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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
December 31, 1996 Commission File: 0-17939
CAROLINA FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1655882
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
402 East Main Street, Lincolnton, N.C. 28093
- -------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (704) 732-2222
--------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
---------------------------------------
Indicate by check mark whether the registrant 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
--- ---
The aggregate market value of the common stock held by non-affiliates
of registrant as of January 31, 1997: $57,985,653 based on the last sale price
on January 31, 1997, using beneficial ownership of stock rules adopted pursuant
to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock
owned by directors and certain executive officers, some of whom may not be held
to be affiliates upon judicial determination.
As of March 05, 1997, there were issued and outstanding 2,054,978
shares of the registrant's $2.50 par value common stock.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 1996 Annual Report to Shareholders for the year
ended December 31, 1996 (Part II, Item 5, 6, 7 and 8; Part IV, Item 14)
2. Portions of the definitive Proxy Statement, dated March 14, 1997 for
the Annual Meeting of Shareholders to be held on April 15, 1997, filed with the
Securities and Exchange Commission pursuant to Regulation 14A (Part III, Items
10, 11, 12, and 13).
FORM 10-K CROSS-REFERENCE INDEX
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PAGE 1996 ANNUAL
OF 10-K REPORT
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Part I
Item 1. Business I-1 --
Item 2. Properties I-12 --
Item 3. Legal Proceedings I-12 --
Item 4. Submission of Matters to a Vote of Security Holders I-12 --
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters II-1 40
Item 6. Selected Financial Information II-1 1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations II-1 6-16
Item 8. Financial Statements and Supplementary Data II-1 18-34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-1 --
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PAGE 1996 ANNUAL
OF 10-K REPORT
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Part III
Item 10. Directors and Executive Officers of the Registrant III-1 2-4
Item 11. Executive Compensation III-1 6-8
Item 12. Security Ownership of Certain Beneficial Owners III-1 1-10
Item 13. Certain Relationships and Related Transactions III-2 10
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K IV-1 --
Documents filed:
(a) (1) List of Financial Statements IV-1 --
Consolidated Balance Sheets at December 31, 1996 and
1995 -- 18
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 -- 19
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1996, 1995 and
1994 -- 20
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 -- 21
Notes to Consolidated Financial Statements -- 22-34
Independent Auditors' Report -- 17
(a) (2) List of Financial Statement Schedules IV-1 --
(a) (3) Listing of Exhibits IV-1 --
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PAGES OF
PAGE 1996 ANNUAL
OF 10-K REPORT
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(b) Reports on Form 8-K IV-2 --
(c) Exhibits IV-2 --
(d) Financial Statement Schedules IV-2 --
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Part I
ITEM 1. BUSINESS
Carolina First BancShares, Inc. (the "Company"), a North Carolina
corporation, is registered as a bank holding company with the Board of Governors
of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company
Act of 1956, as amended ("BHC Act"). Carolina First was incorporated on November
8, 1988, for purposes of becoming a bank holding company and acquiring Lincoln
Bank of North Carolina ("Lincoln Bank"), a North Carolina state chartered bank
that is not a member of the Federal Reserve System. The holding company
formation was completed on June 6, 1989. The Company owns all the outstanding
common stock of Cabarrus Bank of North Carolina ("Cabarrus Bank"), a North
Carolina state bank that is not a member of the Federal Reserve System. Cabarrus
Bank operates as a separate entity in the market it currently serves. Through
Lincoln Bank and Cabarrus Bank (the "Banks") and their 15 branch offices, the
Company provides a broad range of banking and financial services in the greater
Charlotte, North Carolina area, including Lincoln County, southeastern Catawba
County, Iredell County, Cabarrus County and north Mecklenburg County, all in the
western Piedmont area of North Carolina. The Banks are the Company's principal
subsidiaries and are North Carolina banking corporations engaged in general
commercial banking business. Lincoln Bank and Cabarrus Bank are both members of
the Federal Deposit Insurance Corporation ("FDIC"), and their deposits are
insured by the Bank Insurance Fund ("BIF") and the Savings Association Insurance
Fund ("SAIF"), respectively. Jointly, the Banks own a mortgage company, Carolina
First Mortgage Corp., which originates mortgage loans for resale in the
secondary market, and a financial services company, Carolina First Financial
Services Corporation, ("Financial Services"), which offers, as an agent for its
customers, mutual funds and annuity products. In November 1994, the Company
invested $1,375,000 to purchase approximately 17% of the total common stock of a
de novo commercial bank, First Gaston Bank of North Carolina, Gastonia, North
Carolina ("First Gaston"), which is just west of Charlotte and south of
Lincolnton. First Gaston, of which the Company's chairman was an organizer, is
located in a market contiguous to others served by Lincoln Bank. First Gaston
opened in July of 1995 and operates three branches in markets not currently
served by the Company. Certain operational functions are provided for First
Gaston by the Company. The Federal Reserve, in approving this investment, under
the BHC Act, has required the Company to enter into a commitment to serve as a
"source of strength" for First Gaston. The Company's investment in First Gaston
is accounted for under the equity method of accounting and thus the Company's
portion of income or losses is reflected in current period earnings. See
"Supervision, Regulation and Effects of Governmental Policies." The Company
engages in no significant operations other than the ownership of its
subsidiaries.
The Company maintains its principal executive offices at 402 East Main
Street, P.O. Box 657, Lincolnton, North Carolina 28093, and its telephone number
is (704) 732-2222.
GENERAL BANKING BUSINESS
The Banks provide a wide range of commercial banking products and
services. Services include checking accounts, NOW accounts, savings and other
time deposits of various types, including retirement accounts and certificates
of deposit. Loan services include mortgage loan originations, loans for
business, real estate, personal and household purposes, lines of credit and
credit cards. Considering the volatility of quality loan demand, the Company
maintains an investment portfolio. Other services include safe deposit boxes,
wire transfer facilities, and electronic banking facilities. At year end 1994,
Lincoln Bank began exercising its trust powers and at the end of that year had
11 active trust accounts, with assets under management of $7.8 million. At
December 31, 1996, Lincoln Bank had 36 active trust accounts, with assets under
management of $32.2 million.
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INVESTMENT SECURITIES
The Company has an investment portfolio that consists primarily of U.
S. Treasury and government agency securities and state, county and municipal
securities. Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which prescribes the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Securities that the
Company has the positive intent and ability to hold to maturity are classified
as held to maturity and reported at cost. Securities held for current resale are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in income. Securities not classified as held to
maturity or trading securities are classified as available for sale and reported
at fair value, with unrealized gains and losses net of the related tax effect
excluded from income and reported as a separate component of shareholders'
equity. The foregoing causes fluctuations in shareholders' equity based on
changes in values of debt and equity securities. The classification of
securities as held to maturity, trading or available for sale is determined at
the date of purchase and gains or losses on the sale of securities are
recognized when realized using the specific identification method. Prior to
January 1, 1994, debt securities included in securities held to maturity were
carried at amortized cost adjusted for amortization of premiums and accretion of
discounts, whereas debt securities included in securities available for sale
were carried at the lower of cost or market value. Prior to such time, the
mutual fund investments and other marketable equity securities were carried at
the lower of cost or market value with any unrealized loss shown as a reduction
of shareholders' equity.
LENDING ACTIVITIES
The Banks offer a range of lending services, including commercial, real
estate and consumer loans. The Banks consider individual consumers and small to
medium businesses to be their primary market for business loans and deposits.
The Banks have no concentration of loans to particular borrowers and no loans to
foreign entities. At December 31, 1996, the Banks had no agricultural loan
balances in their loan portfolios.
The Board of Directors of the Company recognizes that the extension of
credit is an integral banking function. Accordingly, it is the Board's desire to
grant sound, profitable loans that will benefit the area economy, provide a
reasonable return on each shareholder's investment, and promote the growth of
the Banks. When allocating resources for loans, primary consideration is given
to customers within the Banks' trade areas and to those customers and
prospective customers whose overall relationships generate the greatest level of
profitability, measured against risk. Management strives to maintain quality in
the loan portfolio and to accept only those risks which meet the Banks'
standards.
The Company grants loans throughout its market area for all legitimate
and worthwhile purposes. The Banks generally will extend the following types of
credit:
COMMERCIAL LOANS
The Banks will consider loans to business concerns on a short-term
basis supported by satisfactory balance sheet and earnings statements. Personal
guarantees and financial statements of guarantors generally also are obtained on
non-public company credits. Any loan request for a period longer than twelve
(12) months generally must have monthly or quarterly principal reductions.
REAL ESTATE LOANS
COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans are secured
principally by a mortgage on a commercial property. Maturities generally do not
exceed ten years, but longer maturities up to 15 years may be considered.
Variable rate pricing is preferable on loans with longer maturities. Repayment
sources are specified and will generally be from the borrower's cash flow, or if
the source is to be from the liquidation of an asset, that asset generally also
is taken as collateral. The Banks' loan-to-value ratio on these types of loans
generally will not exceed the lower of 80% of appraised value or 80% of cost (or
in the case of unimproved land, the lower of 75% of appraised value or 75% of
cost).
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REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans are
interim loans made to finance the initial construction period. Construction
loans generally have a maturity of one year or less, have a permanent take-out
commitment, and collect interest monthly on the outstanding balance. Progress
inspection reports are required to be documented prior to disbursing advances.
The maximum loan-to-value ratio will be the lower of 80% of appraised value or
80% of cost.
RESIDENTIAL REAL ESTATE LOANS. Residential real estate loans are
secured by first and second mortgages on one-to-four family residences. Loans
held in the portfolio are usually for a term of 15 years or less, with a maximum
loan-to-market-value ratio of 80%. However, loans conforming to certain Federal
National Mortgage Association ("FNMA") guidelines are also made and subsequently
sold in the secondary market on a servicing released basis.
HOME EQUITY LINES. Equity lines are secured by first or second
mortgages on a borrower's primary residence and are open-end revolving lines of
credit scheduled for interest payments only for ten years and then converted to
a five-year term loan. Because of these terms, special consideration is given to
the borrower's capacity to repay the loan. Debt to income ratios are calculated
using a payment amount sufficient to repay the debt in ten years. Care is taken
to ensure that the loan-to-value ratio does not exceed 80%, including prior
liens.
UNSECURED CONSUMER LOANS
Installment and short-term personal loans may be granted to persons of
good character with reliable income and satisfactory credit records. A complete
application is required for each request. A current financial statement is
required when the total direct or indirect unsecured credit exceeds $5,000.
Total unsecured credit generally does not exceed 10% of the applicant's net
worth.
Normally, unsecured loans do not exceed 36 months. Any loan requests
for a maturity longer than one year generally are made subject to monthly or
quarterly principal and interest payments. Loans with maturities of one year or
less must show a source of repayment and interest generally is collected
monthly, quarterly or semi-annually.
Unsecured home improvement loans may not exceed 50% of the owner's
equity in the house and payment terms will not exceed five years. Unsecured
loans for the purpose of making a down payment generally are not granted.
SECURED CONSUMER LOANS
In granting loans secured by collateral, the evaluation of the borrower
remains the same as for an unsecured borrower; character, purpose of loan,
credit history, capacity to repay and collateral are all considered, and a
current financial statement generally is obtained prior to making the loan if
the total exposure of the borrower exceeds $25,000.
AUTO LOANS. For new cars, the loan amount generally does not exceed 80%
of the window price of a foreign-made auto and 75% of the window price for an
American-made auto. Loans generally are not to be made on automobiles which are
five years older than current models. Maximum terms: 1 year old - 42 months; 2-3
years old - 36 months; 4 years old - 30 months; 5 years old - 24 months.
BOAT AND CAMPER LOANS. Loans to finance the purchase of boats and
campers are granted using the following guidelines: new boats and campers, 60
months - 25% down payment; new boats and campers, 36 months - 20% down payment;
1 year old boats and campers, 36 months - 20% down payment; 2 year old boats and
campers, 30 months - 20% down payment. If the amount of the loan is $15,000 or
greater, the term of the loan may be increased to eight years. Any extension of
credit in excess of seven years requires at least a five year call provision.
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MOTOR HOMES. Motor homes usually call for special handling due to the
high cost of the unit. The maximum term is 60 months with a 25% down payment.
Financial statements are required to show ability to repay.
MOBILE HOMES. When possible a deed of trust is placed on the property
where the mobile home will be located. When real estate is not part of the
collateral, a landlord waiver is required. Second mortgage or second liens
generally are not taken as collateral. All units to be financed must be
underpinned, and a landlord waiver must be obtained prior to disbursing any
funds. Any mobile home over seven years old will be considered unacceptable as
collateral.
SAVINGS ACCOUNTS/TIME DEPOSITS. A loan secured by the Banks' savings
instruments may be advanced to 100% of its face value. The interest rate
generally will be not less than 2% higher than the effective yield on the
instrument held as collateral on loans of $2,500 or over, and market rates on
loans under $2,500. The maturity of the loan should not exceed the maturity of
the collateral. Loans secured by other financial institution's savings accounts
or certificates are priced by market conditions. These financial institutions
must be federally insured.
BONDS. Loans secured by bonds must comply with the following
guidelines: US Government & Federal Agencies - 90% of Current Market Value;
Corporate Bonds ( Investment grade or better) - 80% of current market value;
Municipal Bonds (Investment grade or better) - 60% of current market value.
STOCKS. Loans secured by corporate stock certificates must comply with
the following guidelines: NYSE and AMEX traded securities - 70% of market value;
Actively traded over-the-counter (NASDAQ) securities - 70% of market value;
Local Pink Sheet (actively traded and have two or more market makers) - 70% of
market value. Loans secured by stock of closely held corporations must have the
prior approval of the Finance Committee.
CASH SURRENDER VALUE OF LIFE INSURANCE
Loans secured by the pledge of life insurance policies with cash
surrender values may not exceed 90% of the cash surrender value of the policy.
COMPETITION
Commercial banking is highly competitive. The Banks compete with other
financial institutions located in metropolitan Charlotte and elsewhere in North
Carolina. Other competitors include banks, savings and loan associations,
finance companies, credit unions, mortgage bankers, pension trusts, out-of-state
banks and other institutions that provide loan and investment services and money
market funds. Competition between commercial banks and thrift institutions has
intensified significantly as a result of the elimination of many previous
distinctions between the various types of financial institutions. The Banks also
compete for interest-bearing funds with a number of other financial
intermediaries and investment alternatives, including mutual funds, brokerage
and insurance firms, investment advisors, governmental and corporate bonds, and
other securities.
The Banks compete for deposits, loans and other business with a number
of major banks and bank holding companies which have numerous offices and
affiliates operating over wide geographic areas. Other competitors such as
thrifts, credit unions, mortgage companies, and other local and nonlocal
financial institutions also compete with the Banks, through a local presence or
through offerings by mail, telephone or over the Internet. Among the advantages
certain of these institutions may have compared to the Company, are the ability
to finance extensive advertising campaigns, and the ability to allocate and
diversify their assets among loans and securities of the highest yield in
locations with the greatest demand. Some of such competitors are subject to less
regulation and more favorable tax treatment than the Company.
Many of the major commercial banks in the Company's service area or
their affiliates offer services such as international banking and investment
services which are not offered directly by the Banks. Such competitors, because
of their greater capitalization, also have substantially higher lending limits
than the Banks and are better able to absorb risk.
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SUPERVISION, REGULATION AND EFFECTS OF GOVERNMENTAL POLICIES
Bank holding companies and banks are extensively regulated under
federal and state law. This discussion is qualified in its entirety by reference
to the particular statutory and regulatory provisions referred to below and is
not intended to be an exhaustive description of the status or regulations
applicable to the Company's and the Banks' business. Supervision, regulation,
and examination of the Company and its bank and nonbank subsidiaries by the bank
regulatory agencies is intended primarily for the protection of depositors
rather than holders of Company capital stock. Any change in applicable law or
regulation may have a material effect on the Company's business.
BANK HOLDING COMPANY REGULATION. The Company, as a bank holding
company, is subject to supervision and regulation by the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the BHC Act. The
Company is required to file with the Federal Reserve periodic reports and such
other information as the Federal Reserve may request. The Federal Reserve
examines the Company, and may examine the Company's subsidiaries. The Company is
also registered as a bank holding company with the North Carolina Commissioner
of Banks, (the "Commissioner"), and files reports with the Commissioner.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC Act
prohibits a bank holding company from acquiring direct or indirect ownership or
control of voting shares of any company which is not a bank or bank holding
company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company, may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve had determined by regulation or order to be so closely related to
banking or managing or controlling banks to be a proper incident thereto.
Certain acquisitions by holding companies are subject to approval by the
Commissioner.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") was signed into law on September 30, 1996. EGRPRA streamlined the
non-banking activities application process for well-capitalized and well-managed
bank holding companies. Under EGRPRA, qualified bank holding companies may
commence a regulatory approved non-banking activity without prior notice to the
Federal Reserve; written notice is required within 10 days after commencing the
activity. Under EGRPRA, the prior notice period is reduced to 12 days in the
event of any non-banking acquisition or share purchase or de novo non-banking
activity previously approved by order of the Federal Reserve, but not yet
implemented by regulations, assuming the size of the acquisition or proposed
activity does not exceed 10% of risk-weighted assets of the acquiring bank
holding company and the consideration does not exceed 15% of Tier 1 capital. On
February 20, 1997, the Federal Reserve adopted, effective April 21, 1997,
amendments to ITS Regulation Y implementing certain provisions of The Economic
Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA"), which was
signed into law on September 30,1996. Among other things, these amendments to
Federal Reserve Regulation Y reduce the notice and application requirements
applicable to bank and nonbank acquisitions and de novo expansion by
well-capitalized and well-managed bank holding companies; expand the list of
nonbanking activities permitted under Regulation Y and reduce certain
limitations on previously permitted activities; and amend Federal Reserve
anti-tying restrictions that include provisions that allow banks greater
flexibility to package products with their affiliates.
The Company is a legal entity separate and distinct from the Banks and
its other subsidiaries. Various legal limitations restrict the Bank from lending
or otherwise supplying funds to the Company or its non-bank subsidiaries. The
Company and the Banks also are subject to Section 23A of the Federal Reserve
Act. Section 23A defines "covered transactions," which includes extensions of
credit, and limits a bank's covered transactions with any affiliate to 10% of
such bank's capital and surplus. All covered and exempt transactions between a
bank and its affiliates must be on terms and conditions consistent with safe and
sound banking practices, and banks and their subsidiaries are prohibited from
purchasing low-quality assets from the bank's affiliates. Finally, Section 23A
requires that all of a bank's extensions of credit to an affiliate be
appropriately secured by acceptable collateral, generally United States
government or agency securities, The Company and the Banks also are subject to
Section 23B of the Federal Reserve Act, which generally limits covered and other
transactions among affiliates to terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the bank
or its subsidiary as prevailing at the time for transactions with unaffiliated
companies.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company and any other bank holding company located in
North Carolina may now acquire a bank located in any other state, and any bank
holding company located outside North Carolina may lawfully acquire any bank
based in another state, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997,national and state-chartered banks may branch interstate through
acquisitions of banks in other states, By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether. North Carolina adopted legislation opting into interstate
branching effective July 1, 1995, including de novo interstate branching prior
to July 1, 1997 with states where reciprocal branching is permitted and
thereafter without limit.
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Federal Reserve policy requires a bank holding company to act as a
source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding
company has more than one bank or thrift subsidiary, each of the bank holding
company's subsidiary depository institutions are responsible for any losses to
the Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated
depository institution's failure. As a result, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or other
instruments which qualify as capital under regulatory rules. However, any loans
from the holding company to such subsidiary banks likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of the
bank. In November 1994, the Company invested $1,375,000 to purchase
approximately 17% of the total common stock of a de novo commercial bank, First
Gaston Bank of North Carolina, Gastonia, North Carolina ("First Gaston"), which
is just west of Charlotte and south of Lincolnton. The Company's Chairman was an
organizer of First Gaston, which is located in a market contiguous to others
served by Lincoln Bank and operates in a market not currently served by the
Company. Certain operational functions are provided for First Gaston by the
Company. The Federal Reserve, in approving this investment, under the BHC Act,
has required the Company to enter into a commitment to serve as a source of
strength for First Gaston.
BANK AND BANK SUBSIDIARY REGULATION GENERALLY. The Banks are subject to
supervision, regulation, and examination by the FDIC and the North Carolina
Commissioner of Banking (the "Commissioner"), which examine and monitor all
areas of the operations of the Banks, including reserves, loans, mortgages,
issuance of securities, payment of dividends, establishment of branches, and
capital. The Banks are members of the FDIC, and their deposits are insured by
the FDIC to the maximum extent provided by law. Lincoln Bank's deposits are
insured by the FDIC's Bank Insurance Fund ("BIF"), and Cabarrus Bank's deposits
are primarily insured by the Savings Association Insurance Fund ("SAIF"). See
"FDIC Insurance Assessments."
Under present North Carolina law, the Bank currently may establish and
operate branches throughout the State of North Carolina, subject to the
maintenance of adequate capital for each branch and the receipt of the necessary
approvals of the FDIC and the Commissioner.
COMMUNITY REINVESTMENT ACT. The Company and the Banks are subject to
the provisions of the Community Reinvestment Act of 1977, as amended (the "CRA")
and the federal banking agencies' regulations thereunder. Under the CRA, all
banks and thrifts have a continuing and affirmative obligation, consistent with
safe and sound operation, to help meet the credit needs for their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirement or programs for financial institutions,
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's primary
federal regulator, in connection with its examination of the institution, to
assess the institution's record in assessing and meeting the credit needs of the
community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record is
made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly-chartered institution; (iii) establish a
new branch office that accepts deposits; (iv) relocate an office; or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application.
