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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, 1998
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM to
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Commission file number 0-15083
CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0824914
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
102 South Main Street, Greenville, South Carolina 29601
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(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
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(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
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 15, 1999 was $467,629,000.
The number of shares outstanding of the Registrant's common stock, $1.00 par
value was 22,025,025 at March 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
Portions of 1998 Annual Report to Shareholders Part II; IV
Portions of Proxy Statement dated March 23, 1999 Part III
PART I
ITEM 1 - BUSINESS
The Company
Carolina First Corporation (the "Company"), a South Carolina
corporation organized in 1986, is a bank holding company headquartered in
Greenville, South Carolina. At December 31, 1998, it operated through the
following principal subsidiaries: Carolina First Bank, a state-chartered bank
headquartered in Greenville, South Carolina; Carolina First Mortgage Company, a
South Carolina corporation headquartered in Columbia, South Carolina ("CF
Mortgage"); Carolina First Bank, F.S.B., a Federal savings bank headquartered in
Greenville, South Carolina; Blue Ridge Finance Company, Inc., a consumer finance
company headquartered in Greenville, South Carolina ("Blue Ridge"); and Resource
Processing Group, Inc., a credit card servicing company headquartered in
Columbia, South Carolina ("RPGI"). 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 73 locations
in South Carolina. At December 31, 1998, the Company had approximately $2.7
billion in assets, $1.9 billion in loans, $2.1 billion in deposits, $344.4
million in shareholders' equity and $557.0 million in market capitalization.
The Company was formed 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 now exists in
northern and central Florida where banking relationships are in a state of flux
due to recent bank mergers. The Company plans to apply the same strategy, which
has proven to be successful in South Carolina, to these areas of the Florida
market. On January 13, 1999, the Company signed a definitive agreement to
acquire Citizens First National Bank ("Citizens"), a national bank headquartered
in Crescent City, Florida. At December 31, 1998, Citizens had 4 offices in
Putnam County, Florida and surrounding areas and total assets of approximately
$57 million. The purchase price is approximately $12 million, payable in the
form of the Company's $1.00 par value common stock ("Common Stock"). On March
18, 1999, the Company signed a definitive agreement to acquire Citrus Bank, a
Florida state-chartered bank headquartered in Orlando, Florida. At December 31,
1998, Citrus Bank had 8 offices in the Orlando, Florida area and total assets of
approximately $228 million. The purchase price is approximately $77.5 million,
payable in the form of Common Stock. Both acquisitions will be accounted for
using the pooling-of-interests method of accounting. In addition, following the
completion of the Citizens acquisition, Citizens will file a regulatory
application to open a de novo branch location in Jacksonville, Florida. After
the completion of these acquisitions and the opening of the Jacksonville branch,
the Company's Florida locations will
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operate as Citrus Bank, a wholly-owned subsidiary of the Company, and will serve
as a platform to build the Company's Florida bank.
The Company currently serves four principal market areas: 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);
Georgetown and Horry counties (located in the northern Coastal region of South
Carolina); and the Charleston metropolitan area (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. The Company also has
branch locations in other counties in South Carolina.
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 through 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. Approximately half of the Company's total deposits have been
generated through acquisitions. See "Acquisitions and Dispositions."
At December 31, 1998, the Company owned 1,175,000 shares of Net.B@nk,
Inc. ("Net.B@nk") common stock, or approximately 19% of its outstanding shares.
These shares are carried on the Company's books at a basis of approximately
$979,000. Net.B@nk owns and operates Net.B@nk, F.S.B. (which changed its name
from Atlanta Internet Bank, F.S.B.), an FDIC-insured Federal savings bank that
provides banking services to consumers utilizing the Internet. Under the terms
of the OTS's regulatory ruling on Net.B@nk in 1997, certain affiliates of
Net.B@nk, including the Company, may not sell their shares in Net.B@nk until
July 31, 2000. On January 8, 1999, the OTS granted the Company permission to
sell or transfer 370,000 shares in order to reduce its ownership to less than
10%.
In January 1999, the Company formed Carolina First Foundation, a
non-profit corporation organized for charitable purposes, and contributed
290,000 shares of Net.B@nk, Inc. common stock to Carolina First Foundation. In
February 1999, the Company contributed capital in the form of 30,000 shares of
Net.B@nk, Inc. to Carolina First Guaranty Reinsurance, Ltd., a company which
will be engaged in the reinsurance of credit insurance offered to customers of
the Company's banking subsidiaries.
On February 10, 1999, the Company and its wholly-owned subsidiary,
Carolina First Guaranty Reinsurance, Ltd., sold 50,000 shares and 30,000 shares,
respectively, of Net.B@nk, Inc. common stock at a net price of $43.47 per share
in connection with Net.B@nk's secondary public offering. In addition, Carolina
First Foundation sold 290,000 shares of Net.B@nk, Inc. common stock at a net
price of $43.47 per share in connection with Net.B@nk's secondary public
offering. After this sale and transfers, the Company owned 805,000 shares, or
9.4% of Net.B@nk's outstanding common stock, and was the largest shareholder.
At December 31, 1998, the Company (through its subsidiary CF Investment
Company) owned 2,528,366 shares of common stock of Affinity Technology Group,
Inc. ("Affinity") and a warrant to purchase an additional 3,471,340 shares for
approximately $0.0001 per share ("Affinity Warranty"). These Affinity shares and
the shares represented by the Affinity Warrant constitute
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approximately 18% of Affinity's outstanding common stock. The investment in
Affinity's common stock, which is included in securities available for sale and
has a basis of approximately $160,000, was recorded at its market value of
approximately $1.6 million. The Affinity Warrant was not reported on the
Company's balance sheet as of December 31, 1998. Affinity develops and markets
technologies, including automated lending machines, that enable financial
institutions and other businesses to provide consumer financial services
electronically.
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 law.
Carolina First Bank
Carolina First Bank engages in a general banking business through 67
branches in 44 communities in 20 South Carolina counties. Carolina First Bank's
focus is on commercial, consumer and mortgage lending to customers 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 short and medium-term loans, mortgage loans,
revolving credit arrangements, inventory and accounts receivable financing,
equipment financing, real estate lending, credit card loans, safe deposit
services, savings accounts, interest- and noninterest-bearing checking accounts
and installment and other personal loans. Carolina First Bank also provides
trust services, investment products and various cash management programs. Its
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 has contributed approximately $500
million in commercial loans to the REIT (which constitutes substantially all of
the assets of the REIT).
CF Mortgage
On September 30, 1993, the Company acquired First Sun Mortgage
Corporation (subsequently renamed Carolina First Mortgage Company). CF Mortgage
is engaged primarily in originating, underwriting and servicing one-to-four
family residential mortgage loans. CF Mortgage also buys or 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 six offices in South Carolina. Mortgage loan applications
are forwarded to CF Mortgage's headquarters in Columbia for processing in
accordance with GNMA, FNMA and other applicable guidelines. During 1998, 2,284
mortgage loans totaling $278 million were originated. The Company generally
sells all conforming fixed rate mortgage loans into the secondary market.
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CF Mortgage's mortgage servicing operations consist of servicing loans
that are owned by Carolina First Bank, Carolina First Bank, F.S.B. and
subservicing loans, to which the right to service is owned by Carolina First
Bank, Carolina First Bank, F.S.B. and other non-affiliated financial
institutions. This servicing operation is conducted at its headquarters located
in Columbia, South Carolina. At December 31, 1998, CF Mortgage was servicing
approximately 23,224 loans having an aggregate principal balance of
approximately $2.0 billion.
Blue Ridge
On December 29, 1995, the Company completed its acquisition of Blue
Ridge, a consumer finance company headquartered in Greenville, South Carolina.
Blue Ridge operates from one location and, at December 31, 1998, had
approximately $18 million in total assets. Blue Ridge is engaged primarily in
indirect automobile lending.
Resource Processing Group, Inc.
On June 1, 1998, the Company acquired Resource Processing Group, Inc.
("RPGI"), a credit card origination and servicing company headquartered in
Columbia, South Carolina. RPGI operates from one location and, at December 31,
1998, was servicing approximately $130 million in credit card receivables.
Carolina First Bank, F.S.B.
Carolina First Bank, F.S.B. is a Federal savings bank and a
wholly-owned subsidiary of the Company. It currently engages in the thrift
business through two locations, which are located in Greenville and York
counties in South Carolina. At December 31, 1998, Carolina First Bank, F.S.B.
had total assets of approximately $108.7 million, total loans of approximately
$58.4 million and total deposits of approximately $77.5 million. Its deposits
are insured by the FDIC.
