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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSACTION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER: 0-15083
THE SOUTH FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0824914
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
102 SOUTH MAIN STREET, GREENVILLE, SOUTH CAROLINA 29601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (864)
255-7900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NONE
(Title of Class) (Name of each exchange on which
registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(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. [ ]
The aggregate market value of the voting stock held by nonaffiliates
(shareholders holding less than 5% of an outstanding class of stock, excluding
directors and executive officers), computed by reference to the closing price of
such stock, as of March 1, 2001 was $588,017,000.
The number of shares outstanding of the Registrant's common stock, $1.00
par value was 42,554,668 at March 1, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
INCORPORATED DOCUMENT LOCATION IN FORM
Portions of Proxy Statement dated March 15, 2001 10-K
Part III
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CROSS REFERENCE INDEX
PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Shareholders............. 11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 40
Item 8. Financial Statements and Supplementary Data................. 41
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 77
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 77
Item 11. Executive Compensation...................................... 77
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 77
Item 13. Certain Relationships and Related Transactions.............. 77
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 77
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PART I
ITEM 1. BUSINESS
THE COMPANY
The South Financial Group, Inc. (the "Company"), a South Carolina
corporation, is a financial holding company headquartered in Greenville, South
Carolina. At December 31, 2000, it operated through the following principal
subsidiaries: Carolina First Bank, a South Carolina state-chartered commercial
bank; Citrus Bank, a Florida state-chartered commercial bank; Carolina First
Mortgage Company ("CF Mortgage"), a mortgage banking company; and Blue Ridge
Finance Company, Inc. ("Blue Ridge"), an automobile finance company. Through its
subsidiaries, the Company provides a full range of banking services, including
mortgage, trust and investment services, designed to meet substantially all of
the financial needs of its customers. The Company currently conducts business
through 74 locations in South Carolina, 5 locations in North Carolina, and 15
locations in northern and central Florida. The Company is also a "financial
holding company" as determined by the Gramm-Leach-Bliley Act of 1999. At
December 31, 2000, the Company had approximately $5.2 billion in assets, $3.7
billion in loans, $3.9 billion in deposits, $468.7 million in shareholders'
equity, and $562.6 million in market capitalization.
The Company was formed in 1986 principally in response to opportunities
resulting from the takeovers of several South Carolina-based banks by large
southeastern regional bank holding companies. A significant number of the
Company's executive officers and management personnel were previously employed
by certain of the larger South Carolina-based banks that were acquired by these
southeastern regional institutions. Consequently, these officers and management
personnel have significant customer relationships and commercial banking
experience that have contributed to the Company's loan and deposit growth.
The Company believes that a very similar opportunity exists in northern and
central Florida where banking relationships are in a state of flux due to recent
bank mergers. The Company is applying the same strategy, which has proven to be
successful in South Carolina and North Carolina, to these areas of the Florida
market.
Through Carolina First Bank, the Company currently serves four principal
market areas in South Carolina: the Greenville and Anderson metropolitan areas
and surrounding counties (located in the Upstate region of South Carolina); the
Columbia metropolitan area and surrounding counties (located in the Midlands
region of South Carolina); the Myrtle Beach and Georgetown metropolitan areas
and surrounding counties (located in the northern Coastal region of South
Carolina); and the Charleston and Hilton Head metropolitan areas (located in the
central Coastal region of South Carolina). The Company's principal market areas
represent the four largest Metropolitan Statistical Areas in the state. In
addition, the Company has branch locations in other counties in South Carolina.
Myrtle Beach and Hilton Head Island are coastal resort areas that serve a
significant number of tourists primarily during the summer months. Because of
the seasonal nature of these market areas, most of the businesses, including
financial institutions, are subject to moderate swings in activity between the
winter and summer months. Carolina First Bank also has five branch offices in
the coastal communities of Wilmington, Hampstead, and Jacksonville, North
Carolina.
Through Citrus Bank, the Company currently serves two principal market
areas in Florida: the Orlando metropolitan area and the Jacksonville
metropolitan area.
The Company began its operations with the de novo opening of Carolina First
Bank in Greenville in December 1986 and has pursued a strategy of growth through
internal expansion and the acquisition of branch locations and financial
institutions in selected market areas. The Company has emphasized internal
growth through the acquisition of market share from the large out-of-state bank
holding companies. It attempts to acquire market share by providing quality
banking services and personal service to individuals and business customers.
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SUBSIDIARY BANKS
Carolina First Bank. Carolina First Bank, headquartered in Greenville,
South Carolina, engages in a general banking business through 74 branches in 48
communities in South Carolina and 5 branches in 3 communities in North Carolina.
Carolina First Bank's focus is on commercial, consumer and mortgage lending to
small and middle market businesses and consumers in its market areas. It also
provides demand transaction accounts and time deposit accounts to businesses and
individuals. Since the acquisition of CF Mortgage in 1993, Carolina First Bank's
mortgage origination and servicing activities have been performed by CF
Mortgage.
Carolina First Bank provides a full range of commercial and consumer
banking services, including deposit accounts, secured and unsecured loans, cash
management programs, trust functions, safe deposit services, and certain
insurance and brokerage services. In 1999, Carolina First Bank began offering
Internet banking services, including bill payment, through Carolina First Bank's
web site and Bank CaroLine, an Internet-only banking product. Carolina First
Bank's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC").
In December 1998, Carolina First Bank created Carolina First Mortgage Loan
Trust, a real estate investment trust (the "REIT") which holds mortgage-related
assets. Carolina First Bank originally contributed $500 million in commercial
loans in January 1999. In December 2000, Carolina First Bank made an additional
contribution consisting of a 100% participation interest in certain commercial
mortgage loans and commercial loans, investment securities, real estate,
leasehold improvements and certain other assets, which had an aggregate
principal value of approximately $281 million. In exchange, Carolina First Bank
received REIT preferred stock and cash.
As of December 30, 2000, Carolina First Bank, F.S.B. was merged into
Carolina First Bank to gain operating efficiencies. Following the merger, all of
the Company's banking locations in South Carolina and North Carolina operated as
branches of Carolina First Bank.
Citrus Bank. Citrus Bank, headquartered in Orlando, Florida, engages in
general banking business through 15 branches in 12 communities in Florida.
Citrus Bank's focus is on commercial, consumer and mortgage lending to small and
middle market businesses and consumers in its market areas. It also provides
demand transaction accounts and time deposit accounts to businesses and
individuals.
Citrus Bank provides a full range of commercial and consumer banking
services, including deposit accounts, secured and unsecured loans, cash
management programs, trust functions, safe deposit services, and certain
insurance and brokerage services. In 2000, Citrus Bank began offering Internet
banking services, including bill payment, through Citrus Bank's web site. Citrus
Bank's deposits are insured by the FDIC.
NON-BANK SUBSIDIARIES
CF Mortgage. CF Mortgage, headquartered in Columbia, South Carolina, is
engaged primarily in originating, underwriting and servicing one-to-four family
residential mortgage loans. CF Mortgage also buys and sells mortgage servicing
rights to keep its servicing balances at economically desirable levels or to
benefit from favorable terms. CF Mortgage's mortgage loan origination operation
is conducted principally through eight origination offices in South Carolina,
two origination offices in Florida, one origination office in North Carolina,
and outside correspondents. The Company generally sells all conforming fixed
rate mortgage loans into the secondary market.
Carolina First Guaranty Reinsurance, Ltd. Carolina First Guaranty
Reinsurance, Ltd. ("CFGRL") is a wholly-owned captive reinsurance subsidiary
established to provide insurance services to the Company's customers.
CF Technology Services. CF Technology Services Company, headquartered in
Lexington, South Carolina, was established on January 1, 2000 by the Company. CF
Technology's mission is to create customer and shareholder value by developing
and delivering superior, technology-based products and services that provide
competitive advantage, increase revenue, and produce efficiencies and strong
customer relationships
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through innovative use of information technology. CF Technology has adopted
state-of-the-art security and business recovery processes to safeguard vital
corporate assets and information.
Carolina First Investment Limited Partnership. Carolina First Investment
Limited Partnership ("CFILP") is a South Carolina limited partnership
established on December 17, 1999 by the Company and certain subsidiaries. CFILP
engages in the business of holding and managing investment assets. CFILP was
formed to achieve economies of scale and economic leverage by centralizing the
management of certain investment assets. In conjunction with the formation of
CFILP, several of the Company's subsidiaries transferred a portion of their
existing investment portfolios to CFILP in exchange for a limited partnership
interest.
Blue Ridge. On December 29, 1995, the Company acquired Blue Ridge, a
consumer finance company headquartered in Greenville, South Carolina. Blue Ridge
operates from one location and, at December 31, 2000, had approximately $10.9
million in total assets. Blue Ridge has an indirect automobile lending portfolio
and is no longer making new loans.
CF Investment Company. CF Investment Company ("CF Investment"),
headquartered in Greenville, South Carolina and licensed through the Small
Business Administration, is a Small Business Investment Company. CF Investment
is a wholly-owned subsidiary of Blue Ridge. CF Investment's principal focus is
investing in companies that have a bank-related technology or service that the
Company or its subsidiaries can use. As of December 31, 2000, CF Investment
Company had invested approximately $1.7 million in companies specializing in
electronic document management and Internet-related services.
COMPETITION
Each of the Company's markets is a highly competitive market in which all
of the largest banks in the state are represented. The competition among the
various financial institutions is based upon a variety of factors including
interest rates offered on deposit accounts, interest rates charged on loans,
credit and service charges, the quality of services rendered, the convenience of
banking facilities and, in the case of loans to large commercial borrowers,
relative lending limits. In addition to banks and savings associations, the
Company competes with other financial institutions including securities firms,
insurance companies, credit unions, leasing companies and finance companies.
Size gives larger banks certain advantages in competing for business from large
corporations. These advantages include higher lending limits and the ability to
offer services in other areas of South Carolina, North Carolina, Florida, and
the region. As a result, the Company does not generally attempt to compete for
the banking relationships of large corporations, but concentrates its efforts on
small- to medium-sized businesses and individuals. The Company believes it has
competed effectively in this market segment by offering quality, personal
service.
EMPLOYEES
At December 31, 2000, the Company employed a total of 1,374 full-time
equivalent employees. The Company believes that its relations with its employees
are good.
MONETARY POLICY
The earnings of bank holding companies are affected by the policies of
regulatory authorities, including the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), in connection with its regulation of the
money supply. Various methods employed by the Federal Reserve Board include open
market operations in U.S. Government securities, changes in the discount rate on
member bank borrowings and changes in reserve requirements against member bank
deposits. These methods are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, and their use
may also affect interest rates charged on loans or paid on deposits. The
monetary policies of the Federal Reserve Board have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
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IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company's subsidiaries are primarily monetary in
nature. As a result, interest rates generally have a more significant impact on
the performance of a financial institution than the effects of general levels of
inflation. The Company believes that the effects of inflation are generally
manageable through asset/liability management.
SUPERVISION AND REGULATION
General
The Company and its subsidiaries are extensively regulated under federal
and state law. To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
may have a material effect on the business and prospects of the Company. The
operations of the Company may be affected by possible legislative and regulatory
changes and by the monetary policies of the United States.
The Company. As a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), the Company is subject to
regulation and supervision by the Federal Reserve. Under the BHCA, the Company's
activities and those of its subsidiaries are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. The BHCA prohibits the Company from
acquiring direct or indirect control of more than 5% of any class of outstanding
voting stock, or substantially all of the assets of any bank, or merging or
consolidating with another bank holding company without prior approval of the
Federal Reserve. The BHCA also prohibited the Company from acquiring control of
any bank operating outside the State of South Carolina until September 29, 1995
unless such action was specifically authorized by the statutes of the state
where the bank to be acquired was located. See " -- Supervision and
Regulation -- Interstate Banking."
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. The BHCA
generally does not place territorial restrictions on the activities of such
nonbanking-related entities.
Further, the Federal Deposit Insurance Act, as amended ("FDIA"), authorizes
the merger or consolidation of any Bank Insurance Fund ("BIF") member with any
Savings Association Insurance Fund ("SAIF") member, the assumption of any
liability by any BIF member to pay any deposits of any SAIF member or vice
versa, or the transfer of any assets of any BIF member to any SAIF member in
consideration for the assumption of liabilities of such BIF member or vice
versa, provided that certain conditions are met. In the case of any acquiring,
assuming or resulting depository institution which is a BIF member, such
institution will continue to make payment of SAIF assessments on the portion of
liabilities attributable to any acquired, assumed or merged SAIF-insured
institution (or, in the case of any acquiring, assuming or resulting depository
institution which is a SAIF member, that such institution will continue to make
payment of BIF assessments on the portion of liabilities attributable to any
acquired, assumed or merged BIF-insured institution).
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss exposure to the depositors
of such depository institutions and to the FDIC insurance funds in the event the
depository institution becomes in danger of defaulting or in default under its
obligations to repay deposits. For example, under current federal law, to reduce
the likelihood of receivership of an insured depository institution subsidiary,
a bank holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized, or (ii) the amount that is
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necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under a policy of the
Federal Reserve with respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The Federal Reserve
also has the authority under the BHCA to require a bank holding company to
terminate any activity or relinquish control of a nonbank subsidiary (other than
a nonbank subsidiary of a bank) upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution of the bank holding
company. Further, federal law grants federal bank regulatory authorities
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
In addition, the "cross-guarantee" provisions of the FDIA require insured
depository institutions under common control to reimburse the FDIC for any loss
suffered by either the SAIF or the BIF as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF, or
both. The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
The Company is subject to the obligations and restrictions described above.
However, management currently does not expect that any of these provisions will
have any material impact on its operations.
As a bank holding company registered under the South Carolina Bank Holding
Company Act, the Company is also subject to regulation by the State Board.
Consequently, the Company must receive the approval of the State Board prior to
engaging in the acquisitions of banking or nonbanking institutions or assets.
The Company must also file with the State Board periodic reports with respect to
its financial condition and operations, management, and intercompany
relationships between the Company and its subsidiaries.
Carolina First Bank. Carolina First Bank is an FDIC-insured, South
Carolina-chartered banking corporation and is subject to various statutory
requirements and rules and regulations promulgated and enforced primarily by the
State Board and the FDIC. These statutes, rules and regulations relate to
insurance of deposits, required reserves, allowable investments, loans, mergers,
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the business of Carolina First Bank. The FDIC has
broad authority to prohibit Carolina First Bank from engaging in what it
determines to be unsafe or unsound banking practices. In addition, federal law
imposes a number of restrictions on state-chartered, FDIC-insured banks and
their subsidiaries. These restrictions range from prohibitions against engaging
as a principal in certain activities to the requirement of prior notification of
branch closings. Carolina First Bank also is subject to various other state and
federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit and fair credit reporting laws.
Carolina First Bank is not a member of the Federal Reserve System.
Citrus Bank. Citrus Bank is an FDIC-insured, Florida-chartered banking
corporation and is subject to various statutory requirements and rules and
regulations promulgated and enforced primarily by the State of Florida
Department of Banking and Finance and the FDIC. Citrus Bank is subject to
regulation by the FDIC to the same extent as Carolina First Bank. Citrus Bank
also is subject to various other state and federal laws and regulations,
including state usury laws, laws relating to fiduciaries, consumer credit and
equal credit and fair credit reporting laws. Citrus Bank is not a member of the
Federal Reserve System.
Carolina First Bank, F.S.B. As of December 30, 2000, Carolina First Bank,
F.S.B. was merged into and became part of Carolina First Bank. Prior to the
merger with Carolina First Bank, Carolina First Bank, F.S.B. was a
federally-chartered savings bank and was subject to regulation, supervision and
examination by the Office of Thrift Supervision ("OTS").
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CF Investment Company. CF Investment is licensed through the Small
Business Administration and operates as a Small Business Investment Company. It
is subject to regulation and supervision by the Small Business Administration.
Dividends. The holders of the Company's common stock are entitled to
receive dividends when and if declared by the Board of Directors out of funds
legally available therefor. The Company is a legal entity separate and distinct
from its subsidiaries and depends for its revenues on the payment of dividends
from its subsidiaries. Current federal law would prohibit, except under certain
circumstances and with prior regulatory approval, an insured depository
institution, such as Carolina First Bank, from paying dividends or making any
other capital distribution if, after making the payment or distribution, the
institution would be considered "undercapitalized," as that term is defined in
applicable regulations. In addition, South Carolina's banking regulations
restrict the amount of dividends that Carolina First Bank can pay. Florida
Banking Statutes limit the amount of dividends Citrus Bank can pay without prior
approval of Citrus Bank's regulatory agency.
Capital Adequacy
The Company. The Federal Reserve has adopted risk-based capital guidelines
for bank holding companies. Under these guidelines, the minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the total capital is
required to be "Tier 1 capital," principally consisting of common stockholders'
equity, non-cumulative preferred stock, a limited amount of cumulative perpetual
preferred stock, and minority interests in the equity accounts of consolidated
subsidiaries, less certain goodwill items. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term preferred
stock, certain hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss allowance. In
addition to the risk-based capital guidelines, the Federal Reserve has adopted a
minimum Tier 1 (leverage) capital ratio under which a bank holding company must
maintain a minimum level of Tier 1 capital (as determined under applicable
rules) to average total consolidated assets of at least 3% in the case of bank
holding companies which have the highest regulatory examination ratios and are
not contemplating significant growth or expansion. All other bank holding
companies are required to maintain a ratio of at least 100 to 200 basis points
above the stated minimum. At December 31, 2000, the Company's capital levels
exceeded both the risk-based capital guidelines and the minimum leverage capital
ratio.
Carolina First Bank and Citrus Bank. As state-chartered, FDIC-insured
institutions which are members of the Federal Reserve System, Carolina First
Bank and Citrus Bank are subject to capital requirements imposed by the FDIC.
The FDIC requires state-chartered nonmember banks to comply with risk-based
capital standards substantially similar to those required by the Federal
Reserve, as described above. The FDIC also requires state-chartered nonmember
banks to maintain a minimum leverage ratio similar to that adopted by the
Federal Reserve. Under the FDIC's leverage capital requirement, state nonmember
banks that (a) receive the highest rating during the examination process and (b)
are not anticipating or experiencing any significant growth are required to
maintain a minimum leverage ratio of 3% of Tier 1 capital to total assets; all
other banks are required to maintain a minimum ratio of 100 to 200 basis points
above the stated minimum, with an absolute minimum leverage ratio of not less
than 4%. As of December 31, 2000, Carolina First Bank and Citrus Bank exceeded
each of the applicable regulatory capital requirements.
Deposit Insurance Assessments
As FDIC-insured institutions, Carolina First Bank and Citrus Bank are
subject to insurance assessments imposed by the FDIC. Effective January 1, 1993,
the FDIC implemented a risk-based assessment schedule where the actual
assessment to be paid by each FDIC-insured institution is based on the
institution's assessment risk classification. This classification is determined
based on whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized," as such terms have been defined in
applicable federal regulations adopted to implement the prompt corrective action
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), and whether such institution is considered by its supervisory agency
to be financially sound or to have supervisory concerns.
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In connection with Carolina First Bank's assumption of SAIF-insured
deposits in connection with various acquisitions, including the deposits
associated with Carolina First Bank, F.S.B., approximately 45% of Carolina First
Bank's total deposits are subject to SAIF insurance assessments imposed by the
FDIC. As of December 31, 2000, the annual assessment rate was 0.0496% for both
BIF-insured deposits and SAIF-insured deposits.
Other Safety and Soundness Regulations
Prompt Corrective Action. Current law provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under uniform regulations defining such capital
levels issued by each of the federal banking agencies, a bank is considered
"well capitalized" if it has (i) a total risk-based capital ratio of 10% or
greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater, and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for any capital measure.
An "adequately capitalized" bank is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with a composite CAMELS rating of 1). A bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage ratio of less than 4% (or 3% in the case of a bank with a composite
CAMELS rating of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, (ii) a Tier 1 risk-based capital
ratio of less than 3%, or (iii) a leverage ratio of less than 3%; and (C)
"critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. Carolina First Bank and Citrus Bank each
currently meet the definition of well capitalized.
Brokered Deposits. Current federal law also regulates the acceptance of
brokered deposits by insured depository institutions to permit only a "well
capitalized" depository institution to accept brokered deposits without prior
regulatory approval. Under FDIC regulations, "well capitalized" insured
depository institutions may accept brokered deposits without restriction,
"adequately capitalized" insured depository institutions may accept brokered
deposits with a waiver from the FDIC (subject to certain restrictions on
payments of interest rates) while "undercapitalized" insured depository
institutions may not accept brokered deposits.
Other Regulations. In December 1996, the Federal Financial Institutions
Examination Council adopted a revised Uniform Financial Institutions Rating
System ("CAMELS rating system"). This revised CAMELS rating system is used by
federal and state regulators to assess the soundness of financial institutions
on a uniform basis and to identify those institutions requiring special
supervisory attention. The basic structure of the original CAMEL rating system
was retained with the addition of a sixth component related to a bank's
sensitivity to market risk. The six components of the CAMELS rating system are:
1) capital adequacy, 2) asset quality, 3) management, 4) earnings, 5) liquidity
and 6) sensitivity to market risk. The new component involves measuring the
degree to which changes in interest rates, foreign exchange rates, commodity
prices or equity prices can adversely affect a financial institution's earnings
or capital and management's ability to control this market risk. The evaluation
of these six components is the basis for a composite rating assigned to each
financial institution. The revised CAMELS rating system was used on all
examinations started on or after January 1, 1997.
Recent Legislation
The Gramm-Leach-Bliley Act of 1999 (the "Act") was signed into law on
November 12, 1999. The Act covers a broad range of issues, including a repeal of
most of the restrictions on affiliations among depository institutions,
securities firms and insurance companies. Most of the Act's provisions require
the federal bank regulatory agencies and other regulatory bodies to adopt
regulations to implement the Act, and for that reason an assessment of the full
impact on the Company of the Act must await completion of that regulatory
process. The provisions of the Act that are believed to be of most significance
to the Company are discussed below.
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The Act repeals sections 20 and 32 of the Glass-Stegall Act, thus
permitting unrestricted affiliations between banks and securities firms. The Act
also permits bank holding companies to elect to become financial holding
companies. A financial holding company may engage in or acquire companies that
engage in a broad range of financial services, including securities activities
such as underwriting, dealing, investment and merchant banking, insurance
underwriting and sales, and brokerage activities. In order to become a financial
holding company, the bank holding company and all of its affiliated depository
institutions must be well-capitalized, well-managed, and have at least a
satisfactory Community Reinvestment Act rating.
The Act provides that the states continue to have the authority to regulate
insurance activities, but prohibits the states in most instances from preventing
or significantly interfering with the ability of a bank, directly or through an
affiliate, to engage in insurance sales, solicitations or cross-marketing
activities. Although the states generally must regulate bank insurance
activities in a nondiscriminatory manner, the states may continue to adopt and
enforce rules that specifically regulate bank insurance activities in certain
areas identified in the Act. The Act directs the federal bank regulatory
agencies to adopt insurance consumer protection regulations that apply to sales
practices, solicitations, advertising and disclosures.
The Act adopts a system of functional regulation under which the Federal
Reserve Board is confirmed as the umbrella regulator for bank holding companies,
but bank holding company affiliates are to be principally regulated by
functional regulators such as the FDIC for state nonmember bank affiliates, the
Securities and Exchange Commission for securities affiliates and state insurance
regulators for insurance affiliates. The Act repeals the broad exemption of
banks from the definitions of "broker" and "dealer" for purposes of the
Securities Exchange Act of 1934, but identifies a set of specific activities,
including traditional bank trust and fiduciary activities, in which a bank may
engage without being deemed a "broker", and a set of activities in which a bank
may engage without being deemed a "dealer". The Act also makes conforming
changes in the definitions of "broker" and "dealer" for purposes of the
Investment Company Act of 1940 and the Investment Advisers Act of 1940.
The Act contains extensive customer privacy protection provisions. Under
these provisions, a financial institution must provide to its customers, at the
inception of the customer relationship and annually thereafter, the
institution's policies and procedures regarding the handling of customers'
nonpublic personal financial information. The Act provides that, except for
certain limited exceptions, an institution may not provide such personal
information to unaffiliated third parties unless the institution discloses to
the customer that such information may be so provided and the customer is given
the opportunity to opt out of such disclosure. An institution may not disclose
to a non-affiliated third party, other than to a consumer reporting agency,
customer account numbers or other similar account identifiers for marketing
purposes. The Act also provides that the states may adopt customer privacy
protections that are more strict than those contained in the Act. The Act also
makes a criminal offense, except in limited circumstances, obtaining or
attempting to obtain customer information of a financial nature by fraudulent or
deceptive means.
The Act also contains requirements for the posting of notices by operators
of automated teller machines regarding fees charged for the use of such
machines.
Community Reinvestment Act
Carolina First Bank and Citrus Bank are subject to the requirements of the
Community Reinvestment Act ("CRA"). The CRA requires that financial institutions
have an affirmative and ongoing obligation to meet the credit needs of their
local communities, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of those institutions. Each financial
institution's efforts in meeting community credit needs are evaluated as part of
the examination process pursuant to three assessment factors. These factors are
also considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
All institutions receive one of four ratings based on their performance:
Outstanding, Satisfactory, Needs to Improve or Substantial Noncompliance. An
institution that receives a rating of Substantial Noncompliance would be subject
to enforcement action. Carolina First Bank and Citrus Bank are strongly
committed to
9
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providing credit needs to individuals in the communities that they serve.
Carolina First Bank and Citrus Bank received a "satisfactory" rating in the most
recent evaluations.
Transactions Between the Company, Its Subsidiaries and Affiliates
The Company's subsidiaries are subject to certain restrictions on
extensions of credit to executive officers, directors, principal stockholders or
any related interest of such persons. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unaffiliated persons;
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features. Aggregate limitations on extensions of credit also
may apply. The Company's subsidiaries are also subject to certain lending limits
and restrictions on overdrafts to such persons.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its nonbank subsidiary, on investments in their
securities and on the use of their securities as collateral for loans to any
borrower. Such restrictions may limit the Company's ability to obtain funds from
its bank subsidiary for its cash needs, including funds for acquisitions,
interest and operating expenses. Certain of these restrictions are not
applicable to transactions between a bank and a savings association owned by the
same bank holding company, provided that every bank and savings association
controlled by such bank holding company complies with all applicable capital
requirements without relying on goodwill.
In addition, under the BHCA and certain regulations of the Federal Reserve,
a bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. For example, a subsidiary may not
generally require a customer to obtain other services from any other subsidiary
or the Company, and may not require the customer to promise not to obtain other
services from a competitor, as a condition to an extension of credit to the
customer.
Interstate Banking
Current Federal law authorizes interstate acquisitions of banks and bank
holding companies without geographic limitation. Effective June 1, 1998, a bank
headquartered in one state was authorized to merge with a bank headquartered in
another state, as long as neither of the states had opted out of such interstate
merger authority prior to such date. After a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where a bank
headquartered in that state could have established or acquired branches under
applicable Federal or state law.
