UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________ to_____________________
COMMISSION FILE NUMBER 0-17939
CAROLINA FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-165582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
402 East Main Street
Lincolnton, North Carolina 28092
(Address of principal executive office) (Zip Code)
704-732-2222
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
2,052,612 SHARES OF COMMON STOCK, PAR VALUE $2.50 PER SHARE,
OUTSTANDING AS OF October 31, 1996
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CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1996
and 1995 4
Consolidated Statements of Changes in
Shareholder's Equity - Nine Months Ended
September 30,1996 and 1995 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8 - 13
PART II. OTHER INFORMATION 14
Signatures 15
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CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------
1996 1995
------------- -------------
<S> <C> <C>
Assets:
Cash and due from banks ............................................................ $ 18,103,189 $ 14,361,366
Federal funds sold ................................................................ 9,200,000 1,030,000
------------- -------------
Total cash and cash equivalents ................................................. 27,303,189 15,391,366
Interest bearing deposits in other banks .......................................... 419,403 350,128
Investment securities (market value $45,560,385
in 1996 and $54,730,102 in 1995) ................................................ 45,445,344 56,561,646
Securities available for sale (cost of $30,434,847 in
1996 and $24,604,587 in 1995) .................................................. 30,745,206 27,462,764
Loans, net of unearned income ( $366,070 in 1996 and
$311,830 in 1995) .............................................................. 300,411,632 257,177,863
Allowance for loan losses ....................................................... (4,255,432) (3,588,489)
------------- -------------
Loans, net ...................................................................... 296,156,200 253,589,374
Premises and equipment, net ....................................................... 9,200,156 8,572,044
Other real estate owned ........................................................... 651,514 683,409
Other assets ...................................................................... 7,397,404 7,222,708
------------- -------------
Total Assets ...................................................................... $ 417,318,416 $ 369,833,439
============= =============
Liabilities and Shareholders' Equity
Deposits:
Demand ......................................................................... $ 38,635,655 $ 30,295,524
Interest bearing demand accounts ............................................... 87,154,025 81,171,081
Savings ........................................................................ 40,259,124 41,751,256
Time, $100,000 and over ........................................................ 37,625,007 30,658,383
Other time ..................................................................... 169,495,362 151,726,502
------------- -------------
Total deposits ................................................................. 373,169,173 335,602,746
Repurchase agreements ............................................................. 4,444,004 --
Other liabilities ................................................................. 5,989,356 3,107,714
------------- -------------
Total Liabilities ................................................................. 383,602,533 338,710,460
Shareholders' Equity:
Common stock, $2.50 par value;
authorized --- 5,000,000 shares;
issued and outstanding - 2,051,727 shares in
1996, and 1,555,892 shares in 1995 ............................................. 5,129,318 4,081,145
Additional paid-in capital ...................................................... 17,494,821 17,377,333
Retained earnings ............................................................... 11,230,139 9,585,436
Net unrealized loss on available for sale securities (138,395) 79,065
------------- -------------
Total Shareholders' Equity ...................................................... 33,715,883 31,122,979
Commitments and Contingent Liabilities ............................................ -- --
Total Liabilities and Shareholders' Equity ........................................ $ 417,318,416 $ 369,833,439
============= =============
Book Value Per Share .............................................................. $ 16.43 $ 19.06
============= =============
</TABLE>
3
<PAGE>
CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES
- -----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------
1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans .......... $7,094,420 $6,027,641 $20,066,783 $17,104,962
Interest and dividends on securities:
Taxable income .................. 1,048,416 1,041,887 3,331,017 2,820,434
Non-taxable income .............. 146,869 177,413 455,053 538,444
Interest on federal funds sold ...... 56,778 97,452 134,394 210,092