Under new CRA regulations, effective January 1, 1996, the process-based
CRA assessment factors were replaced with a new evaluation system that rates
institutions based on their actual performance in meeting community credit
needs. The evaluation system used to judge an institution's CRA performance
consists of three tests: a lending test; an investment test; and a service test.
Each of these tests are applied by the institution's primary federal regulator
taking into account such factors as: (i) demographic data about the community;
(ii) the institution's capacity and constraints; (iii) the institution's product
offerings and business strategy; and (iv) data on the prior performance of the
institution and similarly-situated lenders. The new lending test - the most
important of the three tests for all institutions other than wholesale and
limited purpose (e.g., credit card) banks - evaluates an
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institution's lending activities as measured by its home mortgage loans, small
business and farm loans, community development loans, and, at the option of the
institutions, its consumer loans.
Each of these lending categories are weighed to reflect its relative
importance to the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's service
area and the opportunities available for this type of lending. Assessment
criteria for the lending test include: (i) geographic distribution of the
institution's lending; (ii) distribution of the institution's home mortgage and
consumer loans among different economic segments of the community; (iii) the
number and amount of small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding; and (v) the institution's use of innovative or flexible lending
practices to meet the needs of low-to-moderate income individuals and
neighborhoods. At the election of an institution, or if particular circumstances
so warrant, the banking agencies will take into account in making their
assessments lending by the institution's affiliates as well as community
development loans made by any lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions are required to report data on their small business and small farm
loans as well as their home mortgage loans.
The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low-to-moderate income individuals and
small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's qualified investments,
its use of innovative or complex techniques to support community development
initiatives, and its responsiveness to credit and community development needs.
The service test evaluates an institution's systems for delivering
retail banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs, (ii) the
institution's record of opening and closing branch offices and ATMs, and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test is applied to
wholesale or limited purpose financial institutions.
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. The Company and the Banks are
eligible for these streamlined criteria at this time. In addition, a financial
institution will have the option of having its CRA performance evaluated based
on a strategic plan of up to five years in length that it had developed in
cooperation with local community groups. In order to be rated under a strategic
plan, the institution will be required to obtain the prior approval of its
federal regulator.
The interagency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for that test: outstanding,
high satisfactory, low satisfactory, needs to improve, or substantial
non-compliance. An institution will receive a certain number of points for its
rating on each test, and the points are combined to produce an overall composite
rating of either outstanding, satisfactory, needs to improve, or substantial
noncompliance. Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an overall
rating of at least "satisfactory", and no institution can receive an overall
rating of "satisfactory" unless it receives a rating of at least "low
satisfactory" on its lending test. In addition, evidence of discriminatory or
other illegal credit practices would adversely affect an institution's overall
rating. Under the new regulations, an institution's CRA rating would continue to
be taken into account by its primary federal regulator in considering various
types of applications. As a result of the Banks' most recent CRA examinations in
March 13, 1995 and January 16, 1996, Lincoln Bank and Cabarrus Bank have CRA
ratings of "2" and "1", respectively.
The Banks are also subject, among other things, to the provisions of
the Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the
"FHA"), both of which prohibit discrimination based on race or color, religion,
national origin, sex, and familial status in any aspect of a consumer or
commercial credit or residential real estate transaction. Bases on recently
heightened concerns that some prospective home buyers and other borrowers may be
experiencing discriminatory treatment in their efforts to obtain loans, the
Department of Housing and Urban
I-7
<PAGE> 12
Development, the Department of Justice (the "DOJ"), and all of the federal
banking agencies in April 1994 issued an Interagency Policy Statement on
Discrimination in Lending in order to provide guidance to financial institutions
as to what the agencies consider in determining whether discrimination exists,
how the agencies will respond to lending discrimination, and what steps lenders
might take to prevent discriminatory lending practices. The DOJ has also
recently increased its efforts to prosecute what it regards as violators of the
ECOA and FHA.
PAYMENTS OF DIVIDENDS. The Company is a legal entity separate and
distinct from its banking and other subsidiaries. The prior approval of the FDIC
is required if the total of all dividends declared by a state non-member bank
(such as the Banks) in any calendar year will exceed the sum of such bank's net
profits for the year and its retained net profits for the preceding two calendar
years, less any required transfers to surplus. North Carolina law also prohibits
any state non-member bank from paying dividends that would be greater than such
bank's undivided profits after deducting statutory bad debt in excess of such
bank's allowance for loan losses.
In addition, the Company and Banks are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital. The appropriate federal
regulatory authority is authorized to determine under certain circumstances
relating to the financial condition of a national or state member bank or a bank
holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. The FDIC has indicated that paying
dividends that deplete a state bank's capital base to an inadequate level would
be an unsound and unsafe banking practice. The FDIC and the Federal Reserve have
each indicated that depository institutions and their holdings should generally
pay dividends only out of current operating earnings.
CAPITAL. The Federal Reserve and the FDIC have adopted final risk-based
capital guidelines for bank holding companies and state non-member banks. The
guideline for a minimum ratio of capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least half of the total capital must consist of common equity, retained
earnings and a limited amount of qualifying preferred stock, less goodwill
("Tier 1 capital"). The remainder may consist of subordinated debt, non
qualifying preferred stock and a limited amount of any loan loss allowance
("Tier 2 capital" and, together with Tier 1 capital, "Total Capital").
In addition, the federal bank regulatory agencies have established
minimum leverage ratio guidelines for bank holding companies and state
non-member banks, which provide for a minimum leverage ratio of Tier 1 capital
to adjusted average quarterly assets ("leverage ratio") equal to 3%, plus an
additional cushion of 100 to 200 basis points (i.e., 1%-2%) if the institution
has less than the highest regulatory rating. The guidelines also provide that
institutions experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore the Federal Reserve's guidelines indicate that the Federal Reserve
will continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve, the FDIC and the Commissioner have not advised the Company or either
Bank of any specific minimum leverage ratio or tangible Tier 1 leverage ratio
applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" regarding depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository institution's
capital tier will depend upon how its capital levels compare to various relevant
capital measures and certain other factors, as established by regulation.
All of the federal banking agencies have adopted regulations
establishing relevant capital measures and relevant capital levels. The relevant
capital measures are the Total Capital ratio, Tier 1 capital ratio, and the
leverage ratio. Under the regulations, a state non-member bank will be (i) well
capitalized if is has a Total Capital ratio of 10% or greater, a Tier 1 capital
ratio of 6% or greater, and leverage ratio of 5% or greater and is not subject
to any order or written directive by a federal bank regulatory agency to meet
and maintain a specific capital level for
I-8
<PAGE> 13
any capital measure, (ii) adequately capitalized if is has a Total Capital ratio
of 8% or greater, a Tier 1 capital ratio of 4% or greater, and a leverage ratio
of 4% or greater (3% in certain circumstances), (iii) undercapitalized if it has
a Total Capital ratio of less than 8%, a Tier 1 capital ratio of less than 4%
(3% in certain circumstances), or (iv) critically undercapitalized if its
tangible equity is equal to or less than 2% of average quarterly tangible
assets.
As of December 31, 1996, the consolidated capital ratios of the Company
and Banks were as follows:
<TABLE>
<CAPTION>
Regulatory Lincoln Cabarrus
Minimum Company Bank Bank
------- ------- ---- ----
<S> <C> <C> <C> <C>
Tier 1 capital ratio 4.0% 11.64% 11.00% 10.15%
Total capital ratio 8.0% 12.90% 12.24% 11.41%
Leverage ratio 3.0 - 5.0% 8.67% 8.07% 6.91%
</TABLE>
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the federal banking agencies have, pursuant to FDICIA,
recently adopted final regulations which require regulators to consider interest
rate risk (when the interest rate sensitivity of an institution's assets does
not match the sensitivity of its liabilities or its off-balance-sheet position)
in the evaluation of a bank's capital adequacy. The bank regulatory agencies
have concurrently proposed a methodology for evaluating interest rate risk which
would require banks with excessive interest rate risk exposure to hold
additional amounts of capital against such exposures.
In December 1996, the OCC adopted the Federal Financial Institutions
Examination Council's ("FFIEC") updated statement of policy entitled "Uniform
Financial Institutions Rating System" ("UFIRS") effective January 1, 1997. UFIRS
is an internal rating system used by the federal and state regulators for
assessing the soundness of financial institutions on a uniform basis and for
identifying those institutions requiring special supervisory attention. Under
the previous UFIRS, each financial institution was assigned a confidential
composite rating based on an evaluation and rating of five essential components
of an institution's financial condition and operations including Capital
adequacy, Asset quality, Management, Earnings, and Liquidity. The major changes
include an increased emphasis on the quality of risk management practices and
the addition of a sixth component for Sensitivity to market risk. For most
institutions, the FDIC has indicated that market risk primarily reflects
exposures to changes in interest rates. When regulators evaluate this component,
consideration is expected to be given to: management's ability to identify,
measure, monitor, and control market risk; the institution's size; the nature
and complexity of its activities and its risk profile; and the adequacy of its
capital and earnings in relation to its level of market risk exposure. Market
risk is rated based upon, but not limited to, an assessment of the sensitivity
of the financial institution's earnings or the economic value of its capital to
adverse changes in interest rates, foreign exchanges rates, commodity prices, or
equity prices; management's ability to identify, measure, monitor, and control
exposure to market risk; and the nature and complexity of interest rate risk
exposure arising from nontrading positions.
FDICIA. FDICIA directs that each federal banking regulatory agency
prescribe standards for depository institutions and depository institution
holding companies relating to internal controls, information systems, internal
audit system, loan documentation, credit underwriting, interest rate exposure,
asset growth compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value to
book value for publicly traded shares, and such other standards as the agency
deems appropriate. These standards are not expected to have material effect on
the Company and the Banks.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Banks, including reporting requirements,
regulatory standards for estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days prior notice to customers
and regulatory authorities before closing any branch, and prohibition on the
acceptance or renewal of brokered deposits by depository that are not well
capitalized or are adequately capitalized and have not received a waiver from
the FDIC. Under regulations relating to brokered deposits, the Banks are well
capitalized and not restricted.
I-9
<PAGE> 14
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan for approval.
For a capital restoration plan to be acceptable, the depository institution's
parent holding company must guarantee that the institution comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of 5% of the depository institution's total assets at
the time it became undercapitalized and the amount necessary to bring the
institution into compliance with applicable capital standards. If a depository
institution fails to submit an acceptable plan, it is treated as if is
significantly undercapitalized. If the controlling holding company fails to
fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the bank
holding company.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirement to reduce
total assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
Because the Company and the Banks exceed applicable capital
requirements, the respective managements of the Company and the Banks do not
believe that the capital adequacy provisions of FDICIA have had any material
impact on the Company and the Bank or their respective operations.
I-10
<PAGE> 15
ENFORCEMENT POLICIES AND ACTIONS. FIRREA and subsequent federal
legislation significantly increased the enforcement authorities of the FDIC and
other federal depository institution regulators, and authorizes the imposition
of civil money penalties of up to $1 million per day. Persons who are affiliated
with depository institutions can be removed from any office held in such
institution and banned for life from participating in the affairs of any such
institution.
DEPOSITOR PREFERENCE. The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution in the "liquidation or other resolution" of such an institution by
any receiver.
FISCAL AND MONETARY POLICY. Banking is a business which depends on
interest rate differentials. In general, the difference between the interest
paid by a bank on its deposits and it other borrowings, and interest received by
a bank on its loans and securities holdings, constitutes the major portion of a
bank's earnings. Thus, the earnings and growth of the Company and the Banks are
subject to the influence of economic conditions generally, both domestic and
foreign, and also to the monetary and fiscal policies of the United States and
its agencies, particularly the Federal Reserve. The Federal Reserve regulates
the supply of money through various means, including open market dealings in
United States government securities, the discount rate at which banks may borrow
from the Federal Reserve, and the reserve requirements on deposits. The nature
and timing of any changes in such policies and their effect on the Company and
its subsidiaries cannot be predicted.
FDIC INSURANCE ASSESSMENTS. The Banks are subject to FDIC deposit
insurance assessments. Lincoln Bank's deposits are primarily insured by the
FDIC's BIF. Having converted from a thrift charter, Cabarrus Bank's deposits are
insured by the FDIC's SAIF. In 1996, the FDIC adopted a new risk-based premium
schedule which decreased the assessment rates for BIF depository institutions.
Under this schedule, which took effect for assessment periods after January 1,
1996, the annual premiums range from zero to $.27 for every $100 of deposits.
Each financial institution is assigned to one of three capital groups - well
capitalized, adequately or undercapitalized - and further assigned to one of
three subgroups within a capital group, on the basis of supervisory evaluations
by the institution's primary federal and, if applicable, state regulators and
other information relevant to the institution's financial condition and the risk
posed to the applicable insurance fund. The actual assessment rate applicable to
a particular institution will, therefore, depend in part upon the risk
assessment classification so assigned to the institution by the FDIC. Since
October 1, 1996, for Sasser and Oakar institutions, and since January 1, 1997
for other SAIF-insured institutions, SAIF-insured deposits have been assessed
annual SAIF premiums of four to 31 basis points per $100 of deposits, based upon
the institution's assigned risk category and supervisory evaluation. During the
year ended December 31, 1995 and 1996, Lincoln Bank paid $161,156 and $30,364 in
BIF deposit insurance premiums. Cabarrus Bank paid SAIF deposit insurance
premiums of $143,622 and $111,972 in 1995 and 1996, respectively.
The FDIC's Board of Directors has retained the 1996 BIF assessment
schedule of zero to 27 basis points per annum for the first semiannual period of
1997. In addition, the FDIC Board eliminated the $2,000 minimum annual
assessment and authorized the refund of the fourth-quarter minimum assessment of
$500 paid by certain BIF-insured institutions on September 30, 1996 by crediting
such amount against each BIF member's first semiannual assessment in 1997. The
EGRPRA recapitalized the FDIC's SAIF Fund to bring it into parity with BIF. As
part of this recapitalization, The Deposit Insurance Funds Act of 1996 (the
"Funds Act") authorized FICO to levy assessments on BIF-assessable deposits at a
rate equal to one-fifth of the FICO assessment rate that is applied to deposits
assessable by SAIF. The actual annual assessment rates for FICO for 1997 have
been set at 1.30 basis points for BIF-assessable deposits and 6.48 basis points
for SAIF deposits.
I-11
<PAGE> 16
COMMUNITY DEVELOPMENT ACT. The Community Development Act has several
titles. Title I provides for the establishment of community development
financial institutions to provide equity investments, loans and development
services to financially undeserved communities. A portion of this Title also
contains various provisions regarding reverse mortgages, consumer protections
for qualifying mortgages and hearings for home equity lending, among other
things. Title II provides for small business loan securitization and
securitizations of other loans, including authorizing a study on the impact of
additional securities based on pooled obligations. Small business capital
enhancement is also provided. Title III of the Act provides for paperwork
reduction and regulatory improvement, including certain examination and call
report issues, as well as changes in certain consumer compliance requirements,
certain audit requirements and real estate appraisals, and simplification and
expediting processing of bank holding company applications, merger applications
and securities filings, among other things. It also provides for commercial
mortgage-related securities to be added to the definition of a "mortgage-related
security" in the Exchange Act. This will permit commercial mortgages to be
pooled and securitized, and permit investment in such instruments without
limitation by insured depository institutions. It also pre-empts state legal
investment and blue sky laws related to qualifying commercial mortgage
securities. Title IV deals with money laundering and currency transaction
reports, and Title V reforms the national flood insurance laws and requirements.
LEGISLATIVE AND REGULATORY CHANGES. Various changes have been proposed
with respect to restructuring and changing the regulation of the financial
services industry. FIRREA required a study of the deposit insurance system. On
February 5, 1991, the Department of the Treasury released "Modernizing the
Financial System; Recommendations for Safer, More Competitive Banks." Among
other matters, this study analyzed and made recommendations regarding reduced
bank competitiveness and financial strength, overextension of deposit insurance,
the fragmented regulatory system and the under capitalized deposit insurance
fund. It proposed restoring competitiveness by allowing banking organizations to
participate in a full range of financial service outside of insured commercial
banks. Deposit insurance coverage would be narrowed to promote market
discipline. Risk based deposit insurance premiums were proposed with feasibility
tested through an FDIC demonstration project using private reinsurers to provide
market pricing for risk based premiums.
Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial institutions
and bank holding company powers are being considered by the executive branch of
the Federal government, Congress and various state governments, including North
Carolina. Among other items under consideration are a possible combination of
BIF and SAIF, changes in or repeal of the Glass-Steagall Act which separates
commercial banking form investment banking and changes in the BHC Act to broaden
the powers of "financial services" companies to own and control depository
institutions and engage in activities not closely related to banking. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. It cannot be predicted whether any of these
proposals will be adopted, and, if adopted, how these proposals will affect the
Company and the Banks.
PERSONNEL
As of December 31, 1996, the Company and its subsidiaries employed 211
full-time equivalent employees, none of whom are represented by a collective
bargaining unit. Management of the Company considers relations with its
employees to be excellent.
ITEM 2. PROPERTIES.
The Company's principal executive office is located at 402 East Main
Street, Lincolnton, North Carolina. The Company leases two branch offices of
Cabarrus Bank and two branch office buildings of Lincoln Bank; however, the
Company owns all other branch locations and the Company's operation center. The
buildings of Lincoln Bank were purchased beginning in 1983 and have been
renovated as necessary to accommodate the Company's needs. The buildings of
Cabarrus Bank were acquired as a result of the acquisition of Cabarrus Savings
Bank on January 30, 1992. For Cabarrus Bank, the Kannapolis branch building is
leased from Atlantic American Properties, Inc. in Kannapolis, and the Super-K
branch is leased from International Banking Technologies, Inc. For Lincoln Bank,
the SouthPark branch building is leased from Colony Associates Limited
Partnership, and the Troutman branch is leased from Vernon and Jackie Overcash.
At December 31, 1996, the Company had book values of $2,968,275 for land,
$6,248,774 for buildings and improvements and $4,703,963 for furniture, fixtures
and equipment.
I-12
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS.
The Company's subsidiaries are subject to claims and suits arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
I-13
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
Stock Prices and Dividends
Carolina First BancShares, Inc.'s common stock trades infrequently in
the local Charlotte, North Carolina over-the-counter market (pink sheets) under
the symbol CAFP. Its stock is listed in the The Charlotte Observer under the
Interdealer stock section. The following table sets forth the high and low bid
quotations for the common stock and the cash dividends per share of common stock
paid by the Company for the indicated periods. Such quotations reflect
interdealer prices without markup, markdown, or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Cash
Dividends
Quarter Ended High Low Per Share
------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1995 $20.48 $19.52 $.09
June 30, 1995 $20.95 $20.18 $.09
September 30, 1995 $22.86 $20.95 $.09
December 31, 1995 $27.00 $22.86 $.09
March 31, 1996 $24.00 $21.60 $.12
June 30, 1996 $26.00 $24.00 $.12
September 30, 1996 $30.00 $26.00 $.09
December 31, 1996 $32.00 $30.00 $.08
</TABLE>
ITEM 6. SELECTED FINANCIAL INFORMATION.
The information contained in the table captioned "Financial Highlights"
on page 1 of the Company's 1996 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information contained under the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth on pages 6 through 16 of the Company's 1996 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION.
The report of KPMG Peat Marwick LLP, independent certified public
accountants, and the consolidated financial statements of the Company, set forth
on pages 17 through 34 of the Company's 1996 Annual Report to Shareholders is
incorporated herein by reference.
Supplementary information is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
II-1
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The information contained under the heading "Proposal I, Election of
Directors" in the Company's definitive Proxy Statement, dated March 14, 1997 for
the 1997 Annual Meeting of Shareholders to be held on April 15, 1997 (the "Proxy
Statement"), filed with the Commission pursuant to Regulation 14A, is
incorporated herein by reference. The information required by this item with
respect to executive officers is set forth above in Part I, Item 4A of this
Annual Report on Form 10-K.
The following list contains certain information regarding the executive
officers of the Company.
D. Mark Boyd, III, age 59, is the Chairman of the Board and Chief
Executive Officer of the Company. He also serves as Chairman of the Board of
Lincoln Bank, a position he has held since its organization. Mr. Boyd served as
interim President of the Bank from November 1989 to June 1990. In addition, Mr.
Boyd has been President of Times Oil Corporation, a fuel and heating oil
distributor, since 1965 and a director of Kentucky Fried Chicken of Lincolnton,
Inc., a fast-food restaurant franchise, since 1968. Since 1974, Mr. Boyd has
served as a director of Carolina Mills, Inc., a manufacturer of yarn, and cloth
in Maiden, N.C.
James E. Burt, III, age 59, has been President of the Company and
Lincoln Bank and Chief Executive Officer of Lincoln Bank since 1990 and Director
of Cabarrus Bank since 1993. Mr. Burt previously served as President and Chief
Executive Officer of Commercial National Bank in Shreveport, Louisiana from 1980
to 1989.
James A. Atkinson, age 40, has served as Vice President and Auditor of
the Company since April 1992. Mr. Atkinson has served in various bank audit
positions since 1978.
Jan H. Hollar, age 41, has served as the Treasurer of the Company since
December 1990 and currently serves as Vice President and Secretary of the
Company. In addition, Ms. Hollar has served as the Chief Financial Officer of
Lincoln Bank since November 1990 and principal accounting officer at Cabarrus
Bank since January 1993.
Joy G. Keever, age 60, has been an officer of Lincoln Bank since its
organization, having served as Cashier from 1983 to 1986, when she was elected
Vice President. She was named Vice President - Human Resources of the Company
effective June 1, 1996.