Other Regulations
Interest and certain other charges collected or contracted for by Carolina
First Bank, Citrus Bank, CF Mortgage Company, and Blue Ridge are subject to
state usury laws and certain federal laws concerning interest rates. Carolina
First Bank's, Citrus Bank's, CF Mortgage Company's, and Blue Ridge's loan
operations are also subject to certain federal laws applicable to credit
transactions, such as the federal Truth-In-Lending Act governing disclosures of
credit terms to consumer borrowers. The deposit operations of Carolina First
Bank and Citrus Bank are also subject to the Right to Financial Privacy Act,
which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of
financial records, and the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve to implement that act, which govern automatic deposits to
and withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic services.
10
13
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 104 South Main
Street, Greenville, South Carolina. During the fourth quarter of 1999, the
Company began leasing approximately 110,000 square feet of a newly constructed,
twelve-story office building. This building adjoins Carolina First Bank's
Greenville main office branch. The majority of the Company's administrative
functions presently reside in this building excluding operations. The Company
owns a 100,000 square foot building in Lexington, South Carolina, the
headquarters for CF Technology, which houses the technology, operations and
mortgage departments. The Company leases the land for the CF Technology
building.
At December 31, 2000, the Company operated 94 banking offices, of which 74
are in South Carolina, 5 in North Carolina, and 15 in Florida. Of these
locations, the Company or a subsidiary of the Company owns 55 locations and
leases 39 locations. In addition, the Company leases 8 stand alone ATM
locations.
The Company believes that its physical facilities are adequate for its
current operations.
ITEM 3. LEGAL PROCEEDINGS
See Note 17 to the Consolidated Financial Statements for a discussion of
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matter was submitted to a vote of security holders by solicitation of
proxies or otherwise during the fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol TSFG. At December 31, 2000, the Company had 7,472 shareholders of record
and 42,460,358 shares outstanding. See "Table 5 -- Quarterly Financial Data" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Company's stock prices and cash dividends declared during
2000 and 1999. See "Capital Resources and Dividends" in Management's Discussion
and Analysis of Financial Condition and Results of Operations and Notes 19 and
21 to the Consolidated Financial Statements for a discussion of capital stock
and dividends.
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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 amounts, except cash dividends declared
per common share, have been restated to reflect the 2000 merger with Anchor
Financial Corporation and 1999 merger with Citrus Bank, both of which were
accounted for as a pooling-of-interests. Prior year amounts have been restated
to reflect the six-for-five stock split effected in the form of a 20% common
stock dividend issued January 30, 1997.
SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, FIVE-YEAR
--------------------------------------------------------------------------- COMPOUND
2000 1999 1998 1997 1996 1995 GROWTH RATE
---------- ---------- ---------- ---------- ---------- ---------- -----------
INCOME STATEMENT DATA
Net interest income................. $ 174,629 $ 174,614 $ 149,341 $ 117,833 $ 98,411 $ 84,980 15.5%
Provision for loan losses........... 23,378 18,273 15,646 14,642 12,093 8,283 23.1
Noninterest income.................. 49,348 59,649 34,924 29,576 29,597 24,633 14.9
Restructuring and merger-related
costs............................. 29,198 7,155 3,526 -- -- -- n/m
Noninterest expenses(a)............. 160,661 147,674 109,857 94,214 85,398 77,131 15.8
Net income.......................... 6,989 40,450 34,656 24,722 19,638 15,943 n/m
PER COMMON SHARE DATA
Net income -- basic................. $ 0.16 $ 0.95 $ 0.90 $ 0.79 $ 0.67 $ 0.51 n/m
Net income -- diluted............... 0.16 0.93 0.87 0.77 0.64 0.54 n/m
Book value (December 31)............ 11.04 11.55 10.64 8.32 6.06 4.89 17.7%
Market price (December 31).......... 13.25 18.25 25.31 21.50 16.15 14.58 (1.9)
Cash dividends declared............. 0.41 0.37 0.33 0.29 0.25 0.21 14.3
Dividend payout ratio............... 256.25% 39.78% 37.93% 37.66% 39.06% 38.89%
BALANCE SHEET DATA (YEAR END)
Total assets........................ $5,220,554 $4,768,656 $4,136,647 $3,420,794 $2,592,160 $2,269,489 18.1%
Loans -- net of unearned income..... 3,735,182 3,291,720 2,841,077 2,474,122 1,821,492 1,620,933 18.2
Allowance for loan losses........... 43,024 33,756 29,812 25,736 19,988 15,869 22.1
Total earning assets................ 4,651,807 4,262,837 3,664,392 3,085,473 2,318,801 2,019,305 18.2
Total deposits...................... 3,894,662 3,481,651 3,302,523 2,811,139 2,151,271 1,832,594 16.3
Long-term debt...................... 315,925 314,279 116,125 94,665 64,994 62,766 38.2
Shareholders' equity................ 468,653 500,590 450,989 295,898 183,394 165,685 23.1
Nonperforming assets................ 21,514 13,972 9,119 5,687 8,860 7,046 25.0
BALANCE SHEET DATA (AVERAGES)
Total assets........................ $5,032,700 $4,282,274 $3,726,204 $2,835,578 $2,421,642 $2,051,780 19.7%
Loans -- net of unearned income..... 3,545,336 3,045,913 2,577,018 2,066,592 1,709,605 1,483,086 19.0
Total earning assets................ 4,450,016 3,820,904 3,384,157 2,588,037 2,179,453 1,846,846 19.2
Deposits............................ 3,699,553 3,373,282 3,050,268 2,331,167 1,989,022 1,691,765 16.9
Shareholders' equity................ 479,800 483,214 371,707 209,178 173,428 154,382 25.5
FINANCIAL RATIOS
Net interest margin................. 3.98% 4.62% 4.46% 4.60% 4.54% 4.63%
Return on average assets............ 0.14 0.95 0.93 0.87 0.81 0.78
Return on average equity............ 1.47 8.67 9.36 11.99 11.36 10.31
Return on average common equity..... 1.47 8.67 9.36 11.99 11.62 13.24
Average equity as a % of average
assets............................ 9.53 11.28 9.98 7.38 7.16 7.52
ASSET QUALITY RATIOS
Nonperforming assets as a % of loans
and other real estate owned....... 0.58% 0.43% 0.33% 0.25% 0.49% 0.44%
Net charge-offs to average loans.... 0.39 0.39 0.52 0.63 0.54 0.37
Allowance for loan losses times
nonperforming loans............... 2.34x 3.02x 5.80x 6.77x 3.65x 4.27x
OPERATIONS DATA
Branch offices...................... 94 108 104 87 74 72
Employees (full-time equivalent).... 1,374 1,514 1,345 1,184 1,068 1,032
- ------------
(a) Excluding restructuring and merger-related costs.
Total assets and shareholders' equity include the net unrealized securities
gain. However, earning assets and the financial ratios exclude this gain
because it is not included in net income.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis are presented to assist in
understanding the financial condition and results of operations of The South
Financial Group, Inc. and its subsidiaries (the "Company," except where the
context requires otherwise). This discussion should be read in conjunction with
the audited consolidated financial statements and accompanying notes presented
in Item 8 of this report and the supplemental financial data appearing
throughout this report.
The Company has two wholly-owned subsidiary banks, Carolina First Bank and
Citrus Bank, which are collectively referred to as the "Subsidiary Banks."
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995) to assist in the understanding
of anticipated future operating and financial performance, growth opportunities,
growth rates, and other similar forecasts and statements of expectations. These
forward-looking statements reflect current views, but are based on assumptions
and are subject to risks, uncertainties, and other factors, which may cause
actual results to differ materially from those in such statements. Those factors
include, but are not limited to, the following: risks from changes in economic,
monetary policy, and industry conditions; changes in interest rates, deposit
rates, and the net interest margin; inflation; risks inherent in making loans
including repayment risks and value of collateral; loan growth; adequacy of the
allowance for loan losses and the assessment of problem loans; fluctuations in
consumer spending; the demand for the Company's products and services;
dependence on senior management; technological changes; ability to increase
market share; expense projections; system conversion costs and issues; costs
associated with new buildings; acquisitions; risks, realization of cost savings,
and total financial performance associated with the Company's merger with Anchor
Financial Corporation ("Anchor Financial"); changes in accounting policies and
practices; costs and effects of litigation; and recently-enacted or proposed
legislation.
Such forward-looking statements speak only as of the date on which such
statements are made. The Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
In addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, in press releases and in oral and written
statements made by or with the approval of the Company which are not statements
of historical fact constitute forward-looking statements.
MERGERS
The following table summarizes mergers and acquisitions completed during
the past three years. All the acquisitions, except for Resource Processing
Group, Inc. ("RPGI"), a credit card servicing company, were bank acquisitions
which expanded the Company's presence in or gained access to South Carolina,
Florida, and North Carolina markets.
The merger with Anchor Financial, completed on June 6, 2000, was the
largest merger in the Company's history. The merger was accounted for as a
pooling-of-interests and accordingly, the Company's historical consolidated
financial statements and other financial data have been restated to include the
accounts and results of operations of Anchor Financial as if the merger had been
effective as of the earliest period presented.
The Company's acquisitions are discussed in further detail in Note 3 of the
Financial Statements.
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TABLE 1
- --------------------------------------------------------------------------------
ACQUISITIONS
- --------------------------------------------------------------------------------
TOTAL ASSETS SHARES METHOD OF INTANGIBLE
COMPLETED ACQUISITIONS DATE ACQUIRED ISSUED ACCOUNTING RECORDED
---------------------- ----- ------------ ---------- ----------- -------------
Anchor Financial Corporation Pooling-of-
Myrtle Beach, South Carolina 6/00 $1.2 billion 17,674,208 Interests n/a
Citrus Bank Pooling-of-
Orlando, Florida 7/99 $285 million 3,086,478 Interests n/a
Citizens First National Bank Pooling-of-
Crescent City, Florida 4/99 $ 59 million 505,851 Interests n/a
Colonial Bank of South Carolina, Inc.
Camden, South Carolina 10/98 $ 61 million 651,455 Purchase $10.4 million
Poinsett Financial Corporation
Travelers Rest, South Carolina 9/98 $ 89 million 753,530 Purchase $11.7 million
First National Bank of Pickens County
Easley, South Carolina 9/98 $121 million 2,817,350 Purchase $45.4 million
Resource Processing Group, Inc.
Columbia, South Carolina 6/98 $ 15 million 398,610 Purchase $ 3.4 million
As of December 30, 2000, Carolina First Bank, F.S.B. was merged into
Carolina First Bank to gain operating efficiencies. Following the merger, all of
the Company's banking locations in South Carolina and North Carolina operate as
branches of Carolina First Bank.
EARNINGS REVIEW
Overview
Including merger-related charges and other items, net income for 2000 was
$7.0 million, or $0.16 per diluted share. Net income for 1999 was $40.5 million,
a 17% increase over net income for 1998 of $34.7 million. On a diluted per share
basis, net income increased to $0.93 per share in 1999 from $0.87 per share in
1998. In 1999, the average number of outstanding shares increased 10%,
principally from the completion of three bank mergers (accounted for under the
purchase method of accounting) in the fall of 1998.
In June 2000, the Company completed the largest merger in its history,
Anchor Financial, which significantly enhanced the Company's market position in
the South Carolina and North Carolina. The decrease in 2000 net income was
primarily attributable to pre-tax merger-related charges, totaling $38.8
million, related to the Anchor Financial merger. These pre-tax merger-related
charges included the following items: restructuring and merger-related costs of
$29.2 million, a $5.3 million loss associated with restructuring the combined
investment portfolio, an additional provision for loan losses of $3.0 million to
apply the Company's reserve analysis methodology to Anchor Financial's loan
portfolio, and $1.3 million in other charges related to Anchor Financial.
During 2000, the Company engaged in a number of actions that produced
unusual gains or charges. These actions included an $11.4 million net gain on
asset sales, excluding the $5.3 million loss associated with restructuring the
investment portfolio. See "Earnings Review -- Noninterest Income" for a
discussion of the net gain on asset sales. Largely offsetting this gain were
significant pre-tax charges related to unusual items, including a $3.7 million
impairment loss from the write-down of assets primarily related to leasehold
improvements associated with the former operations center in Columbia, $4.0
million for system conversion costs, and $1.2 million in personnel expense from
benefit plan changes and contract payments. See "Earnings Review -- Noninterest
Expenses."
At December 31, 2000, the Company had approximately $5.2 billion in assets,
$3.7 billion in loans, $3.9 billion in deposits, and $468.7 million in
shareholders' equity. At December 31, 2000, the Company's ratio of nonperforming
assets to loans and other real estate owned was 0.58%.
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Net Interest Income
Net interest income is the difference between the interest earned on assets
and the interest paid for the liabilities used to support such assets as well as
such items as loan fees and dividend income. The net interest margin measures
how effectively a company manages the difference between the yield on earning
assets and the rate paid on funds used to support those assets. Table 2 presents
average balance sheets and a net interest income analysis on a taxable
equivalent basis for each of the years in the three-year period ended December
31, 2000. Average earning assets and the net interest margin exclude the net
unrealized gain on securities available for sale because this gain is not
included in net income. Table 3 provides additional analysis of the effects of
volume and rate on net interest income.
TABLE 2
- --------------------------------------------------------------------------------
COMPARATIVE AVERAGE BALANCES -- YIELDS AND COSTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
ASSETS
Earning assets
Loans (net of unearned
income)(1)................. $3,545,336 $328,831 9.28% $3,045,913 $274,982 9.03% $2,577,018 $241,278 9.36%
Investment securities
(taxable).................. 789,219 53,936 6.83 635,851 38,444 6.05 580,615 36,397 6.27
Investment securities
(nontaxable) (2)........... 86,657 6,162 7.11 75,425 5,172 6.86 56,474 4,152 7.35
Unrealized securities gain or
loss....................... (9,524) (25,508) (1,995)
Federal funds sold and resale
agreements................. 7,606 350 4.60 50,766 2,181 4.30 126,496 6,564 5.19
Interest-bearing bank
balances................... 30,722 2,094 6.82 38,457 2,106 5.48 45,549 2,593 5.69
---------- -------- ---------- -------- ---------- --------
Total earning assets... 4,450,016 391,373 8.79 3,820,904 322,885 8.45 3,384,157 290,984 8.60
---------- -------- ---------- -------- ---------- --------
Non-earning assets........... 582,684 461,370 342,047
---------- ---------- ----------
Total assets........... $5,032,700 $4,282,274 $3,726,204
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking........ $ 574,761 $ 17,374 3.02% $ 634,244 $ 18,229 2.87% $ 508,554 $ 15,913 3.13%
Savings.................. 133,282 3,496 2.62 169,948 4,556 2.68 174,900 5,446 3.11
Money market............. 684,056 35,731 5.22 595,467 25,420 4.27 518,889 22,845 4.40
Certificates of
deposit................ 1,636,253 100,032 6.11 1,355,645 70,286 5.18 1,303,364 73,267 5.62
Other.................... 145,883 7,838 5.37 114,495 6,284 5.49 109,982 6,476 5.89
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
deposits............. 3,174,235 164,471 5.18 2,869,799 124,775 4.35 2,615,689 123,947 4.74
Short-term borrowings...... 456,977 28,043 6.14 243,308 11,831 4.86 163,789 8,588 5.24
Long-term borrowings....... 323,926 21,889 6.76 158,547 9,872 6.23 107,895 7,671 7.11
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities............ 3,955,138 214,403 5.42 3,271,654 146,478 4.48 2,887,373 140,206 4.86
---------- -------- ---------- -------- ---------- --------
Non-interest bearing
liabilities
Non-interest bearing
deposits............... 525,318 503,483 434,579
Other non-interest
liabilities............ 72,444 23,923 32,545
---------- ---------- ----------
Total liabilities........ 4,552,900 3,799,060 3,354,497
---------- ---------- ----------
Shareholders' equity........... 479,800 483,214 371,707
---------- ---------- ----------
Total liabilities and
shareholders' equity....... $5,032,700 $4,282,274 $3,726,204
========== ========== ==========
Net interest margin............ $176,970 3.98% $176,407 4.62% $150,778 4.46%
======== ======== ========
- ------------
(1) Nonaccrual loans are included in average balances for yield computations.
(2) Fully tax-equivalent basis at a 38% tax rate in 2000 and a 35% tax rate in
1999 and 1998.
Note: Average balances are derived from daily balances.
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TABLE 3
- --------------------------------------------------------------------------------
RATE/VOLUME VARIANCE ANALYSIS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
2000 COMPARED TO 1999 1999 COMPARED TO 1998
------------------------------- -------------------------------
TOTAL CHANGE IN CHANGE IN TOTAL CHANGE IN CHANGE IN
CHANGE VOLUME RATE CHANGE VOLUME RATE
------- --------- --------- ------- --------- ---------
Earning assets
Loans, net of unearned income....... $53,849 $46,145 $ 7,704 $33,704 $42,589 $ (8,885)
Securities, taxable................. 15,492 10,057 5,435 2,047 3,373 (1,326)
Securities, nontaxable.............. 990 793 197 1,020 1,315 (295)
Federal funds sold.................. (1,831) (1,998) 167 (4,383) (3,404) (979)
Interest-bearing bank balances...... (12) 55 (67) (487) (391) (96)
------- ------- -------- ------- ------- --------
Total interest income.......... 68,488 55,052 13,436 31,901 43,482 (11,581)
------- ------- -------- ------- ------- --------
Interest-bearing liabilities
Interest-bearing deposits
Interest checking................ (855) (1,907) 1,052 2,316 3,692 (1,376)
Savings.......................... (1,060) (959) (101) (890) (151) (739)
Money market..................... 10,311 4,120 6,191 2,575 3,287 (712)
Certificates of deposit.......... 29,746 15,946 13,800 (2,981) 2,861 (5,842)
Other............................ 1,554 1,689 (135) (192) 259 (451)
------- ------- -------- ------- ------- --------
Total interest-bearing
deposits.................... 39,696 18,889 20,807 828 9,948 (9,120)
Short-term borrowings................. 16,212 12,487 3,725 3,243 3,906 (663)
Long-term borrowings.................. 12,017 11,109 908 2,201 3,248 (1,047)
------- ------- -------- ------- ------- --------
Total interest expense...... 67,925 42,485 25,440 6,272 17,102 (10,830)
------- ------- -------- ------- ------- --------
Net interest income....... $ 563 $12,567 $(12,004) $25,629 $26,380 $ (751)
======= ======= ======== ======= ======= ========
- ---------------
Note: Changes that are not solely attributable to volume or rate have been
allocated to volume and rate on a pro-rata basis.
Tax equivalent net interest income increased $563,000 to $177.0 million in
2000 from $176.4 million in 1999, and increased $25.6 million from $150.8
million in 1998. A higher level of average earning assets in 2000 increased
interest income, but this increase was nearly offset by an increase in interest
expense due to higher deposit and borrowing costs. The growth in average earning
assets, which increased $629.1 million, or 16%, to $4.5 billion in 2000 from
$3.8 billion in 1999 and $3.4 billion in 1998, resulted from an increase in both
loans and investment securities. Average loans, net of unearned income, were
$3.5 billion in 2000, $3.0 billion in 1999 and $2.6 billion in 1998. The
increase in loans was primarily related to internal loan growth. Average
investment securities, excluding the average net unrealized securities gains,
were $866.4 million, $685.8 million, and $635.1 million in 2000, 1999, and 1998,
respectively. The increase in average investment securities in 2000 was
attributable to the match funding in December 1999 of approximately $200 million
in mortgage-backed securities with approximately $200 million in Federal Home
Loan Bank ("FHLB") borrowings.
The net interest margin of 3.98% in 2000 was lower than the margin of 4.62%
in 1999 and 4.46% in 1998. The lower net interest margin in 2000 resulted
largely from loan growth exceeding deposit growth creating the need for
alternative funding sources. The deposit markets, which have been very
competitive, are expected to remain so going forward. As such, the Company will
continue to use alternative funding sources. From 1999 to 2000, total average
borrowings increased approximately $379.0 million, which included approximately
$200 million related to the December 1999 match funding of mortgage-backed
securities. These alternative funding sources generally have higher interest
rates.
Increases in deposit costs, particularly certificates of deposit, have
outpaced increases in loan yields. The yield on loans rose 25 basis points
during 2000 to 9.28% from 9.03% in 1999. During the same period, the rate paid
on interest-bearing deposits increased by 83 basis points to 5.18% in 2000,
compared with 4.35% in 1999.
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19
Annual interest expense on certificates of deposit increased $29.7 million in
2000. Approximately $15.9 million of this increase was due to an increase in
balances, while $13.8 million was due to rate increases. During 2000, Carolina
First Bank and Citrus Bank held certificate of deposit promotions designed to
build customer loyalty and expand the customer base. One of Carolina First
Bank's promotions generated approximately $235 million of one-year certificates
of deposit with an annualized percentage yield of 7.50%. Citrus Bank's
promotions generated approximately $80 million in certificates of deposit with
an average annualized percentage yield of 7.44%. The majority of these
certificates of deposit will remain on the books throughout the first three
quarters of 2001 and will continue to impact the net interest margin. In
addition, the deposits generated through Bank CaroLine, an Internet bank,
continued to grow in 2000 to approximately $221 million in total deposits as of
December 31, 2000 from $70 million as of December 31, 1999. Deposit rates for
Bank CaroLine are generally higher than those offered by the Company's other
subsidiary banks to reflect the lower cost structure associated with operating
on the Internet, and thus, increased the overall cost of deposits.
Although deposit costs rose more rapidly than earning asset yields, upward
adjustments in the prime interest rate resulted in an increase in the yield on
earning assets. The prime interest rate increased 50 basis points during the
second half of 1999 and 100 basis points during the first half of 2000. The
yield on earning assets increased to 8.79% in 2000 from 8.45% in 1999 and 8.60%
in 1998. Commercial variable rate loans, which constituted approximately 53% of
the commercial portfolio, immediately repriced upward with the increases in the
prime interest rate. If short-term rates decline during 2001, which is generally
anticipated, the yield on variable rate loans will decline accordingly.
The overall yield on loans (including both fixed and variable rate loans)
during 2000 was 9.28%, compared with 9.03% in 1999 and 9.36% in 1998. The yield
on investment securities also increased to 6.86% in 2000 from 6.13% in 1999 and
6.36% in 1998.
During the third quarter of 2000, the Company sold and reinvested
approximately $108 million, or 11%, of the combined investment portfolios of the
Company and Anchor Financial, generating a $5.3 million loss. The portfolio
restructuring was designed to enhance the investment yield.
Provision for Loan Losses
The provision for loan losses was $23.4 million in 2000, an increase of
$5.1 million over the $18.3 million provision recorded in 1999. The provision
for loan losses was $15.6 million in 1998. The increases were attributable to
continued loan growth, an increase in nonperforming loans, higher loan losses,
and uncertain economic conditions.
Based on management's analysis of reserve adequacy, the allowance for loan
and lease losses (the "Allowance") increased twelve basis points, from 1.04% to
1.16% as of December 31, 1999 and 2000, respectively. This increase included a
provision of approximately $3.0 million made during the second quarter of 2000
when the Company's reserve analysis methodology was employed to determine
reserve requirements for Anchor Financial's loan portfolio. During 2000, loans
held for investment, net of unearned income grew $476.4 million, and
nonperforming loans increased by $7.2 million. In addition, 2000 net charge-offs
were $2.1 million higher than the $11.8 million charged off in 1999. Net
charge-offs in 2000 of $13.9 million included $3.4 million related to a
participation in a shared national credit to Video Update, Inc.
The provision for loan losses is a function of loan growth, charge-off
levels, and portfolio quality trends. Continued loan growth is anticipated,
particularly in northern and central Florida, as well as in the coastal Carolina
markets. Loan portfolio quality trends are expected to remain stable. However,
the current economic outlook implies a less robust business climate that could
alter these expectations. Consequently, while significant change is not
anticipated, management continues to closely monitor economic trends and the
potential impact thereof on the Company's loan portfolio.
17
20
Noninterest Income
Noninterest income decreased $10.3 million to $49.3 million in 2000 from
$59.6 million in 1999. For 1998, noninterest income totaled $34.9 million.
Noninterest income included net gains on asset sales in both 2000 and 1999. In
2000, noninterest income included $9.2 million of gains on disposition of equity
investments, $2.1 million of gains on the sale of branch offices, a $0.1 million
gain on sale of credit cards, and a $5.0 million loss on the sale of investment
securities. The loss on sale of investment securities primarily resulted from
restructuring the combined investment portfolio following completion of the
Anchor Financial merger. In 1999, noninterest income included a $15.5 million
gain on disposition of equity investments, a $3.2 million gain on sale of credit
cards, a $2.5 million gain on disposition of assets and liabilities (primarily
from the sale of branch offices), and a $0.5 million gain on the sale of
investment securities. Excluding these net gains on asset sales from both years,
noninterest income increased $5.1 million, or 13%, in 2000 to $43.0 million from
$37.9 million in 1999.
In 2000, the gain on disposition of equity investments included a $9.4
million gain on sale of Net.B@nk common stock, a $2.3 million gain on sale of
Affinity common stock, $2.4 million in losses associated with investments made
by CF Investment Company, and a $0.1 loss on disposition of equity investments
previously made in two community banks. In 1999, the gain on disposition of
equity investments was primarily attributable to the sale of Net.B@nk common
stock, which was largely offset by a contribution to the Carolina First
Foundation, a 501(c)(3) charitable foundation.
In both 2000 and 1999, the gain on disposition of assets and liabilities
essentially related to the sale of three branch office locations in 2000 and
four in 1999. In May 1999, the Company sold its credit card loan portfolio of
approximately $53.6 million, which resulted in a gain of $3.2 million. In 2000,
following the Anchor Financial merger, the Company sold Anchor Financial's
credit card loan portfolio of approximately $5 million, which resulted in a gain
of $0.1 million.
Service charges on deposit accounts, the largest contributor to noninterest
income, rose 12% to $18.0 million in 2000 from $16.0 million in 1999 and $13.9
million in 1998. Average deposits, which impact service charges, increased
approximately 10% in 2000. In addition, effective July 1, 2000, certain deposit
service charges were increased to reflect competitive market pricing.
Mortgage banking income includes origination fees, gains from the sale of
loans, and servicing fees, net of the related amortization for the mortgage
servicing rights and subservicing payments. Mortgage banking income in 2000
increased $2.4 million to $7.1 million from $4.7 million in 1999 and $6.1
million in 1998. The increase in 2000 was primarily related to a $1.6 million
gain on sale of mortgage servicing rights in the fourth quarter. In addition,
mortgage bank income in 2000 included a $284,000 net gain on the sale of
approximately $39 million of portfolio loans and a $207,000 write-off of
miscellaneous receivables. The decrease in 1999 from 1998 was the result of
lower gains on the sale of loans, primarily due to a lower volume of sales.
Mortgage originations totaled approximately $378 million in 2000 compared
with approximately $436 million in 1999. Mortgage originations are net of
mortgage loans acquired through acquisition. Mortgage origination volumes
declined in 2000 due to higher mortgage loan rates.