CF Investment Company
In September 1997, CF Investment became licensed through the Small
Business Administration to operate as a Small Business Investment Company. CF
Investment Company's principal focus is investing in companies that have a
bank-related technology or service that the Company and its subsidiaries can
use. In 1997, the Company capitalized CF Investment with a contribution of $3.0
million. As of December 31, 1998, CF Investment Company had invested
approximately $2 million in companies specializing in electronic document
management, Internet development and credit decision systems. In March 1999, CF
Investment sold its ownership interest in Corporate Solutions International,
which had a basis of $500,000 and was made in July 1998, and realized a gain of
approximately $432,000.
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Acquisitions and Dispositions
The Company began its operations with the de novo opening of Carolina
First Bank in Greenville and has pursued a strategy of growth through internal
expansion and through the acquisition of branch locations and financial
institutions in selected market areas. The most significant acquisitions include
the following:
Total Assets
Acquisition Date Acquired
- ----------- ---- --------
First Federal Savings and Loan August 1990 $118 million
Association of Georgetown
Georgetown, South Carolina
Republic National Bank March 1993 $190 million in deposits
(12 branch locations) $29 million in loans
Columbia, South Carolina
Republic National Bank April 1994 $135 million in deposits
(6 branch locations) $37 million in loans
Aiken County National Bank April 1995 $39 million
Aiken, South Carolina
Midlands National Bank June 1995 $44 million
Prosperity, South Carolina
Blue Ridge Finance Company, Inc. December 1995 $4 million
Greenville, South Carolina
Lowcountry Savings Bank, Inc. July 1997 $80 million
Mt. Pleasant, South Carolina
First Southeast Financial Corporation November 1997 $350 million
Anderson, South Carolina
Resource Processing Group, Inc. June 1998 $15 million
Columbia, South Carolina
First National Bank of Pickens County September 1998 $121 million
Easley, South Carolina
Poinsett Financial Corporation September 1998 $89 million
Travelers Rest, South Carolina
Colonial Bank of South Carolina, Inc. October 1998 $61 million
Camden, South Carolina
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Pending Acquisitions. In January 1999, the Company signed a definitive
agreement to acquire Citizens First National Bank, headquartered in Crescent
City, Florida. At December 31, 1998, Citizens had 4 offices in Putnam County,
Florida and surrounding areas and total assets of approximately $57 million. The
purchase price is approximately $12 million, payable in the form of Common
Stock. On March 18, 1999, the Company signed a definitive agreement to acquire
Citrus Bank, a Florida state-chartered bank headquartered in Orlando, Florida.
At December 31, 1998, Citrus Bank had 8 offices in the Orlando, Florida area and
total assets of approximately $228 million. The purchase price is approximately
$77.5 million, payable in the form of Common Stock.
Dispositions. The Company has sold and may sell in the future selected
branch locations in an effort to improve the efficiency of its branch network
and to concentrate on markets with the greatest potential. On April 6, 1997, the
Company completed the sale of five branches located in Barnwell, Blackville,
Salley, Springfield and Williston to the Bank of Barnwell County, a wholly-owned
subsidiary of Community Capital Corporation ("Community Capital"), headquartered
in Greenwood, South Carolina. In connection with this transaction, Carolina
First Bank recorded a gain of $2.3 million, sold loans of approximately $15
million and transferred deposits of approximately $55 million.
In June 1998, Carolina First Bank completed the sale of three branches
located in Belton, Calhoun Falls and Honea Path, South Carolina to two bank
subsidiaries of Community Capital. All three branches were former locations of
First Federal Savings and Loan Association of Anderson (a subsidiary of First
Southeast Financial Corporation). In connection with this sale, Carolina First
Bank sold loans of approximately $2 million and transferred deposits of
approximately $44 million.
On March 24, 1999, Carolina First Bank signed a definitive agreement to
sell three branches located in Hardeeville, Ridgeland, and Abbeville, South
Carolina with total deposits of approximately $45 million to First National
Corporation, headquartered in Orangeburg, South Carolina. The transaction is
expected to be completed during the third quarter of 1999, pending regulatory
and certain other conditions of closing.
Dividends
The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay.
In each year from 1989 through 1995, the Company issued 5% common stock
dividends to common shareholders. At its December 1996 meeting, the Board of
Directors of the Company declared a six-for-five stock split effected in the
form of a 20% common stock dividend which was issued on January 30, 1997 to
shareholders of record as of January 15, 1997. Share and per share data for all
periods presented have been retroactively restated to reflect the additional
shares outstanding resulting from the stock dividends.
In November 1993, the Board of Directors initiated a regular quarterly
cash dividend of $0.05 per share payable on the Common Stock, the first of which
was paid on February 1, 1994. Cash dividends have been paid on a quarterly basis
since the initiation of the cash dividend and have increased each year. At the
December 1998 meeting, the Board of Directors approved a $0.09 per share cash
dividend on the common stock which represents an effective annual increase of
11%. The Company presently intends to continue to pay this quarterly cash
dividend on the
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Common Stock; however, future dividends will depend upon the Company's financial
performance and capital requirements.
Competition
Each of the Company's markets is a highly competitive banking 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 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 on individuals. The Company believes it has
competed effectively in this market segment by offering quality, personal
service.
Employees
At December 31, 1998, the Company employed a total of 847 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.
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. Therefore, the Company's performance is not generally affected by the
general levels of inflation on the price of goods and services. While the
Company's noninterest income and expense and the interest rates earned and paid
are affected by the rate of inflation, the Company believes that the effects of
inflation are
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generally manageable through asset/liability management.
Industry Developments
Certain recently-enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or operations.
In February 1999, the Federal Financial Institutions Examination
Council (the "FFIEC") adopted policy changes regarding classification and
account management for retail credits, including the establishment of uniform
charge-off policies and guidelines for re-aging past due accounts. The FFIEC
policy changes should be implemented for reporting in the quarter ended June 30,
1999 for manual adjustments and the quarter ending December 31, 2000 for
programming changes. The Company anticipates making changes to its existing
procedures to comply with the FFIEC policy changes. The Company has not
determined the financial impact of adopting the new FFIEC policies, which could
have an adverse impact on the Company's operating results.
Accounting Issues
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company does not anticipate that adoption of SFAS 133 will have a material
effect on its financial instruments.
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
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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 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
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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.
Carolina First Bank, F.S.B. Carolina First Bank, F.S.B. is a
federally-chartered savings bank and is subject to regulation, supervision and
examination by the Office of Thrift Supervision ("OTS"). Carolina First Bank,
F.S.B. is a member of the Federal Home Loan Bank of Atlanta (the "FHLB"), which
provides a central credit facility primarily for member institutions. Members of
the FHLB are required to acquire and hold shares of capital stock in, and may
obtain advances from, the FHLB. Under current law, long-term advances may
generally be made only for the purpose of providing funds for residential
housing finance and must be secured by first mortgages on improved real estate,
securities representing a whole interest in such mortgages, securities issued,
insured or guaranteed by the federal government or an agency thereof, deposits
of a FHLB, or other real estate related collateral meeting certain criteria and
acceptable to the lending FHLB. Carolina First Bank, F.S.B. is also subject to
loans-to-borrower limits, which are substantially the same as those applicable
to national banks.
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Under the Home Owners' Loan Act (the "HOLA"), as amended by Federal
Deposit Insurance Corporation Improvement Act ("FDICIA"), savings associations
are required to maintain a minimum of 65% of their total portfolio assets (as
defined in the statute) in certain investments ("Qualified Thrift Investments")
on a monthly average basis in nine out of every 12 months in order to remain a
"Qualified Thrift Lender." Qualified Thrift Investments generally consist of (i)
loans that were made to purchase, refinance, construct, improve or repair
domestic residential or manufactured housing, (ii) home equity loans, (iii)
securities backed by or representing an interest in mortgages on domestic
residential or manufactured housing, (iv) obligations issued by the federal
deposit insurance agencies, and (v) shares of stock issued by any FHLB. Subject
to a 20% of assets limitation, Qualified Thrift Investments also include
consumer loans, investments in certain subsidiaries, and loans for the purchase
or construction of schools, churches, nursing homes and hospitals. Qualified
Thrift Investments subject to a 200% of assets limitation include investments in
loans for low-to- moderate-income housing and certain other community-oriented
investments and shares of stock issued by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association.
A savings association that fails to become or remain a Qualified Thrift
Lender must either become a bank (other than a savings bank) or become subject
to the following restrictions on its operations: (i) the savings association may
not engage in any new activity or make any new investment, directly or
indirectly, unless such activity or investment is permissible for a national
bank; (ii) the branching powers of the institution shall be restricted to those
of a national bank; (iii) the institution shall not be eligible to obtain any
advances from the Federal Home Loan Banking System; and (iv) payment of
dividends by the institution must be subject to the rules regarding payment of
dividends by a national bank. In addition, in the event that Carolina First
Bank, F.S.B. fails to remain a Qualified Thrift Lender, a portion of its bad
debt reserve will be subject to taxation. In addition, a savings and loan
holding company must register as, and will be deemed to be, a bank holding
company with the Federal Reserve Board within one year after the savings
association should have become or ceases to be a Qualified Thrift Lender.