---------- ----------- ----------- -----------
Total interest income ............ 8,346,483 7,344,393 23,987,247 20,673,932
Interest Expense:
Interest on deposits ................ 3,563,019 3,345,282 10,389,265 9,242,273
Interest on notes payable ........... 28,874 2,553 80,461 41,019
Interest on repurchase accounts ..... 53,331 -- 113,955 --
---------- ----------- ----------- -----------
Total interest expense ........... 3,645,224 3,347,835 10,583,681 9,283,292
--------- ---------- ----------- -----------
Net Interest Income ................. 4,701,259 3,996,558 13,403,566 11,390,640
Provision for Loan Losses ........... 284,000 180,000 821,000 490,200
---------- ----------- ----------- -----------
Net Credit Income ................... 4,417,259 3,816,558 12,582,566 10,900,440
Other Income:
Charges on deposit accounts ......... 545,104 438,967 1,543,700 1,235,585
Insurance commissions ............... 155,447 230,086 389,005 694,554
Other service fees and commissions .. 198,307 175,001 567,543 462,048
Mortgage banking income ............. 96,306 94,549 301,995 280,784
Securities gains (losses), net ...... 4 894 8,645 894
Other income ........................ 176,546 352,499 401,608 624,150
---------- ----------- ----------- -----------
Total other income ............... 1,171,714 1,291,996 3,212,496 3,298,015
Operating Expenses:
Salaries and benefits ............... 1,976,495 1,750,851 5,580,486 5,043,697
Occupancy and equipment ............. 433,126 362,038 1,203,716 1,068,566
Federal and other insurance premiums 517,265 51,732 662,974 412,356
Office supplies ..................... 138,943 99,375 331,918 285,370
Data processing ..................... 97,062 100,029 285,417 297,542
Other expenses ...................... 835,502 1,046,797 2,491,115 2,518,646
----------- ----------- ---------- ----------
Total operating expenses ......... 3,998,393 3,410,822 10,555,626 9,626,177
----------- ----------- ----------- -----------
Income Before Income Taxes .......... 1,590,580 1,697,732 5,239,436 4,572,278
Income Taxes ........................ 590,078 611,031 1,906,277 1,542,922
----------- ----------- ---------- ----------
Net income .......................... $1,000,502 $1,086,701 $ 3,333,159 $ 3,029,356
=========== =========== =========== ===========
Net Income Per Common Share ......... $ 0.48 $ 0.53 $ 2.08 $ 2.09
========== =========== =========== ===========
</TABLE>
4
<PAGE>
CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN RETAINED VALUATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS RESERVE EQUITY
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ................. 1,402,028 $ 3,505,070 $ 12,661,483 $ 8,231,596 ($509,311) $23,888,838
ISSUANCE OF STOCK .......................... 150,000 375,000 2,787,088 3,162,088
EXERCISE OF STOCK OPTIONS .................. 1,668 4,170 15,140 19,310
CASH DIVIDEND ($.11 PER SHARE) ............. (421,940) (421,940)
RETIREMENT OF STOCK ........................ (370) (925) (6,548) (7,473)
DIVIDEND REINVESTMENT PLAN ................. 2,566 6,415 51,320 (57,735) 0
CHANGE IN UNREALIZED LOSS
ON SECURITIES AVAILABLE FOR SALE ....... 431,490 431,490
NET INCOME ................................. 3,029,356 3,029,356
--------- ----------- ------------ ----------- ---------- -----------
BALANCE, SEPTEMBER 30, 1995 ................ 1,555,892 3,889,730 15,508,483 10,781,277 (77,821) 30,101,669
BALANCE, DECEMBER 31, 1995 ................. 1,632,458 4,081,145 17,377,333 9,585,436 79,065 31,122,979
EXERCISE OF STOCK OPTIONS .................. 7,657 19,143 56,113 75,256
CASH DIVIDEND ($.12 PER SHARE) ............. (639,195) (639,195)
25% STOCK DIVIDEND ......................... 409,586 1,023,965 1,049,261) (25,296)
RETIREMENT OF STOCK ........................ (3,078) (7,695) (86,717) (94,412)
DIVIDEND REINVESTMENT PLAN ................. 5,104 12,760 148,092 160,852
CHANGE IN UNREALIZED GAIN
ON SECURITIES AVAILABLE FOR SALE ....... (217,460) (217,460)
NET INCOME ................................. 3,333,159 3,333,159
--------- ----------- ------------ ----------- ---------- -----------
BALANCE, SEPTEMBER 30, 1996 ................ 2,051,727 $ 5,129,318 $ 17,494,821 $ 11,230,139 ($138,395) $33,715,883
========= =========== ============ ============ ========== ===========
</TABLE>
5
<PAGE>
CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARY COMPANIES
- -----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
- -----------------------------------------------------------------------
<TABLE>
<CAPTION> September 30, September 30,
1996 1995
---------------- --------------
<S> <C> <C>
Operating Activities:
Net Income ............................................................................... $ 3,333,159 $ 3,029,356
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ........................................................ 714,901 653,331
Accretion and amortization of securities discounts
and premiums, net .................................................................. 218,191 184,397
Provision for loan losses ............................................................ 821,000 490,200
