31 1,243,339 $ 17.55 852,176 $ 15.28 384,644 $ 10.95
- --------------------- --------- -------- ------- -------- -------- -------
Exercisable,
December 31 638,057 $ 12.75 386,528 $ 9.04 234,045 $ 9.05
- --------------------- --------- -------- ------- -------- -------- -------
Weighted-average
fair value of
options granted
during the year $ 23.57 $ 18.69 $ 15.35
- ---------------------- -------- -------- -------
</TABLE>
<PAGE>
Carolina First Corporation 1998 Annual Report 45
The following table summarizes information about stock options outstanding
under the stock-based option plans at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices as of Contractual Exercise as of Exercise
Low/High 12/31/98 Life Price 12/31/98 Price
- ------------------ ------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$ 5.33/ $7.06 187,655 6.6 yrs. $ 6.30 187,655 $ 6.30
.................
$ 7.46/ $12.71 191,180 6.7 9.65 170,348 9.37
.................
$14.58/ $15.69 208,067 8.0 15.25 96,402 14.94
.................
$15.73/ $21.56 246,705 8.6 20.17 154,009 20.04
.................
$21.75/ $24.375 207,265 9.7 24.28 -- --
.................
$ 24.79/ $31.26 202,467 9.2 27.71 29,643 28.03
- -------------- ------- ---- ------- ------- -------
$ 5.33/ $31.26 1,243,339 8.2 yrs. $ 17.55 638,057 $ 12.75
- ---------------- --------- ----------- ------- ------- -------
</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
(six percent effective January 1, 1999) of compensation subject to certain
adjustments and limitations. Contributions of $1,067,000, $873,000 and $777,000
were charged to operations in 1998, 1997 and 1996, 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, 1998, 1997 and 1996, contributions of
$667,000, $346,000 and $306,000, 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 $587,000 which was recorded as
compensation expense and gain on sale of securities.
NOTE 26 NONINTEREST EXPENSES
The significant components of other noninterest expenses for the years ended
December 31 are presented below:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997 1996
- ------------------------- --------- --------- ---------
<S> <C> <C> <C>
Telephone $ 1,696 $ 1,362 $ 1,144
.........................
Stationery, supplies and
printing 1,436 1,321 1,183
.........................
Postage 1,378 1,349 1,105
.........................
Professional fees 918 866 917
.........................
Advertising 736 1,647 821
.........................
Federal deposit insurance
premiums 571 494 469
.........................
Legal fees, other than
loan-related 570 541 1,048
.........................
Other real estate owned &
other losses 367 416 2,120
.........................
Other 10,717 7,413 6,616
- -------------------------- ------- ------- -------
$18,389 $15,409 $15,423
------- ------- -------
</TABLE>
Noninterest expenses for 1996 include a Savings Association Insurance
Fund ("SAIF") special assessment of $1,184,000 (pre-tax). This one-time
assessment was required due to the merger of the Bank Insurance Fund ("BIF"),
the primary deposit insurance fund for commercial banks, with the SAIF, the
primary deposit insurance fund for thrifts and savings banks. All members of
the SAIF, including non-thrift institutions such as Carolina First Bank which
have acquired deposits from thrift institutions, were required to pay a one-time
assessment of 0.657% of SAIF-insured deposit balances as of March 31, 1995. The
Company paid this special assessment in the fourth quarter of 1996.
NOTE 27 BUSINESS SEGMENTS
For the year ended December 31, 1998, the Company has adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Carolina
First Corporation has five wholly-owned subsidiaries which are evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and assess performance. Two of these subsidiaries qualify as
separately reportable operating segments, Carolina First Bank and CF Mortgage.
Carolina First Bank and CF Mortgage offer products and services primarily to
customers in South Carolina and the surrounding areas. Carolina First Bank's
revenues are derived primarily from interest and fees on loans, interest on
investment securities and service charges on deposits, while CF Mortgage's
revenue is from mortgage banking income.
<PAGE>
46 Carolina First Corporation 1998 Annual Report
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the years ended December 31:
<TABLE>
<CAPTION>
Carolina First CF Eliminating
($ in thousands) Bank Mortgage Other* Entries Total
- ----------------------------- ---------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1998
INCOME STATEMENT DATA
Total revenue $ 188,577 $8,811 $12,473 $ (6,454) $ 203,407
.............................
Net interest income 86,940 -- 2,196 -- 89,136
.............................
Provision for loan losses 7,684 -- 3,445 -- 11,129
.............................
