SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1998
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or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file Number 0-17939
CAROLINA FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1655882
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
236 East Main Street, Lincolnton, N.C. 28092
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (704) 732-2222
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the $2.50 par value common stock held by
non-affiliates of registrant as of January 31, 1999: $142,292,850 based on the
last sale price on January 31, 1999, using the beneficial ownership 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 20, 1999, 5,438,567 shares of the registrant's $2.50 par value
common stock were issued and outstanding.
<PAGE>
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual Report are forward-looking statements for purposes of
the Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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. Such forward-looking statements
include statements using the words such as "may," "will," "anticipate,"
"should," "would," "believe," "contemplate," "expect," "estimate," "continue,"
"may," "intend" or other similar words and expressions of the future. Our actual
results may differ significantly from the results we discuss in these
forward-looking statements.
These forward-looking statements involve risks and uncertainties and may
not be realized 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, and the
values of loan collateral, securities, and other interest-sensitive assets and
liabilities; 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, regionally,
nationally and internationally, together with such competitors offering banking
products and services by mail, telephone, computer and the Internet; the
possible effects of the Year 2000 problem on the Company, including such
problems at the Company's vendors, counter-parties and customers; 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.
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 (the "BHC Act"). Carolina First was incorporated on
November 8, 1988, for purposes of becoming a bank holding company, and acquired
Lincoln Bank of North Carolina ("Lincoln Bank"), a North Carolina bank, on June
6, 1989. The Company owns all the outstanding common stock of Cabarrus Bank of
North Carolina ("Cabarrus Bank") and Community Bank & Trust Co. ("Community
Bank"), both of which are North Carolina banks. Community Bank was acquired on
December 23, 1998. Lincoln Bank, Cabarrus Bank and Community Bank, (collectively
the "Banks") operate 31 branch offices, and through them the Company provides a
broad range of banking and financial services principally in the greater
Charlotte, North Carolina area, including Lincoln County, southeastern Catawba
County, Iredell County, Cabarrus County and north and west Mecklenburg County.
Community Bank operates in Avery, Buncombe, Jackson, McDowell, Rutherford and
Transylvania Counties, North Carolina in the western part of the state. The
Banks are members of the Federal Deposit Insurance Corporation ("FDIC"), and
Lincoln Bank's and Community Bank's deposits are insured by the Bank Insurance
Fund ("BIF") and Cabarrus Bank's deposits are insured by the Savings Association
Insurance Fund ("SAIF").
Lincoln Bank and Cabarrus Bank jointly 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. During the third quarter of 1997,
the Company became the majority owner of Lincoln Center at Mallard Creek, LLC.
Lincoln Center is a three-story office building occupied in part by Lincoln
Bank. This branch opened in the third quarter of 1998.
The Company owns approximately 17% of the total common stock of First
Gaston Bank of North Carolina, Gastonia, North Carolina ("First Gaston").
Gastonia, which is located just west of Charlotte and south of Lincolnton, is
contiguous to the markets served by Lincoln Bank. First Gaston opened in July
1995 and operates three branches in markets not currently served by the Company.
The Company provides certain operational functions for First Gaston. The Federal
Reserve, in approving this investment under the BHC Act, 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 and Regulation." The Company engages
in no significant operations other than the ownership of its subsidiaries. The
Company maintains its principal executive offices at 236 East Main Street,
Lincolnton, North Carolina 28092, and its telephone number is (704) 732-2222.
<PAGE>
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 trust powers, and at December 31, 1998, Lincoln Bank had trust
assets under management of $31.0 million.
COMPETITION
Commercial banking is highly competitive. The Banks compete with other
financial institutions located in metropolitan Charlotte and elsewhere in
western 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 short-term money market securities. The ability of the
Banks to retain deposits depends on their ability to generally provide a rate of
return, liquidity and risk comparable to that offered by competing investment
opportunities.
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, brokerage firms, finance companies,
and specialty lenders and other local and non-local 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 Banks, 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, or their affiliates, in the Company's service area 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 because of their size
and geographic diversification are better able to absorb risk.
SUPERVISION AND REGULATION
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 the Banks and their respective subsidiaries by
the bank regulatory agencies are 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.
<PAGE>
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 has determined by regulation or order to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Certain acquisitions by bank holding companies are subject to approval by the
Commissioner.
The Company is a legal entity separate and distinct from the Banks and its
other subsidiaries. Various legal limitations restrict the Banks from lending or
otherwise supplying funds to the Company or its non-bank subsidiaries. The
Company and the Banks are subject to Section 23A of the Federal Reserve Act.
Section 23A defines "covered transactions", which include 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
Reigle-Neal Interstate Banking and Branch Efficiency Act of 1994 (the
"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, age of bank charter 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 to either "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.
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. The Company owns approximately 17% of the total common stock of First
Gaston Bank of North Carolina ("First Gaston").
<PAGE>
The Federal Reserve has amended its Regulation Y implementing certain
provisions of The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA"). Among other things, these amendments to Federal Reserve Regulation Y
reduced the notice and application requirements applicable to bank and nonbank
acquisitions and de novo expansion by well-capitalized and well-managed bank
holding companies; expanded the list of nonbanking activities permitted under
Regulation Y; reduced certain limitations on previously permitted activities;
and amended Federal Reserve anti-tying restrictions to allow banks greater
flexibility to package products and services with their affiliates. The Federal
Reserve has advised the Company informally that, as a result of actions by D.
Mark Boyd, III, the Company's former Chairman and Chief Executive Officer, in
connection with his purchases of Community Bank common stock, that the Company
should not expect to receive expedited processing of any expansion applications
submitted to the Federal Reserve.
BANK AND BANK SUBSIDIARY REGULATION GENERALLY The Banks are subject to
supervision, regulation, and examination by the FDIC and the Commissioner which
monitor all areas of the operations of the Banks, including reserves, loans,
mortgages, issuances of securities, payment of dividends, establishment of
branches, capital adequacy, and compliance with laws. 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 and Community 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 Banks 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.
In December, 1996, the FDIC 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 FFIEC 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: (i) management's ability to identify,
measure, monitor, and control market risk; (ii) the institution's size; (iii)
the nature and complexity of its activities and its risk profile; and (iv) 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 exchange 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.
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 their
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 requirements 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 of 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. A less than satisfactory CRA rating will
slow, if not preclude the expansion of banking activities.
<PAGE>
The Banks also are subject to, among other things, 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. Based 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 Development, the Department of Justice (the
"DOJ"), and the federal banking agencies in April 1994 issued an Interagency
Policy Statement on Discrimination in Lending in order to provide guidance to
financial institutions 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 also has increased its
efforts to prosecute what it regards as violations of the ECOA and FHA.
PAYMENT 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 if its surplus is less than 50%
of its paid-in capital stock.
The Company and the Banks are subject to various general regulatory
policies and requirements relating to the payment of dividends, including
requirements to maintain adequate capital above regulatory minimums. The
appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a state non-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 non-member 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 financial depository institutions
and their holding companies, respectively, should generally pay dividends only
out of current operating earnings.
CAPITAL The Federal Reserve and the FDIC have risk-based capital guidelines
for bank holding companies and state non-member banks, respectively. These
guidelines require a minimum ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) of 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 and
certain core deposit intangibles ("Tier 1 capital"). The remainder may consist
of non-qualifying preferred stock, qualifying subordinated, perpetual, and/or
mandatory convertible debt, term subordinated debt and intermediate term
preferred stock and up to 45% of pretax unrealized holding gains on
available-for-sale equity securities with readily determinable market values
that are prudently valued, and a limited amount of any loan loss allowance and
up to 45% of pretax ("Tier 2 capital" and, together with Tier 1 capital, "Total
Capital").
In addition, the Federal Reserve and the FDIC 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
1.0% - 2.0%, 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. Higher capital may be required in individual cases, and depending upon a
bank holding company's risk profile. All bank holding companies and banks are
expected to hold capital commensurate with the level and nature of their risks
including the volume and severity of their problem loans. Lastly, 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. None of the Federal Reserve, the FDIC
or the Commissioner have advised the Company or the Banks 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: (i) "well
capitalized"; (ii) "adequately capitalized"; (iii) "undercapitalized"; (iv)
"significantly undercapitalized"; and (v) "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.
<PAGE>
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 it has a Total Capital ratio of 10% or greater, a Tier 1 capital
ratio of 6% or greater, and is not subject to any written agreement, order,
capital directive, or prompt corrective action directive by a federal bank
regulatory agency to meet and maintain a specific capital level for any capital
measure; (ii) adequately capitalized if it 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, 1998, the consolidated capital ratios of the Company and
the Banks were as follows:
<TABLE>
<CAPTION>
Regulatory Lincoln Cabarrus Community
Minimum Company Bank Bank Bank
-------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Tier 1 capital ratio 4.0% 11.6% 10.6% 9.5% 11.8%
Total capital ratio 8.0% 12.8% 11.8% 10.7% 13.0%
Leverage ratio 3.0-5.0% 8.3% 7.6% 7.0% 6.5%
</TABLE>
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 it 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, requirements 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 management of the Company and the Banks do
not believe that the provisions of FDICIA have had any material impact on the
Company and the Banks or their respective operations.
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
systems, 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 federal
regulatory agencies deem appropriate.
<PAGE>
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Banks, including new reporting requirements,
regulatory standards for real 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 a prohibition on the
acceptance or renewal of brokered deposits by depository institutions 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.
ENFORCEMENT POLICIES AND ACTIONS The Federal Reserve, the FDIC and the
Commissioner monitor compliance with laws and regulations. Violations of laws
and regulations, or other unsafe and unsound practices, may result in these
agencies imposing fines or penalties, cease and desist orders, or taking other
enforcement actions. Under certain circumstances, these agencies may enforce
these remedies directly against officers, directors, employees and others
participating in the affairs of a bank or bank holding company.
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 its other borrowings, and the 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 and Community Bank's deposits are primarily insured
by BIF. Having converted from a thrift charter, Cabarrus Bank's deposits are
insured by SAIF The FDIC assesses deposits under a risk-based premium schedule.
Each financial institution is assigned to one of three capital groups: (i) "well
capitalized"; (ii) "adequately capitalized"; or (iii) "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, therefore,
depends in part upon the risk assessment classification so assigned to the
institution by the FDIC. In the third quarter of 1996, a special one-time SAIF
assessment of $0.657 per $100 of deposits was levied, resulting in a $500,000
charge to the Banks. During the years ended December 31, 1998, and 1997, the
Banks paid no insurance deposit premiums, but paid $133,570 and $124,845 of FICO
assessments in 1998 and 1997, respectively.
The FDIC's Board of Directors has continued the 1998 BIF and SAIF
assessment schedule of zero to 27 basis points per annum for the first
semiannual period of 1999. 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 through
the earlier of December 31, 1999 or the merger of BIF and SAIF, on
BIF-assessable deposits at a rate equal to one-fifth of the FICO assessment rate
applied to SAIF deposits. The FICO assessments are set quarterly and ranged from
1.256 and 6.28 basis points for BIF and SAIF, respectively, in the first quarter
of 1998, to 1.164 and 5.82 basis points in the last quarter of 1998. These
assessment rates are 1.22 basis points for BIF, and 6.10 basis points for SAIF,
for the first quarter of 1999.
<PAGE>
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 undercapitalized deposit insurance fund. It
proposed restoring competitiveness by allowing banking organizations to
participate in a full range of financial services outside of insured commercial
banks. Deposit insurance coverage would be narrowed to promote market
discipline.
The Interstate Banking Act also directed the Secretary of the Treasury to
take a broad look at the strengths and weaknesses of the United States'
financial services system. In June 1997, the Treasury Department proposed
legislation to eliminate what it deemed outmoded barriers to competition among
financial services providers. On November 17, 1997, the United States Department
of the Treasury released its study "American Finance for the 21st Century" which
considered changes in the financial services industry during the next 10 years
and beyond and reviewed the adequacy of existing statutes and legislation.
Other legislative and regulatory proposals regarding changes in banking and
the regulation of banks, thrifts and other financial institutions and bank 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 the possible combination of
the BIF and SAIF, changes in or repeal of the Glass-Steagall Act which separates
commercial banking from 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.
The FDIC is considering possibly adding risk measures in determining deposit
insurance assessments. 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, 1998, the Company and its subsidiaries employed 334
full-time equivalent employees.
ITEM 2. PROPERTIES
The Company's principal executive office is located at 236 East Main
Street, Lincolnton, North Carolina. The Company leases four branch offices of
Cabarrus Bank, five branch offices of Lincoln Bank and two branch offices of
Community Bank; however, the Company owns all other branch locations and the
Company's operation center located at 207 South Poplar Street in Lincolnton,
North Carolina. Lincoln Bank currently leases the principal executive office
building in Lincolnton, North Carolina from D. Mark Boyd, III, the Company's
former Chairman and Chief Executive Officer, and his wife, Diane Boyd. 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 in 1992 and Community Bank's buildings were purchased in 1998 as a result
of the acquisition of Community Bank. For Cabarrus Bank, the Kannapolis branch
building is leased from Atlantic American Properties, Inc. in Kannapolis, and
the Super-K Kmart 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. For Community Bank, the Black Mountain branch building and the Brevard
branch building is leased from NationsBank. At December 31, 1998, the Company
had book values of $2,896,148 for land, $6,776,775 for buildings and
improvements and $3,989,815 for furniture, fixtures and equipment.
ITEM 3. LEGAL PROCEEDINGS
The Company learned on September 23, 1998 that D. Mark Boyd, III, the
Company's former Chairman and Chief Executive Officer and the largest
shareholder of the Company, was the subject of various "true bills"
(indictments) rendered by grand juries in Haywood, Jackson and Swain Counties,
North Carolina in late September 1998. These indictments alleged violations of
the antifraud provisions of the North Carolina Securities Act, which provide
that such violations are felonies, punishable upon conviction by possible jail
sentences and/or monetary fines. Such indictments followed an investigation by
the North Carolina Securities Division into Mr. Boyd's purchases of Community
Bank common stock prior to the public announcement of a nonbinding letter of
intent regarding the Company's possible acquisition of Community Bank. Mr. Boyd
caused certain of the Community Bank shares he purchased to be transferred to
the Company (the "Transferred Shares").
<PAGE>
One lawsuit was filed against Mr. Boyd and the Company in connection with
purchases of Community Bank shares by Mr. Boyd. The Company also placed all the
Transferred Shares in a Settlement Trust with an independent trustee. The
Settlement Trust permitted the nine former Community Bank shareholders that sold
Community Bank shares to Mr. Boyd and which became Transferred Shares, to elect
to rescind their sales, or receive the difference between and the value of
Carolina First common stock issuable in respect of such shares in the merger
with Carolina First, and the cash price received from Mr. Boyd, based upon the
price of such Carolina First common stock as of December 23, 1998, when the
Company closed the merger with Community Bank. The one shareholder suit has been
settled, and all but one of the former Community Bank shareholders whose shares
comprised the Transferred Shares has elected to participate in one of the
options under the Settlement Trust. The Company understands that Mr. Boyd also
established a settlement trust to resolve related claims with respect to other
shares of Community Bank common stock that he purchased and retained in his
name.
The Company incurred costs of approximately $215,000 through year-end 1998
in connection with issues related to Mr. Boyd's purchases of Community Bank
shares. The Company also delivered $6,000 in cash and approximately 13,626
shares of Company Common Stock into the Settlement Trust to address claims
related to the Transferred Shares. It is estimated that the aggregate net cost
to the Company pursuant to the terms of the Settlement Trust to place the
holders of Transferred Shares in the same position as if they had not sold such
shares will be approximately $243,000, based upon the value of Company Common
Stock on December 23, 1998, when the Community Bank merger was completed. Since
year-end 1998, the Company has incurred additional costs related to this issue,
and the total costs to the Company of resolving these issues cannot be
determined at this time. The Company does not believe it has any further
material liability to former holders of Community Bank shares that became
Transferred Shares.
Mr. Boyd's criminal trial(s) have not yet been held, but the Company
believes they are currently scheduled for Spring 1999. The outcome of such
trials, or the possibility of a pretrial diversion or settlement, cannot be
predicted.
The matters related to Mr. Boyd's purchases of Community Bank common stock
were investigated by the North Carolina Banking Commissioner, the Federal
Reserve staff and the FDIC, in connection with their consideration and approval
of the Company's applications to acquire Community Bank. Mr. Boyd has entered
into written agreements with the FDIC, suspending his services as an officer and
director of Carolina First and its subsidiaries, as well as First Gaston, and
that prohibit his participation in the affairs of the Company and its
subsidiaries, and agreed to have the Board of Directors of Carolina First vote
all shares of Carolina First common stock beneficially owned by him pro-rata to
the votes of all shareholders, generally. In addition, Mr. Boyd resigned as a
director of Carolina First and its subsidiaries, as well as First Gaston, on
November 27, 1998. Mr. Boyd cannot be an officer, director or employee of the
Company or any of its subsidiaries at any time without the prior approval of the
Federal Reserve. Similar restrictions have been imposed by the FDIC and preclude
Mr. Boyd's participation in the affairs of the Banks and First Gaston, for the
period specified in Section 8(g) of the Federal Deposit Insurance Act.
The Federal Reserve has advised the Company that as a result of Mr. Boyd's
transactions, it should not expect to receive expedited processing of any
expansion applications submitted under the BHC Act. The Company's compliance
with the conditions and commitments related to Mr. Boyd that were given in
connection with the acquisition of Community Bank will be reviewed as part of
the Federal Reserve's examinations of the Company. The Company and its
subsidiaries also may be subject to closer regulatory scrutiny as a result of
Mr. Boyd's transactions in Community Bank shares. See "Supervision and
Regulation."
In January 1999, the Company was advised by the United States Securities
and Exchange Commission ("SEC") that it had begun an informal inquiry that the
Company believes relates to Mr. Boyd's purchases of Community Bank shares. The
Company has been cooperating with the SEC, and five officers of the Company and
its subsidiaries have either provided voluntary testimony to, or have been
interviewed by, the SEC. The Company has insufficient information to evaluate
the scope of the SEC's informal inquiry, and the timing and outcome of this
inquiry cannot be predicted.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matter was submitted to a vote of the shareholders of the Company,
through the solicitation of proxies, or otherwise, during the fourth quarter of
the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted in the "pink sheets" (the "Pink Sheets") under the symbol "CAFP". The
following table set forth the high and low bid quotations for shares of the
Company's common stock as reported in The Charlotte Observer and the cash
dividends declared per share for the periods indicated. Such quotations reflect
inter-dealer prices without markup, markdown or commission and may not
necessarily represent actual transactions. The prices and dividends have been
adjusted to reflect the 5-for-4 stock split paid on August 23, 1996, and the
2-for-1 stock split paid on August 22, 1997.
The Company's application to have its common stock approved for quotation
on the Nasdaq National Market is pending. However, there can be no assurance
such application will be approved or that any active trading market will develop
for the Company's common stock or, if developed, will be maintained.
<TABLE>
<CAPTION>
Cash Dividends
Quarter Ended High Low per Share
- ------------------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
March 31, 1998 $31.00 $28.00 $.08
June 30, 1998 $34.00 $31.00 $.08
September 30, 1998 $34.00 $34.00 $.09
December 31, 1998 $34.00 $25.00 $.09
March 31, 1997 $17.00 $16.00 $.06
June 30, 1997 $19.25 $17.00 $.06
September 30, 1997 $22.00 $19.25 $.08
December 31, 1997 $28.00 $22.00 $.08
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's consolidated financial statements and the accompanying notes
presented elsewhere herein. Prior year information has been restated to reflect
the 1998 merger with Community Bank. Cash dividends have not been restated for
the merger.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings
Interest income $52,051,833 $45,236,993 $39,128,283 $32,820,087 $26,982,197
Interest expense 22,070,734 19,572,746 17,009,779 14,522,348 10,992,568
Net interest income 29,981,099 25,664,247 22,118,504 18,297,739 15,989,629
Provision for loan losses 1,365,000 997,333 1,178,925 710,200 667,303
Operating earnings* 8,494,510 6,720,785 5,220,774 4,393,563 3,913,148
Net income 6,708,929 6,720,785 5,220,774 4,393,563 3,913,148
Per Share
Operating earnings per share - basic* $1.58 $1.32 $1.03 $0.92 $0.85
Operating earnings per share - diluted* 1.54 1.30 1.03 0.92 0.85
Net income per share - basic 1.25 1.32 1.03 0.92 0.85
Net income per share - diluted 1.22 1.30 1.03 0.92 0.85
Cash dividends per share 0.34 0.28 0.21 0.18 0.17
Shareholders' equity (book value) 11.48 10.55 8.76 7.94 6.54
Balance Sheet Data at Year End
Total assets $731,626,244 $618,076,746 $520,227,733 $459,157,713 $368,486,681
Loans 476,109,833 404,025,180 361,888,469 299,223,658 244,892,345
Allowance for possible loan losses 6,723,516 5,837,328 5,313,424 4,406,705 3,662,523
Securities 187,690,188 159,387,578 110,250,169 113,264,241 91,366,338
Deposits 652,602,570 545,050,400 463,971,919 413,611,684 333,500,123
Shareholders' equity 61,977,731 56,210,800 44,464,067 40,237,599 32,281,001
Ratios
Return on average assets:
Operating earnings* 1.27% 1.18% 1.07% 1.08% 1.09%
Net income 1.00% 1.18% 1.07% 1.08% 1.09%
Return on average equity :
Operating earnings* 14.63% 13.98% 12.56% 12.37% 12.52%
Net income 11.55% 13.98% 12.56% 12.37% 12.52%
Average equity to average assets 8.67% 8.47% 8.49% 8.72% 8.70%
Allowance for possible loan losses to
loans, net of unearned income 1.41% 1.44% 1.47% 1.47% 1.50%
Dividend payout:
Operating earnings* 21.52% 21.21% 20.39% 19.57% 20.00%
Net income 27.20% 21.21% 20.39% 19.57% 20.00%
</TABLE>
*Operating earnings in 1998 reflects earnings prior to merger-related
and restructuring charges associated with the December 23, 1998
acquisition of Community Bank & Trust Co. of $2.1 million ($1.8 million
after tax). All per share amounts, shown herein, for all years
presented reflect the 5% stock dividends paid on November 29, 1994 and
December 22, 1995, the 5-for-4 stock split effected on August 23, 1996
and the 2-for-1 stock split effected on August 22, 1997.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 and are discussed as a
single business segment. The Company consummated one merger in 1998, which has
been accounted for as a pooling-of-interest. In accordance with the accounting
for pooling-of-interest, the financial statements of the Company have been
restated to reflect the respective merger as if it had been effective as of the
earliest period presented.
GENERAL
The Company owns all of the outstanding stock of three commercial banks,
Lincoln Bank of North Carolina ("Lincoln Bank"), Cabarrus Bank of North Carolina
("Cabarrus Bank") and Community Bank & Trust Co. ("Community Bank")
(collectively, the "Banks"). The Banks are North Carolina-chartered commercial
banks that are members of the FDIC. Cabarrus Bank is also a member of the
Federal Home Loan Bank of 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 18
offices located in 12 communities in areas primarily to the north and west of
Charlotte, North Carolina with three offices in southeast Charlotte. Lincoln
Bank had assets of $453 million at December 31, 1998, after opening a branch in
Weddington and another in Matthews. The Mallard Creek branch in northwest
Charlotte was opened during the third quarter of 1998. During the fourth quarter
of 1998, the Plaza Drive branch in Mooresville was acquired with $9.0 million in
deposits.
Cabarrus Bank was organized in 1889 as Cabarrus Savings Bank. In January
1992, the Company acquired Cabarrus Savings, and in October 1992, Cabarrus
Savings was converted from a state savings bank to a commercial bank. Cabarrus
Bank operates six full service branches in Cabarrus County. Cabarrus Bank had
assets of $162 million at December 31, 1998.
Community Bank was organized in 1987 and acquired by the Company in
December 1998. Community Bank operates seven branches in Marion, Rutherfordton,
Forest City, Sylva, Banner Elk, Black Mountain and Brevard, North Carolina.
Community Bank had assets of $110 million at December 31, 1998.
The Company also owns approximately 17% of the total common stock of First
Gaston Bank of North Carolina, Gastonia, North Carolina ("First Gaston"). First
Gaston opened in July 1995 and operates three branches in markets contiguous to
Lincoln Bank's markets. (Certain operational functions are provided for First
Gaston by Carolina First.) The Federal Reserve, 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 its portion of income or losses are
reflected in current period earnings. During 1998, the Company recognized
income, net of applicable income taxes, of $59,156. See "Supervision and
Regulation".
The Company continues to actively consider possible acquisitions, including
purchases of branches and deposits. In 1997 the Company purchased three branches
and related deposits, in 1998 purchased one branch and related deposits, and
acquired Community Bank & Trust through a tax-free exchange of stock whereby
each outstanding share of Community Bank was exchanged for .72716 of a share of
the Company's common stock. The transaction was accounted for as a
pooling-of-interest method of accounting.