Deferred taxes (benefit) ............................................................. (345,186) 661,109
Gains on calls and maturities of securities held to maturity ......................... (8,490) (894)
Losses on sales of securities held to maturity ....................................... 750 --
Losses (gains) on sales of equipment, net ............................................ (2,417) 381
Gains on sales of real estate, net ................................................... (86,943) (131,270)
Federal Home Loan Bank stock dividend ................................................ (58,732) (58,678)
Increase in repurchase agreements .................................................... 4,444,004 --
Increase (decrease) in other assets .................................................. 112,744 (609,865)
Increase in other liabilities ........................................................ 895,453 1,116,112
------------ ------------
Net cash provided by operating activities ......................................... 10,038,434 5,334,179
------------ ------------
Investing Activities:
Proceeds from maturities of securities available for sale ................................ 7,178,228 5,571,613
Proceeds from sales of securities available for sale ..................................... 3,500,000 --
Purchases of securities available for sale ............................................... (14,396,374) (11,553,456)
Proceeds from calls and maturities of securities held to maturity ........................ 16,099,810 8,461,038
Purchases of securities held to maturity ................................................. (5,074,375) (10,893,857)
Purchases and maturities of certificates of deposit, net ................................. (69,275) --
Originations of loans, net ............................................................... (43,463,229) (24,242,298)
Proceeds from sale of real estate ........................................................ 346,879 411,345
Decrease in investment in joint ventures ................................................. -- 28,307
Proceeds from sales of premises and equipment ............................................ 6,130 60
Capital expenditures ..................................................................... (1,284,226) (1,018,753)
------------ ------------
Net cash used in investing activities ............................................... (37,156,432) (33,236,001)
------------ ------------
Financing Activities:
Increase in time deposits, net ........................................................... 24,735,484 26,980,034
Increase in other deposits, net .......................................................... 12,830,943 5,791,424
Repayment of notes payable ............................................................... (13,811) (13,377)
Term federal funds purchased ............................................................. 2,000,000 --
Repurchase of stock ...................................................................... (94,412) (7,473)
Payment of cash dividends and fractional shares .......................................... (664,491) (421,940)
Issuance of stock ........................................................................ 236,108 3,181,398
------------ ------------
Net cash provided by financing activities ........................................... 39,029,821 35,510,066
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents ..................................... 11,911,823 7,608,244
Cash and Cash Equivalents, Beginning of Year ............................................. 15,391,366 11,526,564
============ ============
Cash and Cash Equivalents, End of Year ................................................... $ 27,303,189 $ 19,134,808
============ ============
Supplemental disclosures of cash flow information:
Interest paid ....................................................................... $ 10,442,307 $ 8,891,732
Income taxes paid ................................................................... 2,666,157 2,127,700
Supplemental disclosure on noncash investing and financing activities:
Decrease in net unrealized loss ..................................................... (217,460) (77,821)
Assets transferred to other real estate ............................................. 289,649 137,339
Transferred from investment securities to securities available for sale ............. -- --
============ ============
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, due from banks and federal funds sold.
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
CAROLINA FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. In the opinion of Management, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of Carolina First
BancShares, Inc. and Subsidiary Companies as of September 30, 1996 and December
31, 1995 the results of operations for the three-month and nine-month periods
ended September 30, 1996 and 1995, and cash flows for the nine-month periods
ended September 30, 1996 and 1995.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's audited financial statements for the year ended December 31, 1995.