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, as a South Carolina-chartered bank,
Carolina First Bank is subject to legal limitations on the amount of dividends
it is permitted to pay. In particular, Carolina First Bank must receive the
approval of the South Carolina Commissioner of Banking prior to paying dividends
to the Company. Carolina First Bank, F.S.B. is restricted by the OTS on the
amount of dividends that it can pay to the Company. These restrictions require
Carolina First Bank, F.S.B. to obtain prior approval of the OTS and not pay
dividends in excess of current earnings.
11
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, noncumulative 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, 1998, the
Company was in compliance with both the risk-based capital guidelines and the
minimum leverage capital ratio.
Carolina First Bank. As a state-chartered, FDIC-insured institution
which is not a member of the Federal Reserve System, Carolina First Bank is
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,
1998, Carolina First Bank was in compliance with each of the applicable
regulatory capital requirements.
Carolina First Bank, F.S.B. Savings banks are subject to capital
requirements imposed by the OTS. Under current OTS capital standards, savings
banks must maintain "tangible" capital equal to 1.5% of adjusted total assets,
"core" capital equal to 3% of adjusted total assets and a combination of core
and "supplementary" capital, or total capital, equal to 8% of risk-weighted
assets. Notwithstanding the foregoing, all but the strongest banks are expected
to maintain a core capital ratio of 1% to 2% above the stated minimum. As of
December 31, 1998, Carolina First Bank, F.S.B. was in compliance with each of
the capital requirements imposed by the OTS.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Federal Reserve, the FDIC and the OCC have issued a joint advance
notice of proposed rulemaking, and have issued a revised proposal, soliciting
comments on a proposed framework for implementing these revisions. Under the
proposal, an institution's assets,
12
liabilities, and off-balance sheet positions would be weighted by risk factors
that approximate the instrument's price sensitivity to a 100 basis point change
in interest rates. Institutions with interest rate risk exposure in excess of a
threshold level would be required to hold additional capital proportional to
that risk. The notice also asked for comments on how the risk-based capital
guidelines of each agency may be revised to take account of concentration and
credit risk and the risk of nontraditional activities. Carolina First
Corporation cannot assess at this point the impact the proposal would have on
the capital requirements of Carolina First Corporation or its subsidiary
depository institutions.
As an FDIC-insured institution, Carolina First Bank is subject to
insurance assessments imposed by the FDIC. Under current law, the insurance
assessment to be paid by insured institutions shall be as specified in a
schedule required to be issued by the FDIC that specifies, at semiannual
intervals, target reserve ratios designed to increase the FDIC insurance fund's
reserve ratio to 1.25% of estimated insured deposits (or such higher ratio as
the FDIC may determine in accordance with the statute) in 15 years. Further, the
FDIC is authorized to impose one or more special assessments in any amount
deemed necessary to enable repayment of amounts borrowed by the FDIC from the
United States Department of the Treasury (the "Treasury Department").
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 FDICIA (see "-- Supervision and
Regulation -- Other Safety and Soundness Regulations"), and whether such
institution is considered by its supervisory agency to be financially sound or
to have supervisory concerns. In August 1995, the FDIC approved a reduction in
the insurance assessments for BIF deposits. This reduction decreased Carolina
First Bank's insurance assessment for BIF deposits from 0.26% to 0.04% of the
average assessment base. This decrease was retroactive to June 1, 1995.
Effective January 1, 1996, the insurance assessment for Carolina First Bank's
BIF deposits was set at zero (although banks pay a $2,000 annual fee). The FDIC
insurance assessment reduction applies only to BIF-insured deposits and does not
include deposits insured by the SAIF.
In connection with the merger of Carolina First Savings Bank into
Carolina First Bank and Carolina First Bank's assumption of other SAIF-insured
deposits in connection with various acquisitions, approximately 35% of Carolina
First Bank's total deposits are subject to SAIF insurance assessments imposed by
the FDIC. Through September 30, 1996, Carolina First Bank's SAIF-insured
deposits were assessed at 0.23% of the average assessment base, excluding the
special assessment. On September 30, 1996, the President signed into law
legislation requiring a special assessment to recapitalize the SAIF. This
assessment was applied at a rate of 0.657% of SAIF- insured deposits as of March
31, 1995. Banks that have acquired "Oakar" deposits before March 31, 1995 were
allowed a 20% reduction to the assessment base. The result for Carolina First
Bank was a charge of $1.2 million pre-tax ($746,000 after-tax) based on
approximately $223 million of SAIF deposits. The legislation also changed future
annual assessment rates for both BIF-insured deposits and SAIF-insured deposits.
For 1998 through 1999, the annual assessment rates will be 0.0129% for
BIF-insured deposits and 0.0644% for SAIF-insured deposits.
13
Acquisitions of Bank Holding Companies, Savings and Loan Holding Companies,
Banks and Savings Associations
As a result of the Company's ownership of Carolina First Bank, F.S.B.,
the Company is also a registered savings and loan holding company under the
HOLA. Accordingly, the Company is subject to regulation and examination by the
OTS. The Company is required to obtain OTS approval prior to acquiring directly
or indirectly more than 10% of the voting shares of, or otherwise obtaining
control (as defined in the relevant OTS regulations) over, another savings
association or holding company thereof. (According to applicable law, the term
"savings association" includes a federally-chartered savings bank.) In
considering an application by a savings and loan holding company such as the
Company to acquire a savings association, the OTS is required to consider the
financial and managerial resources (including the competence, experience and
integrity of the officers, directors and principal shareholders) and future
prospects of the holding company and the savings association, the effect of the
acquisition on the association, the insurance risk to the SAIF or the BIF, the
convenience and needs of the communities to be served, and whether the
acquisition would result in a monopoly or otherwise would substantially lessen
competition in the relevant market.
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
Carolina First Bank, F.S.B. 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. The regulations provide that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" are the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions of FDICIA (as described in the
previous paragraph). Carolina First Corporation does not believe that these
regulations will have a material adverse effect on its current operations.
Other FDICIA Regulations. To facilitate the early identification of
problems, FDICIA
14
required the federal banking agencies to review and, under certain
circumstances, prescribe more stringent accounting and reporting requirements
than those required by generally accepted accounting principles. The FDIC has
issued final regulations implementing those provisions. The rule, among other
things, requires that management report on the institution's responsibility for
preparing financial reporting and compliance with designated laws and
regulations concerning safety and soundness.
FDICIA required each of the federal banking agencies to develop
regulations addressing certain safety and soundness standards for insured
depository institutions (such as Carolina First Bank) and depository institution
holding companies (such as Carolina First Corporation), including operational
and managerial standards, asset quality, earnings and stock valuation standards,
as well as compensation standards (but not dollar levels of compensation). Each
of the federal banking agencies has issued a joint notice of proposed
rulemaking, which requested comment on the implementation of these standards.
The proposed rule sets forth general operational and managerial standards in the
areas of internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation fees and benefits. The proposed rule also establishes a maximum
ratio of classified assets to capital, and requires institutions to meet minimum
capital standards as a measure of whether such institutions have minimum
earnings sufficient to absorb losses without impairing capital. Finally, the
proposed rule would define compensation as excessive if it is unreasonable or
disproportionate to the services actually performed. Bank holding companies
would not be subject to the standards on compensation. The proposal contemplates
that each federal agency would determine compliance with these standards through
the examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. Carolina
First Corporation has not yet determined the effect the proposed rule would have
on its operations and the operations of its depository institution subsidiary if
it is adopted substantially as proposed.
In December 1996, the FFIEC 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.
Community Reinvestment Act
Carolina First Bank and Carolina First Bank, F.S.B. 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
15
considered in evaluating mergers, acquisitions and applications to open a branch
or facility. Carolina First Bank received an "outstanding" rating in its most
recent evaluation. Carolina First Bank, F.S.B. has not been evaluated since it
was acquired in September 1998.
The current CRA assessment system rates institutions based on their
actual performance (rather than efforts) in meeting community credit needs. Each
institution is evaluated based on the degree to which it is providing loans (the
lending test), branches and other services (the service test) and investments to
low- and moderate-income areas (the investment test). Under the lending test an
institution is evaluated on its loan originations and purchases that help meet
the credit needs of its assessment area. Institutions are also judged on their
community development lending to include loans for affordable housing, community
service facilities, and economic development or revitalization projects,
provided that the loan is directed at the needs of low- to moderate-income
people or geographies. The service test evaluates a retail institution based on
the services that are readily accessible to low- and moderate-income individuals
in the institution's assessment areas. An institution is evaluated under the
investment test based on the amount of investments made that have had a
demonstrable impact on low- and moderate-income areas or persons in the
institution's assessment areas. Each depository institution reports to its
federal supervisory agency and information is made available to the public on
the geographic distribution of its loan applications, denials, originations and
purchases. Small institutions can elect to be evaluated under a streamlined
method that does not require them to report this data. All institutions,
however, 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 Carolina First Bank, F.S.B. are strongly
committed to providing credit needs to individuals in the communities that they
serve.