Noninterest income 12,885 8,811 5,370 (4,535) 22,531
.............................
Mortgage banking income (4,148) 8,692 (9) -- 4,535
.............................
Noninterest expenses 56,918 4,762 7,699 (4,535) 64,844
.............................
Amortization 3,726 -- 742 -- 4,468
.............................
Net income 21,916 2,606 (2,079) -- 22,443
- ----------------------------- ---------- ------ --------- ---------- ----------
BALANCE SHEET DATA
Total assets $2,590,737 $6,867 $518,616 $ (390,286) $2,725,934
.............................
Loans-net of unearned income 1,783,494 -- 75,644 -- 1,859,138
.............................
Allowance for loan losses 14,599 -- 2,910 -- 17,509
.............................
Intangibles 106,873 -- 23,529 -- 130,402
.............................
Deposits 2,067,990 -- 77,496 (20,250) 2,125,236
- ------ ---------- ------ --------- ---------- ----------
1997
INCOME STATEMENT DATA
Total revenue $ 146,248 $5,919 $ 6,787 $ (3,633) $ 155,321
.............................
Net interest income 66,593 (16) 129 -- 66,706
.............................
Provision for loan losses 9,300 -- 2,346 -- 11,646
.............................
Noninterest income 14,171 5,919 1,752 (2,227) 19,615
.............................
Mortgage banking income (2,286) 5,919 -- -- 3,633
.............................
Noninterest expenses 47,320 3,674 3,477 (2,228) 52,243
.............................
Amortization 1,753 -- (212) -- 1,541
.............................
Net income 15,444 1,434 (2,538) -- 14,340
- ----------------------------- ---------- ------ --------- ---------- ----------
BALANCE SHEET DATA
Total assets $2,127,797 $4,562 $283,038 $ (259,051) $2,156,346
.............................
Loans-net of unearned income 1,589,510 -- 12,905 -- 1,602,415
.............................
Allowance for loan losses 15,062 -- 1,149 -- 16,211
.............................
Intangibles 55,989 -- 2,239 -- 58,228
.............................
Deposits 1,767,307 -- -- (20,765) 1,746,542
- ------ ---------- ------ --------- ---------- ----------
1996
INCOME STATEMENT DATA
Total revenue $ 131,877 $4,093 $ 5,247 $ (3,004) $ 138,213
.............................
Net interest income 57,462 (4) (388) -- 57,070
.............................
Provision for loan losses 9,787 -- 476 -- 10,263
.............................
Noninterest income 17,682 4,093 1,785 (2,219) 21,341
.............................
Mortgage banking income (1,200) 4,093 -- -- 2,893
.............................
Noninterest expenses 46,399 3,146 4,348 (2,218) 51,675
.............................
Amortization 1,681 -- 208 -- 1,889
.............................
Net income 11,943 593 (2,062) -- 10,474
- ----------------------------- ---------- ------- --------- ---------- ----------
BALANCE SHEET DATA
Total assets $1,552,411 $2,866 $164,951 $ (146,024) $1,574,204
.............................
Loans-net of unearned income 1,110,275 -- 14,500 -- 1,124,775
.............................
Allowance for loan losses 11,146 -- 144 -- 11,290
.............................
Intangibles 14,175 -- 2,446 -- 16,621
.............................
Deposits 1,287,268 -- -- (6,218) 1,281,050
- ------ ---------- ------- --------- ---------- ----------
</TABLE>
*Other includes corporate related items and results of subsidiaries not meeting
the criteria for reportable operating segments, including the Parent Company,
Blue Ridge, Carolina First Bank, F.S.B. and RPGI.
<PAGE>
Carolina First Corporation 1998 Annual Report 47
NOTE 28 PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Carolina First Corporation
(Parent Company only):
Condensed Balance Sheets
December 31,
($ in thousands) 1998 1997
====================================== ========== ==========
ASSETS
Cash and due from banks $ 11,126 $ 16,284
......................................
Investment in subsidiaries:
Bank subsidiaries 320,349 212,273
......................................
Nonbank subsidiaries 20,240 10,904
- -------------------------------------- -------- --------
Total investment in subsidiaries 340,589 223,177
......................................
Receivable from subsidiaries 14,652 12,847
......................................
Premises and equipment, net 50 203
......................................
Other investments 5,106 3,716
......................................
Other assets 4,514 4,307
- -------------------------------------- -------- --------
$376,037 $260,534
=============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 3,481 $ 3,257
......................................
Borrowed funds 28,193 55,618
......................................