2. The consolidated financial statements include the accounts of the holding
company, and its wholly owned subsidiaries, Cabarrus Bank of North Carolina,
("Cabarrus Bank"), and Lincoln Bank of North Carolina, ("Lincoln Bank").
Jointly, Lincoln Bank and Cabarrus Bank own a mortgage company, Carolina First
Mortgage Corporation and a financial services company, Carolina First Financial
Services Corporation. All significant intercompany items and transactions have
been eliminated in consolidation.
3. The results of operations for the three-month and nine-month periods ended
September 30, 1996 and 1995, are not necessarily indicative of the results that
might be expected for the full year ending December 31, 1996 and 1995.
4. The Company's Board of Directors declared a 5% stock dividend payable
December 22, 1995 and a 25% stock dividend payable August 23, 1996. The market
value of the common stock at December 22, 1995 was $27.00 ($21.60 adjusted for
the 25% stock dividend) and $27.60 at August 23, 1996. Earnings per share for
the periods presented have been computed after giving retroactive effect to the
stock dividend.
7
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis sets forth the major factors which
affected the Company's results of operations and financial condition reflected
in the unaudited financial statements for the three-month and nine-month periods
ended September 30, 1996 and 1995.
General
Profits from operations for the quarter ended September 30, 1996, was
$1,284,713, or $.61 per share of common stock, excluding a one time assessment
for all savings associations insurance fund (SAIF) members. Net income,
including this assessment, for the quarter ended September 30, 1996, was
$1,000,502, or $.48 per share, compared to net income of $1,086,701, or $.53 per
share, for the same period in 1995. Net income for the nine-months ended
September 30, 1996, was $3,333,159, or $2.08 per share, compared to $3,029,356,
or $2.09 per share, for the same period in 1995.
Net Interest Income/Margins
Net interest income of $13,403,566 during the first nine-months of 1996 resulted
from a net interest margin of 4.93% on average earning assets of $362.3 million.
This compares with a net interest margin of 4.92% on average earning assets of
$308.3 million generating net interest income of $11,390,640 for the same period
in 1995. Interest margins are being reduced as competition increases for market
share. The Company has been able to sustain the strong net interest margin as
the growth in average earning assets has increased more than average interest
bearing liabilities. This is the result of both increased capital and minimal
increases in noninterest earning assets. Interest rates decreased slightly
during the first quarter of 1996, but have remained stable since. Each decrease
in the prime lending rate initially decreases the Company's net interest income
since a large number of loans are tied to the prime lending rate and are
directly and immediately effected. However, with the passage of time, interest
sensitive liabilities will decrease and the Company's interest margins should
stabilize. The increase in loan demand experienced by the Company positively
affects the net interest margin, as noted by the large volume related increase,
and is an indicator of the continued expanding local economy. The increase in
net interest income consists of an decrease of $110,000 relative to rate and an
increase of $2,122,000 relative to volume.
Management reviews asset/liability volumes and rates on a weekly basis. As
Carolina First's loans have continued to grow, the funds have been obtained
primarily through customer deposits and the maturing of investment securities.
Deposit and loan rates are adjusted as market conditions and Company needs
allow.
Analysis of average balances and interest rates for the nine months ended
September 30, 1996 and 1995, is presented on pages 12 and 13 of this report.
Such analysis is presented on a fully-taxable equivalent basis at the federal
statutory rate of 34 %.
8
<PAGE>
Loan Loss Allowance/Provision
The allowance for loan losses represents management's determination as to an
adequate amount in relation to the risk of future losses inherent in the loan
portfolio. In evaluating the allowance and its adequacy, management considers
the bank's loan loss experience, the amount of past due and non-performing
loans, current and anticipated economic conditions and other appropriate
information. While it is the Company's policy to charge-off in the current
period the loans in which a loss is considered probable, there are additional
risks for future losses which cannot be quantified precisely or attributed to
particular loans or classes of loans. Because these risks are continually
changing in response to facts beyond the control of the Company, such as the
state of the economy, management's judgment as to the adequacy of the provision
is approximate and imprecise. It is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as
methodology used to calculate the allowance for loan losses and the size of the
loan loss allowance in comparison to a group of peer banks identified by the
regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its ongoing review of the loan portfolio, which is undertaken to both ascertain
whether there are probable losses which must be charged-off and to assess the
risk characteristics of the portfolio in the aggregate. This review considers
the judgments of management, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular bank examination process.