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
16
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
In 1986, South Carolina adopted legislation which permitted banks and
bank holding companies in certain southern states to acquire banks in South
Carolina to the extent that such other states had reciprocal legislation which
was applicable to South Carolina banks and bank holding companies. The
legislation resulted in a number of South Carolina banks being acquired by large
out-of-state bank holding companies.
South Carolina has enacted legislation which provides that out-of-state
bank holding companies (including bank holding companies in the Southern Region,
as defined under the statute) may acquire other banks or bank holding companies
having offices in South Carolina upon the approval of the South Carolina State
Board of Financial Institutions and assuming compliance with certain other
conditions, including that the effect of the transaction not lessen competition
and that the laws of the state in which the out-of-state bank holding company
filing the applications has its principal place of business permit South
Carolina bank holding companies to acquire banks and bank holding companies in
that state.
In 1996, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1996 ("Riegle-Neal Act"), which increased the
ability of bank holding companies and banks to operate across state lines. Under
the Riegle-Neal Act, the existing restrictions on interstate acquisitions of
banks by bank holding companies will be repealed one year following enactment,
such that the Company and any other bank holding company located in South
Carolina would be able to acquire a bank located in any other state, and a bank
holding company located outside South Carolina could acquire any South
Carolina-based bank, in either case subject to certain deposit percentages and
other restrictions. The legislation also provides that, unless an individual
state elects beforehand either (i) to accelerate the effective date or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate their multistate bank operations
into a single bank subsidiary and to branch interstate through acquisitions. De
novo branching by an out-of-state bank would be permitted only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state will continue to be subject to
applicable state branching laws. The Company believes that this legislation may
result in increased takeover activity of South Carolina financial institutions
by out-of-state financial institutions. However, the Company does not presently
anticipate that such legislation will have a material impact on its operations
or future plans.
The General Assembly of the State of South Carolina has adopted
legislation designed to implement the Riegle-Neal Act.
Other Regulations
Interest and certain other charges collected or contracted for by
Carolina First Bank, CF Mortgage Company, Carolina First Bank, F.S.B. and Blue
Ridge are subject to state usury laws and certain federal laws concerning
interest rates. Carolina First Bank's, CF Mortgage Company's, Carolina First
Bank, F.S.B.'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
17
disclosures of credit terms to consumer borrowers, CRA requiring financial
institutions to meet their obligations to provide for the total credit needs of
the communities they serve, including investing their assets in loans to low-
and moderate-income borrowers, the Home Mortgage Disclosure Act of 1975
requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves, the Equal
Opportunity Act prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit, the Fair Credit Reporting Act of 1978
governing the use and provision of information to credit reporting agencies, the
Fair Debt Collection Act governing the manner in which consumer debts may be
collected by collection agencies, and the rules and regulations of the various
federal agencies charged with the responsibility of implementing such federal
laws. The deposit operations of Carolina First Bank and Carolina First Bank,
F.S.B. 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.
Forward-Looking Statements
Statements included in Management's Discussion and Analysis
(incorporated by reference) and this report which are not historical in nature
are intended to be, and are hereby identified as "forward-looking statements"
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended (the "Act"). 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 within the meaning of the Act. The Company cautions
readers that forward-looking statements, including without limitation, those
relating to the Company's future business prospects, plans, objectives, future
economic performance, revenues, working capital, liquidity, capital needs,
interest costs, income or loss, income or loss per share, dividends and other
financial items are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward-looking
statements due to several important factors herein identified, among others, and
other risks and factors identified from time to time in the Company's reports
filed with the Securities and Exchange Commission.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include, but are not limited
to, the following: risks from changes in economic, monetary policy and industry
conditions; changes in interest rates; inflation; risks inherent in making loans
including repayment risks and value of collateral; fluctuations in consumer
spending; the demand for the Company's products and services; dependence on
senior management; technological changes; ability to increase market share and
control expenses; acquisitions; changes in accounting policies and practices;
costs and effects of litigation; recently-enacted or proposed legislation; and
year 2000 readiness.
Such forward-looking statements speak only as of the date on which such
statements are made, and 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.
18
ITEM 1 - STATISTICAL DISCLOSURE
Comparative Average Balances -- Yields and Costs.................................................................20
Rate/Volume Variance Analysis....................................................................................21
Securities Held for Investment Composition.......................................................................22
Securities Available for Sale Composition........................................................................22
Trading Account Composition......................................................................................22
Securities Held for Investment and Securities Available for Sale Maturity Schedule...............................23
Loan Portfolio Composition.......................................................................................24
Loan Maturity and Interest Sensitivity...........................................................................24
Nonperforming Assets.............................................................................................25
Summary of Loan Loss Experience..................................................................................25
Composition of Allowance for Loan Losses.........................................................................26
Types of Deposits................................................................................................27
Certificates of Deposit Greater than $100,000....................................................................27
Return on Equity and Assets......................................................................................28
Short-Term Borrowings............................................................................................29
Interest Rate Sensitivity........................................................................................30
Noninterest Income...............................................................................................31
Noninterest Expense..............................................................................................31
19
Comparative Average Balances -- Yields and Costs
(dollars in thousands)
Years Ended December 31,
-------------------------------------------------------------
1998
-------------------------------------------------------------
Average/ Income/ Yield/ Average/
Balance Expense Rate Balance
------- ------- ---- -------
ASSETS
Earning assets
Loans (net of unearned income)(1).............$ 1,633,812 $ 151,989 9.30% $ 1,286,503
Investment securities (taxable)............... 345,487 21,497 6.22 210,558
Investment securities (nontaxable) (2)........ 37,038 2,556 6.90 31,165
Federal funds sold and resale agreements...... 70,300 3,562 5.07 -----
Interest-bearing bank balances................ 38,492 2,166 5.63 18,010
----------- ----------- -----------
Total earning assets...................... 2,125,129 181,770 8.55% 1,546,236
----------- ----------- -----------
Non-earning assets............................ 237,819 155,722
Total assets..............................$ 2,362,948 $ 1,701,958
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking...........................$ 389,262 $ 13,862 3.56% $ 216,126
Savings..................................... 75,473 1,974 2.61 56,773
Money market................................ 195,631 8,189 4.19 186,601
Certificates of deposit..................... 899,056 51,049 5.68 649,393
Other....................................... 107,967 6,360 5.89 61,822
----------- ----------- -----------
Total interest-bearing deposits........... 1,667,389 81,434 4.88% 1,170,715
Short-term borrowings........................ 121,868 6,488 5.32 169,220
Long-term borrowings......................... 48,719 3,818 7.84 27,550
----------- ----------- -----------
Total interest-bearing liabilities.......... 1,837,976 91,740 4.99% 1,367,485
----------- ----------- -----------
Non-interest bearing liabilities
Non-interest bearing deposits............... 234,178 197,504
Other non-interest liabilities.............. 21,850 13,611
----------- -----------
Total liabilities........................... 2,094,004 1,578,600
----------- -----------
Shareholders' equity............................ 268,944 123,358
Total liabilities and shareholders' equity....$ 2,362,948 $ 1,701,958
=========== ===========
Net interest margin............................ $ 90,030 4.24%
============
------------------------------------------------------------
1997 1996
------------------------------------------------------------
Income/ Yield/ Average/ Income/ Yield/
Expense Rate Balance Expense Rate
------- ---- -------
ASSETS
Earning assets
Loans (net of unearned income)(1)............. $ 120,385 9.36% $ 1,085,680 $103,040 9.49%
Investment securities (taxable)............... 12,824 6.09 187,485 10,959 5.85
Investment securities (nontaxable) (2)........ 2,225 7.14 26,897 1,889 7.02
Federal funds sold and resale agreements...... ----- --- 10,112 676 6.69
Interest-bearing bank balances................ 1,051 5.84 10,484 633 6.04
---------- ---------- --------
Total earning assets...................... 136,485 8.83% 1,320,658 117,197 8.87%
---------- ---------- --------
Non-earning assets............................ 160,036
Total assets.............................. $ 1,480,694
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking........................... $ 6,665 3.08% $ 157,596 $ 3,897 2.47%
Savings..................................... 1,600 2.82 62,529 1,772 2.83
Money market................................ 7,940 4.26 192,026 8,071 4.20
Certificates of deposit..................... 37,023 5.70 563,773 31,923 5.66
Other....................................... 3,692 5.97 50,566 2,986 5.91
---------- ---------- --------
Total interest-bearing deposits........... 56,920 4.86% 1,026,490 48,649 4.74%
Short-term borrowings........................ 9,488 5.61 158,294 8,657 5.47
Long-term borrowings......................... 2,592 9.41 26,356 2,495 9.47
---------- ---------- --------
Total interest-bearing liabilities.......... 69,000 5.05% 1,211,140 59,801 4.94%
---------- ---------- --------
Non-interest bearing liabilities
Non-interest bearing deposits............... 154,261
Other non-interest liabilities.............. 16,107
----------
Total liabilities........................... 1,381,508
----------
Shareholders' equity............................ 99,186
Total liabilities and shareholders' equity.... $ 1,480,694
==========
Net interest margin............................ $ 67,485 4.36% $ 57,396 4.35%
============ ========
- ---------------------------------
(1)Includes nonaccruing loans.