James H. Mauney, II, age 49, has served as Vice President and Manager
of Loan Administration of the Company since February 1996. Mr. Mauney previously
served as Vice President of Hibernia National Bank from 1988 to 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation" in
the Company's definitive Proxy Statement, filed with the Commission pursuant to
Regulation 14A, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained under the headings "Principal Shareholders"
and "Election of Directors" in the Company's definitive Proxy Statement, filed
with the Commission pursuant to Regulation 14A, is incorporated herein by
reference.
ITEM 13. Certain Relationships and Related Transactions.
The information contained under heading "Executive Compensation -
Compensation Committee Interlocks and Insider Participation" and "Executive
Compensation - Certain Transactions" in the Company's definitive Proxy
Statement, filed with the Commission pursuant to Regulation 14A, is incorporated
herein by reference.
III-1
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
Page(s) in
Annual Report*
--------------
(a) The following documents are filed as part of this report:
(1) Financial Statements
Consolidated Balance Sheets at
December 31, 1996 and 1995 18
Consolidated Statements of Income
for the years ended December 31,
1996, 1995 and 1994 19
Consolidated Statements of Changes
in Shareholders' Equity for the
years ended December 31, 1996,
1995 and 1994 20
Consolidated Statements of Cash Flows
for the years ended December 31, 1996,
1995 and 1994 21
Notes to Consolidated Financial
Statements 22-34
Independent Auditor's Report 17
* Incorporated by reference from the indicated pages of
the 1996 Annual Report.
(2) Financial Statement Schedules N/A
(3) The following Exhibits are filed as part of this report in 14(c).
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.0 Articles of Incorporation of the Registrant, incorporated herein by
reference to Registrant's Registration Statement No. 33-26861.
3.1 Bylaws of the Registrant, incorporated herein by reference to
Registrant's Registration Statement No. 33-26861.
4.0 Specimen of Common Stock certificate of the Registrant, incorporated
herein by reference to Registrant's Registration Statement No.
33-26861.
10.0 Lincoln Bank of North Carolina Deferred Compensation Plan for
Directors, incorporated herein by reference to Registrant's
Registration Statement No. 33-26861.
10.1 Lincoln Bank of North Carolina 1988 Incentive Stock Option Plan,
incorporated herein by reference to Registrant's Registration Statement
No. 33-26861.
IV-1
<PAGE> 21
10.2 Lincoln Bank of North Carolina 1983 Incentive Stock Option Plan,
incorporated herein by reference to Registrant's Registration Statement
No. 33-26861.
10.3 Profit Sharing Plan of Lincoln Bank of North Carolina, incorporated
herein by reference to Registrant's Registration Statement No.
33-26861.
10.4 Registrant's 1990 Stock Option and Stock Appreciation Rights Plan, as
amended incorporated herein by reference to Registrant's Registration
Statement No. 33-43037.
10.5 Employment Agreement and Deferred Compensation Agreement dated as of
December 31, 1996 by and between Carolina First BancShares, Inc. and
James E. Burt, III.
10.6 Employment Agreement dated September 8, 1992 by and between Lincoln
Bank of North Carolina and James R. Beam, incorporated herein by
reference to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, No. 0-17939.
10.7 Employment Agreement dated September 8, 1992 by and between Lincoln
Bank of North Carolina and Stephen S. Robinson, incorporated herein by
reference to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, No. 0-17939.
10.8 Employment Agreement dated October 19, 1993 by and between Lincoln Bank
of North Carolina and Carroll G. Heavner, incorporated herein in
reference to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, No. 0-17939.
11 Calculation of earnings per share.
13 Registrant's 1996 Annual Report to Shareholders.
21 List of Subsidiaries of the Registrant, incorporated herein by
reference to Registrant's Registration Statement No. 33-26861.
23 Consent of Independent Auditors.
27 Financial Data Schedule
(b) Reports on Form 8-K. NONE
(c) The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules. N/A
IV-2
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Lincolnton, State of North Carolina, on the 28th day of March, 1997.
CAROLINA FIRST BANCSHARES, INC.
By: /s/ D. Mark Boyd, III
---------------------------------
D. Mark Boyd, III
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated:
Signatures Title Date
- ---------- ----- ----
Principal Executive Officers:
/s/ D. Mark Boyd, III Chairman of the Board March 28, 1997
- ------------------------------ of Directors and Chief
D. Mark Boyd, III Executive Officer
/s/ James E. Burt, III President and Director March 28, 1997
- ------------------------------
James E. Burt, III
Principal Financial Officer and
Principal Accounting Officer:
/s/ Jan H. Hollar Treasurer March 28, 1997
- ------------------------------
Jan H. Hollar
Directors:
/s/ John R. Boger, Jr. Director March 28, 1997
- ------------------------------
John R. Boger, Jr.
/s/ Samuel C. King, Jr. Director March 28, 1997
- ------------------------------
Samuel C. King, Jr.
/s/ Harry D. Ritchie Director March 28, 1997
- ------------------------------
Harry D. Ritchie
/s/ L. D. Warlick, Jr. Director March 28, 1997
- ------------------------------
L. D. Warlick, Jr.
/s/ Estus B. White Director March 28, 1997
- ------------------------------
Estus B. White
<PAGE> 23
INDEX TO EXHIBITS
Sequential
Exhibit No. Description of Exhibit
- ----------- ----------------------
Number Pages
- ------------
3.0 Articles of Incorporation of the Registrant, incorporated
herein by reference to Registrant's Registration Statement No.
33-26861.
3.1 Bylaws of the Registrant, incorporated herein by reference to
Registrant's Registration Statement No. 33-26861.
4.0 Specimen of Common Stock certificate of the Registrant,
incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.
10.0 Lincoln Bank of North Carolina Deferred Compensation Plan for
Directors, incorporated herein by reference to Registrant's
Registration Statement No. 33-26861.
10.1 Lincoln Bank of North Carolina 1988 Incentive Stock Option
Plan, incorporated herein by reference to Registrant's
Registration Statement No. 33-26861.
10.2 Lincoln Bank of North Carolina 1983 Incentive Stock Option
Plan, incorporated herein by reference to Registrant's
Registration Statement No. 33-26861.
10.3 Profit Sharing Plan of Lincoln Bank of North Carolina,
incorporated herein by reference to Registrant's Registration
Statement No. 33-26861.
10.4 Registrant's 1990 Stock Option and Stock Appreciation Rights
Plan, as amended incorporated herein by reference to
Registration Statement No. 33-43037.
10.5 Employment Agreement and Deferred Compensation Agreement dated
as of December 31, 1996 by and between Carolina First
BancShares, Inc. and James E. Burt, III.
10.6 Employment Agreement dated September 8, 1992 by and between
Lincoln Bank of North Carolina and James R. Beam, incorporated
herein by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992, No. 0-17939.
10.7 Employment Agreement dated September 8, 1992 by and between
Lincoln Bank of North Carolina and Stephen S. Robinson,
incorporated herein by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992, No.
0-17939.
10.8 Employment Agreement dated October 19, 1993 by and between
Lincoln Bank of North Carolina and Carroll G. Heavner,
incorporated herein by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, No.
0-17939.
11 Calculation of earnings per share.
13 Registrant's 1996 Annual Report to Shareholders.
21 List of Subsidiaries of the Registrant.
23 Consent of Independent Auditors
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (sometimes referred to below as the
"Agreement") is made and entered into as of the 31st day of December, 1996, by
and between JAMES E. BURT, III, a resident of Lincolnton, North Carolina
(hereinafter referred to as "Employee") and CAROLINA FIRST BANCSHARES, INC., a
North Carolina corporation, with its principal office in Lincolnton, North
Carolina (hereinafter referred to as the "Company").
WHEREAS, the Company and the Employee desire to continue the services
of the Employee pursuant to this Employment Agreement with Employee, upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are mutually acknowledged, the parties hereto,
intending legally to be bound, agree as follows:
Section 1. Agreement of Employment. Company hereby agrees to continue
to employ Employee, and Employee hereby agrees to remain employed by Company for
the term, and upon and subject to the terms and conditions hereafter set forth.
Section 2. Term. Company and Employee hereby agree that Employee shall
become employed by Company under the terms of this Agreement as of January 1,
1997, and shall remain employed by Company through January 31, 2000, unless
sooner terminated pursuant to the terms hereof (the "Employment Period").
Section 3. Duties of Employee.
(a) Subject to the supervision and pursuant to the direction
of the Board of Directors of the Company, Employee shall perform his
assigned duties as President of Company and shall perform such other
duties as are customarily performed by one holding such positions in
similar businesses or enterprises as that engaged in by Company.
Employee shall, at the direction of the Board of Directors of the
Company, serve in such other executive capacities with various
subsidiaries of the Company as the Board of Directors may determine.
(b) Employee agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience and talents,
perform all of the duties that
<PAGE> 2
may be reasonably required of and from him pursuant to the express and
implied terms hereof, to the reasonable satisfaction of the Board of
Directors of Company. Such duties shall be rendered at Company's
offices in Lincolnton, North Carolina, and at such other place or
places as the interests, needs, business and opportunities of Company
shall reasonably require or make advisable.
(c) Employee hereby agrees to refrain from engaging in any
ventures or enterprises which are reasonably likely to materially
interfere with the performance of his express and implied duties
hereunder. Employee shall at all times conduct himself in a manner that
will promote the interests of Company and its affiliates.
Section 4. Company's Rights to Benefits of Work Performed. Company
shall be entitled to all of the benefits, emoluments, and profits arising from
or incident to any and all work, services, and advice of the Employee performed
or rendered in the course of Employee's employment hereunder.
Section 5. Compensation, Expenses and Benefits.
(a) Company shall pay to Employee, and Employee shall accept
from Company, during the Employment Period, and in consideration for
the services to be performed by Employee, a salary at the rate of not
less than $140,920.00 per annum (the "Annual Salary"), less deductions
required by law and Employee authorized deductions, payable in such
equal periodic installments as Company may determine, but not less
frequently than monthly. Each year the salary of the Employee shall be
reviewed and a salary amount set for the following year by the Board of
Directors based upon recommendations of its Compensation and Benefits
Committee, in accordance with the Company's established salary
administration plan. In the event that a mutual agreement cannot be
reached then the salary shall remain at the same level as that of the
previous year.
(b) In addition to the Annual Salary described in Section 5(a)
above, Company agrees to reimburse Employee promptly (in accordance
with policies and procedures adopted by the Board of Directors of
Company) for all reasonable and necessary expenses actually incurred by
Employee in connection with the Company's business, including, without
limitation, all reasonable and necessary expenses of travel, lodging,
entertainment, and meals away from home incurred by Employee in the
course of his employment hereunder. Employee agrees to keep and
maintain such records of the aforesaid expenses as Company may require
and to account to Company therefore prior to any such reimbursement.
Employee shall comply with all reasonable and lawful policies and
procedures applied by Company from time to time to its employees
generally and relating to or regulating the nature and extent of
reimbursement expenses, and the manner of accounting and reimbursement
therefor.
- 2 -
<PAGE> 3
(c) Company hereby agrees to make available to Employee,
during the Employment Period, all benefits which are generally
available to similarly situated employees of the Company, subject to
and on a basis consistent with the terms and conditions of such
benefits. In addition, Company agrees to provide Employee, during the
Employment Period, with the following benefits:
(1) An automobile for his use in carrying out his
duties to the Company and its affiliates. If necessary, the
Employee will be allowed to use the Bank automobile for
personal use provided an accounting is kept concerning the
dates and mileage for personal use. Such accounting shall be
made to the Compensation & Benefits Committee on a quarterly
basis. The Employee shall, on a quarterly basis, reimburse the
Company for his personal use at the then current Federal rate.
(2) A non-contributory qualified employee
profit-sharing plan; including participation in the Company's
401(k) Plan that provides for the Company to match the
Employee's contributions in accordance with Company's match of
senior officer's contributions to such plan generally.
(3) A non-contributory employee group life insurance
plan which will provide life insurance for Employee in the
amount equal to two times Employee's annual salary (or a
maximum of $250,000.00) during all times that Employee remains
an active employee.
(4) A non-contributory accident and health insurance
plan for the payment of medical care expenses for Employee.
(5) A non-contributory deferred compensation plan
pursuant to the term of Exhibit "A" attached.
(6) A non-contributory disability income plan wherein
the Company will provide the Employee with the following
disability income payable to age 65 and after a 90 day waiting
period: disability income equal to sixty percent (60%) of the
Employee's annual salary as it exists from time to time up to
a maximum benefit of $5,000.00 per month. The Company, in its
sole discretion, may apply for additional insurance in its own
name and for its own benefit covering the Employee for life,
medical, or disability insurance, in any amount deemed
advisable and the Employee shall have no right, title or
interest therein. The Employee shall submit to any required
examination and shall execute and assign and/or deliver such
application and policies necessary to effectuate such
insurance coverage.
The Company shall require the Employee to have a
thorough annual physical examination and will reimburse the
Employee for the
- 3 -
<PAGE> 4
expense. The first such examination shall be made no later
than December 31, 1997.
(7) Club dues to a civic club and a country club
which may include any required initiation fees. The payment of
all dues are subject to approval by the Board of Directors.
(d) Employee shall, in addition to the annual salary, be
eligible to receive an annual bonus determined as follows: For each and
every year of this Agreement, beginning with 1997, the Employee shall
be eligible to earn a bonus based on performance goals, in an amount
not less than $38,000.00 per year.
Each year the Compensation & Benefits Committee shall make
recommendations to the Board of Directors concerning the setting of the
performance goals for that year, after consulting with the Employee.
The goals shall be specific and a fixed dollar amount for the
attainment of each goal shall be stated. Each year as a bonus the
Employee may be paid nothing, or the amount of the maximum possible
bonus, or any amount in between depending on how many of the goals are
reached.
Nothing herein is intended to or shall prevent the Company
from providing, in its discretion, additional bonus and/or additional
compensation to the Employee, and further the Employee, not
withstanding anything to the contrary contained herein shall
participate in all stock option, and benefit and welfare plans of the
Company and its affiliates on the same basis as all other senior
officers of the Company and its affiliates.
The bonus provided for hereunder shall be payable with respect
to the Fiscal Year immediately preceding the year in which the bonus is
paid and shall not be payable if the Employee voluntarily terminates
his employment prior to the end of the Fiscal Year or if the Employee
is terminated for Cause prior to the end of the Fiscal Year. In the
event that the Employee dies, is terminated because of illness or
disability or is terminated by the Company, without Cause, prior to the
end of the Fiscal Year, a pro rata portion of such bonus, if otherwise
earned, shall nevertheless be paid to the Employee or his estate, as
the case may be. The pro rata portion shall be based upon the number of
days the Employee was employed by the Company during such Fiscal Year
as compared to 365.
(e) Following the Employee's termination and prior to him
reaching age 65, or such longer period as may be provided by the terms
of the appropriate plan, program, practice or policy, the Company shall
continue, at employee's expense, health insurance and other benefits to
the Employee and/or the Employee's family at least equal to those which
would have been provided to them in accordance with the Company and its
affiliates plans, programs, practices and policies generally,
- 4 -
<PAGE> 5
and as otherwise described in this Agreement if the Employee's
employment had not been terminated or, if more favorable to the
Employee, as in effect generally at any time thereafter with respect
to other peer employees of the Company and its affiliated companies
and their families, provided, however, that if the Employee becomes
re-employed with another employer and is eligible to receive medical
or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility (but not the
time or commencement of benefits) of the Employee for retiree benefits
pursuant to such plans, practices, programs and policies, the Employee
shall be considered to have remained employed until three years after
the Date of Termination and to have retired on the last day of such
period.
Section 6. Nondisclosure of Confidential Information and
Nonsolicitation.
(a) Employee covenants and agrees to treat as confidential and
not to disclose and to use only for the advancement of the interests of
Company all information, plans, records, trade secrets, business
secrets, and confidential or other data of Company, or its
subsidiaries, submitted to Employee or compiled, received, or otherwise
discovered by Employee from time to time in the course of his
employment by Company for use in Company's business, which Employee
knows to have been acquired by him in confidence or which he knows
would not otherwise be available to competitors of Company or to
members of the public and which would not otherwise become known to
said competitors or members of the public.
(b) Employee agrees that upon termination of his employment
with Company, for any reason, voluntary or involuntary, with or without
cause, he will immediately return to the Company any property, customer
lists, shareholder lists (of the Company or its affiliates including
its parent company and subsidiaries), information, forms, formulae,
plans, documents or other written or computer material or data,
software or firmware, or copies of the same, belonging to Company or
its affiliates, or any of their customers, within his possession, and
will not at any time thereafter copy, reproduce or otherwise facilitate
the future disclosure of the same. Employee further agrees that he will
not retain or use for his account at any time any trade names,
trademark, service mark, or other proprietary business designation used
or owned in connection with the business of the Company or its
affiliates.
(c) Following termination of employment, and for two (2) years
thereafter, Employee shall not (i) use any information obtained as a
result of his employment with Company to solicit any business of any
customers, (ii) solicit the employment of any employees of Company or
its affiliates, or (iii) become an executive officer,
- 5 -
<PAGE> 6
director or 10% or greater shareholder of any depository
institution or its affiliates that is located in any county where the
Company or its affiliates has an office on the date of termination.
(d) For purposes of this Section 6, the term "Company" shall
also include the Company's subsidiaries and other affiliates.
Section 7. Termination. If the term of this Agreement has not sooner
automatically expired by lapse of time on January 31, 2000, the term of
Employee's employment hereunder shall terminate upon the occurrence of any of
the following:
(a) Upon the death of the Employee.
(b) As a result of the permanent disability of Employee. If it
is determined that Employee is disabled and that such disability is
likely to be permanent (herein referred to as a "Determination of
Permanent Disability"), Company may terminate this Agreement. Said
termination shall not be effective until such time as Company has given
written notice to Employee, at the address specified in Section 11, of
its intent to terminate this Agreement. For the purposes of this
Section 8(b), the term "Disability" shall mean the Employee's inability
to perform functions normally performed for Company of the Employee.
Permanent Disability shall mean the present disability of the Employee
coupled with the probability that such disability will continue for an
indefinite period but no less than six (6) months. A "Determination of
Permanent Disability" may be made at the request of either the Company
or Employee; provided, however, that in the event Employee is unable,
due to his disability, to make such a request, his spouse or other
designee may make a request in his stead. In the event of a request by
either Employee or Company for a "Determination of Permanent
Disability," each of Employee and Company shall designate one doctor to
participate in the determination; provided, however, that if Employee
is unable, due to his disability, to make such designation, his spouse
or other designee shall make the designation in his stead. If the two
doctors so designated agree on a determination required by this Section
8(b), such determination shall be final. If the two doctors fail to
agree, they shall by agreement designate a third doctor to make the
determination required by this Section 8(b), which determination shall
be final.
(c) At the election of Company, for Cause. "Cause" shall mean
just and reasonable cause, including without limitation (i) persistent
incompetency or inefficiency, failure to follow reasonable instructions
received from the Board of Directors of the Company or its delegate,
willful misconduct, dishonesty, excessive alcohol use or alcoholism,
use of illegal drugs or convictions of a felony or any other offense
involving moral turpitude, (ii) material breach of any covenant
contained in this Agreement, including without limitation, failure to
devote substantially all business time to the business of the Company.
If Employee desires to sell any shares of Company capital stock within
[6] months after termination for
- 6 -
<PAGE> 7
cause hereunder, the Employee shall notify the Company in writing and
provide the Company a right of first refusal with respect to the
purchase of such shares to match any bona fide offer by a third-party
to purchase such shares.
(d) Upon either party to this Agreement giving written notice
of termination to the other at least sixty (60) days prior to the
effective date of such termination.
Upon termination under this Section 7, Employee's right to further
compensation and benefits under this Agreement shall cease; provided, however,
that Employee shall remain entitled to any unpaid compensation and benefits
accrued prior to such termination (including, without limitation, any deferred
compensation, all of which shall be deemed vested as provided in Annex A) and to
any expense reimbursements to which he was entitled at the date of such
termination and if Employee's employment is terminated by Company without cause
Section 7(d) or due to his death or disability, such termination shall not
affect Employee's or Employee's personal representative's right to receive
additional payments pursuant to and according to the terms contained in Section
5(d) of this Agreement. Notwithstanding anything herein to the contrary, in the
event that the employment of the Employee is terminated by the Company, without
Cause under Section 8(d) prior to January 31, 2000, the Company shall (i)
continue to pay the Employee the Annual Salary and provide the benefits set
forth in Section 5 of this Agreement except for the annual bonus, the payment of
which is controlled by Section 5(d) until January 31, 2000, or (ii) pay the
Employee twelve (12) months pay, whichever is greater, as severance pay.
Notwithstanding anything contained herein to the contrary, the obligations of
Employee under Section 6 (except as limited in Section 9 below) shall survive
the termination (for any reason) of this Agreement.
Section 8. Change of Control. In the event that the Company experiences
a "Change in Control" as defined herein, the Company shall immediately pay to
the Employee a lump-sum of money equal to his annual salary and maximum bonus
potential for the year in which the change in control occurs; said lump sum
payment shall be in addition to and not in lieu of the Employee's regular
compensation should he remain in the employ of the Company or its successor
after a Change in Control. If, following a Change in Control, Employee is
terminated by Company or any successor(s), the Company or such successors shall
continue to pay to Employee, for the balance of the terms hereof and in addition
to any other required payments, the Annual Salary then in effect for Employee on
the date of Employee's termination. Said Annual Salary shall be paid
periodically and on the same schedule as that prior to Employee's termination.