There are no loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that the Company reasonably expects will
materially impact future operating results, liquidity, or capital resources. The
Company has no concentrations or credit risks by type of credit or industry
group within its loan or investment portfolio.
On a monthly basis, the Company reviews the adequacy of its allowance for loan
losses. The loan review staff prepares a listing of loans believed to be
deserving of a closer review by management. These loans are rated as to the
presumed collectibility, and a statistical loss factor is assigned to each
category of loans that directly relates to the associated risk. In addition to
these specific allowances, an additional component of the allowance is computed
by applying a factor based on historical loss experience to all loans by type
that are not listed on the above referenced schedule. Finally, an additional
factor is assigned to the entire portfolio to cover unexpected losses from any
borrower that may not be identified. This final component reflects the economic
conditions of the market areas served. These factors are multiplied by the
balances in each category and totaled to determine the required allowance for
loan losses. The actual allowance for loan losses (after charge-offs) is
compared with the required level to determine if an additional provision should
be made in the current period. The allowance for loan losses was $4,255,432 or
1.42% of outstanding loans, at September 30, 1996 and $3,588,489 or 1.39% of
outstanding loans, at December 31, 1995. The provision for loan losses charged
to operations during the first nine months was $821,000 in 1996 and $490,200 in
1995. The increase in the provision was a result of the large growth in
outstanding loans and not a deterioration of the loan portfolio. Charge-offs,
net of recoveries, were $154,056 or .06% of average loans outstanding, during
the nine months ended September 30, 1996, as compared to $227,239 or .10% of
average loans outstanding, during the same period in 1995. The ratio of
non-accrual loans to total loans was .17% at September 30, 1996, .31% at
December 31, 1995, and .24% at September 30, 1995. Management believes that
reserves and asset values are adequate to facilitate the timely disposition of
these assets.
9
<PAGE>
Net Non-Interest Income
Non-interest income decreased 2.59% for the first nine months of 1996 as
compared to the same period a year earlier because of two events that took place
in 1995. During October 1995, Lincoln Bank sold North State Insurance Agency.
Consequently, Insurance commission income and related expenses decreased for the
first nine months of 1996 compared to 1995. The disposition of various real
estate parcels during the third quarter of 1995 resulted in additional income.
Non-interest income from core operations continues to increase as the Company
expands fee income areas such as trust services and credit cards.
Non-interest expense increased $929,449 or 9.66%, for the nine-month period
ended September 30, 1996, as compared to the same period a year earlier. The
increase is a result of the general growth in business volume and the related
increase in salaries and employee benefits (resulting from a larger number of
employees from new branch locations) and the reduction in the FDIC insurance
premium. During the third quarter of 1995, the FDIC announced that the bank
insurance fund (BIF) reached the required level of funding. Accordingly, the
deposit premium assessed "well capitalized" commercial banks was significantly
reduced going forward and a rebate of excess premiums paid since June 1, 1995
was distributed in September 1995. While approximately two thirds of the
Company's deposits are insured under the BIF, the remaining amount is insured
under the SAIF. These deposits represent those at Cabarrus and a small amount at
Lincoln. On September 30, 1996, Congress levied a one-time assessment for all
SAIF members to enable the SAIF to reach the required level of funding. This
assessment was $440,000 for the Company or $.13 per share. Insurance premiums
should be reduced as a result of the fund reaching the desired levels.
10
<PAGE>
Financial Condition
The Company's total assets at September 30, 1996 and 1995, were $417,318,416 and
$358,692,034, respectively, and $369,833,439 at December 31, 1995. Average
earning assets for the first nine months of 1996 were $362,297,000 versus
$308,280,000 for the same period a year earlier, an increase of 17.52%. This
growth is the result of the strong local economy and the Company's continued
expansion of its customer base and market share.