Shareholders' equity 344,363 201,659
- -------------------------------------- -------- --------
$376,037 $260,534
=============================================================
Condensed Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
($ in thousands) 1998 1997 1996
================================================== ========== ========== =========
<S> <C> <C> <C>
INCOME
Equity in undistributed net income of subsidiaries $15,741 $11,454 $ 6,360
..................................................
Interest income from subsidiaries 1,808 1,407 787
..................................................
Dividend income from subsidiaries 8,250 4,885 6,500
..................................................
Other 1,196 1,755 1,810
- -------------------------------------------------- ------- ------- -------
26,995 19,501 15,457
------- ------- -------
EXPENSES
Interest on borrowed funds 2,579 3,744 3,199
..................................................
Deferred compensation 188 426 1,015
..................................................
Shareholder communications 443 288 276
..................................................
Other 2,627 1,810 2,049
- -------------------------------------------------- ------- ------- -------
5,837 6,268 6,539
------- ------- -------
Income before taxes 21,158 13,233 8,918
..................................................
Income tax benefits 1,285 1,107 1,556
- -------------------------------------------------- ------- ------- -------
Net income $22,443 $14,340 $10,474
=====================================================================================
</TABLE>
<PAGE>
48 Carolina First Corporation 1998 Annual Report
Condensed Statements of Cash Flow
<TABLE>
<CAPTION>
Years Ended December 31,
($ in thousands) 1998 1997 1996
====================================================================== ============ ============ ============
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $22,443 $14,340 $10,474
......................................................................
Adjustments to reconcile net income to net cash provided by operations
Equity in undistributed net income of subsidiaries (15,741) (11,454) (6,360)
......................................................................
Depreciation 33 20 18
......................................................................
Other liabilities, net (121) 1,007 214
......................................................................
Other assets, net (150) (283) 101
- ---------------------------------------------------------------------- ------- ------- -------
Net cash provided by operating activities 6,464 3,630 4,447
- ---------------------------------------------------------------------- ------- ------- -------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Investment in bank subsidiaries (5,000) -- --
......................................................................
Investment in nonbank subsidiaries -- (2,820) (1,235)
......................................................................
Loans to subsidiaries, net (1,805) 1,545 (14,240)
......................................................................
Other investments (2,801) (3,449) 1,324
......................................................................
Fixed assets, net 120 (54) (50)
- ---------------------------------------------------------------------- ------- ------- -------
Net cash used for investing activities (9,486) (4,778) (14,201)
- ---------------------------------------------------------------------- ------- ------- -------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Borrowings, net (27,425) 9,515 15,685
......................................................................
Issuance of long-term debt -- 2,700 --
......................................................................
Cash dividends paid (5,860) (2,688) (3,130)
......................................................................
Issuance of common stock 38,375 -- --
......................................................................
Repurchase of common stock (9,824) -- --
......................................................................
Other 2,598 1,918 1,453
- ---------------------------------------------------------------------- ------- ------- -------
Net cash (used for) provided by financing activities (2,136) 11,445 14,008
- ---------------------------------------------------------------------- ------- ------- -------
Net change in cash and due from banks (5,158) 10,297 4,254
......................................................................
Cash and due from banks at beginning of year 16,284 5,987 1,733
- ---------------------------------------------------------------------- ------- ------- -------
Cash and due from banks at end of year $11,126 $16,284 $ 5,987
- ---------------------------------------------------------------------- ------- ------- -------
</TABLE>
NOTE 29 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
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 sold and resale
agreements, 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.
<PAGE>
Carolina First Corporation 1998 Annual Report 49
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>
1998 1997
---------------------------- ---------------------------
Carrying Fair Carrying Fair
($ in thousands) Amount Value Amount Value
================================================= ============ ============= ============ ============
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 102,516 $ 102,516 $ 73,326 $ 73,326
.................................................
Interest-bearing bank balances 54,988 54,988 34,703 34,703
.................................................
Federal funds sold and resale agreements 5,000 5,000 -- --
.................................................
Trading securities 3,543 3,543 2,349 2,349
.................................................
Securities available for sale 395,140 395,140 262,329 262,329
.................................................
Securities held for investment 49,347 50,192 33,855 34,494
.................................................
Net loans 1,841,629 1,879,431 1,586,204 1,663,269
.................................................
FINANCIAL LIABILITIES
Deposits $2,125,236 $2,160,529 $1,746,542 $1,785,360
.................................................
Federal funds purchased and repurchase agreements 154,065 154,065 112,161 112,161
.................................................