Furthermore, all deferred compensation shall be immediately vested 100%, and
shall be paid by the Company or its successor when due.
A Change in Control shall be deemed to have occurred if and when any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
and Exchange Act of 1934 and including a "group" thereunder) is or becomes a
beneficial owner, directly or indirectly, of securities of the Company or its
parent company representing greater than
- 7 -
<PAGE> 8
twenty-five percent (25%) of the combined voting power of the Company's or its
parent company's then outstanding securities. Notwithstanding the foregoing, no
"change in control" shall be deemed to have occurred by virtue of any
transaction which results in the Employee and/or a member or members of the
Company's present Board of Directors (i.e. existing on December 31, 1996), or a
group of persons including the Employee and/or a member or members of the
Company's present Board of Directors, acquiring, directly or indirectly, more
than twenty-five percent (25%) of the combined voting power of the Company's
outstanding securities. For purposes of the immediately preceding sentence a
"change in control" shall be deemed to have occurred if the member or members of
the Company's present Board of Directors do not own, control twenty percent
(20%) or more of the acquiring person or resulting entity. Furthermore, a
"change in control" shall not be deemed to have occurred solely as a result of
merger, consolidation or other business combination, where the Company is the
surviving entity, even though the former shareholders of the other party to such
transaction hold, in total, more than 25% of the combined voting power of the
Company's or its parent company's then outstanding securities, provided such
persons are not acting collectively and would not be deemed to be a single
"person" or part of a "group" hereunder solely as a result of their status as
former shareholders of such other entity.
Any dispute or controversy arising under or in connection with this
Section 8 shall be settled exclusively by arbitration in the State of North
Carolina in accordance with the rules of the American Arbitration Association
then in effect.
Section 9. Enforcement of Employee Restrictions. Employee acknowledges
that he has carefully read and considered the provisions of this Agreement and,
having done so, agrees that the restrictions set forth in this Agreement in
Sections 6 and 7 (including, but not limited to, the period of restriction and
the geographical area of restriction set forth therein) are fair and reasonable
and are necessarily required for the protection of the interests of the Company,
and its affiliates. Employee further acknowledges that due to the nature of
Company's business, more limited restrictions than those found herein would not
be reasonable or appropriate. The Employee covenants and agrees with Company
that if he shall violate any of the covenants or agreements contained in this
Agreement, then Company shall be entitled to damages in addition to and not in
limitation of any injunctive relief or other rights or remedies to which Company
and/or its affiliates is or may be entitled to at law or in equity. In the event
that any provisions of this Agreement relating to the time period or
geographical restriction shall be declared by a court of competent jurisdiction
to exceed the maximum time periods or geographical areas which such court deems
reasonable and enforceable, such time periods or geographical areas of
restriction shall be deemed to become and thereafter be the maximum time period
or geographical areas which such court deems reasonable and enforceable.
Section 10. Notices. All notices required or permitted hereunder shall
be deemed to be duly given if in writing and delivered personally or sent by
United States registered or certified mail, postage pre-paid, addressed to
Company at:
- 8 -
<PAGE> 9
D. Mark Boyd, III, Chairman
Carolina First BancShares, Inc.
402 East Main Street
Post Office Box 657
Lincolnton, North Carolina 28092
and addressed to Employee at:
James E . Burt, III
208 Mockingbird Lane
Lincolnton, North Carolina 28092
or at such changed addresses as the parties may designate in writing.
Section 11. Miscellaneous.
(a) Headings. Headings, titles and captions contained in this
Employment Agreement are inserted only as a matter of convenience and
reference and in no way define, limit, extend, or describe the scope of
this Agreement or the intent of any provisions hereof.
(b) Gender. The use in this Agreement of gender-specific words
or phrases shall be deemed to include the masculine, feminine or neuter
genders, as the context may require.
(c) Entire Agreement. This writing including the attachments,
exhibits and appendices hereto constitutes, the entire agreement
between the parties hereto and supersedes any prior understanding or
agreements among them respecting the subject matter. There are no
extraneous representations, arrangements, understandings, or
agreements, oral or written, in respect of the subject matter of this
Agreement, among the parties hereto, except those fully expressed
herein.
(d) Amendments. No amendments, changes, alterations,
modifications, additions, extensions and qualifications to the terms of
this Agreement shall be made or binding, unless made in writing and
signed by all the parties hereto.
(e) Waiver. The failure of either party to enforce at any time
any of the provisions of this Agreement shall not be construed as a
waiver of such provisions or of the right of such party thereafter to
enforce any such provisions.
(f) Invalidity and Severability. The invalidity or
unenforceability of any particular provision of this Agreement shall
not affect the enforceability of other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. Employee agrees and acknowledges
that nothing contained in this Agreement, nor the enforcement of
- 9 -
<PAGE> 10
any provision herein including Section 6, shall alter Employee's
ability to obtain a livelihood. Employee agrees and acknowledges that
all of the provisions of this Agreement, including Section 6, are
reasonable. Employee acknowledges that he has carefully read and
considered all the provisions of this Agreement.
(g) Governing Law. This Agreement shall be construed and
governed in accordance with the laws of the State of North Carolina.
Employee hereby consents to the jurisdiction of any local, state or
federal court located in the State of North Carolina.
(h) Burden and Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
heirs, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
COMPANY:
ATTEST: CAROLINA FIRST BANCSHARES, INC.
By:_______________________ By: ____________________________
Secretary Chairman
EMPLOYEE:
________________________________
- 10 -
<PAGE> 11
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
CAROLINA FIRST BANCSHARES, INC.
DEFERRED COMPENSATION AGREEMENT WITH
JAMES E. BURT, III
THIS PLAN AND AGREEMENT, dated as of the 31st day of December 1996, by
and between Carolina First BancShares, Inc., a North Carolina corporation
(hereinafter referred to as the "Company"), and JAMES E. BURT, III (hereinafter
referred to as the "Employee"):
W I T N E S S E T H :
WHEREAS, the Company believes it is in the best interest of the Company
and the Employee to establish a plan for the purpose of providing certain
benefits for the Employee pursuant to his Employment Agreement:
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE I
EMPLOYMENT
The Company has employed the Employee as provided in the Employment
Agreement with the Employee, to which this is an exhibit.
ARTICLE II
BENEFITS
The Company is obligated to provide benefits to the Employee as
follows:
A. Except as expressly provided herein, no benefit shall be paid
hereunder, except to the extent then vested, upon the discharge of the Employee
by the Company for cause. The definition of "cause" shall be the same as given
in the Employee's Employment Agreement.
B. Upon retirement from the Company, the Employee shall receive the
monthly amount then vested for 120 consecutive months beginning on the first
business day of the calendar month next succeeding the Employee's retirement
date. In the event the Employee dies after such monthly payments begin but prior
to receiving all 120 monthly payments, then his beneficiary(s) shall be entitled
to receive all remaining payments.
<PAGE> 12
C. If the Employee shall die before his retirement while in the employ
of the Company, the Company will make monthly payments of $4,166.67 for 120
months to the beneficiary(s) of the Employee beginning in the month of the
Employee's death.
D. Upon permanent disability before retirement at age 65, the Employee
shall receive no benefits under this Deferred Compensation Plan until the
earlier of (i) age 65 or (ii) such time as his disability benefits cease, at
which time the Company shall pay the Employee, and after death, his
beneficiaries, monthly payments of $4,166.67 per month for 120 months beginning
in the month of the Employee's death. If the Employee shall die after becoming
permanently disabled but before the age of 65, then the monthly payments shall
begin at death and shall be made to his beneficiary(s) in the amount of
$4,166.67 per month for 120 months. "Permanent disability" shall have the
meaning given it in the Employee's Employment Agreement and shall be determined
accordingly.
E. Should the Employee leave the employ of the Company for any reason
within twelve (12) months after a "Change of Control" (as defined in his
Employment Agreement) then the Company or its successor shall, upon Employee's
request within 30 days of such separation of employment, transfer to the
Employee the ownership of the Insurance policy, if any, that funds this Deferred
Compensation Agreement in lieu of all future monthly payments, but if such
transfer is not requested by the Employee prior to the payment of benefits
hereunder, then the Company shall pay such benefits when due.
F. Should the Employee leave the employment of the Company for any
other reason prior to retirement, then no benefits shall be paid under this
plan, except and to the extent such benefits are vested.
G. Notwithstanding anything to the contrary contained herein or in the
Employment Agreement, as of the date hereof, Employee shall be fully vested in
monthly payments of $2,500.00 through May 30, 1997, at which point his vested
benefits shall be $2,916.67 per month through May 30, 1998, at which time his
vested benefit becomes $3,333.33 through May 30, 1999 when the benefit becomes
$3,750.00 per month through January 31, 2000, at which time his vested benefit
becomes $4,166.67, regardless of any other provisions hereof and regardless of
any reasons for any termination or cessation of the Employee's employment. All
such amounts shall be vested, and shall be paid to the Employee or to the
Employee's named beneficiaries.
ARTICLE III
SOURCE OF PAYMENTS
Notwithstanding any references to life insurance contracts contained
herein, nothing herein shall require the Company to purchase such contract or
any other properties to secure its obligation under this Agreement, or if the
Company should purchase such contract or other property, to exercise any option,
election or right under such contract or other property, or if the Company
wishes to exercise any option, election
- 2 -
<PAGE> 13
or right under such contract or other property, to exercise such option,
election or right in any particular manner.
The Employee, beneficiary and any other person or persons having or
claiming a right to payments hereunder or to any interest in this Agreement
shall rely solely on the unsecured promise of the Company set forth herein, and
nothing in this Agreement (other than the provisions of Article II, B. and F.)
shall be construed to give the Employee, beneficiary or any other person or
persons any rights, title, interest or claim in or to any specific asset, fund,
reserve, account or property of any kind whatsoever owned by the Company or in
which it might have any right, title or interest now or in the future, but
Employee shall have the right to enforce his claim against the Company in the
same manner as any unsecured creditor.
ARTICLE IV
BENEFICIARIES
The death beneficiary of the Employee shall be the person, persons,
trust or charitable entity, living or in existence at the time for any
distribution hereunder, which the Employee shall have most recently designated
as highest in priority on a form, provided for that purpose by the Company,
signed by the Employee, filed with the Company, and attached to the Company's
original copy of this document as "Annex A". The death or non-existence of any
such beneficiary either before or after receipt of any distribution hereunder,
shall terminate the entire interest of such beneficiary in any to the then
undistributed portion of such Employee's account and such undistributed portion
shall thereafter be distributed to or for the benefit of the beneficiary or
beneficiaries designated as next highest in priority by such Employee. If no
such beneficiary be thus designated, or if all of the thus designated
beneficiaries do not survive or are no longer in existence at any time prior to
the complete distribution of such account, such account, or the then
undistributed balance thereof, shall be distributed by the corporation directly
to the person or persons who are heirs as named in the Employee's last will and
testament, except to the extent to which the specific bequests of such document
are paid by the Employee's other resources; or if there is no such document then
in existence under the laws of descent and distribution, to those persons who
would be entitled to the Employee's personal property, and in the proportions to
which they would be so entitled, had such Employee died, at the time for such
distribution, intestate and a resident of the State of North Carolina.
ARTICLE V
MISCELLANEOUS
This Agreement supersedes all deferred compensation agreements
previously entered into by the parties hereto, none of which shall have any
further force and effect upon an after the execution and delivery hereof. This
Agreement shall be subject to, and governed by, the laws of the State of North
Carolina irrespective of the fact that one or more of the parties is or may
become a resident of a different state.
- 3 -
<PAGE> 14
In the event any parts of this Agreement are found to be void, the
remaining provisions of this Agreement shall nevertheless be binding with the
same effect as though the void parts were deleted.
Whenever in this Agreement, words, including pronouns, are used in the
masculine, they shall be read and construed in the feminine or neuter whenever
they will so apply, and whenever in this Agreement, words, including pronouns,
are used in the singular or plural, they shall be read and construed in the
plural or singular, respectively, wherever they would so apply.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, successors and assigns. The Company agrees that it
will not be a party to any merger, consolidation, reorganization or transaction
which results in a "Change in Control" (as defined in the Employment Agreement),
unless and until its obligations hereunder shall be expressly assumed by its
successor or successors.
This Agreement may be amended or revoked at any time or times, in whole
or in part, solely by the mutual written consent of the Employee and the
Company.
ARTICLE VI
FIDUCIARY
The Company is hereby designated as the named fiduciary hereunder, and
shall be responsible for the management and control of the operation and
administration of this plan including any and all decisions pertaining to the
granting or denial of benefit claims and any and all decisions pertaining to the
review of denials of benefit claims.
ARTICLE VII
FUNDING POLICY
The Company shall establish a funding policy and method for this Plan,
and shall annually review such funding policy and method to make any necessary
adjustments thereto in order to ensure that such funding policy and method at
all times shall remain consistent with the objectives of this Plan, and to the
extent applicable, the requirements of Title I of the Employee Retirement Income
Security Act of 1974, as amended.
ARTICLE VIII
ADMINISTRATION
The Secretary of the Company shall maintain a copy of this Agreement
and any amendments thereto continuously as official records of the Company.
- 4 -
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
the day and year first above written.
CAROLINA FIRST BANCSHARES, INC.
By: /s/ Mark Boyd
----------------------------
Chairman
ATTEST:
/s/ Jan Hollar
- -----------------------------
Secretary
(CORPORATE SEAL)
/s/ James E. Burt, III (SEAL)
----------------------------
JAMES E. BURT, III - EMPLOYEE
- 5 -
<PAGE> 16
ANNEX A
Beneficiaries Designated by Employee:
Name % Interest in Payment
<PAGE> 1
Exhibit 11
Earnings Per Share
<TABLE>
<CAPTION>
Primary Year Ended December 31,
- ------- -------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average common shares outstanding * 2,090,252 1,582,273 1,471,561
========= ========= =========
Net income $4,678,299 $4,129,733 $3,369,874
========== ========== ==========
Per share amount $2.23 $2.09 $1.83
===== ===== ====
</TABLE>
Earnings per share amounts for each year presented reflect the 5% stock
dividend, November 29, 1994 and December 22, 1995 and the 5-for-4 stock split
effected in August 1996. Fully diluted net income per common share data are not
presented because there are no material differences between those amounts and
the income per share data as presented.
* Includes an immaterial amount of common stock equivalents.
<PAGE> 1
EXHIBIT 13
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Carolina First BancShares, Inc. and Subsidiaries
The following discussion should be read in conjunction with the consolidated
financial statements and related notes and other information appearing elsewhere
in this Annual Report and the more detailed information provided in the
Company's Annual Report on Form 10-K. CERTAIN OF THE MATTERS DISCUSSED UNDER THE
CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" AND ELSEWHERE IN THIS ANNUAL REPORT MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS
AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AND AS SUCH MAY
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE
THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY
DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS DUE
TO A VARIETY OF FACTORS, INCLUDING, WITHOUT LIMITATION: THE EFFECTS OF FUTURE
ECONOMIC CONDITIONS, GOVERNMENTAL MONETARY AND FISCAL POLICIES, AS WELL AS
LEGISLATIVE AND REGULATORY CHANGES; THE RISKS OF CHANGES IN INTEREST RATES ON
THE LEVEL AND COMPOSITION OF DEPOSITS, LOAN DEMAND, LOAN COLLATERAL VALUES,
SECURITIES PORTFOLIO VALUES AND INTEREST RATE RISKS; THE EFFECTS OF COMPETITION
FROM OTHER COMMERCIAL BANKS, THRIFTS, MORTGAGE BANKING FIRMS, CONSUMER FINANCE
COMPANIES, CREDIT UNIONS, SECURITIES BROKERAGE FIRMS, INSURANCE COMPANIES, MONEY
MARKET AND OTHER MUTUAL FUNDS AND OTHER FINANCIAL INSTITUTIONS OPERATING IN THE
COMPANY'S MARKET AREA AND ELSEWHERE, INCLUDING INSTITUTIONS OPERATING LOCALLY,
REGIONALLY, NATIONALLY AND INTERNATIONALLY, TOGETHER WITH SUCH COMPETITORS
OFFERING BANKING PRODUCTS AND SERVICES BY MAIL, TELEPHONE, AND COMPUTER AND THE
INTERNET; AND THE FAILURE OF ASSUMPTIONS UNDERLYING THE ESTABLISHMENT OF
RESERVES FOR POSSIBLE LOAN LOSSES. ALL WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY
BY THESE CAUTIONARY STATEMENTS.
GENERAL
Carolina First BancShares, Inc., (the "Company" or "Carolina First") is a
bank holding company formed in June 1989, and registered as such with the Board
of Governors of the Federal Reserve System (the "Federal Reserve") under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The Company owns
all of the outstanding common stock of two commercial banks (the "Banks"),
Lincoln Bank of North Carolina ("Lincoln Bank") and Cabarrus Bank of North
Carolina ("Cabarrus Bank"). The Banks are North Carolina -- chartered banks that
are members of the FDIC, but are not members of the Federal Reserve System.
Cabarrus Bank is also a member of the Federal Home Loan Bank-Atlanta ("FHLB").
The primary business of the Banks includes retail and commercial banking, and
mortgage lending. Jointly, Lincoln Bank and Cabarrus Bank own a mortgage
company, Carolina First Mortgage Corp. ("Mortgage"), which originates mortgage
loans for resale in the secondary market, and a financial services company,
Carolina First Financial Services Corporation, ("Financial Services"), which
offers, as agent for its customers, mutual funds and annuity products. Financial
Services began business in October 1994.
Lincoln Bank, which commenced operations in 1983, currently operates in 12
offices and 10 communities in areas primarily north and west of Charlotte, North
Carolina with one office in southeast Charlotte. Lincoln has assets of $315
million and expects to acquire $10 million of deposits in the community of Lake
Lure, North Carolina during the second quarter of 1997.
Cabarrus Bank was organized in 1889 as Cabarrus Savings Bank and converted
to a stock association in 1989. In January 1992, the Company acquired Cabarrus
Savings, and in October 1992, Cabarrus Savings was converted to a commercial
bank. Cabarrus Bank continues to expand in Cabarrus County by operating four
full service branches, including a branch inside the Super Kmart Center which
opened in 1995. Cabarrus has assets of $110 million and expects to acquire $30
million of deposits in Kannapolis and Mount Pleasant during the second quarter
of 1997. Cabarrus acquired $3.5 million of local deposits during July of 1996.
In November 1994, the Company invested $1,375,000 to purchase approximately
17% of the total common stock of a de novo commercial bank, First Gaston Bank of
North Carolina, Gastonia, North Carolina ("First Gaston"), which is just west of
Charlotte and south of Lincolnton. First Gaston, of which the Company's chairman
was an organizer, is located in a market contiguous to others served by Lincoln
Bank. First Gaston opened in July of 1995 and operates three branches in markets
not currently served by Carolina First. Certain operational functions are
provided for First Gaston by Carolina First. The Federal Reserve, in approving
this investment, under the BHC Act, has required Carolina First to enter into a
commitment to serve as a source of strength for First Gaston. The Company's
investment in First Gaston is accounted for under the equity method of
accounting and thus their portion of income or losses are reflected in current
period earnings. During 1996, the Company recognized losses, net of applicable
income taxes, of $107,000.
6
<PAGE> 2
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
The Company continues to actively consider possible acquisitions, including
purchases of branches and deposits. In 1996, the Company acquired one branch and
related deposits, and signed definitive agreements to purchase three other
branches and related deposits.
RESULTS OF OPERATIONS
Carolina First continued the recent trend of record earnings. Earnings were
$4.7 million, or $2.23 per share in 1996, a 22% increase over 1995. Earnings in
1995 were $4.1 million, or $2.09 per share, a 23% increase over 1994. The
economically strong locations and sound loan philosophy has rewarded the Company
well by providing a large volume of quality loans complimented by a conservative
securities portfolio. This combination has provided an impressive net interest
margin that stands out among peers. The growth in current markets has been
captured by the growth of existing branches as well as de novo branches and
acquisition of other institutions' divested branch sites.
The Company's primary source of income is net interest income, which is the
difference between interest earned and interest paid. The net interest margin is
calculated as net interest income as a percentage of average earning assets. The
Company's net interest margin has been indicative of the strong balance sheets
the two banks have assembled. The growth within the counties served by the
Company's two banks has significantly outpaced the overall growth within North
Carolina. Such positive demographics translate into increased opportunities for
building banking relationships which enhance deposit and loan growth.
Net interest income as a percentage of average earning assets has grown from
4.94% in 1994 to 5.01% in 1996. The sustained high level of net interest margin
substantiates the Company's goal of consistent performance through its ability
to maintain a profitable margin on solid, stable assets. The net interest
spread, or difference between the average interest income rate and average
interest expense rate has also remained relatively constant from 4.61% in 1995
to 4.55% in 1996. The Company's volume is expected to continue to increase
through growth while the difference between the rate earned and the rate paid is
expected to decrease. The economy and related interest rates will affect the
Company's growth and earnings rate in the future.
The Company's allowance for loan losses is analyzed monthly in accordance
with a board approved plan. This analysis is a functioning model that considers
the current status of the loan portfolio, historical experience and key market
indicators within the counties served by the Company. Additionally, the Company
monitors the overall portfolio as well as the level of reserve maintained by
peer banks. The monthly provision for loan losses may fluctuate based on the
results of this analysis.