Average loans of $276,562,000 represented 76.34% of average earning assets
during the first nine months of 1996. During the same period in 1995, average
loans totaled $229,694,000, or 74.60% of average earning assets. Gross loans
increased to $300,411,632 at September 30, 1996, a 16.81% increase over loans at
December 31, 1995. It is anticipated that general loan growth will continue to
mirror the economy generally, however, competition for quality loans may
adversly effect the net interest margins.
Securities averaged $81,865,000 during the nine months ended September 30, 1996
versus $73,541,000 for the same period a year ago. The securities portfolio
represented 22.60% of earning assets at September 30, 1996 and 23.86% at
September 30, 1995. The Company shifted funds from the securities portfolio into
the loan portfolio in an effort to capitalize on the strong loan demand in our
markets and to increase net interest income. At September 30, 1996, the
securities portfolio had unrealized losses of approximately $138,395. A gain of
$8,645 was realized during the three quarters of 1996. Securities held to
maturity with a carrying value of approximately $35.9 million were scheduled to
mature within the next five years. Of this amount, $9.4 million were scheduled
to mature within one year. Securities available for sale with a carrying value
of $28.3 million were scheduled to mature within the next five years. Of this
amount, $7.5 million were scheduled to mature within one year. The Company
currently has the ability and intent to hold its investment securities to
maturity. Certain debt securities are designated by management as held for sale
and are carried at the lower of cost or market because management may sell them
before they mature.
Average interest bearing liabilities rose 15.53%, to $324,509,000 in the first
nine months of 1996, from an average of $280,893,000 in the first nine months of
1995. Total deposits increased 14.68% from September 30, 1996 to September 30,
1995, and 11.19% from December 31, 1995 to September 30, 1996. As the Company
gains market share and opens additional offices, deposits will continue to
increase.
The Company continues to maintain capital ratios in excess of regulatory minimum
requirements. The current capital standards call for a minimum total capital of
8% of risk-adjusted assets, including 4% Tier I capital, and a minimum leverage
ratio of Tier I capital to total tangible assets of at least 4-5%. At September
30, 1996, the Company's ratio of total Tier I capital to total assets, adjusted
for the loans loss allowance and intangibles, was 8.56% and the Company's ratio
of total capital to risk-adjusted assets was 12.91% which includes 11.66% Tier I
capital.
Liquidity
The liquidity position of the Company's subsidiaries, Lincoln Bank ("Lincoln")
and Cabarrus Bank of North Carolina ("Cabarrus"), is primarily dependent upon
their need to respond to withdrawals from deposit accounts and upon the
liquidity of their assets. Primary liquidity sources include cash and due from
banks, federal funds sold, short-term investment securities and loan repayments.
At September 30, 1996, the Company had a liquidity ratio of 25.70%. Management
believes the liquidity sources are adequate to meet operating needs. Except as
discussed above, there are no known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations.
11
<PAGE>
CAROLINA FIRST BANCSHARES, INC.
- ----------------------------------------
AVERAGE BALANCE SHEET AS SEPTEMBER 30,
- ----------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
--------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Taxable securities ..................... $ 71,505 $ 3,331 6.21% $ 63,117 $ 2,821 5.96%
Non-taxable securities ................. 10,360 455 5.86% 10,424 538 6.88%
Federal funds sold and securities
purchased with agreements to
resell .............................. 3,870 134 4.62% 4,775 210 5.86%
Loans .................................. 276,562 20,067 9.67% 229,964 17,105 9.92%
-------- -------- -------- --------
Interest earning assets ............. 362,297 23,987 8.83% 308,280 20,674 8.94%
-------- ----- -------- -----
Cash and due from banks ................ $ 13,239 $ 10,556
Other assets ........................... 16,514 16,127
-------- --------
Total assets ........................... $392,050 $334,963
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Demand ............................... $ 84,551 $ 1,480 2.33% $ 76,418 $ 1,579 2.76%
Savings .............................. 41,149 777 2.52% 41,396 923 2.97%
Time ................................. 193,546 8,133 5.60% 162,382 6,740 5.53%
Other borrowings ....................... 5,263 194 4.91% 697 41 7.84%
-------- -------- -------- --------
Interest bearing liabilities ........ 324,509 10,584 4.35% 280,893 9,283 4.41%
Other liabilities ...................... 35,884 28,106
Shareholders' equity ................... 31,657 25,964
-------- --------
Total liabilities and shareholders'
equity .............................. $392,050 $334,963
======== ========
Interest rate spread ................... 4.48% 4.54%
=====
Net interest earned and net
yield on earning assets ............. $13,403 4.93% $11,391 4.92%
======= ===== ======= =====
</TABLE>
12
<PAGE>
CAROLINA FIRST BANCSHARES, INC.