<PAGE>
RESULTS OF OPERATIONS
In 1998 operating earnings, or earnings before merger and restructuring
charges were $8.5 million or $1.54 per share-diluted in 1998, a 26% increase
over 1997. Earnings after merger and restructuring charges, were $6.7 million,
or $1.22 per share-diluted in 1998, an .18% decrease from 1997. Earnings were
$6.7 million, or $1.30 per share-diluted in 1997, a 29% increase over 1996. The
Company's strategy of strong growth in consumer and small commercial customers
has been the basis for these results. The economically vibrant locations and
sound loan philosophy has rewarded the Company with solid growth and earnings.
The growth in current markets has been achieved by growth in existing branches,
de novo branches and acquisitions of deposits from competitors as they divest
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 three banks have assembled. The growth within the counties served by the
Company's three 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 was 4.89% in
1998, down from 5.00% in 1997 and 5.02% in 1996. Interest income, which is
substantially comprised of interest received from loans and to a lesser degree
the interest earned on the Company's security portfolio decreased from 8.78% in
1997 to 8.46% in 1998. Interest expense, which is primarily the amount of
interest paid to depositors, has decreased to 4.22% in 1998 from 4.31% in 1997.
Interest rates declined generally in 1998, which affects loans almost
immediately causing a declining net interest margin. With the passage of time
interest expense will decrease and the net interest margin should strengthen,
subject to competitive pressures. This decrease came primarily as a result of
the securities portfolio earning less in 1998 than in 1997. The Company's net
interest income is expected to grow as a result of increases in loan volume
anticipated from the new and expanding markets. The rate earned on assets and
the rate paid on liabilities is expected to continue to be influenced by
competition for solid customers as well as economic conditions and governmental
fiscal and monetary policies.
The Company's allowance for loan losses is analyzed monthly. This
judgmental analysis is based upon a 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 current economic conditions and other factors which affect
the allowance. The monthly provision for loan losses fluctuates based on the
results of this analysis.
Noninterest income has continued to grow as reflected in the 19.0% increase
from 1997 to 1998 and the 20.1% increase from 1996 to 1997. 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. Insurance
commissions relate to the fees generated by Financial Services from the sale of
annuity products and mutual funds, which totaled $603,025 in 1998 compared to
$725,474 in 1997 and $606,848 in 1996. This decrease is due to the restructuring
of Financial Services and the transition to outsourcing the sales department to
a new third party vendor. Although sales of nondeposit investment products are
growing generally, recently proposed tax legislation, if enacted, could
adversely affect annuity sales. Other service fees and commissions relate to the
Company's growth in the trust and credit/debit card divisions as well as fees
for non-customers using the Banks' automated teller machines. Included in 1998's
other income are fees of $161,895 generated from services provided to First
Gaston. These services include account operations, item processing, bookkeeping
and internal auditing that are terminable by either party.
Operating expenses decreased as a percentage of average assets in 1996,
1997 and 1998, but total operating expenses increased in general because of the
additional growth experienced from 1997 to 1998. Specifically, four new branch
locations were opened during 1997 and another four locations were opened in
1998. Management will continue to be challenged to maintain operating expenses
at a level adequate to support growth while maintaining favorable operating
efficiency ratios. One method of improving operating efficiencies is through the
use of technology. Expenses associated with technology are included in equipment
expense and represent a capital outlay of $476,738 and $740,923 in 1997 and
1998, respectively.
The Company's operating efficiency ratio has continued to improve, falling
from 71% in 1993 to 68% in 1998. Absent unusual expenses, management seeks to
further reduce the operating efficiency ratio, however unusual expenses will
effect this ratio. Management believes this ratio is adversely affected in the
short term by growth into new market areas and acquisitions and related
transition costs. However, as these markets mature the operating efficiency
ratio should continue to improve.
<PAGE>
YEAR 2000 ISSUE
The Company is aware of and is making every effort to address the
potentially severe implications of the Year 2000. The "Year 2000 Issue" is a
general term used to describe problems that may arise as a result of improper
processing of dates and date-sensitive calculations as the Year 2000 approaches.
The Year 2000 Issue is due to the fact that many of the world's existing
computer programs use only two digits to identify the year in a date field. When
these programs were developed there was a lack of consideration of the impact of
the upcoming century date change. These programs could experience malfunctions
when the last two digits of the year change to "00" and interpret it as 1900
rather than 2000. This misinterpretation could result in disruption to normal
business operations. Due to these possible ramifications, the Company is taking
the Year 2000 Issue very seriously.
The Company's Year 2000 Preparedness Team is comprised of a representative
from all the major areas of the Company. The Company's Board of Directors has
approved a plan submitted by the Year 2000 Preparedness Team. The plan was
developed in accordance with the guidelines set by the Federal Financial
Institutions Examination Council ("FFIEC").
The first phase of the plan required the Company to assess or inventory all
known processes that could be impacted by the Year 2000 Issue and their vendors,
if applicable. The inventory included not only typical computer processes, but
all systems and equipment that could be impacted by embedded micro-chip
malfunctions. These include, but are not limited to, the Company's alarm
systems, telephone systems, elevators, and ATM machines. This assessment phase
is complete, and is being updated as needed.
The second phase of the plan required the Company to contact all third
party vendors and service providers. Documentation regarding their Year 2000
efforts was required. This is significant for the Company due to its extreme
dependence on external sources. This is an ongoing phase to track the vendors'
and service providers' continuing efforts.
Additionally, the Company's plan deals with the assessment of its
significant borrowers and depositors and their Year 2000 readiness. Through
letters, questionnaires, and personal contacts, the Company is in the process of
assessing the Year 2000 risk associated with these customers, but is behind
where the FFIEC Interagency Statements regarding Year 2000 state it should be.
The Year 2000 Issue is being addressed as an addendum to the Company's loan
policy. New loans will be subject to Year 2000 assessment as part of the
approval process.
Another important phase of the plan is the comprehensive testing of all
known processes. The testing of hardware and all mission-critical applications
has been completed. All upgrades to software and other processes will be
complete by March 31, 1999. All upgrades to software and test scripts have been
received from the vendors and service providers. If any problems arise during
testing, the Company will request a fix from the providers.
The Company believes that the potential effects of the Year 2000 Issue on
internal operations can and will be addressed prior to the Year 2000. In the
event that required modifications or conversions are not completed on a timely
basis prior to the Year 2000, normal business operations could be disrupted.
Even after tests have been completed and results are satisfactory, the Company
must consider the fact that systems could still fail when the actual date
arrives. Therefore, the Company is in the process of preparing a Business
Resumption Contingency Plan that addresses all areas of operations, such as
power, telecommunications, etc. and how it will resume business if any or all
areas experience difficulties, until the Year 2000 problems are fixed.
The costs associated with the Year 2000 project and the date the Company
plans to complete its Year 2000 compliance are based on management estimates.
Management currently believes the Company has limited exposure and expects the
cost of addressing all Year 2000 issues to be less than $75,000 in 1999. Such
expenses were $28,202 in 1998.
<PAGE>
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.
<TABLE>
<CAPTION>
1998 1997 1996
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ------- ------- ------- ------- ------- -------- -------
(Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits
in other banks............. $714 $43 6.02% $574 $56 9.76% $457 $46 10.07%
Taxable securities............ 162,674 9,555 5.87% 121,499 7,335 6.04% 98,313 6,005 6.11%
Non-taxable securities........ 5,569 500 8.98% 6,972 722 10.36% 9,712 891 9.17%
Federal funds sold............ 24,772 1,276 5.15% 15,117 818 5.41% 9,711 498 5.13%
Loans......................... 423,246 40,848 9.65% 373,910 36,552 9.78% 328,517 31,990 9.74%
------- ------- ----- -------- ------- ----- -------- ------- -----
Interest earning assets 616,975 52,222 8.46% 518,072 45,483 8.78% 446,710 39,430 8.83%
------- ----- ------ ----- ------- -----
Other assets................. 53,004 49,461 42,937
-------- -------- ------
Total assets................. $669,979 $567,533 $489,647
======== ========= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing deposits
Demand....................... $145,141 $3,341 2.30% $125,583 $3,028 2.41% $106,967 $2,435 2.28%
Savings...................... 61,516 1,426 2.32% 55,459 1,425 2.57% 51,848 1,318 2.54%
Time......................... 306,807 16,805 5.48% 266,301 14,769 5.55% 230,616 12,931 5.61%
Notes payable and other
Interest bearing liabilities. 9,084 499 5.49% 7,221 351 4.86% 6,835 326 4.77%
------ ---- ----- ------- ------- ----- ------- ------- -----
Interest bearing
Liabilities.................. 522,548 22,071 4.22% 454,564 19,573 4.31% 396,266 17,010 4.29%
------ ----- ------- ----- ------- -----
Other
liabilities.................. 89,362 64,900 51,821
Shareholders' equity......... 58,069 48,069 41,560
------- ------- ------
Total liabilities and
Shareholders' equity......... $669,979 $567,533 $489,647
======== ======== ========
Interest rate spread......... 4.24% 4.47% 4.54%
===== ===== =====
Net interest earned and
net yield on earning
assets (Margin)........... $30,151 4.89% $25,910 5.00% $22,420 5.02%
======= ===== ======== ===== ======= =====
</TABLE>
<PAGE>
The following table presents the dollar amount of changes in interest
income and interest expense on a taxable-equivalent basis. 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.
<TABLE>
<CAPTION>
1998 1997 1996
Income/ Income/ Income/
Expense Volume Rate Expense Volume Rate Expense
------- ------ ---- -------- ------ ---- -------
(Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits in other banks.. $43 $8 ($21) $56 $11 ($1) $46
Taxable investment securities............. 9,555 2,419 (199) 7,335 1,400 (70) 6,005
Non-taxable investment securities......... 500 (126) (96) 722 (284) 115 891
Federal funds sold and securities
purchased with agreements to resell...... 1,276 497 (39) 818 293 27 498
Loans..................................... 40,848 4,761 (465) 36,552 4,437 125 31,990
------ ----- ----- ------ ----- ----- ------
Total interest income................ 52,222 7,559 (820) 45,483 5,857 196 39,430
------ ----- ----- ------ ----- ----- ------
Interest bearing liabilities:
Interest bearing demand deposits.......... 3,341 450 (137) 3,028 449 144 2,435
Savings deposits.......................... 1,426 140 (139) 1,425 95 12 1,318
Time deposits............................. 16,805 2,219 (183) 14,769 1,979 (141) 12,931
Notes payable and other interest
bearing liabilities....................... 499 102 46 351 19 6 326
------ ----- ----- ------ ------ ----- ------
Total interest expense................ 22,071 2,911 (413) 19,573 2,542 21 17,010
------ ----- ----- ------ ------ ----- ------
Net interest income................... $30,151 $4,648 ($407) $25,910 $3,315 $175 $22,420
======== ======= ====== ======== ======= ===== =======
</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, 1998, the cumulative
one-year gap for the consolidated Company was a positive or asset sensitive
$17.2 million, or 2.35% of total assets. At December 31, 1998, the cumulative
five-year gap was a negative $31.9 million, or 4.36% of total assets. A negative
gap means that liabilities would reprice faster than assets if interest rates
changed. Accordingly, an increase in rates would adversely affect the Company's
earnings. The Company's one-year gap is considered immaterial and pretax net
income would be virtually unchanged with a one percent change in interest rates.
The Company's five year cumulative gap would result in a change of $424,000 with
a one percent change in interest rates. As interest rates declined during 1998,
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.
The following table reflects the Company's rate sensitive assets and
liabilities by maturity as of December 31, 1998. 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
$61.8 million maturing within one year, with an additional $47.8 million
maturing within five years, and $80.5 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.
<PAGE>
<TABLE>
<CAPTION>
Prime Within One 1-5 Over 5 Non
Loans Year Years Years Market Total
----- ---------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities held to maturity:
U.S. Treasury.......................... $-- $4,015 $1,995 $-- $-- $6,010
U.S. government agencies............... -- 1,756 1,279 -- -- 3,035
States and political subdivisions...... -- 20 1,139 6,996 -- 8,155
Mortgage-backed securities............. -- 387 3,280 12,439 -- 16,106
--------- --------- -------- -------- -------- --------
Total securities held to maturity.... -- 6,178 7,693 19,435 -- 33,306
Securities available for sale:
U.S. Treasury.......................... -- 30,438 12,776 -- -- 43,214
U.S. government agencies............... -- 55,769 45,945 7,399 -- 109,113
Mortgage-backed securities............. -- -- -- 767 -- 767
Other (1).............................. -- -- -- -- 1,290 1,290
--------- --------- -------- -------- -------- --------
Total securities available for sale.. -- 86,207 58,721 8,166 1,290 154,384
Federal funds sold........................ -- 13,221 -- -- -- 13,221
Loans:
Commercial and financial............... 29,113 10,781 22,475 5,664 -- 68,033
Real estate:
Construction.......................... 33,067 7,886 6,319 7,169 -- 54,441
Mortgage (2).......................... 124,175 12,726 71,163 91,332 -- 299,396
Consumer (3)........................... 3,818 11,832 36,211 2,239 140 54,240
--------- --------- -------- -------- -------- --------
Total loans.......................... 190,173 43,225 136,168 106,404 140 476,110
Other (4)................................. -- -- -- -- 777 777
--------- --------- -------- -------- -------- --------
Total earning assets................. 190,173 148,831 202,582 134,005 2,207 677,798
Noninterest-earning assets................ -- -- -- -- 53,828 53,828
========= ========= ======== ======== ======== ========
Total assets......................... $190,173 $148,831 $202,582 $134,005 $56,035 $731,626
========= ========= ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Deposits:
Interest-bearing checking............. $-- $7,631 $30,523 $-- $-- $38,154
Savings............................... -- 12,767 51,067 -- -- 63,834
Market deposit accounts............... -- 25,795 103,182 -- -- 128,977
Time, $100,000 and over............... -- 72,781 15,067 100 -- 87,948
Other time (5)........................ -- 192,277 51,724 22 -- 244,023
Total interest-bearing deposits........... -- 311,251 251,563 122 -- 562,936
Borrowed funds........................ -- 10,400 -- -- -- 10,400
Other liabilities......................... -- 149 100 88 -- 337
--------- --------- -------- -------- -------- --------
Total interest-bearing liabilities.... -- 321,800 251,663 210 -- 573,673
Noninterest-bearing liabilities....... -- -- -- -- $95,975 95,975
Shareholders' equity.................. -- -- -- -- 61,978 61,978
--------- --------- -------- -------- -------- --------
Total liabilities and
shareholders' equity...................... $-- $321,800 $251,663 $210 $157,953 $731,626
--------- --------- -------- -------- -------- --------
Gap $190,173 ($172,969) ($49,081) $133,795 ($101,918) --
========= ========= ======== ======== ======== ========
Cumulative Gap $190,173 $17,204 ($31,877) $101,918 -- --
========= ========= ======== ======== ======== ========
Adjustments:
Exclude noninterest-earning assets,
noninterest-bearing liabilities and
Shareholders' equity................. -- -- -- -- 78,362 --
--------- --------- -------- -------- -------- --------
Adjusted cumulative gap.............. $190,173 $17,204 ($31,877) $101,918 $78,362 --
========= ========= ======== ======== ======== ========
</TABLE>
- -------------------------
(1) The nonmarket column consists of Federal Home Loan Bank stock, mutual funds,
and Peoples Bank stock. (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 $41,164 maturing within three
months and $46,554 maturing after three months but within six months.
<PAGE>
LIQUIDITY
Liquidity refers to the Company's ability to meet the needs of daily
operations. The Company relies primarily on dividends and management fees 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 withdrawal needs of depositors, and to
fund loans to borrowers and 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 federal funds lines of credit of $33.4 million at year end under which they
can borrow funds to meet short-term liquidity needs. Lines available for Lincoln
Bank are: through Wachovia Bank, $2 million, The Banker's Bank, Atlanta Georgia,
$5 million and NationsBank, $10 million. Cabarrus Bank has unsecured lines
available through the FHLB of $8.5 million and through NationsBank of $5
million. Community Bank has unsecured lines available through Wachovia of $1.5
million and through NationsBank of $1.4 million. These sources have been and are
presently considered adequate to provide appropriate liquidity for the Banks.
Net cash provided from operations results primarily from net income,
adjusted for the following noncash accounting items: the provision for possible
loan losses, depreciation and amortization, and deferred income taxes or
benefits. These items amounted to $3.0 million in 1998 and $2.4 million in 1997.
This cash was available during 1998 to increase earning assets and to pay
dividends. As of December 31, 1998, the Banks had combined retained earnings of
approximately $35,461,000 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 18.3%, 18.8% and 13.3% during
1998, 1997 and 1996, respectively. Asset growth is directly related to deposit
growth, both internally and through acquisitions, 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, and the 1998 growth
reflects the acquisition of Community Bank and its $110 million of assets.
During 1998 and 1997, the Company purchased approximately $9.0 and $30.0,
million, respectively, of deposit accounts pursuant to branch acquisitions.
During 1996, Cabarrus Bank purchased approximately $3.5 million of deposit
accounts and consolidated them with its Copperfield branch. This acquired
growth, as well as the strong growth expected of the Company's existing markets
is expected to produce continued strong growth trends for the Company. Deposit
growth will allow the Company to continue to take advantage of the vibrant local
economy and quality loan demand experienced over the past several years.
The Company's 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 has provided attractive 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 reflect a relatively flat yield curve, customers have
continued to select shorter terms for their deposits and in many cases chose
transaction deposit accounts, including negotiable order of withdrawal ("NOW")
and money market deposit ("MMDA") accounts without a stated maturity. This shift
from longer-term deposits allows the depositor to react more quickly to rising
rates. Conversely, the Company should be able to restore the traditional
interest spread as short-term deposits reprice downward. Fluctuating interest
rates and competitive pressure enforce the need for effective asset liability
management.
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 if interest rates
begin to rise or if quality loan demand accelerates. United States government
and government agency securities continue to represent the majority of both
securities held to maturity and securities available for sale. During 1998,
securities available for sale increased as a percentage of total assets, due to
in part to a shift from the held to maturity category, but more significantly in
1997 from the reinvestment of cash received from branch acquisitions.
<PAGE>
ASSET QUALITY
Management considers the Banks' asset quality to be of primary importance.
The allowance for possible loan losses represents management's estimate of an
amount adequate to absorb estimated probable losses inherent in the loan
portfolio. The allowance is comprised of both allocated and general reserves.
The allocation of the allowance is based on management's grading of the
loan portfolio and the assignment of risk factors to compute the respective
reserves. All commercial loans of $25,000 and greater are risk rated at
inception, at renewal, and at any point at which management becomes aware of
information that may affect the risk rating (e.g. deterioration in financial
condition, payment delinquency, loss of collateral value). To accomplish this,
an eleven-grade risk rating system, ranging from superior to loss is utilized.
The risk grades assigned are determined based on several elements, including
current and historical financial strength and cash flow of the borrower,
collateral value, terms of financing, and compliance with loan policy.
Additionally, on a semi-annual basis, a historical loss analysis is preformed on
the loan portfolio, utilizing three running years of historical loss experience.
This historical loss information is then utilized to assign reserve factors to
each major segment of the loan portfolio.
For the general reserve, management determines the appropriate level of
general reserve to absorb estimated probable losses inherent in the loan
portfolio. Management considers the Banks' historical loan losses, past due and
non-performing loans, current economic conditions, underlying collateral values
securing loans and other factors which affect the allowance. 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.
The general reserve has increased over the past year. The trend of loans
made over the past several years has been toward larger commercial loans and as
a result, the loan portfolio 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. In addition, nonaccrual loans have increased over the
prior year. This also supports the increased level of general reserve.
<PAGE>
The following table depicts the allocation of the allowance for loan losses
at December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Thousands)
Amount Amount Amount Amount Amount
of of of of of
Allowance Loan Allowance Loan Allowance Loan Allowance Loan Allowance Loan
For Type For Type For Type For Type For Type
Possible to Possible to Possible to Possible to Possible to
Loan Total Loan Total Loan Total Loan Total Loan Total
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
financial ........... $617 14% $182 12% $269 12% $347 10% $302 10%
Real Estate:
Residential
construction....... 205 11 12 8 157 8 44 5 48 5
Commercial
construction ...... -- -- -- -- -- -- -- -- -- --
Residential
mortgage........... 413 35 482 33 511 46 428 40 504 48
Commercial
mortgage........... 347 29 501 34 237 21 338 31 237 23
Consumer ............ 986 11 949 13 353 13 356 14 291 14
General ............. 4,156 -- 3,711 -- 3,786 -- 2,894 -- 2,281 --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total allowance for
possible loan
losses ............ $6,724 100% $5,837 100% $5,313 100% $4,407 100% $3,663 100%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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 judgment about information available at the time of
examination.
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 $77,817 was reported on these loans during 1998 and an
additional amount of $50,652 would have been earned if these loans had been
performing. At December 31, 1998 and 1997, the recorded investment in loans that
are considered to be impaired was $1,432,000 and $872,000, respectively, (all of
which $1,432,000 and $720,000 were on a nonaccrual basis at December 31, 1998
and 1997, respectively). Included in this amount is $854,000 and $305,000 in
1998 and 1997, respectively, of impaired loans for which the related allowance
for credit losses is $346,000 and $82,000 in 1998 and 1997, respectively. No
amount of loans that have been classified by regulatory examiners as loss,
substandard, doubtful or 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 current allowance for loan losses is sufficient to absorb probable
losses inherent in the portfolio. No assurance can be given that adverse
economic conditions will not adversely affect borrowers and result in increased
losses.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.................... $1,432 $720 $690 $812 $693
Loans 90 days or more past due and
still accruing interest............. 111 152 51 106 29
------------ ------------- ------------ ------------ ------------
Total non-performing loans.......... 1,543 872 741 918 722
Other real estate................... 326 514 144 686 1,021
------------ ------------- ------------ ------------ ------------
Total non-performing assets......... $1,869 $1,386 $885 $1,604 $1,743
============ ============= ============ ============ ============
</TABLE>
Net charge-offs as a percentage of average loans outstanding decreased
slightly from .13% in 1997 to .11% in 1998. This ratio continues to reflect the
moderate level of losses experienced by the Company.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................ $5,837 $5,313 $4,407 $3,662 $3,072
Charge-offs:
Commercial, financial and agricultural.. (119) (29) (46) (101) (12)
Real estate:
Construction................................ -- -- -- -- --
Mortgage.................................... (72) (93) (24) (77) (24)
Consumer.................................... (489) (516) (350) (229) (150)
------------- ------------- ------------- ------------- -----------
Total charge-offs........................... (680) (638) (420) (407) (186)
Recoveries:
Commercial, financial and agricultural.. 20 41 28 14 38
Real estate:
Construction................................ -- -- -- -- --
Mortgage.................................... 51 27 48 87 12
Consumer.................................... 131 97 71 95 60
------------- ------------- ------------- ------------- -----------
Total recoveries............................ 202 165 147 196 110
------------- ------------- ------------- ------------- -----------
Net charge-offs............................. (478) (473) (273) (211) (76)
Provision for loan losses................... 1,365 997 1,179 956 667
------------- ------------- ------------- ------------- -----------
Balance at end of year...................... $6,724 $5,837 $5,313 $4,407 $3,663
============= ============= ============= ============= ===========
Loans, net of unearned interest at end
of year................................ $476,110 $404,025 $361,888 $299,224 $244,892
Ratio of allowance for loan losses to net
loans at end of year.................... 1.41% 1.44% 1.47% 1.47% 1.50%
Average loans, net of unearned interest..... $423,246 $373,910 $328,517 $262,685 $228,605
Ratio of net charge-offs to average loans
outstanding during the year............. 0.11% 0.13% 0.08% 0.08% 0.03%
</TABLE>
CAPITAL RESOURCES
Banks and bank holding companies, as regulated institutions, must meet
required levels of capital. The 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, Cabarrus Bank and Community Bank all maintain capital levels exceeding the
minimum levels for well capitalized bank holding companies and banks.
<PAGE>
<TABLE>
<CAPTION>
Well Carolina Lincoln Cabarrus Community
Capitalized First Bank Bank Bank
--------------- ------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Tier I capital to risk adjusted assets.. 6.0% 11.6% 10.6% 9.5% 11.8%
Total capital to risk adjusted assets... 10.0% 12.8% 11.8% 10.7% 13.0%
Leverage ratio.......................... 5.0% 8.3% 7.6% 7.0% 6.5%
</TABLE>
ACCOUNTING AND REGULATORY MATTERS
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employees Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 standardizes
the disclosure requirements of pensions and other postretirement benefits. SFAS
No. 132 is effective for fiscal year beginning after December 15, 1997. The
Company adopted SFAS No. 132 in 1998 with no impact on its financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company plans to adopt SFAS No. 133 in 2000 without any impact on its
financial statements as the Company does not have any derivative financial
instruments and is not involved in any hedging activities.
In October 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". SFAS No. 134 establishes accounting and
reporting standards for certain mortgage banking activities. SFAS No 134 is
effective for financial statements for the first fiscal quarter beginning after
December 15, 1998. The Company plans to adopt SFAS No. 134 in 1999 without any
impact on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is inherent to all industries, and financial institutions'
assets and liabilities all are affected by market risks. The Company considers
credit to be the most significant, however, interest rate risk is a close
second. There are eight risks that must be considered in managing the Company.