Noninterest income has continued to grow as reflected in the 6.5% increase
from 1995 to 1996 and the 10.5% increase from 1994 to 1995. Our growth in
deposit accounts has led the way for this increase. Additionally, Cabarrus Bank
has been successful in changing from a savings and loan with few deposit service
charges to that of a commercial bank with fees for services rendered. During the
fourth quarter of 1995, Lincoln Bank sold its insurance subsidiary which
translated into lower insurance commissions in 1995 and considerably lower
commissions in 1996. The remaining insurance commissions relate to the fees
generated by the Financial Services company from the sale of annuity products
and mutual funds. Other service fees and commissions relate to the Company's
growth in the recently organized trust and credit/debit card divisions. These
divisions were organized in late 1994 and have steadily grown. Management
believes this growth will continue with the further maturity of these divisions.
Included in other income are fees of $141,959 generated from services provided
to First Gaston. These services include account operations, item processing,
bookkeeping and internal auditing that are terminable by either party. Other
income also reflects gains resulting from the sale of other real estate owned.
Operating expenses decreased as a percentage of average assets in both 1995
and 1996. The larger categories within this group remained constant as a
percentage of the total category in each of the last three years. Salaries and
benefits account for approximately half of total operating expenses. This is an
area that presents a challenge to maintain favorable operating efficiency ratios
while maintaining adequate staffing levels to support the Company's growth, and
fairly compensating the staff for performance. The Company is utilizing
technology to more fully employ staff expertise. The expense for the added
technology is included in equipment expense and represents a capital outlay of
approximately $200,000 annually. Deposit insurance premiums expense represent
several changes in the premiums over the past two years. During 1995, the FDIC
reduced the premium assessed to commercial banks insured under the Bank
Insurance Fund for insurance coverage of deposits. This reduction benefitted
Lincoln Bank primarily and resulted in pretax savings of approximately $231,000
in 1995 and continued in 1996. Cabarrus Bank, until 1992, had been a savings
bank and its deposits are insured under the Savings Association Insurance Fund
of the FDIC. This fund assessed a one time fee of $569,000 pretax during the
third quarter of 1996, with a reduction of ongoing insurance premiums afterward.
Management does not expect any additional material assessments or premium
changes in the foreseeable future. The
7
<PAGE> 3
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
Company's operating efficiency ratio has continued to improve falling from 71%
in 1993 to 62% in 1996. Absent deposit insurance assessments or other unusual
expenses, management seeks to further reduce the operating efficiency ratio,
however this ratio will be effected by insurance assessments or other unusual
expenses.
ASSET/LIABILITY MANAGEMENT
The Banks' Asset/Liability Committees are responsible for managing the risks
associated with changing interest rates and their impact on earnings. The
regular evaluation of the sensitivity of net interest income to changes in
interest rates is an integral part of the Company's interest rate risk
management.
The following table summarizes net interest income and average yields and
rates paid for the years indicated. For purposes of this analysis, the interest
on non-taxable investment securities has been adjusted to a taxable-equivalent
amount to facilitate comparison with other asset yields. The adjustment gives
effect to the exemption from federal income taxes for earnings on obligations of
state and political subdivisions and assumes a marginal tax rate of 34%.
Non-accrual loans are excluded from the interest-earning loan balances shown.
(In thousands).
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in
other banks................... $ 457 $ 46 10.07% $ 352 $ 17 4.83% $ 252 $ 31 12.30%
Taxable securities.............. 72,837 4,440 6.10% 64,821 3,870 5.97% 65,200 3,717 5.70%
Non-taxable securities.......... 9,712 891 9.17% 10,503 1,083 10.31% 10,536 1,135 10.77%
Federal funds sold.............. 4,186 214 5.11% 4,971 296 5.95% 2,408 98 4.07%
Loans........................... 282,553 27,389 9.69% 234,581 23,279 9.92% 206,442 18,859 9.14%
-------- ------- -------- ------- -------- -------
Interest earning assets..... 369,745 32,980 8.92% 315,228 28,545 9.06% 284,838 23,840 8.37%
------- ----- ------- ----- ------- -----
Other assets.................... 30,269 27,061 23,749
-------- -------- --------
$400,014 $342,289 $308,587
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits
Demand........................ $ 85,897 2,016 2.35% $ 77,266 2,100 2.72% $ 71,785 1,715 2.39%
Savings....................... 40,849 1,032 2.53% 41,465 1,219 2.94% 40,674 1,181 2.90%
Time.......................... 197,833 11,098 5.61% 166,711 9,352 5.61% 148,987 6,835 4.59%
Notes payable and other interest
bearing liabilities........... 5,902 294 4.98% 620 46 7.42% 804 43 5.35%
-------- ------- -------- ------- -------- -------
Interest bearing
liabilities............... 330,481 14,440 4.37% 286,062 12,717 4.45% 262,250 9,774 3.73%
-------- ------- ----- -------- ------- ----- -------- ------- -----
Other liabilities............... 37,116 29,425 23,583
Shareholders' equity............ 32,417 26,802 22,754
-------- -------- --------
Total liabilities and
shareholders' equity.......... $400,014 $342,289 $308,587
======== ======== ========
Interest rate spread............ 4.55% 4.61% 4.64%
===== ===== =====
Net interest earned and net
yield on earning assets
(Margin)...................... $18,540 5.01% $15,828 5.02% $14,066 4.94%
======= ===== ======= ===== ======= =====
</TABLE>
8
<PAGE> 4
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
The following table presents the dollar amount of changes in interest income
and interest expense. The table distinguishes between the changes related to
average outstanding (volume) of earning assets and interest-bearing liabilities,
as well as the changes related to average interest rates (rate) on such assets
and liabilities. Changes attributable to both volume and rate have been
allocated proportionately. (In thousands).
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
Income/ Income/ Income/
Expense Volume Rate Expense Volume Rate Expense
------- ------ ----- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits in other banks.............. $ 46 $ 11 $ 18 $ 17 $ 5 $ (19) $ 31
Taxable investment securities......................... 4,440 489 81 3,870 (23) 176 3,717
Non-taxable investment securities..................... 588 (48) (79) 715 (2) (32) 749
Federal funds sold and securities purchased with
agreements to resell................................ 214 (40) (42) 296 153 45 98
Loans................................................. 27,389 4,650 (540) 23,279 2,792 1,628 18,859
------- ----- ----- ------- ----- ------ -------
Total interest income............................. 32,677 5,062 (562) 28,177 2,925 1,798 23,454
======= ===== ===== ======= ===== ====== =======
Interest bearing liabilities:
Interest bearing demand deposits...................... 2,016 202 (286) 2,100 149 236 1,715
Savings deposits...................................... 1,032 (16) (171) 1,219 23 15 1,181
Time deposits......................................... 11,098 1,746 -- 9,352 994 1,523 6,835
Notes payable and other interest bearing
liabilities......................................... 294 263 (15) 46 (14) 17 43
------- ----- ----- ------- ------ ------ -------
Total interest expense............................ 14,440 2,195 (472) 12,717 1,152 1,791 9,774
------- ----- ----- ------- ----- ------ -------
Net interest income............................... $18,237 $2,867 $ (90) $15,460 $1,773 $ 7 $13,680
======= ====== ===== ======= ====== ====== =======
</TABLE>
Financial institutions are subject to interest rate risk to the degree that
their interest bearing liabilities (consisting principally of customer deposits)
mature or reprice more or less frequently, or on a different basis, than their
interest earning assets (generally consisting of intermediate or long-term loans
and investment securities). The match between the scheduled repricing and
maturities of the Company's earning assets and liabilities within defined time
periods is referred to as "gap" analysis. At December 31, 1996, the cumulative
one-year gap for the consolidated Company was a negative or liability sensitive
$1.6 million, or .37% of total assets. Such a gap is considered immaterial and
pretax net income would be virtually unchanged with a one percent change in
interest rates. As interest rates remained relatively constant during 1996,
depositors were unwilling to extend the maturity of time deposits, as the yield
curve was somewhat flat and did not reward depositors sufficiently for longer
maturities. Intense competition in the Company's markets continues to pressure
quality loan rates downward while conversely pressuring deposit rates upward.
9
<PAGE> 5
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
The following table reflects the Company's rate sensitive assets and
liabilities by maturity as of December 31, 1996. Variable rate loans are shown
in the category of due "within one year" because they reprice with changes in
the prime lending rate. These variable rate loans have actual maturities of
$40.4 million maturing within one year, with an additional $40.7 million
maturing within five years, and $71.8 million maturing after five years. Fixed
rate loans are presented assuming the entire loan matures on the final due date.
Actually, payments are made at regular intervals and are not reflected in this
schedule. Additionally, demand deposits and savings accounts have no stated
maturity, however, it has been the Company's experience that these accounts are
not totally rate sensitive, and thus, are presented in the categories that
management believes best identifies their actual repricing patterns. This
analysis assumes 20% of these deposits reprice within one year and the remaining
80% within one to five years. (In thousands).
<TABLE>
<CAPTION>
WITHIN 1 - 5 NON-
PRIME LOANS ONE YEAR YEARS 5 YEARS MARKET TOTAL
----------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities held to maturity:
U.S. Treasury........................................ -- $ 4,507 $ 7,581 -- -- $ 12,088
U.S. government agencies............................. -- 1,498 8,383 -- -- 9,881
States and political subdivisions.................... -- 1,277 4,264 $ 2,238 -- 7,779
Mortgage-backed securities........................... -- 593 1,713 6,866 -- 9,172
-------- --------- -------- ------- -------- --------
Total securities held to maturity.................. -- 7,875 21,941 9,104 -- 38,920
Securities available for sale:
U.S. Treasury........................................ -- 10,518 7,969 -- -- 18,487
U.S. government agencies............................. -- 14,804 13,053 -- -- 27,857
Mortgage-backed securities........................... -- -- -- 1,005 -- 1,005
Other(1)............................................. -- -- -- -- $ 1,347 1,347
-------- --------- -------- ------- -------- --------
Total securities available for sale................ -- 25,322 21,022 1,005 1,347 48,696
Federal funds sold..................................... -- 2,982 -- -- -- 2,982
Loans:
Commercial and financial............................. $ 25,741 2,446 12,797 1,830 -- 42,814
Real estate:
Construction....................................... 18,499 2,815 1,641 2,673 -- 25,628
Mortgage(2)........................................ 105,350 5,711 43,022 43,819 -- 197,902
Consumer(3).......................................... 3,226 3,654 33,466 2,389 33 42,768
-------- --------- -------- ------- -------- --------
Total loans........................................ 152,816 14,626 90,926 50,711 33 309,112
Other(4)............................................... -- -- -- -- 427 427
-------- --------- -------- ------- -------- --------
Total earning assets............................... 152,816 50,805 133,889 60,820 1,807 400,137
Noninterest-earning assets............................. -- -- -- -- 29,574 29,574
-------- --------- -------- ------- -------- --------
Total assets....................................... $152,816 $ 50,805 $133,889 $60,820 $ 31,381 $429,711
======== ========= ======== ======= ======== ========
</TABLE>
10
<PAGE> 6
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
WITHIN 1 - 5 NON-
PRIME LOANS ONE YEAR YEARS 5 YEARS MARKET TOTAL
----------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing checking............................ -- $ 14,775 $ 59,101 -- -- $ 73,876
Savings.............................................. -- 7,889 31,557 -- -- 39,446
Market deposit accounts.............................. -- 3,900 15,600 -- -- 19,500
Time, $100,000 and over.............................. -- 32,400 7,956 -- -- 40,356
Other time(5)........................................ -- 140,369 33,586 $ 11 -- 173,966
-------- --------- -------- ------- -------- --------
Total interest-bearing deposits.................... -- 199,333 147,800 11 -- 347,144
Borrowed funds......................................... -- 5,862 -- -- -- 5,862
Other liabilities...................................... -- 11 -- 120 -- 131
-------- --------- -------- ------- -------- --------
Total interest-bearing liabilities................. -- 205,206 147,800 131 -- 353,137
Noninterest-bearing liabilities........................ -- -- -- -- $ 41,572 41,572
Shareholders' equity................................... -- -- -- -- 35,002 35,002
-------- --------- -------- ------- -------- --------
Total liabilities and shareholders' equity......... -- 205,206 147,800 131 76,574 429,711
======== ========= ======== ======= ======== ========
Gap.............................................. $152,816 $(154,401) $(13,911) $60,689 $(45,193) --
======== ========= ======== ======= ======== ========
Cumulative Gap................................... $152,816 $ (1,585) $(15,496) $45,193 -- --
======== ========= ======== ======= ======== ========
Adjustments:
Exclude noninterest-earning assets,
noninterest-bearing liabilities and
shareholders' equity............................... -- -- -- -- 46,765 --
-------- --------- -------- ------- -------- --------
Adjusted cumulative gap............................ $152,816 $ (1,585) $(15,496) $45,193 $ 46,765 --
======== ========= ======== ======= ======== ========
</TABLE>
- ---------------
(1) The nonmarket column consists of mutual funds, and shares of capital
representing less than 5% interest in other financial institutions.
(2) Mortgage loans consist primarily of residential loans and home equity lines
of credit.
(3) The nonmarket column consists of overdrafts.
(4) The nonmarket column consists of interest-bearing deposits due from other
banks.
(5) Other time deposits within one year consist of $42,633 maturing within three
months and $35,475 maturing after three months but within six months.
LIQUIDITY
Liquidity refers to the Company's ability to adjust its future cash flows to
meet the needs of daily operations. The Company relies primarily on dividends
and management assessments from the Banks for liquidity. These sources have
provided adequate liquidity for the Company. The Banks' liquidity refers to the
ability or financial flexibility to adjust its future cash flows to meet the
needs of depositors and borrowers and to fund operations on a timely and cost
effective basis. The Banks' primary sources of funds are cash generated by
repayments of outstanding loans, interest payments on loans and new deposits.
Additional liquidity is available from the maturity and earnings on securities
and liquid assets, as well as the ability to liquidate securities available for
sale. The Banks also had lines of credit of $17.5 million at year end under
which they can borrow funds to meet short term liquidity needs. Lines available
for Lincoln Bank through Wachovia Bank are $4 million and The Georgia Banker's
Bank are $5 million and for Cabarrus Bank through FHLB of $8.5 million. The
funds generated from these sources have been adequate to provide the necessary
liquidity for the Banks.
Net cash provided from operations results primarily from net income,
adjusted for the following noncash accounting items: provision for loan losses,
depreciation and amortization, and deferred income taxes or benefits. These
items amounted to $1.6 million in 1996 and $1.2 million in 1995. This cash was
available during 1996 to increase earning assets and to pay dividends. As of
December 31, 1996, the Banks had
11
<PAGE> 7
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
combined retained earnings of approximately $22,022,000, all of which are
available to be paid as dividends without prior regulatory approval provided the
Banks maintain adequate capital.
FINANCIAL CONDITION
The Company's consolidated assets increased 16.2%, 16.1% and 5.76% during
1996, 1995 and 1994, respectively. Asset growth is directly related to deposit
growth and the funds available to the Company for investment. The Company has
been successful in expanding existing market share as well as adding new branch
locations. During 1996, Cabarrus Bank purchased approximately $3.5 million of
deposit accounts and consolidated them with its Copperfield branch. Cabarrus has
agreed to acquire $30 million of deposit accounts within Cabarrus County and
Lincoln Bank has agreed to acquire $10 million of deposit accounts west of
Lincolnton in Lake Lure, pursuant to branch acquisitions expected to close in
the second quarter of 1997. This acquired growth, as well as the natural growth
generated within the Company's existing markets are expected to produce
continued strong growth trends. These deposits will allow the Company to
continue to take advantage of the vibrant economy and quality loan demand
experienced over the past several years.
The Company's small commercial loan portfolio has grown over the past
several years as the Company has employed seasoned commercial lenders to develop
these opportunities. Also, loans secured by real estate have increased as the
Company believes real estate provides excellent collateral for loans with
different purposes. Management believes the Company is not dependent on any
single customer or group of customers concentrated in a particular industry, the
loss of whose deposits or whose insolvency would have a material adverse effect
on operations.
As interest rates reflected a flat yield curve, customers shortened the term
of their deposits and in many cases chose transaction deposit accounts,
including negotiable order of withdrawal ("NOW") and money market deposit
accounts ("MMDA") without a stated maturity. This shift from longer term
deposits allows the depositor to react more quickly to rising rates. As a
result, the Company's cost of funds from 1995 to 1996 has decreased, but became
more vulnerable to rising interest rates which enhanced the need for effective
asset liability management.
12
<PAGE> 8
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
Securities have been segregated into two categories, "held to maturity" and
"securities available for sale." While the Company has no plans to liquidate a
significant amount of any securities, the securities available for sale may be
used for liquidity purposes should management deem it to be in the best interest
of the Company. Due to declines in interest rates, the majority of securities
purchased have been relatively short term and categorized as available for sale
in anticipation that these would be available to the Company should interest
rates reverse or quality loan demand increase. United States government and
government agency securities continue to represent the majority of both
securities held to maturity and securities available for sale. During 1996,
securities available for sale increased as a percentage of total assets,
however, total securities remained relatively constant.
13
<PAGE> 9
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
ASSET QUALITY
Management considers the Banks' asset quality to be of primary importance.
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. The loan portfolio is analyzed monthly to identify potential problems
before they actually occur. This analysis is reviewed in conjunction with the
Company's allowance for loan losses to provide a basis for determining the
adequacy of this allowance to absorb losses that might be experienced. In
addition to such analyses of existing loans, management considers the Banks'
historical loan losses, past due and non-performing loans, current and
anticipated economic conditions, underlying collateral values securing loans and
other factors which affect the allowance. Furthermore, the trend of loans made
over the past several years has been toward larger commercial loans and as such
has had limited historical loss experience for which to base a specific reserve.
Thus, the general reserve has been increased to compensate for loan growth and
the lack of historical experience with the volume of such loans.
The following table depicts the allocation of the allowance for loan losses
at December 31, 1996, 1995, 1994, 1993 and 1992. The allocation is based on
management's grading of the loan portfolio with the remaining portion allocated
to the general category, however, the entire allowance is available to be used
for write-offs in any category. (Dollars in thousands.)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Loan Loan Loan Loan Loan
Percent Percent Percent Percent Percent
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial....... $ 215 13% $ 327 13% $ 289 10% $ 152 9% $ 73 6%
Real estate:
Residential construction..... 109 8 21 8 14 6 15 4 18 2
Commercial construction...... -- -- -- -- -- -- -- -- 35 3
Residential mortgage......... 453 37 397 37 468 47 509 58 620 63
Commercial mortgage.......... 221 30 320 30 226 23 138 16 318 14
Consumer....................... 293 12 299 12 228 14 216 13 204 12
General........................ 3,198 -- 2,224 -- 1,933 -- 1,550 -- 968 --
------ --- ------ --- ------ --- ------ --- ------ ---
Total loans.................... $4,489 100% $3,588 100% $3,158 100% $2,580 100% $2,236 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
Non-performing assets include non-accrual loans, accruing loans
contractually past due 90 days or more, restructured loans, other real estate,
and other real estate under contract for sale. Loans are placed on non-accrual
status when management has concerns relating to the ability to collect the loan
principal and interest, and generally when such loans are 90 days or more past
due. Interest of $40,819 was reported on these loans during 1996 and an
additional amount of $11,983 would have been earned if these loans had been
performing. No amount of loans that have been classified by regulatory examiners
as loss, substandard, doubtful of special mention has been excluded from amounts
disclosed as non-performing loans. While non-performing assets represent
potential losses to the Company, management does not anticipate any material
losses thereon, since most are believed to be adequately secured. Management
believes the allowance for loan losses currently to be sufficient to absorb
known risks in the portfolio. No assurance can be given that adverse economic
conditions will not adversely affect borrowers and result in increased losses.
(In thousands.)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................................ $576 $ 790 $ 570 $ 744 $ 995
Loans 90 days or more past due and still accruing
interest.................................................. 43 22 20 35 59
---- ------ ------ ------ ------
Total non-performing loans.................................. 619 812 590 779 1,054
Other real estate........................................... 141 683 1,017 1,385 2,091
---- ------ ------ ------ ------
Total non-performing assets................................. $760 $1,495 $1,607 $2,164 $3,145
==== ====== ====== ====== ======
</TABLE>
14
<PAGE> 10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
Net charge-offs as a percentage of average loans outstanding decreased from
1995 to 1996. This ratio continues to reflect the moderate level of losses
experienced by the Company.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................................ $ 3,588 $ 3,158 $ 2,580 $ 2,236 $ 1,953
Charge-offs:
Commercial, financial and agricultural.................. (39) (95) (9) (43) (324)
Real estate:
Construction.......................................... -- -- -- (180) --
Mortgage.............................................. (18) (77) (24) (40) (114)
Consumer................................................ (312) (219) (130) (270) (151)
-------- -------- -------- -------- --------
Total charge-offs................................... (369) (391) (163) (533) (589)
Recoveries:
Commercial, financial and agricultural.................. 3 3 19 -- 22
Real estate:
Construction.......................................... -- -- -- -- --
Mortgage.............................................. 24 23 2 3 2
Consumer................................................ 64 85 53 53 54
-------- -------- -------- -------- --------
Total recoveries.................................... 91 111 74 56 78
-------- -------- -------- -------- --------
Net charge-offs............................................. (278) (280) (89) (477) (511)
Provision for loan losses................................... 1,179 710 667 821 794
-------- -------- -------- -------- --------
Balance at end of year...................................... $ 4,489 $ 3,588 $ 3,158 $ 2,580 $ 2,236
======== ======== ======== ======== ========
Loans, net of unearned interest at end of year.............. $309,112 $257,178 $223,999 $197,934 $173,793
Ratio of allowance for loan losses to net loans at end of
year...................................................... 1.45% 1.40% 1.41% 1.30% 1.29%
Average loans, net of unearned interest..................... $282,553 $234,581 $206,442 $182,697 $168,250
Ratio of net charge-offs to average loans outstanding during
the year.................................................. 0.10% 0.12% 0.04% 0.26% 0.30%
</TABLE>
CAPITAL RESOURCES
Banks and bank holding companies, as regulated institutions, must meet
required levels of capital. The Federal Deposit Insurance Corporation ("FDIC")
and the Federal Reserve, the primary Federal regulators for the Banks and the
Company, respectively, have adopted minimum capital regulations or guidelines
that categorize components and the level of risk associated with various types
of assets. Financial institutions are expected to maintain a level of capital
commensurate with the risk profile assigned to its assets in accordance with the
guidelines. The Company, Lincoln Bank and Cabarrus Bank all maintain capital
levels exceeding the minimum levels for well capitalized banks and bank holding
companies.