The servicing operations of Carolina First Mortgage Company ("CF Mortgage")
consist of servicing mortgage loans that are owned by Carolina First Bank and
subservicing loans to which the rights to service are owned by Carolina First
Bank or other non-affiliated financial institutions. At December 31, 2000, CF
Mortgage was servicing or subservicing 27,272 loans having an aggregate
principal balance of approximately $2.5 billion. This balance included
approximately $634 million for which the related mortgage servicing rights were
sold in the fourth quarter 2000, which CF Mortgage will continue to subservice
until March 2001. In 2000, fees related to the servicing portfolio from
non-affiliated companies were mostly offset by the related amortization for the
mortgage servicing rights and subservicing payments. The servicing income does
not include the benefit of interest-free escrow balances related to mortgage
loan servicing activities.
In 2001, the Company plans to realign its mortgage banking strategy to
place more emphasis on mortgage originations. Accordingly, the Company expects
to continue to sell mortgage servicing rights. In February
18
21
2001, the Company entered into an agreement with an unrelated third party to
sell mortgage servicing rights for approximately $950 million in mortgage loans.
Fees for investment services in 2000 of $5.5 million were approximately 12%
above the $4.9 million earned in 1999 and $3.7 million in 1998. The increase was
primarily the result of fees collected by Carolina First Securities, Inc. ("CF
Securities"), a full service brokerage subsidiary of Carolina First Bank. CF
Securities offers a complete line of investment products and services, including
mutual funds, stocks, bonds and annuities. At December 31, 2000 and 1999, the
market value of assets administered by Carolina First Bank's trust department
totaled approximately $768 million and $777 million, respectively.
During 1999, the Company had income of $1.6 million from its interests in
the credit card and commercial real estate loan trusts, compared with income of
$1.6 million in 1998. Loan securitization income ceased during the second
quarter of 1999 following the sale of the Company's credit cards and the
termination of the credit card trust on May 17, 1999. The commercial real estate
loan trust was terminated with the pay-off of the loans in the fourth quarter of
1999. Accordingly, no loan securitization income was realized in 2000.
Other noninterest income was $12.4 million in 2000 compared with $10.6
million in 1999 and $8.7 million in 1998. Other noninterest income included
income related to credit and debit cards, merchant banking, insurance
commissions, increases in cash value of company owned life insurance policies,
international banking services, and other fee based services. The increase in
noninterest income in 2000 and 1999 was largely due to an increase in the cash
value of company owned life insurance. In 1999, the Company used proceeds from
the sale of its credit card portfolio to purchase $50 million of life insurance
on certain officers of the Company. In 2000, the Company used proceeds from the
sale of investment securities to purchase an additional $25 million of life
insurance.
Noninterest Expenses
Noninterest expenses increased to $189.9 million in 2000 from $154.8
million in 1999 and $113.4 million in 1998. Noninterest expense included several
other charges in 2000, 1999, and 1998. Noninterest expenses in 2000 included
$29.2 million in restructuring and merger-related costs (see "EARNINGS REVIEW --
Restructuring and Merger-Related Costs"), $4.0 million in system conversion
costs (see "EARNINGS REVIEW -- System Conversion Costs"), $3.7 million
impairment loss from the write-down of assets primarily related to leasehold
improvements associated with a former operations center, $1.3 million in other
charges related to the Anchor Financial merger, $0.9 million related to
converting the Company's group medical plan to a self-insured plan, and $0.3
million for payments required under an employee contract. In 1999, noninterest
expense included $7.2 million in restructuring and merger-related costs, $11.9
million in charitable contributions made in the form of Net.B@nk common stock to
the Carolina First Foundation, and $1.2 million in contract programming and
software upgrades related to Year 2000. In year 1998, noninterest expense
includes $3.5 million in restructuring and merger-related costs. Excluding these
other charges, noninterest expenses increased $16.0 million to $150.5 million
from $134.5 million in 1999 and $109.9 million in 1998.
Salaries, wages and employee benefits increased $9.3 million to $75.4
million in 2000 from $66.1 million in 1999. Included in 2000 are other charges
of $0.9 million associated with converting the Company's group medical and
dental plans to self-insured plans, $0.4 million related to the termination of
Anchor Financial's employee stock option plan, and $0.3 million for payments
required under an employee contract. Excluding these items, salaries, wages and
employee benefits increased $7.7 million in 2000 from 1999. Approximately half
of this increase was attributable to redundant positions from the Anchor
Financial merger that were not eliminated until August 2000 after Anchor
Financial's operating systems were converted to the Company's and the
consolidation of back office functions. The balance of the increase in 2000 and
the increase in 1999 from 1998 reflects the cost of expanding in existing and
new markets, operational support to promote growth, and additional management
and technical expertise. Full-time equivalent employees as of December 31, 2000,
decreased to 1,374 from 1,514 at the end of 1999. This decrease resulted from
the elimination of redundant positions created from the Anchor merger. Full-time
equivalent employees as of December 31, 1998 were 1,345.
19
22
Occupancy expense increased $3.9 million to $15.3 million in 2000 from
$11.4 million in 1999 and $9.4 million in 1998. The Company began making lease
payments on two new buildings in fourth quarter 1999 and a third new building in
first quarter 2000. These new office facilities also contributed to the increase
in furniture and equipment expense, which increased $2.5 million to $12.8
million in 2000 from $10.3 million in 1999 and $8.1 million in 1998. The $2.2
million increase in 1999 to $10.3 million from $8.1 million in 1998 principally
reflected the costs associated with developing a new company-wide desktop
computer platform and additional ATMs.
Amortization of intangibles decreased to $6.4 million in 2000 from $7.0
million in 1999. The decrease was due to the sale of four branch offices,
previously acquired through mergers accounted for as purchase transactions, in
the last half of 1999. Upon completion of these branch sales, the related
intangible assets were written off resulting in lower amortization of
intangibles. In addition, goodwill associated with the credit card loan
portfolio was also written-off and netted against the gain when the loans were
sold in May 1999, further reducing amortization of intangibles. This lower level
of amortization is expected to continue in 2001.
Other noninterest expenses increased $2.0 million to $43.0 million in 2000
from $41.0 million in 1999. The overall increase in other noninterest expenses
was principally attributable to the overhead and operating expenses associated
with higher lending and deposit activities. The largest items of other
noninterest expense were telecommunications, advertising, professional and
outside servicing fees, travel, stationery, supplies and printing. During 2000,
the Company recorded a $0.9 million accrual related to the Anchor Financial
merger, primarily pending litigation. In 2000, the company also placed into
service a new operating system and capitalized $4.3 million of related computer
software. Other noninterest expense in 2000 included $0.3 million of
depreciation related to the new capitalized software. In 1999, other noninterest
expense included $1.2 million in contract programming and software upgrades
related to Year 2000.
Restructuring and Merger-Related Costs
In connection with the June 2000 merger of Anchor Financial and the 1999
mergers of Citrus Bank, Citizens First National Bank and Bailey Financial
Corporation, the Company incurred pre-tax restructuring and merger-related costs
of approximately $29.2 million in 2000 and $7.2 million 1999. The related
accrual as of December 31, 2000, which totaled approximately $3.5 million, was
principally associated with estimated impairment in connection with abandoned
facilities awaiting disposition. Substantially of all of the 1999 costs were
paid as of December 31, 1999. Restructuring and merger-related costs in 1998
related to Anchor Financial's 1998 mergers with ComSouth Bankshares, Inc. and
M&M Financial Corporation. The Company expects to record no additional
restructuring and merger-related costs in 2001 related to these mergers except
for adjustments to estimates resulting from the final disposition of impaired
assets.
Table 4 shows the breakdown of these expenses for the year ended December
31, 2000, of which $14.3 million are restructuring and $14.9 million are
merger-related.
TABLE 4
- --------------------------------------------------------------------------------
RESTRUCTURING AND MERGER-RELATED COSTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Contract termination costs.................................. $ 7,355
Investment banking fees..................................... 7,026
Impairment of abandoned facilities.......................... 2,772
Severance payments.......................................... 4,177
Professional fees........................................... 2,532
Data processing conversion.................................. 1,619
Write-off of obsolete fixed assets.......................... 1,583
Other....................................................... 2,134
-------
Total....................................................... $29,198
=======
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23
System Conversion Costs
From March 2000 to July 2000, the Company and its subsidiaries converted
their operating systems to the Fiserv Comprehensive Banking System.
During 2000, as a result of the system conversion, and the related training
involved with learning a new system, certain outstanding items on the general
ledger, including loan funding and demand deposit account reconciliations, were
not resolved in a timely manner. The Company dedicated resources, including the
Company's internal audit staff and professional consultants, to complete these
reconciliations. While the majority of the outstanding items have been resolved,
the Company has recorded a $700,000 accrual as of December 31, 2000 to cover
estimated potential charge-offs associated with the remaining outstanding items.
At this time, based upon the clearance of outstanding items to date, the Company
does not anticipate any further material changes to the Company's consolidated
financial position or results of operations related to these reconciliations.
System conversion costs totaled $4.0 million in 2000, which were largely
professional fees, fees for contract personnel, and contract buyout charges.
These costs also included a $700,000 accrual for estimated charge-offs
associated with the reconciliations described in the preceding paragraph. The
Company expects to record no additional system conversion costs in 2001.
Fourth Quarter Results
Including merger-related charges and other items, net income for the three
months ended December 31, 2000 was $8.6 million, or $0.20 per diluted share. For
the three months ended December 31, 1999, net income totaled $10.1 million, or
$0.23 per diluted share. The Company recorded several merger-related charges and
other items in the fourth quarter of 2000. These pre-tax items included a $7.1
million gain on the disposition of equity investments, $2.2 million of system
conversion costs, $1.4 million of restructuring and merger-related costs, $0.9
million associated with converting the Company's group benefit plans to
self-insured plans, $0.4 million related to the termination of Anchor
Financial's employee stock option plan, $0.4 million write-off of miscellaneous
receivables, and $0.3 million for payments required under an employee contract.
Net interest income decreased $3.4 million to $40.9 million for the three
months ended December 31, 2000 from $44.3 million for the comparable period in
1999. The fourth quarter 2000 net interest margin decreased to 3.56% compared
with 4.45% for the fourth quarter of 2000. The lower net interest income and net
interest margin in the fourth quarter 2000 resulted from the higher cost of
funds partially offset by a higher level of average earning assets and higher
earning asset yields (see "EARNINGS REVIEW -- Net Interest Income"). Earning
assets averaged $4.5 billion and $4.0 billion in the fourth quarters of 2000 and
1999, respectively. Table 5 presents a summary of the consolidated quarterly
financial data for the years ended December 31, 2000 and 1999.
21
24
TABLE 5
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
--------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- ----------- -----------
2000
For the Quarter
Interest income........................... $ 101,591 $ 100,709 $ 96,021 $ 90,711
Interest expense.......................... 60,681 56,765 50,666 46,291
----------- ----------- ----------- -----------
Net interest income....................... 40,910 43,944 45,355 44,420
Provision for loan losses................. 4,242 6,709 8,482 3,945
Noninterest income........................ 19,607 6,397 10,630 12,714
Noninterest expense....................... 44,516 50,326 57,348 37,669
----------- ----------- ----------- -----------
Income before income taxes................ 11,759 (6,694) (9,845) 15,520
Income taxes.............................. 3,142 (3,612) (896) 5,117
----------- ----------- ----------- -----------
Net income (loss)......................... $ 8,617 $ (3,082) $ (8,949) $ 10,403
=========== =========== =========== ===========
Shares outstanding:
Average -- basic....................... 42,943,042 42,901,829 42,842,124 42,944,844
Average -- diluted..................... 43,465,250 43,577,447 43,530,646 43,629,026
At quarter end......................... 42,460,358 43,134,578 43,056,873 42,999,809
Per Common Share
Net income -- basic....................... $ 0.20 $ (0.07) $ (0.21) $ 0.24
Net income -- diluted..................... 0.20 (0.07) (0.21) 0.24
Cash dividend declared.................... 0.11 0.10 0.10 0.10
Common stock price:
High................................... 13.38 15.88 17.75 18.13
Low.................................... 8.38 11.00 10.75 12.75
Close.................................. 13.25 12.63 14.50 13.13
Volume traded............................. 8,349,269 4,329,396 5,382,494 7,690,054
1999
For the Quarter
Interest income........................... $ 84,897 $ 81,106 $ 78,904 $ 76,185
Interest expense.......................... 40,567 36,541 35,078 34,292
----------- ----------- ----------- -----------
Net interest income....................... 44,330 44,565 43,826 41,893
Provision for loan losses................. 5,294 4,362 3,985 4,632
Noninterest income........................ 11,511 11,423 12,286 24,429
Noninterest expense....................... 35,434 36,893 36,637 45,865
----------- ----------- ----------- -----------
Income before income taxes................ 15,113 14,733 15,490 15,825
Income taxes.............................. 5,001 5,071 5,515 5,124
----------- ----------- ----------- -----------
Net income................................ $ 10,112 $ 9,662 $ 9,975 $ 10,701
=========== =========== =========== ===========
Shares outstanding:
Average -- basic....................... 43,031,117 42,920,681 42,682,384 42,109,140
Average -- diluted..................... 43,845,867 43,867,432 43,980,266 43,209,583
At quarter end......................... 43,326,754 43,237,067 43,116,881 42,396,311
Per Common Share
Net income -- basic....................... $ 0.24 $ 0.23 $ 0.23 $ 0.25
Net income -- diluted..................... 0.23 0.22 0.23 0.25
Cash dividend declared.................... 0.10 0.09 0.09 0.09
Common stock price:
High................................... 22.00 25.50 30.81 26.00
Low.................................... 14.88 19.38 21.44 20.25
Close.................................. 18.25 19.81 24.38 22.00
Volume traded............................. 6,306,026 3,357,093 8,955,284 4,394,274
22
25
BALANCE SHEET REVIEW
Loans
At December 31, 2000, the Company had total loans outstanding of $3.7
billion that equaled approximately 96% of the Company's total deposits and
approximately 72% of the Company's total assets. Loans are the largest category
of earning assets and produce the highest yields. The loan portfolio consists
principally of commercial real estate loans, commercial loans, consumer loans
(including both direct and indirect loans) and one-to-four family residential
mortgage loans. Substantially all loans are to borrowers domiciled in the
Company's market areas in South Carolina, Florida and North Carolina. The
portfolio does not contain any foreign loans or any Highly Leveraged
Transactions, as defined by regulatory authorities. At December 31, 2000,
commercial real estate loans (i.e., loans that depend for repayment on the sale
or lease of real estate to unrelated third parties) were 29.6% of total loans.
All other concentrations were less than 10% of total loans.
Table 6 summarizes loans outstanding and percentage of loans in each
category, showing the composition sorted by collateral type. Effective with the
system conversion in June 2000, the Company reclassified certain loans due to
the enhanced capability of analyzing loans by purpose and by collateral.
Accordingly, the December 31, 2000 composition presented below may not be
comparable with the earlier periods presented. For example, the construction
category as of December 31, 2000 included commercial construction, which was
previously included in commercial secured by real estate. The Company's increase
in consumer loans during 2000 and 1999 was due primarily to the expansion of
indirect lending to new markets in South Carolina and Florida.
TABLE 6
- --------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Commercial, financial and agricultural......... $ 561,360 $ 536,542 $ 495,148 $ 405,721 $ 340,487
Real estate -- construction.................... 458,577 221,683 150,194 131,403 93,653
Real estate -- residential mortgage (1-4
family)...................................... 890,693 729,522 562,511 509,575 373,671
Commercial secured by real estate (1).......... 1,348,604 1,336,491 1,130,932 856,289 671,102
Consumer....................................... 460,668 396,358 282,583 209,126 207,578
Credit cards................................... -- 15,798 73,788 58,964 47,183
Lease financing receivables.................... 4,186 15,500 40,450 79,597 91,321
---------- ---------- ---------- ---------- ----------
Loans held for investment...................... 3,724,088 3,251,894 2,735,606 2,250,675 1,824,995
Loans held for sale............................ 12,630 45,591 113,834 236,146 11,540
---------- ---------- ---------- ---------- ----------
Total gross loans.......................... 3,736,718 3,297,485 2,849,440 2,486,821 1,836,535
Unearned income................................ 1,536 5,765 8,363 12,699 15,043
Allowance for loan losses...................... 43,024 33,756 29,812 25,736 19,988
---------- ---------- ---------- ---------- ----------
Total net loans............................ $3,692,158 $3,257,964 $2,811,265 $2,448,386 $1,801,504
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------
PERCENTAGE OF LOANS IN CATEGORY
- --------------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
LOANS HELD FOR INVESTMENT
Commercial, financial and agricultural.......... 15.07% 16.50% 18.10% 18.03% 18.66%
Real estate -- construction..................... 12.32 6.82 5.49 5.84 5.13
Real estate -- residential mortgage (1-4
family)....................................... 23.92 22.43 20.56 22.64 20.48
Commercial secured by real estate (1)........... 36.21 41.10 41.34 38.04 36.77
Consumer........................................ 12.37 12.19 10.33 9.29 11.37
Credit cards.................................... -- 0.48 2.70 2.62 2.59
Lease financing receivables..................... 0.11 0.48 1.48 3.54 5.00
------ ------ ------ ------ ------
Total....................................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
- ------------
(1) This category includes loans to businesses other than real estate companies
where owner-occupied real estate is pledged on loans to finance operations,
equipment and facilities. At December 31, 2000, such loans were
approximately half of the category total.
23
26
Table 7 reflects the amount of commercial, financial, agriculture and
construction loans included in Table 6 broken down by contractual maturity date.
The table also provides the breakdown between those loans with a predetermined
interest rate and those loans with a floating interest rate.
TABLE 7
- --------------------------------------------------------------------------------
LOAN MATURITY AND INTEREST SENSITIVITY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
OVER ONE BUT OVER
ONE YEAR LESS THAN FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ------------ -------- ----------
Commercial, financial, agricultural and commercial
secured by real estate.......................... $507,793 $1,051,527 $350,644 $1,909,964
Real estate -- construction....................... 335,158 80,506 42,913 458,577
Total of loans with:
Predetermined interest rates.................... 211,847 635,967 258,602 1,106,416
Floating interest rates......................... 631,104 496,066 134,955 1,262,125
The Company's loans held for investment, net of unearned income increased
$476.4 million, or 14.7%, to approximately $3.7 billion at December 31, 2000
from $3.2 billion at December 31, 1999. Approximately $131.9 million of the 2000
loan growth was attributable to the Citrus Bank markets in Florida. This 2000
loan growth was net of loan sales during 2000. During the fourth quarter 2000,
the Company sold approximately $39 million of residential mortgage loans from
the held for investment portfolio. An additional $23.4 million of loans were
sold in connection with the sale of three branch offices during the year. In
addition, approximately $5 million of credit card balances, formerly held by
Anchor Financial, were sold during the third quarter.
Table 8 summarizes the loan relationships of the Company that are greater
than $5 million. The Company reports commitments to make loans in excess of $5
million to the Credit Committee of the Board of Directors for review.
TABLE 8
- --------------------------------------------------------------------------------
LOAN RELATIONSHIPS GREATER THAN $5 MILLION
- --------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER PRINCIPAL TOTAL LOAN
OF BORROWERS BALANCE PORTFOLIO
------------ -------------- -------------
December 31, 2000................... 62 $481.4 million 13%
December 31, 1999................... 42 302.6 million 9
In 2000, the Company's loans averaged $3.5 billion with a yield of 9.28%,
compared with $3.0 billion and a yield of 9.03% in 1999. This increase in loan
yield was due to increases in the prime interest rate that have occurred during
the second half of 1999 and 2000. This increase was substantially offset by the
rapid increase in indirect consumer loan balances, which tend to have a lower
yield than commercial loans. The interest rates charged on loans vary with the
degree of risk, maturity, and principal amount of the loan. Competitive
pressures, money market rates, availability of funds, and government regulations
also influence interest rates.
Allowance for Loan Losses
The adequacy of the Allowance is analyzed on a quarterly basis. For
purposes of this analysis, adequacy is defined as a level sufficient to absorb
probable losses in the portfolio. The methodology employed for this analysis is
as follows.
The portfolio is segregated into risk-similar segments for which historical
loss ratios are calculated and adjusted for identified changes in current
portfolio characteristics. Loss ratios are calculated by product type for
consumer loans and by risk grade for commercial loans. Large problem commercial
loans are individually assessed and assigned specific loss estimates. To allow
for modeling error, a range of probable loss ratios is
24
27
then derived for each segment at plus and minus five percent of the adjusted
historical loss ratio. The resulting percentages are then applied to the dollar
amounts of loans in each segment to arrive at each segment's range of probable
loss levels.
The Allowance for each portfolio segment is set at an amount within its
range that reflects management's best judgment of the extent to which historical
loss levels are more or less accurate indicators of current losses in the
portfolio. Management's judgments evolve from an assessment of various issues,
including but not limited to the pace of loan growth, emerging portfolio
concentrations, risk management system changes, entry into new markets, new
product offerings, loan portfolio quality trends, and uncertainty in current
economic and business conditions.
This methodology was first adopted for the March 31, 2000 analysis. For
each quarter of 2000, an analysis was also conducted using the methodology
employed in prior years. Comparison of the results from these parallel analyses
confirms that this change in methodology did not alter management's conclusion
as to the adequacy of the Allowance in the current period or for prior periods.
Assessing the adequacy of the Allowance is a process that requires
considerable judgment. Management's judgments are based on numerous assumptions
about current events which it believes to be reasonable, but which may or may
not be valid. Thus there can be no assurance that loan losses in future periods
will not exceed the current Allowance amount or that future increases in the
Allowance will not be required. No assurance can be given that management's
ongoing evaluation of the loan portfolio in light of changing economic
conditions and other relevant circumstances will not require significant future
additions to the Allowance, thus adversely affecting the operating results of
the Company.
The Allowance is also subject to examination and adequacy testing by
regulatory agencies, which may consider such factors as the methodology used to
determine adequacy and the size of the Allowance relative to that of peer
institutions, and other adequacy tests. In addition, such regulatory agencies
could require the Company to adjust its Allowance based on information available
to them at the time of their examination.
The Allowance totaled $43.0 million, or 1.16% of loans held for investment
net of unearned income at December 31, 2000, compared with $33.8 million, or
1.04%, at December 31, 1999. A provision of approximately $3.0 million was made
during the second quarter of 2000 when the Company's reserve analysis
methodology was employed to determine reserve requirements for Anchor
Financial's loan portfolio. During the second quarter of 1999, the Allowance was
reduced $3.0 million as a consequence of the sale of the credit card portfolio.
The Allowance as a percentage of nonperforming loans was 234% and 302% as of
December 31, 2000 and 1999, respectively. Nonperforming loans increased to $18.4
million as of December 31, 2000 from $11.2 million at December 31, 1999. See
"Credit Quality."
25
28
Table 9, which summarizes the changes in the Allowance, and Table 10, which
reflects the allocation of the Allowance at the end of each year, provide
additional information with respect to the activity in the Allowance.
TABLE 9
- --------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Loan loss reserve at beginning of
year............................... $ 33,756 $ 29,812 $ 25,736 $ 19,988 $ 15,869
Purchase accounting acquisitions..... -- 408 1,822 3,550 --
Allowance adjustment for loans
sold............................... (252) (2,977) -- 658 1,236
Charge-offs:
Commercial, financial and
agricultural.................... 7,548 4,791 3,752 2,441 707
Real estate -- construction........ -- -- -- -- 115
Secured by real estate............. 1,458 805 320 588 1,627
Consumer........................... 6,617 6,354 6,991 6,276 3,614
Credit cards....................... 450 1,852 4,418 5,475 4,272
---------- ---------- ---------- ---------- ----------
Total loans charged-off....... 16,073 13,802 15,481 14,780 10,335
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and
agricultural.................... 1,314 783 779 451 311
Secured by real estate............. 156 132 76 62 268
Consumer........................... 627 997 1,179 1,115 130
Credit cards....................... 118 130 55 50 416
---------- ---------- ---------- ---------- ----------
Total loans recovered......... 2,215 2,042 2,089 1,678 1,125
---------- ---------- ---------- ---------- ----------
Net charge-offs...................... 13,858 11,760 13,392 13,102 9,210
Additions to reserve through
provision expense.................. 23,378 18,273 15,646 14,642 12,093
---------- ---------- ---------- ---------- ----------
Loan loss reserve at end of year..... $ 43,024 $ 33,756 $ 29,812 $ 25,736 $ 19,988
========== ========== ========== ========== ==========
Average loans........................ $3,545,336 $3,045,913 $2,577,018 $2,066,592 $1,709,605
Loans held for investment, net of
unearned income (period end)....... 3,722,552 3,246,129 2,727,243 2,237,976 1,809,952
Net charge-offs as a percentage of
average loans...................... 0.39% 0.39% 0.52% 0.63% 0.54%
Allowance for loan losses as a
percentage of loans excluding loans
held for sale...................... 1.16 1.04 1.09 1.15 1.10
26
29
TABLE 10
- --------------------------------------------------------------------------------
COMPOSITION OF ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Commercial, financial and agricultural........... $ 6,935 $10,226 $ 7,298 $ 6,361 $ 5,909
Real estate -- construction...................... 5,622 2,572 1,712 1,217 844
Real estate -- residential mortgage (1-4
family)........................................ 1,769 3,269 2,007 921 700
Commercial secured by real estate................ 16,539 6,502 4,202 3,242 3,114
Consumer......................................... 10,168 7,039 6,371 5,957 3,678
Credit cards..................................... -- 1,465 5,747 6,188 3,848
Unallocated (1).................................. 1,991 2,683 2,475 1,850 1,895
------- ------- ------- ------- -------
Total.................................. $43,024 $33,756 $29,812 $25,736 $19,988
======= ======= ======= ======= =======
- ------------
(1) In 2000, the unallocated portion of the Allowance is the sum of the amounts,
for each loan category, by which actual loss estimates exceed the lower end
of the probable-loss range in the Company's reserve adequacy analysis model.
Reserves allocated to large problem loans are determined according the FAS
114 and FAS 118.
The allocation of the Allowance to the respective loan classifications is
not necessarily indicative of future losses or future allocations.
Securities
Table 11 shows the carrying values of securities as follows.
TABLE 11
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
SECURITIES HELD FOR INVESTMENT (at amortized cost)
U.S. Treasury and U.S. Government agencies.................. $ 2,650 $ 5,997 $ 16,234
Mortgage-backed securities.................................. -- 1,484 15,977
State and municipal......................................... 75,015 63,877 49,047
Other investments........................................... 102 402 300
-------- -------- --------
77,767 71,760 81,558
-------- -------- --------
SECURITIES AVAILABLE FOR SALE (at fair value)
U.S. Treasury and U.S. Government agencies.................. 198,670 269,136 348,180
Mortgage-backed securities.................................. 507,817 442,907 238,576
State and municipal......................................... 12,409 21,056 9,480
Other investments........................................... 97,877 154,619 48,656
-------- -------- --------
816,773 887,718 644,892
-------- -------- --------
TRADING ACCOUNT (at fair value)
U.S. Treasury and U.S. Government agencies.................. 4,644 3,758 3,411
State and municipal......................................... 360 910 132
-------- -------- --------
5,004 4,668 3,543
-------- -------- --------
Total............................................. $899,544 $964,146 $729,993
======== ======== ========
In 2000, total securities at year end decreased $64.6 million, or 6.7%.