Short-term borrowings 1,758 1,758 27,578 27,772
.................................................
Long-term debt 63,081 62,934 39,119 39,301
- ------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
The estimated fair values for the Company's off-balance-sheet derivative
financial instruments at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- ---------------------
Notional Fair Notional Fair
($ in thousands) Amount Value Amount Value
====================== ========== ============ ========== ========
<S> <C> <C> <C> <C>
Interest Rate Swaps $22,249 $ (703) $ -- $ --
- ---------------------- ------- ------------ ----- -----
</TABLE>
NOTE 30 SUBSEQUENT EVENT
In January 1999, the Company contributed 290,000 shares of Net.B@nk common
stock to Carolina First Foundation, a non-profit corporation organized for
charitable purposes. In February 1999, the Company contributed capital in the
form of 30,000 shares of Net.B@nk common stock to its wholly-owned subsidiary,
Carolina First Guaranty Reinsurance, Ltd.
On February 10, 1999, the Company and Carolina First Guaranty
Reinsurance, Ltd. sold 50,000 shares and 30,000 shares, respectively, of
Net.B@nk common stock at a net price of $43.47 per share in connection with
Net.B@nk's secondary public offering. After this sale and the transfers
described above, the Company owned 805,000 shares, or 9.9%, of Net.B@nk's
outstanding common stock.
<PAGE>
50 Carolina First Corporation 1998 Annual Report
Boards of Directors
R. Cobb Bell
Certified Public Accountant
Mary Rainey Belser
Community Volunteer
Claude M. Epps, Jr.
Shareholder
Bellamy, Rutenberg,
Copeland, Epps,
Gravely, Bowers P.A.
Attorneys at Law
Judd B. Farr+
President
Greenco Beverage Co., Inc.
Richard J. Ferdon, Jr.
Commercial Real Estate
James H. Grantham
Business Development
Carolina First Bank
C. Claymon Grimes, Jr.+
Attorney
M. Dexter Hagy+
Principal, Vaxa Capital
Management, LLC
Keith C. Hinson
President
Waccamaw Land
and Timber
Michael R. Hogan
Puckett, Scheetz & Hogan Insurance
William S. Hummers III+
Executive Vice President
Carolina First Corporation
James J. Johnson
President and Treasurer
Dargan Construction Company, Inc.
Vernon E. Merchant, Jr., M.D.+
Surgeon
David L. Morrow
Executive Vice President
Carolina First Bank
William R. Phillips+
Retired
Investment Advisor
Joseph C. Reynolds
President
Carolina First
Mortgage Company
Walter J. Roberts, Jr., M.D.
Internist
Medical Director
SCMA-PCN
H. Earle Russell, Jr., M.D.+
Surgeon
Greenville Surgical Associates
Jasper Salmond
Senior Marketing Coordinator
Wilbur Smith Associates
President, South Carolina
School Boards Association
Charles B. Schooler, O.D.+
Optometrist
Elizabeth P. Stall+
Community Volunteer
Eugene E. Stone IV+
Chief Executive Officer
Umbro International, Inc.
David H. Swinton, Ph.D.
President
Benedict College
James W. Terry, Jr.
President
Carolina First Bank
William R. Timmons, Jr.+
Chairman
Carolina First Corporation
Chairman
Canal Insurance Company
David C. Wakefield III+
Partner
Wakefield Associates
Mack I. Whittle, Jr.+
President and
Chief Executive Officer
Carolina First Corporation
Thomas C. "Nap" Vandiver
Chairman Emeritus
Carolina First Bank
Legend: +Carolina First Corporation
Executive Management
Charles D. Chamberlain
Executive Vice President
C. Daniel Dobson, Jr.
Executive Vice President
John C. DuBose+
Executive Vice President
William S. Hummers III+
Executive Vice President
William J. Moore+
Executive Vice President
David L. Morrow
Executive Vice President
Joseph C. Reynolds
President
Carolina First Mortgage Company
Merwin L. Rogers
Executive Vice President
Wade H. Shugart
Executive Vice President
H. Bryce Solomon, Jr.
President
Blue Ridge Finance Company
Michael W. Sperry+
Executive Vice President
F. Justin Strickland
Executive Vice President
James W. Terry, Jr.
President
Carolina First Bank
Alan H. Verch
Executive Vice President
Mack I. Whittle, Jr.+
President and Chief Executive Officer
Legend: +Carolina First Corporation
<PAGE>
Carolina First Corporation 1998 Annual Report 51
Advisory Board Members
Anderson
James W. Braswell, Jr.