<TABLE>
<CAPTION>
WELL ADEQUATELY CAROLINA LINCOLN CABARRUS
CAPITALIZED CAPITALIZED FIRST BANK BANK
----------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
Tier I capital to risk adjusted assets...................... 6.00% 4.00% 11.64% 11.00% 10.15%
Total capital to risk adjusted assets....................... 10.00% 8.00% 12.90% 12.24% 11.41%
Leverage ratio.............................................. 5.00% 4.00% 8.67% 8.07% 6.91%
</TABLE>
ACCOUNTING AND REGULATORY MATTERS
On January 1, 1994, the Company adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting
for Certain Investment in Debt and Equity Securities", for regulatory and
capital purposes. The effect of this Standard causes fluctuations in
shareholders' equity based on changes in values of debt and equity securities
available for sale. Such gains and losses, however, are not currently added or
subtracted for purposes of computing the adequacy of capital for regulatory
15
<PAGE> 11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Continued
Carolina First BancShares, Inc. and Subsidiaries
purposes. Gains and losses on such securities are recognized for income
statement and regulatory capital purposes only when a security is sold.
Effective January 1, 1995, the Company adopted FASB SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures".
The adoption of these Standards causes the allowance for credit losses related
to loans identified as impaired to be based on discounted cash flows of expected
payments or the fair value of the collateral for certain collateral dependent
loans.
Effective January 1, 1996, the Company adopted FASB SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An estimate of the future cash flows expected to result
from the use of the asset and its eventual disposition should be performed
during a review for recoverability. An impairment loss (based on the fair value
of the asset) is recognized if the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset. Additionally, SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be disposed of, be reported at the lower of
carrying amount or fair value less cost to sell, except for certain assets.
These assets will continue to be reported at the lower of carrying amount or net
realizable value.
Effective January 1, 1996, the Company adopted FASB SFAS No. 122,
"Accounting for Certain Mortgage Banking Activities," which requires that a
mortgage banking enterprise recognize as separate assets the rights to service
mortgage loans for others, however those servicing rights are acquired. A
mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to estimate
the fair values of the mortgage servicing rights and the mortgage loans (without
the mortgage servicing rights), the entire cost of purchasing or originating the
loans should be allocated only to the mortgage loans without the mortgage
servicing rights. Additionally, this Standard requires that a mortgage banking
enterprise periodically assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights.
Effective January 1, 1996, the Company adopted FASB SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires that the fair value of
employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income as of the date of grant of
awards related to such plans or that the impact of such fair value on net income
and earnings per share be disclosed on a pro forma basis in a footnote to
financial statements for awards granted after December 15, 1994, if the
accounting for such awards continues to be in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). The Company will continue such accounting under the provisions of APB 25.
Statement of Financial Accounting Standard No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
as amended, (i) sets forth the criteria for (a) determining when to recognize
financial and servicing assets and liabilities; and (b) accounting for transfers
of financial assets as sales or borrowings; and (ii) requires (a) liabilities
and derivatives related to a transfer of financial assets to be recorded at fair
value; (b) servicing assets and retained interest in transferred assets carrying
amounts be determined by allocating carrying amounts based on fair value; (c)
amortization of servicing assets and liabilities be in proportion to net
servicing income; (d) impairment measurement be based on fair value; and (e)
pledged financial assets be classified as collateral. This Standard provides
implementation guidance for assessing isolation of transferred assets and for
accounting for transfers of partial interests, servicing of financial assets,
securitizations, transfers of sales-type and direct financing lease receivables,
securities lending transactions, repurchase agreements including dollar rolls,
wash sales, loan syndications and participations, risk participations in
banker's acceptances, factoring arrangements, transfers of receivables with
recourse and extinguishments of liabilities.
This Standard is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, except
that the Standard will be effective for transfers of financial assets and
transactions related to repurchase agreements, dollar rolls, securities lending
and the like, occurring after December 31, 1997, and it is to be applied
prospectively. The effect on the Company is not expected to be material.
16
<PAGE> 12
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INDEPENDENT AUDITORS' REPORT
The Shareholders and the Board of Directors of
Carolina First BancShares, Inc.
We have audited the accompanying consolidated balance sheets of Carolina
First BancShares, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. 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 BancShares, Inc. and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Charlotte, North Carolina
February 7, 1997
17
<PAGE> 13
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CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Carolina First BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 16,343,459 $ 14,361,366
Federal funds sold.......................................... 2,982,000 1,030,000
------------ ------------
Total cash and cash equivalents......................... 19,325,459 15,391,366
Interest bearing deposits in other banks.................... 426,766 350,128
Securities held to maturity (market value $39,275,715 in
1996 and $57,660,405 in 1995)............................. 38,920,273 56,561,646
Securities available for sale (cost of $48,612,087 in 1996
and $27,335,383 in 1995).................................. 48,696,412 27,462,764
Loans, net of unearned income ($405,263 in 1996; $327,450 in
1995)..................................................... 309,112,008 257,177,863
Allowance for loan losses............................... (4,488,958) (3,588,489)
------------ ------------
Loans, net.............................................. 304,623,050 253,589,374
Premises and equipment, net................................. 9,509,172 8,572,044
Other real estate owned..................................... 141,067 683,409
Other assets................................................ 8,069,092 7,222,708
------------ ------------
Total Assets................................................ $429,711,291 $369,833,439
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand.................................................. $ 37,858,889 $ 30,295,524
Interest bearing transaction accounts................... 93,376,439 81,171,081
Savings................................................. 39,445,821 41,751,256
Time, $100,000 and over................................. 40,355,803 30,658,383
Other time.............................................. 173,966,334 151,726,502
------------ ------------
Total deposits.......................................... 385,003,286 335,602,746
Borrowed funds.............................................. 5,862,026 --
Other liabilities........................................... 3,844,123 3,107,714
------------ ------------
Total Liabilities........................................... 394,709,435 338,710,460
Shareholders' Equity:
Common stock, $2.50 par value; authorized -- 5,000,000
shares; issued and outstanding -- 2,052,971 in 1996,
and 1,632,458 shares in 1995........................... 5,132,428 4,081,145
Additional paid in capital.............................. 16,442,810 17,377,333
Retained earnings....................................... 13,378,236 9,585,436
Net unrealized gain on securities available for sale.... 48,382 79,065
------------ ------------
Total Shareholders' Equity.............................. 35,001,856 31,122,979
------------ ------------
Commitments and Contingent Liabilities
Total Liabilities and Shareholders' Equity.................. $429,711,291 $369,833,439
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 14
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CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Carolina First BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................................. $27,388,938 $23,279,164 $18,858,565
Interest and dividends on securities:
Taxable income.......................................... 4,440,219 3,870,017 3,716,990
Non-taxable income...................................... 588,209 714,716 748,785
Other interest income....................................... 259,980 313,327 129,231
----------- ----------- -----------
Total interest income................................... 32,677,346 28,177,224 23,453,571
INTEREST EXPENSE:
Interest on deposits........................................ 14,145,984 12,670,832 9,731,281
Interest on borrowed funds.................................. 293,662 46,214 43,088
----------- ----------- -----------
Total interest expense.................................. 14,439,646 12,717,046 9,774,369
----------- ----------- -----------
NET INTEREST INCOME......................................... 18,237,700 15,460,178 13,679,202
PROVISION FOR LOAN LOSSES................................... 1,178,925 710,200 667,303
----------- ----------- -----------
NET CREDIT INCOME........................................... 17,058,775 14,749,978 13,011,899
OTHER INCOME:
Charges on deposit accounts................................. 2,116,069 1,676,264 1,538,019
Insurance commissions....................................... 532,444 811,811 907,953
Other service fees and commissions.......................... 758,500 639,733 477,100
Mortgage banking commission income.......................... 394,138 382,663 295,643
Securities gains (losses), net.............................. (10,482) 2,048 (33,180)
Other income................................................ 656,530 661,847 592,003
----------- ----------- -----------
Total other income...................................... 4,447,199 4,174,366 3,777,538
OPERATING EXPENSES:
Salaries and benefits....................................... 7,381,676 6,773,540 6,223,894
Occupancy and equipment..................................... 1,657,552 1,447,252 1,280,601
Federal and other insurance premiums........................ 818,816 499,636 708,442
Office supplies............................................. 447,842 398,086 339,015
Data processing............................................. 384,597 389,495 381,231
Other expenses.............................................. 3,449,265 3,132,551 2,938,429
----------- ----------- -----------
Total operating expenses................................ 14,139,748 12,640,560 11,871,612
----------- ----------- -----------
INCOME BEFORE INCOME TAXES.................................. 7,366,226 6,283,784 4,917,825
INCOME TAXES................................................ 2,687,927 2,154,051 1,547,951
----------- ----------- -----------
NET INCOME.................................................. $ 4,678,299 $ 4,129,733 $ 3,369,874
=========== =========== ===========
EARNINGS PER SHARE
Net Income Per Common Share................................. $ 2.23 $ 2.09 $ 1.83
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 15
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Carolina First BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET
---------------------- PAID-IN RETAINED UNREALIZED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS GAIN/(LOSS) EQUITY
--------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................... 1,333,324 $3,333,310 $11,529,198 $ 6,752,537 -- $21,615,045
Effect of change in accounting principle...... -- -- -- -- $ 61,466 61,466
5% Stock dividend............................. 65,535 163,838 1,146,863 (1,336,063) -- (25,362)
Exercise of stock options..................... 5,311 13,277 20,537 -- -- 33,814
Cash dividend ($.41 per share)................ -- -- -- (554,752) -- (554,752)
Retirement of stock........................... (5,454) (13,635) (82,263) -- -- (95,898)
Dividend reinvestment plan.................... 3,312 8,280 47,148 -- -- 55,428
Change in unrealized gain on securities
available for sale.......................... -- -- -- -- (570,777) (570,777)
Net income.................................... -- -- -- 3,369,874 -- 3,369,874
--------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1994.................... 1,402,028 3,505,070 12,661,483 8,231,596 (509,311) 23,888,838
Issuance of stock in public offering.......... 150,000 375,000 2,787,088 -- -- 3,162,088
5% Stock dividend............................. 76,663 191,658 1,878,243 (2,100,323) -- (30,422)
Exercise of stock options..................... 2,304 5,760 21,793 -- -- 27,553
Cash dividend ($.45 per share)................ -- -- -- (617,835) -- (617,835)
Retirement of stock........................... (1,103) (2,758) (22,594) -- -- (25,352)
Dividend reinvestment plan.................... 2,566 6,415 51,320 (57,735) -- --
Change in unrealized loss on securities
available for sale.......................... -- -- -- -- 588,376 588,376
Net income.................................... -- -- -- 4,129,733 -- 4,129,733
--------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1995.................... 1,632,458 4,081,145 17,377,333 9,585,436 79,065 31,122,979
5-for-4 stock split........................... 409,586 1,023,965 (1,049,260) -- -- (25,295)
Exercise of stock options..................... 9,412 23,531 68,748 -- -- 92,279
Cash dividend ($.43 per share)................ -- -- -- (885,499) -- (885,499)
Retirement of stock........................... (3,589) (8,973) (102,103) -- -- (111,076)
Dividend reinvestment plan.................... 5,104 12,760 148,092 -- -- 160,852
Change in unrealized gain on securities
available for sale.......................... -- -- -- -- (30,683) (30,683)
Net income.................................... -- -- -- 4,678,299 -- 4,678,299
--------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1996.................... 2,052,971 $5,132,428 $16,442,810 $13,378,236 $ 48,382 $35,001,856
========= ========== =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 16
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Carolina First BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income.................................................. $ 4,678,299 $ 4,129,733 $ 3,369,874
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 1,017,442 863,267 776,038
Accretion and amortization of securities discounts and
premiums, net......................................... 230,389 264,877 408,456
Provision for loan losses............................... 1,178,925 710,200 667,303
Deferred taxes (benefit)................................ (634,148) (345,186) (395,463)
Gains on sales of securities available for sale......... (26,839) (1,160) (34,936)
Losses on sales of securities available for sale........ -- 1,006 68,903
Gains on calls and maturities of securities held to
maturity.............................................. (8,490) (1,989) (4,397)
Losses on calls and maturities of securities held to
maturity.............................................. 2,131 95 3,165
Gains on sales of equipment, net........................ (63,273) (1,277) (1,301)
Gains on sales of real estate, net...................... (141,750) (71,384) (110,298)
Increase in other assets................................ (244,529) (509) (1,625,947)
Increase in other liabilities........................... 754,953 1,030,324 373,505
------------ ------------ ------------
Net cash provided by operating activities............... 6,743,110 6,577,997 3,494,902
------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale... 7,701,659 8,581,972 2,666,713
Proceeds from sales of securities available for sale........ 6,586,841 1,009,785 4,511,950
Purchases of securities available for sale.................. (35,699,300) (18,148,361) (11,010,710)
Proceeds from calls and maturities of securities held to
maturity.................................................. 22,606,274 13,129,521 16,052,605
Purchases of securities held to maturity.................... (5,074,375) (18,207,484) (8,288,740)
Purchases and maturities of certificates of deposit, net.... (76,638) (299,496) 693,000
Originations of loans, net.................................. (52,527,250) (33,618,383) (26,206,328)
Proceeds from sale of real estate........................... 999,241 506,874 728,267
Decrease in investment in joint ventures.................... -- 28,307 163,254
Proceeds from sale of premises and equipment................ 221,380 36,519 5,006
Capital expenditures........................................ (2,022,132) (1,212,445) (270,584)
------------ ------------ ------------
Net cash used in investing activities................... (57,284,300) (48,193,191) (20,955,567)
------------ ------------ ------------
FINANCING ACTIVITIES:
Increase (decrease) in time deposits........................ 31,937,252 32,165,918 (957,736)
Net increase in other deposits.............................. 17,463,288 10,815,552 15,680,511
Net increase in borrowed funds.............................. 5,862,026 -- --
Repayment of notes payable.................................. (18,544) (17,506) (23,706)
Repurchase of stock......................................... (111,076) (25,352) (95,898)
Payment of cash dividends and fractional shares............. (910,794) (648,257) (580,114)
Issuance of stock........................................... 253,131 3,189,641 89,242
------------ ------------ ------------
Net cash provided by financing activities............... 54,475,283 45,479,996 14,112,299
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 3,934,093 3,864,802 (3,348,366)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 15,391,366 11,526,564 14,874,930
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 19,325,459 $ 15,391,366 $ 11,526,564
============ ============ ============
Supplemental disclosures of cash flow information:
Interest paid........................................... $ 14,241,426 $ 12,353,527 $ 9,774,369
Income taxes paid....................................... 3,507,975 2,127,700 2,128,399
============ ============ ============
Supplemental disclosure of noncash investing and financing
activities:
Effect of change in accounting principle (net of tax
effect of $31,665).................................... -- -- $ 61,466
Effect on equity of change in unrealized gain (loss) on
securities available for sale............................. $ (30,683) 588,376 (570,777)
Assets transferred to other real estate..................... 314,649 231,820 51,963
Transferred from securities held to maturity to securities
available for sale........................................ -- -- 1,855,497
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Carolina First BancShares, Inc. is a bank holding company, formed in June
1989, which owns all of the outstanding common stock of Lincoln Bank of North
Carolina ("Lincoln Bank") and Cabarrus Bank of North Carolina ("Cabarrus Bank"
and together with Lincoln Bank, the "Banks"). Lincoln Bank was organized as a
state chartered commercial bank in May 1983 and operates in areas northwest of
Charlotte, North Carolina with one office in southeast Charlotte. Cabarrus Bank
was converted from a savings bank charter to a state commercial bank charter in
October 1992 and operates in Cabarrus County. The principal business of the
Banks includes retail and commercial banking and mortgage lending.
Principles of Consolidation -- The consolidated financial statements include
the accounts of Carolina First BancShares, Inc., Lincoln Bank, Cabarrus Bank and
their subsidiaries (referred to herein collectively as the "Company"). All
significant intercompany items and transactions have been eliminated in
consolidation. Certain 1995 and 1994 amounts have been reclassified to conform
with 1996 classifications. The reclassifications have no effect on shareholders'
equity or net income as previously reported.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents include cash on hand,
due from banks and overnight federal funds sold.
Securities -- Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which prescribes the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Securities that the
Company has the positive intent and ability to hold to maturity are classified
as held to maturity and reported at cost. Securities held for current resale are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in income. The Company currently has no such
securities. Securities not classified as held to maturity or trading securities
are classified as available for sale and reported at fair value, with unrealized
gains and losses net of the related tax effect excluded from income and reported
as a separate component of shareholders' equity. The effect of the foregoing
will cause fluctuations in shareholders' equity based on changes in values of
debt and equity securities. The classification of securities as held to
maturity, trading or available for sale is determined at the date of purchase.
Realized gains or losses on the sale of securities are recognized on the
specific identification method. Premiums and discounts are amortized to interest
income over the life of the security using a method approximating a level yield
method. The market value of securities is generally based on quoted market
prices or dealer quotes.
As a member of the Federal Home Loan Bank of Atlanta (the "FHLB"), the
Company is required to maintain an investment in the stock of the FHLB. This
stock, which is classified in the other asset category at December 31, 1996, is
carried at cost since it has no quoted market value.
Allowance for Loan Losses -- The provision for loan losses charged to
operations is an amount that management believes is sufficient to bring the
allowance for loan losses to an estimated balance considered adequate to absorb
inherent losses in the portfolio. Management's determination of the adequacy of
the allowance is based on an evaluation of the portfolios, current economic
conditions, historical loan loss experience and other risk factors. This
evaluation is heavily dependent upon estimates and appraisals which are
susceptible to rapid changes because of economic conditions and the economic
prospects of borrowers.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize changes to the
allowance based on their judgments about information available at the time of
examination.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114") and Statement of Financial Accounting Standards No. 118 ("SFAS
No. 118"), "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures." Loans are determined to be impaired when it is
probable that all amounts due according to the contractual terms of the
agreement will not be collected as scheduled in the agreement taking into
account the value of collateral securing the extension of credit. Under SFAS No.
114, the allowance for loan losses for all years after 1994 relating to
22
<PAGE> 18
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
loans that are determined to be impaired is based on discounted cash flows using
the loan's initial effective interest rate and the fair value of the collateral
for certain collateral dependent loans. The Bank previously measured loan
impairment in a method generally comparable to the methods prescribed in SFAS
No. 114. Accordingly, no additional provisions for loan losses were required as
a result of the adoption of SFAS No. 114.
Nonaccrual Loans -- Generally, a loan (including a loan impaired under SFAS
No. 114) is classified as nonaccrual and the accrual of interest on such loan is
discontinued when the contractual payment of principal or interest has become 90
days past due or management has doubts about further collectibility of principal
or interest even though the loan currently is performing. A loan may remain on
accrual status if it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and unpaid interest accrued
in prior years is charged against the allowance for credit losses. Interest
received on nonaccrual loans generally is either applied against principal or
reported as interest income according to management's judgment as to the
collectibility of principal. Generally, loans are restored to accrual status
when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
Premises and Equipment -- Premises and equipment are stated at cost less
accumulated depreciation. Additions and major replacements or betterments which
extend the useful lives of premises and equipment are capitalized. Maintenance,
repairs and minor improvements are expensed as incurred. Depreciation of
buildings and improvements is computed on the straight-line method over 15
years. Depreciation of furniture, fixtures and equipment is computed on the
straight-line method over periods that approximate the estimated useful lives of
the assets. Accelerated depreciation methods are used for tax purposes. Gains
and losses on dispositions of premises and equipment are reflected in income.
Other Real Estate Owned -- Other real estate owned is carried at the lower
of cost (principal balance of the loan plus costs of obtaining title and
possession) or fair value less selling costs. Subsequent to acquisition, a
provision for loss, if required, is recorded to reduce the carrying value of the
asset to fair value.
In accordance with SFAS No. 114, a loan is classified as in-substance
foreclosure when the Company has taken possession of the collateral regardless
of whether formal foreclosure proceedings take place. Loans previously
classified as in-substance foreclosure but for which the Company had not taken
possession of the collateral have been reclassified to loans. This
reclassification did not impact the Company's financial condition or results of
operations.
Earnings Per Share -- Earnings per share are calculated on the basis of the
weighted average number shares and common stock equivalents outstanding. The
weighted average number of shares for each year presented have been
retroactively adjusted for the five-for-four stock split in 1996, and the 5%
stock dividend in 1995 and 1994. Fully diluted per share amounts are not
presented since the differences are not significant.
Financial Instruments -- Financial instruments are valued in accordance with
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosure of the estimated fair values of the Company's financial
instruments. Such instruments include investment securities (see note 2), loans
(see note 3), and deposit accounts (see note 6). Fair value estimates, methods,
and assumptions for each of these instruments are set forth in their respective
footnotes.