Securities averaged $875.9 million in 2000, 23% above the 1999 average of $711.3
million. A significant portion of the increase in average securities in 2000 was
attributable to the purchase of approximately $200 million of additional
mortgage-backed securities in December 1999 to match fund against approximately
$200 million in Federal Home Loan Bank borrowings. The average portfolio yield
increased to 6.86% in 2000 from 6.13% in 1999. The securities yield increased
due to a higher level of general interest rates and yield enhancements related
to the portfolio restructuring.
27
30
During the third quarter of 2000, the Company restructured approximately
$108 million, or 11%, of the combined investment portfolios of the Company and
Anchor Financial, generating a $5.3 million loss. As part of the restructuring,
the Company liquidated lower-yielding securities and replaced them with similar
securities at higher market yields. The Company also sold out-of-market
municipals and corporate securities totaling approximately $30 million.
Table 12 shows the contractual maturity schedule for securities held for
investment and securities available for sale at December 31, 2000. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations. The table also reflects the weighted
average yield of the investment securities.
TABLE 12
- --------------------------------------------------------------------------------
INVESTMENT MATURITY SCHEDULE
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
HELD FOR INVESTMENT -- AMORTIZED COST
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER NO CONTRACTUAL
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
-------- ---------- ---------- --------- -------------- --------
U.S. Treasury and U.S.
Government agencies........... $ 2,650 $ -- $ -- $ -- $ -- $ 2,650
State and municipal............. 11,627 34,088 28,162 1,138 -- 75,015
Other investments............... -- 52 50 -- -- 102
------- -------- -------- -------- ------- --------
$14,277 $ 34,140 $ 28,212 $ 1,138 $ -- $ 77,767
======= ======== ======== ======== ======= ========
WEIGHTED AVERAGE YIELD
U.S. Treasury and U.S.
Government agencies........... 6.13% --% --% --% --% 6.13%
State and municipal............. 4.43 4.69 5.02 4.86 -- 4.78
Other investments............... -- 7.33 6.75 -- -- 7.05
------- -------- -------- -------- ------- --------
4.74% 4.70% 5.03% 4.86% --% 4.83%
======= ======== ======== ======== ======= ========
AVAILABLE FOR SALE -- FAIR VALUE
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER NO CONTRACTUAL
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
-------- ---------- ---------- --------- -------------- --------
U.S. Treasury and U.S.
Government agencies........... $29,038 $146,362 $ 16,624 $ 6,646 $ -- $198,670
Mortgage-backed securities...... -- 95,744 86,204 325,869 -- 507,817
State and municipal............. 370 3,349 8,690 -- -- 12,409
Other investments............... -- -- 28,213 21,296 48,368 97,877
------- -------- -------- -------- ------- --------
$29,408 $245,455 $139,731 $353,811 $48,368 $816,773
======= ======== ======== ======== ======= ========
WEIGHTED AVERAGE YIELD
U.S. Treasury and U.S.
Government agencies........... 6.01% 6.40% 6.25% 7.21% --% 6.36%
Mortgage-backed securities...... -- 6.34 7.13 7.20 -- 7.03
State and municipal............. 5.61 4.73 4.46 -- -- 4.57
Other investments............... -- -- 6.22 6.57 -- 6.37
------- -------- -------- -------- ------- --------
6.01% 6.35% 6.68% 7.16% --% 6.75%
======= ======== ======== ======== ======= ========
- ------------
(1) Other investments are made up primarily of investments in banks, the
investment in Net.B@nk common stock, and Federal Home Loan Bank stock.
Approximately $48 million of these securities, which have no contractual
maturity, have no yield and accordingly are excluded from the "Other
Investments" yield calculation as well as the overall "Available for Sale"
yield calculation.
28
31
At December 31, 2000, securities available for sale included the following
equity investments with the following pre-tax market values: 1,175,000 shares of
common stock of Net.Bank recorded at approximately $7.7 million, 1,753,366
shares of common stock of Affinity recorded at approximately $219,000,
investments in thirteen community bank recorded at approximately $6.0 million,
and an investment in Rock Hill Bank & Trust recorded at approximately $5.5
million. See "BALANCE SHEET REVIEW -- Equity Investments."
Equity Investments
Investment in Net.B@nk, Inc. At December 31, 2000, the Company owned
1,175,000 shares of Net.B@nk, Inc. ("Net.B@nk") common stock, or approximately
4% of the outstanding shares. Net.B@nk owns and operates Net.B@nk, F.S.B., an
FDIC-insured federal savings bank that provides banking services to consumers
utilizing the Internet. The Company's investment in Net.B@nk, which is included
in securities available for sale and has a basis of approximately $326,000, had
a pre-tax market value of approximately $7.7 million as of December 31, 2000.
During 2000, the Company sold 1,240,000 shares of Net.B@nk stock resulting in a
pre-tax gain of $9.4 million. The Company's shares of Net.B@nk common stock are
"restricted" securities, as that term is defined in federal securities law.
Investment in Affinity Technology Group, Inc. At December 31, 2000, the
Company, through its subsidiary Blue Ridge Finance Company ("Blue Ridge"), owned
1,753,366 shares of common stock of Affinity Technology Group, Inc. ("Affinity")
and a warrant to purchase an additional 3,471,340 shares for approximately
$0.0001 per share ("Affinity Warrant"). During the first quarter 2000, the
Company sold 775,000 shares of Affinity common stock for a pre-tax gain of
approximately $2.3 million. Subsequent to December 31, 2000, the Company sold
approximately 348,000 shares of Affinity common stock.
These Affinity shares and the shares represented by the Affinity Warrant
constitute approximately a 15% ownership interest in Affinity. As of December
31, 2000, the investment in Affinity's common stock, which is included in
securities available for sale and has a basis of approximately of $111,000, was
recorded at its pre-tax market value of approximately $219,000. The Affinity
Warrant was not reported on the Company's balance sheet as of December 31, 2000.
The Company's shares in Affinity and the shares issuable upon the exercise
of the Affinity Warrant are "restricted" securities, as that term is defined in
federal securities laws.
Investments in Banks. As of December 31, 2000, the Company had equity
investments in thirteen community banks located in the Southeast. In each case,
the Company owns less than 5% of the community bank's outstanding common stock.
The Company has made these investments to develop correspondent banking
relationships and to promote community banking in the Southeast. As of December
31, 2000, equity investments in the community banks, included in securities
available for sale with a basis of approximately $8.5 million, were recorded at
pre-tax market value of approximately $6.0 million. During the third quarter
2000, the Company sold two of its community bank stock investments, which were
being acquired, for a net loss of $132,000.
As a result of the Company's merger with Anchor Financial, the Company has
an investment in Rock Hill Bank & Trust. The investment, which is included in
securities available for sale and has a basis of approximately $3.1 million, had
a pre-tax market value of approximately $5.5 million as of December 31, 2000.
The Company also has an investment in Nexity Financial Corporation, an Internet
bank, which is recorded at its basis of $500,000.
CF Investment Company. In September 1997, the Company's subsidiary, CF
Investment Company, became licensed through the Small Business Administration to
operate as a Small Business Investment Company. CF Investment Company is a
wholly-owned subsidiary of Blue Ridge. CF Investment Company's principal focus
is investing in companies that have a bank-related technology or service the
Company and its subsidiaries can use. As of December 31, 2000, CF Investment
Company had invested approximately $1.7 million (principally in the form of
loans) in companies specializing in electronic document management and
Internet-related services.
29
32
CF Investment Company's loans represent a higher credit risk to the Company
due to the start-up nature of these companies. For the year ended December 31,
2000, the Company incurred a $2.4 million loss related to the write-off of three
investments.
Intangible Assets and Other Assets
The intangible assets balance at December 31, 2000 of $107.3 million was
attributable to goodwill of $100.1 million and core deposit balance premiums of
$7.2 million. The intangible assets balance at December 31, 1999 of $114.0
million was attributable to goodwill of $105.2 million and core deposit balance
premiums of $8.8 million. The decline in the intangible assets balances was
attributable to the amortization of intangibles.
At December 31, 2000, other assets included other real estate owned of $3.1
million and mortgage servicing rights of $20.7 million. At December 31, 1999,
other assets included other real estate owned of $2.8 million and mortgage
servicing rights of $24.9 million. The balance for mortgage servicing rights
declined due to the fourth quarter 2000 sale of rights totaling $8.0 million and
amortization of rights, which exceeded the rights purchased during the year.
Capitalized software net of related amortization, which is included in
other assets, was approximately $7.5 million and $3.3 million as of December 31,
2000 and 1999, respectively. The increase was primarily attributable to computer
software related to the Company's new operating system, which was placed into
service in 2000.
Deposits
The Company's primary source of funds for loans and investments is its
deposits that are gathered through the Subsidiary Banks' branch network and on
the Internet through Bank CaroLine. Deposits provided funding for 83% of average
earning assets in 2000 and 88% in 1999. The Subsidiary Banks face stiff
competition from other banking and financial services companies in gathering
deposits. The percentage of funding provided by deposits declined, and
accordingly, the Company has developed other sources, such as FHLB advances, to
fund loan demand.
Deposits grew 12% to $3.9 billion at December 31, 2000 from $3.5 billion at
December 31, 1999. The increase in deposits resulted principally from internal
deposit growth related to account promotions, sales efforts, and Internet
banking. During the first three quarters of 2000, approximately $42.2 million in
deposits were sold in connection with the sales of the Nichols, Prosperity, and
Saluda branch offices.
During 2000, total interest-bearing deposits averaged $3.2 billion with a
rate of 5.18%, compared with $2.9 billion with a rate of 4.35% in 1999. During
2000, deposit pricing remained very competitive, a pricing environment which the
Company expects to continue. Average noninterest-bearing deposits increased 4%
during 2000, but declined as a percentage of average total deposits to 14% in
2000 from 15% in 1999 reflecting a higher growth rate of interest-bearing
deposit balances.
30
33
Table 13 shows the breakdown of total deposits by type of deposit and the
respective percentage of total deposits.
TABLE 13
- --------------------------------------------------------------------------------
TYPES OF DEPOSITS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Noninterest-bearing demand
deposits........................... $ 491,109 $ 496,428 $ 501,751 $ 393,606 $ 354,994
Interest-bearing demand deposits..... 590,669 594,223 625,875 419,762 264,164
Money market accounts................ 702,333 630,545 530,859 458,367 379,875
Savings accounts..................... 116,165 148,055 183,640 179,816 156,396
Time deposits under $100,000......... 1,401,520 1,109,195 1,036,007 967,094 692,527
Time deposits of $100,000 or more.... 592,866 503,205 424,391 392,494 303,315
---------- ---------- ---------- ---------- ----------
Total deposits.................. $3,894,662 $3,481,651 $3,302,523 $2,811,139 $2,151,271
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------
PERCENTAGE OF DEPOSITS
- --------------------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Noninterest-bearing demand deposits... 12.61% 14.26% 15.19% 14.00% 16.50%
Interest-bearing demand deposits...... 15.17 17.07 18.95 14.93 12.28
Money market accounts................. 18.03 18.11 16.08 16.31 17.66
Savings accounts...................... 2.98 4.25 5.56 6.40 7.27
Time deposits under $100,000.......... 35.99 31.86 31.37 34.40 32.19
Time deposits of $100,000 or more..... 15.22 14.45 12.85 13.96 14.10
------ ------ ------ ------ ------
Total deposits................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
Time deposits under $100,000 increased $292 million, or 26%, during 2000,
due to certificate of deposit promotions in select markets of the Subsidiary
Banks, Internet banking deposits and brokered certificates of deposit. In
September 1999, the Company introduced an Internet bank, Bank CaroLine, which is
offered as a service of Carolina First Bank. Deposit rates for Bank CaroLine are
generally higher than the rates offered by the Company's Subsidiary Banks due to
lower operating costs. Deposits gathered through Bank CaroLine are used to fund
commercial and consumer loans generated by the Company's Subsidiary Banks. At
December 31, 2000, total deposits for Bank CaroLine totaled $221 million, up
from $70 million as of December 31, 1999. At December 31, 2000, approximately
90% of Bank CaroLine's deposits were certificates of deposit. At December 31,
2000, the Company had $99.2 million in brokered certificates of deposit under
$100,000. The Company considers these funds as an alternative funding source
available to use while continuing to maintain and grow its local market deposit
base.
Time deposits of $100,000 or more represented 15% and 14% of total deposits
at December 31, 2000 and 1999, respectively. The Company's large denomination
time deposits are generally from customers within the local market areas of its
Subsidiary Banks and, therefore, provide a greater degree of stability than is
typically associated with this source of funds.
31
34
Table 14 shows a maturity schedule for time deposits of $100,000 or more at
December 31, 2000.
TABLE 14
- --------------------------------------------------------------------------------
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three months or less................................. $138,715
Over three through six months........................ 155,350
Over six through twelve months....................... 180,749
Over twelve months................................... 118,052
--------
Total outstanding............................... $592,866
========
Borrowed Funds
The Company's short-term borrowings consist of federal funds purchased and
repurchase agreements, FHLB advances, commercial paper and other short-term
borrowing. In 2000, average short-term borrowings totaled $457.0 million
compared with $243.3 million in 1999 and $163.8 million in 1998 from increased
reliance on short-term borrowings to support earning asset growth.
Federal funds purchased and repurchase agreements are used to satisfy daily
funding needs and, when advantageous, for rate arbitrage. Federal funds
purchased and repurchase agreements totaled $232.1 million and $179.7 million at
December 31, 2000 and 1999, respectively. Balances in these accounts can
fluctuate on a day-to-day basis. At December 31, 2000 and 1999, FHLB advances
totaled $205.1 million and $236.0 million, respectively. Short-term FHLB
advances are a source of funding which the Company uses depending on the current
level of deposits and management's willingness to raise deposits through market
promotions.
During 2000, the Company negotiated a short-term note payable to an
unaffiliated bank. As of December 31, 2000, this note totaled $15 million with
an interest rate of 8.62%. At December 31, 2000, the Company had $7.6 million in
outstanding commercial paper, compared with none at December 31, 1999. The
Company issues commercial paper depending on its funding requirements and the
cost of commercial paper compared with alternative borrowing sources.
32
35
Table 15 shows balance and interest rate information on the Company's short
term borrowings.
TABLE 15
- --------------------------------------------------------------------------------
SHORT TERM BORROWINGS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
MAXIMUM
OUTSTANDING
AT ANY AVERAGE AVERAGE ENDING INTEREST RATE AT
YEAR ENDED DECEMBER 31, MONTH END BALANCE INTEREST RATE BALANCE YEAR END
----------------------- ----------- -------- ------------- -------- ----------------
2000
Federal funds purchased and repurchase
agreements........................... $235,545 $206,814 5.81% $232,110 6.32%
Advances from the FHLB................. 294,990 243,944 6.43 205,080 6.43
Note payable to unaffiliated bank...... 15,000 331 8.62 15,000 8.62
Treasury, tax and loan note............ 10,611 5,325 5.01 9,366 6.29
Commercial paper and other short-term
borrowings........................... 7,962 563 7.85 7,962 7.24
-------- ---- -------- ----
$456,977 6.14% $469,518 6.46%
======== ==== ======== ====
1999
Federal funds purchased and repurchase
agreements........................... $226,016 $187,174 4.76% $179,710 4.78%
Advances from the FHLB................. 235,990 54,212 5.26 235,990 5.01
Commercial paper and other short-term
borrowings........................... 7,938 1,922 4.89 2,929 5.31
-------- ---- -------- ----
$243,308 4.86% $418,629 4.91%
======== ==== ======== ====
1998
Federal funds purchased and repurchase
agreements........................... $216,490 $156,375 5.19% $216,490 4.31%
Advances from the FHLB................. 920 397 5.82 920 5.82
Commercial paper and other short-term
borrowings........................... 24,434 7,017 6.29 2,235 6.28
-------- ---- -------- ----
$163,789 5.24% $219,645 4.33%
======== ==== ======== ====
The Company's long-term borrowings consist primarily of subordinated notes,
FHLB borrowings, an employee stock ownership plan note payable, and mortgage
note payable. Long-term borrowings totaled $315.9 million at December 31, 2000,
a level comparable December 31, 1999 balance of $314.3 million.
Capital Resources and Dividends
Total shareholders' equity amounted to $468.7 million, or 9.0% of total
assets, at December 31, 2000, compared with $500.6 million, or 10.5% of total
assets, at December 31, 1999. The decrease in total shareholders' equity
resulted principally from the Company's stock repurchase program, a decline in
the net unrealized gain on securities and lower retained earnings due to
restructuring and merger-related costs and other charges.
In the first quarter of 2000, the Company repurchased 524,600 shares of
common stock, which decreased shareholders' equity by $8.3 million. In March
2000, the Company rescinded its share repurchase program due to the June 2000
closing of the merger with Anchor Financial. In December 2000, the Company
initiated a stock repurchase program for up to two million shares, or
approximately 5% of its outstanding shares. In December 2000, the Company
repurchased 847,376 shares, which decreased shareholders' equity by $10.2
million. The Company may continue to repurchase shares depending upon current
market conditions and available cash.
33
36
The Company's unrealized gain on securities declined to $6.6 million as of
December 31, 2000 from $16.1 million as of December 31, 1999. The majority of
the decline was related to market value declines associated with the Company's
investment in Net.B@nk. In addition, during 2000, the Company sold approximately
half of the Net.B@nk shares held as of December 31, 1999 reducing its ownership
to 1,175,000 shares at December 31, 2000 from 2,415,000 shares as of December
31, 1999.
Book value per share at December 31, 2000 and 1999 was $11.04 and $11.55,
respectively. Tangible book value per share at December 31, 2000 and 1999 was
$8.51 and $8.92, respectively. Tangible book value was below book value as a
result of the purchase premiums associated with branch acquisitions and the
acquisitions of CF Mortgage, RPGI and five banks (all of which were accounted
for as purchases).
The Company and its Subsidiary Banks continue to maintain higher capital
ratios than required under regulatory guidelines and exceeded the well
capitalized requirements at December 31, 2000. Table 16 sets forth various
capital ratios for the Company and its Subsidiary Banks.
TABLE 16
- --------------------------------------------------------------------------------
CAPITAL RATIOS
- --------------------------------------------------------------------------------
WELL CAPITALIZED
DECEMBER 31, 2000 REQUIREMENT
----------------- ----------------
THE COMPANY
Total risk-based capital............... 10.37% n/a
Tier 1 risk-based capital.............. 8.63 n/a
Leverage ratio......................... 6.93 n/a
CAROLINA FIRST BANK
Total risk-based capital............... 10.35% 10.0%
Tier 1 risk-based capital.............. 9.21 6.0
Leverage ratio......................... 7.44 5.0
CITRUS BANK
Total risk-based capital............... 10.18% 10.0%
Tier 1 risk-based capital.............. 9.00 6.0
Leverage ratio......................... 8.03 5.0
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay. The Company
has paid a cash dividend each quarter since the initiation of cash dividends on
February 1, 1994. At the December 2000 meeting, the Board of Directors approved
a $0.11 per share cash dividend on the common stock, which represents an
effective annual increase of approximately 10%. The Company presently intends to
pay a quarterly cash dividend on the Common Stock; however, future dividends
will depend upon the Company's financial performance and capital requirements.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises principally from interest rate risk
inherent in its lending, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Company
manages other risks, such as credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be its most
significant market risk and could potentially have the largest material effect
on the Company's financial condition and results of operations. Other types of
market risks, such as foreign currency exchange risk and commodity price risk,
do not arise in the normal course of the Company's business activities.
Table 17 shows the Company's financial instruments that are sensitive to
changes in interest rates as well as the Company's interest sensitivity gap at
December 31, 2000. The Company uses certain assumptions to
34
37
estimate fair values and expected maturities. For assets, expected maturities
are based upon contractual maturity, projected repayments, prepayment of
principal and potential calls. For core deposits without contractual maturity
(i.e., interest checking, savings and money market accounts), the table presents
principal cash flows based on management's judgement concerning their most
likely runoff. The actual maturities and runoff could vary substantially if
future prepayments, runoff and calls differ from the Company's historical
experience and management's judgement. Interest sensitivity gap ("GAP position")
measures the difference between rate sensitive assets and rate sensitive
liabilities during a given time frame. The Company's GAP position, while not a
complete measure of interest sensitivity, is reviewed periodically to provide
insights related to the static repricing structure of assets and liabilities. At
December 31, 2000, on a cumulative basis through twelve months, rate-sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $188.0 million.
35
38
TABLE 17
- --------------------------------------------------------------------------------
MARKET RISK SENSITIVITY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
AVERAGE 0-3 4-6 7-12
YIELD MONTHS MONTHS MONTHS 2002 2003 2004
------- --------- --------- --------- --------- --------- ---------
INTEREST-SENSITIVE ASSETS
Earning assets
Loans, net of unearned income............. 9.28% $ 461,621 $ 377,538 $ 621,376 $ 700,759 $ 373,501 $ 371,228
Investment securities(1).................. 6.86 21,856 10,524 34,001 53,478 69,480 93,615
Federal funds sold........................ 4.60 475 -- -- -- -- --
Interest bearing balances with other
banks................................... 6.82 500 250 -- 250 -- --
--------- --------- --------- --------- --------- ---------
Total earning assets.................. 8.79% $ 484,452 $ 388,312 $ 655,377 $ 754,487 $ 442,981 $ 464,843
========= ========= ========= ========= ========= =========
INTEREST-SENSITIVE LIABILITIES
Liabilities
Interest-sensitive liabilities
Interest-bearing deposits
Interest checking..................... 3.02% $ -- $ 59,067 $ 118,134 $ -- $ 206,734 $ 206,734
Savings............................... 2.62 -- 2,323 9,294 11,616 46,466 46,466
Money market.......................... 5.22 105,350 105,350 140,467 -- 175,583 175,583
Certificates of deposit............... 6.05 414,832 548,880 626,717 315,357 49,871 5,734
--------- --------- --------- --------- --------- ---------
Total interest-bearing deposits..... 5.18 520,182 715,620 894,612 326,973 478,654 434,517
Short-term borrowings................... 6.14 467,448 1,330 740 -- -- --
Long-term borrowings.................... 6.76 -- -- -- 18,318 21,946 55,029
--------- --------- --------- --------- --------- ---------
Total interest-sensitive
liabilities......................... 5.42% 987,630 716,950 895,352 345,291 500,600 489,546
Notional amount of interest rate swaps...... (50,022) -- -- -- 20,022 --
--------- --------- --------- --------- --------- ---------
Total interest-sensitive liabilities
and off-balance sheet derivative
financial instruments............. $ 937,608 $ 716,950 $ 895,352 $ 345,291 $ 520,622 $ 489,546
========= ========= ========= ========= ========= =========
Net contractual interest sensitive
position.................................. (453,156) (328,638) (239,975) 409,196 (77,641) (24,703)
Adjustments for repricing characteristics of
variable rate loans(2).................... 1,365,760 (215,930) (316,050) (162,016) (129,214) (111,128)
--------- --------- --------- --------- --------- ---------
Interest sensitive gap...................... $ 912,604 $(544,568) $(556,025) $ 247,180 $(206,855) $(135,831)
========= ========= ========= ========= ========= =========
Cumulative interest sensitive gap........... $ 912,604 $ 368,036 $(187,989) $ 59,191 $(147,664) $(283,495)
========= ========= ========= ========= ========= =========
CARRYING FAIR
2005 AFTER 2005 VALUE VALUE
--------- ---------- ---------- ----------
INTEREST-SENSITIVE ASSETS
Earning assets
Loans, net of unearned income............. $ 294,886 $ 534,273 $3,735,182 $3,726,535
Investment securities(1).................. 148,375 458,100 889,429 890,038
Federal funds sold........................ -- -- 475 475
Interest bearing balances with other
banks................................... -- 25,721 26,721 26,721
--------- ---------- ---------- ----------
Total earning assets.................. $ 443,261 $1,018,094 $4,651,807 $4,643,769
========= ========== ========== ==========
INTEREST-SENSITIVE LIABILITIES
Liabilities
Interest-sensitive liabilities
Interest-bearing deposits
Interest checking..................... $ -- $ -- $ 590,669 $ 590,669
Savings............................... -- -- 116,165 116,165
Money market.......................... -- -- 702,333 702,333
Certificates of deposit............... 11,848 21,147 1,994,386 2,014,074
--------- ---------- ---------- ----------
Total interest-bearing deposits..... 11,848 21,147 3,403,553 3,423,241
Short-term borrowings................... -- -- 469,518 469,518
Long-term borrowings.................... 30,762 189,870 315,925 319,987
--------- ---------- ---------- ----------
Total interest-sensitive
liabilities......................... 42,610 211,017 4,188,996 $4,212,746
==========
Notional amount of interest rate swaps...... 10,000 20,000 --
--------- ---------- ----------
Total interest-sensitive liabilities
and off-balance sheet derivative
financial instruments............. $ 52,610 $ 231,017 $4,188,996
========= ========== ==========
Net contractual interest sensitive
position.................................. 390,651 787,077 462,811
Adjustments for repricing characteristics of
variable rate loans(2).................... (107,504) (323,918) --
--------- ---------- ----------
Interest sensitive gap...................... $ 283,147 $ 463,159 $ 462,811
========= ========== ==========
Cumulative interest sensitive gap........... $ (348) $ 462,811 $ --
========= ========== ==========
- ---------------
(1) Investment securities exclude the unrealized gain on the sale of securities
of $10.1 million.
(2) The adjustment for repricing characteristics of variable rate loans adjusts
the net contractual interest sensitive position for the immediate repricing
of variable rate loans. The contractual maturities are used for the net
contractual interest sensitive position.
36
39
Achieving consistent growth in net interest income is the primary goal of
the Company's asset/liability function. The Company attempts to control the mix
and maturities of assets and liabilities to achieve consistent growth in net
interest income despite changes in market interest rates. The Company seeks to
accomplish this goal while maintaining adequate liquidity and capital. The
Company's asset/liability mix is sufficiently balanced so that the effect of
interest rates moving in either direction is not expected to have a significant
impact on net interest income over time.
The Company's Asset/Liability Committee uses a simulation model to assist
in achieving consistent growth in net interest income while managing interest
rate risk. The model takes into account interest rate changes as well as changes
in the mix and volume of assets and liabilities. The model simulates the
Company's balance sheet and income statement under several different rate
scenarios. The model's inputs (such as interest rates and levels of loans and
deposits) are updated on a periodic basis in order to obtain the most accurate
forecast possible. The forecast presents information over a twelve-month period.