These risks are listed in order of the perceived level of risk imposed upon the
Company. The Company does not believe foreign exchange risk to be significant
and thus, does not address it in this assessment. The Company has identified
certain critical risks to these subsidiary banks.
CREDIT RISK. Credit risk is the risk to the Company's earnings or capital
from the potential of an obligator or related group of obligators failing to
fulfill its or their contractual commitments to the bank. Credit risk is most
closely associated with a bank's lending. It encompasses the potential of loss
on a particular loan as well as the potential for loss from a group of related
loans, i.e., a credit concentration. Credit risk extends also to less
traditional bank activities. It includes the credit behind the bank's investment
portfolio, the credit of counterparties to interest rate contracts, and the
credit of securities brokers the bank's investment portfolio in street name.
INTEREST RATE RISK. Interest rate risk is the risk to earnings or capital
from the potential of movement in interest rates. It is the sensitivity of the
bank's future earnings to interest rate changes. Interest rate risk is generally
measured on the basis of duration analysis or gap analysis. Duration analysis
measures the degree of risk in a particular instrument or portfolio and gap
analysis defines the timing when loss may occur. The Company is willing to
accept a modified duration of 5% and a one-year cumulative gap or +/- 5% and a
one- to five-year cumulative gap of +/- 8%. As of December 31, 1998, the Company
had a modified duration of 2.18% and a one-year cumulative gap of 2.35% and a
one to five year cumulative gap of 4.36%. The major components of interest rate
risk are described as repricing risk, basis risk, yield curve risk, and options
risk.
PRICE RISK. Price risk is the risk to earnings or capital from changes in
the value of portfolios of financial instruments. Frequently this is referred to
as market risk. Price risk is generally reflected as the risk of a decline in
market value of its securities portfolio and the Company is willing to accept a
7.5% change in value after experiencing a 300 basis point rate shock, either
positive or negative. At December 31, 1998, the price change was less than 5.8%
with such a rate shock.
<PAGE>
LIQUIDITY RISK. Liquidity risk is the risk to earnings or capital from the
Company's inability to meet its obligations when they come due without incurring
unacceptable losses or costs. Depositors withdraw their deposits and the bank
does not have the liquid assets to fund the withdrawals and to meet its loan
funding obligations. The risk is particularly great with brokered deposits which
the Company currently has none.
TRANSACTION RISK. Transaction risk is the risk to earnings or capital
arising from problems with service or product delivery. Transaction risk is the
risk of a failure in a bank's operating processes. It is a risk of failure in a
bank's automation, its employee integrity, or its internal controls.
COMPLIANCE RISK. Compliance risk is the risk to earnings or capital from
noncompliance with laws, rules, and regulations.
STRATEGIC RISK. Strategic risk is the risk to earnings or capital arising
from adverse business decisions or improper implementation of those decisions.
REPUTATION RISK. Reputation risk is the risk to earnings or capital from
negative public opinion.
Most of these risks are interrelated and thus all must be considered by
management regardless of the implied risk. Management reviews the performance
against these ranges on a quarterly basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for the Company's
quantitative sensitivity analyses.
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 $480,244,000 and $401,885,000
at December 31, 1998 and 1997, respectively. 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 the
time deposits is estimated using the rates currently offered for deposits of
similar remaining maturities. The estimated fair market value of deposits is
approximately $652,617,000 and $542,306,000 at December 31, 1998 and 1997,
respectively
<PAGE>
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, 1998 and 1997 and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carolina
First BancShares, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG, LLP
---------------
KPMG, LLP
Charlotte, North Carolina
January 20, 1999
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Carolina First BancShares, Inc.
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
ASSETS
Cash and due from banks...................................................... $28,611,146 $28,146,377
Federal funds sold........................................................... 13,220,957 1,800,000
------------------ ----------------
Total cash and cash equivalents.............................................. 41,832,103 29,946,377
Interest bearing deposits in other banks..................................... 777,346 673,860
Securities held to maturity (market value $33,609,910 in 1998 and
$37,024,089 in 1997).................................................... 33,306,113 36,708,867
Securities available for sale (cost of $153,255,268 in 1998 and
$121,716,598 in 1997)................................................... 154,384,075 122,678,711
Loans, net of unearned income ($565,714 in 1998; $539,329 in 1997)........... 476,109,833 404,025,180
Allowance for loan losses............................................... (6,723,516) (5,837,328)
------------------ ----------------
Loans, net.............................................................. 469,386,317 398,187,852
Premises and equipment, net.................................................. 13,662,738 13,101,070
Other real estate owned...................................................... 326,206 513,757
Other assets................................................................. 17,951,346 16,266,252
------------------ ----------------
Total assets................................................................. $731,626,244 $618,076,746
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand....................................................................... $89,666,447 $67,833,505
Interest bearing transaction accounts................................... 167,131,413 137,889,248
Savings................................................................. 63,833,667 57,626,789
Time, $100,000 and over................................................. 87,947,784 60,123,071
Other time.............................................................. 244,023,259 221,577,787
------------------ ----------------
Total deposits............................................................... 652,602,570 545,050,400
Borrowed funds............................................................... 10,399,634 10,923,498
Other liabilities............................................................ 6,646,309 5,892,048
------------------ ----------------
Total liabilities............................................................ 669,648,513 561,865,946
Shareholders' equity:
Preferred stock, $1.00 par value; authorized - 5,000,000 shares;
none issued and outstanding; Common stock, $2.50 par value; author-
ized-20,000,000 shares; issued and outstanding - 5,396,736 in 1998,
and 5,325,769 shares in 1997......................................... 13,491,840 13,314,423
Additional paid in capital.............................................. 22,758,001 22,335,466
Retained earnings....................................................... 25,031,771 19,980,565
Accumulated other comprehensive income....................................... 696,119 580,346
------------------ ----------------
Total shareholders'equity.................................................... 61,977,731 56,210,800
------------------ ----------------
Commitments and contingent liabilities....................................... --- ---
Total liabilities and shareholders' equity................................... $731,626,244 $618,076,746
================== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Income
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................................. $40,848,120 $36,552,020 $31,990,042
Interest and dividends on securities:
Taxable income.................................................... 9,554,933 7,334,682 6,005,498
Non-taxable income................................................ 329,685 476,200 588,209
Other interest income.................................................. 1,319,095 874,091 544,534
---------------- ---------------- ----------------
Total interest income............................................... 52,051,833 45,236,993 39,128,283
---------------- ---------------- ----------------
INTERESE EXPENSE:
Interest on deposits................................................... 21,571,800 19,221,687 16,683,702
Interest on borrowed funds............................................. 498,934 351,059 326,077
---------------- ---------------- ----------------
Total interest expense.............................................. 22,070,734 19,572,746 17,009,779
---------------- ---------------- ----------------
NET INTEREST INCOME.................................................... 29,981,099 25,664,247 22,118,504
PROVISION FOR LOAN LOSSES.............................................. 1,365,000 997,333 1,178,925
---------------- ---------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................... 28,616,099 24,666,914 20,939,579
---------------- ---------------- ----------------
NONINTEREST INCOME:
Charges on deposit accounts............................................ 3,864,796 3,357,917 3,062,360
Insurance commissions.................................................. 603,025 725,474 606,848
Other service fees and commissions..................................... 1,445,217 1,203,393 845,858
Mortgage banking commission income..................................... 671,448 483,047 416,302
Securities gains (losses), net......................................... 267,304 82,508 (10,482)
Other income........................................................... 1,196,584 910,447 712,061
---------------- ---------------- ----------------
Total noninterest income............................................ 8,048,374 6,762,786 5,632,947
---------------- ---------------- ----------------
NONINTEREST EXPENSE:
Salaries and benefits.................................................. 12,037,794 11,251,266 9,546,647
Occupancy and equipment................................................ 3,252,949 2,810,863 2,299,468
Federal and other insurance premiums................................... 208,822 185,798 857,366
Office supplies........................................................ 938,063 857,966 676,571
Data processing........................................................ 680,130 546,395 485,665
Restructuring and merger related expenses.............................. 2,069,570 --- ---
Other expenses......................................................... 6,667,773 5,566,486 4,517,508
---------------- ---------------- ----------------
Total noninterest expense........................................... 25,855,101 21,218,774 18,383,225
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES............................................. 10,809,372 10,210,926 8,189,301
INCOME TAXES........................................................... 4,100,443 3,490,141 2,968,527
---------------- ---------------- ----------------
NET INCOME............................................................. $6,708,929 $6,720,785 $5,220,774
================ ================ ================
Earnings per share
Net Income Per Common Share - Basic.................................... $1.25 $1.32 $1.03
================ ================ ================
Net Income Per Common Share - Diluted.................................. $1.22 $1.30 $1.03
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
For The Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Accumulated
---------------------------- Additional Other
Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income Equity
-------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Carolina First BancShares, Inc....... 1,632,458 $4,081,145 $17,377,333 $9,585,436 $79,065 $31,122,979
Community Bank & Trust Co............ 1,331,223 3,328,057 4,934,895 776,761 74,907 9,114,620
Adjustments for
pooling-of-interest.................. (363,211) (908,027) 908,027 --- --- ---
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE DECEMBER 31, 1995,
RESTATED............................. 2,600,470 $6,501,175 $23,220,255 $10,362,197 $153,972 $40,237,599
Exercise of stock options............ 9,412 23,531 68,748 --- --- 92,979
Cash dividend ($.48 per share)....... --- --- --- (991,997) --- (991,997)
5-for-4 stock split.................. 409,586 1,023,965 (1,049,260) --- --- (25,295)
Retirement of stock.................. (3,589) (8,973) (102,103) --- --- (111,076)
Dividend reinvestment plan........... 5,104 12,760 148,092 --- --- 160,852
Net income........................... --- --- --- 5,220,774 --- 5,220,774
Other comprehensive income -
Unrealized gain (loss) on
Securities available for sale,
net of taxes of $(46,377)......... --- --- --- --- (119,069) (119,069)
--------------
Total comprehensive income........... --- --- --- --- --- 5,101,705
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE DECEMBER 31, 1996............ 3,020,983 7,552,458 22,285,732 14,590,974 $34,903 $44,464,067
Issuance of stock in public
offering............................. 225,000 562,500 4,988,907 --- --- 5,551,407
Exercise of stock options............ 18,311 45,778 32,432 --- --- 78,210
Cash dividend ($.28 per share)....... --- --- --- (1,331,194) --- (1,331,194)
2-for-1 stock split.................. 2,054,569 5,136,422 (5,136,422) --- --- ---
Retirement of stock.................. (1,412) (3,530) (38,174) --- --- (41,704)
Dividend reinvestment plan........... 8,318 20,795 202,991 --- --- 223,786
Net income........................... --- --- --- 6,720,785 --- 6,720,785
Other comprehensive income -
Unrealized gain (loss)on
securities available for sale,
net of taxes of $341,498.......... --- --- --- --- 545,443 545,443
--------------
Total comprehensive income........... --- --- --- --- --- 7,266,228
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1997........... 5,325,769 13,314,423 22,335,466 19,980,565 $580,346 $56,210,800
Exercise of stock options............. 70,229 175,572 210,055 --- --- 385,627
Cash dividend ($.34 per share)........ --- --- --- (1,657,723) --- (1,657,723)
Retirement of stock................... (3,694) (9,235) (112,707) --- --- (121,942)
Dividend reinvestment plan............ 4,432 11,080 110,049 --- --- 121,129
Settlement of merger-related
claims................................ --- --- 215,138 --- --- 215,138
Net income............................ --- --- --- 6,708,929 --- 6,708,929
Other comprehensive income -
Unrealized gain (loss) on
Securities available for sale,
net of taxes of $50,921............ --- --- --- --- 115,773 115,773
--------------
Total comprehensive income............ --- --- --- --- --- 6,824,702
-------------- -------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1998............ 5,396,736 $13,491,840 $22,758,001 $25,031,771 $696,119 $61,977,731
============== ============== ============== ============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ------------------ --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ...................................................................... $6,708,929 $6,720,785 $5,220,774
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................................. 2,297,164 2,125,307 1,683,899
Accretion and amortization of securities discounts and premiums,net ........ (326,143) 701,698 250,074
Provision for loan losses .................................................. 1,365,000 997,333 1,178,925
Deferred taxes (benefit).................................................... (699,363) (771,281) (556,979)
Gains on sales of securities available for sale ............................ (287,166) (99,938) 16,841
Losses on sales of securities available for sale ........................... 19,862 19,106 --
Gains on calls and maturities of securities held to maturity ............... -- (1,812) (8,490)
Losses on calls and maturities of securities held to maturity .............. -- 136 2,131
Losses (gains) on sales of equipment, net .................................. 309 (4,810) (63,273)
Losses (gains) on sales of real estate, net ................................ 71,501 (65,702) (141,750)
Increase in other assets ................................................... (634,362) (1,588,494) (193,955)
Increase in other liabilities .............................................. 829,437 1,289,214 943,110
Settlement of merger-related claims ........................................ 215,138 -- --
------------- ------------- -------------
Net cash provided by operating activities ............................. 9,560,306 9,321,542 8,331,307
------------- ------------- -------------
INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale ....................... 70,451,327 35,612,012 10,201,659
Proceeds from sales of securities available for sale ............................ 599,964 5,809,688 6,543,161
Purchases of securities available for sale ...................................... (101,960,784) (101,121,315) (35,699,300)
Proceeds from calls and maturities of securities held to maturity ............... 16,662,401 18,320,504 26,549,774
Purchases of securities held to maturity......................................... (13,295,379) (7,490,547) (5,074,375)
Purchases and maturities of certificates of deposit, net......................... (103,486) (247,094) (76,638)
Originations of loans, net....................................................... (72,922,802) (43,072,427) (63,251,666)
Proceeds from sale of real estate................................................ 509,903 211,609 999,241
Proceeds from sale of premises and equipment..................................... 2,115 611,477 221,380
Cash acquired, net of cash paid, in purchase of branches ........................ 7,674,161 26,556,399 --
Capital expenditures............................................................. (1,899,152) (2,147,923) (2,373,112)
------------- ------------- -------------
Net cash used in investing activities.................................. (94,281,732) (66,957,617) (61,959,876)
------------- ------------- -------------
FINANCING ACTIVITIES:
Increase in time deposits ....................................................... 44,876,631 20,560,322 30,353,343
Net increase in other deposits .................................................. 53,602,469 30,945,214 20,006,892
Net increase (decrease) in borrowed funds ....................................... (523,864) 3,754,186 5,558,751
Repayment of notes payable ...................................................... (75,176) (19,601) (18,544)
Repurchase of stock ............................................................. (121,942) (41,704) (111,076)
Payment of cash dividends and fractional shares ................................. (1,657,723) (1,331,194) (1,017,292)
Issuance of stock................................................................ 506,756 5,853,403 253,131
------------- ------------- -------------
Net cash provided by financing activities ............................ 96,607,151 59,720,626 55,025,205
------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................................... 11,885,725 2,084,551 1,396,636
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................... 29,946,377 27,861,826 26,465,190
============= ============= =============
CASH AND CASH EQUIVALENTS, END OF YEAR........................................... $41,832,102 $29,946,377 $27,861,826
============= ============= =============
Supplemental disclosures of cash flow information:
Interest paid .............................................................. $21,540,710 $19,177,341 $16,835,027
Income taxes paid .......................................................... $4,791,163 $4,340,169 $3,603,382
============= ============= =============
Supplemental disclosure of noncash investing and financing activities:
Increase (decrease) in net unrealized loss ................................. $115,773 $545,443 $(119,069)
Assets transferred to other real estate .................................... $359,337 $533,687 $317,449
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Carolina First BancShares, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company, the Banks, and their subsidiaries (referred
to herein collectively as the "Company"). All significant intercompany items and
transactions have been eliminated in consolidation. Certain 1997 and 1996
amounts have been reclassified to conform with 1998 classifications. The
reclassifications have no effect on shareholders' equity or net income as
previously reported. The Company's chief operating decision maker reviews the
results of operations of the Company and its subsidiaries as a single
enterprise.
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 -- Securities are classified in accordance with Financial
Accounting Standards Board ("FASB") 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, 1998, is
carried at cost since it has no quoted market value.
Allowance for Loan Losses -- The provision for loans losses charged to
operations is an amount that management believes is sufficient to bring the
allowance for loan losses to an amount considered adequate to absorb estimated
probable losses inherent 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 that 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 judgment about information available at the time of
examination.
<PAGE>
Nonaccrual Loans -- Generally, a loan is classified as nonaccrual and the
accrual of interest on such loan (including impaired loans) 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 (including impaired 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 replacement 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.
Intangible Assets -- Deposit based premiums and goodwill arising from
branch acquisitions result from the Company paying amounts in excess of fair
value for the branches and core deposits acquired. Such amounts are included in
other assets and deposit based premiums are amortized on an accelerated basis
over 10 years and goodwill is amortized on a straight-line basis over 25 years.
Earnings Per Share -- The Company adopted SFAS No. 128, "Earnings per
Share, during 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 simplifies the standards for
computing EPS previously found in APB Opinion No. 15, "Earnings Per Share", and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. In accordance with SFAS No. 128, all prior period
EPS data has been restated. In addition, the weighted average number of shares
for each year presented has been retroactively adjusted for the two-for-one
stock split in 1997 and the five-for-four stock split in 1996.
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 3), loans
(see note 4), and deposit accounts (see note 7). 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.
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.
<PAGE>
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 -- 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), 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 Opinion 25"). The Company has elected to continue to apply the provisions
of APB Opinion 25 and provide the pro forma disclosure provisions of SFAS No.
123.
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 statutory 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 with its subsidiaries.
Comprehensive Income - On January 1, 1998 the Company adopted SFAS No. 130
"Reporting Comprehensive Income". As required by the SFAS No. 130, prior year
information has been modified to conform to the new presentation. Comprehensive
income includes net income and all non-owner changes to the Company's equity.
The Company's only component of other comprehensive income is the change in
unrealized gains and losses on available-for-sale securities.
The Company's total comprehensive income for the three years ended December
31, 1998, 1997, and 1996 was $6,824,702, $7,266,228 and $5,101,705 respectively.
Information concerning the Corporation's other comprehensive income for the
three years ended December 31, 1998, 1997, and 1996 is as follows:
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the period .......................... $281,501 $596,598 ($125,568)
Less: reclassification adjustment for realized gains (losses), net of tax ............ 165,728 51,155 (6,499)
--------- --------- ----------
Unrealized gains (losses) on securities available for
sale, net of applicable income taxes ................................................. $115,773 $545,443 ($119,069)
========= ========= ==========
</TABLE>
Disclosures Regarding Segments -- The Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1998.
SFAS No. 131 establishes standards for the way that public businesses report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company adopted SFAS No. 131 without any impact on their
consolidated financial statements as the chief operating decision maker reviews
the results of operations of the Company and its subsidiaries as a single
enterprise.
2. MERGERS ACCOUNTED FOR AS POOLING-OF-INTERESTS
On December 23, 1998, the Company merged with Community Bank, a $110
million community bank headquartered in Rutherfordton, North Carolina. The
merger was effected through a tax-free exchange of stock whereby each
outstanding share of Community Bank was exchanged for .72716 of a share of the
Company's common stock. Consequently, the Company issued and reserved for issue
approximately 1,021,202 shares of common stock and cash in-lieu of fractional
shares for all of the outstanding shares of Community Bank. Community Bank is
continuing to operate as a wholly-owned subsidiary of the Company. The merger
with Community Bank has been accounted for as a pooling-of-interests.
Certain charges were brought against the Company and one of the Company's
officers related to the merger. In connection with the litigation the Company
formed a settlement trust and irrevocably transferred all of the shares of
Community Bank which it owned to the trustee to be available for settlement of
the claims. The Company incurred costs of approximately $215,000 for the
settlement of the merger-related claims. Such costs are included in
restructuring and merger related expenses as discussed below.
The financial statements of the Company have been restated to reflect the
Community Bank merger as if it had been effective as of the earliest period
presented. The respective contributions of the pooled entities to consolidated
total income, net interest income after provision for loan losses and net income
for the three years ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Total income: 1998 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C>
Carolina First BancShares, Inc. ...................... $51,575,670 $44,037,368 $37,124,545
Community Bank & Trust Co. ........................... 8,524,537 7,962,411 7,636,685
------------- ------------- -------------
Combined ............................................. $60,100,207 $51,999,779 $44,761,230
Net interest income after provision for loan losses:
Carolina First BancShares, Inc. ...................... $24,482,693 $20,508,156 $17,058,775
Community Bank & Trust Co. ........................... 4,133,406 4,158,758 3,880,804
------------- ------------- -------------
Combined ............................................. $28,616,099 $24,666,914 $20,939,579
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C>
Net income:
Carolina First BancShares, Inc. ...................... $7,349,951 $6,159,839 $4,678,299
Community Bank & Trust Co. ........................... (641,022) 560,946 542,475
------------- ------------- -------------
Combined ............................................. $6,708,929 $6,720,785 $5,220,774
Earnings per share - basic:
Carolina First BancShares, Inc. ...................... $1.67 $1.49 $1.14
Community Bank & Trust Co. ........................... (0.42) (0.17) (0.11)
------------- ------------- ------------
Combined ............................................. $1.25 $1.32 $1.03
Earnings per share - diluted:
Carolina First BancShares, Inc. ...................... $1.65 $1.47 $1.14
Community Bank & Trust Co. ........................... (0.43) (0.17) (0.11)
------------- ------------- ------------
Combined ............................................. $1.22 $1.30 $1.03
</TABLE>
In connection with the Community Bank merger, the Company incurred
restructuring and merger related expenses of $2,070,000 in 1998. The after
tax-effect of the restructuring and merger-related expense was $1,786,000. Such
expenses were comprised of severance payments and other payments under
employment contracts, professional fees, costs for the settlement of merger
related claims, systems conversion costs and other restructuring and merger
related expenses as follows:
<TABLE>
<S> <C>
Severance payments................................................. $171,000
Employment contracts............................................... 489,000
System conversion costs and write-off of old equipment............. 190,000
Settlement of merger related claims................................ 215,000
Professional fees.................................................. 897,000
Other.............................................................. 108,000
==========
Total.............................................................. $2,070,000
==========
</TABLE>
At December 31, 1998, the remaining accruals related to the above
captioned charges, consisting mainly of severance payments and payments under
employment contracts, totaled approximately $563,000 and are included in other
liabilities in the accompanying consolidated balance sheet.
<PAGE>
3. SECURITIES
Amortized cost, market values and unrealized gains and losses of securities
as of December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
- ----------------- Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities ............................. $6,010,186 $68,878 -- $6,079,064
U.S. government agencies ............................. 3,034,710 14,266 -- 3,048,976
Mortgage-backed securities ........................... 16,105,620 112,974 (17,244) 16,201,350
State and political subdivisions ....................... 8,155,597 163,271 (38,348) 8,280,520
------------ ------------ ------------ ------------
Total ..................................................... $33,306,113 $359,389 ($55,592) $33,609,910
============ ============ ============ ============
AVAILABLE FOR SALE
U.S. Treasury securities ............................. $42,663,530 $550,230 -- $43,213,760
U.S. government agencies ............................. 108,964,028 424,080 (275,303) 109,112,805
Mortgage-backed securities ........................... 743,928 23,695 -- 767,623
Mutual funds and marketable equity securities ........ 883,782 416,155 (10,050) 1,289,887
------------ ------------ ------------ ------------
Total ..................................................... $153,255,268 $1,414,160 ($285,353) $154,384,075
============ ============ ============ ============
December 31, 1997 Amortized Unrealized Unrealized Market
- ----------------- Cost Gains Losses Value
------------ ------------ ------------ ------------
Held to Maturity
U.S. Treasury securities . ........................... $6,538,398 $33,766 ($4,984) $6,567,180
U.S. government agencies ............................. 9,400,620 26,157 (6,461) 9,420,316
Mortgage-backed securities ........................... 14,253,008 99,506 (18,524) 14,333,990
State and political subdivisions ..................... 6,516,841 185,762 -- 6,702,603
------------ ------------ ------------ ------------
Total ..................................................... $36,708,867 $345,191 ($29,969) $37,024,089
============ ============ ============ ============
Available For Sale
U.S. Treasury securities ... ......................... $46,659,093 $358,543 ($14,849) $47,002,787
U.S. government agencies ............................. 73,113,843 85,814 (94,656) 73,105,001
Mortgage-backed securities ........................... 848,888 24,738 -- 873,626
Mutual funds and marketable equity securities ........ 1,094,774 647,643 (45,120) 1,697,297
------------ ------------ ------------ ------------
Total ..................................................... $121,716,598 $1,116,738 ($154,625) $122,678,711
============ ============ ============ ============
</TABLE>
<PAGE>
Amortized cost and market values of securities at December 31, 1998, 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 .................................... $6,178,147 $6,207,073 $85,839,018 $86,206,700
Due after one year but within 5 years .................. 7,692,474 7,830,518 58,316,771 58,721,007
Due after 5 years but within 10 years .................. 2,347,629 2,435,088 7,504,789 7,431,877
Due after 10 years ..................................... 17,087,863 17,137,231 710,908 734,604
Mutual funds and marketable equity
securities ............................................. -- -- 883,782 1,289,887
------------ ------------ ------------ ------------
Total .................................................. $33,306,113 $33,609,910 $153,255,268 $154,384,075
============ ============ ============ ============
</TABLE>
Investment securities with an amortized cost of $42,551,311 at December 31,
1998 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 $1,151,000
at December 31, 1998. 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 First Gaston
Bank. Under the equity method, the Company adjusts the carrying value of the
investment for its portion of the First Gaston Bank's earnings or losses. During
1998, the Company recognized income, net of applicable income taxes, of $59,156.