(2)Fully tax-equivalent basis at a 35% tax rate.
Note: Average balances are derived from daily balances.
20
Rate/Volume Variance Analysis
(dollars in thousands)
1998 Compared to 1997 1997 Compared to 1996
------------------------------------ -------------------------------------
Total Change in Change in Total Change in Change in
Change Volume Rate Change Volume Rate
Earning assets
Loans, net of unearned income ........ $ 31,604 $ 32,313 $ (709) $ 17,345 $ 18,811 $ (1,466)
Securities, taxable .................. 8,673 8,390 283 1,865 1,391 474
Securities, nontaxable ............... 331 407 (76) 336 304 32
Federal funds sold ................... 3,562 3,562 0 (676) (676) 0
Interest-bearing bank balances ....... 1,115 1,154 (39) 418 440 (22)
-------- -------- -------- -------- -------- --------
Total interest income ...... 45,285 45,826 (541) 19,288 20,270 (982)
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities
Interest-bearing deposits
Interest checking ................. 7,197 6,032 1,165 2,768 1,662 1,106
Savings ........................... 374 496 (122) (172) (162) (10)
Money market ...................... 249 380 (131) (131) (230) 99
Certificates of deposit ........... 14,026 14,177 (151) 5,100 4,880 220
Other ............................. 2,668 2,719 (51) 706 672 34
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits 24,514 23,804 710 8,271 6,822 1,449
Short-term borrowings ................... (3,000) (2,542) (458) 831 609 222
Long-term borrowings .................... 1,226 1,718 (492) 97 112 (15)
-------- -------- -------- -------- -------- --------
Total interest expense ..... 22,740 22,980 (240) 9,199 7,543 1,656
-------- -------- -------- -------- -------- --------
Net interest income ..... $ 22,545 $ 22,846 $ (301) $ 10,089 $ 12,727 $ (2,638)
======== ========= ========= ======== ======== =========
Note: Changes which are not solely attributable to volume or rate have been
allocated to volume and rate on a pro-rata basis.
21
Securities Held for Investment Composition
(dollars in thousands)
December 31, (at amortized cost)
---------------------------------------
1998 1997 1996
---- ---- ----
U.S. Treasury securities.................................................... $ 0 $ 0 $ 0
Obligations of U.S. Government agencies and corporations.................... 0 0 0
Obligations of states and political subdivisions............................ 49,047 33,503 29,113
Other securities............................................................ 300 352 352
---------- ---------- --------
$ 49,347 $ 33,855 $ 29,465
========== ========== ========
Securities Available for Sale Composition
(dollars in thousands)
December 31, (at fair value)
---------------------------------------
1998 1997 1996
---- ---- ----
U.S. Treasury securities.................................................... $ 8,409 $ 102,261 $ 167,430
Obligations of U.S. Government agencies and corporations.................... 343,414 140,197 39,234
Other securities............................................................ 43,317 19,871 7,225
---------- ---------- --------
$ 395,140 $ 262,329 $ 213,889
========== ========== ========
Trading Account Composition
(dollars in thousands)
December 31, (at fair value)
---------------------------------------
1998 1997 1996
---- ---- ----
U.S. Treasury and Government agencies....................................... $ 3,411 $ 2,196 $ 1,990
State and political subdivisions............................................ 132 153 15
---------- ---------- --------
$ 3,543 $ 2,349 $ 2,005
========== ========== ========
22
Securities Held for Investment and
Securities Available for Sale Maturity Schedule
(dollars in thousands)
Held for Investment -- Amortized Cost
--------------------------------------------------------------------------------------
After One After Five
But But No
Within Within Within After Contractual
One Year Five Years Ten Years Ten Years Maturity Total
U.S Treasury................................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
U.S. Government agencies
and corporations.......................... 0 0 0 0 0 0
States and political subdivisions............ 6,553 24,594 13,348 4,552 0 49,047
Other securities............................. 0 0 0 300 0 300
-------- -------- --------- --------- ------- --------
$ 6,553 $ 24,594 $ 13,348 $ 4,852 $ 0 $ 49,347
======== ======== ========= ========= ======= ========
Weighted average yield
U.S Treasury................................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00 %
U.S. Government agencies
and corporations.......................... 0.00 0.00 0.00 0.00 0.00 0.00
States and political subdivisions............ 4.07 4.36 4.61 4.61 0.00 4.41
Other securities............................. 0.00 0.00 0.00 1.67 0.00 1.67
-------- -------- --------- --------- ------- --------
4.07% 4.36% 4.61% 4.43% 0.00% 4.40 %
======== ======== ========= ========= ======= ========
Available for Sale -- Fair Value
---------------------------------------------------------------------------------
After One After Five
But But No
Within Within Within After Contractual
One Year Five Years Ten Years Ten Years Maturity Total
U.S Treasury................................. $ 2,410 $ 5,999 $ 0 $ 0 $ 0 $ 8,409
U.S. Government agencies
and corporations.......................... 2,215 84,523 256,250 426 0 343,414
States and political subdivisions............ 0 0 0 0 0 0
Other securities............................. 20,032 759 6,038 0 16,488 43,317
-------- -------- --------- -------- -------- --------
$ 24,657 $ 91,281 $ 262,288 $ 426 $ 16,488 $395,140
======== ======== ========= ======== ======== ========
Weighted average yield
U.S Treasury................................. 4.69% 4.59% 0.00% 0.00% 0.00% 4.62%
U.S. Government agencies
and corporations.......................... 5.75 6.08 6.40 9.51 0.00 6.32
States and political subdivisions............ 0.00 0.00 0.00 0.00 0.00 0.00
Other securities............................. 5.51 5.32 5.98 0.00 3.40 4.77
-------- -------- --------- -------- -------- --------
5.45% 5.98% 6.39% 9.51% 3.40% 6.11%
======== ======== ========= ======== ======== ========
23
Loan Portfolio Composition
(dollars in thousands)
December 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Commercial, financial and agricultural....... $ 280,552 $ 225,021 $ 196,206 $ 188,255 $ 179,876
Real Estate
Construction.............................. 52,762 42,229 36,757 31,552 24,039
Mortgage
Residential.......................... 422,003 321,572 245,096 217,899 206,980
Commercial and multifamily (1)....... 703,323 516,253 378,471 234,153 275,083
Consumer..................................... 189,422 141,842 140,206 149,216 129,106
Credit cards................................. 65,266 52,525 40,480 86,901 36,954
Lease financing receivables.................. 40,450 79,597 91,321 36,740 208
Loans held for sale.......................... 112,918 235,151 10,449 125,000 71,695
------------ ------------ ------------ ------------ -----------
Total gross loans...................... 1,866,696 1,614,190 1,138,986 1,069,716 923,941
Unearned income.............................. (7,558) (11,775) (14,211) (7,056) (873)
------------ ------------ ------------ ------------ -----------
Total loans net of unearned income..... 1,859,138 1,602,415 1,124,775 1,062,660 923,068
Allowance for loan losses.................... (17,509) (16,211) (11,290) (8,661) (6,002)
------------ ------------ ------------ ------------ -----------
Total net loans........................ $ 1,841,629 $ 1,586,204 $ 1,113,485 $ 1,053,999 $ 917,066
============ ============ ============ ============ ===========
- ---------------------------------------
(1) The majority of these loans are made to operating businesses where real
property has been taken as additional collateral.