It reports a base case in which interest rates remain flat and reports
variations that occur when rates immediately increase and decrease 200 basis
points. According to the model as of December 31, 2000, the Company is
positioned so that net interest income will increase $12.7 million in the next
twelve months if interest rates rise 200 basis points and will decrease $11.0
million in the next twelve months if interest rates decline 200 basis points.
The larger increase in net interest income when interest rates are increased 200
basis points is due to the assumptions made regarding deposit repricings based
on the Company's experience. In an increasing rate environment, the Company
assumes that deposits will not increase the full 200 basis points whereas in a
declining rate environment, it is assumed that deposit rates will decline the
entire 200 basis points. Computation of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates and loan prepayments, and should not be relied
upon as indicative of actual results. Further, the computations do not
contemplate any actions the Company could undertake in response to changes in
interest rates.
LIQUIDITY
Liquidity management ensures that adequate funds are available to meet
deposit withdrawals, fund loan and capital expenditure commitments, maintain
reserve requirements, pay operating expenses, provide funds for dividends and
debt service, and manage operations on an ongoing basis. Funds are primarily
provided by the Subsidiary Banks through customers' deposits, principal and
interest payments on loans, loan sales or securitizations, securities available
for sale, maturities of securities, temporary investments and earnings. Proper
liquidity management is crucial to ensure that the Company is able to take
advantage of new business opportunities as well as meet the demands of its
customers.
Investment securities are an important tool to the Company's liquidity
management. Securities classified as available for sale may be sold in response
to changes in interest rates, liquidity needs and/or significant prepayment
risk.
Net cash provided by operations and deposits from customers have been the
primary sources of liquidity for the Company. Liquidity is also enhanced by the
ability to acquire new deposits through the Subsidiary's established branch
network of more than 90 branches in South Carolina, North Carolina, and Florida.
In addition, the Company can raise deposits on the Internet through Bank
CaroLine. The liquidity needs of the Subsidiary Banks are a factor in developing
their deposit pricing structure; deposit pricing may be altered to retain or
grow deposits if deemed necessary.
The Subsidiary Banks have access to borrowing from the FHLB and maintain
short-term lines of credit from unrelated banks. At December 31, 2000, unused
borrowing capacity from the FHLB totaled approximately $85 million with an
outstanding balance of $481.6 million. Effective January 1, 2001, the unused
borrowing capacity from the FHLB could increase due to the ability to borrow
against certain commercial real estate loans. At December 31, 2000, the
Subsidiary Banks had unused short-term lines of credit totaling approximately
$210 million (which are withdrawable at the lender's option). Management
believes that these sources are adequate to meet its liquidity needs.
37
40
Liquidity at the parent company level is provided through cash dividends
from the Subsidiary Banks and the capacity of the parent company to raise
additional borrowed funds as needed. If the Company elects to repurchase shares
through its share repurchase program, such purchases will reduce liquidity at
the parent company level.
CREDIT QUALITY
A willingness to take credit risk is inherent in the decision to grant
credit. Prudent risk-taking requires a credit risk management system based on
sound policies and control processes that ensure compliance with those policies.
The Company's credit risk management system is defined by policies approved by
the Board of Directors that govern the risk underwriting, portfolio monitoring,
and problem loan administration processes. Adherence to underwriting standards
is managed through a multi-layered credit approval process and immediate
after-the-fact review by credit risk management of loans approved by lenders.
Compliance with loan monitoring policies is managed through daily review by
credit risk managers, monthly reviews of exception reports, and ongoing analysis
of asset quality trends. The administration of problem loans is driven by
policies that require written plans for resolution and quarterly meetings with
credit risk management to review progress. Credit risk management activities,
including specific reviews of new large credits, are reviewed by the Directors
Credit Committees of each banking subsidiary, which meet monthly.
Beginning in the first quarter of 2000, a new credit audit function was
launched to provide management and the Board of Directors a more comprehensive
independent review of compliance with credit policy, both at the city office
level and at the credit risk management level. The results of these credit
audits, which focus on testing for compliance with credit policies and
procedures, are reported to the Directors Credit Committees of the banking
subsidiaries.
Nonperforming assets grew from $14.0 million, or 0.43% of loans and other
real estate owned, as of December 31, 1999 to $21.5 million, or 0.58% of loans
and other real estate owned, as of December 31, 2000. The increase in
nonperforming assets was attributable to the economic climate, which ultimately
governs how loans perform. The general economic climate clearly softened in
2000. While management does not anticipate significant increases in this ratio,
nonperforming asset levels inevitably rise as business conditions decline.
However, management is confident that the Company's risk management system
ensures prompt identification of problem loans, timely recognition of losses and
the maintenance of adequate loss reserves.
As discussed under "BALANCE SHEET REVIEW -- Equity Investments", the
Company makes loans to emerging companies that have a bank-related technology or
service the Company or its subsidiaries can use. These loans represent a higher
credit risk to the Company due to the start up nature of these companies.
Despite higher nonperforming asset levels in 2000, charge-offs were 0.39%
of average loans, unchanged from 0.39% in 1999 and lower than 0.52% in 1998.
During 2000, net charge-offs of $13.9 million included $3.4 million related to a
participation in a shared national credit to Video Update, Inc. ("Video
Update"). The decline in the charge-off ratios from 1998 was partially
attributable to the April 1999 sale of the credit card portfolio. Uncertainty in
the economic outlook has increased, making charge-off levels in future periods
less predictable. However, loss exposure in the portfolio is identified,
reserved, and closely monitored to ensure that changes are promptly addressed in
the analysis of reserve adequacy.
38
41
Table 18 presents information pertaining to nonperforming assets for the
years indicated.
TABLE 18
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------ ------ ------
Nonaccrual loans.................................... $18,413 $11,185 $3,858 $2,518 $3,565
Restructured loans.................................. -- -- 1,283 1,283 1,909
------- ------- ------ ------ ------
Total nonperforming loans......................... 18,413 11,185 5,141 3,801 5,474
Other real estate owned............................. 3,101 2,787 3,978 1,886 3,386
------- ------- ------ ------ ------
Total nonperforming assets........................ $21,514 $13,972 $9,119 $5,687 $8,860
======= ======= ====== ====== ======
Loans past due 90 days still accruing interest(1)... $10,682 $ 5,100 $7,114 $4,214 $2,517
======= ======= ====== ====== ======
Total nonperforming assets as a percentage of loans
and other real estate owned(2).................... 0.58% 0.43% 0.33% 0.25% 0.49%
======= ======= ====== ====== ======
Allowance for loan losses as a percentage of
nonperforming loans............................... 2.34x 3.02x 5.80x 6.77x 3.65x
======= ======= ====== ====== ======
- ---------------
(1) In 2000, approximately 56% of this increase was related to residential
mortgages.
(2) Calculated using loans held for investment net of unearned income.
CURRENT ACCOUNTING ISSUES
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities, an Amendment
of FASB 133" establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position, and measure those instruments at fair value. Changes in the fair value
of those derivatives will be reported in earnings or other comprehensive income
depending on the use of the derivative and whether the derivative qualifies for
hedge accounting. SFAS No. 133 and SFAS No. 138 are effective for all fiscal
quarters of all fiscal years beginning after June 30, 2000. The Company adopted
SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001.
The Company has identified the following derivative instruments which were
recorded on the Company's balance sheet at January 1, 2001: interest rate swap
agreements, a warrant to purchase shares of common stock of Affinity Technology
Group, Inc., fixed rate conforming residential mortgage loan commitments, and
commitments to sell fixed rate conforming residential loans. The Company has
identified no embedded derivative instruments requiring separate accounting
treatment at January 1, 2001.
The interest rate swap agreements are used for asset/liability and interest
rate risk management purposes. The Company has both interest rate swap
agreements that qualify as cash flow hedges and that qualify as fair value
hedges. For the interest rate swap agreements that qualify as cash flow hedges,
the fair value of these agreements totaling $70,000 was recorded as a charge to
other comprehensive income in the shareholders' equity at January 1, 2001 (net
of related income taxes of $26,000) or $44,000 after tax. Changes in the fair
value on these interest rate swap agreements will be adjusted through other
comprehensive income to the extent that the hedge is effective. Any ineffective
portion will be recorded through the income statement. For the interest rate
swap agreements that qualify as fair value hedges, the fair value of these
agreements totaling $101,000 was recorded on the balance sheet. Changes in the
fair value on these interest rate swap agreements will be adjusted through the
income statement.
The warrant, the loan commitments and the commitments to sell loans do not
qualify for hedge accounting so their fair value adjustments will be recorded
through the income statement.
39
42
The warrant to purchase shares of Affinity Technology Group, Inc. was
recorded on the balance sheet at its fair value of $434,000 on January 1, 2001.
Under accounting principles as of December 31, 2000, the warrant was not
recorded on the balance sheet.
The commitments to originate fixed rate conforming loans totaled $23.1
million at January 1, 2001. The commitments to sell fixed rate conforming loans
totaled $18.6 million at January 1, 2001. The fair value of these commitments
was immaterial at January 1, 2001.
The adoption of SFAS No. 133 will result in the Company recording a net
transition adjustment gain of $271,000 (net of related income tax of $163,000)
in net income and a net transition adjustment loss of $44,000 (net of related
income tax of $26,000) in accumulated other comprehensive income at January 1,
2001. Further the adoption of SFAS No. 133 will result in the Company
recognizing $535,000 of derivative instrument assets and $70,000 of derivative
instrument liabilities. The Company expects that the adoption of SFAS No. 133
will increase the volatility of reported earning and other comprehensive income.
In general, the amount of volatility will vary with the level of derivative
activities during any period. The Company believes that it is not likely that
these amounts will be material in the future.
Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a replacement of FASB No. 125," was issued in September 2000. It
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures but will carry
over most of SFAS No. 125's provisions without reconsideration. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after March 31, 2001. This statement is effective for
recognition and reclassification of collateral and for disclosures related to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of the provisions of SFAS No. 140 is not
expected to have a material impact on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Asset/Liability Management and Market Risk" in Management's Discussion
and Analysis of Financial Condition and Results of Operations for quantitative
and qualitative disclosures about market risk.
40
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS, THE SOUTH FINANCIAL GROUP, INC.
We have audited the consolidated balance sheets of The South Financial
Group and subsidiaries (the "Company") as of December 31, 2000 and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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 The South
Financial Group and subsidiaries at December 31, 2000 and 1999, and the results
of their operations and cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Greenville, South Carolina
January 23, 2001
STATEMENT OF FINANCIAL RESPONSIBILITY
Management of The South Financial Group (the "Company") is committed to
quality customer service, enhanced shareholder value, financial stability and
integrity in all dealings. Management has prepared the accompanying consolidated
financial statements in conformity with generally accepted accounting
principles. The statements include amounts that are based on management's best
estimates and judgements. Other financial information contained in this report
is presented on a basis consistent with financial statements.
To ensure the integrity, objectivity and fairness of data in these
statements, management of the Company has established and maintains an internal
control structure that is supplemented by a program of internal audits. The
internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed, recorded and reported in
accordance with management intentions and authorizations. The financial
statements have been audited by KPMG LLP, independent auditors, in accordance
with generally accepted auditing standards. KPMG LLP reviews the results of its
audit with both management and the Audit Committee of the Board of Directors of
the Company. The Audit Committee, composed entirely of outside directors, meets
periodically with management, internal auditors and KPMG LLP (separately and
jointly) to determine that each is fulfilling its responsibilities and to
consider recommendations for enhancing internal controls. The financial
statements have not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
/s/ Mack I. Whittle, Jr. /s/ William S. Hummers III /s/ Edward R. Matthews
Mack I. Whittle, Jr. William S. Hummers III Edward R. Matthews
President and Executive Vice President Chief Financial Officer
Chief Executive Officer
41
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THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
ASSETS
Cash and due from banks..................................... $ 156,711 $ 138,829
Interest-bearing bank balances.............................. 26,721 28,972
Federal funds sold.......................................... 475 3,625
Securities
Trading................................................... 5,004 4,668
Available for sale........................................ 816,773 887,718
Held for investment (market value $78,376 in 2000 and
$71,291 in 1999)....................................... 77,767 71,760
---------- ----------
Total securities.................................. 899,544 964,146
---------- ----------
Loans
Loans held for sale....................................... 12,630 45,591
Loans held for investment................................. 3,724,088 3,251,894
Less unearned income................................... 1,536 5,765
Less allowance for loan losses......................... 43,024 33,756
---------- ----------
Net loans......................................... 3,692,158 3,257,964
---------- ----------
Premises and equipment, net................................. 112,863 84,863
Accrued interest receivable................................. 36,879 31,176
Intangible assets........................................... 107,254 113,960
Other assets................................................ 187,949 145,121
---------- ----------
$5,220,554 $4,768,656
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing.................................... $ 491,109 $ 496,428
Interest-bearing....................................... 3,403,553 2,985,223
---------- ----------
Total deposits.................................... 3,894,662 3,481,651
Federal funds purchased and repurchase agreements......... 232,110 179,710
Other short-term borrowings............................... 237,408 238,919
Long-term debt............................................ 315,925 314,279
Accrued interest payable.................................. 35,168 22,867
Other liabilities......................................... 36,628 30,640
---------- ----------
Total liabilities................................. 4,751,901 4,268,066
---------- ----------
Shareholders' Equity
Preferred stock -- no par value; authorized 10,000,000
shares; issued and outstanding none.................... -- --
Common stock -- par value $1 per share; authorized
100,000,000 shares; issued and outstanding 42,460,358
shares in 2000 and 43,326,754 shares in 1999........... 42,460 43,327
Surplus................................................... 332,095 345,309
Retained earnings......................................... 90,131 100,298
Guarantee of employee stock ownership plan debt and
nonvested restricted stock............................. (2,593) (4,445)
Accumulated other comprehensive income, net of tax........ 6,560 16,101
---------- ----------
Total shareholders' equity........................ 468,653 500,590
---------- ----------
$5,220,554 $4,768,656
========== ==========
Commitments and Contingencies
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
42
45
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans.............................. $ 328,831 $ 274,982 $ 241,278
Interest and dividends on securities:
Taxable............................................... 53,936 38,444 36,397
Exempt from Federal income taxes...................... 3,821 3,379 2,715
----------- ----------- -----------
Total interest and dividends on securities.... 57,757 41,823 39,112
Interest on short-term investments.................... 2,444 4,287 9,157
----------- ----------- -----------
Total interest income......................... 389,032 321,092 289,547
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits.................................... 164,471 124,775 123,947
Interest on short-term borrowings....................... 28,043 11,831 8,588
Interest on long-term debt.............................. 21,889 9,872 7,671
----------- ----------- -----------
Total interest expense........................ 214,403 146,478 140,206
----------- ----------- -----------
Net interest income........................... 174,629 174,614 149,341
PROVISION FOR LOAN LOSSES............................... 23,378 18,273 15,646
----------- ----------- -----------
Net interest income after provision for loan losses... 151,251 156,341 133,695
----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts..................... 17,956 15,992 13,925
Mortgage banking income................................. 7,106 4,746 6,132
Fees for investment services............................ 5,525 4,924 3,726
Gain (loss) on sale of securities....................... (5,046) 482 855
Gain on disposition of equity investments............... 9,219 15,471 --
Gain on disposition of assets and liabilities........... 2,054 2,523 --
Gain on sale of credit cards............................ 135 3,252 --
Loan securitization income.............................. -- 1,646 1,635
Other................................................... 12,399 10,613 8,651
----------- ----------- -----------
Total noninterest income...................... 49,348 59,649 34,924
----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and wages...................................... 61,231 53,277 46,688
Employee benefits....................................... 14,187 12,840 10,523
Occupancy............................................... 15,340 11,399 9,410
Furniture and equipment................................. 12,796 10,258 8,081
Amortization of intangibles............................. 6,407 7,028 4,703
Restructuring and merger-related costs.................. 29,198 7,155 3,526
System conversion costs................................. 4,021 -- --
Impairment loss from write-down of assets............... 3,674 -- --
Charitable contribution to foundation................... -- 11,890 --
Other................................................... 43,005 40,982 30,452
----------- ----------- -----------
Total noninterest expenses.................... 189,859 154,829 113,383
----------- ----------- -----------
Income before income taxes.................... 10,740 61,161 55,236
Income taxes............................................ 3,751 20,711 20,580
----------- ----------- -----------
Net income.................................... $ 6,989 $ 40,450 $ 34,656
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING, BASIC................ 42,907,960 42,685,675 38,596,757
AVERAGE COMMON SHARES OUTSTANDING, DILUTED.............. 43,550,592 43,618,418 39,705,173
PER COMMON SHARE:
Net income, basic..................................... $ 0.16 $ 0.95 $ 0.90
Net income, diluted................................... 0.16 0.93 0.87
Cash dividends declared............................... 0.41 0.37 0.33
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
43
46
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
($ IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED ACCUMULATED
SHARES OF EARNINGS OTHER
COMMON COMMON AND COMPREHENSIVE
STOCK STOCK SURPLUS OTHER INCOME TOTAL
---------- ------- -------- -------- ------------- --------
BALANCE DECEMBER 31, 1997..................... 35,561,272 $35,560 $211,627 $ 43,240 $ 5,471 $295,898
Net income.................................... -- -- -- 34,656 -- 34,656
Other comprehensive loss, net of tax of
$1,750...................................... -- -- -- -- (3,217) (3,217)
--------
Comprehensive income.......................... -- -- -- -- -- 31,439
--------
Cash dividends declared ($0.33 per common
share)...................................... -- -- -- (9,428) -- (9,428)
Common stock activity:
Stock offering.............................. 2,242,115 2,242 38,196 -- -- 40,438
Repurchase of stock......................... (394,874) (395) (9,429) -- -- (9,824)
Acquisitions................................ 4,568,776 4,569 94,666 (16) -- 99,219
Dividend reinvestment plan.................. 72,731 73 1,531 -- -- 1,604
Employee stock purchase plan................ 9,376 9 204 -- -- 213
Restricted stock plan....................... 30,457 30 592 (622) -- --
Exercise of stock options and stock
warrants.................................. 282,337 283 473 -- -- 756
Miscellaneous................................. -- -- 423 251 -- 674
---------- ------- -------- -------- ------- --------
BALANCE DECEMBER 31, 1998..................... 42,372,190 42,371 338,283 68,081 2,254 450,989
Net income.................................... -- -- -- 40,450 -- 40,450
Other comprehensive income, net of tax of
$8,176...................................... -- -- -- -- 13,847 13,847
--------
Comprehensive income.......................... -- -- -- -- -- 54,297
--------
Cash dividends declared ($0.37 per common
share)...................................... -- -- -- (14,864) -- (14,864)
Common stock activity:
Repurchase of stock......................... (78,119) (78) (1,257) -- -- (1,335)
Acquisitions................................ 505,838 506 1,732 2,535 -- 4,773
Dividend reinvestment plan.................. 65,856 66 1,356 -- -- 1,422
Employee stock purchase plan................ 11,926 12 243 -- -- 255
Restricted stock plan....................... 43,291 43 1,015 (650) -- 408
Exercise of stock options and stock
warrants.................................. 543,497 544 5,059 -- -- 5,603
Miscellaneous................................. (137,725) (137) (1,122) 301 -- (958)
---------- ------- -------- -------- ------- --------
BALANCE DECEMBER 31, 1999..................... 43,326,754 43,327 345,309 95,853 16,101 500,590
Net income.................................... -- -- -- 6,989 -- 6,989
Other comprehensive loss, net of tax of
$5,970...................................... -- -- -- -- (9,541) (9,541)
--------
Comprehensive loss............................ -- -- -- -- -- (2,552)
--------
Cash dividends declared ($0.41 per common
share)...................................... -- -- -- (17,190) -- (17,190)
Common stock activity:
Repurchase of stock......................... (1,371,976) (1,372) (17,098) -- -- (18,470)
Dividend reinvestment plan.................. 169,498 169 1,894 -- -- 2,063
Employee stock purchase plan................ 20,320 20 231 -- -- 251
Restricted stock plan....................... 89,792 90 1,269 589 -- 1,948
Exercise of stock options and stock
warrants.................................. 227,245 227 529 -- -- 756
Miscellaneous................................. (1,275) (1) (39) 1,297 -- 1,257
---------- ------- -------- -------- ------- --------
BALANCE DECEMBER 31, 2000..................... 42,460,358 $42,460 $332,095 $ 87,538 $ 6,560 $468,653
========== ======= ======== ======== ======= ========
- ------------
* Other includes guarantee of employee stock ownership plan debt and nonvested
restricted stock.
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
44
47
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 6,989 $ 40,450 $ 34,656
Adjustments to reconcile net income to net cash (used for)
provided by operations
Depreciation.............................................. 8,803 8,115 7,431
Amortization of intangibles............................... 6,407 7,028 4,703
Charitable contribution to foundation..................... -- 11,890 --
Provision for loan losses................................. 23,378 18,273 15,646
Deferred income taxes..................................... (5,872) (5,923) (1,730)
Gain on disposition of assets and liabilities............. (2,054) (2,523) --
Gain on sale of credit cards.............................. (135) (3,252) --
Gain on sale of securities................................ 5,046 (482) (855)
Gain on disposition of equity investments................. (9,219) (15,471) --
Trading account assets, net............................... 9 (781) (809)
Originations of mortgage loans held for sale.............. (335,116) (467,345) (602,835)
Sale of mortgage loans held for sale...................... 368,077 377,568 655,298
Equity in net income of unconsolidated sub................ -- (56) (245)
Other assets, net......................................... (38,831) (34,099) (11,874)
Other liabilities, net.................................... 22,075 (9,220) 301
--------- --------- ---------
Net cash (used for) provided by operating activities.... 49,557 (75,828) 99,687
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sale of securities available for sale..................... 111,027 178,854 107,744
Maturity of securities available for sale................. 99,798 161,370 437,740
Maturity of securities held for investment................ 14,866 29,790 26,272
Purchase of securities available for sale................. (164,141) (554,060) (686,545)
Purchase of securities held for investment................ (20,873) (19,157) (18,541)
Originations of loans, net................................ (563,503) (415,005) (269,096)
Disposition of equity investments......................... 14,378 4,389 --
Sale of loans held for investment......................... 38,916 -- --
Sale of credit cards...................................... 5,483 65,624 --
Sale of premises and equipment............................ -- 7,886 (2,150)
Capital expenditures...................................... (37,702) (18,630) (8,253)
Acquisitions accounted for under the purchase method of
accounting.............................................. -- 9,451 9,889
Disposition of assets and liabilities, net................ (17,908) (39,780) (38,480)
Other, net................................................ -- -- 1,769
--------- --------- ---------
Net cash used for investing activities.................. (519,659) (589,268) (439,651)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase in deposits, net................................. 457,249 185,982 315,054
Federal funds purchased and repurchase agreements, net.... 52,400 (36,780) 67,262
Short-term borrowings..................................... (4,763) 234,458 (36,608)
Issuance of long-term debt................................ 35,000 209,263 25,080
Payments of long-term debt................................ (30,102) (10,000) (2,789)
Cash dividends paid....................................... (15,006) (12,977) (8,700)
Issuance of common stock.................................. -- -- 40,438
Repurchase of common stock................................ (18,470) (1,335) (9,824)
Other common and preferred stock activity................. 6,275 5,564 3,231
--------- --------- ---------
Net cash provided by financing activities............... 482,583 574,175 393,144
--------- --------- ---------
Net change in cash and cash equivalents..................... 12,481 (90,921) 53,180
Cash and cash equivalents at beginning of year.............. 171,426 262,347 209,167
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 183,907 $ 171,426 $ 262,347
========= ========= =========
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
45
48
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The South
Financial Group, Inc. and its wholly-owned banking subsidiaries, Carolina First
Bank, and Citrus Bank (collectively, the "Subsidiary Banks") and non-banking
subsidiaries, Blue Ridge Finance Company ("Blue Ridge"), Carolina First Guaranty
Reinsurance, Ltd., Carolina First Investment Limited Partnership, Carolina First
Mortgage Company ("CF Mortgage"), CF Technology Services and Resource Processing
Group, Inc. The South Financial Group, Inc. and its subsidiaries are
collectively defined as the "Company," except where the context requires
otherwise. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting principles
and with general practices within the banking industry. Certain principles which
significantly affect the determination of financial position, results of
operations and cash flows are summarized below.
Certain prior year amounts have been reclassified to conform with 2000
presentations.
SECURITIES
Management determines the appropriate classification of securities at the
time of purchase. Securities, primarily debt securities, are classified as
trading, available for sale and held for investment, defined as follows:
Trading securities are carried at fair value. The Company's policy is to
acquire trading securities only to facilitate their sale to customers.
Adjustments for unrealized gains or losses are included in noninterest income.
Securities available for sale are carried at fair value. Such securities
are used to execute asset/liability management strategy and to manage liquidity.
Adjustments for unrealized gains or losses, net of the income tax effect, are
made through a separate component of shareholders' equity.
Securities held for investment are stated at cost, net of unamortized
balances of premiums and discounts. The Company intends to and has the ability
to hold such securities until maturity.
The Company evaluates securities for other-than-temporary impairment
periodically and, if necessary, charges the unrealized loss to operations. Gains
or losses on the sale of securities are recognized on a specific identification,
trade date basis.
LOANS
Loans receivable are stated at unpaid principal balances adjusted for
unamortized premiums and unearned discounts. The Company recognizes interest on
loans using the simple interest method. Income on certain installment loans is
recognized using the "Rule of 78's" method. The results from the use of the
"Rule of 78's" method are not materially different from those obtained by using
the simple interest method. Loans are considered to be impaired when, in
management's judgment, the full collection of principal and interest is not
collectible in accordance with the terms of the obligation. An impaired loan is
put on nonaccrual status, and future cash receipts are applied to principal
only. The accrual of interest resumes only when the loan returns to performing
status.
The premium or discount on purchased loans is amortized over the expected
life of the loans and is included in interest and fees on loans.
46
49
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Gains or losses on sales of loans are recognized at the time of sale and
are determined by the difference between net sales proceeds and the carrying
value of the loans sold.
LOANS HELD FOR SALE
Loans held for sale include certain residential mortgage loans and are
carried at the lower of aggregate cost or market value.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's ongoing evaluation
of the loan portfolio and reflects an amount that, in management's opinion, is
adequate to absorb probable losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio and management's estimate of credit losses. Loans are charged
against the allowance at such time as they are determined to be losses.
Subsequent recoveries are credited to the allowance. Management considers the
year-end allowance appropriate and adequate to cover probable losses in the loan
portfolio; however, management's judgment is based upon a number of assumptions
about current events, which are believed to be reasonable, but which may or may
not prove valid. Thus, there can be no assurance that loan losses in future
periods will not exceed the allowance for loan losses or that additional
increases in the allowance for loan losses will not be required. In addition,
various regulatory agencies periodically review the Company's allowance for loan
losses as part of their examination process and could require the Company to
adjust its allowance for loan losses based on information available to them at
the time of their examination.
CONCENTRATIONS OF CREDIT RISK
The Company makes loans to individuals and small businesses for various
personal and commercial purposes primarily throughout South Carolina, North
Carolina and Florida. The Company has a diversified loan portfolio, and the
borrowers' ability to repay their loans is not dependent upon any specific
economic segment.