Also included in other assets is an investment in the stock of the Federal Home
Loan Bank of Atlanta ("FHLB") of $915,000 at December 31, 1998 and 1997, and
which is pledged as collateral for advances from the FHLB. No ready market
exists for the FHLB stock, which is carried at cost.
4. LOANS
Major classifications of loans as of December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
<S> <C> <C>
Commercial ........................................................... $68,033,080 $49,063,298
Real estate:
Construction ......................................................... 54,441,169 34,245,805
Mortgage ............................................................. 299,396,025 269,373,722
Consumer ............................................................. 48,630,111 46,870,845
Other ................................................................ 5,609,448 4,471,510
------------- -------------
Total loans ......................................... 476,109,833 404,025,180
Allowance for loan losses ............................................ (6,723,516) (5,837,328)
------------- -------------
Total loans,net ..................................... $469,386,317 $398,187,852
============= =============
</TABLE>
Included in real estate mortgage loans at December 31, 1998 and 1997 are
approximately $144,138,000 and $136,928,000, respectively, 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
$4,817,455 and $4,641,112 at December 31, 1998 and 1997, respectively. During
1998, additions to such loans were $3,539,938 and repayments totaled $3,363,595.
These loans represented 7.8% and 8.3% of the Company's total shareholder equity
at December 31, 1998 and 1997, respectively. In the opinion of management, these
loans do not involve more than the normal risk of collectibility, nor do they
present other unfavorable features.
<PAGE>
Loans past due 90 days or more and still accruing interest totaled $111,272
as of December 31, 1998 and $151,620 as of December 31, 1997, while nonaccrual
loans as of December 31, 1998 and 1997 were $1,432,086 and $720,411
respectively. Nonaccrual loans at December 31, 1998 consist of 61 loans, the
largest of which had a balance of $496,000. 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 $50,652 and
$18,519 would have been earned in 1998 and 1997, respectively, if the nonaccrual
loans as of each year-end had been earning throughout each year. Income of
$77,817 and $41,535 was recognized on these loans during 1998 and 1997,
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 $480,244,000 and $401,885,000
at December 31, 1998 and 1997, respectively.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year ............................ $5,837,328 $5,313,424 $4,406,705
Charge-offs ............................................. (680,309) (638,266) (419,688)
Recoveries .............................................. 201,497 164,837 147,482
----------- ----------- -----------
Net charge-offs ......................................... (478,812) (473,429) (272,206)
----------- ----------- -----------
Provision for loan losses ............................... 1,365,000 997,333 1,178,925
----------- ----------- -----------
Balance at end of year .................................. $6,723,516 $5,837,328 $5,313,424
=========== =========== ===========
</TABLE>
At December 31, 1998 and 1997, the recorded investment in loans that are
considered to be impaired under SFAS 114 was approximately $1,432,000 and
$872,000, respectively (of which $1,432,000 and $720,000 were on a nonaccrual
basis at December 31, 1998 and 1997, respectively). Included in this amount is
$854,355 and $304,910 in 1998 and 1997, respectively, of impaired loans for
which the related allowance for loan losses is $345,720 and 81,633 in 1998 and
1997, respectively. The amount of interest income recognized on impaired loans
was not considered material during the year.
6. PREMISES AND EQUIPMENT
Major classifications of these assets as of December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Land ................................................................. $2,896,148 $2,905,313
Buildings and improvements ........................................... 9,409,296 9,020,586
Furniture, fixtures and equipment .................................... 10,315,467 8,422,759
----------- -----------
Total cost ........................................................... $22,620,911 $20,348,658
Accumulated depreciation ............................................. 8,958,173 7,247,588
----------- -----------
Carrying value ....................................................... $13,662,738 $13,101,070
=========== ===========
</TABLE>
<PAGE>
7. 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 $652,617,000 and $542,306,000 at December 31, 1998 and
1997, respectively.
Time deposits maturing in each of the five years subsequent to December 31,
1998 are as follows: 1999, $265,622,000; 2000, $43,533,000; 2001, $14,175,000;
2002, $4,633,000; 2003, $3,878,000; and subsequent years, $130,000.
Borrowed funds primarily consist of repurchase agreements of $10,400,000.
Repurchase agreements generally mature daily. On December 31, 1998, the rate for
repurchase agreements for Lincoln and Cabarrus Banks was 3.96% for balances less
than or equal to $250,000 and 4.40% for balances greater than $250,000 and
approximately 4.33% for Community Bank.
Treasury, tax and loan funds on deposit are payable on demand to the U. S.
Treasury and are collateralized by U. S. Treasury securities. At December 31,
1998 and 1997, these funds totaled $484,000 and $639,000, respectively, and had
weighted average interest rates of approximately 4.41% and 5.10% at December 31,
1998 and 1997, respectively.
At December 31, 1998, the Banks had available federal funded lines of
credit of $33.4 million at various financial institutions. Such lines are
subject to annual renewal and bear varying interest rates.
8. BRANCH ACQUISITIONS
During 1998, the Company acquired one branch office with approximately $9.0
million in deposits and in 1997 the Company acquired three branch offices with
$30 million in deposits. These acquisitions were accounted for as purchases and
the excess of the purchase price over the fair value of the assets and the core
deposits produced approximately $670,000 and $2,197,725 in goodwill and $195,000
and $645,000 in deposit based premiums in 1998 and 1997, respectively. Such
amounts are included in other assets and deposit based premiums are amortized on
an accelerated basis over 10 years and goodwill is amortized on a straight-line
basis over 25 years. Total goodwill was $4,839,733 and $4,437,709 at the end of
1998 and 1997, respectively. Total deposit based premiums were $1,313,622 and
$1,173,093 at the end of 1998 and 1997, respectively.
<PAGE>
9. INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------------- -------------- --------------
<S> <C> <C> <C>
Year ended December 31, 1998
Federal .................................. $4,386,184 ($584,781) $3,801,403
State .................................... 413,622 (114,582) 299,040
----------- ----------- -----------
Total ............................... $4,799,806 ($699,363) $4,100,443
=========== =========== ===========
Year ended December 31, 1997
Federal .................................. $3,796,329 ($565,699) $3,230,630
State .................................... 465,093 (205,582) 259,511
----------- ----------- -----------
Total .............................. $4,261,422 ($771,281) $3,490,141
=========== =========== ===========
Year ended December 31, 1996
Federal .................................. $3,091,356 ($478,691) $2,612,665
State .................................... 434,150 (78,288) 355,862
----------- ----------- -----------
Total .............................. $3,525,506 ($556,979) $2,968,527
=========== =========== ===========
</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 for 1996 and 1997
and 35 percent for 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Tax provision at statutory rate ........................................... $3,783,280 $3,471,715 $2,784,363
Increase (reduction) in income taxes resulting from:
Tax-exempt interest income ........................................... (126,217) (160,883) (203,354)
Merger expenses ...................................................... 432,007 -- --
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets allocated
to income tax expense ............................................. -- (71,355) 35,030
State income taxes, net of federal tax benefit ....................... 194,376 171,278 234,869
Other .................................................................... (183,003) 79,386 117,619
----------- ----------- -----------
Total Income taxes ............................................ $4,100,443 $3,490,141 $2,968,527
=========== =========== ===========
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and (liabilities) at December 31, 1998 and
1997, respectively, are presented below:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves ............................................................ $2,607,716 $1,949,381
Accrued expenses, deductible when paid ........................................ 153,601 --
Deferred compensation ......................................................... 684,202 784,166
Intangible assets ............................................................. 158,795 127,030
Other ......................................................................... 105,184 86,291
----------- -----------
Total gross deferred tax assets ............................................. 3,709,498 2,946,868
Less valuation allowance .................................................... -- --
----------- -----------
Net deferred tax assets ..................................................... 3,709,498 2,946,868
----------- -----------
Deferred tax (liabilities):
Bad debt reserve recapture, tax accounting adjustment ......................... (290,189) --
Financial reporting stock basis in excess of tax basis ........................ (177,480) (150,712)
Depreciable basis of fixed assets ............................................. (232,622) (399,690)
Unrealized gains on securities available for sale ............................. (430,876) (379,955)
Other ......................................................................... (78,765) (165,387)
----------- -----------
Total gross deferred tax liability .......................................... (1,209,932) (1,095,744)
----------- -----------
Net deferred tax asset included in other assets ............................. $2,499,566 $1,851,124
=========== ===========
</TABLE>
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 expense of $50,921 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 $699,363. 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.
10. SHAREHOLDERS' EQUITY
Earnings per share - Basic net income per share is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted net income per share reflects the potential dilution that could
occur if the Company's dilutive stock options were exercised. The numerator of
the basic net income per share computation is the same as the numerator of the
diluted net income per share computation for all periods presented. A
reconciliation of the denominator of the basic net income EPS computation is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Basic EPS denominator: weighted average number of common
shares outstanding ........................................................... 5,371,686 5,102,854 5,064,347
Dilutive effect arising from assumed exercise of stock
options ...................................................................... 137,212 62,436 13,603
========= ========= =========
Diluted EPS denominator ...................................................... 5,508,898 5,165,290 5,077,950
========= ========= =========
</TABLE>
<PAGE>
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 (as amended, "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
50,139 are currently outstanding, with a measurement price of $4.71. The expense
related to these rights is included in compensation expense and for the years
ended December 31, 1998, 1997 and 1996 was $92,181, $826,606, and $504,000,
respectively.
Since inception of the Plan, options to purchase shares of Company common
stock have been granted to key employees of the Company and 52,110 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, unless the recipient leaves the Company's
employment earlier. A summary of all stock option activity for 1998 and the
status at December 31, 1998 follows. All share and per share amounts give
retroactive effect to stock dividends and splits declared by the Company.
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, 1995 ........................... 245,487 $5.81 152,709 $5.09
Additional Options Granted............................ 44,124 12.54 -- --
Became Exercisable.................................... -- -- 31,553 7.27
Less:
Exercised ............................................ (22,144) 4.16 (22,144) 4.16
Forfeited ............................................ (4,608) 9.07 -- --
-------- ------ -------- ------
Balance, December 31, 1996 ........................... 262,859 $7.03 162,118 $5.69
Additional Options Granted ........................... 9,200 18.42 -- --
Became Exercisable ................................... -- -- 36,384 6.67
Less:
Exercised ............................................ (18,310) 4.27 (18,310) 4.27
Forfeited ............................................ (1,631) 8.90 (873) 12.61
-------- ------ -------- ------
Balance, December 31, 1997 ........................... 252,118 $13.16 179,319 $6.18
Additional Option Granted ............................ 18,450 30.05 -- --
Became Exercisable ................................... -- -- 16,702 9.47
Less:
Exercised ............................................ (70,230) 5.51 (70,230) 5.51
Forfeited ............................................ (5,943) 9.93 -- --
-------- ------ -------- ------
Balance, December 31, 1998 ........................... 194,395 $10.45 125,791 $6.80
======== ====== ======== ======
</TABLE>
<PAGE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 12/31/98 Contractual Life Exercise Price
- --------------------- ------------------ ------------------------ -----------------------
<S> <C> <C> <C>
Less than $5 80,522 2.63 $4.70
6 to 10 45,221 2.55 9.13
11 to 15 40,002 7.28 12.50
16 to 20 8,000 8.19 17.00
21 to 29 9,700 9.68 27.53
30 to 32 10,950 9.63 30.76
- --------------------- ------------------ ------------------------ -----------------------
$1 to 32 194,395 4.54 $10.45
===================== ================== ======================== =======================
</TABLE>
The Company applies APB Opinion 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below.
The weighted-average fair value per share of options granted in 1998 and
1997 amounted to $5.94 and $7.55, respectively. Fair values were estimated on
the date of grant using the Black-Scholes Option-Pricing Model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Risk-free interest rate 4.56% 6.31%
Dividend yield 1.00 1.00
Volatility 20.00 29.20
Expected life 7 years 7 years
Net Income
As reported $6,708,929 $6,720,785
Pro forma 6,291,036 6,528,843
Net Income per share
As reported - diluted $1.22 $1.30
Pro forma - diluted $1.14 $1.26
</TABLE>
Pro forma net income reflects only options granted since December 31, 1994.
Therefore, the effects of applying SFAS No. 123 pro forma disclosures during the
initial phase-in period may not be representative of the effects on reported net
income in future years.
11. BENEFIT PLANS
The Company sponsors a contributory 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,
1998, 1997 and 1996 were $793,500, $703,000 and $607,000, 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.
<PAGE>
The Company does not provide benefits contemplated by SFAS No. 106,
"Employers' Accounting for Post-retirement Benefits Other Than Pensions".
12. 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.
The Banks 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
excess cash or dividends received from the Banks. The Banks, as North Carolina
banking corporations, may pay dividends only out of retained earnings as
determined pursuant to the North Carolina General Statutes. As of December 31,
1998, the Banks had combined retained earnings of approximately $35,461,000, 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 to average assets (as
defined). Management believes that, as of December 31, 1998, the Company meets
all capital adequacy requirements to which it is subject.
As of December 31, 1998, the Company was well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, a bank holding company must maintain at least the minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There have been no conditions or events since that notification that
management believes have changed the institution's category.
<PAGE>
The table below also presents the actual capital amounts and ratios for the
Company, Lincoln Bank, Cabarrus Bank, and Community Bank as computed for
regulatory purposes.
<TABLE>
<CAPTION>
Minimum Minimum
For Capital To be Well
Actual Adequacy Purposes: Capitalized:
-------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------- ----------- --------- ------------ ---------
As of December 31, 1998:
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk Weighted
Assets
CONSOLIDATED ................................ $61,098,000 12.8% >$38,145,000 >8.0%
- -
Lincoln Bank ................................ 37,175,000 11.8% > 25,195,000 >8.0% >$31,493,000 >10.0%
- - - -
Cabarrus Bank ............................... 12,614,000 10.7% > 9,429,000 >8.0% > 11,786,000 >10.0%
- - - -
Community Bank .............................. 7,326,000 13.0% > 4,493,000 >8.0% > 5,616,000 >10.0%
- - - -
Tier I Capital to Risk
Weighted Assets
Consolidated ................................ $55,128,000 11.6% >$19,072,000 >4.0%
- -
Lincoln Bank ................................ 33,235,000 10.6% > 12,597,000 >4.0% >$18,896,000 > 6.0%
- - - -
Cabarrus Bank ............................... 11,138,000 9.5% > 4,714,000 >4.0% > 7,072,000 > 6.0%
- - - -
Community Bank .............................. 6,623,000 11.8% > 2,247,000 >4.0% > 3,370,000 > 6.0%
- - - -
Tier I Capital to Average Assets
CONSOLIDATED ................................ $55,128,000 8.3% >$26,553,000 >4.0%
- -
Lincoln Bank ................................ 33,235,000 7.6% > 17,606,000 >4.0% >$22,007,000 > 5.0%
- - - -
Cabarrus Bank ............................... 11,138,000 7.0% > 6,345,000 >4.0% > 7,932,000 > 5.0%
- - - -
Community Bank .............................. 6,623,000 6.5% > 4,058,000 >4.0% > 5,072,000 > 5.0%
- - - -
As of December 31, 1997:
Total Capital to Risk Weighted
Assets
CONSOLIDATED ................................ $54,792,000 13.8% >$31,688,000 >8.0%
- -
Lincoln Bank ................................ 30,338,000 11.7% > 20,722,000 >8.0% >$25,902,000 >10.0%
- - - -
Cabarrus Bank ............................... 10,432,000 11.4% > 7,332,000 >8.0% > 9,166,000 >10.0%
- - - -
Community Bank .............................. 7,630,000 14.8% > 4,115,000 >8.0% > 5,144,000 >10.0%
- - - -
Tier I Capital (to Risk
Weighted Assets)
CONSOLIDATED ................................ $49,830,000 12.6% >$15,844,000 >4.0%
- -
Lincoln Bank ................................ 27,095,000 10.5% > 10,361,000 >4.0% >$15,541,000 > 6.0%
- - - -
Cabarrus Bank ............................... 9,283,000 10.1% > 3,666,000 >4.0% > 5,499,000 > 6.0%
- - - -
Community Bank .............................. 6,985,000 13.6% > 2,058,000 >4.0% > 3,086,000 > 6.0%
- - - -
Tier I Capital (to Average Assets)
CONSOLIDATED ................................ $49,830,000 8.9% >$22,469,000 >4.0%
- -
Lincoln Bank ................................ 27,095,000 7.4% > 14,705,000 >4.0% >$18,381,000 > 5.0%
- - - -
Cabarrus Bank ............................... 9,283,000 6.7% > 5,560,000 >4.0% > 6,950,000 > 5.0%
- - - -
Community Bank .............................. 6,985,000 7.8% > 3,589,000 >4.0% > 4,486,000 > 5.0%
- - - -
</TABLE>
<PAGE>
13. 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,
------------------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Commitments for additional loans ....................................... $127,931,000 $90,076,000
Standby letters of credit .............................................. 1,445,000 1,010,000
</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, 1998 are as follows: 1999, $718,000; 2000, $717,000; 2001,
$698,000; 2002, $654,000; 2003, $427,000; and subsequent years, $2,209,000.
Rental expense for all operating leases for the three years ended December 31,
was $665,000, 1998; $426,000, 1997; $321,000, 1996.
<PAGE>
14. CONDENSED BALANCE SHEET
PARENT COMPANY ONLY
<TABLE>
<CAPTION>
December 31,
--------------------------------------
CONDENSED BALANCE SHEET 1998 1997
--------------------------------------
<S> <C> <C>
Assets:
Cash on deposit with subsidiary banks ................................... $639,052 $5,192,035
Investment in subsidiary banks .......................................... 57,597,401 49,387,357
Other investments ....................................................... 1,289,887 1,473,829
Other assets ............................................................ 5,149,521 2,767,748
----------- -----------
Total ................................................................... $64,675,861 $58,820,969
=========== ===========
Liabilities .................................................................. $2,698,130 $2,610,169
Shareholders'equity .......................................................... 61,977,731 56,210,800
----------- -----------
Total ................................................................... $64,675,861 $58,820,969
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------
1998 1997 1996
----------- ----------- -------------
<S> <C> <C> <C>
CONDENSED RESULTS OF OPERATIONS
Equity in earnings of subsidiary Banks:
Dividends ......................................................... $--- $3,807,871 $---
Undistributed ..................................................... 8,005,656 3,877,921 6,143,494
Other income ( expense), net ........................................... (1,296,727) (965,007) (922,720)
----------- ----------- -----------
Net income ............................................................. $6,708,929 $6,720,785 $5,220,774
=========== =========== ===========
CONDENSED CASH FLOW
Cash flows from operating activities:
Net income ........................................................ $6,708,929 $6,720,785 $5,220,774
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Equity in undistributed earnings of subsidiary banks .............. (8,005,656) (3,877,921) (6,143,494)
Settlement of merger-related claims ............................... 215,138 -- --
Increase in other assets .......................................... (268,185) (3,952,290) (12,961)
Increase in liabilities ........................................... 87,962 1,277,295 752,681
----------- ----------- -----------
Net cash provided by (used in) operating activities .................... (1,261,812) 167,869 (183,000)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of investments ........................................... (349,500) (150,000) (306,000)
Proceeds from sales of investments ................................ 349,657 539,085 --
Originations of loans, net ........................................ (2,018,419) (347,588) --
----------- ----------- -----------
Net cash used in investing activities .................................. (2,018,262) 41,497 (306,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock ............................ 506,756 5,853,403 253,131
Dividends and fractional shares paid .............................. (1,657,723) (1,331,194) (1,017,292)
Repurchase of stock ............................................... (121,942) (41,704) (111,076)
----------- ----------- -----------
Net cash provided by (used in) financing activities .................... (1,272,909) 4,480,505 (875,237)
----------- ----------- -----------
Net increase (decrease) in cash ........................................ (4,552,983) 4,689,871 (1,364,237)
Cash at beginning of year .............................................. 5,192,035 502,164 1,866,401
----------- ----------- -----------
Cash at end of year .................................................... $639,052 $5,192,035 $502,164
=========== =========== ===========
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
See the Company's Proxy Statement for the Annual Meeting of Shareholders to
be held on April 20, 1999, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the Company's Proxy Statement for the Annual Meeting of Shareholders to
be held on April 20, 1999, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Company's Proxy Statement for the Annual Meeting of Shareholders to
be held on April 20, 1999, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Company's Proxy Statement for the Annual Meeting of Shareholders to
be held on April 20, 1999, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements
See the following financial statements included herein at Item 8.
o Independent Auditors' Report
o Consolidated Balance Sheets at December 31, 1998 and 1997
o Consolidated Statements of Income for each of the years in
the three-year period ended December 31, 1998
o Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income for each of the years in the
three-year period ended December 31, 1998
o Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1998
o Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company during the
fourth quarter of the fiscal year ended December 31, 1998.
o On October 21, 1998, the Registrant filed a Form 8-K
describing the voluntary suspension of the Chairman, CEO and
Director, D. Mark Boyd, III, pending the outcome of certain
alleged violations of the North Carolina securities laws in
connection with certain purchases of Community Bank & Trust
Co. common stock.
o On October 21, 1998, the Registrant filed a Form 8-K
containing the earnings press release for the nine months
ended September 30, 1998, and the delay of the pending
acquisition of Community Bank & Trust Co. due to certain
charges brought against the Company and D. Mark Boyd, III.
<PAGE>
o On December 7, 1998, the Registrant filed a Form 8-K
announcing the resignation of D. Mark Boyd, III as the
Chairman of the Board and Chief Executive Officer and as a
director of the Registrant and its subsidiaries and the
extension of the Merger Agreement between the Registrant and
Community Bank & Trust Co through December 31, 1998.
(c) Exhibits
The following Exhibits are attached hereto or incorporated by
reference herein (numbered to correspond to Item 601 of Regulation
S-K).
Exhibit
No. Description of Exhibit
2.0 Agreement and Plan of Merger dated as of June 4, 1998 by
and between the Registrant and Community Bank & Trust Co.
(incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K (File No.
0-17939), dated June 19, 1998).
3.0 Amended and Restated Articles of Incorporation of the
Registrant, (incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-4 (File
No. 333-59729), dated July 23, 1998).
3.1 Amended and Restated Bylaws of the Registrant (incorporat-
ed by reference to Exhibit 3.2 to the Registrant's Current
Report on Form 8-K (File No. 0-17939), dated January 6,
1999).
4.0 Specimen of Common Stock Certificate of the Registrant
(incorporated by reference to the Registrant's
Registration Statement (File No. 33-26861).
10.0 Registrant's Deferred Compensation Plan for Directors (in-
corporated by reference to Registrant's Registration
Statement (File No. 33-26861).
10.1 Registrant's Profit Sharing Plan (incorporated by refer-
ence to Registrant's Registration Statement (File No. 33-
26861).
10.2 Registrant's 1990 Stock Option and Stock Appreciation
Rights Plan, as amended (incorporated by reference to the
Registrant's Registration Statement (File No. 33-43037)
dated October 1, 1991).
10.3 Registrant's 1999 Long-Term Incentive Plan.
10.4 Employment Agreement dated December 31, 1996, and Deferred
Compensation Agreement dated as of December 31, 1996 by
and between Carolina First BancShares, Inc. and James E.
Burt, III (incorporated by reference to Registrant's
Annual Report on Form 10-K (File No. 0-17939) for the
fiscal year ended December 31, 1997).
10.5 Employment Agreement dated November 10, 1998 by and bet-
ween Lincoln Bank of North Carolina and Stephen S.
Robinson.
10.6 Employment Agreement dated October 21, 1996 by and bet-
ween Cabarrus Bank of North Carolina and Ronald D. Smith.
10.7 Deferred Compensation Agreement dated as of February 18,
1993 by and between Cabarrus Bank of North Carolina and
Ronald D. Smith.
<PAGE>
10.8 Employment Agreement dated February 1, 1999 by and between
the Registrant and Janet H. Hollar.
10.9 Lease Agreement dated September 1, 1997 by and between
Lincoln Bank of North Carolina and D. Mark Boyd, III and
Diane H. Boyd.
10.10 Addendum to Lease Agreement dated October 30, 1998 by
and between Lincoln Bank of North Carolina and D. Mark
Boyd, III and Diane H. Boyd.
10.11 Employment Agreement dated June 4, 1998 by and between
Community Bank & Trust Co. and Ronnie D. Blanton
(incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-4 (File No.
333-59729) dated July 23, 1998).
13 Annual Report to Security Holders (incorporated by
reference to Registrant's Proxy Statement dated March 30,
1999 (File No. 0-17939).
11 Statement regarding computation of earnings per share.
21 List of subsidiaries of the Registrant.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
<PAGE>
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 26th day of March, 1999.
CAROLINA FIRST BANCSHARES, INC.
By: \s\ L.D. Warlick, Jr.
