Annual Report (Form 10-K), fiscal year 1994

ITEM 1 - BUSINESS
The Company
Carolina First Corporation (the "Company") is a bank holding company headquartered in Greenville, South Carolina. At December 31, 1994, it operated through three subsidiaries: Carolina First Bank , a state-chartered bank headquartered in Greenville, South Carolina (the"Bank"); Carolina First Savings Bank, F.S.B., a federally-chartered savings bank headquartered in Georgetown, South Carolina (the"Savings Bank"); and Carolina First Mortgage Company, a South Carolina corporation headquartered in Columbia, South Carolina (the "Mortgage Company"). On February 3, 1995, the Company completed the merger of the Savings Bank into the Bank. 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, which commenced banking operations in December 1986, currently conducts business through 46 locations in South Carolina. At December 31, 1994, the Company had approximately $1.1 billion in assets, $865.9 million in loans, $925.4 million in deposits and $79.0 million in shareholders' equity.
The Company was formed principally in response to perceived 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 targets individuals and small- to medium-sized businesses in South Carolina that require a full range of quality banking services.
The Company currently serves three principal market areas: the Greenville metropolitan area 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); and Georgetown and Horry counties (located in the Coastal region of South Carolina). The Company's principal market areas represent three of the four largest Metropolitan Statistical Areas in the state. In April 1994, the Company entered the Charleston market, the second largest Metropolitan Statistical Area in the state, with the purchase of the insured deposits of Citadel Federal Savings and Loan Association ("Citadel Federal"). The Company also has branch locations in other counties in South Carolina.
The Company began its operations with the de novo opening of the 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. Its more significant acquisitions include the acquisition in August 1990 of First Federal Savings and Loan Association of Georgetown (subsequently renamed Carolina First Savings Bank) and the acquisition in March 1993 of 12 branch locations of Republic National Bank. Approximately half of the Company's total deposits have been generated through acquisitions.
The Bank
The Bank engages in a general banking business through 43 branches in 30 communities in 14 South Carolina counties. On February 3, 1995, the Savings Bank was merged into the Bank, increasing the number of Bank branch locations from 30 to 43. The Bank's primary focus is on commercial and consumer lending to customers in its market areas, with mortgage lending being of secondary emphasis. It also provides demand transaction accounts to businesses and individuals. Since the acquisition of the Mortgage Company in 1993, all of the Bank's mortgage origination activities have been performed by the Mortgage Company.
The 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, safe deposit services, savings accounts, interest- and noninterest-bearing checking accounts and installment and other personal loans. The Bank also provides trust services and various cash management programs.
The Mortgage Company
On September 30, 1993, the Company acquired First Sun Mortgage Corporation (subsequently renamed Carolina First Mortgage Company). The Mortgage Company is engaged primarily in originating, underwriting and servicing one-to-four family residential mortgage loans.
The Mortgage Company's mortgage loan origination operation is conducted principally through eight offices in South Carolina. Mortgage loan applications are forwarded to the Mortgage Company's headquarters in Columbia for processing in accordance with GNMA, FNMA and other applicable guidelines. Beginning in the third quarter of 1992, the Company expanded the activities of its mortgage loan operations and began self-funding the loans through the Savings Bank, now the Bank, prior to sale in the secondary market. With the acquisition of the Mortgage Company, substantially all of the Bank's mortgage loan origination activity was transferred to the Mortgage Company. During 1994, 1,062 mortgage loans totaling $108 million were originated. The Company's intention is to sell all conforming fixed rate mortgage loans into the secondary market.
The Mortgage Company's mortgage servicing operations consist of servicing loans that are owned by the Bank and subservicing loans, to which the right to service is owned by the Bank and other non-affiliated financial institutions. This servicing operation is conducted at its headquarters location in Columbia, South Carolina. At December 31, 1994, the Mortgage Company was servicing or subservicing approximately 10,351 loans having an aggregate principal balance of approximately $800 million. The servicing portfolio includes purchased mortgage servicing rights for approximately $675 million in mortgage loans; the related intangible asset for excess and purchased mortgage servicing rights totaled $8.7 million at December 31, 1994.
As of March 31, 1995, the Company entered into an agreement with a non-affiliated company to sell the rights to service approximately $450 million (face value) of mortgage loans. This agreement is attached as an exhibit to this filing. This transaction will result in a gain of approximately $2 million and a reduction of the Company's purchased mortgage servicing rights by approximately $7 million. The Company will continue to subservice these loans until June 1995 and is actively pursuing a strategy to replace this servicing volume.
Growth Strategy and Acquisitions
Since its inception in 1986, the Company 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.
The Company has grown through acquisitions. The following discussion highlights the Company's acquisition activity during 1994.