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 real estate................................ $ 317,781 $ 470,319 $ 195,775 $ 983,875
Real estate -- construction.............................. 45,375 7,387 0 52,762
Total of loans with:
Predetermined interest rates.......................... 89,520 244,180 121,265 454,965
Floating interest rates............................... 273,636 233,526 74,510 581,672
24
Nonperforming Assets
(dollars in thousands)
December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Nonaccrual loans................................. $ 753 $ 1,165 $ 960 $ 1,275 $ 2,051
Restructured loans............................... 1,283 1,283 1,909 1,085 675
---------- ---------- ----------- ----------- ----------
Total nonperforming loans.............. 2,036 2,448 2,869 2,360 2,726
Other real estate owned.......................... 3,168 1,319 3,011 2,508 1,996
---------- ---------- ----------- ----------- ----------
Total nonperforming assets............. $ 5,204 $ 3,767 $ 5,880 $ 4,868 $ 4,722
========== ========== =========== =========== ==========
Loans past due 90 days still accruing interest... $ 7,023 $ 4,125 $ 2,371 $ 2,748 $ 1,285
========== ========== =========== =========== ==========
Total nonperforming assets as a percentage
of loans and foreclosed property............. 0.28% 0.23% 0.52% 0.46% 0.51%
========== ========== =========== =========== ==========
Allowance for loan losses as a percentage
of nonperforming loans........................ 8.60x 6.62x 3.94x 3.67x 2.20x
========== ========== =========== =========== ==========
Summary of Loan Loss Experience
(dollars in thousands)
December 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ----------- ----------- ----------
Loan loss reserve at beginning of period......... $ 16,211 $ 11,290 $ 8,661 $ 6,002 $ 6,679
Purchase accounting acquisitions................. 1,822 3,550 0 128 0
Valuation allowance for loans purchased.......... 0 658 1,261 633 1,077
Charge-offs:
Commercial, financial and agricultural....... 1,810 415 335 1,201 519
Real estate - construction.................. 0 0 115 0 85
Real estate - mortgage...................... 85 362 1,475 85 263
Consumer.................................... 6,571 6,017 3,463 1,437 583
Credit cards................................ 4,309 5,325 4,072 2,536 1,641
---------- ---------- ----------- ----------- ----------
Total loans charged-off............. 12,775 12,119 9,460 5,259 3,091
---------- ---------- ----------- ----------- ----------
Recoveries:
Commercial, financial and agricultural...... 44 114 67 180 69
Real estate - construction................. 0 0 0 0 0
Real estate - mortgage..................... 0 1 7 14 9
Consumer................................... 1,037 1,071 95 114 62
Credit cards............................... 41 0 396 3 0
---------- ---------- ----------- ----------- ----------
Total loans recovered.............. 1,122 1,186 565 311 140
---------- ---------- ----------- ----------- ----------
Net charge-offs.................................. 11,653 10,933 8,895 4,948 2,951
Provision charged to expense............... 11,129 11,646 10,263 6,846 1,197
---------- ---------- ----------- ----------- ----------
Loan loss reserve at end of period............... $ 17,509 $ 16,211 $ 11,290 $ 8,661 $ 6,002
========== ========== =========== =========== ==========
Average loans.................................... $ 1,633,813 $ 1,286,503 $ 1,085,680 $ 965,632 $ 781,503
Total loans, net of unearned income (period end). 1,859,138 1,602,415 1,124,775 1,062,660 923,068
Net charge-offs as a percentage of average loans. 0.71% 0.84% 0.82% 0.51% 0.38%
Allowance for loan losses as a percentage of loans
excluding loans held for sale................. 1.00 1.19 1.01 0.92 0.71
25
Composition of Allowance for Loan Losses
(dollars in thousands)
Allowance Breakdown
December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Commercial, financial and
agricultural................................ $ 3,329 $ 2,754 $ 2,415 $ 2,287 $ 1,730
Real Estate
Construction................................ 263 255 203 151 130
Mortgage:
Residential............................... 791 358 267 233 135
Commercial and
multifamily............................ 1,663 1,359 1,218 946 581
Consumer......................................... 5,310 5,011 2,890 1,535 1,071
Credit cards..................................... 4,526 5,426 3,157 2,643 1,757
Loans held for sale.............................. 175 162 11 0 0
Unallocated (1).................................. 1,452 886 1,129 866 598
---------- -------- ------- ------------- -------
Total................................. $ 17,509 $ 16,211 $ 11,290 $ 8,661 $ 6,002
========== ======== ======= ============= =======
Percentage of Loans in Category
December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Commercial, financial and
agricultural................................ 16.07% 16.46% 17.61% 20.08% 21.13%
Real Estate
Construction................................ 3.02 3.09 3.30 3.36 2.82
Mortgage:
Residential............................... 24.17 23.52 21.99 23.23 24.31
Commercial and
multifamily............................ 40.28 37.76 33.96 24.97 32.31
Consumer......................................... 12.72 15.34 19.51 19.09 15.09
Credit cards..................................... 3.74 3.83 3.63 9.27 4.34
---------- -------- ------- ------------- -------
Total (2)............................. 100.00% 100.00% 100.00% 100.00% 100.00%
========== ======== ======= ============= =======
(1) The unallocated allowance represents amounts that have been provided by the
Company for probable losses which are inherent in the loan portfolio at
various points in time. These amounts have not been allocated in the
Company's allowance model to the specific loan categories provided.
(2) The figure used in calculating total loans excludes loans held for sale and
is net of unearned income.
26
Types of Deposits
(dollars in thousands)
Balance as of December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Demand deposit accounts.......................... $ 286,831 $ 206,938 $ 194,067 $ 160,393 $ 126,974
NOW accounts..................................... 485,382 314,994 184,450 132,063 117,271
Savings accounts................................. 90,400 74,248 57,977 66,552 94,774
Money market accounts............................ 177,350 183,032 177,665 178,662 155,695
Time deposits.................................... 790,395 736,781 474,553 403,914 371,169
Time deposits of $100,000 and
over.......................................... 294,878 230,549 192,338 177,665 135,865
------------ ----------- ----------- ---------- ----------
Total deposits.............................. $ 2,125,236 $ 1,746,542 $ 1,281,050 $ 1,095,491 $ 1,001,748
============ =========== =========== ========== ==========
Percent of Deposits as of December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Demand deposit accounts.......................... 13.50% 11.85% 15.15% 14.64% 12.68%
NOW accounts..................................... 22.84 18.04 14.40 12.06 11.71
Savings accounts................................. 4.25 4.25 4.53 6.07 9.46
Money market accounts............................ 8.34 10.47 13.87 16.31 15.54
Time deposits.................................... 37.19 42.19 37.04 36.87 37.05
Time deposits of $100,000 and
over.......................................... 13.88 13.20 15.01 16.22 13.56
------------ ----------- ----------- ---------- ----------
Total deposits.............................. 100.00% 100.00% 100.00% 100.00% 100.00%
============ =========== =========== ========== ==========
Certificates of Deposit Greater than $100,000
(dollars in thousands)
Maturing in three months or less................................................... $ 121,624
Maturing in over three through six months.......................................... 61,295
Maturing in over six through twelve months......................................... 67,988
Maturing in over twelve months..................................................... 43,971
---------
Total.................................................................... $ 294,878
=========
27
Return on Equity and Assets
Years Ended December 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Return on average assets.............................. 0.95% 0.84% 0.71% 0.74% (0.16)%
Return on average equity.............................. 8.34 11.62 10.56 10.43 (1.99)
Return on average common equity....................... 8.34 11.63 10.97 17.07 (3.08)
Average equity as a percentage of
average assets..................................... 11.38 7.25 6.70 7.11 8.27
Dividend payout ratio................................. 27.73 24.58 27.17 25.00 n/m
28
Short Term Borrowings
(dollars in thousands)
Maximum
Outstanding Average Interest
At Any Average Interest Ending Rate at
Year Ended December 31, Month End Balance Rate Balance Year End
- ----------------------- --------- ------- ---- ------- --------
1998
Federal funds purchased and
repurchase agreements.............. $ 154,065 $ 117,305 5.28% $ 154,065 4.22%
Advances from the FHLB............... 920 ---- ---- 920 5.82
Commercial paper...................... 21,198 4,422 6.15 ---- ----
Other................................. 838 141 7.75 838 7.79
------------------------ -------------------------
$ 121,868 5.32% $ 155,823 4.25%
======================== =========================
1997
Federal funds purchased and
repurchase agreements.............. $ 113,421 $ 91,289 5.33% $ 112,161 5.22%
Advances from the FHLB............... 115,000 57,407 5.84 ----- -----
Commercial paper...................... 27,254 20,370 6.25 27,254 6.33
Other................................. 324 154 7.50 324 7.55
------------------------ -------------------------
$ 169,220 5.61% $ 139,739 5.44%
======================== =========================
1996
Federal funds purchased and
repurchase agreements.............. $ 95,013 $ 80,644 5.26% $ 87,144 5.32%
Advances from the FHLB............... 115,000 64,554 5.52 40,000 6.95
Commercial paper...................... 18,558 13,067 6.29 18,016 6.40
Other................................. 29 29 7.81 29 7.72
------------------------ -------------------------
$ 158,294 5.47% $ 145,189 5.90%
======================== =========================
29
Interest Rate Sensitivity
(dollars in thousands)
Total
0-3 4-6 7-12 Within Over One Non-
Months Months Months One Year Year Sensitive Total
------ ------ ------ -------- ---- --------- -----
Assets
Earning assets
Loans, net of unearned income.................. $ 931,892 $ 86,915 $ 142,444 $ 1,161,251 $ 697,401 $ 486 $1,859,138