--------------------------
L.D. Warlick, Jr.
Chairman of the Board
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:
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- -----
<S> <C> <C>
Principal Executive Officers:
\s\ L.D. Warlick, Jr. Chairman of the Board March 26, 1999
- ------------------------------------ of Directors
L.D. Warlick, Jr.
\s\ James E. Burt, III President, CEO March 26, 1999
- ------------------------------------ and Director
James E. Burt, III
Principal Financial Officer and
Principal Accounting Officer:
\s\ Jan H. Hollar Sr. Vice President, CFO March 26, 1999
- ------------------------------------ Treasurer & Secretary
Jan H. Hollar
Directors:
\s\ Harold D. Alexander Director March 26, 1999
- ------------------------------------
Harold D. Alexander
\s\ John R. Boger, Jr. Director March 26, 1999
- ------------------------------------
John R. Boger, Jr.
\s\ Charles A. James Director March 26, 1999
- ------------------------------------
Charles A. James
\s\ Samuel C. King, Jr. Director March 26, 1999
- ------------------------------------
Samuel C. King, Jr.
\s\ Jack L. Lutz Director March 26, 1999
- ------------------------------------
Jack L. Lutz
\s\ Harry D. Ritchie Director March 26, 1999
- ------------------------------------
Harry D. Ritchie
\s\ Thomas M. Robbins Director March 26, 1999
- ------------------------------------
Thomas M. Robbins
\s\ Estus B. White Director March 26, 1999
- ------------------------------------
Estus B. White
</TABLE>
<PAGE>
Exhibit
No. Description of Exhibit
2.0 Agreement and Plan of Merger dated as of June 4, 1998 by
and between the Registrant and Community Bank & Trust Co.
(incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K (File No.
0-17939), dated June 19, 1998).
3.0 Amended and Restated Articles of Incorporation of the
Registrant, (incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-4 (File
No. 333-59729), dated July 23, 1998).
3.1 Amended and Restated Bylaws of the Registrant (incorporat-
ed by reference to Exhibit 3.2 to the Registrant's Current
Report on Form 8-K (File No. 0-17939), dated January 6,
1999).
4.0 Specimen of Common Stock Certificate of the Registrant
(incorporated by reference to the Registrant's
Registration Statement (File No. 33-26861).
10.0 Registrant's Deferred Compensation Plan for Directors (in-
corporated by reference to Registrant's Registration
Statement (File No. 33-26861).
10.1 Registrant's Profit Sharing Plan (incorporated by refer-
ence to Registrant's Registration Statement (File No. 33-
26861).
10.2 Registrant's 1990 Stock Option and Stock Appreciation
Rights Plan, as amended (incorporated by reference to the
Registrant's Registration Statement (File No. 33-43037)
dated October 1, 1991).
10.3 Registrant's 1999 Long-Term Incentive Plan.
10.4 Employment Agreement dated December 31, 1996, and Deferred
Compensation Agreement dated as of December 31, 1996 by
and between Carolina First BancShares, Inc. and James E.
Burt, III (incorporated by reference to Registrant's
Annual Report on Form 10-K (File No. 0-17939) for the
fiscal year ended December 31, 1997).
10.5 Employment Agreement dated November 10, 1998 by and bet-
ween Lincoln Bank of North Carolina and Stephen S.
Robinson.
10.6 Employment Agreement dated October 21, 1996 by and bet-
ween Cabarrus Bank of North Carolina and Ronald D. Smith.
10.7 Deferred Compensation Agreement dated as of February 18,
1993 by and between Cabarrus Bank of North Carolina and
Ronald D. Smith.
<PAGE>
10.8 Employment Agreement dated February 1, 1999 by and between
the Registrant and Janet H. Hollar.
10.9 Lease Agreement dated September 1, 1997 by and between
Lincoln Bank of North Carolina and D. Mark Boyd, III and
Diane H. Boyd.
10.10 Addendum to Lease Agreement dated October 30, 1998 by
and between Lincoln Bank of North Carolina and D. Mark
Boyd, III and Diane H. Boyd.
10.11 Employment Agreement dated June 4, 1998 by and between
Community Bank & Trust Co. and Ronnie D. Blanton
(incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-4 (File No.
333-59729) dated July 23, 1998).
11 Statement regarding computation of earnings per share.
13 Annual Report to Security Holders (incorporated by
reference to Registrant's Proxy Statement dated March 30,
1999 (File No. 0-17939).
21 List of subsidiaries of the Registrant.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
<PAGE>
A-1
APPENDIX A
CAROLINA FIRST BANCSHARES, INC.
1999 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 GENERAL. The purpose of the Carolina First BancShares, Inc. 1999
Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the
value, of Carolina First BancShares, Inc. (the "Company"), by linking the
personal interests of its employees, officers and directors to those of Company
shareholders and by providing such persons with an incentive for outstanding
performance. The Plan is further intended to provide flexibility to the Company
in its ability to motivate, attract, and retain the services of employees,
officers and directors upon whose judgment, interest, and special effort the
successful conduct of the Company's operation is largely dependent. Accordingly,
the Plan permits the grant of incentive awards from time to time to selected
employees, officers and directors.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date
upon which it shall be approved by the shareholders of the Company.
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Award" means any Option or Stock Appreciation Right, or
any other right or interest relating to Stock or cash, granted to a
Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means and includes each of the
following:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the 1934 Act) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of 25%
or more of the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (1), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition by a
Person who is on the Effective Date the beneficial owner of
25% or more of the Outstanding Company Voting Securities, (ii)
any acquisition directly from the Company, (iii) any
acquisition by the Company, (iv) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, or (v) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii)
of subsection (3) of this definition; or
<PAGE>
(2) Individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election
of directors of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Voting
Securities, and (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 25% or more of the
combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination, and (iii)
at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(4) Approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means the committee of the Board described in
Article 4.
(g) "Company" means Carolina First BancShares, Inc., a North
Carolina corporation.
(h) "Covered Employee" means a covered employee as defined in
Code Section 162(m)(3).
(i) "Disability" shall mean any illness or other physical or
mental condition of a Participant that renders the Participant
incapable of performing his customary and usual duties for the Company,
or any medically determinable illness or other physical or mental
condition resulting from a bodily injury, disease or mental disorder
which, in the judgment of the Committee, is permanent and continuous in
nature. The Committee may require such medical or other evidence as it
deems necessary to judge the nature and permanency of the Participant's
condition.
<PAGE>
(j) "Effective Date" has the meaning assigned such term in
Section 2.1.
(k) "Fair Market Value", on any date, means (i) if the Stock
is listed on a securities exchange or is traded over the Nasdaq
National Market, the closing sales price on such exchange or over such
system on such date or, in the absence of reported sales on such date,
the closing sales price on the immediately preceding date on which
sales were reported, or (ii) if the Stock is not listed on a securities
exchange or traded over the Nasdaq National Market, the mean between
the bid and offered prices as quoted by Nasdaq for such date, provided
that if it is determined that the fair market value is not properly
reflected by such Nasdaq quotations, Fair Market Value will be
determined by such other method as the Committee determines in good
faith to be reasonable.
(l) "Incentive Stock Option" means an Option that is
intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
(m) "Non-Qualified Stock Option" means an Option that is not
an Incentive Stock Option.
(n) "Option" means a right granted to a Participant under
Article 7 of the Plan to purchase Stock at a specified price during
specified time periods. An Option may be either an Incentive Stock
Option or a Non-Qualified Stock Option.
(o) "Parent" means a corporation which owns or beneficially
owns a majority of the outstanding voting stock or voting power of the
Company. For Incentive Stock Options, the term shall have the same
meaning as set forth in Code Section 424(e).
(p) "Participant" means a person who, as an employee, officer
or director of the Company or any Subsidiary, has been granted an Award
under the Plan.
(q) "Plan" means the Carolina First BancShares, Inc.1999 Long-
Term Incentive Plan, as amended from time to time.
(r) "Stock" means the $2.50 par value common stock of the
Company and such other securities of the Company as may be substituted
for Stock pursuant to Article 14.
(s) "Stock Appreciation Right" or "SAR" means a right granted
to a Participant under Article 8 to receive a payment equal to the
difference between the Fair Market Value of a share of Stock as of the
date of exercise of the SAR over the grant price of the SAR, all as
determined pursuant to Article 8.
(t) "Subsidiary" means any corporation, limited liability
company, partnership or other entity of which a majority of the
outstanding voting stock or voting power is beneficially owned directly
or indirectly by the Company. For Incentive Stock Options, the term
shall have the meaning set forth in Code Section 424(f).
(u) "1933 Act" means the Securities Act of 1933, as amended
from time to time.
(v) "1934 Act" means the Securities Exchange Act of 1934, as
amended from time to time.
<PAGE>
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation and
Benefits Committee of the Board or, at the discretion of the Board from time to
time, by the Board. The Committee shall consist of two or more members of the
Board. It is intended that the directors appointed to serve on the Committee
shall be "non-employee directors" (within the meaning of Rule 16b-3 promulgated
under the 1934 Act) and "outside directors" (within the meaning of Code Section
162(m) and the regulations thereunder) to the extent that Rule 16b-3 and, if
necessary for relief from the limitation under Code Section 162(m) and such
relief is sought by the Company, Code Section 162(m), respectively, are
applicable. However, the mere fact that a Committee member shall fail to qualify
under either of the foregoing requirements shall not invalidate any Award made
by the Committee which Award is otherwise validly made under the Plan. The
members of the Committee shall be appointed by, and may be changed at any time
and from time to time in the discretion of, the Board. During any time that the
Board is acting as administrator of the Plan, it shall have all the powers of
the Committee hereunder, and any reference herein to the Committee (other than
in this Section 4.1) shall include the Board.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan,
the following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Company or any
Parent or Subsidiary, the Company's independent certified public accountants, or
any executive compensation consultant or other professional retained by the
Company to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted
to each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted
under the Plan, including but not limited to, the exercise price, grant
price, or purchase price, any restrictions or limitations on the Award,
any schedule for lapse of forfeiture restrictions or restrictions on
the exercisability of an Award, and accelerations or waivers thereof,
based in each case on such considerations as the Committee in its sole
discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any
outstanding Award, based in each case on such considerations as the
Committee in its sole discretion determines;
(f) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
<PAGE>
(g) Prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(h) Decide all other matters that must be determined in
connection with an Award;
(i) Establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be
required under the Plan or as the Committee deems necessary or
advisable to administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section
10.1, the aggregate number of shares of Stock reserved and available for Awards
or which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right) shall be 500,000.
5.2. LAPSED AWARDS. To the extent that an Award is canceled,
terminates, expires or lapses for any reason, any shares of Stock subject to the
Award will again be available for the grant of an Award under the Plan and
shares subject to SARs or other Awards settled in cash will be available for the
grant of an Award under the Plan.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to
the contrary (but subject to adjustment as provided in Section 10.1), the
maximum number of shares of Stock with respect to one or more Options and/or
SARs that may be granted during any one calendar year under the Plan to any one
Participant shall be 100,000.
<PAGE>
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are
employees, officers or directors of the Company or a Parent or Subsidiary.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
under an Option shall be determined by the Committee, provided that the
exercise price for any Option shall not be less than the Fair Market
Value as of the date of the grant.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part. The Committee also shall determine the performance or
other conditions, if any, that must be satisfied before all or part of
an Option may be exercised. The Committee may waive any exercise
provisions at any time in whole or in part based upon factors as the
Committee may determine in its sole discretion so that the Option
becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods by
which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other property
(including "cashless exercise" arrangements), and the methods by which
shares of Stock shall be delivered or deemed to be delivered to
Participants; provided that if shares of Stock surrendered in payment
of the exercise price were themselves acquired otherwise than on the
open market, such shares shall have been held by the Participant for at
least six months.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a
written Award Agreement between the Company and the Participant. The
Award Agreement shall include such provisions, not inconsistent with
the Plan, as may be specified by the Committee.
(e) ADDITIONAL OPTIONS UPON EXERCISE. The Committee may, in
its sole discretion, provide in an Award Agreement, or in an amendment
thereto, for the automatic grant of a new Option to any Participant who
delivers shares of Stock as full or partial payment of the exercise
price of the original Option. Any new Option granted in such a case (i)
shall be for the same number of shares of Stock as the Participant
delivered in exercising the original Option, (ii) shall have an
exercise price of 100% of the Fair Market Value of the surrendered
shares of Stock on the date of exercise of the original Option (the
grant date for the new Option), and (iii) shall have a term equal to
the unexpired term of the original Option.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock
Options granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock
shall be set by the Committee, provided that the exercise price for any
Incentive Stock Option shall not be less than the Fair Market Value as
of the date of the grant.
(b) EXERCISE. In no event may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse
under the earliest of the following circumstances; provided, however,
that the Committee may, prior to the lapse of the Incentive Stock
Option under the circumstances described in paragraphs (3), (4) and (5)
below, provide in writing that the Option will extend until a later
date, but if Option is exercised after the dates specified in
paragraphs (3), (4) and (5) below, it will automatically become a
Non-Qualified Stock Option:
<PAGE>
(1) The Incentive Stock Option shall lapse as of the
option expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years
after it is granted, unless an earlier time is set in the
Award Agreement.
(3) If the Participant terminates employment for any
reason other than as provided in paragraph (4) or (5) below,
the Incentive Stock Option shall lapse, unless it is
previously exercised, three months after the Participant's
termination of employment; provided, however, that if the
Participant's employment is terminated by the Company for
cause or by the Participant without the consent of the
Company, the Incentive Stock Option shall (to the extent not
previously exercised) lapse immediately.
(4) If the Participant terminates employment by
reason of his Disability, the Incentive Stock Option shall
lapse, unless it is previously exercised, one year after the
Participant's termination of employment.
(5) If the Participant dies while employed, or during
the three-month period described in paragraph (3) or during
the one-year period described in paragraph (4) and before the
Option otherwise lapses, the Option shall lapse one year after
the Participant's death. Upon the Participant's death, any
exercisable Incentive Stock Options may be exercised by the
Participant's beneficiary, determined in accordance with
Section 9.6.
Unless the exercisability of the Incentive Stock Option is
accelerated as provided in Article 13, if a Participant exercises an
Option after termination of employment, the Option may be exercised
only with respect to the shares that were otherwise vested on the
Participant's termination of employment.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market
Value (determined as of the time an Award is made) of all shares of
Stock with respect to which Incentive Stock Options are first
exercisable by a Participant in any calendar year may not exceed
$100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall be
granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary unless
the exercise price per share of such Option is at least 110% of the
Fair Market Value per share of Stock at the date of grant and the
Option expires no later than five years after the date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an
Incentive Stock Option may be made pursuant to the Plan after the day
immediately prior to the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant or, in
the case of the Participant's Disability, by the Participant's guardian
or legal representative.
(h) DIRECTORS. The Committee may not grant an Incentive Stock
Option to a non-employee director. The Committee may grant an Incentive
Stock Option to a director who is also an employee of the Company or
Parent or Subsidiary but only in that individual's position as an
employee and not as a director.
<PAGE>
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock App-
reciation Right, the Participant to whom it is granted has the right
to receive the excess, if any, of:
(1) The Fair Market Value of one share of Stock
on the date of exercise; over
(2) The grant price of the Stock Appreciation Right as
determined by the Committee, which shall not be less than the
Fair Market Value of one share of Stock on the date of grant.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall
be evidenced by an Award Agreement. The terms, methods of exercise,
methods of settlement, form of consideration payable in settlement, and
any other terms and conditions of any Stock Appreciation Right shall be
determined by the Committee at the time of the grant of the Award and
shall be reflected in the Award Agreement.
ARTICLE 9
PROVISIONS APPLICABLE TO AWARDS
9.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
9.2. EXCHANGE PROVISIONS. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 10.1), based on the terms and conditions
the Committee determines and communicates to the Participant at the time the
offer is made, and after taking into account the tax, securities and accounting
effects of such an exchange.
9.3. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
9.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Parent or Subsidiary on the grant or exercise of an Award may be
made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance with
rules adopted by, and at the discretion of, the Committee.
<PAGE>
9.5. LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Company or a Parent or Subsidiary, or
shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Company or a Parent or Subsidiary. No unexercised
or restricted Award shall be assignable or transferable by a Participant other
than by will or the laws of descent and distribution or, except in the case of
an Incentive Stock Option, pursuant to a domestic relations order that would
satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award
under the Plan; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does
not result in accelerated taxation, (ii) does not cause any Option intended to
be an Incentive Stock Option to fail to be described in Code Section 422(b), and
(iii) is otherwise appropriate and desirable, taking into account any factors
deemed relevant, including without limitation, any state or federal tax or
securities laws or regulations applicable to transferable Awards.
9.6 BENEFICIARIES. Notwithstanding Section 9.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
9.7. STOCK CERTIFICATES. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
9.8. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise
provided in the Award Agreement, upon the occurrence of a Change in Control, all
outstanding Options and Stock Appreciation Rights shall become fully exercisable
and all restrictions on outstanding Awards shall lapse; provided, however that
such acceleration will not occur if, in the opinion of the Company's
accountants, such acceleration would preclude the use of "pooling of interest"
accounting treatment for a Change in Control transaction that (a) would
otherwise qualify for such accounting treatment, and (b) is contingent upon
qualifying for such accounting treatment. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation set forth in
Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock
Options.
<PAGE>
9.9. ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A CHANGE IN
CONTROL. In the event of the occurrence of any circumstance, transaction or
event not constituting a Change in Control (as defined in Section 3.1) but which
the Board of Directors deems to be, or to be reasonably likely to lead to, an
effective change in control of the Company of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of the 1934 Act, the
Committee may in its sole discretion declare all outstanding Options and Stock
Appreciation Rights to be fully exercisable, and/or all restrictions on all
outstanding Awards to have lapsed, in each case, as of such date as the
Committee may, in its sole discretion, declare, which may be on or before the
consummation of such transaction or event. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation set forth in
Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock
Options.
9.10. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an event
has occurred as described in Section 9.8 or 9.9 above, the Committee may in its
sole discretion at any time determine that all or a portion of a Participant's
Options and Stock Appreciation Rights shall become fully or partially
exercisable, and/or that all or a part of the restrictions on all or a portion
of the outstanding Awards shall lapse, in each case, as of such date as the
Committee may, in its sole discretion, declare. The Committee may discriminate
among Participants and among Awards granted to a Participant in exercising its
discretion pursuant to this Section 9.10.
9.11 EFFECT OF ACCELERATION. If an Award is accelerated under Section
9.8 or 9.9, the Committee may, in its sole discretion, provide (i) that the
Award will expire after a designated period of time after such acceleration to
the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to the
transaction giving rise to the acceleration or otherwise be equitably converted
in connection with such transaction, or (iv) any combination of the foregoing.
The Committee's determination need not be uniform and may be different for
different Participants, whether or not such Participants are similarly situated.
9.12. PERFORMANCE GOALS. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Company or a Parent or Subsidiary of a specified
target return, or target growth in return, on equity or assets, (b) the
Company's, Parent's or Subsidiary's stock price, (c) the achievement by an
individual or a business unit of the Company, Parent or Subsidiary of a
specified target, or target growth in, revenues, net income or earnings per
share, (d) the achievement of objectively determinable goals with respect to
service or product delivery, service or product quality, customer satisfaction,
meeting budgets and/or retention of employees, or (e) any combination of the
goals set forth in (a) through (d) above. If an Award is made on such basis, the
Committee shall establish goals prior to the beginning of the period for which
such performance goal relates (or such later date as may be permitted under Code
Section 162(m) or the regulations thereunder) and the Committee may for any
reason reduce (but not increase) any Award, notwithstanding the achievement of a
specified goal. Any payment of an Award granted with performance goals shall be
conditioned on the written certification of the Committee in each case that the
performance goals and any other material conditions were satisfied.
9.13. TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur in a circumstance in which a Participant transfers
from the Company to one of its Parents or Subsidiaries, transfers from a Parent
or Subsidiary to the Company, or transfers from one Parent or Subsidiary to
another Parent or Subsidiary.
<PAGE>
ARTICLE 10
CHANGES IN CAPITAL STRUCTURE
10.1. GENERAL. In the event a stock dividend is declared upon the
Stock, the authorization limits under Section 5.1 and 5.4 shall be increased
proportionately, and the shares of Stock then subject to each Award shall be
increased proportionately without any change in the aggregate purchase price
therefor. In the event the Stock shall be changed into or exchanged for a
different number or class of shares of stock or securities of the Company or of
another corporation, whether through reorganization, recapitalization,
reclassification, share exchange, stock split-up, combination of shares, merger
or consolidation, the authorization limits under Section 5.1 and 5.4 shall be
adjusted proportionately, and there shall be substituted for each such share of
Stock then subject to each Award the number and class of shares into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award, or, subject
to Section 11.2, there shall be made such other equitable adjustment as the
Committee shall approve.
ARTICLE 11AMENDMENT, MODIFICATION AND TERMINATION
11.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the
Committee may, at any time and from time to time, amend, modify or terminate the
Plan without shareholder approval; provided, however, that the Board or
Committee may condition any amendment or modification on the approval of
shareholders of the Company if such approval is necessary or deemed advisable
with respect to tax, securities or other applicable laws, policies or
regulations.
11.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however, that, subject to the terms of the
applicable Award Agreement, such amendment, modification or termination shall
not, without the Participant's consent, reduce or diminish the value of such
Award determined as if the Award had been exercised, vested, cashed in or
otherwise settled on the date of such amendment or termination, and provided
further that, except as otherwise permitted in the Plan, the exercise price of
any Option may not be reduced and the original term of any Option may not be
extended. No termination, amendment, or modification of the Plan shall adversely
affect any Award previously granted under the Plan, without the written consent
of the Participant.
ARTICLE 12
GENERAL PROVISIONS
12.1. NO RIGHTS TO AWARDS. No Participant or eligible participant shall
have any claim to be granted any Award under the Plan, and neither the Company
nor the Committee is obligated to treat Participants or eligible participants
uniformly.
12.2. NO SHAREHOLDER RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
12.3. WITHHOLDING. The Company or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require that any
such withholding requirement be satisfied, in whole or in part, by withholding
shares of Stock having a Fair Market Value on the date of withholding equal to
the amount required to be withheld for tax purposes, all in accordance with such
procedures as the Committee establishes.
<PAGE>
12.4. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Company or
any Parent or Subsidiary to terminate any Participant's employment or status as
an officer or director at any time, nor confer upon any Participant any right to
continue as an employee, officer or director of the Company or any Parent or
Subsidiary.
l2.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Parent or
Subsidiary.
12.6. INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee shall be indemnified and held harmless by the
Company from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
12.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the Company
or any Parent or Subsidiary unless provided otherwise in such other plan.
12.8. EXPENSES. The expenses of administering the Plan shall be
borne by the Company and its Parents or Subsidiaries.
12.9. TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
12.10. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular, and the singular shall include the plural.
12.11. FRACTIONAL SHARES. No fractional shares of Stock shall be
issued, and the Committee shall determine, in its discretion, whether cash shall
be given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
12.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock paid under the Plan. The shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, and the Company
may restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
12.13. GOVERNING LAW. To the extent not governed by federal law, the
Plan and all Award Agreements shall be construed in accordance with and governed
by the laws of the State of North Carolina.
12.14 ADDITIONAL PROVISIONS. Each Award Agreement may contain such
other terms and conditions as the Committee may determine; provided that such
other terms and conditions are not inconsistent with the provisions of this
Plan.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (sometimes referred to below as the
"Agreement"), Made and entered into this the 10th day of November, 1998, by and
between STEPHEN S. ROBINSON, a resident of Iredell County, North Carolina
(herein referred to as "Employee"); and LINCOLN BANK OF NORTH CAROLINA, a
corporation with its principal office in Lincolnton, North Carolina (hereinafter
referred to as "Employer").
WHEREAS, the Employer desires to secure the future services of the
Employee and to that end desires to enter into this Employment Agreement with
Employee, upon the terms and conditions herein set forth, which replaces and
supersedes all prior employment contracts, agreements or understandings, if any,
between the Employee and the Employer; and,
WHEREAS, the Employee wishes to continue employment and enter into this
Employment Agreement with Employer effective as of November 10, 1998;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and of 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. Employer hereby agrees to continue
to employ the Employee and Employee hereby agrees to remain employed by Employer
for the term, and upon and subject to the terms and conditions hereafter set
forth.
Section 2. Term. Employer and Employee hereby agree that Employee shall
become employed by Employer under the terms of this Agreement as of January 1,
1999 (the "Commencement Date"), and shall remain employed by Employer for a
period of five (5) years (through December 31, 2003), unless sooner terminated
pursuant to the terms hereof (the "Employment Period"). Upon termination due to
the expiration of the five (5) year term, all of the provisions of this
Agreement shall be void.
Section 3. Employee Representations. Employee represents to Employer
that Employee is not subject to an employment agreement with any other employer,
nor to any other agreements under the terms of which he may be prohibited from
accepting employment with Employer, and that Employee may accept employment with
Employer effective as of the Commencement Date.
Section 4. Duties of Employee.