On April 29, 1994, the Bank purchased the insured deposits of Citadel Federal from the Resolution Trust Corporation, as receiver for Citadel Federal. This acquisition resulted in the acquisition of one branch office in Charleston, South Carolina, with deposits of approximately $5.8 million, on which a premium of approximately $533,000 was paid.
On May 2, 1994, the Company acquired six branches from Republic National Bank. The acquired branches are located in Columbia, Edgefield, Johnston, Bennettsville, Lake City and McColl. In addition, the Company acquired the deposits and select loans from Republic National Bank's main office branch in Columbia, which was not acquired. With this transaction, the Company acquired loans of approximately $37.5 million and deposits of approximately $135.3 million, on which a premium of approximately $5.4 million was paid.
On October 13, 1994, the Bank entered into an agreement with Aiken County National Bank ("Aiken County National") for the merger of Aiken County National into the Bank. The Bank will acquire all the outstanding common shares of Aiken County National in exchange for approximately 453,000 shares of the Company's common stock. At year-end 1994, Aiken County National had assets of approximately $42 million, loans of $29 million and deposits of $38 million. The agreement requires that the merger be accounted for as a pooling of interests. Shareholder and regulatory approval have been received. The Company expects the acquisition to close in April 1995.
On November 14, 1994, the Bank entered into an agreement with Midlands National Bank ("Midlands") for the merger of Midlands into the Bank. The Bank will acquire all the outstanding common shares of Midlands in exchange for approximately 584,000 shares of the Company's common stock. At year end 1994, Midlands had assets of $43 million, loans of $28 million and deposits of $39 million. The agreement requires that the merger be accounted for as a pooling of interests. The acquisition requires shareholder and regulatory approval and is expected to close in the second quarter of 1995. Regulatory approval has been received.
Equity Offering and Dividends
On April 15, 1994, the Company issued 920,000 shares of 7.32% Noncumulative Convertible Preferred Stock Series 1994 ("Series 1994 Preferred Stock"), which raised approximately $21.4 million in equity.
In the first quarter of 1994, the Company instituted a quarterly cash dividend to common shareholders of $0.05 per share. As of the first quarter of 1995, the Board of Directors increased the quarterly cash dividend to $0.06 per share. On May 16, 1994, the Company issued a 5% common stock dividend to common shareholders of record as of April 29, 1994. This is the sixth consecutive year that Carolina First has issued a 5% common stock dividend.
Restructuring Charges
During the fourth quarter of 1994, the Company announced a restructuring that initiated a program of credit card securitization, wrote down related intangible assets and merged the Savings Bank into the Bank. One-time restructuring and nonrecurring charges related to this plan amounted to $12.2 million pre-tax ($9.4 million after-tax). Management expects the restructuring to increase future pre-tax income by approximately $2.8 million a year, through increased operational efficiency, lower amortization costs, and the reinvestment of the cash currently invested in the credit card portfolio.
In connection with the program of credit card securitization, the Company recorded charges of $12.2 million pre-tax, primarily from the write down of intangible assets and charges associated with the origination of credit card accounts. On January 24, 1995, the Company completed the securitization of approximately $100 million in credit card loans. The securitization transferred the credit card receivables to a trust in return for a payment equal to the principal balance of the credit cards. The Company purchased a 30% interest in the trust, and the remainder was sold to an institutional investor. Through this securitization, the Company retains an interest in a portion of the earnings from the securitized loans and at the same time received initially approximately $70 million in additional funds to make loans in its banking markets.
On February 3, 1995, the Company completed the merger of the Savings Bank into the Bank. Management believes that there will be significant economic and managerial benefits from this combination including the elimination of duplicative administration, the consolidation of regulators, the reduction of regulatory burdens and increased management focus. As part of the merger, the Company incurred income taxes of approximately $1.0 million due to the different tax treatment accorded the allowance for loan losses at the Savings Bank.
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 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, 1994, the Company employed a total of 499 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, 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.
Supervision and Regulation
General
The Company and its subsidiaries are extensively regulated under federal and state law. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws may have a material effect on the business and prospects of the Company. The operations of the Company may be affected by possible legislative and regulatory changes and by the monetary policies of the United States.
The Company. As a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), the Company is subject to regulation and supervision by the Federal Reserve. Under the BHCA, the Company's activities and those of its subsidiaries are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries or engaging in any other activity that the Federal Reserve determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The BHCA prohibits the Company from acquiring direct or indirect control of more than 5% of any class of outstanding voting stock, or substantially all of the assets of any bank, or merging or consolidating with another bank holding company without prior approval of the Federal Reserve. The BHCA also prohibits the Company from acquiring control of any bank operating outside the State of South Carolina (until September 29, 1995) unless such action is specifically authorized by the statutes of the state where the bank to be acquired is 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 and, in the case of any acquiring, assuming or resulting depository institution which is a BIF member, that such institution continues 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 continues 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 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 also is 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.