Investment securities, taxable................. 87,815 60,023 35,974 183,812 214,024 1,250 399,086
Investment securities, nontaxable.............. 2,499 3,399 656 6,554 42,390 0 48,944
Federal funds sold............................. 5,000 0 0 5,000 0 0 5,000
Interest bearing balances with
other banks.................................. 54,238 750 0 54,988 0 0 54,988
---------- --------- --------- ----------- --------- --------- ---------
Total earning assets............... 1,081,444 151,087 179,074 1,411,605 953,815 1,736 2,367,156
Non-earning assets, net........................... 0 0 0 0 358,778 358,778
---------- --------- --------- ----------- --------- --------- ---------
Total assets....................... $1,081,444 $ 151,087 $ 179,074 $ 1,411,605 $ 953,815 $ 360,514 $2,725,934
========== ========= ========= =========== ========= ========= =========
Liabilities and Shareholders' Equity
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest Checking....................... $ 486,295 $ 0 $ 0 $ 486,295 $ 0 $ 0 $ 486,295
Savings................................. 90,400 0 0 90,400 0 0 90,400
Money Market............................ 176,437 0 0 176,437 0 0 176,437
Certificates of Deposit................. 358,184 242,951 239,891 841,026 151,999 0 993,025
Other................................... 33,274 22,569 22,285 78,128 14,120 0 92,248
---------- --------- --------- ----------- --------- --------- ---------
Total interest-bearing deposits....... 1,144,590 265,520 262,176 1,672,286 166,119 0 1,838,405
---------- --------- --------- ----------- --------- --------- ---------
Short-term borrowings....................... 154,576 0 0 154,576 0 0 154,576
Long-term borrowings (1).................... 312 302 634 1,248 63,080 0 64,328
---------- --------- --------- ----------- --------- --------- ---------
Total interest-bearing liabilities.... 1,299,478 265,822 262,810 1,828,110 229,199 0 2,057,309
Noninterest bearing liabilities
Noninterest bearing deposits................ 0 0 0 0 0 286,831 286,831
Other noninterest bearing liabilities, net.. 0 0 0 0 0 37,431 37,431
---------- --------- --------- ----------- --------- --------- ---------
Total liabilities..................... 1,299,478 265,822 262,810 1,828,110 229,199 324,262 2,381,571
---------- --------- --------- ----------- --------- --------- ---------
Shareholders'equity............................... 0 0 0 0 0 344,363 344,363
---------- --------- --------- ----------- --------- --------- ---------
Total liabilities and shareholders'
equity............................. $1,299,478 $ 265,822 $ 262,810 $ 1,828,110 $ 229,199 $ 668,625 $2,725,934
========== ========= ========= =========== ========= ========= =========
Interest sensitive gap............................ $ (218,034) $(114,735) $ (83,736) $ (416,505) $ 724,616 $(308,111) --
Cumulative interest sensitive gap................. $ (218,034) $(332,769) $(416,505) $ (416,505) $ 308,111 -- --
(1) Long-term borrowings include the current portion of long-term debt which
is reclassified to short-term borrowings on the balance sheet.
30
Noninterest Income
(dollars in thousands)
Years Ended December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Service charges on deposits............................. $ 8,673 $ 6,997 $ 6,490 $ 5,524 $ 4,089
Loan securitization income.............................. 1,635 (545) 2,865 2,775 0
Mortgage banking income:
Origination fees..................................... 2,752 1,688 1,358 1,086 954
Gain on sale of mortgage loans....................... 910 798 34 699 112
Servicing and other.................................. 873 935 1,394 377 572
Gain on sale of mortgage servicing rights............ 0 212 107 2,943 0
Fees for trust services................................. 1,570 1,407 1,286 1,042 919
Gain on sale of branches................................ 0 2,250 0 0 0
Gain on sale of credit cards............................ 0 0 4,293 0 0
Gain on sale of securities.............................. 580 3,011 973 769 75
Sundry.................................................. 5,538 2,862 2,541 2,111 1,505
----------- ---------- --------- ---------- -------
Total noninterest income...................... $ 22,531 $ 19,615 $ 21,341 $ 17,326 $ 8,226
=========== ========== ========= ========== =======
Noninterest Expense
(dollars in thousands)
Years Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
Salaries and wages...................................... $ 25,435 $ 21,154 $ 20,573 $ 17,524 $ 15,023
Benefits................................................ 5,683 4,967 4,649 4,584 4,375
Occupancy............................................... 6,130 5,221 4,336 4,209 3,728
Furniture and equipment................................. 4,739 3,951 3,621 3,182 2,577
Other real estate owned and other losses........ 367 416 2,120 364 280
Intangibles amortization................................ 4,468 1,541 1,889 1,774 2,410
Savings Association Insurance
Fund assessment...................................... 0 0 1,184 0 0
Stationery, supplies and printing....................... 1,436 1,321 1,183 1,037 1,223
Postage................................................. 1,378 1,349 1,105 1,127 861
Advertising............................................. 736 1,647 821 1,427 959
Federal deposit insurance premiums...................... 571 494 469 1,983 2,114
Credit card solicitation charges........................ 0 0 383 1,910 0
Credit card restructuring charges....................... 0 0 0 0 12,214
Sundry.................................................. 13,901 10,182 9,342 7,761 6,075
=========== ========== ========= ========== =======
Total noninterest expense..................... $ 64,844 $ 52,243 $ 51,675 $ 46,882 $ 51,839
=========== ========== ========= ========== =======
31
ITEM 2 - PROPERTIES
At December 31, 1998, the Company conducted business through 73
locations in South Carolina. Of these locations, the Company or a subsidiary of
the Company owns 31 locations and leases 42 locations. The rental payments due
under the leases approximate market rates. Leases generally have options for
extensions under substantially the same terms as in the original lease period
with certain rate escalations. The leases generally provide that the lessee pay
property taxes, insurance and maintenance costs. At December 31, 1998, the total
net tangible book value of the premises and equipment and leasehold improvements
owned by the Company was $46,953,000. The Company believes that its physical
facilities are adequate for its current operations.
The Company's headquarters are located on Main Street in Greenville's
downtown commercial area which is currently the site of Carolina First Bank's
Greenville main office branch. The Company has temporarily relocated many
administrative functions from the Main Street location to another office
building, purchased in October 1993, with approximately 27,000 square feet in
downtown Greenville. This building also houses a trust department and a mortgage
origination office. The Company has entered into a lease agreement with an
unrelated third party to lease approximately 100,000 square feet in a building
being constructed on the property adjoining Carolina First Bank's Greenville
main office branch. This lease is expected to commence in 1999 at which time the
current downtown Greenville office building will be sold.
In 1998, the Company entered into a lease agreement with an unrelated
third party to lease approximately 65,000 square feet in a building being
constructed in downtown Columbia. This facility will accommodate the Columbia
main office branch, regional administrative offices, trust, investments and CF
Mortgage, all of which are currently being operated from buildings in downtown
Columbia, which are being leased.
ITEM 3 - LEGAL PROCEEDINGS
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.
On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, a majority of the
Company's and Carolina First Bank's directors and certain executive and other
officers. The named plaintiffs are the Company by and through certain minority
shareholders. The Company filed a motion to dismiss with respect to all claims
in this complaint, which was granted in December 1997. Plaintiffs have appealed
the dismissal. Plaintiffs allege as causes of action the following: conversion
of corporate opportunity; fraud and constructive fraud; and negligent
management. The factual basis upon which these claims are made generally
involves the payment to Company officers and other individuals of a bonus in
stock held by the Company in Affinity (as reward for their efforts in connection
with the Company's procurement of stock in Affinity), statements to former
shareholders of Midlands National Bank in connection with the Company's
acquisition of that bank, and alleged mismanagement by certain executive
officers involving financial matters. The complaint seeks damages for the
benefit of the Company aggregating $41 million and recision of the Affinity
bonus.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by solicitation
of proxies or otherwise during the fourth quarter of 1998.
32
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company has paid a cash dividend each quarter since the initiation
of cash dividends on February 1, 1994 and increased this dividend annually. At
the December 16, 1998 meeting, the Board of Directors approved a $0.09 per share
cash dividend on the common stock representing an effective annual increase of
approximately 11%. The Company presently intends to continue to pay this
quarterly cash dividend on the common stock; however, future dividends will
depend upon the Company's financial performance and capital requirements.
The Company generates cash to pay dividends primarily through dividends
paid to it by its subsidiaries. South Carolina's banking regulations restrict
the amount of dividends that may be paid from Carolina First Bank. All dividends
paid from Carolina First Bank are subject to prior approval by the South
Carolina Commissioner of Banking and are payable only from the undivided profits
of Carolina First Bank. At December 31, 1998, Carolina First Bank's retained
earnings were $53.8 million excluding the unrealized gain on securities.
However, the payments of any such dividends would be subject to receipt of
appropriate regulatory approvals. The OTS restricts the amount of dividends that
Carolina First Bank, F.S.B. can pay to the Company. These restrictions require
Carolina First Bank, F.S.B. to obtain prior approval of the OTS and not pay
dividends in excess of current earnings.