(a) Subject to the supervision and pursuant to the orders,
advice and directions of the Board of Directors and President of the Employer,
Employee shall perform his assigned duties as Executive Vice-President of
Employer and shall perform such other duties as are customarily performed by one
holding such positions in other, the same or similar business or enterprises as
that engaged in by Employer.
(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 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 Employer. Such duties shall generally be rendered at
Employer's offices in Mooresville, North Carolina, and at such other places
within Iredell County, Lincoln County, and that portion of Mecklenburg County
north and west of Interstate 85 (the "geographic area") as the Employer's needs
shall reasonably require. Notwithstanding the foregoing, Employer may require
Employee to work outside the geographic area from time to time, not to exceed
ninety (90) days per year, but may not permanently assign the Employee to work
outside the geographic area.
(c) Employee hereby agrees to refrain from engaging in any
ventures or enterprises which might interfere with the performance of his
express and implied duties hereunder. Employee shall at all times conduct
himself in a manner that will not prejudice or injure the reputation of
Employer, its other employees or any of its affiliates.
Section 5. Employer's Right to Benefits of Work Performed. Employer
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 6. Compensation, Expenses and Benefits.
(a) Employer shall pay to Employee, and Employee shall accept
from Employer, during the Employment Period, and in consideration for the
services to be performed by Employee, a salary at the rate of $100,536.00 per
annum (the "Annual Salary"), less deductions required by law and Employee
authorized deductions, payable in such equal periodic installments as Employer
may determine, but not less frequently than monthly. Provided, however, that
each year the salary of the Employee shall be reviewed and a salary amount set
for the following year by mutual agreement with the Board of Directors. In the
event an agreement cannot be reached as to the salary amount, the salary shall
be that for the previous year increased by an amount equal to the rate of
increase of the Producers' Price Index All Commodities U.S. Labor Department
Bureau of Labor Statistics for the previous year.
<PAGE>
(b) In addition to the Annual Salary described in Section 6
(a) above, Employer agrees to reimburse Employee promptly (in accordance with
policies and procedures adopted by the Board of Directors of Employer) for all
reasonable and necessary expenses incurred by Employee in connection with the
Employer'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 Employer may require and to
account to Employer therefore prior to any such reimbursement. Employee shall
comply with all reasonable and lawful policies and procedures applied by
Employer 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.
(c) Employer hereby agrees to make available to Employee,
during the Employment Period, all benefits which are generally available to
similarly situated employees of the Employer, subject to and on a basis
consistent with the terms and conditions of such benefits. In addition, Employer
agrees to provide Employee with the following benefits.
(1) A non-contributing qualified employee profit-sharing plan
and participation in the Employer's 401(K) Plan.
(2) A non-contributing employee's group life insurance plan
which will provide life insurance for Employee in the amount equal to two (2)
times Employee's annual salary (or a maximum of $250,000.00) during all times
that Employee remains an employee of Employer.
(3) A non-contributing accident and health insurance plan for
the payment of medical care expenses for Employee.
(4) An automobile for his use in carrying out his duties
hereunder. Employee shall have the use of the automobile for transportation to
and from his residence and shall keep the automobile at his residence overnight.
Notwithstanding the foregoing, said automobile shall be made available to other
employees of Employer for Employer's business. Employee shall reimburse Employer
for all personal use of the automobile.
(5) Payment of Employee's dues for membership in civic clubs
and a country club. The selection of the country club must be first approved by
Employer.
(6) Three (3) weeks of vacation time each year.
(7) A non-contributing disability income plan wherein the
Employer will provide the Employee with the following disability income payable
to age 65 and after a ninety (90) day waiting period: disability income equal to
sixty percent (60%) of the Employee's annual salary as it exists from time to
time, but in no event less than Five Thousand Dollars ($5,000.00) per month.
Notwithstanding the foregoing, the disability income benefits shall not exceed
any applicable legal or regulatory cap or limitation.
As to (1), (2), (3) and (7) above, all such benefits shall be
subject to the plans adopted by the Employer from time to time, it being
understood by the parties that said benefits also apply to the Employer's work
force generally.
The Employer, 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 Employer may require the Employee to have a thorough
annual physical examination and will reimburse the Employee for the expense.
Except as otherwise specifically set forth herein, nothing
herein shall be construed to impose upon Employer any legal obligation to
establish or maintain any particular benefit or benefits for any of its
employees.
(d) Employee shall also be eligible to receive an annual bonus
based upon performance criteria to be determined by the Board of Directors of
the Employer. The Board of Directors of the Employer shall determine the
performance criteria to be met by Employee for each fiscal year of Employer or
other twelve (12) month period designated by the Board of Directors of the
Employer during the term of this Agreement prior to the commencement of each
fiscal year or such other period and shall cause such criteria to be
communicated in writing to Employee. The amount of Employee's bonus shall be
determined based upon the level of achievement of Employee as compared with the
established performance criteria. The final determination concerning the levels
of achievement attained by Employee and the amount of each such annual bonus
shall be made by the Board of Directors of the Employer in its sole judgment.
Any bonus earned by the Employee pursuant to this Section 6(d) shall be payable
to Employee, less deductions required by law and Employee authorized deductions,
no later than March 31 following the year to which such bonus relates. The bonus
provided for hereunder shall be payable with respect to the fiscal year or such
other period immediately preceding the year in which the bonus is paid and shall
not be payable if the Employee is terminated for cause prior to the end of the
<PAGE>
fiscal year or such other period for which the bonus is to be paid. In the event
that the Employee dies, is terminated because of illness or disability as
provided in Section 10 of this Agreement, is terminated by the Employer without
cause prior to the end of the fiscal year or such other period for which such
bonus is to be paid, or is terminated by Employee pursuant to Section 11(a) or
Section 10(d)(iii), 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 Employer during such fiscal year as compared to 365.
(e) For the purpose of calculating all Employee benefits under
this contract and all employee stock option rights, Employee shall be deemed to
be in continuous employment with Employer from 1 August 1986 until the date such
calculation or determination is made.
Section 7. Non-Competition.
(a) While Employee is employed by Employer under this
Agreement, Employee will not, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of, or
be connected with as an officer, employee, partner, director, consultant, or
otherwise, or have any financial interest in, or aid or assist anyone else in
the conduct of, any financial institution which customarily takes deposits and
gives loans, or is about to or proposes to engage in such banking activities,
which is in competition with businesses conducted by the Employer or its
affiliates; [provided, however, that notwithstanding the foregoing the Employee
shall be entitled to acquire as a passive investment a proprietary interest not
to exceed 3% of the equity of any publicly-held company.]
(b) While Employee is employed by the Employer under this
Agreement Employee will not, directly or indirectly, employ, solicit for
employment, or advise or recommend to any other person that such person employ
or solicit for employment, any person employed by the Employer or its
affiliates.
(c) While Employee is employed by the Employer under this
Agreement Employee shall not, directly or indirectly, solicit or advise or
recommend to any other person that such person solicit, any customer of the
Employer or its affiliates for the purpose of obtaining the regular banking
services of such customer.
(d) For two (2) years after the termination of the employment
of Employee hereunder for any reason whatever other than (1) termination of the
employment of Employee by Employer without cause pursuant to Section 10(e) or,
(2) by termination of the employment of Employee upon material breach of this
Agreement by Employer pursuant to Section 10(d)(iii), Employee will not, within
Iredell County, Lincoln County and that portion of Mecklenburg County north and
west of Interstate 85 (the "geographic area"), directly or indirectly, own,
manage, operate, control or participate in the ownership, management, operation
or control of, or be connected with as an officer, employee, partner, director,
consultant, or otherwise, or have any financial interest in, or aid or assist
anyone else in the conduct of, any financial institution which customarily takes
deposits and gives loans, or is about to or proposes to engage in such banking
activities, which is in competition with businesses conducted by the Employer or
its affiliates in the geographic area; [provided, however, that notwithstanding
the foregoing the Employee shall be entitled to acquire as a passive investment
a proprietary interest not to exceed 3% of the equity of any publicly-held
company.] [Nothing in this Section 7(d) shall be construed to prohibit Employee
from working for any entity in competition with businesses of the Employer or
its affiliates in the geographic area so long as the Employee has no role in and
does not participate in any way in that entity competing with businesses of the
Employer or its affiliates in the geographic area. Example: Section 7(d) would
not prohibit Employee from working for XYZ Bank in Salisbury, North Carolina
even if XYZ Bank had a branch office in the geographic area so long as the
Employee did not participate in any way in the operation or management of the
branch office-located in the geographic area].
(e) For a period of two (2) years after the termination of the
employment of Employee hereunder, for any reason whatever other than (1) by
termination of the employment of Employee by Employer without cause pursuant to
Section 10(e), or by termination of the employment of Employee upon material
breach of this Agreement by Employer pursuant to Section 10(d)(iii), Employee
will not, directly or indirectly, employ, solicit for employment, or advise or
recommend to any other person that such person employ or solicit for employment,
any person employed by the Employer or its affiliates.
(f) For a period of two (2) years after the termination of the
employment of Employee hereunder, for any reason whatever other than (1) by
termination of the employment of Employee by Employer without cause pursuant to
Section 10(e), or by termination of the employment of Employee upon material
breach of this Agreement by Employer pursuant to Section 10(d)(iii), Employee
shall not, directly or indirectly, solicit or advise or recommend to any other
person that such person solicit, any customer of the Employer or its affiliates
for the purpose of obtaining the regular banking services of such customer.
(g) For purposes of this Section 7, "Employer" shall also
include the Employer's parent company and other affiliates.
<PAGE>
Section 8. Confidentiality. The Employee acknowledges that he has had
and will have access to certain information related to the business, operations,
future plans and customers of the Employer, the disclosure or use of which could
cause the Employer substantial losses and damages. Accordingly, the Employee
covenants that during the term of his employment with the Employer and
thereafter if he voluntarily terminates his employment, he will keep
confidential all business and technical information and documents which
constitute trade secrets furnished to him by or on behalf of the Bank and not
use the same to his advantage, except to the extent such information or
documents are or thereafter become lawfully obtainable from other sources, are
in the public domain through no fault on his part, or is consented to in writing
by the Employer. Upon termination of his employment, the Employee shall return
to the Employer all records, lists, files and documents which are in his
possession and which relate to the Employer.
This restriction shall expire two (2) years from the date of Employee's
termination.
For the purposes of Sections 7 and 8, the term Employer shall be deemed
to include Employer's subsidiaries, parent company, sister companies and
affiliates (the "Carolina First family of businesses").
Section 9. Limitation on Sections 7 and 8.
(a) So long as Employer makes the payments required by this
Employment Agreement upon a termination of Employee's employment, the
restrictive covenants set forth in Section 7, as modified by Section 9(c) herein
shall apply without exception.
(b) Upon a breach of this agreement by Employer failing to
make payments required of it under this Employment Agreement upon a termination
of employment, the provisions of Section 7 shall terminate in the event
Employer, after thirty (30) days notice from Employee fails to cure the default.
Upon the failure of Employer to cure the default within the required time,
Employee may immediately declare all remaining sums to be immediately due and
payable and may institute such legal actions as may be necessary to collect said
sums in full.
(c) Notwithstanding anything else contained in this Agreement,
the provisions of Section 7 shall not prevent the Employee, after his employment
is terminated, from owning, operating or otherwise working for a business the
principal purpose of which is the sale of insurance products or securities
except that the provisions of Section 7 shall prevent the Employee from owning,
operating or otherwise working for such a business while the Employee is
employed by Employer pursuant to this Agreement and in the event that the
Employee's employment is terminated by the Employee pursuant to Section
10(d)(ii).
Section 10. Termination. If the term of this Agreement has not
sooner expired by lapse of time, the term of Employee's employment shall termi-
nate upon the occurrence of any of the following:
(a) Death. Upon the death of the employee;
(b) Disability. Upon Employee being disabled, to the extent
that Employee qualifies for and receives the maximum allowable permanent
disability payment under Employee's disability income plan.
(c) By the Employer for Cause. Employee's employment may be
terminated effective immediately by the Employer for "cause" by notice of
termination to the Employee. "Cause" for such termination shall mean the
following:
(i) Dishonesty of the Employee with respect to
the Employer;
(ii) Willful misfeasance or nonfeasance of duty
having the effect of injuring the reputation, business or business relationship
of the Employer or its officers, directors or employees
(iii) Conviction of the Employee upon a felony charge
or upon a charge of any crime involving moral turpitude;
(iv) Willful or prolonged absence from work by the
Employee (other than by reason of disability due to physical or mental illness)
or failure, neglect or refusal by the Employee to perform his duties;
(v) Material breach by the Employee of any of the
covenants contained in this Agreement.
(d) By Employee.
(i) By Employee pursuant to Section 11 hereafter;
(ii) By Employee for any reason upon 90 day's notice
to Employer.
<PAGE>
(iii) By Employee upon a material breach of this
Agreement by Employer. Any such termination
must be elected by Employee within thirty
(30) days of any such breach or the breach
will be deemed to have been waived for all
purposes.
(e) By Employer for any reason other than cause upon
90 day's notice to Employee. Cause shall have the definition stated above.
Except as otherwise provided in this Agreement, Employee's right to
further compensation and benefits under this Agreement shall cease upon the
termination of his employment. Except as otherwise provided in this Agreement,
Employee shall remain entitled to any unpaid compensation and benefits accrued
prior to termination. Likewise, Employee shall be entitled to receive all
insurance and disability payments if termination is due to death or disability.
In the event that the employment of the Employee is terminated by the Employer
without cause pursuant to Section 10(e) during the terms of this Agreement, or
should Employee terminate his employment pursuant to Section 11(a) or Section
10(d)(iii), the Employer shall continue to pay the Annual Salary and provide the
benefits set forth in Section 6 of this Agreement (except for the annual bonus,
the payment of which is controlled by Section 6(d) and Section 11) for a period
of twenty-four (24) months after the termination of Employee's employment, as
severance pay.
Section 11. Merger/Change of Control. Notwithstanding the provisions of
Section 2, upon the happening of one of the following events during the term of
this Agreement, the Employee shall elect by notice to the Employer either (a) to
terminate his employment under this Agreement effective as of ninety (90) days
from the occurrence of one of the events specified in (i) through (iv) below or
(b) complete the term of his employment hereunder. Such election shall be made
within ninety (90) days of the event's occurrence (the time and date the event
becomes effective). If the Employee elects the option provided for in (a) above,
the Employee shall be entitled to any unpaid compensation and benefits accrued
prior to his leaving the employment of the Employer and a pro-rata share of his
performance bonus, if otherwise earned. Except as specifically modified in
Section 9 above, the provisions of Sections 7 and 8 of this Agreement will apply
in the event that the Employee exercises the option provided in (a) above and
terminates his employment. If Employee elects the option provided for in (b)
above, the capacity and duties of the Employee may not differ materially from
those provided in Section 4, and shall be appropriate, taking into account
Employee's capacity and duties with Employer as provided in Section 4.
The events referred to above are as follows:
(i) A change of control which shall be deemed to have occurred
if and when any "person", as such term is used in 15 USCA Section 78c(9), is or
becomes a beneficial owner, directly or indirectly, of securities of the
Employer or its parent company representing greater than fifty percent (50%) of
the combined voting power of the Employer'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 a member or members of the Employer's Board of Directors,
existing at any time, acquiring, directly or indirectly, more than fifty percent
(50%) of the combined voting power of the Employer's or its parent company's
outstanding securities.
(ii) Any sale, transfer or other disposition of more than
fifty percent (50%) of the assets of Lincoln Bank of North Carolina, to any
entity outside the Carolina First BancShares, Inc. family of companies.
(iii) Any dissolution or liquidation of Lincoln Bank of North
Carolina, or its parent company;
(iv) Any conversion of the common stock of Lincoln Bank of
North Carolina or Carolina First BancShares, Inc. into the shares or securities
of another corporation;
Section 12. 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 7 and 8 (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 Employer
and its affiliates. Employee further acknowledges that due to the nature of
Employer's business, more limited restriction than those found herein would not
be reasonable or appropriate. The Employee covenants and agrees with Employer
that the Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations or benefits which the Employee
directly or indirectly has realized and/or may realize as a result, growing out
of or in connection with any such violations; such remedy to be in addition to
and not in limitation to any injunctive relief or other rights or remedies to
which Employer or its affiliates is or may be entitled to at law or in equity.
In the event that notwithstanding the foregoing, any part of the covenants set
forth in this Agreement shall be held to be invalid or unenforceable, the
remaining parts hereof shall nevertheless continue to be valid and enforceable
as though the invalid and unenforceable part had not been included herein. 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 or 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.
<PAGE>
Section 13. Stock Options. Any and all stock options previously
issued in favor of Employee shall remain in full force and effect according to
their terms.
Section 14. 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
Employer at:
President, Lincoln Bank of North Carolina
402 East Main Street
Lincolnton, NC 28092
and addressed to Employee at:
Stephen S. Robinson
918 Stony Crest Court
Mooresville, NC 28115
or at such changed addresses as the parties may designate in writing.
Section 15. 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 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 and qualifications of 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.
(g) Governing Law. This Agreement shall be construed and
governed in accordance with the laws of the State of North Carolina. Employer
hereby consents to the jurisdiction of any local, state or federal court located
in the State of North Carolina, and hereby waives personal service of process
and consents to service of process by certified or registered mail directed to
Employee at Employee's address stated in Section 11 of this Agreement. Employee
further specifically consents to venue in Lincoln County.
(h) Burden and Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs, successors and,
as allowed herein, assigns.
(i) Assignment. The terms of this Employment Agreement are
personal to Employee. As such Employer may not assign its interest in this
Employment Agreement other than to Employer's subsidiaries, parent company,
sister companies and such affiliates as may exist from time to time (the
"Carolina First family of businesses"). Employer may also assign this Employment
Agreement pursuant to any Merger or Change of Control as set forth in Section 11
herein (subject to Employee's rights specified in Section 11). Employee may not
assign his interest in this Employment Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
Employer:
LINCOLN BANK OF NORTH CAROLINA
By /s/ James S. Burt III
----------------------
Title: President
ATTEST:
/s/ Joy G. Keever
- -----------------
Secretary
(Corporate Seal)
Employee:
/s/ Stephen S. Robinson (SEAL)
--------------------------------
Stephen S. Robinson
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (sometimes referred to below as the
"Agreement"), Made and entered into this the day of October 21, 1996, by and
between RONALD D. SMITH, a resident of Cabarrus County, North Carolina
(hereinafter referred to as "Employee"); and CABARRUS BANK OF NORTH CAROLINA, a
corporation with its principal office in Concord, North Carolina (hereinafter
referred to as "Employer").
WHEREAS, the Employer desires to secure the future services of the
Employee and to that end desires to enter into this Employment Agreement with
Employee, upon the terms and conditions herein set forth, which replaces and
supersedes all prior employment contracts, agreements or understandings, if any,
between the Employee and the Employer; and,
WHEREAS, the Employee wishes to accept employment and enter into this
Employment Agreement with Employer effective as of April 1, 1996;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and of 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. Employer hereby agrees to employ
the Employee and Employee hereby agrees to become and remain employed by
Employer for the term, and upon and subject to the terms and conditions
hereafter set forth.
Section 2. Term. Employer and Employee hereby agree that Employee shall
become employed by Employer under the terms of this Agreement as of April 1,
1996 (the "Commencement Date"), and shall remain employed by Employer for a
period of six (6) years and six (6) months, unless sooner terminated pursuant to
the terms hereof (the "Employment Period").
Section 3. Employee Representations. Employee represents to Employer
that Employee is not subject to an employment agreement with any other employer,
nor to any other agreements under the terms of which he may be prohibited from
accepting employment with Employer, and that Employee may accept employment with
Employer effective as of the Commencement Date.
Section 4. Duties of Employee.
(a). Subject to the supervision and pursuant to the orders, advice and
directions of the Board of Directors of the Employer, Employee shall
perform his assigned duties as President of Employer and shall perform
such other duties as are customarily performed by one holding such
positions in other, the same or similar businesses or enterprises as
that engaged in by Employer. (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 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 Employer. Such duties shall be rendered at Employer's offices in
Concord, North Carolina, and at such other place or places as the
interests, needs, business and opportunities of Employer shall
reasonably require or make advisable. (c). Employee hereby agrees to
refrain from engaging in any ventures or enterprises which might
interfere with the performance of his express and implied duties
hereunder. Employee shall at all times conduct himself in a manner that
will not prejudice or injure the reputation of Employer, its other
employees or any of its affiliates. Section 5. Employer's Right to
Benefits of Work Performed. Employer 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 6. Compensation, Expenses and Benefits.
(a). Employer shall pay to Employee, and Employee shall accept from
Employer, during the Employment Period, and in consideration for the
services to be performed by Employee, a salary at the rate of
$91,249.00 per annum (the "Annual Salary"), less deductions required by
law and Employee authorized deductions, payable in such equal periodic
installments as Employer may determine, but not less frequently than
monthly. Provided, however, that each year the salary of the Employee
shall be reviewed and a salary amount set for the following year by
mutual agreement with the Board of Directors. 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 6(a) above, Employer agrees to reimburse
Employee promptly (in accordance with policies and procedures adopted
by the Board of Directors of Employer) for all reasonable and necessary
expenses incurred by Employee in connection with the Employer'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 Employer may require and to account to Employer therefore
prior to any such reimbursement. Employee shall comply with all
reasonable and lawful policies and procedures applied by Employer 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. (c). Employer hereby agrees to
make available to Employee, during the Employment Period, all benefits
which are generally available to similarly situated employees of the
Employer, subject to and on a basis consistent with the terms and
conditions of such benefits. In addition, Employer agrees to provide
Employee with the following benefits:
<PAGE>
(1) A non-contributing qualified employee profit-sharing plan;
additionally, participation in the Employer's 401(K) Plan. (2)
A non-contributing employee's group life insurance plan which
will provide life insurance for Employee in the amount equal
to two (2) times Employee's annual salary (or a maximum of
$250,000.00) during all times that Employee remains an active
employee. (3) A non-contributing accident and health insurance
plan for the payment of medical care expenses for Employee.
(4) A non-contributing deferred compensation plan pursuant to
the terms of Exhibit "A" attached. (5) A non-contributing
disability income plan wherein the Employer will provide the
Employee with the following disability income payable to age
65 and after a ninety (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 Employer, in its sold 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 Employee may require the Employee to have a
thorough annual physical examination and will reimburse the
Employee for the expense.
Except as otherwise specifically set forth herein, nothing herein shall
be construed to impose upon Employer any legal obligation to establish
or maintain any particular benefit or benefits for any of its
employees. (d). Employee shall also be eligible to receive an annual
bonus based upon performance criteria to be determined by the Board of
Directors of the Employer. The Board of Directors of the Employer shall
determine the performance criteria to be meet by Employee for each
fiscal year of Employer or other twelve (12) month period designated by
the Board of Directors of the Employer during the term of this
Agreement prior to the commencement of each fiscal year or such other
period and shall cause such criteria to be communicated in writing to
Employee. The amount of Employee's bonus shall be determined based upon
the level of achievement of Employee as compared with the established
performance criteria. The final determination concerning the levels of
achievement attained by Employee and the amount of each such annual
bonus shall be made by the Board of Directors of the Employer in its
sole judgment. Any bonus earned by the Employee pursuant to this
Section 6(d) shall be payable to Employee, less deductions required by
law and Employee authorized deductions, no later than March 31
following the year to which such bonus relates. The bonus provided for
hereunder shall be payable with respect to the fiscal year or such
other period immediately preceding the year in which the bonus is paid
and shall not be payable if the Employee is terminated for cause prior
to the end of the fiscal year or such other period for which the bonus
is to be paid. In the event that the Employee dies, is terminated
because of illness or disability as provided in Section 9 of this
Agreement or is terminated by the Employer without cause prior to the
end of the fiscal year or such other period for which such bonus is to
be paid, 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 Employer during such fiscal year as
compared to 365. Section 7. Non-Competition. (a). While Employee is
entitled by Employer under this Agreement and for two (2) years after
the termination of the employment of Employee hereunder for any reason
whatever other than termination of the employment of Employee by
Employer without cause pursuant to Section 9(d), Employee will not,
directly or indirectly, own, manage, operate, control or participate in
the ownership, management, operation or control of, or be connected
with as an officer, employee, partner, director, consultant, or
otherwise, or have any financial interest in, or aid or assist anyone
else in the conduct of, any enterprise which engages in, or is about to
engage in, or otherwise carries on, any business activity which is in
competition with businesses conducted by the Employer or its affiliates
in any geographical region in which the Employer or its affiliates
conducts such businesses during the term of this Agreement; [provided,
however, that notwithstanding the foregoing the Employee shall be
entitled to acquire as a passive investment a proprietary interest not
to exceed 3% of the equity of any publicly-held company.] (b). While
Employee is employed by the Employer under this Agreement and for a
period of two (2) years after the termination of the employment of
Employee hereunder, for any reason whatever, Employee will not,
directly or indirectly, employ, solicit for employment, or advise or
recommend to any other person that such person employ or solicit for
employment, any person employed by the Employer or its affiliates. (c).
While Employee is employed by the Employer under this Agreement and for
a period of two (2) years after the termination of the employment of
Employee hereunder, for any reason whatever, Employee shall not,
directly or indirectly, solicit or advise or recommend to any other
person that such person solicit, any customer of the Employer or its
affiliates for the purpose of obtaining any business of such customer.