The Bank. The 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 the Bank. The FDIC has broad authority to prohibit the 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. The 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. The Bank is not a member of the Federal Reserve System.
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 holders of the Company's outstanding series of preferred stock are also entitled to receive dividends when, as and if declared by the Board of Directors in their discretion out of funds legally available therefor and as set forth in the Company's Articles of Incorporation. 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 the 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, the Bank is subject to legal limitations on the amount of dividends it is permitted to pay. In particular, the Bank must receive the approval of the South Carolina Commissioner of Banking prior to paying dividends to the Company.
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, 1994, the Company was in compliance
with both the risk-based capital guidelines and the minimum leverage capital ratio.
The Bank. As a state-chartered, FDIC-insured institution which is not a member of the Federal Reserve System, the 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, 1994, the Bank was in compliance with both the Tier 1 risk-based capital guidelines and the minimum leverage capital ratio, but the total risk-based capital ratio was 6.70%, which was below the minimum level of 8.00%. In February 1995, after becoming aware of the capital deficiency, the Bank took corrective actions and exceeded the adequately capitalized standards as of the end of February. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources."
Insurance
As an FDIC-insured institution, the 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, having assessments ranging from 0.23% to 0.31% of an institution's average assessment base. The actual assessment to be paid by each FDIC-insured institution is based on the institution's assessment risk classification, which 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 S o u ndness Regulations"), and whether such institution is considered by its supervisory agency to be financially sound or to have supervisory concerns. The current risk-based assessment schedule is being reviewed and may be revised downward during 1995, but no final decisions have be reached. The Bank's risk- based insurance assessment currently is set at 0.26% of its average assessment base.
In connection with the merger of the Savings Bank into the Bank and the Bank's assumption of other SAIF-insured deposits in connection with various acquisitions, approximately 28% of the Bank's total deposits are subject to SAIF insurance assessments imposed by the FDIC. Under current law, the insurance assessment to be paid by SAIF-insured institutions must be the greater of 0.15% of the institution's average assessment base (as defined) or such rate as the FDIC, in its sole discretion, determines to be appropriate to be able to increase (or maintain) the SAIF reserve ratio to 1.25% of estimated insured deposits (or such higher ratio as the FDIC may determine in accordance with the statute) within a reasonable period of time. From January 1, 1994 through December 31, 1997, the assessment rate must not be less than 0.18% of the institution's average base assessment. In each case, the assessment rate may be higher if the FDIC, in its sole discretion,
determines a higher rate to be appropriate. In addition, the FDIC has adopted for SAIF assessments the risk- based assessment schedule described above. The Bank's risk-based insurance assessment on its SAIF-insured deposits has been set at 0.23% of its average assessment base.
Community Reinvestment Act
The Bank is 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 twelve assessment factors. These factors also are considered in evaluating mergers, acquisitions and applications to open a branch or facility. The Bank received an "outstanding" rating in its most recent evaluation.
As a result of a Presidential initiative, each of the federal banking agencies has issued a notice of proposed rulemaking that would replace the current CRA assessment system with a new evaluation system that would rate institutions based on their actual performance (rather than efforts) in meeting community credit needs. Under the proposal, each institution would be 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, as proposed, an institution would be evaluated on the basis of its market share of reportable loans in low- and moderate-income areas in comparison to other lenders subject to CRA in its service area, and in comparison with the institution's market share of reportable loans in other service areas. An institution would be 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 as compared to its risk-based capital. The service test would evaluate a retail institution primarily based on the percentage of its branches located in, or that are readily accessible to, low- and moderate-income areas. Each depository institution would have to report to its federal supervisory agency and make available to the public data on the geographic distribution of its loan applications, denials, originations and purchases. Small institutions could elect to be evaluated under a streamlined method that would not require them to report this data. All institutions, however, would receive one of five ratings based on their performance: Outstanding, High Satisfactory, Low Satisfactory, Needs to Improve or Substantial Noncompliance. An institution that received a rating of Substantial Noncompliance would be subject to enforcement action. The Company currently is studying the proposal and determining whether the regulation, if adopted, would require changes to the Bank's CRA action plans.
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 also are subject to certain lending limits and restrictions on overdrafts to such persons.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to the bank holding company or its nonbank subsidiary, on investments
in their securities and on the use of their securities as collateral for loans to any borrower. Such restrictions may limit the Company's ability to obtain funds from its bank subsidiary for its cash needs, including funds for acquisitions, interest and operating expenses. Certain of these restrictions are not applicable to transactions between a bank and a savings association owned by the same bank holding company, provided that every bank and savings association controlled by such bank holding company complies with all applicable capital requirements without relying on goodwill.