- ------------------------------------
RATE / VOLUME ANALYSIS
- ------------------------------------
FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND 1995
- -------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Increase/(Decrease)
due to
1995 Volume Rate 1996
Inc/exp Inc/exp
----------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans ........................................... 17,105 3,381 (419) 20,067
Securities - tax - exempt ....................... 538 (3) (80) 455
Securities - taxable ............................ 2,821 391 119 3,331
Federal funds sold & interest bearing
balances in other banks ...................... 210 (31) (45) 134
------ ------ ---- ------
Total Interest Income ........................ 20,674 3,738 (425) 23,987
Interest Expense:
Interest Bearing Demand ......................... 1,579 142 (241) 1,480
Savings ......................................... 923 (5) (141) 777
Time ............................................ 6,740 1,310 83 8,133
Other Borrowings ................................ 41 168 (15) 194
------ ------ ---- ------
Total Interest Expense ....................... 9,283 1,616 (315) 10,584
------ ----- ---- ------
Net Interest Income .......................... 11,391 2,122 (110) 13,403
====== ===== ==== ======
</TABLE>
13
<PAGE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item
<S> <C>
1 - Legal Proceedings None
2 - Changes in Securities None
3 - Defaults upon Senior Securities None
4 - Submission of Matters to a Vote of
Security Holders None
5 - Other Information None
6 - Exhibits and Reports on Form 8-K
(a) Exhibits: 27 - Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAROLINA FIRST BANCSHARES, INC.
------------------------------
(Registrant)
Date: November 11, 1996 By: /s/ James E.Burt,III
------------------------------ ------------------------------
James E. Burt, III
President
Date: November 11, 1996 By: /s/ Jan H.Hollar
----------------------------- ------------------------------
Jan H. Hollar
Principal Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000846465
<NAME> CAROLINA FIRST BANCSHARES
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 18,103,189
<INT-BEARING-DEPOSITS> 419,403
<FED-FUNDS-SOLD> 9,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,745,206
<INVESTMENTS-CARRYING> 45,445,344
<INVESTMENTS-MARKET> 45,560,385
<LOANS> 300,411,632
<ALLOWANCE> 4,255,432
<TOTAL-ASSETS> 417,318,416
<DEPOSITS> 373,169,173
<SHORT-TERM> 0
<LIABILITIES-OTHER> 10,433,360
<LONG-TERM> 0
0
0
<COMMON> 5,129,318
<OTHER-SE> 28,586,565
<TOTAL-LIABILITIES-AND-EQUITY> 33,715,883
<INTEREST-LOAN> 20,066,783
<INTEREST-INVEST> 3,786,070
<INTEREST-OTHER> 134,394
<INTEREST-TOTAL> 23,987,247
<INTEREST-DEPOSIT> 10,389,265
<INTEREST-EXPENSE> 10,583,681
<INTEREST-INCOME-NET> 13,403,566
<LOAN-LOSSES> 821,000
<SECURITIES-GAINS> 8,645
<EXPENSE-OTHER> 10,555,626
<INCOME-PRETAX> 5,239,436
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,333,159
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
<YIELD-ACTUAL> 4.93
<LOANS-NON> 498,831
<LOANS-PAST> 1,083,803
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 234,470
<ALLOWANCE-OPEN> 3,588,488
<CHARGE-OFFS> 216,563
<RECOVERIES> 62,507
<ALLOWANCE-CLOSE> 4,255,432
<ALLOWANCE-DOMESTIC> 4,255,432
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