(d). For purposes of this Section 7, "Employer" shall also include the
Employer's parent company, sister companies, subsidiaries and other
affiliates. Section 8. Nondisclosure of Confidential Information. (a).
<PAGE>
Employee covenants and agrees to treat as confidential and not to
disclose and to use only for the advancement of the interests of
Employer all information, plans, records, trade secrets, business
secrets, and confidential or other data of Employer, submitted to
Employee or complied, received, or otherwise discovered by Employee
from time to time in the course of his employment by Employer for use
in Employer'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 Employer 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
Employer, for any reason, voluntary or involuntary, with or without
cause, he will immediately return to the Employer any property,
customer lists, information forms, formulae, plans, documents or other
written or computer material or data, software or firmware, or copies
of the same, belonging to Employer 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, trade mark, service mark, or other
proprietary business designation used or owned in connection with the
business of the Employer or its affiliates. (c). Employee agrees that
all inventions, designs, improvements, writings and discoveries made
during the term of this Agreement and pertaining to the business
conducted by the Employer shall be the exclusive property of the
Employer. Employee shall assist the Employer in obtaining patents and
copyrights on all such inventions, designs, improvements, writings and
discoveries deemed suitable for patent or copyright by the Employer,
and shall execute all documents and do all things necessary to obtain
letters, patents, or copyrights, and to vest the Employer with full and
exclusive title thereto, and protect the same against infringements by
others. (d). Notwithstanding any provision of this Agreement to the
contrary, the obligation of Employee to vest in Employer exclusive
title to inventions, designs, improvements, writings and discoveries
shall not extend or apply to inventions, designs, improvements,
writings or discoveries developed or made by Employee wholly and
completely outside the course and scope of his employment under this
Agreement, entirely on his own time, and without using Employer's
equipment, supplies, facilities or trade secret information. Employee
acknowledges and agrees that an exclusion under this Section 8(d) shall
not apply where Employee's invention, design, improvement, writing or
discovery: (1) relates, directly or indirectly, to Employer's business
or businesses or actual or demonstrable anticipated research or
development; or (2) results from any work performed by Employee for
Employer. Employee shall bear the burden of proof in establishing an
exclusion under this Section 8(d). (e). For purposes of this Section 8,
the term "Employer" shall also include the Employer's parent company,
sister companies, subsidiaries and other affiliates. Section 9.
Termination. If the term of this Agreement has not sooner expired by
lapse of time, the term of Employee's employment hereunder shall termi-
nate upon the occurrence of any of the following:
(a). Upon the death of the Employee.
(b). As a result of the 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"), Employer may terminate this Agreement. Said termination
shall not be effective until such time as Employer 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
9(b), the term "Disability" shall mean the Employee's inability to
perform functions normally performed for Employer by the Employee. A
"Determination of Permanent Disability" may be made at the request of
either the Employer or Employee; provided, however, that in the event
Employee is unable, due to his disability, to make such a requests, his
spouse or other designee may make a request in his stead. In the event
of a request by either Employee or Employer for a "Determination of
Permanent Disability", each of Employee and Employer shall designate
one doctor to participate in the determination; provided, however, that
if Employee is unable, due to his disability, to make such a
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 9(b), such determination shall be final. If
the two doctors fail to agree, they shall designate a third doctor to
make the determination required by this Section 9(b), which
determination shall be final. (c). At the election of Employer, for
cause. "Cause" shall mean just and reasonable cause, including without
limitation, (1) persistent incompetency or inefficiency, failure to
follow reasonable instructions received from the Board of Directors of
the Employer or its delegate, willful misconduct, dishonesty,
alcoholism, addiction to drugs, or convictions of a felony or a
misdemeanor (but not an infraction), (2) material breach of any
covenant contained in this Agreement, including without limitation,
failure to devote substantially all business time to the business of
the Employer. (d). At the election of Employer, for reasons other than
for cause. "Cause" shall have the definition stated above. Upon
termination under this Section 9, Employee's right to further
compensation and benefits under this Agreement shall cease; provided,
<PAGE>
however, that Employee shall remain entitled to any unpaid compensation
and benefits accrued prior to such termination and to any expense
reimbursements to which he was entitled at the date of such
termination, and if Employee's employment is terminated without cause
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 Section 6(d)
of this Agreement. Notwithstanding anything herein to the contrary, in
the event that the employment of the Employee is terminated by the
Employer without cause during the term of this Agreement, the Employer
shall continue to pay the Annual Salary and provide the benefits set
forth in Section 6 of this Agreement [except for the annual bonus, the
payment of which is controlled by Section 6(d)] for a period of twelve
(12) months after the termination of Employee, as severance pay.
Notwithstanding anything herein to the contrary, the terms contained in
Sections 7 and 8 hereof shall survive the termination of this
Agreement. In limitation of Employer's obligations to Employee in the
event that Employee is terminated by Employer pursuant to Section 9(d),
should the Employee become employed within the period during which the
Annual Salary is being paid him, then in that event the Employer shall
receive credit for, and shall not be obligated to pay Employee, a sum
equal to the gross wages from Employee's new employment (including
self-employment) (but not including unearned income [dividends,
interest, etc.] or income that the Employee began receiving prior to or
while in the employ of the Employer, it being the intent of the parties
that the Employer receive credit for new and earned income of the
Employee that replaces income previously earned from the Employer) that
is paid to Employee. [Example: If Employer's monthly obligation is to
pay Employee $5,000.00 per month in gross wages (calculated by
reference to his Annual Salary as stated above), and if Employee is
paid $3,000.00 per month in gross wages by his new employer (or by
self-employment as the case may be), then Employer's obligation to
Employee is reduced to $2,000.00 per month.] Should the gross wages
paid to Employee in his new employment equal or exceed the amount owed
to him by Employer, then Employer shall have no further obligations to
Employee hereunder. For purposes of allowing Employer to know of
Employee's income, if any, following termination that requires Employer
to continue to pay Employee his Annual Salary, during such time the
Employee shall disclose to Employer by method satisfactory to Employer
the gross income earned by Employee. Such disclosure shall be made at
least quarterly. During such period the Employee shall have the
affirmative duty to use his best efforts to seek and obtain employment.
Section 10. Change of Control. If, at any time within thirty-six (36)
months following a "Change in Control" as defined hereafter, Employee is
terminated by Employer without cause pursuant to Section 9(d), Employer shall
continue to pay the Annual Salary and provide the benefits set forth in Section
6 of this Agreement for a period of twenty-four (24) months after the
termination of Employee as severance pay (this compensation to be in lieu of
that severance compensation set forth in Section 9 for termination without
cause). Said Annual Salary shall be paid periodically and on the same schedule
as that prior to Employee's termination. In limitation of the foregoing, should
the Employee become employed within the period during which the Annual Salary is
being paid him, then in that event the Employer shall receive credit for, and
shall not be obligated to pay Employee, a sum equal to the gross wages from
Employee's new employment (including self-employment) (but not including
unearned income [dividends, interest, etc.] or income that the Employee began
receiving prior to or while in the employ of the Employer, it being the intent
of the parties that the Employer receive credit for new and earned income of the
Employee that replaces income previously earned from the Employer) that is paid
to Employee. [Example: If Employer's monthly obligation is to pay Employee
$5,000.00 per month in gross wages (calculated by reference to his Annual Salary
as stated above), and if Employees is paid $3,000.00 per month in gross wages by
his new employer (or by self-employment as the case may be), then Employer's
obligation to Employee is reduced to $2,000.00 per month.] Should the gross
wages paid to Employee in his new employment equal or exceed the amount owed to
him by Employer, then Employer shall have no further obligation to Employee
hereunder. For purposes of allowing employer to know of Employee's income, if
any, following termination that requires Employer to continue to pay Employee
his Annual Salary, during such time the Employee shall disclose to Employer by
method satisfactory to Employer the gross income earned by Employee. Such
disclosure shall be made at least quarterly. During such period the Employee
shall have the affirmative duty to use his best efforts to see and obtain
employment. Additionally, in the event of such a Section 9(d) termination
occurring within thirty-six (36) months following a Change of Control, the
provisions of Section 7 shall not be effective, and the vesting schedule in the
Employee's deferred compensation agreement attached hereto as Exhibit "A" shall
automatically be accelerated such that the Employee shall be entitled to the
same benefits under the agreement as if the Employee had remained in the
employment of the Employer through August 31, 2002.
<PAGE>
Notwithstanding anything in this Agreement to the contrary, the
Employee may, at any time following a change of control, voluntarily leave the
employment of the Employer. In such an event the provisions of Section 7 shall
be effective, and the vesting schedule in the Employee's deferred compensation
agreement attached hereto as Exhibit "A" shall automatically be accelerated such
that the Employee shall be entitled to the same benefits under the agreement as
if the Employee had remained in the employment of the Employer through August
31, 2002. Additionally, the Employee shall be entitled to any unpaid
compensation and benefits accrued prior to the Employee leaving the employment
of the Employer and to any expense reimbursements to which he was entitled prior
to ending his employment. He shall not be paid any salary which was not accrued
prior to the Employee leaving the employment of the Employer. He shall not be
paid an annual bonus pursuant to Section 6 for the year he leaves the employment
of the Employer.
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) is or becomes a beneficial owner, directly or
indirectly, of securities of the Employer or its parent company representing
greater than fifty percent (50%) of the combined voting power of the Employer'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
Employer's present Board of Directors (i.e. existing on March 1, 1996), or a
group of persons including the Employee and/or a member or members of the
Employer's present Board of Directors, acquiring, directly or indirectly, more
than fifty percent (50%) of the combined voting power of the Employer's or its
parent company's outstanding securities. In limitation of the provisions in the
preceding sentence, a "change in control" shall be deemed to have occurred if
the member or members of the Employer's present Board of Directors do not own,
control or constitute a material portion of the acquiring "person". "Material"
shall mean ownership or control of at least twenty percent (20%) of the
acquiring person.
Any dispute or controversy arising under or in connection with this
Section 10 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 11. 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 7 and 8 (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 Employer
and its affiliates. Employee further acknowledges that due to the nature of
Employer's business, more limited restrictions than those found herein would not
be reasonable or appropriate. The Employee covenants and agrees with Employer
that the Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations or benefits which the Employee
directly or indirectly has realized and/or may realize as a result, growing out
of or in connection with any such violations; such remedy to be in addition to
and not in limitation of any injunctive relief or other rights or remedies to
which Employer or its affiliates is or may be entitled to at law or in equity.
In the event that notwithstanding the foregoing, any part of the covenants set
forth in this Agreement shall be held to be invalid or unenforceable, the
remaining parts hereof shall nevertheless continue to be valid and enforceable
as though the invalid and unenforceable part had not been included herein. 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 or 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 12. 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
Employer at:
c/o John R. Boger, Jr.
Chairman, Cabarrus Bank of North Carolina
71 McCathern Blvd., S.E.
Concord, N.C. 28025
and addressed to Employee at:
Ronald D. Smith
5367 Lynchburg Dr.
Concord, North Carolina 28025
or at such changed addresses as the parties may designate in writing.
<PAGE>
Section 13. 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 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, modi-
fications, additions and qualifications of 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 constructed in all respects as if such invalid or
unenforceable provisions were omitted.
(g). Governing Law. This Agreement shall be construed and
governed in accordance with the laws of the State of North Carolina.
Employer hereby consents to the jurisdiction of any local, state or
federal court located in the State of North Carolina, and hereby waives
personal service of process and consents to service of process by
certified or registered mail directed to Employee at Employee's address
stated in Section 11 of this Agreement. Employee further specifically
consents to venue in Lincoln County.
(h). Burden and Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs,
successors and assigns. IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date and year first above written.
EMPLOYER:
Cabarrus Bank of North Carolina
By: \S\John R. Boger, Jr.
----------------------------
John R. Boger, Jr.
Title: Chairman
----------------------------
EMPLOYEE:
\S\ Ronald D. Smith
----------------------- (SEAL)
Ronald D. Smith
<PAGE>
CABARRUS BANK OF NORTH CAROLINA
DEFERRED COMPENSATION AGREEMENT WITH
RONALD D. SMITH
THIS PLAN AND AGREEMENT, Executed this _18__ day of __February_, 1993,
by and between CABARRUS BANK OF NORTH CAROLINA, a North Carolina banking
corporation (hereinafter referred to as the "Company"), and RONALD D. SMITH, a
citizen and resident of Cabarrus County, North Carolina (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 maintain a plan for the purpose of providing certain
benefits for the Employee;
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE I
EMPLOYMENT
The Company may employ the Employee at such rate of compensation and on
such terms as may be agreed to by the parties. Nothing in this Agreement shall
be construed to grant any employment rights to the Employee.
ARTICLE II
BENEFITS
The Company shall be obligated to provide benefits to the Employee as
follows:
A. Upon retirement from the Company at age 65, or retirement from the
Company at some later date, the Employee shall receive a monthly income of
$2,500.00 for 120 consecutive months beginning on the first business day of the
calendar month next succeeding the Employee's retirement date. Should the
Company allow retirement prior to the Employee reaching the age of 65 years,
then the payments described above shall begin upon the Employee reaching the age
of 65 years; however, the Company may allow payments to begin at the actual
retirement date in its sole discretion.
In the event the Employee dies after the monthly payments begin but
prior to receiving all 120 monthly payments then his beneficiary(s) shall be
entitled to receive all remaining payments.
B. If the Employee shall die before the aforesaid retirement date while
in the employ of the Company, the Company agrees to make the said monthly
payments set forth in sub-paragraph A. above to the beneficiary(s) of the
Employee as per Article IV of this agreement.
C. Upon permanent disability before retirement at age 65 while in the
employ of the Company, the Employee shall receive no benefits under this
Deferred Compensation Plan until the age of 65 at which time the monthly
payments set forth in sub-paragraph A above shall begin. If the Employee shall
die after becoming permanently disabled while in the employ of the Company but
before the age of 65 then the monthly payments set forth in sub-paragraph A
above shall begin at the Employee's death and shall be made to his
beneficiary(s) as per Article IV of this Agreement. The "permanent disability"
of the Employee shall be determined by the Company's Board of Directors.
D. Should the employee leave the employ of the Company after August 31,
2002, for any reason then the Employee shall receive a monthly income for 120
months as set forth below. Said payments shall begin and shall be paid pursuant
to the applicable schedule and procedures set forth in sub-paragraphs A, B and C
above. For purposes of applying sub-paragraph A. it shall be conclusively
presumed that the Employee will retire at age 65.
Date Employment Ends Monthly Payment
After August 31, 2002 $1,250.00
After August 31, 2003 $1,500.00
After August 31, 2004 $1,750.00
After August 31, 2005 $2,000.00
After August 31, 2006 $2,250.00
After August 31, 2007 $2,500.00
<PAGE>
ARTICLE III
SOURCE OF PAYMENTS
Nothing herein shall require the Company to purchase any life insurance
contract or any other property 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 or right under such contract or
other property, to exercise such option, election or right in any particular
manner. The Company's obligation hereunder is totally unsecured.
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 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
BENEFICIARY
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 "Exhibit 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 and 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 named in the Employee's last will and
testament, except as 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 shall be subject to, and governed by, the laws of the
State of North Carolina. Any disputes arising under this Agreement shall be
settled exclusively by binding arbitration pursuant to the applicable rules of
the American Arbitration Association.
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.
This Agreement may be amended or revoked at any time or times, in whole
or in part, 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.
<PAGE>
ARTICLE VII
FUNDING POLICY AND CLAIMS FOR BENEFITS
The Company shall establish a funding policy and method for this Plan,
and shall at least 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
the requirements of law.
Claims for benefits under this Plan shall be made in writing to the
Company. If such claim for benefits is wholly or partially denied, the Company
shall, within a reasonable period of time, but no later than 90 days after
receipt of the claim, notify the claimant of the denial of the claim. Such
notice of denial (i) shall be in writing, (ii) shall be written in a manner
calculated to be understood by the claimant, and (iii) shall contain (a) the
specific reason or reasons for the denial of the claim, (b) a specific reference
to the pertinent plan provisions upon which the denial is based, (c) a
description of any additional material or information necessary for the claimant
to perfect the claim, along with an explanation of why such material or
information is necessary, and (d) an explanation of the plan's claim review
procedure.
Within 120 days of the receipt by the claimant of the written notice of
denial of the claim, or such later time as shall be deemed reasonable taking
into account the nature of the benefit subject to the claim and any other
attendant circumstances, the claimant may file a written request with the
Company that it conduct a full and fair review of the denial of the claimant's
claim for benefits, including the conducting of a hearing, if deemed necessary
by the Company. In connection with the claimant's appeal of the denial of his
benefit, the claimant may review pertinent documents and may submit issues and
comments in writing.
The Company shall deliver to the claimant a written decision on the
claim promptly, but not later than 60 days, after the receipt of the claimant's
request for review, except that if there are special circumstances (such as the
need to hold a hearing) which require an extension of time for processing, the
aforesaid sixty (60) day period shall be extended to 120 days. Such decision
shall be (a) written in a manner calculated to be understood by the claimant,
(b) include specific reasons for the decision, and (c) contain specific
references to the pertinent plan provisions upon which the decision is based.
ARTICLE VIII
ADMINISTRATION
The Secretary of the Company shall maintain a copy of this Agreement
and any amendments thereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
the day and year first above written.
CABARRUS BANK OF NORTH CAROLINA
By/s/ James E. Burt, III
-------------------------
James E. Burt, III
President
EMPLOYEE
/s/ Ronald D. Smith (Seal)
-------------------------------
Ronald D. Smith
<PAGE>
EXHIBIT A
LINCOLN BANK OF NORTH CAROLINA
DEFERRED COMPENSATION AGREEMENT
WITH RON SMITH
I, Ronald D. Smith, hereby list my beneficiaries under this Plan
according to priority pursuant to Article VI of this Plan:
1st Priority: ____Kathryn P. Smith____________________
*2nd Priority: ____Bradley K. Smith____________________
*3rd Priority: ____Christopher M. Smith_________________
4th Priority: ______________________________________
5th Priority: ______________________________________
* 2nd and 3rd Priorities are Equal Beneficiaries
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (sometimes referred to below as the
"Agreement"), Made and entered into this the 1st day of February, 1999, by and
between JANET H. HOLLAR, a resident of Mecklenburg County, North Carolina
(herein referred to as "Employee"); and CAROLINA FIRST BANCSHARES, INC., a
corporation with its principal office in Lincolnton, North Carolina (hereinafter
referred to as "Employer").
WHEREAS, the Employer desires to secure the future services of the
Employee and to that end desires to enter into this Employment Agreement with
Employee, upon the terms and conditions herein set forth, which replaces and
supersedes all prior employment contracts, agreements or understandings, if any,
between the Employee and the Employer; and,
WHEREAS, the Employee wishes to continue employment and enter into this
Employment Agreement with Employer effective as of January 1, 1999;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and of 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. Employer hereby agrees to continue
to employ the Employee and Employee hereby agrees to remain employed by Employer
for the term, and upon and subject to the terms and conditions hereafter set
forth.
Section 2. Term. Employer and Employee hereby agree that Employee shall
become employed by Employer under the terms of this Agreement as of January 1,
1999 (the "Commencement Date"), and shall remain employed by Employer for a
period of five (5) years (through December 31, 2003), unless sooner terminated
pursuant to the terms hereof (the "Employment Period").
Section 3. Employee Representations. Employee represents to Employer
that Employee is not subject to an employment agreement with any other employer,
nor to any other agreements under the terms of which she may be prohibited from
accepting employment with Employer, and that Employee may accept employment with
Employer effective as of the Commencement Date.
Section 4. Duties of Employee.
(a) Subject to the supervision and pursuant to the orders,
advice and directions of the Board of Directors and President of the Employer,
Employee shall perform her assigned duties as Senior Vice President, Chief
Financial Officer, Secretary and Treasurer of Employer and shall perform such
other duties as are customarily performed by one holding such positions in
other, the same or similar business or enterprises as that engaged in by
Employer.
(b) Employee agrees that she will at all times faithfully,
industriously, and to the best of her ability, experience and talents, perform
all of the duties that may be reasonably required of and from her pursuant to
the express and implied terms hereof, to the reasonable satisfaction of the
President and Board of Directors of Employer.
(c) Employee hereby agrees to refrain from engaging in any
ventures or enterprises which might interfere with the performance of her
express and implied duties hereunder. Employee shall at all times conduct
herself in a manner that will not prejudice or injure the reputation of
Employer, its other employees or any of its affiliates.
Section 5. Employer's Right to Benefits of Work Performed. Employer
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 6. Compensation, Expenses and Benefits.
(a) Employer shall pay Employee during the Employment Period,
and in consideration for the services to be performed by Employee, a salary at
the rate of $90,000.00 per annum (the "Annual Salary"), less deductions required
by law and Employee authorized deductions, payable in such equal periodic
installments as Employer may determine, but not less frequently than monthly.
Provided, however, that each year the salary of the Employee shall be reviewed
and a salary amount set for the following year by mutual agreement with the
Board of Directors. In the event an agreement cannot be reached as to the salary
amount, the salary shall be that set for the previous year.
(b) In addition to the Annual Salary described in Section 6(a)
above, Employer agrees to reimburse Employee promptly (in accordance with
policies and procedures adopted by the Board of Directors of Employer) for all
reasonable and necessary expenses incurred by Employee in connection with the
Employer'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 her employment hereunder. Employee agrees to keep and
maintain such records of the aforesaid expenses as Employer may require and to
account to Employer therefore prior to any such reimbursement. Employee shall
comply with all reasonable and lawful policies and procedures applied by
<PAGE>
Employer 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.
(c) Employer hereby agrees to make available to Employee,
during the Employment Period, all benefits which are generally available to
similarly situated employees of the Employer, subject to and on a basis
consistent with the terms and conditions of such benefits. In addition, Employer
agrees to provide Employee with the following benefits.
(1) A non-contributing qualified employee profit-sharing plan
and participation in the Employer's 401(K) Plan.
(2) A non-contributing employee's group life insurance plan
which will provide life insurance for Employee in the amount equal to two (2)
times Employee's annual salary (or a maximum of $250,000.00) during all times
that Employee remains an employee of Employer.
(3) A non-contributing accident and health insurance plan for
the payment of medical care expenses for Employee.
(4) Three (3) weeks of vacation time each year.
(5) A non-contributing disability income plan.
As to (1), (2), (3) and (5) above, all such benefits shall be
subject to the plans adopted by the Employer from time to time, it being
understood by the parties that said benefits also apply to the Employer's work
force generally.
The Employer, 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 Employer may require the Employee to have a thorough
annual physical examination and will reimburse the Employee for the expense.
Except as otherwise specifically set forth herein, nothing
herein shall be construed to impose upon Employer any legal obligation to
establish or maintain any particular benefit or benefits for any of its
employees.
(d) Employee shall also be eligible to receive an annual bonus
based upon performance criteria to be determined by the Board of Directors of
the Employer. The Board of Directors of the Employer shall determine the
performance criteria to be met by Employee for each fiscal year of Employer or
other twelve (12) month period designated by the Board of Directors of the
Employer during the term of this Agreement prior to the commencement of each
fiscal year or such other period and shall cause such criteria to be
communicated in writing to Employee. The amount of Employee's bonus shall be
determined based upon the level of achievement of Employee as compared with the
established performance criteria. The final determination concerning the levels
of achievement attained by Employee and the amount of each such annual bonus
shall be made by the Board of Directors of the Employer in its sole judgment.
Any bonus earned by the Employee pursuant to this Section 6(d) shall be payable
to Employee, less deductions required by law and Employee authorized deductions,
no later than March 31 following the year to which such bonus relates. The bonus
provided for hereunder shall be payable with respect to the fiscal year or such
other period immediately preceding the year in which the bonus is paid and shall
not be payable if the Employee is terminated for cause prior to the end of the
fiscal year or such other period for which the bonus is to be paid. In the event
that the Employee dies, is terminated because of illness or disability as
provided in Section 10 of this Agreement, is terminated by the Employer without
cause prior to the end of the fiscal year or such other period for which such
bonus is to be paid, or is terminated by Employee pursuant to Section 10(d), a
pro rata portion of such bonus, if otherwise earned, shall nevertheless be paid
to the Employee or her estate, as the case may be. The pro rata portion shall be
based upon the number of days the Employee was employed by the Employer during
such fiscal year as compared to 365.
Section 7. Non-Competition.
(a) While Employee is employed by Employer under this
Agreement, Employee will not, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of, or
be connected with as an officer, employee, partner, director, consultant, or
otherwise, or have any financial interest in, or aid or assist anyone else in
the conduct of, any financial institution which customarily takes deposits and
gives loans, or is about to or proposes to engage in such banking activities,
which is in competition with businesses conducted by the Employer or its
affiliates [provided, however, that notwithstanding the foregoing the Employee
shall be entitled to acquire as a passive investment a proprietary interest not
to exceed 3% of the equity of any publicly-held company) .
<PAGE>
(b) While Employee is employed by the Employer under this
Agreement Employee will not, directly or indirectly, employ, solicit for
employment, or advise or recommend to any other person that such person employ
or solicit for employment, any person employed by the Employer or its
affiliates.