In addition, under the BHCA and certain regulations of the Federal Reserve, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, a subsidiary may not generally require a customer to obtain other services from any other subsidiary or the Company, and may not require the customer to promise not to obtain other services from a competitor, as a condition to an extension of credit to the customer.
Interstate Banking
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.
In July 1994, South Carolina enacted legislation which effectively provides that, after June 30, 1996, 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. Although such legislation may increase takeover activity in South Carolina, the Company does not believe that such legislation will have a material impact on its competitive position. However, no assurance of such fact may be given.
Congress recently enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which will increase the ability of bank holding companies and banks to operate across state lines. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, 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 percentage 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.
ITEM 1 - STATISTICAL DISCLOSURE
Comparative Average Balances -- Yields and Costs . . . . . . 13
Rate/Volume Variance Analysis . . . . . . . . . . . . . . . . 14
Securities Held for Investment Composition . . . . . . . . . 15
Securities Available for Sale Composition . . . . . . . . . . 15
Trading Account Composition . . . . . . . . . . . . . . . . . 15
Securities Held for Investment and Securities Available for Sale Maturity Schedule . . . . . . . . . . . . . . . . . . . . . . 16
Loan Portfolio Composition . . . . . . . . . . . . . . . . . 17
Loan Maturity and Interest Sensitivity . . . . . . . . . . . 17
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . 18
Summary of Loan Loss Experience . . . . . . . . . . . . . . . 18
Composition of Allowance for Loan Losses . . . . . . . . . . 19
Types of Deposits . . . . . . . . . . . . . . . . . . . . . . 20
Certificates of Deposit Greater than $100,000 . . . . . . . . 20
Return on Equity and Assets . . . . . . . . . . . . . . . . . 21
Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . 22
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . 23
Noninterest Income . . . . . . . . . . . . . . . . . . . . . 24
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . 24
Comparative Average Balances -- Yields and Costs (dollars in thousands)
(1)Includes nonaccruing loans. (2)Fully tax-equivalent basis at a 35% tax rate. Note: Average balances are derived from daily balances.
Rate/Volume Variance Analysis (dollars in thousands)
Note: Changes which are not solely attributable to volume or rate have been allocated to volume and rate on a pro-rata basis.
Securities Held for Investment Composition (dollars in thousands)
Securities Held for Investment and Securities Available for Sale Maturity Schedule (dollars in thousands)
Loan Portfolio Composition (dollars in thousands)
(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)
Nonperforming Assets (dollars in thousands)
Summary of Loan Loss Experience (dollars in thousands)
Composition of Allowance for Loan Losses (dollars in thousands)
Note: The breakdown is based on a number of qualitative factors and the amounts presented are not necessarily indicative of actual amounts which will be charged to any particular category.
Types of Deposits (dollars in thousands)
Certificates of Deposit Greater than $100,000 (dollars in thousands)
Return on Equity and Assets
Short Term Borrowings (dollars in thousands)
Interest Rate Sensitivity (dollars in thousands)
Noninterest Income (dollars in thousands)
Noninterest Expense (dollars in thousands)
ITEM 2



ITEM 2 - PROPERTIES
At December 31, 1994, the Company conducted business through 46 locations in South Carolina. At December 31, 1994, the total net tangible book value of the premises and equipment and leasehold improvements owned by the Company was $36,842,000. 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. The headquarters, which were built in 1900, are owned by the Company and have been substantially renovated to suit their present purposes. The Company's headquarters also serve as the Bank's headquarters. The headquarters contain approximately 160,000 square feet, of which approximately 67,000 square feet is currently being utilized by the Company. The balance of the building will be renovated as necessary to accommodate future expansion of the Company. In October 1993, the Bank purchased another office building, with approximately 27,000 square feet, in downtown Greenville, which houses the Bank's trust department, the Mortgage Company's mortgage origination offices and various administrative functions.
In February 1993, the Company entered into a lease on a 42,000 square foot building in Columbia, South Carolina. This facility houses the Company's operations center, regional administrative offices, investments division and a Columbia main office branch, which opened in September 1993. In September 1993, the Company purchased an office building in Columbia, South Carolina for its mortgage banking operations. In June 1994, the Company completed the construction of a 16,000 square foot main office branch in Myrtle Beach which serves as the regional headquarters for the coastal offices.
The Company's subsidiaries operate through 46 locations, which include the buildings described above. The Company or a subsidiary of the Company owns 16 locations and leases 30 locations. The rental payments due under the leases approximate the market rates. Leases have options for extensions under substantially the same terms as in the original lease period with certain rate escalations. The leases provide that the lessee pay property taxes, insurance and maintenance costs.