A. Reese Fant
Daniel J. Fleming, M.D.
William W. Jones
D. Gray Suggs
Charleston County
Sam Altman
Martha Ballenger
Henry Berlin
John W. Kornahrens
Gary Lamberson
Ernest Masters
Gordon McCay
John W. Molony
Dewey Nettles
Michael Robinson
Robert Webb
Columbia/Midlands
T. Moffatt Burriss
John Ducate, Jr.
D. Christian Goodall
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
Charles A. Moore
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.
William W. DesChamps
Roger E. Grigg
Debbie Leonard
Daniel W. R. Moore, Sr.
Edward L. Proctor, Jr., M.D.
Jonathan Smith
Lake City
Marlene T. Askins
Joe F. Boswell
Matthew C. Brown
William C. Garner, Jr.
Roger K. Kirby
James C. Lynch, Sr.
E. Leroy Nettles, Jr.
William J. Sebnick
Newberry
Dan H. Hamm, Jr.
Terry L. Koon
Heyward D. Shealy
C. Gurnie Stuck
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
<PAGE>
52 Carolina First Corporation 1998 Annual Report
Shareholder Information
Stock Listing
The Nasdaq Stock Market
Ticker Symbol: CAFC
Market Makers
Bear Stearns & Co.
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
Dividends Per Share
[BAR CHART APPEARS HERE WITH THE FOLLOWING INFORMATION:]
94 95 96 97 98
- ---- ---- ---- ---- ----
$.17 $.21 $.25 $.29 $.33
(Adjusted for stock dividends/split)
Since the first cash dividend payment on February 1, 1994, Carolina First has
increased cash dividends annually.
Stock Information
Percent
1998 1997 Change
---- ---- ------
AT YEAR END
Common stock
closing market
price (Nasdaq) $ 25.31 $ 21.50 17.7%
..............
Shareholders
of record 4,804 3,893 23.4
..............
Annual shares
traded (000's) 17,201 13,053 31.8
..............
Shares
outstanding
(000's) 22,005 15,659 40.5
- ----------------------------------------------
Shareholder Services
Shareholders seeking information regarding stock transfer, lost certificates,
dividends and address changes should contact the Transfer Agent by calling (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 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 contact Investor Relations.
Direct Deposit of Dividends
Carolina First Corporation offers shareholders the convenience of automatic
deposit of dividends 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 (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
(800) 951-2699 ext.54919
E-mail: [email protected]
Carolina First Corporation's Internet address is: http://www.carolinafirst.com
Form 10-K
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.
Annual Meeting
The Annual Meeting of Shareholders will be held at 10:30 a.m., April 21, 1999 at
the Gunter Theatre, Peace Center for the Performing Arts, Greenville,
South Carolina.
<PAGE>
JOIN OUR DIVIDEND PLANS.
SHAREHOLDER SERVICES - DIVIDEND PLANS
Carolina First Corporation offers shareholders convenient plans to automatically
reinvest divident 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
- --------------------------------------------------
================================================================================
CHANGE YOUR ADDRESS.
REDUCE YOUR MAIL.
CHANGE OF ADDRESS/DUPLICATE MAILING NOTIFICATION
If you are a registered shareholder and would like to change your address or
eliminate duplicate mailings, please check the appropriate item below and
complete the following information. Carolina First is unable to change the
mailing status of any account held through a bank brokerage firm or other
nominee.
[ ] Address change [ ] Eliminate duplicate mailing. Please consolidate
my/our accounts with identical registrations.
Name
- ---------------------------------------------------------
Company Name
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
City State Zip
- ---------------------------------------------------------
Signature
- ---------------------------------------------------------
(Please sign this card if you are changing your address.)
================================================================================
SHARE OUR SUCCESS.
CAROLINA FIRST PRODUCTS AND SERVICES
We invite you to become a Carolina First customer and share in our success.
Please check the appropriate item(s) for more information about these services.