(c) While Employee is employed by the Employer under this
Agreement Employee shall not, directly or indirectly, solicit or advise or
recommend to any other person that such person solicit, any customer of the
Employer or its affiliates for the purpose of obtaining banking services of such
customer.
(d) For one (1) year after the termination of the employment
of Employee hereunder for any reason whatever other than (1) termination of the
employment of Employee by Employer without cause pursuant to Section 10(e) or,
(2) by termination of the employment of Employee upon material breach of this
Agreement by Employer pursuant to Section 10(d), Employee will not, directly or
indirectly, own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected with as an officer,
employee, partner, director, consultant, or otherwise, or have any financial
interest in, or aid or assist anyone else in the conduct of, any financial
institution which customarily takes deposits and gives loans, or is about to or
proposes to engage in such banking activities, which is in competition with
businesses conducted by the Employer or its affiliates [provided, however, that
notwithstanding the foregoing the Employee shall be entitled to acquire as a
passive investment a proprietary interest not to exceed 3% of the equity of any
publicly-held company].
(e) For a period of two (2) years after the termination of the
employment of Employee hereunder, for any reason whatever other than (1) by
termination of the employment of Employee by Employer without cause pursuant to
Section 10(e), or (2) by termination of the employment of Employee upon material
breach of this Agreement by Employer pursuant to Section 10(d), Employee will
not, directly or indirectly, employ, solicit for employment, or advise or
recommend to any other person that such person employ or solicit for employment,
any person employed by the Employer or its affiliates.
(f) For a period of two (2) years after the termination of the
employment of Employee hereunder, for any reason whatever other than (1) by
termination of the employment of Employee by Employer without cause pursuant to
Section 10(e), or (2) by termination of the employment of Employee upon material
breach of this Agreement by Employer pursuant to Section 10(d), Employee shall
not, directly or indirectly, solicit or advise or recommend to any other person
that such person solicit, any customer of the Employer or its affiliates for the
purpose of obtaining banking services of such customer.
(g) For purposes of this Section 7, "Employer" shall also
include the Employer's subsidiaries and other affiliates.
Section 8. Confidentiality. The Employee acknowledges that she has had
and will have access to certain information related to the business, operations,
future plans and customers of the Employer, the disclosure or use of which could
cause the Employer substantial losses and damages. Accordingly, the Employee
covenants that during the term of her employment with the Employer and
thereafter she will keep confidential all business and technical information and
documents which constitute trade secrets furnished to her by or on behalf of the
Employer and not use the same to her advantage, except to the extent such
information or documents are or thereafter become lawfully obtainable from other
sources, are in the public domain through no fault on her part, or is consented
to in writing by the Employer. Upon termination of her employment, the Employee
shall return to the Employer all records, list, files and documents which are in
her possession and which relate to the Employer. This restriction shall expire
two (2) years from the date of Employee's termination.
For the purposes of this Section 8, "Employer" shall also include the
Employer's subsidiaries and other affiliates.
Section 9. Limitations on Section 7. Upon a breach of this Employment
Agreement by Employer failing to make payments required of it upon a termination
of Employee's employment, the provisions of Section 7 shall terminate in the
event Employer, after thirty (30) days notice from Employee, fails to cure the
breach. Upon the failure of Employer to cure the breach within the required
time, Employee may immediately declare any remaining sums to be immediately due
and payable and may institute such legal actions as may be necessary to collect
said sums.
Section 10. Termination. If the term of this Agreement has not sooner
expired by lapse of time, the term of Employee's employment shall terminate upon
the occurrence of any of the following:
(a) Death. Upon the death of the Employee;
<PAGE>
(b) Disability. Upon the total and permanent disability of the
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"), Employer may terminate this Agreement. Said termination shall not
be effective until such time as Employer has given written notice to Employee,
at the address specified in Section 14, of its intent to terminate this
Agreement. For the purposes of this Section 10(b), the term "Disability" shall
mean the Employee's inability to perform functions normally performed for
Employer by the Employee. A "Determination of Permanent Disability" may be made
at the request of either the Employer or Employee; provided, however, that in
the event Employee is unable, due to her disability, to make such a request, her
spouse or other designee may make a request in her stead. In the event of a
request by either Employee or Employer for a "Determination of Permanent
Disability", each of Employee and Employer shall designate one doctor to
participate in the determination; provided, however, that if Employee is unable,
due to her disability, to make such a designation, her spouse or other designee
shall make the designation in her stead. If the two doctors so designated agree
on a determination required by this Section 10(b), such determination shall be
final. If the two doctors fail to agree, they shall designate a third doctor to
make the determination required by this Section 10(b), which determination shall
be final.
(c) By the Employer for Cause. Employee's employment may be
terminated effective immediately by the Employer for cause by notice of
termination to the Employee. "Cause" for such termination shall mean the
following:
(i) Dishonesty of the Employee with respect to her
employment with Employer;
(ii) misfeasance or nonfeasance with respect to her
employment with Employer;
(iii) Conviction of the Employee upon a felony charge
or upon a charge of any crime involving moral
turpitude;
(iv) willful or prolonged absence from work by the
Employee (other than by reason of disability due to physical or mental illness)
or failure, neglect or refusal by the Employee to perform her duties;
(v) Material breach by the Employee of any of the
covenants contained in this Agreement.
(d) By Employee. By Employee upon a material breach of this
Agreement by Employer when after thirty (30) days notice of the breach Employer
fails to cure the breach. Any such termination must be elected by Employee
within thirty (30) days of Employer's failure to cure such breach or the breach
will be deemed to have been waived for all purposes.
(e) By Employer for any reason other than cause upon ninety
(90) days notice to Employee. Cause shall have the ----------- definition stated
above.
Except as otherwise provided in this Agreement, Employee's right to
further compensation and benefits under this Agreement shall cease upon the
termination of her employment. Except as otherwise provided in this Agreement,
Employee shall remain entitled to any unpaid compensation and benefits accrued
prior to termination. Likewise, Employee shall be entitled to receive all
insurance and disability benefits if termination is due to death or disability.
In the event that the employment of the Employee is terminated by the Employer
without cause pursuant to Section 10(e) during the terms of this Agreement, or
should Employee terminate her employment pursuant to Section 10(d), the Employer
shall continue to pay the Annual Salary and provide the benefits set forth in
Section 6 of this Agreement [except for the annual bonus, the payment of which
is controlled by Section 6(d)] for a period of twelve (12) months after the
termination of Employee's employment, as severance pay.
Section 11. Change of Control. If, at any time within thirty-six (36)
months following a "Change in Control" as defined hereafter, Employee is
terminated by Employer (or its successor) without cause pursuant to Section
10(e), Employer shall continue to pay the Annual Salary and provide the benefits
set forth in Section 6 of this Agreement for a period of twenty-four (24) months
after the termination of Employee as severance pay (this compensation to be in
lieu of that severance compensation set forth in Section 10 for termination
without cause). Said Annual Salary shall be paid periodically and on the same
schedule as that prior to Employee's termination. The Employer (or its
successor) may not, following a Change in Control, permanently assign the
Employee to work more than forty (40) miles from the intersection of N.C.
Highway 16 and Huntersville/Mt. Holly Highway. Notwithstanding the foregoing,
the Employer (or its successor) may, following a Change in Control, require the
Employee to work more than fifty (50) miles from the above intersection from
time to time but no more often than ninety (90) days per year.
<PAGE>
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) is or becomes a beneficial owner, directly or
indirectly, of securities of the Employer or its parent company representing
greater than fifty percent (50%) of the combined voting power of the Employer'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
Employer's present Board of Directors (i.e. existing on January 1, 1999), or a
group of persons including the Employee and/or a member or members of the
Employer's present Board of Directors, acquiring, directly or indirectly, more
than fifty percent (50%) of the combined voting power of the Employer's or its
parent company's outstanding securities. In limitation of the provisions in the
preceding sentence, a "change in control" shall be deemed to have occurred if
the member or members of the Employer's present Board of Directors do not own,
control or constitute a material portion of the acquiring "person". "Material"
shall mean ownership or control of at least twenty percent (20%) of the
acquiring person.
<PAGE>
Any dispute or controversy arising under or in connection with this
Section 11 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 12. Enforcement of Employee Restrictions. Employee acknowledges
that she 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 7 and 8 (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 Employer
and its affiliates. Employee further acknowledges that due to the nature of
Employer's business, more limited restriction than those found herein would not
be reasonable or appropriate. The Employee covenants and agrees with Employer
that the Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations or benefits which the Employee
directly or indirectly has realized and/or may realize as a result, growing out
of or in connection with any such violations; such remedy to be in addition to
and not in limitation to any injunctive relief or other rights or remedies to
which Employer or its affiliates is or may be entitled to at law or in equity.
In the event that notwithstanding the foregoing, any part of the covenants set
forth in this Agreement shall be held to be invalid or unenforceable, the
remaining parts hereof shall nevertheless continue to be valid and enforceable
as though the invalid and unenforceable part had not been included herein. 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 or 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 13. Stock Options. Any and all stock options previously issued
in favor of Employee shall remain in full force and effect according to their
terms.
Section 14. 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
Employer at:
President, Carolina First BancShares, Inc.
402 East Main Street
Lincolnton, NC 28092
and addressed to Employee at:
Janet H. Hollar
11917 Overlook Mountain Drive
Charlotte, North Carolina 28216
or at such changed addresses as the parties may designate in writing.
<PAGE>
Section 15. 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 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 and qualifications of 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.
<PAGE>
(g) Governing Law. This Agreement shall be construed and
governed in accordance with the laws of the State of North Carolina. Employer
hereby consents to the jurisdiction of any local, state or federal court located
in the State of North Carolina, and hereby waives personal service of process
and consents to service of process by certified or registered mail directed to
Employee at Employee's address stated in Section 11 of this Agreement. Employee
further specifically consents to venue in Lincoln County.
(h) Burden and Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs, successors and,
as allowed herein, assigns.
(i) Assignment. The terms of this Employment Agreement are
personal to Employee. As such Employer may not assign its interest in this
Employment Agreement other than to Employer's subsidiaries, parent company,
sister companies and such affiliates as may exist from time to time (the
"Carolina First Family of businesses"). Employer may also assign this Employment
Agreement pursuant to any Merger or Change of Control as set forth in Section 11
herein (subject to Employee's rights specified in Section 11). Employee may not
assign her interest in this Employment Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
Employer:
CAROLINA FIRST BANCSHARES, INC.
By: /s/ James E. Burt, III
------------------------------
Title: President and CEO
ATTEST:
/s/ Sue Stamey
- ---------------
Assistant Secretary
(Corporate Seal)
Employee:
/s/ Jan H. Hollar (SEAL)
---------------------------------
Janet H. Hollar
<PAGE>
NORTH CAROLINA LEASE AGREEMENT
LINCOLN COUNTY
This lease agreement, made and entered into as of the 1st day of
September, 1997, by and between D. Mark Boyd, III and wife, Diane H. Boyd
(hereafter called "Lessor"), and Lincoln Bank of North Carolina (hereinafter
called "Lessee"),
WITNESSETH:
In consideration of the rents hereinafter agreed to be paid and in
consideration of the mutual covenants and agreements hereinafter recited, Lessor
does hereby lease and demise unto Lessee and Lessee does hereby lease and take
as tenant from Lessor all of that real property described in Exhibit "A"
attached hereto and incorporated by this reference.
To have and to hold the said Premises unto the Lessee upon the
following terms and conditions:
1. Term. The initial term of this Lease shall begin on the 1st day of
September 1997. It shall expire at 12:00 midnight August 31, 2002. It
is agreed that, at the expiration of the initial term of this Lease,
Lessee shall have the right and option to renew the Lease for one (1)
additional five (5) year term. The renewal terms shall commence as of
the end of the base term of this Lease and shall be subject to and in
accordance with all terms and conditions set forth in this Lease. If
Lessee shall desire to exercise this right and option, it shall give
Lessor notice in writing not less than ninety (90) days prior to the
expiration of the then current term of this Lease. If Lessee shall
fail to provide such notice to Lessor within such time period, it
shall be conclusively deemed that Lessee has elected not to renew and
extend the term of this Lease as aforesaid, time being of the essence.
2. Rent. Lessee shall pay to the Lessor the following sums payable in
advance on the first day of each month in installments as follows.
Payments for the optional lease term will be negotiated in good faith
based on comparable market rates, but under no circumstances shall the
amount be less than $3,658.67 monthly.
<TABLE>
<CAPTION>
Year Annual Rent Monthly Payment
<S> <C> <C>
1 34,944 2,912.00
2 37,184 3,098.67
3 39,424 3,285.33
4 41,664 3,472.00
5 43,904 3,658.67
</TABLE>
3. Default. The occurrence of one or more of the following events (herein
called "Events of Default") shall constitute default by the Lessee:
A. Failure to pay rent or any other payments hereunder when due if the
failure to pay is not cured within fifteen (15) days after notice
thereof has been given to Lessee.
B. Failure to perform any other provision of this Lease if the failure
to perform is not cured within fifteen (15) days after notice thereof
has been given to Lessee.
4. Lessor's remedies upon default by Lessee. Lessor shall have the
following remedies if Lessee commits a default. These remedies are not
exclusive; they are cumulative in addition to any remedies now or later
allowed by law.
A. Lessor shall have the right to continue this Lease in full force
and effect.
B. Lessor shall have the right to terminate this Lease upon first
giving to the Lessee thirty (30) days notice to vacate. Said thirty
(30) days notice to vacate shall be in addition to the fifteen (15)
days given to cure default.
5. End of Term. Upon the expiration of this Lease, Lessee shall quit and
surrender to Lessor the Premises, broom clean, in good order and
condition, ordinary wear and tear expected and Lessee shall remove
from the premises all of its property.
6. Use of Premises. Lessee shall not use the Premises or any portion
thereof for any illegal or unlawful purpose and will not cause or
permit nuisance to be created or maintained therein.
7. Taxes. During the term of the Lease, and any extensions, the Lessor
shall pay all ad valorem taxes on the premises and the Lessee shall
pay all taxes on the contents.
<PAGE>
8. Insurance. During the term of this Lease, and any extensions, the
Lessor shall keep the leased premises insured to its replacement value
against fire and other normally insured casualties as well as against
public liability. The Lessee shall keep the contents insured as well
as provide a reasonable amount of public liability coverage. Lessee
shall indemnify Lessor against any loss or damage for personal injury
arising out of Lessee's use of the premises.
9. Utilities. During the term of the lease and any extensions the Lessee
shall pay for all utilities used by it.
10. Fire or other casualty. In the event that before or during the term of
the Lease the leased premises or any part thereof shall be damaged by
fire or other casualty which renders the leased premises or any part
untenable for the purpose for which they are used by Lessee, Lessor
shall have the option to repair the building or terminate the Lease.
However, if the Lessor can not or does not restore the premises to a
state that is as good as the condition thereof immediately prior to
the damage, within sixty (60) days, Lessee has the right and option to
terminate this Lease. During the period of repair the Rent shall be
reduced to an amount which bears the same ratio to the Rent as the
portion of the leased premises then available for the use to the
Lessee bears to the entire leased premises. Upon successful completion
of such repairs, the rent shall thereafter be paid as if no fire or
other casualty had occurred. Notwithstanding the foregoing, Lessor
shall have no obligation to replace or repair any property on the
leased premises belonging to Lessee or to any one claiming through or
under Lessee, nor shall Lessor be required to make repairs costing
more than the amount of insurance proceeds paid as a result of Lessee
complying with the provisions of paragraph 8. Any repairs made over
and above the amount of insurance paid shall be at Lessee's
responsibility.
11. Maintenance and Repairs. Lessee shall take good care of the leased
premises including the grounds, driveways and parking, and shall, at
Lessee's sole cost and expense, make all repairs in and to the
interior of the leased premises, ordinary and extraordinary,
structural and otherwise, including, but not limited to, repairs to
the doors, windows, glass, plumbing, wiring and heating systems that
will sustain the premises in a normal working condition. Lessor shall
at Lessor's sole cost and expense, make all repairs to the roof and
outer structural walls.
12. Notices. Any notice or demand which by any provisions of this
agreement is required or allowed to be given by either party to the
other shall be deemed to have been sufficiently given for all purposes
when made in writing and sent in the United States mail as certified
or registered mail, and returned receipt requested, postage prepaid
and addressed: (a) if to Lessee, to 402 East Main Street, Lincolnton,
North Carolina, 28092 and (b) if to Lessor, to D. Mark Boyd, III, Post
Office Box 399, Lincolnton, North Carolina, 28093, or to such other
place as Lessor may from time to time designate in notice to Lessee.
13. Successors and Assigns. The provisions of this Lease shall bind and
inure to the benefit of Lessor and Lessee, and their respective
successors, heirs, legal representatives and assigns.
14. Integration and binding effect. The entire agreement, intent and
understanding between Lessor and Lessee is contained in the provisions
of this Lease and any stipulations, representations, promises or
agreements, written or oral, made prior to or contemporaneously with
this Lease shall have no legal or equitable effect or consequence
unless reduced to writing herein. This Lease shall be governed by and
construed pursuant to the laws of the State of North Carolina.
15. Compliance by Lessee with governmental regulations. In the performance
of any acts required of or permitted Lessee under the provisions of
this Lease, Lessee shall obey and comply with all lawful requirements,
rules, regulations, and ordinances of all legally constituted
authorities, existing at any time during the continuance of such
performance in any way affecting the Premises or the use of the
Premises by lessee. Such compliance shall include compliance by Lessee
with requirements of the Occupational Safety and Health Act, and all
amendments thereto, as the same applies to the Lessee's use of the
Premises.
16. Subordination. If required by Lessor's lender, Lessee will subordinate
this Lease to a first deed of trust.
17. Assignment of Subletting. Lessee may assign this Lease in whole or in
part, or sublet all of any part of the leased premises, with the
written approval of the Lessor in each instance; provided that consent
of the Lessor is given, Lessee shall remain fully liable on this
Lease. It is understood and agreed that Lessor's consent will not be
unreasonably withheld; provided a comparable market rate is agreed
upon for the Assignee or the Sublessee to pay the Lessor for the
remainder of the initial term of the Lease.
<PAGE>
EXHIBIT "A"
Beginning at an iron stake at the point of intersection of the west
line of South Poplar Street with the south line of East Main Street, said point
of beginning being 1.26 feet westerly from the west edge of the concrete
sidewalk on South Poplar Street, and 6.7 feet southerly from the south edge of
the concrete sidewalk of East Main Street; and runs thence with the said south
line of East Main Street, South 67 deg. 00 min. West 90.00 feet to an iron
stake, said point being 1.83 feet westerly from the east end of the concrete
wing wall of the overhead bridge on East Main Street; thence South 23 deg. 21
min. East, and parallel to South Poplar Street, 116.00 feet to an iron stake on
the line of property, now or formally of W.H. Childs; thence with the said line
of W.H. Childs property, North 67 deg. 00 min. East, and parallel to East Main
Street 90.00 feet to an iron stake on the west edge of the concrete sidewalk on
said street; thence with said west edge of South Poplar Street, North 23 deg. 21
min. West 116.00 feet to the point of Beginning, all being substantially as
shown on the plat of said piece of parcel of land prepared by Wilbur W. Smith,
Civil Engineer, of Charlotte, NC, and bearing dated November 4, 1930.
In witness whereof, the parties hereto have duly executed this lease
agreement and have her unto set their seals as of the day of the year
first above written:
Lessor:
/s/ D. Mark Boyd, III
----------------------
D. Mark Boyd, III
/s/ Diane H. Boyd
----------------------
Lessee:
Attest: Lincoln Bank of North Carolina
/s/ Sue S. Stamey by:
- ------------------
Sue S. Stamey /s/ James E.Burt, III
Assistant Secretary -----------------------
James E. Burt, III
<PAGE>
ADDENDUM TO LEASE
This Addendum to a Lease is entered into this the 30th day of October,
1998, by and between D. Mark Boyd and wife, Diane H. Boyd (Lessor) and Lincoln
Bank of North Carolina (Lessee), the original parties to a certain lease dated
September 1, 1997, consisting of five (5) pages.
The parties hereby agree to some interior (first floor) alteration work
to be performed by the Lessee, at Lessee's sole expense (see attached Exhibit
"A"). This alteration work will create two new office areas in the building and
the office walls will consist of wooden studs and sheetrock and thus will equal
the quality and workmanship of the existing walls. The tile ceiling is not to be
disturbed, also the glass for the existing drive thru window will be replaced
with and energy efficient, solid pane of glass. If needed, carpet will be added
or replaced to match the existing first floor carpet. The cabinets, counters and
glass will be removed and stored in good condition by Lessee for future use by
the Lessor, at no expense to the Lessor. All alterations work performed is to
meet all the requirements of the building codes that pertain to this type of
work.
Furthermore, upon the expiration of this Lease, at Lessor's option,
Lessee agrees to immediately restore the altered portion of the building to a
state that is as good or better than the condition thereof immediately prior to
the alteration work taking place if so required by the Lessor.
In witness whereof, the parties hereto have duly executed this addendum
to the lease agreement and have her unto set their seals as of the day
of the year first above written:
Lessor:
/s/ D. Mark Boyd, III
----------------------
D. Mark Boyd, III
/s/ Diane H. Boyd
----------------------
Lessee:
Attest: Lincoln Bank of North Carolina
/s/ Sue S. Stamey by:
- ------------------
Sue S. Stamey /s/ Jan H. Hollar
Assistant Secretary -----------------------
Jan H. Hollar
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
------------------ ------------------ --------------
1998 1997 1996
------------------ ------------------ --------------
<S> <C> <C> <C>
Average common shares outstanding - basic 5,371,686 5,102,854 5,064,347
Average common shares outstanding - diluted 5,508,898 5,165,290 5,077,950
Net income $6,708,929 $6,720,785 $5,220,774
Per share amount - basic $1.25 $1.32 $1.03
Per share amount - diluted $1.22 $1.30 $1.03
</TABLE>
Earnings per share have been restated for each year presented for the
aquisition of Community Bank & Trust Co., which was accounted for as a
pooling-of-interest. Earnings per share amounts for each year presented reflect
the 5% stock dividend paid on November 29, 1994 and December 22, 1995, the
5-for-4 stock split effected on August 23, 1996 and the 2-for-1 stock split
effected on August 22, 1997.
<PAGE>
Exhibit 21
Jurisdiction of
Subsidiaries of Carolina First BancShares, Inc. Incorporation
- --------------------------------------------------------------------------------
Cabarrus Bank of North Carolina North Carolina
Concord, North Carolina
Carolina First Financial Services Corp. North Carolina
Mooresville, North Carolina
Carolina First Mortgage Corp. North Carolina
Mooresville, North Carolina
Community Bank & Trust Co. North Carolina
Rutherfordton, North Carolina
Lincoln Bank of North Carolina North Carolina
Lincolnton, North Carolina
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Carolina First BancShares, Inc.
We consent to the incorporation by reference in the Registration Statements (No.
33-63390) on Form S-3, (No. 33-43037) on Form S-8 and (No. 333-73221) on Form
S-8, of Carolina First BancShares, Inc., of our report dated January 20, 1999
relating to the consolidated balance sheets of Carolina First BancShares, Inc.
and subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of income, changes in shareholders' equity and comprehensive income,
and cash flows for each of the years in the three-year period ended December 31,
1998, included in the December 31, 1998 Annual Report on Form 10-K of Carolina
First BancShares, Inc.
/s/ KPMG, LLP
KPMG, LLP
Charlotte, North Carolina
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
CAROLINA FIRST BANCSHARES
</LEGEND>
<CIK> 0000846465
<NAME> CAROLINA FIRST BANCSHARES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 28,611,146
<INT-BEARING-DEPOSITS> 777,346
<FED-FUNDS-SOLD> 13,220,957
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 154,384,075
<INVESTMENTS-CARRYING> 33,306,113
<INVESTMENTS-MARKET> 33,609,910
<LOANS> 476,109,833
<ALLOWANCE> 6,723,516
<TOTAL-ASSETS> 731,626,244
<DEPOSITS> 652,602,570
<SHORT-TERM> 10,399,634
<LIABILITIES-OTHER> 6,646,309
<LONG-TERM> 0
0
0
<COMMON> 13,491,840
<OTHER-SE> 48,485,891
<TOTAL-LIABILITIES-AND-EQUITY> 731,626,244
<INTEREST-LOAN> 40,848,120
<INTEREST-INVEST> 9,884,618
<INTEREST-OTHER> 1,319,095
<INTEREST-TOTAL> 52,051,833
<INTEREST-DEPOSIT> 21,571,800
<INTEREST-EXPENSE> 498,934
<INTEREST-INCOME-NET> 8,048,374
<LOAN-LOSSES> 1,365,000
<SECURITIES-GAINS> 267,304
<EXPENSE-OTHER> 25,855,101
<INCOME-PRETAX> 10,809,372
<INCOME-PRE-EXTRAORDINARY> 10,809,372
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,708,929
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 4.89
<LOANS-NON> 1,432
<LOANS-PAST> 111
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,837
<CHARGE-OFFS> 680
<RECOVERIES> 202
<ALLOWANCE-CLOSE> 6,724
<ALLOWANCE-DOMESTIC> 6,724
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