All locations of the Company and its subsidiaries are considered suitable and adequate for their intended purposes. Individually, none of the above leases are considered material.
ITEM 3

ITEM 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to various legal actions arising in the normal course of business. Such items are not expected to have any material adverse effect on the business or financial position of the Company or any of its subsidiaries.
On October 31, 1994, JW Charles Clearing Corp. filed a lawsuit against the Bank in the Court of Common Pleas in Lexington County, South Carolina. Such action, in general, claims that the Bank improperly paid approximately $600,000 in checks to Harold McCarley and/or McCarley and Associates, Inc. The complaint seeks actual and punitive damages in an amount to be determined by a jury, plus interest on the damages and other costs. The Bank has answered the complaint and plans to vigorously defend such complaint. The Bank believes that there are valid defenses available to it. In connection with the litigation, the Bank also expects to make a claim under insurance policies for any losses it may suffer which, if determined to cover the loss, could pay for substantially all of the actual damages, if any, determined to be appropriate by a jury. However, no assurance can be given at this time regarding whether it will be
determined that any losses suffered in this litigation will be covered by the insurance policy. Furthermore, the Company is not in a position at this time to assess the likely outcome of the litigation or any damages for which it may become liable.
ITEM 4

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
In November 1993, the Board of Directors announced an initial quarterly cash divided of $0.05 per share payable on the common stock, which dividend was paid on February 1, 1994. A cash dividend of $0.05 per share was paid to common shareholders each quarter in 1994. In November 1994, the Board of Directors increased the quarterly cash dividend on the common stock to $0.06 per share, which dividend was paid on February 1, 1995. The Company presently intends to continue to pay this quarterly cash dividend on the common stock and all series of preferred 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 the Bank. South Carolina's banking regulations restrict the amount of dividends that may be paid from the Bank. All dividends paid from the Bank are subject to prior approval by the S.C. Commissioner of Banking and are payable only from the undivided profits of the Bank. At December 31, 1994, the Bank's retained earnings were $5.1 million. After the merger of the Bank and the Savings Bank in February 1995, the retained earnings of the Savings Bank are also available to pay dividends to the Company. At December 31, 1994, the Savings Bank's retained earnings were $8.4 million. However, the payments of any such dividends would be subject to receipt of appropriate regulatory approvals.
The Board of Directors approved a 5% common stock dividend, issued on May 16, 1994, to common stockholders of record as of April 29, 1994. This dividend resulted in the issuance of 214,380 shares of the Company's $1.00 par value common stock. Per share data of prior periods have been restated to this dividend. This is the sixth consecutive year that the Company has issued a 5% common stock dividend.
The remaining information required by Item 5 is set forth on page 47 of the Company's 1994 Annual Report to Stockholders and is incorporated by reference herein. As of March 27, 1995, there were 1,959 common shareholders of record, 154 Series 1994 preferred shareholders of record and 199 Series 1993 preferred shareholders of record.
ITEM 6

ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years. All per share data have been restated to reflect 5% common stock dividends issued on the common stock in the last six years.
1 After fourth quarter 1994 restructuring charges of $9,415 (after tax).
ITEM 7

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS ANALYSIS
The one-time charge for the corporate restructuring (discussed above in "Business - Restructuring Charges") resulted in a net loss for 1994. The Company reported a net loss for 1994 of $1.9 million, or a loss of $0.95 per common share. The net loss for 1994 includes one-time restructuring charges of $9.4 million (after-tax). Net income for 1993 was $4.9 million, or $0.90 per common share, and 1992 net income was $2.5 million, or $0.57 per common share. Increased net interest income, growth in noninterest income and continued good credit quality were the primary reasons for the growth in earnings excluding restructuring charges.
Fully tax equivalent ("FTE") net interest income increased $15.0 million, or 55%, due to a higher level of average earning assets and an increased net interest margin. Increases in average earning assets resulted primarily from the acquisition of branches and internal growth. The net interest margin increased to 4.89% from 4.31% in 1993 and 4.06% in 1992.
Noninterest income, excluding securities transactions increased to $7.6 million, or 36%, from $5.6 million in 1993 and $2.9 million in 1992. The increase in noninterest income was attributable to higher service charges on deposit accounts, the expansion of mortgage servicing and the generation of new trust business.
Noninterest expenses increased to $50.5 million in 1994 from $25.2 million in 1993 and $16.1 million in 1992. The 1994 noninterest expenses includes one-time restructuring charges of $12.2 million. Also contributing to the increase in noninterest expenses were the acquisition of seven branches and the opening of four branches de novo, a higher level of loan and deposit activity, amortization of intangibles and higher credit card processing fees.