The Board of Directors declared a six-for-five stock split effected in
the form of a 20% common stock dividend, issued on January 30, 1997, to common
stockholders of record as of January 15, 1997. This dividend resulted in the
issuance of 1,870,130 shares of the Company's $1.00 par value common stock. Per
share data of prior periods have been restated to reflect this dividend.
On February 1, 1997, all outstanding shares of the Series 1993B
Cumulative Convertible Preferred Stock ("Series 1993B Preferred Stock") were
converted into the Company's Common Stock. In connection with such conversion,
the Company issued 108,341 shares of it Common 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, the Company repurchased 394,874
shares of common stock in connection with the acquisition of First National Bank
of Pickens County.
The remaining information required by this Item 5 is set forth on page
52 of the Company's 1998 Annual Report to Shareholders and is incorporated by
reference herein. As of March 12, 1999, there were 4,803 common shareholders of
record.
33
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is set forth on page 12 in the
Company's 1998 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth on pages 13 through
25 in the Company's 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth on pages 26 through
49 in the Company's 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
34
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on pages 2, 3, 4 and
17 of the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item may be found on pages 5 through
15 of the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on page 16 of the
Company's Proxy Statement for the 1999 Annual Meeting of the Shareholders and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on page 17 of the
Company's Proxy Statement for the 1999 Annual Meeting of the Shareholders and is
incorporated herein by reference.
35
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Certain documents filed as part of this Form 10-K:
1. Financial Statements
The information required by this item is set forth on pages 26 through
49 in the Company's 1998 Annual Report to Shareholders, which
information is incorporated herein by reference. The Report of
Independent Auditors, dated January 22, 1999, of KPMG Peat Marwick LLP
is included on page 27 of the Company's 1998 Annual Report to
Shareholders, which information is incorporated herein by reference.
2. Financial Statement Schedules
All other financial statements or schedules have been omitted since the
required information is included in the consolidated financial
statements or notes thereto, or is not applicable or required.
3. Listing of Exhibits
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
3.2 -- Amended and Restated Bylaws of Carolina First Corporation, as amended
and restated as of December 18, 1996: Incorporated by reference to
Exhibit 3.1 of Carolina First Corporation's Current Report on Form 8-K
dated December 18, 1996, Commission File No. 0-15083.
4.1 -- Specimen CFC Common Stock certificate: Incorporated by reference to
Exhibit 4.1 of Carolina First Corporation's Registration Statement on
Form S-1, Commission File No. 33-7470.
4.2 -- Articles of Incorporation: Included as Exhibit 3.1.
4.2 -- Bylaws: Included as Exhibit 3.2.
4.3 -- Carolina First Corporation Amended and Restated Common Stock Dividend
Reinvestment Plan: Incorporated by reference to the Prospectus in
Carolina First Corporation's Registration Statement on Form S-3,
Commission File No. 333-06975.
4.6 -- Amended and Restated Shareholder Rights Agreement: Incorporated by
reference to Exhibit 4.1 of Carolina First Corporation's Current Report
on Form 8-K dated December 18, 1996, Commission File No. 0-15083.
4.7 -- Form of Indenture between Carolina First Corporation 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 -- Carolina First Corporation 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 -- Carolina First Corporation Employee Stock Ownership Plan:
Incorporated by reference to Exhibit 10.2 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December
31, 1991, Commission File No. 0-15083.
36
10.3 -- Carolina First Corporation 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.
10.4 -- Carolina First Corporation Salary Reduction Plan: Incorporated by
reference to Exhibit 28.1 of Carolina First Corporation's Registration
Statement on Form S-8, Commission File No. 33-25424.
10.5 -- Amended and Restated Noncompetition and Severance Agreement dated
February 21, 1996, between Carolina First Corporation and Mack I.
Whittle, Jr.: Incorporated by reference to Exhibit 10.5 of Carolina
First Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 0-15083.
10.6 -- Amended and Restated Noncompetition and Severance Agreement dated
February 21, 1996, between Carolina First Corporation and William S.
Hummers III: Incorporated by reference to Exhibit 10.6 of Carolina
First Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 0-15083.
10.7 -- Amended and Restated Noncompetition and Severance Agreement dated
February 21, 1996, between Carolina First Corporation and James W.
Terry, Jr.: Incorporated by reference to Exhibit 10.7 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December
31, 1995, Commission File No. 0-15083.
10.8 -- Noncompetition and Severance Agreement dated February 21, 1996,
between Carolina First Corporation and David L. Morrow: Incorporated by
reference to Exhibit 10.8 of Carolina First Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995, Commission File No.
0-15083.
10.9 -- Short-Term Performance Plan: Incorporated by reference to Exhibit
10.3 of Carolina First Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993, Commission File No. 0-15083.
10.10-- Carolina First Corporation Long-Term Management Performance Plan:
Incorporated by reference to Exhibit 10.11 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December
31, 1994, Commission File No. 0-15083.
10.11-- Carolina First Corporation Employee Stock Purchase Plan: Incorporated
by reference to Exhibit 99.1 from the Company's Registration Statement
on Form S-8, Commission File No. 33-79668.
10.12-- Carolina First Corporation 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.
10.13-- Pooling and Servicing Agreement dated as of December 31, 1994 between
Carolina First Bank, as Seller and Master Servicer, and The Chase
Manhattan Bank, as Trustee. Incorporated by reference to Exhibit 28.1
of Carolina First Corporation's Current Report on Form 8-K dated as of
January 24, 1995.
10.14-- 1994-A Supplement dated as of December 31, 1994 between Carolina First
Bank, as Seller and Master Servicer, and The Chase Manhattan Bank, as
Trustee. Incorporated by reference to Exhibit 28.2 of Carolina First
Corporation's Current Report on Form 8-K dated as of January 24, 1995.
10.15-- 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 Carolina First Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, Commission File No. 0-15083.
10.16-- Letter Agreement between Carolina First Corporation 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 Carolina First Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, Commission
File No. 0-15083.
37
10.17-- Office of Thrift Supervision Modification of Approval of Holding
Company Acquisition and Purchase of Assets and Assumption of
Liabilities dated July 25, 1997 between Net.B@nk, Inc. and the Office
of Thrift Supervision Regarding Restricitions on Net.B@nk, Inc. Stock.
Incorporated by reference to Exhibit 10.2 of Carolina First
Corporation's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, Commission File No. 0-15053.
10.19-- Office of Thrift Supervision Letter granting Carolina First Corporation
permission to reduce its Net.B@nk, Inc. stock holdings.
11.1 -- Computation of Per Share Earnings.
12.1 -- Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends.
13.1 -- 1998 Annual Report to Shareholders of the Company.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP.
(b) None.
(c) Exhibits required to be filed with this Form 10-K by Item 601 of
Regulation S-K are filed herewith or incorporated by reference herein.
(d) Certain additional financial statements. Not applicable
38
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.
CAROLINA FIRST CORPORATION
Signature Title Date
- --------- ----- ----
/s/Mack I. Whittle, Jr. President, Chief March 17, 1999
- ------------------------------- Executive Officer and Director
Mack I. Whittle, Jr.
/s/William S. Hummers III Executive Vice President and March 17, 1999
- -------------------------------- Secretary
William S. Hummers III (Principal Accounting and
Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/William R. Timmons, Jr. Chairman March 17, 1999
- --------------------------------
William R. Timmons, Jr.
/s/Mack I. Whittle, Jr. Director March 17, 1999
- --------------------------------
Mack I. Whittle, Jr.
/s/William S. Hummers III Director March 17, 1999
- --------------------------------
William S. Hummers III
/s/Judd B. Farr Director March 17, 1999
- --------------------------------
Judd B. Farr
/s/C. Claymon Grimes, Jr. Director March 17, 1999
- --------------------------------
C. Claymon Grimes, Jr.
- -------------------------------- Director March 17, 1999
M. Dexter Hagy
/s/Vernon E. Merchant, Jr. Director March 17, 1999
- --------------------------------
Vernon E. Merchant, Jr.
/s/William R. Phillips Director March 17, 1999
- --------------------------------
William R. Phillips
/s/H. Earle Russell, Jr. Director March 17, 1999
- --------------------------------
H. Earle Russell, Jr.
/s/Charles B. Schooler Director March 17, 1999
- -------------------------------
Charles B. Schooler
39
- -------------------------------- Director March 17, 1999
Elizabeth P. Stall
/s/Eugene E. Stone IV Director March 17, 1999
- --------------------------------
Eugene E. Stone IV
/s/David C. Wakefield Director March 17, 1999
- --------------------------------
David C. Wakefield III
40
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.19 OTS Letter granting Carolina First Corporation permission to reduce
Net.B@nk, Inc. stock holdings.
11.1 Computation of Per Share Earnings.
12.1 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.
13.1 1998 Annual Report to Shareholders of the Company.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
41