The carrying amounts for cash, overnight federal funds sold and interest
bearing deposits in other banks approximate fair value because they mature in
less than 90 days and do not present unanticipated credit concerns. The carrying
amounts for borrowed funds also approximate fair value because of the daily
maturity of most of these items.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no active market readily exists for a portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
23
<PAGE> 19
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. Other
significant assets and liabilities that are not considered financial assets or
liabilities include the mortgage banking operation, property, plant, equipment,
and goodwill. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
SFAS No. 107 specifies that fair values should be calculated based on the
value of one unit without regard to any premium or discount that may result from
concentration of ownership of a financial instrument, possible tax
ramifications, or estimated transaction cost.
Stock Options -- SFAS No. 123 requires that the fair value of employee
stock-based compensation plans be recorded as a component of compensation
expense in the statement of income or the impact of such fair value on net
income and earnings per share be disclosed on a pro forma basis in a footnote to
financial statements in accordance with APB 25. The Company will continue such
accounting under the provisions of APB 25.
Income and Expense -- The Company utilizes the accrual method of accounting
except for immaterial amounts of loan income and other minor fees which are
recorded as income when collected. Substantially all loans earn interest on the
level yield method based on the daily outstanding balance. The accrual of
interest is discontinued when, in management's judgment, the interest may not be
collected.
The Banks defer the recognition of the net amounts of loan origination fees
and certain loan origination costs and amortize these deferred amounts over the
life of each related loan as an adjustment to the loan yield.
Income Taxes -- Income taxes are accounted for under SFAS No. 109,
"Accounting for Income Taxes." According to SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to a
taxable income in the years in which those temporary differences are expected to
be recovered in income in the period that includes the enactment date. The
Company files consolidated Federal income tax returns.
24
<PAGE> 20
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
2. SECURITIES
As discussed in note 1, the Company adopted SFAS No. 115 as of January 1,
1994 and transferred debt and equity securities at that time to the available
for sale category. Amortized cost, market values and unrealized gains and losses
of securities as of December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
----------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities................................ $12,088,819 $ 55,044 $ (32,148) $12,111,715
U.S. government agencies................................ 9,880,637 64,329 (13,620) 9,931,346
Mortgage-backed securities.............................. 9,171,725 53,825 (82,086) 9,143,464
State and political subdivisions........................ 7,779,092 310,503 (405) 8,089,190
----------- ---------- --------- -----------
Total............................................... $38,920,273 $ 483,701 $(128,259) $39,275,715
=========== ========== ========= ===========
AVAILABLE FOR SALE
U.S. Treasury securities................................ $18,484,978 $ 31,190 $ (30,037) $18,486,131
U.S. government agencies................................ 27,919,073 49,353 (110,947) 27,857,479
Mortgage-backed securities.............................. 976,067 29,148 -- 1,005,215
Mutual funds and marketable equity securities........... 1,231,969 168,655 (53,837) 1,346,787
----------- ---------- --------- -----------
Total............................................... $48,612,087 $ 278,346 $(194,821) $48,695,612
=========== ========== ========= ===========
DECEMBER 31, 1995
HELD TO MATURITY
U.S. Treasury securities................................ $15,102,308 $ 171,731 $ (6,609) $15,267,430
U.S. government agencies................................ 19,646,292 289,756 (6,932) 19,929,116
Mortgage-backed securities.............................. 11,683,322 121,821 (24,517) 11,780,626
State and political subdivisions........................ 10,129,724 553,590 (81) 10,683,233
----------- ---------- --------- -----------
Total............................................... $56,561,646 $1,136,898 $ (38,139) $57,660,405
=========== ========== ========= ===========
AVAILABLE FOR SALE
U.S. Treasury securities................................ $17,113,732 $ 62,806 $ (49,298) $17,127,240
U.S. government agencies................................ 5,499,540 22,088 (2,963) 5,518,665
Mortgage-backed securities.............................. 1,182,048 35,873 -- 1,217,921
State and political subdivisions........................ 2,500,000 -- -- 2,500,000
Mutual funds and marketable equity securities............. 1,040,063 107,279 (48,404) 1,098,938
----------- ---------- --------- -----------
Total............................................... $27,335,383 $ 228,046 $(100,665) $27,462,764
=========== ========== ========= ===========
</TABLE>
25
<PAGE> 21
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
Amortized cost and market values of securities at December 31, 1996, by
maturity, are shown below.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------- --------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due within one year........................................ $ 7,878,644 $ 7,942,492 $25,334,145 $25,321,890
Due after one year but within 5 years...................... 21,937,576 22,151,948 21,069,906 21,022,520
Due after 5 years but within 10 years...................... 4,332,229 4,439,122 -- --
Due after 10 years......................................... 4,771,824 4,742,153 976,067 1,005,215
Mutual funds and marketable equity securities.............. -- -- 1,231,969 1,346,787
----------- ----------- ----------- -----------
Total.............................................. $38,920,273 $39,275,715 $48,612,087 $48,696,412
=========== =========== =========== ===========
</TABLE>
Investment securities with an amortized cost of $21,335,810 at December 31,
1996 were pledged to secure public deposits and for other purposes required or
permitted by law.
Included in other assets is an investment in the common stock of First
Gaston Bank of North Carolina with a carrying amount of approximately $1,128,000
at December 31, 1996. Although the investment only represents an approximate 17%
interest in the bank, the Company accounts for the investment under the equity
method as the Company has committed to serve as a source of strength, as defined
by the Federal Reserve, for First Gaston Bank; has representation on the bank's
board of directors; and provides certain operational functions to the bank.
Under the equity method, the Company adjusts the carrying value of the
investment for its portion of the bank's earnings or losses. Also included in
other assets is an investment in the stock of the Federal Home Loan Bank of
Atlanta ("FHLB") of $1,082,100 at December 31, 1996 and 1995 that is pledged as
collateral for advances from the FHLB. No ready market exists for the stock,
which is carried at cost.
3. LOANS
Major classifications of loans as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Commercial.................................................. $ 43,121,946 $ 33,082,877
Real estate:
Construction............................................ 25,589,843 20,873,525
Mortgage................................................ 197,898,770 170,000,535
Consumer.................................................... 39,047,715 30,259,379
Other....................................................... 3,453,734 2,961,547
------------ ------------
Total loans..................................... 309,112,008 257,177,863
Allowance for loan losses................................... (4,488,958) (3,588,489)
------------ ------------
Total loans, net................................ $304,623,050 $253,589,374
============ ============
</TABLE>
Included in mortgage real estate loans at December 31, 1996 are
approximately $106,270,000 in 1-4 family residential loans.
Certain officers and directors, and companies in which they have 10% or more
beneficial ownership, were indebted to the Banks in the aggregate amount of
$2,388,465 and $1,982,531 at December 31, 1996 and 1995, respectively. During
1996, additions to such loans were $1,870,526 and repayments totaled $1,464,592.
In the opinion of management, these loans do not involve more than the normal
risk of collectibility, nor do they present other unfavorable features.
Loans past due 90 days or more and still accruing interest totaled $42,759
for December 31, 1996 and $21,814 for December 31, 1995, while nonaccrual loans
as of December 31, 1996 and 1995 were $576,191 and $790,359 respectively.
Nonaccrual loans at December 31, 1996 consist of 46 loans, the largest of which
had a balance of $49,780. Management considers collateral on nonaccrual loans to
be adequate to avoid any significant losses on the loans, exclusive of allowance
for loan losses. Additional interest of $11,983 and $8,834 would have been
26
<PAGE> 22
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
earned in 1996 and 1995, respectively, if the nonaccrual loans as of each year
end had been earning throughout each year. Income of $40,819 and $39,457 was
recognized on these loans during 1996 and 1995, respectively.
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. The estimated fair
market value of loans outstanding is approximately $309,811,000 and $256,231,000
at December 31, 1996 and 1995, respectively.
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year................................ $3,588,489 $3,158,168 $2,580,004
Charge-offs................................................. (369,549) (390,392) (163,347)
Recoveries.................................................. 91,093 110,513 74,208
---------- ---------- ----------
Net charge-offs............................................. (278,456) (279,879) (89,139)
---------- ---------- ----------
Provision for loan losses................................... 1,178,925 710,200 667,303
---------- ---------- ----------
Balance at end of year...................................... $4,488,958 $3,588,489 $3,158,168
========== ========== ==========
</TABLE>
At December 31, 1996, the recorded investment in loans that are considered
to be impaired under Statement 114 was $713,963 (of which $576,191 were on a
nonaccrual basis). Included in this amount is $105,189 of impaired loans for
which the related allowance for credit losses is $29,962. The amount of interest
income recognized on impaired loans during the year was not material.
5. PREMISES AND EQUIPMENT
Major classifications of these assets as of December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land........................................................ $ 2,968,275 $ 2,419,093
Buildings and improvements.................................. 6,248,774 5,787,652
Furniture, fixtures and equipment........................... 4,703,963 3,902,969
----------- -----------
Total cost.................................................. $13,921,012 $12,109,714
Accumulated depreciation.................................... 4,411,840 3,537,670
----------- -----------
Carrying value.............................................. $ 9,509,172 $ 8,572,044
=========== ===========
</TABLE>
6. LIABILITIES
The fair value of noninterest-bearing demand deposits and NOW, savings and
money market deposits is the amount payable on demand at the reporting date. The
fair value of time deposits is estimated using the rates currently offered for
deposits of similar remaining maturities. The estimated fair market value of
deposits is approximately $386,920,000 and $336,557,000 at December 31, 1996 and
1995, respectively.
Time deposits maturing in each of the five years subsequent to December 31,
1996 are as follows: 1997, $172,940,000; 1998, $30,751,000; 1999, $8,415,000;
2000, $1,590,000; 2001, $447,000; and subsequent years, $180,000.
Borrowed funds primarily consist of FHLB advances and repurchase agreements
of $2,000,000 and $3,862,026, respectively. FHLB advances mature January 31,
1997 and have a rate of 5.93% and repurchase agreements mature daily and on
December 31, 1996 the rate was 4.46% for balances less than or equal to $250,000
and 4.96% for balances greater than $250,000.
27
<PAGE> 23
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
7. INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Year ended December 31, 1996
Federal................................................. $2,887,925 $(547,874) $2,340,051
State................................................... 434,150 (86,274) 347,876
---------- --------- ----------
Total............................................... $3,322,075 $(634,148) $2,687,927
========== ========= ==========
Year ended December 31, 1995
Federal................................................. $2,182,056 $(256,693) $1,925,363
State................................................... 317,181 (88,493) 228,688
---------- --------- ----------
Total............................................... $2,499,237 $(345,186) $2,154,051
========== ========= ==========
Year ended December 31, 1994
Federal................................................. $1,749,009 $(287,833) $1,461,176
State................................................... 194,405 (107,630) 86,775
---------- --------- ----------
Total............................................... $1,943,414 $(395,463) $1,547,951
========== ========= ==========
</TABLE>
A reconciliation of total income tax expense for the years ended December
31, to the amount of tax expense computed by multiplying income before income
taxes by the statutory federal income tax rate of 34 percent follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Tax provision at statutory rate............................. $2,559,641 $2,136,487 $1,672,060
Increase (reduction) in income taxes resulting from:
Tax-exempt interest income.............................. (203,354) (210,500) (225,591)
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets allocated
to income tax expense................................. 38,030 20,676 (64,524)
State income taxes, net of federal tax benefit.......... 229,598 150,934 57,272
Other................................................... 64,012 56,454 108,734
---------- ---------- ----------
Total income taxes.................................. $2,687,927 $2,154,051 $1,547,951
========== ========== ==========
</TABLE>
28
<PAGE> 24
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and (liabilities) at December 31, 1996 and
1995, respectively, are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves...................................... $1,544,446 $1,217,432
Foreclosed property, tax basis in excess of financial
reporting amount....................................... 85,471 108,632
Accrued expenses, deductible when paid.................. 506,082 235,102
Other................................................... 102,574 131,001
---------- ----------
Total gross deferred tax assets..................... 2,238,573 1,692,167
Less valuation allowance............................ (63,016) (29,699)
---------- ----------
Net deferred tax assets............................. 2,175,557 1,662,468
---------- ----------
Deferred tax (liabilities):
Bad debt reserve recapture, tax accounting adjustment... (116,652) (234,294)
Financial reporting stock basis in excess of tax
basis.................................................. (178,235) (178,990)
Depreciable basis of fixed assets....................... (141,262) (238,464)
Deductible expenses for tax in excess of financial
reporting.............................................. (71,576) (50,696)
Unrealized gain on securities available for sale........ (53,740) (51,942)
Other................................................... (138,695) (69,748)
---------- ----------
Total gross deferred tax liability.................. (700,160) (824,134)
---------- ----------
Net deferred tax asset included in other assets..... $1,475,397 $ 838,334
========== ==========
</TABLE>
The net change in the total valuation allowance for deferred tax assets for
the year ended December 31, 1996 was an increase of $33,317. A portion of the
change in the net deferred tax asset relates to unrealized gains and losses on
securities available for sale. The related current period deferred tax benefit
of $2,915, which is net of a decrease of $4,713 to the valuation allowance, has
been recorded directly to shareholders' equity. The balance of the change in the
net deferred tax asset results from the current period deferred tax benefit of
$634,148. It is management's contention that realization of the net deferred tax
asset is more likely than not, based upon the Company's history of taxable
income and estimates of future taxable income. The valuation allowance primarily
relates to certain temporary differences for state income tax purposes.
8. STOCK BASED COMPENSATION
In 1990, the Board of Directors of the Company adopted the Carolina First
BancShares, Inc. 1990 Stock Option and Stock Appreciation Rights Plan (the "1990
Plan"), and certain amendments to the 1990 Plan were approved in 1991
(collectively "the Plan"). In January 1991, stock appreciation rights were
granted in accordance with the 1990 Plan. These rights were granted at market
value on the date of the grant and 20% of each grant becomes exercisable on each
anniversary of the date of the grant and expires five years after they become
exercisable. Stock appreciation rights totaling 41,783 have been granted and all
have a measurement price of $9.42. The expense related to these rights is
included in compensation expense and for the years ended December 31, 1996, 1995
and 1994 were $504,000, $290,000 and $140,000, respectively.
Since the inception of the Plan, options to purchase shares of Company
common stock have been granted to key employees of the Company and 43,140 such
options are still available. The Plan provides that options are granted at
market value on the date of the grant and 20% of each grant becomes exercisable
on each anniversary of the date of the grant. All currently outstanding options
have been granted for a ten-year term or until the recipient leaves the
Company's employment. A summary of all stock option activity for 1996 and the
status at December 31, 1996 follows. All share and per share amounts give
retroactive effect to stock dividends declared by the Company.
29
<PAGE> 25
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
Employee Stock Option Plan:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------- -----------------------
AVERAGE AVERAGE
SHARES OPTION PRICE SHARES OPTION PRICE
------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.................................. 102,284 $ 8.81 41,564 $7.99
Additional Options Granted.................................. 4,893 12.64 -- --
Became Exercisable.......................................... -- -- 16,462 9.43
Less:
Exercised................................................. (6,971) 4.65 (7,282) 4.65
Forfeited................................................. (1,407) 9.23 -- --
------- ------ ------- -----
Balance, December 31, 1994.................................. 98,799 9.33 50,744 8.93
Additional Options Granted.................................. 1,313 19.81 -- --
Became Exercisable.......................................... -- -- 16,565 9.55
Less:
Exercised................................................. (3,024) 9.11 (3,024) 9.11
Forfeited................................................. (2,413) 13.63 -- --
------- ------ ------- -----
Balance, December 31, 1995.................................. 94,675 9.38 64,285 9.09
Additional Options Granted.................................. 22,062 25.08 -- --
Became Exercisable.......................................... -- -- 10,685 9.44
Less:
Exercised................................................. (11,072) 8.33 (11,072) 8.33
Forfeited................................................. (2,304) 18.14 -- --
------- ------ ------- -----
Balance, December 31, 1996.................................. 103,361 $12.65 63,898 $9.28
======= ====== ======= =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ----------- ---------------- ----------------
<C> <C> <C> <C>
Less than $10 77,071 4.77 $ 9
11 to 15 3,850 6.98 11
16 to 20 1,313 8.90 20
21 to 32 21,127 9.31 25
- --------------- -------
$1 to 32 103,361
=============== =======
</TABLE>
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which requires either the (i) fair value of employee
stock-based compensation plans be recorded as a component of compensation
expense in the statement of income as of the date of grant of awards related to
such plans, or (ii) impact of such fair value on net income and earnings per
share be disclosed on a pro forma basis in a footnote to financial statements
for awards granted after December 15, 1994, if the accounting for such awards
continues to be in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25"). The Company will
continue such accounting under the provisions of APB 25. The pro forma effect in
1996 to net income per common share was approximately three percent and,
accordingly, additional information is not considered material.
30
<PAGE> 26
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
9. BENEFIT PLANS
The Company sponsors a noncontributory profit-sharing plan which provides
for participation by substantially all employees. Participants may make
voluntary contributions resulting in salary deferrals in accordance with Section
401(k) of the Internal Revenue Code. The plan provides for employee
contributions up to 15% of the participant's annual salary and an employer
contribution of 50% matching of the employee contribution up to 6% of the
participant's salary. Contributions to the plan for the years ended December 31,
1996, 1995 and 1994 were $594,000, $517,000 and $455,620, respectively.
A deferred compensation plan allows the directors of the Company and the
Banks to defer the compensation they earn for attendance at meetings of the
Board or various committees. Each director elects annually to either receive
that year's compensation currently or to defer receipt until his death,
disability or retirement as a director. The amount deferred is credited to the
director's account and invested in various options available through the Lincoln
Bank Trust Department. The obligation of the Company under the plan is fully
funded.
The Company does not provide benefits contemplated by Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post retirement
Benefits Other Than Pensions."
10. REGULATION AND REGULATORY RESTRICTIONS
As a bank holding company, Carolina First BancShares, Inc. is regulated by
the Federal Reserve. The Company also must file periodic reports with, and
comply with securities regulations of, the Securities and Exchange Commission.
Lincoln Bank and Cabarrus Bank are subject to the regulations of the FDIC, the
North Carolina State Banking Commission and the Federal Reserve.
The primary source of funds for the payment of dividends by the Company is
dividends received from the Banks. The Banks, as North Carolina banking
corporations, may pay dividends only out of retained earnings as determined
pursuant to North Carolina General Statutes. As of December 31, 1996, the Banks
had combined retained earnings of approximately $22,022,000 all of which is
available to be paid as dividends without prior regulatory approval provided the
Banks maintain adequate capital.
The Company is required by federal regulations to maintain various ratios of
capital to assets. Failure to meet the 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 must meet specific capital
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company'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 to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Company as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Company must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
31
<PAGE> 27
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
The table below also presents the actual capital amounts and ratios for the
Company, Lincoln Bank, and Cabarrus Bank as computed for regulatory purposes.
<TABLE>
<CAPTION>
MINIMUM
REQUIRED FOR MINIMUM REQUIRED BY
REGULATORY CAPITAL REGULATORS TO BE
ACTUAL ADEQUACY PURPOSES WELL CAPITALIZED
-------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated................................. $38,393,000 12.9% >$23,815,000 >8.0%
- -
Lincoln Bank................................. $28,341,000 12.2% >$18,526,000 >8.0% >$23,158,000 >10.0%
- - - -
Cabarrus Bank................................ $ 8,211,000 11.4% >$ 5,758,000 >8.0% >$ 7,197,000 >10.0%
- - - -
Tier I Capital (to Risk Weighted Assets)
Consolidated................................. $34,662,000 11.6% >$11,908,000 >4.0%
- -
Lincoln Bank................................. $25,442,000 11.0% >$ 9,263,000 >4.0% >$13,895,000 >6.0%
- - - -
Cabarrus Bank................................ $ 7,307,000 10.2% >$ 2,879,000 >4.0% >$ 4,318,000 >6.0%
- - - -
Tier I Capital (to Average Assets)
Consolidated................................. $34,662,000 8.7% >$16,828,000 >4.0%
- -
Lincoln Bank................................. $25,442,000 8.1% >$12,607,000 >4.0% >$15,759,000 >5.0%
- - - -
Cabarrus Bank................................ $ 7,307,000 6.9% >$ 4,227,000 >4.0% >$ 5,284,000 >5.0%
- - - -
AS OF DECEMBER 31, 1995:
Total Capital (to Risk Weighted Assets)
Consolidated................................. $34,155,000 13.9% >$19,717,000 >8.0%
- -
Lincoln Bank................................. $22,677,000 11.8% >$15,343,000 >8.0% >$19,178,000 >10.0%
- - - -
Cabarrus Bank................................ $ 7,964,000 10.6% >$ 6,032,000 >8.0% >$ 7,540,000 >10.0%
- - - -
Tier I Capital (to Risk Weighted Assets)
Consolidated................................. $31,069,000 12.6% >$ 9,858,000 >4.0%
- -
Lincoln Bank................................. $20,281,000 10.6% >$ 7,671,000 >4.0% >$11,507,000 >6.0%
- - - -
Cabarrus Bank................................ $ 6,952,000 9.2% >$ 3,016,000 >4.0% >$ 4,524,000 >6.0%
- - - -
Tier I Capital (to Average Assets)
Consolidated................................. $31,069,000 9.3% >$13,392,000 >4.0%
- -
Lincoln Bank................................. $20,281,000 7.9% >$10,327,000 >4.0% >$12,909,000 >5.0%
- - - -
Cabarrus Bank................................ $ 6,952,000 7.5% >$ 3,710,000 >4.0% >$ 4,637,000 >5.0%
- - - -
</TABLE>
32
<PAGE> 28
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
11. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are various commitments and
contingent liabilities outstanding which are not reflected in the accompanying
consolidated financial statements. The Company's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contract amount of these instruments. Management does not expect any material
loss as a result of these transactions. The following is a summary of
commitments and contingent liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commitments for additional loans............................ $73,677,000 $50,298,000
Standby letters of credit................................... 1,090,000 876,000
=========== ===========
</TABLE>
The Banks make contractual commitments to extend credit, which are legally
binding agreements to lend money to customers at predetermined interest rates
for a specified period of time. The same credit standards used in the lending
process are applied when issuing these commitments. Additional risks arise when
these commitments are drawn upon, such as the demands on the Banks' liquidity if
a significant portion were drawn down at once. This is considered unlikely as
many commitments expire without being used.