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] Business accounts [ ] Consumer loans [ ] Investment services
[ ] Certificates of deposit [ ] Credit cards [ ] Mortgages
[ ] Checking and savings accounts [ ] Home equity loans [ ] PC banking
[ ] Commercial loans [ ] International services [ ] Trust services
</TABLE>
Name
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
City State Zip
- ---------------------------------------------------------
Phone
- ---------------------------------------------------------
E-mail
- ---------------------------------------------------------
<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 Corporation
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 47770
Atlanta, Georgia 30362-1770
- --------------------------------------------------------------------------------
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 Corporation
Investor Relations Department
Post Office Box 1029
Greenville, SC 29602-97777
<PAGE>
Banking Offices
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Abbeville 380 St. Andrews Road Greer Newberry
100 West Greenwood Street 803-929-5376 Thornblade 2633 Winnsboro Road
864-459-5472 6 Elmshorn Drive 803-321-0433
7389 Sumter Highway 864-989-1441
Aiken 803-253-8893 North Myrtle Beach
Main Office Hardeeville Kroger at North
142 Chesterfield Street, S.E. Trenholm Plaza 114 North Coastal Highway Myrtle Beach
803-649-9991 4840 Forest Drive 843-784-2216 781 Main Street
803-253-8890 843-249-3781
2286 Whiskey Road Hilton Head
803-642-0300 10000 Two Notch Road 401 William Hilton Parkway Pendleton
803-253-8888 843-689-2707 1001 South Mechanic Street
Anderson 864-646-8308
Main Office Resource Processing Group, Inc. Irmo
201 North Main Street 101 Executive Center Drive 1265 Lake Murray Boulevard Pickens
864-224-3401 803-798-0143 803-748-7008 333 East Main Street
864-878-3525
2918 North Main Street Easley Isle of Palms
864-260-6258 5041 Calhoun Memorial Hwy 1202-A Palm Boulevard Piedmont
864-855-1409 843-886-9515 15 Main Street
2808 South Main Street 864-845-7563
864-260-6261 200 South Pendleton Street Johnston
864-859-6301 406 Lee Street Highway 153
306 Highway 28 By-pass 803-275-4467 864-295-3777
864-260-6266 Edgefield
309 Main Street Lake City Prosperity
Wal-Mart 803-637-3147 133 West Main Street 305 Main Street
3812 Liberty Highway 843-394-8563 803-364-7300
864-231-5950 Garden City
Kroger at Garden City Lexington Ridgeland
Andrews 2939 Highway 17 575 Columbia Avenue 114 North Green Street
201 South Morgan Avenue 843-357-4800 803-356-8500 843-726-5518
843-264-3571
Georgetown Liberty Rock Hill
Bennettsville Main Office 38 North Commerce Street 201 Oakland Avenue
405 East Main Street 1031 Front Street 864-843-9205 803-981-9200
843-479-1121 843-546-4163
Litchfield Simpsonville
Camden 706 N. Fraser St. (Drive-up) 1 WallStreet Wal-Mart
1111 Broad Street 843-546-6100 843-237-9111 3950 Grandview Drive
803-432-3500 864-963-1191
Greenville Lugoff
2534 N. Broad Street Main Office 844 Hwy 1 South Summerville
803-425-6700 102 South Main Street 803-438-7002 1900 Old Trolley Road
864-255-7900 843-871-1676
Chapin Mauldin
260 Columbia Avenue 101 Cleveland Street 305 Neely Ferry Road Surfside
803-345-1066 864-255-7904 864-234-3180 Kroger at Surfside
5900 Highway 17 South
Charleston 200 East Camperdown Way McColl 843-238-0301
Main Office 864-255-4763 114 Main Street
1 Broad Street 843-523-5381 Swansea
843-769-2929 917 Haywood Road 200 South Brecon Avenue
864-255-7917 Moncks Corner 803-568-2133
586 E. Bay Street (Drive-up) 601 East Main Street
843-769-2926 1295 South Pleasantburg Drive 843-761-1101 Taylors
864-239-6432 3406 Wade Hampton Boulevard
852 Orleans Road Mt. Pleasant 864-239-4680
843-763-0072 1450 Wade Hampton Boulevard 875 Lowcountry Boulevard
864-255-4900 843-881-0715 Travelers Rest
Columbia 6514-B State Park Road
Main Office 1216 Woodruff Road Myrtle Beach 864-834-4135
1225 Lady Street 864-239-4650 Main Office
803-540-2700 2003 Oak Street West Columbia
Blue Ridge Finance Company 843-448-9458 1926 Augusta Road
1940 Blossom Street 210 Brendan Way 803-936-2100
803-771-8919 864-239-4611 Kroger at Galleria
9608 Highway 17 North
Columbia Mall Greenwood 843-497-2567
7171 Two Notch Road 302 Hampton Avenue
803-253-7873 864-229-4955
1420 Lady Street
803-929-5372
</TABLE>
<PAGE>
(logo)
CAROLINA FIRST
102 South Main Street
Greenville, South Carolina 29601
1-800-951-2699
http://www.carolinafirst.com