Net Interest Income
The largest component of Carolina First's operations is net interest income, the difference between the interest earned on assets and the interest paid for the liabilities used to support such assets. Variations in the volume and mix of assets and liabilities and their relative sensitivity to interest rate movements determine changes in net interest income. As the primary contributor to Carolina First's earnings, net interest income constituted 84% of net revenues (net interest income plus noninterest income) in 1994, compared with 81% in 1993 and 84% in 1992.
FTE net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis. The Company has experienced a markedly upward trend in FTE net interest income, which increased 55% in 1994, 51% in 1993 and 38% in 1992. FTE net interest income was $42.2 million in 1994, $27.2 million in 1993 and $18.0 million in 1992. The increase resulted from a higher level of average earning assets and an improvement in the net interest margin. The growth in average earning assets, which increased to $861.6 million in 1994 from $630.8 million in 1993 and $442.5 in 1992, resulted primarily from internal loan growth and the acquisition of branches. The majority of this increase was in loans, which averaged $233.6 million higher in 1994 than 1993 and $117.1 million higher in 1993 than 1992.
The net interest margin, defined as net interest income divided by average earning assets, increased to 4.89% in 1994 from 4.31% in 1993 and 4.06% in 1992. The increase resulted primarily from lower deposit interest rates and a higher proportion of noninterest-bearing deposits. In addition, the yield on loans has risen due to increases in the prime interest rate, increased consumer loan volume from the retail branch network and increased credit card loan volume from mail solicitations.
Provision and Allowance for Loan Losses
Management maintains an allowance for loan losses which it believes is adequate to cover possible losses in the loan portfolio. However, management's judgment is based upon a number of assumptions about future events which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required.
The allowance for loan losses is established through charges in the form of a provision for loan losses and purchased loan adjustments. Loan losses and recoveries are charged or credited directly to the allowance. The amount charged to the provision for loan losses by the Company is based on management's judgment as to the amount required to maintain an allowance adequate to provide for potential losses in the Company's loan portfolio. The level of this allowance is dependent upon the total amount of past due loans, general economic conditions and management's assessment of potential losses.
The Company attempts to deal with repayment risks through the establishment of, and adherence to, internal credit policies. These policies include officer and customer limits, periodic documentation examination and follow-up procedures for any exceptions to credit policies. A summary of the Bank's approach to managing credit risk is provided below in the "Asset Quality" section.
During 1994, 1993 and 1992, the Company expensed $950,000, $909,000, and $1,453,000, respectively, through its provision for loan losses. Net loan charge-offs, excluding credit card loans, decreased to $779,000 in 1994, from $1.3 million in 1993 and $1.2 million in 1992. During 1994, net loan charge-offs as a percentage of average loans have remained low at 0.34% including credit card charge-offs, compared with 0.26% for 1993 and and 0.31% for 1992.
At December 31, 1994, the allowance for loan losses totaled $5.3 million, or 0.7% of total loans excluding loans held for sale, a decline from $5.7 million, or 1.0% of total loans, at the end of 1993. Continued reductions in nonperforming asset levels enabled the Company to reduce the allowance for loan losses compared with the prior years' levels. Nonperforming assets as a percentage of loans and foreclosed property were 0.25% and 0.28% at December 31, 1994 and 1993, respectively. At December 31, 1994, the allowance for loan losses was 312% of nonperforming loans. The Company's asset quality measures compare favorably to its FDIC peer group.
The Bank was examined in December 1993 by the FDIC, and the Savings Bank was examined in February 1994 by the OTS. No significant increases in reserves resulted from these examinations.
Noninterest Income
Noninterest income, excluding securities transactions, increased $2.0 million, or 36%, to $7.6 million in 1994, up from $5.6 million in 1993 and $2.9 million in 1992. This increase resulted principally from
service charges on deposit accounts, fees for trust services and mortgage banking servicing income. The Company realized gains on the sale of securities of $234,000, $662,000 and $517,000 in 1994, 1993 and 1992, respectively.
Service charges on deposit accounts, the largest contributor to noninterest income, rose $1.2 million, or 47%, to $3.7 million in 1994, an increase from $2.5 million in 1993 and $1.5 million in 1992. The increase in service charges is attributable to acquiring branches and new deposit accounts, increasing fee charges and improving collection rates. In 1994, average deposits increased 38%, and the number of deposit accounts rose 44%.
Mortgage banking income was $1.6 million in 1994, $1.8 million in 1993 and $1.3 million in 1992. Mortgage banking income includes origination fees, profits from the sale of loans and servicing fees (which started in 1993). Origination fees totaled $1.0 million in 1994, compared with $1.1 million in 1993 and $778,000 in 1992. During 1994, 1,062 mortgage loans totaling $108 million were originated, similar to originations of 1,063 loans for $103 million in 1993. The increase in the level of interest rates during 1994 made the origination of mortgage loans more competitive resulting in a slightly lower origination fee per loan.