LOAN SECURITIZATIONS
The Company packages and sells loan receivables as securities to investors.
These transactions are recorded as sales in accordance with SFAS 125 when
control over these assets has been surrendered. Excess cash flows related to the
securitizations are recorded during the life of the transaction. The
interest-only strip security is computed based upon the difference between
interest income received from the borrower less the yield paid to investors,
credit losses and normal servicing fees.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed over the estimated
useful lives of the assets primarily using the straight-line method. Leasehold
improvements are amortized on a straight-line basis over the lesser of the
estimated useful life of the improvement or the term of the respective lease.
Estimated useful lives range from 31 1/2 to 40 years for buildings, three to 12
years for furniture, fixtures and equipment, and three to 30 years for leasehold
improvements.
Additions to premises and equipment and major replacements or improvements
are capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred.
47
50
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and core deposit premiums
resulting from the Company's acquisitions. Core deposit intangibles are
amortized over 10 years using the sum-of-the-years' digits method. Goodwill is
generally amortized over 25 years using the straight-line method.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying value of its long-lived
assets including premises and equipment and intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be fully recoverable. Impairments are recognized when the
expected undiscounted future net cash flows derived from such assets are less
than their carrying value. For such cases, losses are recognized for the
difference between the fair value and the carrying amount. The Company considers
various valuation factors, principally discounted cash flows, to assess the fair
values of long-lived assets. Assets to be disposed of by sale or abandonment,
and where management has the current ability to remove such assets from
operations, are recorded at the lower of carrying amount or fair value less cost
of disposition. Depreciation for these assets is suspended during the disposal
period, which is generally less than one year.
MORTGAGE SERVICING RIGHTS
The Company capitalizes the allocated cost of originated mortgage servicing
rights and records a corresponding increase in mortgage banking income in
accordance with Statement of Financial Accounting Standards ("SFAS") 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." This statement eliminates the distinction between originated
and purchased mortgage servicing rights.
The rights to service mortgage loans for others ("mortgage servicing
rights" or "MSRs") are included in other assets. Purchased mortgage servicing
rights are recorded at lower of cost or market. Originated mortgage servicing
rights are capitalized based on the allocated cost which is determined when the
underlying loans are sold or securitized. MSRs are amortized in proportion to
the servicing income over the estimated life of the related mortgage loan. The
amortization method is designed to approximate a level-yield method, taking into
consideration the estimated prepayment of the underlying loans. For purposes of
measuring impairment, MSRs are reviewed for impairment based upon quarterly
external valuations. Such valuations are based on projections using a discounted
cash flow method that includes assumptions regarding prepayments, interest
rates, servicing costs and other factors. Impairment is measured on a
disaggregated basis for each strata of rights which are segregated by
predominant risk characteristics, including interest rate and loan type.
OTHER ASSETS
Other real estate owned, included in other assets, is comprised of real
estate properties acquired in partial or total satisfaction of problem loans.
The properties are recorded at the lower of cost or fair market value at the
date acquired. Losses existing at the time of acquisition of such properties are
charged against the allowance for loan losses. Subsequent write-downs that may
be required to the carrying value of these properties are charged to noninterest
expenses. Gains and losses realized from the sale of other real estate owned are
included in noninterest income. Other real estate owned was approximately
$3,101,000 and $2,787,000 at December 31, 2000 and 1999, respectively.
Capitalized software net of related amortization, included in other assets,
was approximately $7,491,000 and $3,336,000 at December 31, 2000 and 1999,
respectively. Amortization is computed over the estimated useful lives of the
assets, ranging from five to seven years, using the straight-line method.
48
51
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap transactions as part of its
overall interest rate risk management activities. There must be a correlation of
interest rate movements between these derivative instruments and the underlying
assets or liabilities to qualify for hedge accounting. The impact of a swap is
accrued over the life of the agreement based on expected settlement payments and
is recorded as an adjustment to interest income or expense in the period in
which it accrues and in the category appropriate to the related asset or
liability. Changes in the fair values of the swaps are not recorded in the
consolidated statements of income because the swap is designated with a specific
asset or liability or finite pool of assets or liabilities.
STOCK-BASED COMPENSATION
The Company reports stock-based compensation using the intrinsic valuation
method presented under Accounting Principles Board ("APB") Opinion 25, which
measures compensation expense as the difference between the quoted market price
of the stock and the exercise price of the option on the date of grant (if any).
The Company has disclosed in the footnotes pro forma net income and earnings per
share information as if the fair value method had been applied in accordance
with SFAS 123, "Accounting for Stock-Based Compensation."
INCOME TAXES
The Company computes its income taxes in accordance with the provisions of
SFAS 109, "Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are recognized on all temporary book/tax differences, operating loss
carryforwards and tax credit carryforwards. Temporary book/tax differences occur
when income and expenses are recognized in different periods for financial
reporting purposes and for purposes of computing income taxes currently payable.
Valuation allowances are established to reduce deferred tax assets if it is
determined to be "more likely than not" that all or some portion of the
potential deferred tax assets will not be realized. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
PER SHARE DATA
Basic earnings per share are computed by dividing net income applicable to
common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share are computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, with common stock equivalents calculated based on
the average market price. Common stock equivalents consist of convertible
preferred stock, stock warrants and options and are computed using the treasury
stock method.
49
52
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
COMPREHENSIVE INCOME
Comprehensive income is the change in the Company's equity during the
period from transactions and other events and circumstances from non-owner
sources. Total comprehensive income consists of net income and other
comprehensive income. The Company's other comprehensive income and accumulated
other comprehensive income are comprised solely of unrealized gains and losses
on certain investments in debt and equity securities.
The following summarizes other comprehensive income (loss), net of tax for
the years ended December 31:
2000 1999 1998
-------- ------- -------
($ IN THOUSANDS)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
year................................................ $(21,640) $22,161 $(4,497)
Income taxes........................................... 8,299 (8,222) 1,582
Less: reclassification adjustment for (gains) losses
included in net income.............................. 6,129 (138) (470)
Income taxes........................................... (2,329) 46 168
-------- ------- -------
$ (9,541) $13,847 $(3,217)
======== ======= =======
BUSINESS SEGMENTS
The Company reports operating segments in accordance with SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information." Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and assess performance.
SFAS 131 requires that a public enterprise report a measure of segment profit or
loss, certain specific revenue and expense items, segment assets, information
about the way that the operating segments were determined and other items. The
Company has two reportable operating segments, Carolina First Bank and Citrus
Bank (see Note 29).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities, an Amendment
of FASB 133" establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position, and measure those instruments at fair value. Changes in the fair value
of those derivatives will be reported in earnings or other comprehensive income
depending on the use of the derivative and whether the derivative qualifies for
hedge accounting. SFAS No. 133 and SFAS No. 138 are effective for all fiscal
quarters of all fiscal years beginning after June 30, 2000. The Company adopted
SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001.
Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a replacement of FASB No. 125," was issued in September 2000. It
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures but will carry
over most of SFAS No. 125's provisions without reconsideration. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after March 31, 2001. This statement is effective for
recognition and reclassification of collateral and for disclosures related to
securitization transactions and collateral for fiscal years ending
50
53
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
after December 15, 2000. The adoption of the provisions of SFAS No. 140 is not
expected to have a material impact on the Company.
RISK AND UNCERTAINTIES
In the normal course of its business the Company encounters two significant
types of risk: economic and regulatory. There are two main components of
economic risk: credit risk and market risk. Credit risk is the risk of default
on the Company's loan portfolio that results from borrowers' inability or
unwillingness to make contractually required payments. Market risk arises
principally from interest rate risk inherent in the Company's lending, deposit
and borrowing activities.
The Company is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies, which
may subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions resulting from the
regulators' judgments based on information available to them at the time of
their examination.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities as of the dates of the Consolidated Balance
Sheets and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ significantly from those estimates and
assumptions.
NOTE 2. STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash equivalents include due from
banks, interest-bearing bank balances and Federal funds sold.
The following summarizes supplemental cash flow data for the years ended
December 31:
2000 1999 1998
-------- -------- --------
($ IN THOUSANDS)
Interest paid.......................................... $202,102 $144,944 $137,669
Income taxes paid...................................... 19,270 28,072 21,383
Significant non-cash transactions are summarized as
follows:
Purchase accounting acquisitions..................... -- 4,773 99,235
Loans transferred to other real estate owned......... 3,529 1,395 480
NOTE 3. BUSINESS COMBINATIONS
MERGERS ACCOUNTED FOR AS PURCHASES
For the following business combinations which were accounted for as
purchases, the consolidated financial statements include the results of their
operations only from their respective dates of acquisition.
On June 1, 1998, the Company acquired Resource Processing Group, Inc.
("RPGI"), a credit card origination and servicing company headquartered in
Columbia, South Carolina. In connection with such acquisition, RPGI became a
wholly-owned subsidiary of the Company. The RPGI transaction was accounted for
as a purchase and resulted in the issuance of 398,610 shares of the Company's
Common Stock for the outstanding shares of RPGI common stock. During 2000, the
Company sold RPGI, which became inactive in 1999 following the sale of the
Company's credit card portfolio.
51
54
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. BUSINESS COMBINATIONS -- (Continued)
On September 29, 1998, Carolina First Bank acquired First National Bank of
Pickens County ("First National"), a national bank headquartered in Easley,
South Carolina. The First National transaction was accounted for as a purchase
and resulted in the issuance of 2,817,350 shares of the Company's Common Stock
in exchange for all the outstanding common shares of First National. This
transaction was valued at approximately $60 million (as of the closing date of
the acquisition). The excess of the purchase price over the fair market value of
the net identifiable assets acquired of approximately $45 million has been
recorded as goodwill and core deposit premium. First National operated through
four locations and had total assets, loans, deposits and shareholders' equity of
approximately $121 million, $62 million, $95 million and $16 million,
respectively.
On September 30, 1998, the Company acquired Poinsett Financial Corporation
("Poinsett"), the thrift holding company for Poinsett Bank, a Federal savings
bank headquartered in Travelers Rest, South Carolina. Poinsett Bank changed its
name to Carolina First Bank, F.S.B. and operated as a wholly-owned subsidiary of
the Company until its December 2000 merger with Carolina First Bank. In
connection with such acquisition, 753,530 shares of the Company's Common Stock
valued at approximately $16 million (as of the closing date of the acquisition)
were exchanged for all outstanding shares of Poinsett common stock. This
transaction was accounted for using the purchase method of accounting. The
excess of the purchase price over the fair market value of the net identifiable
assets acquired of approximately $12 million has been recorded as goodwill and
core deposit premium. Poinsett Bank operated through three locations with total
assets, loans, deposits and shareholders' equity of approximately $89 million,
$67 million, $82 million and $5 million, respectively.
On October 19, 1998, the Company acquired all the outstanding common shares
of Colonial Bank of South Carolina, Inc. ("Colonial"), a state-chartered banking
corporation headquartered in Camden, South Carolina, in exchange for 651,455
shares of the Company's Common Stock. This transaction was accounted for using
the purchase method of accounting and was valued at approximately $14 million
(as of the closing date of the acquisition). The excess of the purchase price
over the fair market value of the net identifiable assets acquired of
approximately $10 million has been recorded as goodwill and core deposit
premium. Colonial Bank operated through three locations and had total assets,
loans, deposits and shareholders' equity of approximately $61 million, $51
million, $43 million and $5 million, respectively.
MERGERS ACCOUNTED FOR AS POOLINGS-OF-INTERESTS
On April 23, 1999, the Company acquired all the outstanding shares of
Citizens First National Bank ("Citizens"), a national bank headquartered in
Crescent City, Florida in exchange for 505,851 shares of the Company's common
stock and a cash payment of approximately $49,000 to a dissenting shareholder.
At March 31, 1999, Citizens had total assets, loans and deposits of
approximately $59 million, $37 million and $53 million, respectively. The
transaction has been accounted for as a pooling-of-interests combination;
however, due to the immateriality of the transaction in relation to the
Company's consolidated financial position and operating results, prior period
financial statements have not been restated.
On July 1, 1999, the Company issued 3,086,478 shares of common stock in
exchange for all the outstanding common stock of Citrus Bank, a Florida
state-chartered bank headquartered in Orlando, Florida. As of June 30, 1999,
Citrus bank had total assets, loans and deposits of approximately $285 million,
$196 million and $264 million, respectively. This transaction has been accounted
for as a pooling-of-interest combination and, accordingly, the Company's
consolidated financial statements for all prior periods have been restated to
include the accounts and results of operations of Citrus Bank, except for cash
dividends declared per common share.
On June 6, 2000, the Company completed the merger with Anchor Financial
Corporation ("Anchor Financial"), a South Carolina corporation headquartered in
Myrtle Beach, South Carolina. The Company acquired all the outstanding common
shares of Anchor Financial in exchange for 17,674,208 shares of the
52
55
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. BUSINESS COMBINATIONS -- (Continued)
Company's common stock. Each share of Anchor Financial stock was exchanged for
2.175 shares of the Company's common stock. At March 31, 2000, Anchor Financial
had total assets, loans and deposits of approximately $1.2 billion, $873 million
and $1.0 billion, respectively. The Anchor Financial transaction has been
accounted for as a pooling-of-interest combination and, accordingly, the
Company's consolidated financial statements for all prior periods have been
restated to include the accounts and results of operations of Anchor Financial,
except for cash dividends declared per common share.
In addition, in 1998 and 1999, Anchor Financial completed three mergers,
which were accounted for as poolings-of-interests. On August 31, 1998, Anchor
Financial completed the mergers of ComSouth Bankshares Inc. and M&M Financial
Corporation and issued common stock in exchange for all the outstanding common
stock of each company. On April 9, 1999, Anchor Financial completed the merger
of Bailey Financial Corporation and issued common stock in exchange for all the
outstanding common stock of Bailey Financial Corporation.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------
MARCH 31, 2000 1999 1998
------------------ ---------- ----------
(UNAUDITED)
($ IN THOUSANDS)
Net interest income:
The Company.................................. $31,505 $121,744 $ 99,155
Anchor Financial............................. 12,915 52,870 50,186
------- -------- --------
Combined..................................... $44,420 $174,614 $149,341
======= ======== ========
Noninterest income:
The Company.................................. $ 9,713 $ 47,390 $ 23,529
Anchor Financial............................. 3,001 12,259 11,395
------- -------- --------
Combined..................................... $12,714 $ 59,649 $ 34,924
======= ======== ========
Net income:
The Company.................................. $ 6,569 $ 27,151 $ 24,445
Anchor Financial............................. 3,834 13,299 10,211
------- -------- --------
Combined..................................... $10,403 $ 40,450 $ 34,656
======= ======== ========
Net income per common share -- basic:
The Company.................................. $ 0.26 $ 1.08 $ 1.15
Anchor Financial............................. 0.48 1.66 1.28
Combined..................................... 0.24 0.95 0.90
Net income per common share -- diluted:
The Company.................................. $ 0.26 $ 1.06 $ 1.13
Anchor Financial............................. 0.46 1.61 1.23
Combined..................................... 0.24 0.93 0.87
53
56
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. BUSINESS COMBINATIONS -- (Continued)
In connection with the Anchor Financial merger, the Company recorded
pre-tax restructuring and merger-related costs of $29.2 million. The
restructuring costs were recorded in accordance with the applicable literature.
The merger-related costs were recorded as incurred. The following table
summarizes these charges for the year ended December 31, 2000, of which $14.3
million are restructuring and $14.9 million are merger-related, as well as any
remaining liability at December 31, 2000:
RESTRUCTURING
AND MERGER- PAID THROUGH REMAINING
RELATED COSTS DECEMBER 31, 2000 ACCRUAL
------------- ----------------- ---------
Contract termination costs...................... $ 7,355 $ 7,221 $ 134
Investment banking fees......................... 7,026 7,026 --
Impairment of abandoned facilities.............. 2,772 -- 2,772
Severance payments.............................. 4,177 3,736 441
Professional fees............................... 2,532 2,429 103
Data processing conversion...................... 1,619 1,589 30
Write-off of obsolete fixed assets.............. 1,583 1,583 --
Other........................................... 2,134 2,065 69
------- ------- ------
Total.................................... $29,198 $25,649 $3,549
======= ======= ======
The severance costs include payments and accruals for payments made in
connection with the involuntary termination of approximately 88 employees who
had been notified that their positions were redundant within the combined
organizations. The contract termination costs are primarily comprised of
payments required to be made to certain executives of Anchor Financial pursuant
to their employment contracts.
The impairment of abandoned facilities relates to the write-down of assets,
the write-off of leasehold improvements and the estimated lease buyouts
associated with both Carolina First Bank and Anchor Financial properties, which
were abandoned in connection with the merger. The company is currently trying to
sell certain former branch locations associated with the July 2000 consolidation
of offices.
NOTE 4. SALES OF BRANCH OFFICES
On June 12, 1998, Carolina First Bank completed the sale of three branches
located in Belton, Calhoun Falls and Honea Path, South Carolina. In connection
with this sale, Carolina First Bank sold loans of approximately $2 million and
transferred deposits of approximately $44 million.
On September 13 and September 14, 1999, Carolina First Bank completed the
sale of three branch offices located in Abbeville, Hardeeville and Ridgeland,
South Carolina. On October 18, 1999, Carolina First Bank completed the sale of a
branch office in Johnston, South Carolina. In connection with the sale of these
branches, the Company recorded a gain of approximately $2.5 million, sold loans
of approximately $13.1 million and transferred deposits of approximately $54.4
million.
On June 23, July 3, and August 18, 2000, Carolina First Bank completed the
sale of three branch offices located in Prosperity, Nichols, and Saluda, South
Carolina. In connection with the sale of these branches, the Company recorded a
gain of approximately $2.1 million, sold loans of approximately $23.4 million
and transferred deposits of approximately $42.2 million.
NOTE 5. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Subsidiary Banks are required to maintain average reserve balances with
the Federal Reserve Bank based upon a percentage of deposits. The average
amounts of these reserve balances for the years ended December 31, 2000 and 1999
were approximately $11,081,000 and $33,980,000, respectively.
54
57
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. SECURITIES
The aggregate amortized cost and estimated fair value of securities
available for sale and securities held for investment at December 31 were as
follows:
2000
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
($ IN THOUSANDS)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S. Government agencies.... $198,813 $ 751 $ 894 $198,670
Mortgage-backed securities.................... 505,041 4,814 2,038 507,817
State and municipals.......................... 12,306 169 66 12,409
Other investments............................. 90,498 9,960 2,581 97,877
-------- ------- ------ --------
$806,658 $15,694 $5,579 $816,773
======== ======= ====== ========
SECURITIES HELD FOR INVESTMENT
U.S. Treasury and U.S. Government agencies.... $ 2,650 $ -- $ 2 $ 2,648
State and municipals.......................... 75,015 711 100 75,626
Other investments............................. 102 -- -- 102
-------- ------- ------ --------
$ 77,767 $ 711 $ 102 $ 78,376
======== ======= ====== ========
1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
($ IN THOUSANDS)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S. Government agencies.... $277,740 $ 42 $ 8,646 $269,136
Mortgage-backed securities.................... 451,515 20 8,628 442,907
State and municipals.......................... 22,224 26 1,194 21,056
Other investments............................. 110,613 48,745 4,739 154,619
-------- ------- -------- --------
$862,092 $48,833 $ 23,207 $887,718
======== ======= ======== ========
SECURITIES HELD FOR INVESTMENT
U.S. Treasury and U.S. Government agencies.... $ 5,997 $ 3 $ 20 $ 5,980
Mortgage-backed securities.................... 1,484 -- -- 1,484
State and municipals.......................... 63,877 162 614 63,425
Other investments............................. 402 -- -- 402
-------- ------- -------- --------
$ 71,760 $ 165 $ 634 $ 71,291
======== ======= ======== ========
The amortized cost and estimated fair value of securities available for
sale and securities held for investment at December 31, 2000, by contractual
maturity, are shown in the following table. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Estimated fair value
of securities was determined using quoted market prices.
55
58
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. SECURITIES -- (Continued)
DECEMBER 31, 2000
----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
($ IN THOUSANDS)
SECURITIES AVAILABLE FOR SALE
Due in one year or less..................................... $ 29,471 $ 29,408
Due after one year through five years....................... 245,778 245,455
Due after five years through ten years...................... 139,018 139,731
Due after ten years......................................... 351,370 353,811
No contractual maturity..................................... 41,021 48,368
--------- --------
$ 806,658 $816,773
========= ========
SECURITIES HELD FOR INVESTMENT
Due in one year or less..................................... $ 14,277 $ 14,285
Due after one year through five years....................... 34,140 34,348
Due after five years through ten years...................... 28,212 28,600
Due after ten years......................................... 1,138 1,143
--------- --------
No contractual maturity..................................... $ 77,767 $ 78,376
========= ========
Gross realized gains and losses on sales of securities for the years ended
December 31 were:
2000 1999 1998
------- ----- ----
($ IN THOUSANDS)
Gross realized gains........................................ $ 428 $ 672 $929
Gross realized losses....................................... (5,474) (190) (74)
------- ----- ----
Net gain on sale of securities.............................. $(5,046) $ 482 $855
======= ===== ====
Securities with an approximate book value of $456 million and $552 million
at December 31, 2000 and 1999, respectively, were pledged to secure public
deposits and for other purposes. Estimated market values of securities pledged
were $460 million and $542 million at December 31, 2000 and 1999, respectively.
Carolina First Bank, as a member of the Federal Home Loan Bank ("FHLB") of
Atlanta, is required to own capital stock in the FHLB of Atlanta based generally
upon their balances of residential mortgage loans and FHLB advances. FHLB
capital stock is pledged to secure FHLB advances. No ready market exists for
this stock, and it has no quoted market value. However, redemption of this stock
has historically been at par value. At December 31, 2000 and 1999, Carolina
First Bank owned a total of $26.2 million and $26.0 million in FHLB stock,
respectively.
NOTE 7. EQUITY INVESTMENTS
At December 31, 2000, securities available for sale included the following
equity investments recorded at the estimated fair value indicated: 1,175,000
shares of common stock of Net.Bank recorded at approximately $7.7 million,
1,753,366 shares of common stock of Affinity recorded at approximately $219,000,
investments in thirteen community banks recorded at approximately $6.0 million,
and an investment in Rock Hill Bank & Trust Company recorded at approximately
$5.5 million.
56
59
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans outstanding by category at December 31:
2000 1999
---------- ----------
($ IN THOUSANDS)
Commercial, financial and agricultural...................... $ 561,360 $ 536,542
Real estate -- construction................................. 458,577 221,683
Real estate -- residential mortgages (1-4 family)........... 890,693 729,522
Commercial secured by real estate........................... 1,348,604 1,336,491
Consumer.................................................... 460,668 396,358
Credit cards................................................ -- 15,798
Lease financing receivables................................. 4,186 15,500
---------- ----------
Loans held for investment................................... 3,724,088 3,251,894
Loans held for sale......................................... 12,630 45,591
---------- ----------
Gross loans................................................. 3,736,718 3,297,485
Less unearned income........................................ 1,536 5,765
Less allowance for loan losses.............................. 43,024 33,756
---------- ----------
Net loans................................................... $3,692,158 $3,257,964
========== ==========
Included in the above:
Nonaccrual loans............................................ $ 18,413 $ 11,185
Interest income recognized on nonaccrual loans during 2000, 1999, and 1998
was approximately $899,000, $858,000, and $161,000, respectively.
The following tables summarize information on impaired loans, all of which
are on nonaccrual, at and for the years ended December 31:
2000 1999
------- -------
($ IN THOUSANDS)
Impaired loans (year end)................................... $17,240 $10,934
Related allowance (year end)................................ 4,563 4,293
2000 1999 1998
------ ---- ----
($ IN THOUSANDS)
Recognized interest income.................................. $ 826 $829 $161
Foregone interest........................................... 1,297 433 357
The average recorded investment in impaired loans for the years ended
December 31, 2000 and 1999 was $16,223,000 and $5,435,000, respectively. There
were no restructured loans included in loans at December 31, 2000 and 1999.
57
60
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LOANS AND ALLOWANCE FOR LOAN LOSSES -- (Continued)
Changes in the allowance for loan losses were:
2000 1999 1998
------- ------- -------
($ IN THOUSANDS)
Balance at beginning of year.............................. $33,756 $29,812 $25,736
Purchase accounting acquisitions.......................... -- 408 1,822
Allowance adjustment for loans sold....................... (252) (2,977) --
Provision for loan losses................................. 23,378 18,273 15,646
Recoveries of loans previously charged off................ 2,215 2,042 2,089
Loans charged off:
Credit cards............................................ (450) (1,852) (4,418)
Other................................................... (15,623) (11,950) (11,063)
------- ------- -------
Balance at end of year.................................... $43,024 $33,756 $29,812
======= ======= =======
Directors, executive officers and associates of such persons were customers
of and had transactions with the Company in the ordinary course of business.
Included in such transactions are outstanding loans and commitments, all of
which were made under normal credit terms and did not involve more than normal
risk of collection. The aggregate dollar amount of these loans was approximately
$28,954,000 and $22,660,000 at December 31, 2000 and 1999, respectively. During
2000, new loans of approximately $13,556,000 were made, and payments totaled
approximately $7,262,000.
NOTE 9. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
2000 1999
-------- -------
($ IN THOUSANDS)
Land........................................................ $ 15,789 $17,857
Buildings................................................... 51,125 40,133
Furniture, fixtures and equipment........................... 53,436 53,939
Leasehold improvements...................................... 21,808 9,350
Assets held for disposal.................................... 1,181 --
Construction in progress.................................... 2,399 9,596
-------- -------
145,738 130,875
Less accumulated depreciation and amortization.............. 32,875 46,012
-------- -------
$112,863 $84,863
======== =======
Depreciation and amortization charged to operations totaled $8,803,000,
$8,115,000 and $7,431,000 in 2000, 1999 and 1998, respectively. At December 31,
2000, there were no land and buildings pledged as collateral for long-term debt.
Based on the Company's acquisition activity, internal growth, and
realignment plans, certain properties will not be used for future growth.
Accordingly, the Company reviewed for impairment long-lived assets related to
abandoned properties at Carolina First Bank. As a result of this review, in the
third quarter of 2000, the Company recorded a pre-tax impairment loss from the
write-down of assets totaling $3,869,000. The impairment loss consisted of
$2,601,000 for the write-off of leasehold improvements related to seven
abandoned locations, including the former operations center in Columbia, South
Carolina. In addition, the impairment loss included $768,000 for estimated lease
buyout costs related to nine abandoned locations and $500,000 for the write-down
to record land at fair value. During the fourth quarter of 2000, this impairment
loss was reduced by a net recovery of $195,000 realized upon the sale of
impaired assets. The impaired assets,
58
61
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. PREMISES AND EQUIPMENT -- (Continued)
which were not sold as of December 31, 2000, were written down to their net
realizable value and classified as assets held for disposal.