The fair value of commitments to extend credit is considered to approximate
carrying value, since the large majority of these would result in loans that
have variable rates and/or relatively short terms to maturity. For other
commitments, generally of a short-term nature, the carrying value is considered
to be a reasonable estimate of fair value.
Minimum operating lease payments due in each of the five years subsequent to
December 31, 1996 are as follows: 1997, $242,000; 1998, $254,000; 1999,
$255,000; 2000, $248,000; 2001, $215,000; and subsequent years, $692,000. Rental
expense for all operating leases for the three years ended December 31, was
$251,000, 1996; $247,000, 1995; $262,000, 1994.
Cabarrus Bank has agreed to acquire approximately $30 million in deposits in
the communities of Mount Pleasant and Kannapolis and Lincoln Bank has agreed to
acquire approximately $10 million in deposits in the community of Lake Lure.
Although definitive agreements have been signed, these acquisitions are subject
to regulatory approval and the anticipated deposit amounts are an approximation
based on deposits at the time the definitive agreement was signed. These
acquisitions are expected to be completed during the second quarter of 1997.
33
<PAGE> 29
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
DECEMBER 31, 1996
Carolina First BancShares, Inc. and Subsidiaries
12. CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CONDENSED BALANCE SHEET
Assets:
Cash on deposit with subsidiary banks................... $ 502,164 $ 1,866,401
Investment in subsidiary banks.......................... 32,967,141 27,331,641
Other investments....................................... 1,015,617 646,092
Other assets............................................ 1,849,808 1,859,038
----------- -----------
Total............................................... $36,334,730 $31,703,172
=========== ===========
Liabilities................................................. $ 1,332,874 $ 580,193
Shareholders' equity........................................ 35,001,856 31,122,979
----------- -----------
Total............................................... $36,334,730 $31,703,172
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CONDENSED RESULTS OF OPERATIONS
Equity in earnings of subsidiary Banks:
Dividends............................................... $ -- $ 154,272 $ 1,929,752
Undistributed........................................... 5,707,517 4,422,452 1,547,559
Other income (expense), net................................. (1,029,218) (446,991) (107,437)
----------- ----------- -----------
Net income.................................................. $ 4,678,299 $ 4,129,733 $ 3,369,874
=========== =========== ===========
CONDENSED CASH FLOW
Cash flows from operating activities:
Net income.............................................. $ 4,678,299 $ 4,129,733 $ 3,369,874
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in undistributed earnings of subsidiary banks.... (5,707,517) (4,422,452) (1,547,559)
Decrease in other assets................................ (12,961) (464,584) (1,386,678)
Increase in liabilities................................. 752,681 369,169 158,024
----------- ----------- -----------
Net cash provided by (used in) operating activities......... (289,498) (388,134) 593,661
----------- ----------- -----------
Cash flows from investing activities:
Purchases of investments................................ (306,000) (271,779) --
----------- ----------- -----------
Net cash used in investing activities....................... (306,000) (271,779) --
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.................. 253,131 3,189,641 89,242
Dividends and fractional shares paid.................... (910,794) (648,257) (580,114)
Other, net.............................................. (111,076) (25,352) (95,898)
----------- ----------- -----------
Net cash provided by (used in) financing activities......... (768,739) 2,516,032 (586,770)
----------- ----------- -----------
Net increase (decrease) in cash............................. (1,364,237) 1,856,119 6,891
Cash at beginning of year................................... 1,866,401 10,282 3,391
----------- ----------- -----------
Cash at end of year......................................... $ 502,164 $ 1,866,401 $ 10,282
=========== =========== ===========
</TABLE>
34
<PAGE> 30
- --------------------------------------------------------------------------------
[Mission Statement CRC]
35
<PAGE> 31
- --------------------------------------------------------------------------------
OFFICERS
Carolina First BancShares, Inc. and Subsidiaries
CAROLINA FIRST BANCSHARES, INC.
D. MARK BOYD, III
Chairman and Chief Executive Officer
JAMES E. BURT, III
President
JAN H. HOLLAR
Vice President, Secretary and Treasurer
JAMES A. ATKINSON, III
Vice President, Auditor
JOY G. KEEVER
Vice President, Human Resources
JAMES H. MAUNEY, II
Vice President, Loan Administration
CABARRUS BANK OF NORTH CAROLINA
RONALD D. SMITH
President and Chief Executive Officer
JAN H. HOLLAR
Senior Vice President
GARY L. BUNN
Vice President
THOMAS M. MORTON, JR.
Vice President
SHAROYN A. BURROUGHS
Assistant Vice President
R. KEITH CHALMERS
Assistant Vice President
DIANE L. TALBERT
Assistant Vice President
MELISSA H. VOGLER
Assistant Vice President and Assistant Secretary
PAUL R. ROWE
Loan Officer
TAMMY D. RORIE
Branch Sales Manager
ROBERT K. LUKACH
Security Officer
LINCOLN BANK OF NORTH CAROLINA
JAMES E. BURT, III
President and Chief Executive Officer
JAMES R. BEAM
Executive Vice President and Assistant Secretary
STEPHEN S. ROBINSON
Executive Vice President
GUY E. CLINE, III
Senior Vice President, Lending and Investments
CARROLL G. HEAVNER
Senior Vice President and Secretary
JAN H. HOLLAR
Senior Vice President and Chief Financial Officer
B. LANE HOLMES
Senior Vice President, Operations
JOSEPH M. ARUNDELL
Vice President, Marketing
GEORGE E. COLLINS, JR.
Vice President, Trust Services
THOMAS C. DUTTON
Vice President
J. LOUIS FLETCHER
Vice President, Business Development
JOY G. KEEVER
Vice President, Human Resources
ROBERT K. LUKACH
Vice President, Security Officer and Cashier
TIMOTHY J. REILLY
Vice President, Charlotte City Executive
PATSY D. BLACK
Assistant Vice President
C. TOMMY DAVIS
Assistant Vice President
RANDALL E. FORD
Assistant Vice President
HAROLD A HOWARD, JR.
Assistant Vice President
GERALD E. HUFFMAN
Assistant Vice President
ELEANOR H. MCINTIRE
Assistant Vice President
DARRELL O. MELTON
Assistant Vice President
BEN D. ROUTH, SR.
Assistant Vice President
BETTY B. SETZER
Assistant Vice President
DOUGLAS E. WILLIAMS
Assistant Vice President
MARTHA O. BENFIELD
Banking Officer
GLENDA W. NOLES
Banking Officer
H.D. REID
Banking Officer
36
<PAGE> 32
- --------------------------------------------------------------------------------
SUBSIDIARIES
Carolina First BancShares, Inc. and Subsidiaries
CAROLINA FIRST FINANCIAL
SERVICES CORPORATION
OFFICERS
WALTER H. JONES, JR.
President
STEPHEN S. ROBINSON
Executive Vice President
JAN H. HOLLAR
Treasurer
MARK W. GUSTAFSON
Secretary
CAROLINA FIRST MORTGAGE CORP.
OFFICERS
JAMES E. BURT, III
President
JANE D. PEELER
Vice President and Manager
JAN H. HOLLAR
Treasurer
CABARRUS BANK
<TABLE>
<S> <C> <C> <C>
LOCATIONS CONCORD
Main Office 71 McCachern Blvd. 782-1193
Copperfield Office 271 Copperfield Blvd. 786-1195
In-Store Branch 545 Hwy 29 North 788-9336
(Super Kmart Center)
KANNAPOLIS
Kannapolis Office 725 South Loop Road 933-1193
</TABLE>
LINCOLN BANK
<TABLE>
<S> <C> <C> <C>
LOCATIONS LINCOLNTON
Main Office 402 East Main Street 732-2222
Boger City Office 2586 East Main Street 732-3333
Lincoln Center Office 479 North Generals Blvd. 732-4040
Drive-In Office 502 East Main Street 732-6080
DENVER
Denver Office Hwy. 16 & Hwy. 150 483-9723
Triangle Office Hwy. 16 & State Road 1387 483-2222
MOORESVILLE
Mooresville Office 329 North Main Street 664-4488
Port Village Office Hwy. 150 & I-77 664-4499
CORNELIUS
Cornelius Office Hwy. 73 & I-77 892-5553
HUNTERSVILLE
Huntersville Office 500 Gilead Road 875-1500
CHARLOTTE
SouthPark Office 4500 Cameron Valley Pky. 365-2880
Sunset Road 5330 Sunset Road 598-2540
TROUTMAN
Troutman Office 205 North Main Street 528-0760
</TABLE>
37
<PAGE> 33
- --------------------------------------------------------------------------------
DIRECTORS
Carolina First BancShares, Inc. and Subsidiaries
CAROLINA FIRST BANCSHARES, INC.
CHAIRMAN
D. MARK BOYD, III
President, Times Oil Corporation
JOHN R. BOGER, JR.
Attorney, Williams, Boger, Grady, Davis & Tuttle, P.A.
JAMES E. BURT, III
President, Carolina First BancShares, Inc.
SAMUEL C. KING, JR.
President, Kings Office Supply, Inc.
HARRY D. RITCHIE
Co-Owner Ritchie Bros. Dairy Farm
L.D. WARLICK, JR.
President, Warlick Funeral Home, Inc.
ESTUS B. WHITE
Retired Clerk, Cabarrus County Superior Court
PHIL W. WIDENHOUSE -- ADVISORY
Retired Executive Vice President, The Concord Telephone Co.
CABARRUS BANK OF NORTH CAROLINA
CHAIRMAN
JOHN R. BOGER, JR.
Attorney, Williams, Boger, Grady, Davis & Tuttle, P.A.
J. THOMPSON BROWN, JR.
President, Brown Utility Co.
JAMES E. BURT, III
President, Carolina First BancShares, Inc.
CYNTHIA M. CHILDRESS
President, Ben Mynatt Pontiac-Buick-GMC Truck, Inc.
JOHN H. MORRISON, JR.
Chairman of the Board and Secretary, E.L. Morrison Lumber Co., Inc.
F.A. RANKIN, III
Vice President, Concord Engineering & Survey, Inc.
RONALD D. SMITH
President, Cabarrus Bank
DR. EDWARD B. TYSON
Superintendent, Kannapolis City Schools
ESTUS B. WHITE
Retired Clerk, Cabarrus County Superior Court
BACHMAN S. BROWN, JR. -- ADVISORY
Attorney, Alexander & Brown
PHIL W. WIDENHOUSE -- ADVISORY
Retired Executive Vice President, The Concord Telephone Co.
LINCOLN BANK OF NORTH CAROLINA
CHAIRMAN
D. MARK BOYD, III
President, Times Oil Corporation
VICE CHAIRMAN
SAMUEL C. KING, JR.
President, Kings Office Supply, Inc.
JAMES R. BEAM
Executive Vice President and Assistant Secretary
JAMES E. BURT, III
President, Lincoln Bank
SARA K. HAIRE
Secretary and Treasurer, Pless Haire Insurance Agency, Inc.
DOUGLAS S. HOWARD
Manager, Denver Equipment
DONALD J. HOWIE
Vice President, Hipp Construction
WALTER H. JONES, JR.
Attorney, Homesley, Jones, Gaines & Homesley
DAVID E. KEEVER
Co-Owner, Lincoln Drugs, Inc.
WILLIAM M. LENTZ, JR.
President, Lincoln Food Systems, Inc.
JAMES A. MUNDY
Retired Principal, Rock Springs School
HARRY D. RITCHIE
Co-Owner, Ritchie Bros. Dairy Farm
STEPHEN S. ROBINSON
Executive Vice President, Lincoln Bank
L.D. WARLICK, JR.
President, Warlick Funeral Home, Inc.
DAVID A. WILSON, DVM
Owner, East Lincoln Animal Hospital
HOLLIS C. HENDERSON -- ADVISORY
Consultant, Vermont American Corp.
JAMES C. MOORE -- ADVISORY
Life Insurance Sales
PETER J. BAUMBERGER, JR. -- EMERITUS
Optometrist
38
<PAGE> 34
LINCOLN BANK ADVISORY BOARDS
CHARLOTTE
CHAIRMAN
TIMOTHY J. REILLY
Vice President & City Executive, Lincoln Bank
KLAUS E. BECKER
Chairman, SouthStar Steel Corp.
ROBEY C. BEST, JR.
President, AmeriSouth Mortgage Co.
D.R. ("DOC") BOYD
General Manager, Jeff Boyd Chrysler-Plymouth-Dodge, Inc.
ALVA W. GUTHRIE
Certified Public Accountant
STAN R. ELROD, JR.
President, Elrod Construction Co.
ERSKIN L. HARKEY, JR.
President, Harkey Corp.
JOSEPH B. HENNINGER, JR.
Partner, Wishart, Norris, Henninger & Pittman P.A.
JOHN POLITES
Chairman, John Polites Realty Co.
EAST LINCOLN
CHAIRMAN
JAMES A. MUNDY
Retired Principal, Rock Springs School
WILLIAM G. CLEMMER
Manager, Cowans Ford Country Club
ANNE CLONINGER
Owner, Cloninger Trophies
WARREN F. HOYLE, DDS
Dentist, Lowesville
DOUGLAS S. HOWARD
Manager, Denver Equipment
GARY MURDOCK
Manager, Duke Power
W. HAROLD REDMON
President, Westport Properties, Inc.
BRENDA B. SCHLIE
Manager, Claremont Wholesale
TONY L. STUTTS
Sr. Engineering Assistant, Duke Power
DAVID A. WILSON, DVM
Owner, East Lincoln Animal Hospital
MOORESVILLE/SOUTH IREDELL
CHAIRMAN
STEPHEN S. ROBINSON
Executive Vice President, Lincoln Bank
ROBERT N. CARRINGTON
Commercial Sales Consultant, Randy Marion Chevrolet, Inc.
DAVID A. ERVIN, PGA
Partner, The Professional Group
FLOYD E. GREENE
Owner, Floyd Greene Realty
SARA K. HAIRE
Secretary and Treasurer, Pless Haire Insurance Agency, Inc.
MIKE HEINEN, DVM
Owner, Lake Norman Animal Hospital
WALTER H. JONES, JR.
Attorney, Homesley, Jones, Gaines & Homesley
VIKI WEST
Attorney, Viki M. West, Attorney at Law
NORTH MECKLENBURG
CHAIRMAN
DONALD F. HOWIE
Vice President, Hipp Construction Co.
THOMAS L. BROTHERTON
Retired, Mecklenburg County Building Standards Dept.
ROBERT J. ("BUB") CASHION
Retired Owner, Cashion's Gulf
RALPH A. COFFEY, DDS
Dentist, Davidson
DEBRA H. HIX, DDS
Dentist, Huntersville
KENNETH E. JACKSON, JR.
Retired, Southern Bell
HAROLD B. LITTLE
Retired President, Davidson Ice & Fuel Co.
WALTON G. NEIL
Owner, Neil Drug Co.
CAROLINA FIRST FINANCIAL SERVICES CORPORATION
CHAIRMAN
WALTER H. JONES, JR.
Attorney, Homesley, Jones, Gaines & Homesley
JAMES E. BURT, III
President, Carolina First BancShares, Inc.
JAN H. HOLLAR
Vice President, Secretary and Treasurer, Carolina First BancShares, Inc.
RONALD D. SMITH
President, Cabarrus Bank
STEPHEN S. ROBINSON
Executive Vice President, Lincoln Bank
CAROLINA FIRST MORTGAGE CORP.
CHAIRMAN
JAMES E. BURT, III
President, Carolina First BancShares, Inc.
JAN H. HOLLAR
Vice President, Secretary and Treasurer, Carolina First BancShares, Inc.
STEPHEN S. ROBINSON
Executive Vice President, Lincoln Bank
RONALD D. SMITH
President, Cabarrus Bank
JANE D. PEELER
Vice President and Manager, Carolina First Mortgage Corp.
39
<PAGE> 35
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION AND STOCK PRICES
Carolina First BancShares, Inc. and Subsidiaries
<TABLE>
<S> <C>
CORPORATE OFFICES ANNUAL MEETING
Carolina First BancShares, Inc. April 15, 1997
402 East Main Street 7:00 p.m. local time
Post Office Box 657 Lincoln Cultural Center
Lincolnton, North Carolina 28092 403 East Main Street
(704) 732-2222 Lincolnton, North Carolina
</TABLE>
STOCK TRANSFER AND DIVIDEND REINVESTMENT PLAN AGENT
Wachovia Bank of North Carolina, N.A. Corporate Trust Department acts as a Stock
Transfer Agent and Registrar and Dividend Reinvestment Agent for Carolina First
BancShares, Inc. common stock. For information regarding address changes,
dividend checks, dividend direct deposit, account consolidation, registration
changes, lost stock certificates, stock holdings and participation in the
dividend reinvestment plan write or call Wachovia at Post Office Box 8218,
Boston, Massachusetts, 00266-8218-2207; 800-633-4236.
REPORT TO SEC AVAILABLE TO SHAREHOLDERS
A copy of Carolina First BancShares, Inc.'s Annual Report on form 10-K for the
year ended December 31, 1995 to the Securities and Exchange Commission may be
obtained without charge by writing to Jan H. Hollar -- Secretary, Carolina First
BancShares, Inc., 402 East Main Street, Post Office Box 657, Lincolnton, N.C.
28093.
<TABLE>
<S> <C>
LEGAL COUNSEL ACCOUNTANTS
Alston & Bird LLP KPMG Peat Marwick LLP
One Atlantic Center Two First Union Center
1201 West Peachtree Street Suite 2800
Atlanta, GA 30309-3424 Charlotte, NC 28282-8207
</TABLE>
Broker-dealers that trade shares of Company common stock:
<TABLE>
<S> <C>
INTERSTATE/JOHNSON LANE CORP. J.C. BRADFORD & CO.
P.O. Box 700 P.O. Box 3857
Newton, NC 28658 Hickory, NC 28603
800-929-0175 800-222-1082
</TABLE>
STOCK PRICES
Carolina First BancShares, Inc.'s common stock trades infrequently in the local
Charlotte, North Carolina over-the-counter market (pink sheets) under the symbol
CAFP. Its stock is listed in The Charlotte Observer under the Interdealer stock
section. The following table sets forth the high and low bid quotations for the
common stock for the indicated periods. Such quotations reflect interdealer
prices without markup, markdown, or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1996............................. $21.60-24.00 $24.00-26.00 $26.00-30.00 $30.00-32.00
1995............................. $15.62-16.38 $16.38-16.67 $16.76-18.29 $18.29-21.60
</TABLE>
As of December 31, 1996 Carolina First BancShares, Inc. had approximately 3,300
shareholders of record.
40
<PAGE> 1
Exhibit 21
Subsidiaries of Carolina First BancShares, Inc. Jurisdiction of
- ----------------------------------------------- ---------------
Incorporation
-------------
Cabarrus Bank of North Carolina North Carolina
Concord, North Carolina
Carolina First Mortgage Corp. North Carolina
Mooresville, North Carolina
Carolina First Financial Services Corp. North Carolina
Mooresville, North Carolina
Lincoln Bank of North Carolina, Inc. North Carolina
Lincolnton, North Carolina
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Carolina First BancShares, Inc.
We consent to the incorporation by reference in the registration statement
(No. 0-17939) on Form S-3 of Carolina First BancShares, Inc. of our report
dated February 7, 1997, relating to the consolidated balance sheets of
Carolina First BancShares, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years in the three-year period
ended December 31, 1996, which report appears in the December 31, 1996, annual
report on Form 10-K of Carolina First BancShares, Inc. Our report contains an
explanatory paragraph relating to the changes in methods of accounting for
certain investments in debt and equity securities and income taxes.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,343,459
<INT-BEARING-DEPOSITS> 426,766
<FED-FUNDS-SOLD> 2,982,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,696,412
<INVESTMENTS-CARRYING> 38,920,273
<INVESTMENTS-MARKET> 39,275,715
<LOANS> 309,112,008
<ALLOWANCE> 4,488,958
<TOTAL-ASSETS> 429,711,291
<DEPOSITS> 385,003,286
<SHORT-TERM> 5,862,026
<LIABILITIES-OTHER> 3,844,123
<LONG-TERM> 0
0
0
<COMMON> 5,132,428
<OTHER-SE> 29,869,428
<TOTAL-LIABILITIES-AND-EQUITY> 429,711,291
<INTEREST-LOAN> 27,388,938
<INTEREST-INVEST> 5,028,428
<INTEREST-OTHER> 259,980
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 14,145,984
<INTEREST-EXPENSE> 293,662
<INTEREST-INCOME-NET> 18,237,700
<LOAN-LOSSES> 1,178,925
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,139,748
<INCOME-PRETAX> 7,366,226
<INCOME-PRE-EXTRAORDINARY> 7,366,226
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,678,299
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.23
<YIELD-ACTUAL> 5.01
<LOANS-NON> 576,191
<LOANS-PAST> 42,759
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,588,489
<CHARGE-OFFS> 369,549
<RECOVERIES> 91,093
<ALLOWANCE-CLOSE> 4,488,958
<ALLOWANCE-DOMESTIC> 4,488,958
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