Until the third quarter of 1992, mortgage loans were originated primarily for the account of correspondent financial institutions, with the Company retaining an origination fee. Beginning in the third quarter of 1992, the Company expanded the activities of its mortgage loan operations and began self-funding the loans through the Savings Bank prior to sale in the secondary market. Mortgage loans totaling approximately $55 million, $80 million and $16 million were sold in 1994, 1993 and 1992, respectively. Income from this activity totaled $112,000 in 1994, $509,000 in 1993 and $496,000 in 1992.
The Mortgage Company's mortgage servicing operations consist of servicing loans that are owned by the Bank and subservicing loans, to which the right to service is owned by the Bank and other non-affiliated financial institutions. Mortgage loans serviced are all one-to-four family residential mortgage loans. At December 31, 1994, 10,351 loans with an aggregate principal amount of $800 million were being serviced or subserviced by the Mortgage Company. Servicing and other mortgage banking income from non-affiliated companies, net of the related amortization, was $572,000 in 1994 and $228,000 in 1993.
The Company views its mortgage banking operation as a means of increasing noninterest income without increasing assets. The Company purchased the rights to service the loan portfolios to take advantage of excess capacity, thereby creating a revenue stream to more rapidly cover the fixed costs associated with its mortgage banking operations. However, the Company's long-term strategy is to have a servicing portfolio principally comprised of loans originated by the Company but which have been sold into the secondary market with servicing retained.
Subsequent to year end, the Company entered into an agreement with a non-affiliated company to sell the rights to service approximately $450 million (face value) of mortgage loans. This transaction will result in a gain of approximately $2 million and a reduction of the Company's purchased mortgage servicing rights by approximately $7 million. The Company will continue to subservice these loans until June 1995 and is actively pursuing a strategy to replace this servicing volume.
Fees for trust services in 1994 increased to $919,000, up 70% from the $542,000 earned in 1993. Fees for trust services in 1992 were $305,000. Fees for trust services increased as a result of the generation of new trust business and additional assets under management, particularly in investment management and custody accounts. Assets under management of the trust department increased to approximately $214 million at December 31, 1994, up significantly from $129 million at year end 1993 and $55 million at year end 1992.
Sundry income items were $623,000 higher in 1994, primarily because of higher customer service fees, appraisal fee income and insurance commissions. These increases are largely attributable to increased lending and deposit activity. In addition, the Company earned approximately $108,000 in 1994 real estate rental income, the majority of which is not expected to continue. In addition, earnings associated with the credit card securitization are expected to be a new source of fee income in 1995.
On August 18, 1993, the Bank entered into an investor services agreement with Edgar M. Norris & Co., Inc. ("Norris & Co."), a broker-dealer registered with the National Association of Securities Dealers, Inc., to offer certain brokerage services to the Bank's customers. Under this affiliate arrangement, the Bank offers certain brokerage services to its customers through dual employees (a Bank employee who is also employed by Norris & Co.). The commissions or mark up charges on transactions are shared between the Bank and Norris & Co. as set forth in the investor services agreement. Brokerage services activity for 1994 has been limited.
Noninterest Expense
Noninterest expenses were $50.5 million in 1994, $25.2 million in 1993 and $16.1 million in 1992. Included in 1994 noninterest expenses is a $12.2 million one-time restructuring charge associated with the credit card securitization and the write-down of other intangible assets. Excluding the restructuring charges, 1994 noninterest expenses increased 52% over 1993, while 1993 was 56% higher than 1992. The increased expenditures primarily reflect the costs of additional personnel to support the Company's current and anticipated growth.
Salaries and wages and benefits increased 53% to $17.9 million in 1994 from $11.7 million in 1993. This increase follows an increase of 62% from $7.2 million in 1992. Full-time equivalent employees rose to 499 at the end of 1994 from 430 and 228 at the end of 1993 and 1992, respectively. Staff increases were attributable to the addition of 11 banking offices, higher loan and deposit activity resulting from internal growth and acquisitions, and the expansion of the mortgage banking operations.
The 1994 occupancy and furniture and equipment expenses increased $2.1 million, or 57%, due to the addition of 11 banking offices, including a new Myrtle Beach main office, the opening of a regional headquarters office in Columbia for the Midlands region of South Carolina, the expansion of the Mortgage Company's operations and the expansion of its administrative offices in Greenville to a second location.
The 1994 restructuring charges include $12.2 million primarily from the write down of intangible assets and charges associated with the origination of credit card accounts. Management expects the restructuring of its credit card operations to increase future pre-tax income by approximately $2.3 million a year, through increased lower amortization costs and the reinvestment of the cash currently invested in the credit card portfolio.