NOTE 10. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31 are
summarized as follows:
2000 1999
-------- --------
($ IN THOUSANDS)
Goodwill.................................................... $100,102 $105,223
Core deposit premium........................................ 7,152 8,737
-------- --------
$107,254 $113,960
======== ========
NOTE 11. MORTGAGE OPERATIONS
A summary of capitalized Mortgage Servicing Rights ("MSRs"), which are
included in other assets, follows:
2000 1999
------- -------
($ IN THOUSANDS)
Balance at beginning of year................................ $24,886 $25,151
MSRs purchased during the year.............................. 9,099 6,284
MSRs capitalized during the year............................ 460 325
MSRs amortized during the year.............................. (5,776) (5,992)
MSRs sold during the year................................... (8,014) (882)
------- -------
Balance at end of year...................................... $20,655 $24,886
======= =======
The aggregate fair value of capitalized MSRs at December 31, 2000 and 1999
was approximately $22.7 million and $27.2 million, respectively. No valuation
allowance for capitalized MSRs was required during the years ended December 31,
2000 and 1999.
NOTE 12. DEPOSITS
Deposits at December 31 are summarized as follows:
2000 1999
---------- ----------
($ IN THOUSANDS)
Noninterest-bearing demand deposits......................... $ 491,109 $ 496,428
Interest-bearing demand deposits............................ 590,669 594,223
Money market accounts....................................... 702,333 630,545
Savings accounts............................................ 116,165 148,055
Time deposits under $100,000................................ 1,401,520 1,109,195
Time deposits of $100,000 or more........................... 592,866 503,205
---------- ----------
$3,894,662 $3,481,651
========== ==========
59
62
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. DEPOSITS -- (Continued)
Maturities of time deposits at December 31, 2000 are as follows ($ in
thousands):
2001........................................................ $1,591,595
2002........................................................ 315,253
2003........................................................ 49,879
2004........................................................ 5,711
2005........................................................ 11,848
Thereafter.................................................. 20,100
----------
$1,994,386
==========
NOTE 13. INCOME TAXES
Income tax expense for the years ended December 31 consisted of the
following:
2000 1999 1998
------- ------- -------
($ IN THOUSANDS)
CURRENTLY PAYABLE
Federal................................................... $ 9,405 $25,100 $20,770
State..................................................... 218 1,534 1,540
------- ------- -------
9,623 26,634 22,310
------- ------- -------
DEFERRED
Federal................................................... (5,593) (6,024) (1,613)
State..................................................... (279) 101 (117)
------- ------- -------
(5,872) (5,923) (1,730)
------- ------- -------
Total income taxes.............................. $ 3,751 $20,711 $20,580
======= ======= =======
Income taxes are different than tax expense computed by applying the
statutory federal income tax rate of 35% for 2000, 1999 and 1998 to income
before income taxes. The reasons for these differences are as follows:
2000 1999 1998
------- ------- -------
($ IN THOUSANDS)
Tax expense at statutory rate............................. $ 3,759 $21,406 $19,332
Differences resulting from:
Nondeductible goodwill amortization..................... 1,585 3,201 889
Low-income housing tax credit........................... (100) (100) (97)
Change in valuation allowance for deferred tax assets... 302 1,006 (99)
State tax, net of federal benefit....................... (341) 57 1,032
Nontaxable interest..................................... (2,471) (1,607) (858)
Nontaxable gain on qualified appreciated stock.......... -- (4,162) --
Nondeductible acquisition cost.......................... 2,858 687 498
Nondeductible expenses.................................. 544 -- --
Tax loss on disposition of subsidiary stock............. (2,560) -- --
Other, net.............................................. 175 223 (117)
------- ------- -------
$ 3,751 $20,711 $20,580
======= ======= =======
60
63
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. INCOME TAXES -- (Continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31 are
presented below:
2000 1999
------- -------
($ IN THOUSANDS)
DEFERRED TAX ASSETS
Loan loss allowance deferred for tax purposes............... $15,796 $12,227
Excess basis of intangible assets for financial reporting
purposes over tax basis................................... 2,361 1,930
Net operating loss carryforwards............................ 1,942 1,614
Charitable contribution carryforward........................ 2,014 2,923
Compensation expense deferred for tax reporting purposes.... 4,263 1,655
Other....................................................... 960 1,062
------- -------
27,336 21,411
Less valuation allowance.................................. 1,662 1,360
------- -------
25,674 20,051
------- -------
DEFERRED TAX LIABILITIES
Tax depreciation in excess of book depreciation............. 3,150 5,236
Unrealized gain on securities available for sale............ 3,385 9,355
Tax bad debt reserve recapture adjustment................... 936 591
Excess carrying value of assets acquired for financial
reporting purposes over tax basis......................... 4,765 3,023
Compensation................................................ 300 351
Other....................................................... 371 570
------- -------
12,907 19,126
------- -------
Net deferred tax assets................................... $12,767 $ 925
======= =======
A portion of the change in net deferred tax assets relates to unrealized
gains on securities available for sale. The related current period deferred tax
expense of $5,970,000 and $8,176,000 for 2000 and 1999, respectively, has been
recorded directly to shareholders' equity. Purchase acquisitions also decreased
the net deferred tax liability by $551,000 during 1999. The balance of the
change in net deferred tax liabilities resulted from the current period deferred
tax benefit of $5,872,000 and $5,923,000 in 2000 and 1999, respectively.
The valuation allowance against the potential total deferred tax assets as
of December 31, 2000 and 1999 relates to deductible temporary differences for
state tax purposes. It is management's conclusion that the realization of the
net deferred tax asset recorded is more likely than not. This conclusion is
based upon taxable income in carryback years and conservative projections of
taxable income in future years.
61
64
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. BORROWED FUNDS
Short-term borrowings and their related weighted average interest rates at
December 31 were:
2000 1999
--------------- ---------------
AMOUNT RATE AMOUNT RATE
-------- ---- -------- ----
($ IN THOUSANDS)
Federal funds purchased and repurchase agreements..... $232,110 6.32% $179,710 4.78%
FHLB advances......................................... 205,080 6.40 235,990 5.01
Treasury, tax and loan note........................... 9,366 6.29 -- --
Commercial paper...................................... 7,641 7.19 -- --
Note payable to unaffiliated bank..................... 15,000 8.62 -- --
Other................................................. 321 8.53 2,929 5.31
-------- ---- -------- ----
$469,518 6.44% $418,629 4.91%
======== ==== ======== ====
Repurchase agreements represent overnight borrowings by Carolina First Bank
collateralized by securities of the United States government or its agencies
which are held by third-party safekeepers. The cost and fair market value of
these securities at December 31, 2000 were $167,477,000 and $166,794,000,
respectively. FHLB advances represent borrowings from the FHLB of Atlanta by
Carolina First Bank pursuant to lines of credit collateralized by a blanket lien
on qualifying loans secured by first mortgages on one-to-four family residences
and mortgage-backed securities. These advances have an initial maturity of one
year or less with interest payable monthly. Other short-term borrowings
represent the current portion of long-term debt.
The maximum short-term borrowings outstanding at any month end were:
2000 1999
-------- --------
($ IN THOUSANDS)
Federal funds purchased and repurchase agreements........... $235,545 $226,016
FHLB advances............................................... 294,990 235,990
Treasury, tax and loan note................................. 10,611 --
Note payable to unaffiliated bank........................... 15,000 --
Commercial paper............................................ 7,641 7,938
Other....................................................... 321 --
Aggregate short-term borrowings............................. 511,706 373,925
Average short-term borrowings during 2000, 1999 and 1998 were $457 million,
$243 million and $164 million, respectively. The average interest rate on
short-term borrowings during 2000, 1999 and 1998 were 6.14%, 4.86% and 5.24 %,
respectively.
Interest expense on short-term borrowings for the years ended December 31
related to the following:
2000 1999 1998
------- ------- ------
($ IN THOUSANDS)
Federal funds purchased and repurchase agreements.......... $12,017 $ 8,914 $8,124
FHLB advances.............................................. 15,686 2,851 23
Treasury, tax and loan note................................ 267 -- --
Commercial paper........................................... 18 -- --
Note payable to unaffiliated bank.......................... 28 -- --
Other...................................................... 27 66 441
------- ------- ------
$28,043 $11,831 $8,588
======= ======= ======
62
65
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. UNUSED LINES OF CREDIT
At December 31, 2000, the Subsidiary Banks had unused short-term lines of
credit to purchase federal funds from unrelated banks totaling $210 million.
These lines of credit are available on a one-to-ten day basis for general
corporate purposes of the Subsidiary Banks. All of the lenders have reserved the
right to withdraw these lines at their option. At December 31, 2000, the
Subsidiary Banks had an unused line of credit with the FHLB of Atlanta totaling
$85 million.
NOTE 16. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
2000 1999
-------- --------
($ IN THOUSANDS)
9.00% Subordinated Notes; due September 1, 2005; interest
payable quarterly; redeemable at the option of the Company
at any time after September 1, 2000 at par................ $ 25,775 $ 25,747
7.89% Subordinated Notes; due December 20, 2006; interest
payable semi-annually of each year and at maturity;
balance can be prepaid on December 20, 2001 at par plus
accrued and unpaid interest............................... 5,984 5,967
8.60% Subordinated Notes; due December 1, 2003; interest
payable semi-annually of each year and at maturity;
balance cannot be prepaid prior to its final maturity..... 4,969 4,958
Note payable; interest at 12.50% (adjusted from 11.25% in
1999) due December 31, 2012, with current annual payments
of approximately $125,000................................. 982 1,012
Employee stock ownership plan note payable to Centura Bank;
due July 23, 2002; interest at Centura Bank's prime rate
less 1.25% with monthly principal payments of $25,000..... 1,675 1,975
FHLB advances; fixed interest rates ranging from 4.58% to
7.21% due from 2001 to 2009; interest payable quarterly... 276,540 274,620
-------- --------
$315,925 $314,279
======== ========
Required annual principal payments for the five years subsequent to
December 31, 2001 are as follows ($ in thousands):
2002........................................................ $ 18,318
2003........................................................ 21,915
2004........................................................ 55,029
2005........................................................ 30,808
2006........................................................ 6,021
Thereafter.................................................. 183,834
--------
$315,925
========
NOTE 17. COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. Any litigation is vigorously defended by
the Company and, in the opinion of management based on consultation with
external legal counsel, any outcome of such litigation would not materially
affect the Company's consolidated financial position or results of operations.
63
66
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17. COMMITMENTS AND CONTINGENCIES -- (Continued)
On February 28, 2000, plaintiff John W. Dickens filed a breach of contract
lawsuit against Anchor Financial, subsequently acquired by the Company, in the
Court of Common Pleas for the Fifth Judicial Circuit. The plaintiff's complaint
based on an employment agreement sought compensation, other benefits, and actual
and punitive damages for defamation in excess of $5 million. The plaintiff was
an employee of Bailey Financial Corporation, which merged with Anchor Financial
on April 9, 1999. Following the merger, the plaintiff worked for Anchor
Financial until the termination of his employment on December 16, 1999. The
Company has filed counterclaims denying the allegations and citing parachute
payment limitations as specified in Section 280G of the Internal Revenue Code.
On October 3, 2000, the court ordered mandatory mediation. The parties
participated in mediation on December 22, 2000. At the mediation, the Company's
position was that the Company's exposure should be limited to the largest
severance payment permitted under Internal Revenue Code Section 280G. The
mediation was not successful, but after depositions, settlement discussions may
resume. The Company does not expect any settlement to be material.
On November 4, 1996, a derivative shareholder action was filed in the South
Carolina Circuit Court for Greenville County against the Company and several of
its officers. The complaint was subsequently amended several times. The amended
complaint names as additional defendants the majority of the directors of the
Company and Carolina First Bank. The named plaintiffs in the amended complaints
are Carolina First Corporation, pursuant to Section 33-7-400 of the South
Carolina Code of Laws, by and through several named minority shareholders.
Plaintiffs allege four causes of action based generally on the payment to the
defendant officers of a bonus in stock held by the Company in Affinity
Technology Inc. ("Affinity") as a reward for their efforts in connection with
the Affinity investment, and other matters. The complaint seeks damages for the
benefit of the Company in the amount of $32 million. The Company believes that
this lawsuit is without merit and has defended it vigorously. The trial court
granted the Company's motion to dismiss the lawsuit on November 26, 1997. The
plaintiffs appealed. On November 1, 2000, the South Carolina Court of Appeals
affirmed the dismissal of the lawsuit. The plaintiffs have sought further review
by the South Carolina Supreme Court.
On March 2, 1998, plaintiff Charlesetta G. Crocket filed a lawsuit in the
South Carolina Circuit Court for Newberry County, alleging that her signature
was forged on mortgages of her property by two former officers of Midlands
National Bank, prior to its merger with Carolina First Bank. The plaintiff seeks
to set aside the mortgages and also claims statutory penalties from Carolina
First Bank for not filing a satisfaction of mortgage after discovering the
forgeries. Carolina First Bank has filed its answer denying any liability to the
plaintiff and has defended the suit vigorously. The suit is still in discovery
and has not been scheduled for trial.
NOTE 18. LEASE COMMITMENTS
Minimum rental payments under noncancelable operating leases at December
31, 2000 are as follows ($ in thousands):
2001........................................................ $ 9,533
2002........................................................ 8,739
2003........................................................ 6,992
2004........................................................ 5,868
2005........................................................ 5,606
Thereafter.................................................. 71,469
--------
$108,207
========
Leases on premises and equipment have options for extensions under
substantially the same terms as in the original lease period with certain rate
escalations. Lease payments charged to expense totaled $9,542,000,
64
67
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. LEASE COMMITMENTS -- (Continued)
$5,422,000 and $3,312,000 in 2000, 1999 and 1998, respectively. The leases
typically provide that the lessee pay property taxes, insurance and maintenance
cost.
NOTE 19. CAPITAL STOCK
On February 13, 1998, the Company completed the sale of 2.0 million shares
of its Common Stock to certain overseas investors (the "Regulation S Offering").
The shares were offered and sold only to non-U.S. persons under an exemption
from registration provided by Regulation S under the Securities Act of 1933. In
connection with this offering, the Company received net proceeds of
approximately $39 million. Subsequent to the consummation of the Regulation S
Offering, the Company filed a registration statement with the Securities and
Exchange Commission registering the further sale of such shares by the
institutional investors which purchased the shares in the Regulation S Offering.
This registration statement became effective on March 11, 1998.
During the fourth quarter of 1998 and first quarter of 1999, the Company
repurchased 472,993 shares of common stock, of which 434,874 shares of common
stock were repurchased for reissue in connection with the acquisition of First
National.
In the first quarter of 2000, the Company repurchased 524,600 shares of
common stock, which decreased shareholders' equity by $8.3 million. In March
2000, the Company rescinded its share repurchased program due to the June 2000
closing of the merger with Anchor Financial. In December 2000, the Company
initiated a stock repurchase program for up to two million shares, or
approximately 5% of its outstanding shares. In December 2000, the Company
repurchased 847,376 shares, which decreased shareholders' equity by $10.2
million. The Company may continue to repurchase shares depending upon current
market conditions and available cash.
The Company has a Dividend Reinvestment Plan which allows shareholders to
invest dividends and optional cash payments in additional shares of common
stock. Shareholders of record are automatically eligible to participate in the
plan.
NOTE 20. PER SHARE INFORMATION
The following is a summary of the earnings per share calculation for the
years ended December 31:
2000 1999 1998
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT SHARE DATA)
BASIC
Net income (numerator).................................. $ 6,989 $ 40,450 $ 34,656
=========== =========== ===========
Average common shares outstanding (denominator)......... 42,907,960 42,685,675 38,596,757
=========== =========== ===========
Per share amount........................................ $ 0.16 $ 0.95 $ 0.90
=========== =========== ===========
DILUTED
Net income (numerator).................................. $ 6,989 $ 40,450 $ 34,656
=========== =========== ===========
Average common shares outstanding....................... 42,907,960 42,685,675 38,596,757
Dilutive common stock options and warrants.............. 642,632 932,743 1,108,416
----------- ----------- -----------
Average diluted shares outstanding (denominator)........ 43,550,592 43,618,418 39,705,173
=========== =========== ===========
Per share amount........................................ $ 0.16 $ 0.93 $ 0.87
=========== =========== ===========
65
68
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. PER SHARE INFORMATION -- (Continued)
The following options were outstanding for the years ended December 31 but
were excluded from the calculation of diluted earnings per share because the
exercise price was greater than the average market price of the common shares:
2000 1999 1998
- ---------------------------- ---------------------------- ----------------------------
NUMBER RANGE OF NUMBER RANGE OF NUMBER RANGE OF
OF SHARES EXERCISE PRICES OF SHARES EXERCISE PRICES OF SHARES EXERCISE PRICES
- --------- ---------------- --------- ---------------- --------- ----------------
502,843 $13.88 to $16.88 276,100 $23.13 to $24.84 77,917 $24.79 to $24.84
642,095 $17.50 to $22.34 284,235 $26.25 to $26.94 75,133 $28.03 to $29.06
433,542 $23.13 to $31.26 124,550 $28.03 to $31.26 49,417 $31.26
NOTE 21. RESTRICTION OF DIVIDENDS
The ability of the Company to pay cash dividends over the long term is
dependent upon receiving cash in the form of dividends from its subsidiaries.
South Carolina's banking regulations restrict the amount of dividends that
Carolina First Bank can pay. All dividends paid from Carolina First Bank are
payable only from the net income of the current year, unless prior regulatory
approval is granted. Florida banking statutes limit the amount of dividends that
Citrus Bank can pay without prior approval of Citrus Bank's regulatory agency.
The Florida limit permits dividends to be payable from the net income of the
current year combined with retained earnings of the preceding two years.
NOTE 22. REGULATORY CAPITAL REQUIREMENTS
The Company and the Subsidiary Banks are subject to various regulatory
capital requirements administered by the Federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Subsidiary Banks must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The Company's
and the Subsidiary Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Subsidiary Banks to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier 1 capital (as
defined in the regulation) to risk-weighted assets (as defined) and to average
assets (as defined). Management believes, as of December 31, 2000, that the
Company and the Subsidiary Banks met all capital adequacy requirements.
As of December 31, 2000, the most recent notification from federal banking
agencies categorized the Company and the Subsidiary Banks as "well capitalized"
under the regulatory framework. To be categorized as well capitalized, the
Subsidiary Banks must maintain minimum total risk-based, Tier 1 based and Tier 1
leverage ratios as set forth in the table. Since December 31, 2000, there have
been no events or conditions that management believes have changed the
Subsidiary Banks' categories.
66
69
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22. REGULATORY CAPITAL REQUIREMENTS -- (Continued)
The Company's and the Subsidiary Banks' capital levels at December 31, 2000
and 1999 exceeded the "well capitalized levels, as shown below:
TO BE WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES: PROVISIONS:
------------------- --------------------- -----------------------
DECEMBER 31, 2000 1999 2000 1999 2000 1999
- ------------ -------- -------- --------- --------- ---------- ----------
($ IN THOUSANDS)
THE COMPANY
Tier 1 capital..................... $354,575 $370,966 $164,282 $147,081 n/a n/a
Total risk-based capital........... 426,059 440,469 328,564 294,162 n/a n/a
Tier 1 capital ratio............... 8.63% 10.09% 4.00% 4.00% n/a n/a
Total risk-based capital ratio..... 10.37 11.98 8.00 8.00 n/a n/a
Leverage ratio..................... 6.93 7.92 4.00 4.00 n/a n/a
CAROLINA FIRST BANK
Tier 1 capital..................... $332,431 $321,912 $144,419 $132,332 $216,629 $198,498
Total risk-based capital........... 373,666 355,710 288,839 264,665 361,048 330,831
Tier 1 capital ratio............... 9.21% 9.73% 4.00% 4.00% 6.00% 6.00%
Total risk-based capital ratio..... 10.35 10.75 8.00 8.00 10.00 10.00
Leverage ratio..................... 7.44 8.06 4.00 4.00 5.00 5.00
CITRUS BANK
Tier 1 capital..................... $ 42,551 $ 29,047 $ 18,914 $ 13,046 $ 28,371 $ 19,570
Total risk-based capital........... 48,152 32,671 37,829 26,093 47,286 32,616
Tier 1 capital ratio............... 9.00% 8.91% 4.00% 4.00% 6.00% 6.00%
Total risk-based capital ratio..... 10.18 10.02 8.00 8.00 10.00 10.00
Leverage ratio..................... 8.03 7.95 4.00 4.00 5.00 5.00
NOTE 23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, to meet the financing needs of its
customers, the Company is a party to financial instruments with
off-balance-sheet risk. These financial instruments include commitments to
extend credit, standby letters of credit, repurchase agreements and documentary
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheets.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit
evaluation.
67
70
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- (Continued)
Loan commitments and letters of credit at December 31, 2000 include the
following ($ in thousands):
Loan commitments............................................ $727,248
Standby letters of credit................................... 33,842
Unused business credit card lines........................... 18,928
Documentary letters of credit............................... 15,552
The total portfolios of loans serviced or subserviced for non-affiliated
parties at December 31, 2000 and 1999 were $2,087 million and $1,864 million,
respectively.
NOTE 24. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2000, 1999 and 1998, lease payments
aggregating approximately $27,000, $39,600 and $40,600, respectively, were made
to affiliates of directors or companies in which certain directors have an
interest.
The Company's subsidiary, CF Investment Company, invests in companies that
have a bank-related technology or service the Company or its subsidiaries can
use. During the years ended December 31, 2000 and 1999, the Company's
subsidiaries purchased services aggregating approximately $1,300,000 and
$1,884,000, respectively, from companies in which CF Investment Company owned an
equity interest.
These lease payments and service fees were made in the ordinary course of
business and were on terms comparable to those which would have been obtained
between unrelated parties.
NOTE 25. STOCK COMPENSATION PLANS
The Company has a Restricted Stock Plan for awards to certain key
employees. Under the Restricted Stock Plan, the Company may grant Common Stock
to its employees for up to 500,000 shares. All shares granted under the
Restricted Stock Plan are subject to restrictions as to continuous employment
for a specified time period following the date of grant. During this period, the
holder is entitled to full voting rights and dividends. At December 31, 2000,
there were 61,668 shares (adjusted for stock dividends and split) of restricted
stock outstanding. Deferred compensation representing the fair market value of
the stock at the date of grant is being amortized over a five-year vesting
period, with $1,947,000 charged to expense in 2000, $408,000 in 1999 and
$188,000 in 1998.
The Company has a Stock Option Plan, a Directors' Stock Option Plan and
options acquired from acquisitions (collectively referred to as stock-based
option plans). Under the Stock Option Plan, the Company may grant options to its
employees for up to 2,500,000 shares of Common Stock. The exercise price of each
option either equals or exceeds the fair market value of the Company's Common
Stock on the date of grant. During 1998, the Company amended its Director's
Stock Option plan. Under the amended plan, the Company may grant options to its
non-employee directors for up to 500,000 shares of Common Stock. The exercise
price of each directors' option equals the fair market value of the Company's
Common Stock on the date of grant.
68
71
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25. STOCK COMPENSATION PLANS -- (Continued)
The Company applies APB Opinion 25 in accounting for the stock-based option
plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option plans. Had
compensation cost been recognized for the stock-based option plans applying the
fair-value-based method as prescribed by SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated in
the following table for the years ended December 31:
2000 1999 1998
--------- ---------- ----------
($ IN THOUSANDS, EXCEPT SHARE DATA)
NET INCOME
As reported............................................ $6,989 $40,450 $34,656
Pro forma.............................................. 5,629 39,443 32,840
BASIC EARNINGS PER SHARE
As reported............................................ $ 0.16 $ 0.95 $ 0.90
Pro forma.............................................. 0.13 0.92 0.85
DILUTED EARNINGS PER SHARE
As reported............................................ $ 0.16 $ 0.93 $ 0.87
Pro forma.............................................. 0.13 0.90 0.83
The effects of applying SFAS 123 may not be representative of the effects
on reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 2.5% for all years; expected volatility of 55%
for 2000, 38% for 1999 and 1998; risk-free interest rate of 5.94%, 5.08% and
6.06% for 2000, 1999 and 1998, respectively; and expected lives of 5 years for
2000 and 1999 and 7.5 years for 1998.
The following is a summary of the activity under the stock-based option
plans for the years 2000, 1999 and 1998.
2000 1999 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- --------- -------- --------- --------
Outstanding, January 1.............. 2,746,316 $14.18 2,810,187 $10.96 2,480,718 $ 8.35
Granted:
Price = Fair Value................ 697,363 13.16 573,774 21.61 580,948 19.71
Price less than Fair Value (from
purchase acquisitions)......... -- -- -- -- 115,137 6.52
Cancelled........................... (168,221) 15.46 (130,286) 10.62 (84,279) 10.65
Exercised........................... (226,645) 4.21 (507,359) 5.66 (282,337) 4.33
--------- ------ --------- ------ --------- ------
Outstanding, December 31............ 3,048,813 $14.62 2,746,316 $14.18 2,810,187 $10.96
========= ====== ========= ====== ========= ======
Exercisable, December 31............ 1,781,095 $12.43 1,707,920 $12.47 1,752,137 $10.41
========= ====== ========= ====== ========= ======
Weighted-average fair value of
options granted during the year... $ 5.74 $ 7.23 $ 8.96
====== ====== ======
69
72
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25. STOCK COMPENSATION PLANS -- (Continued)
The following table summarizes information about stock options outstanding
under the stock-based option plans at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OF OPTION REMAINING AVERAGE OF OPTION AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES LOW/HIGH OUTSTANDING OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------- ----------- ----------- --------- ----------- ---------
$3.55/$8.00................................ 856,564 4.21yrs. $ 4.73 856,564 $ 4.73
$9.55/$15.69............................... 970,168 8.25 13.30 345,949 13.79
$15.73/$20.50.............................. 258,635 7.65 17.85 104,855 16.94
$20.563/$21.75............................. 208,139 7.26 21.41 138,818 21.49
$22.34..................................... 321,765 8.63 22.34 75,784 22.34
$23.125/$24.79............................. 231,122 7.56 24.38 109,695 24.42
$24.84/$31.26.............................. 202,420 7.48 28.19 149,430 28.00
--------- ---------
3,048,813 6.93yrs. $14.62 1,781,095 $12.43
========= ========= ======
NOTE 26. EMPLOYEE BENEFITS
The Company maintains the Carolina First Salary Reduction Plan and Trust
("401 (k) Plan") for all eligible employees. Upon ongoing approval of the Board
of Directors, the Company matches employee contributions equal to six percent of
compensation subject to certain adjustments and limitations. Anchor Financial
also had a similar 401 (k) Plan, which was consolidated with the Company's Plan
following the merger. Contributions of $2,384,000, $2,263,000 and $1,529,000
were charged to operations in 2000, 1999, and 1998, respectively.
The Company maintains the Carolina First Employee Stock Ownership Plan
("ESOP") for all eligible employees. Contributions are at the discretion of, and
determined annually by, the Board of Directions, and may not exceed the maximum
amount deductible under the applicable sections of the Internal Revenue Code.
For the years ended December 31, 2000, 1999, and 1998, contributions of
$715,000, $1,014,000 and $667,000, respectively, were charged to operations.
The ESOP has a loan used to acquire shares of stock of the Company. Such
stock is pledged as collateral for the loan. At December 31, 2000, the ESOP
owned 176,471 shares of Company stock of which 100,833 were pledged to secure
the loan. The remainder was allocated to individual accounts of participants. In
accordance with the requirements of the American Institute of Certified Public
Accountants Statements of Position 76-3 and 93-6, the Company presents the
outstanding loan amount as other borrowed money and as a reduction of
shareholders' equity in the accompanying consolidated balance sheets (Note 15).
Company contributions to the ESOP are the primary source of funds used to
service the debt.
Anchor Financial also had an ESOP, which was terminated on December 31,
2000. For the years ended December 31, 2000, 1999, and 1998, contributions of
$670,978, $668,102, and $644,116, respectively, were charged to operations.
M.S. Bailey & Son Bankers ("Bailey"), acquired by Anchor Financial in
November 1998, sponsored a noncontributory defined benefit pension plan that
covered substantially all of its employees. Pension benefits were based on
salary and years of service. On March 16, 1999, the Company formally amended the
pension plan to provide for its termination. Plan participants ceased to accrue
additional pension benefits as of April 7, 1999. As a result, the Company
recognized a curtailment gain of $514,000 in 1999. Company contributions to the
plan satisfied minimum funding requirements. For the years ended December 31,
1999 and 1998, contributions of $671,684 and $91,951, respectively, were charged
to operations.
70
73
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 26. EMPLOYEE BENEFITS -- (Continued)
On December 1, 2000, the Company adopted Salary Continuation Plans
("SERPs"), which provide salary continuation benefits after retirement for
certain officers. The Plans also provide for limited benefits in the event of
early termination or disability while employed by the company and full benefits
to beneficiaries in the event of death of the officer. The officers vest in the
benefits over eight years and in the event of a change in control of the Company
as defined in the SERP, the officers become 100% vested in the total benefit
immediately. The Company has purchased life insurance policies on these officers
in order to fund the payments required by the SERPs. For the year ended December
31, 2000, contributions of $40,195 were charged to operations related to these
SERPs.
In conjunction with the Anchor Financial merger, two executive officers of
Anchor Financial were provided supplemental retirement plans, which payments
begin at the earlier of the beneficiary's 65th birthday or death and will
continue for 15 years. The officers vest in the benefits over two to four years,
unless there is a change of control of the Company or involuntary termination as
defined by the supplemental retirement plans, which in either case, the officers
become 100% vested in the total benefit immediately. For the year ended December
31, 2000, contributions of $234,142 were charged to operations related to these
supplemental retirement plans.
Also in conjunction with the Anchor Financial merger, a third officer was
provided a salary continuation plan, which payments may begin as early as two
years from the effective date of the salary continuation plan agreement and
continue for 10 years. For the year ended December 31, 2000, contributions of
$219,559 were charged to operations related to the salary continuation plan.
NOTE 27. NONINTEREST EXPENSES
The significant components of other noninterest expenses for the years
ended December 31 are presented below:
2000 1999 1998
------- ------- -------
($ IN THOUSANDS)
Professional fees......................................... $ 6,386 $ 4,520 $ 1,971
Telecommunications........................................ 5,945 4,319 2,875
Other outside service fees................................ 5,489 3,975 2,564
Advertising............................................... 4,153 2,867 1,919
Stationary, supplies and printing......................... 3,646 3,018 2,709
Mail and courier services................................. 3,290 2,931 2,606
Year 2000 expenses........................................ -- 1,170 283
Other..................................................... 14,096 18,182 15,525
------- ------- -------
$43,005 $40,982 $30,452
======= ======= =======
NOTE 28. RESTRUCTURING AND MERGER-RELATED COSTS
The Company incurred restructuring and merger-related costs in connection
with the June 2000 merger of Anchor Financial and the 1999 mergers of Citrus
Bank and Citizens First National Bank. Anchor Financial incurred restructuring
and merger-related costs in connection with the 1999 merger of Bailey Financial
Corporation and the 1998 mergers of ComSouth Bankshares, Inc. and M&M Financial
Corporation. The
71
74
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 28. RESTRUCTURING AND MERGER-RELATED COSTS -- (Continued)
significant components of restructuring and merger-related costs, which include
costs associated with the mergers for the Company and Anchor Financial, for the
years ended December 31 are presented below:
2000 1999 1998
------- ------ ------
($ IN THOUSANDS)
Contract termination costs.................................. $ 7,355 $1,018 $1,112
Investment banking fees..................................... 7,026 1,681 1,034
Impairment of abandoned facilities.......................... 2,772 -- --
Severance payments.......................................... 4,177 234 134
Professional fees........................................... 2,532 563 313
Data processing conversion.................................. 1,619 1,079 94
Write-off of obsolete fixed assets.......................... 1,583 945 677
Other....................................................... 2,134 1,635 162
------- ------ ------
$29,198 $7,155 $3,526
======= ====== ======
NOTE 29. BUSINESS SEGMENTS
The Company has four wholly-owned subsidiaries which are evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and assess performance. Two of these subsidiaries qualify as
separately reportable operating segments: Carolina First Bank and Citrus Bank.
Carolina First Bank offers products and services primarily to customers in South
Carolina, coastal North Carolina and the surrounding areas. Citrus Bank offers
products and services primarily to customers in northern and central Florida.
Revenues for Carolina First Bank and Citrus Bank are derived primarily from
interest and fees on loans, interest on investment securities and service
charges on deposits.
72
75
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 29. BUSINESS SEGMENTS -- (Continued)
The following table summarizes certain financial information concerning the
Company's reportable operating segments for the years ended December 31:
CAROLINA FIRST CITRUS ELIMINATING
BANK BANK OTHER ENTRIES TOTAL
-------------- -------- -------- ----------- ----------
($ IN THOUSANDS)
DECEMBER 31, 2000
Income statement data
Interest income....................... $ 349,817 $ 40,712 $ 4,407 $ (5,904) $ 389,032
Interest expense...................... 196,423 18,977 4,842 (5,839) 214,403
Net interest income................ 153,394 21,735 (435) (65) 174,629
Provision for loan losses............. 19,243 2,202 1,933 -- 23,378
Noninterest income.................... 30,758 1,813 60,079 (43,302) 49,348
Noninterest expenses.................. 162,408 19,046 51,770 (43,365) 189,859
Amortization....................... 6,188 -- 219 -- 6,407
Net income............................ 1,853 1,491 1,666 1,979 6,989
Balance sheet data
Total assets.......................... $4,826,006 $547,428 $577,187 $(730,067) $5,220,554
Loans -- net of unearned income.... 3,283,639 443,158 8,385 -- 3,735,182
Allowance for loan losses.......... 36,735 5,601 688 -- 43,024
Intangibles........................ 105,633 -- 1,621 -- 107,254
Deposits.............................. 3,417,473 486,397 -- (9,208) 3,894,662
DECEMBER 31, 1999
Income statement data
Interest income....................... $ 291,863 $ 26,797 $ 6,060 $ (3,628) $ 321,092
Interest expense...................... 135,167 10,556 755 -- 146,478
Net interest income................ 156,696 16,241 5,305 (3,628) 174,614
Provision for loan losses............. 17,079 955 239 -- 18,273
Noninterest income.................... 42,672 2,426 19,884 (5,333) 59,649
Noninterest expenses.................. 117,629 13,775 28,783 (5,358) 154,829
Amortization....................... 6,474 -- 554 -- 7,028
Net income............................ 39,437 2,493 (2,112) 632 40,450
Balance sheet data
Total assets.......................... $4,311,764 $365,197 $614,161 $(522,466) $4,768,656
Loans -- net of unearned income.... 2,968,340 305,627 17,753 -- 3,291,720
Allowance for loan losses.......... 29,298 3,624 834 -- 33,756
Intangibles........................ 112,089 13 1,858 -- 113,960
Deposits.............................. 3,157,147 332,951 -- (8,447) 3,481,651
DECEMBER 31, 1998
Income statement data
Interest income....................... $ 269,915 $ 16,184 $ 5,918 $ (2,470) $ 289,547
Interest expense...................... 131,974 6,165 2,067 -- 140,206
Net interest income................ 137,941 10,019 3,851 (2,470) 149,341
Provision for loan losses............. 10,606 1,595 3,445 -- 15,646
Noninterest income.................... 23,248 1,858 15,149 (5,331) 34,924
Noninterest expenses.................. 95,052 7,134 15,802 (4,605) 113,383
Amortization....................... 3,969 -- 734 -- 4,703
Net income............................ 32,721 2,002 (1,484) 1,417 34,656
Balance sheet data
Total assets.......................... $3,879,568 $227,358 $516,769 $(487,048) $4,136,647
Loans -- net of unearned income.... 2,654,741 171,048 15,288 -- 2,841,077
Allowance for loan losses.......... 26,061 2,757 994 -- 29,812
Intangibles........................ 122,733 13 8,476 -- 131,222
Deposits.............................. 3,113,826 208,947 -- (20,250) 3,302,523
73
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THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 30. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of The South Financial
Group (Parent Company only):
CONDENSED BALANCE SHEETS
DECEMBER 31,
--------------------
2000 1999
-------- --------
($ IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 4,692 $ 6,035
Repurchase agreements....................................... -- 1,538
Investment in subsidiaries:
Bank subsidiaries......................................... 456,308 451,407
Nonbank subsidiaries...................................... 45,931 22,279
-------- --------
Total investment in subsidiaries............................ 502,239 473,686
Receivable from subsidiaries................................ 13,060 16,521
Other investments........................................... 13,213 47,003
Other assets................................................ 7,552 12,842
-------- --------
$540,756 $557,625
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities...................... $ 10,759 $ 18,088
Borrowed funds.............................................. 61,344 38,947
Shareholders' equity........................................ 468,653 500,590
-------- --------
$540,756 $557,625
======== ========
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
($ IN THOUSANDS)
INCOME
Equity in undistributed net income (loss) of subsidiaries... $(33,931) $18,030 $21,985
Interest income from subsidiaries........................... 1,723 1,985 2,359
Dividend income from subsidiaries........................... 38,883 21,430 15,935
Gain on disposition of equity investments................... 6,847 13,780 --
Sundry...................................................... 4,831 2,764 2,234
-------- ------- -------
18,353 57,989 42,513
-------- ------- -------
EXPENSES
Interest on borrowed funds.................................. 3,502 3,498 3,761
Merger-related costs........................................ 1,186 1,533 --
Charitable contribution to foundation....................... -- 11,890 --
Sundry...................................................... 5,129 5,278 5,815
-------- ------- -------
9,817 22,199 9,576
-------- ------- -------
Income before taxes......................................... 8,536 35,790 32,937
Income tax (benefit)........................................ 1,547 (4,660) (1,719)
-------- ------- -------
Net income.................................................. $ 6,989 $40,450 $34,656
======== ======= =======
74
77
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 30. PARENT COMPANY FINANCIAL INFORMATION -- (Continued)
CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
($ IN THOUSANDS)
OPERATING ACTIVITIES
Net income................................................. $ 6,989 $ 40,450 $ 34,656
Adjustments to reconcile net (income) loss to net cash
provided by operations
Equity in undistributed net income of subsidiaries....... 33,931 (18,030) (21,985)
Charitable contribution to foundation.................... -- 11,890 --
Gain on disposition of equity investments................ (6,847) (13,780) --
Equity in net income of unconsolidated sub............... -- (56) (242)
Other liabilities, net................................... 1,690 178 (352)
Other assets, net........................................ 5,290 (6,758) (1,341)
-------- -------- --------
Net cash provided by operating activities........ 41,053 13,894 10,736
-------- -------- --------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Investment in repurchase agreement....................... 1,538 357 1,384
Investment in subsidiaries............................... (49,716) (8,011) (5,000)
Loans to subsidiaries, net............................... 3,461 (1,869) (1,805)
Proceeds from disposition of equity investments.......... 7,125 2,173 --
Other investments........................................ -- (3,471) (2,801)
Other, net............................................... -- 58 (763)
-------- -------- --------
Net cash used for investing activities........... (37,592) (10,763) (8,985)
-------- -------- --------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Borrowings, net.......................................... 22,397 (143) (31,914)
Cash dividends paid...................................... (15,006) (12,977) (8,700)
Issuance of common stock................................. -- -- 40,438
Repurchase of common stock............................... (18,470) (1,335) (9,824)
Other.................................................... 6,275 5,564 3,231
-------- -------- --------
Net cash used for investing activities........... (4,804) (8,891) (6,769)
-------- -------- --------
Net change in cash and cash equivalents.................... (1,343) (5,760) (5,018)
Cash and cash equivalents at beginning of year............. 6,035 11,795 16,813
-------- -------- --------
Cash and cash equivalents at end of year................... $ 4,692 $ 6,035 $ 11,795
======== ======== ========
NOTE 31. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information, whether or not recognized in the statement
of financial position, when it is practicable to estimate the fair value. SFAS
107 defines a financial instrument as cash, evidence of an ownership interest in
an entity or contractual obligations which require the exchange of cash or other
financial instruments. Certain items are specifically excluded from the
disclosure requirements, including the Company's Common Stock, premises and
equipment, accrued interest receivable and payable and other assets and
liabilities.
75
78
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 31. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
Fair value approximates book value for the following financial instruments
due to the short-term nature of the instrument: cash and due from banks,
interest-bearing bank balances, federal funds sold and resale agreements,
federal funds purchased and repurchase agreements and other short-term
borrowings.
Fair value for variable rate loans that reprice frequently is based on the
carrying value. Fair value for mortgage loans, consumer loans and all other
loans (primarily commercial and industrial loans) with fixed rates of interest
is based on the discounted present value of the estimated future cash flows less
the allowance for loan losses. Discount rates used in these computations
approximate the rates currently offered for similar loans of comparable terms
and credit quality.
The carrying amount for loan commitments and letters of credit, which are
off-balance-sheet financial instruments, approximates the fair value since the
obligations are typically based on current market rates.
Fair value for demand deposit accounts and interest-bearing accounts with
no fixed maturity date is equal to the carrying value. Certificate of deposit
accounts are estimated by discounting cash flows from expected maturities using
current interest rates on similar instruments.
Fair value for long-term debt is based on discounted cash flows using the
Company's current incremental borrowing rate. Investment securities are valued
using quoted market prices.
The Company has used management's best estimate of fair value based on the
above assumptions. Thus, the fair values presented may not be the amounts which
could be realized in an immediate sale or settlement of the instrument. In
addition, any income taxes or other expenses which would be incurred in an
actual sale or settlement are not taken into consideration in the fair values
presented.
The estimated fair values of the Company's financial instruments at
December 31 were as follows:
2000 1999
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
($ IN THOUSANDS)
FINANCIAL ASSETS
Cash and due from banks................. $ 156,711 $ 156,711 $ 138,829 $ 138,829
Interest-bearing bank balances.......... 26,721 26,721 28,972 28,972
Federal funds sold and resale
agreements............................ 475 475 3,625 3,625
Trading securities...................... 5,004 5,004 4,668 4,668
Securities available for sale........... 816,773 816,773 887,718 887,718
Securities held for investment.......... 77,767 78,376 71,760 71,291
Net loans............................... 3,692,158 3,683,511 3,257,964 3,234,416
FINANCIAL LIABILITIES
Deposits................................ $3,894,662 $3,914,350 $3,481,651 $3,461,358
Federal funds purchased and repurchase
agreements............................ 232,110 232,110 179,710 179,710
Short-term borrowings................... 237,408 237,408 238,919 238,919
Long-term debt.......................... 315,925 319,987 314,279 314,324
The estimated fair values for the Company's off-balance-sheet derivative
financial instruments at December 31 were as follows:
2000 1999
---------------- ----------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
($ IN THOUSANDS)
Interest Rate Swaps.................................... $50,022 $32 $21,160 $431
76
79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information is incorporated by reference to the Registrant's Proxy
Statement relating to the 2001 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
Information is incorporated by reference to the Registrant's Proxy
Statement relating to the 2001 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information is incorporated by reference to the Registrant's Proxy
Statement relating to the 2001 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information is incorporated by reference to the Registrant's Proxy
Statement relating to the 2001 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements See Item 8 for reference.
(a)(2) Financial Statement Schedules
Financial statement schedules normally required on Form 10-K are omitted
since they are not applicable or because the required information is included in
the Consolidated Financial Statements or related Notes to Consolidated Financial
Statements.
(a)(3) Listing of Exhibits
2.1 -- Agreement and Plan of Reorganization entered into as of
January 10, 2000 by and among the Company, Carolina First
Bank, Anchor Financial Corporation, and The Anchor Bank:
Incorporated by reference to Exhibit 2.1 of the Company's
Registration Statement on Form S-4, Commission File No.
333-32590.
3.1 -- Articles of Incorporation: Incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form
S-4, Commission File No. 57389
3.1.1 -- Articles of Amendment dated June 1, 1997: Incorporated by
reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-4, Commission File No. 333-32459.
3.1.2 -- Amendment to the Company's Articles of Incorporation as
filed with the State of South Carolina Secretary of State:
Incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, Commission File No. 15083.
3.2 -- Amended and Restated Bylaws of the Company, as amended and
restated as of December 18, 1996: Incorporated by reference
to Exhibit 3.1 of the Company's Current Report on Form 8-K
dated December 18, 1996, Commission File No. 0-15083.
77
80
4.1 -- Specimen TSFG Common Stock certificate: Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1, Commission File No. 33-7470.
4.2 -- Articles of Incorporation: Included as Exhibit 3.1.
4.3 -- Bylaws: Included as Exhibit 3.2.
4.4 -- The South Financial Group Amended and Restated Common Stock
Dividend Reinvestment Plan: Incorporated by reference to the
Prospectus in the Company's Registration Statement on Form
S-3, Commission File No. 333-06975.
4.4.1 -- Amendment 1 to the The South Financial Group Amended and
Restated Common Stock Dividend Reinvestment Plan:
Incorporated by reference to Exhibit 4.4.1 of the Company's
Registration Statement on Form S-4, Commission File No.
333-32590.
4.5 -- Amended and Restated Shareholder Rights Agreement:
Incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated December 18, 1996,
Commission File No. 0-15083.
4.6 -- Form of Indenture between the Company and First American
Trust Company, N.A., as Trustee: Incorporated by reference
to Exhibit 4.11 of the Company's Registration Statement on
Form S-3, Commission File No. 22-58879.
10.1 -- The South Financial Group Amended and Restated Restricted
Stock Plan: Incorporated by reference to Exhibit 99.1 from
the Company's Registration Statement on Form S-8, Commission
File No. 33-82668/82670.
10.2 -- The South Financial Group Employee Stock Ownership Plan:
Incorporated by reference to Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1991, Commission File No. 0-15083.
10.3 -- The South Financial Group Amended and Restated Stock Option
Plan: Incorporated by reference to Exhibit 99.1 from the
Company's Registration Statement on Form S-8, Commission
File No. 33-80822.
10.3.1 -- Amendment 1 to The South Financial Group Amended and
Restated Stock Option Plan: Incorporated by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1998, Commission File No.
0-15083.
10.3.2 -- Amendment 2 to The South Financial Group Amended and
Restated Stock Option Plan: Incorporated by reference to
Exhibit 10.3.2 of the Company's Registration Statement on
Form S-4, Commission File No. 333-32590.
*10.3.3 -- Amendment 3 to The South Financial Group Amended and
Restated Stock Option Plan.
10.4 -- The South Financial Group Salary Reduction Plan:
Incorporated by reference to Exhibit 28.1 of the Company's
Registration Statement on Form S-8, Commission File No.
33-25424.
*10.5 -- Noncompetition, Severance and Employment Agreement dated
October 13, 2000, by and between the Company and Mack I.
Whittle, Jr.
*10.6 -- Noncompetition, Severance and Employment Agreement dated
October 13, 2000, by and between the Company and William S.
Hummers III.
10.7 -- Noncompetition and Severance Agreement dated February 21,
1996, between the Company and James W. Terry, Jr.:
Incorporated by reference to Exhibit 10.7 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1995, Commission File No. 0-15083.
10.8 -- Noncompetition, Severance and Employment Agreement dated as
of October 5, 1999, by and between the Company and John
DuBose: Incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, Commission File No. 0-15053.
78
81
10.9 -- Change in Control Agreement dated as of November 2, 1998, by
and between the Company and Michael W. Sperry: Incorporated
by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, Commission File No. 0-15053.
10.10 -- Employment Agreement dated as of July 15, 2000, by and among
William J. Moore, Carolina First Bank and The South
Financial Group: Incorporated by reference to Exhibit 10.1
of The South Financial Group's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
10.11 -- Noncompetition, Severance and Employment Agreement dated
January 10, 2000, between Carolina First Bank, the Company
and Stephen L. Chryst: Incorporated by reference to Appendix
C of Exhibit 99.1 of the Company's Registration Statement on
Form 8-K, Commission File No. 0-15083.
10.12 -- Noncompetition, Severance and Employment Agreement dated
January 10, 2000, between Carolina First Bank, the Company
and Tommy E. Looper: Incorporated by reference to Appendix D
of Exhibit 99.1 of the Company's Registration Statement on
Form 8-K, Commission File No. 0-15083.
10.13 -- Short-Term Performance Plan: Incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, Commission File
No. 0-15083.
10.14 -- The South Financial Group Long-Term Management Performance
Plan: Incorporated by reference to Exhibit 10.11 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission File No. 0-15083.
10.15 -- Amended and Restated The South Financial Group Employee
Stock Purchase Plan. Incorporated by reference to Exhibit
10.1 of The South Financial Group's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, Commission File
No. 15083.
10.16 -- The South Financial Group Directors Stock Option Plan:
Incorporated by reference to Exhibit 99.1 from the Company's
Registration Statement on Form S-8, Commission File No.
33-82668/82670.
10.17 -- Warrant to Purchase Common Stock of Affinity Financial
Group, Inc. and Amendment No. 1 with respect to Warrant to
Purchase Common Stock of Affinity Financial Group, Inc.:
Incorporated by reference to Exhibit 10.16 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1995, Commission File No. 0-15083.
10.18 -- Letter Agreement between the Company and the Board of
Governors of the Federal Reserve Board regarding warrant to
purchase shares of Affinity Technology Group, Inc. common
stock: Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, Commission File No. 0-15083.
10.19 -- The South Financial Group Amended and Restated Fortune 50
Plan: Incorporated by reference to the Prospectus in the
Company's Registration Statement on Form S-8, Commission
File No. 333-31948.
*10.20 -- Carolina First Bank Supplemental Executive Retirement Plan.
10.21 -- Anchor Financial Corporation and The Anchor Bank
Non-Qualified Stock Option Plan of 1988: Incorporated by
reference to Exhibit 10.12 of Anchor Financial Corporation's
Registration Statement on Form S-4 filed on June 17, 1998,
Commission File No. 333-57053.
10.22 -- Anchor Financial Corporation, the Anchor Bank and The Anchor
Bank of North Carolina Incentive Stock Option Plan of 1994:
Incorporated by reference to Exhibit 10.11 of Anchor
Financial Corporation's Registration Statement on Form S-4
filed on June 17, 1998, Commission File No. 333-57053.
79
82
10.23 -- Anchor Financial Corporation, The Anchor Bank, and The
Anchor Bank of North Carolina Incentive Stock Option Plan of
1996: Incorporated by reference to Exhibit 10.10 of Anchor
Financial Corporation's Registration Statement on Form S-4
filed on June 17, 1998, Commission File No. 333-57053.
*13.1 -- 2000 Annual Report to Shareholders.
*21.1 -- Subsidiaries of the Registrant.
*23.1 -- Consent of KPMG LLP.
- ---------------
* filed with this Annual Report on Form 10-K
COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO WILLIAM S.
HUMMERS III, EXECUTIVE VICE PRESIDENT OF THE SOUTH FINANCIAL GROUP
(b) Current Reports on Form 8-K
None.
80
83
SIGNATURES
Pursuant to the requirements of the 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.
THE SOUTH FINANCIAL GROUP, INC.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MACK I. WHITTLE, JR. President, Chief Executive February 21, 2001
- ----------------------------------------------------- Officer and Director
Mack I. Whittle, Jr.
/s/ WILLIAM S. HUMMERS III Executive Vice President and February 21, 2001
- ----------------------------------------------------- Secretary
William S. Hummers III (Principal Accounting and
Principal Financial
Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons behalf of the registrant
and in the capacities on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM R. TIMMONS, JR. Chairman of the Board February 21, 2001
- -----------------------------------------------------
William R. Timmons, Jr.
/s/ MACK I. WHITTLE, JR. Director February 21, 2001
- -----------------------------------------------------
Mack I. Whittle, Jr.
/s/ WILLIAM S. HUMMERS III Director February 21, 2001
- -----------------------------------------------------
William S. Hummers III
/s/ MASON R. CHRISMAN Director February 21, 2001
- -----------------------------------------------------
Mason R. Chrisman
/s/ STEPHEN L. CHRYST Director February 21, 2001
- -----------------------------------------------------
Stephen L. Chryst
/s/ JUDD B. FARR Director February 21, 2001
- -----------------------------------------------------
Judd B. Farr
/s/ C. CLAYMON GRIMES, JR. Director February 21, 2001
- -----------------------------------------------------
C. Claymon Grimes, Jr.
/s/ M. DEXTER HAGY Director February 21, 2001
- -----------------------------------------------------
M. Dexter Hagy
/s/ W. GAIRY NICHOLS III Director February 21, 2001
- -----------------------------------------------------
W. Gairy Nichols III
/s/ THOMAS J. ROGERS Director February 21, 2001
- -----------------------------------------------------
Thomas J. Rogers
/s/ H. EARLE RUSSELL, JR. Director February 21, 2001
- -----------------------------------------------------
H. Earle Russell, Jr.
81
84
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHARLES B. SCHOOLER Director February 21, 2001
- -----------------------------------------------------
Charles B. Schooler
/s/ ALBERT A. SPRINGS III Director February 21, 2001
- -----------------------------------------------------
Albert A. Springs III
/s/ EUGENE E. STONE IV Director February 21, 2001
- -----------------------------------------------------
Eugene E. Stone IV
/s/ SAMUEL H. VICKERS Director February 21, 2001
- -----------------------------------------------------
Samuel H. Vickers
/s/ DAVID C. WAKEFIELD III Director February 21, 2001
- -----------------------------------------------------
David C. Wakefield III
82
85
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.3.3 -- Amendment 3 to The South Financial Group Amended and
Restated Stock Option Plan
10.5 -- Noncompetition, Severance and Employment Agreement dated
October 13, 2000, by and between the Company and Mack I.
Whittle, Jr.
10.6 -- Noncompetition, Severance and Employment Agreement dated
October 13, 2000, by and between the Company and William S.
Hummers III.
10.20 -- Carolina First Bank Supplemental Executive Retirement Plan
13.1 -- 2000 Annual Report to Shareholders
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of KPMG LLP
83