Sundry expense items increased $4.8 million, or 49%, to $14.5 million in 1994 from $9.8 million in 1993 and $6.4 million in 1992. Three expense items-- federal insurance premiums, intangibles amortization and credit card processing fees -- accounted for approximately 46% of this increase. Federal deposit insurance premiums increased $507,000, or 36%, in 1994 to $1.9 million. This increase was primarily due to a higher levels of deposits. Intangibles amortization increased $1.6 million, or 175%, in 1994 to $2.5 million, principally as a result of intangibles relating to the acquisition of branches, credit card receivables and the Mortgage Company. Credit card processing fees increased $597,000, or 66%, to $1.5 million in 1994, principally as a result of credit card solicitations by the Company and the purchase of approximately $16.3
million in credit card receivables in June 1993 and November 1993. With the securitization of the majority of credit card loans during the first quarter of 1995, management expects credit card processing fees to decrease significantly in 1995.
Advertising and public relations expenses increased $526,000, or 136%, to $912,000 in 1994, due to the Company's statewide expansion, advertising campaigns in key markets and special deposit promotions. The remaining increase in sundry noninterest expenses was primarily attributable to the overhead and operating expenses associated with higher lending and deposit activities. The largest sundry noninterest expenses were stationery, supplies and printing, telephone, postage, and fees.
Income Taxes
The provision for income taxes in 1994 was a credit of $49,000. The provision for income taxes was $2.2 million in 1993 and $1.2 million in 1992. Income taxes for 1994 include a one- time reduction of $2.8 million from restructuring charges, partially offset by $1 million of income tax expense in connection with the merger of the Savings Bank into the Bank. The Company's effective tax rates were 30.1% (excluding the restructuring charges), 30.6%, and 31.6% in 1994, 1993 and 1992, respectively.
BALANCE SHEET ANALYSIS
Total assets at December 31, 1994 were $1.1 billion, an increase of $303.7 million, or 37%, from $816.4 million at the end of 1993. Loans increased $300.7 million, or 53%, to $865.9 million at December 31, 1994 compared with $565.2 million at December 31, 1993. Deposits at year end 1994 were $925.4 million, up 28% from $724.6 million at year end 1993. Total shareholders' equity increased 26% to $79.0 million at December 31, 1994 from $62.9 million at the end of 1993. Significant components of balance sheet growth include increases from internal loan growth, branch acquisitions and the proceeds from the Series 1994 preferred stock offering.
Average total assets in 1994 were $970.0 million, a 40% increase over the 1993 average of $695.1 million. Average earning assets were $861.6 million in 1994, a 37% increase over the 1993 level of $630.8 million. For 1992, average total assets and average earning assets were $478.3 million and $442.5 million, respectively.
Loans
The Company's loan portfolio consists principally of commercial mortgage loans, other commercial loans, consumer loans and one-to-four family residential mortgage loans. A substantial portion of these borrowers are located in South Carolina and are concentrated in the Company's market areas. The Company has no foreign loans or loans for highly leveraged transactions. The loan portfolio does not contain any concentrations of credit risk exceeding 10% of the portfolio. At December 31, 1994, the Company had total loans outstanding of $865.9 million which equaled approximately 94% of the Company's total deposits and approximately 77% of the Company's total assets. The level of total loans, relative to total deposits and total assets, has increased from the prior year. The composition of the Company's loan portfolio at December 31, 1994 was as follows: commercial and commercial mortgage 47%, residential mortgage 26%, consumer 11%, credit card 12% and construction 4%.
The Company's loans increased $300.7 million, or 53%, to $865.9 million at December 31, 1994 from $565.2 million at December 31, 1993. Of this increase, $37.5 million resulted from loans acquired in branch acquisitions. The balance was internal loan growth. This increase was net of $55.1 million of mortgage loans sold, which were predominantly current production, fixed rate mortgage loans. During 1994, the Bank began a mail campaign to solicit new credit card customers. These solicitations resulted in approximately $60 million in new credit card balances, which nearly doubled the size of the Bank's credit card portfolio.
As noted above, the Company has experienced significant growth in its commercial and commercial mortgage loans over the past several years. Furthermore, these loans constitute approximately 47% of the Company's total loans at December 31, 1994. These loans generally range in size from $250,000 to $500,000 and are typically made to small to medium-sized, owner-operated companies.
For 1994, the Company's loans averaged $723.5 million with a yield of 9.03%, compared with $489.9 million and a yield of 8.59% for 1993. The interest rates charged on loans vary with the degree of risk and the maturity and amount of the loan. Competitive pressures, money market rates, availability of funds, and government regulations also influence interest rates. The increase in loan yield is largely attributable to the upward repricing of variable rate loans, which constitute approximately 60% of the loan portfolio. During 1994, the average prime interest rate rose approximately 114 basis points.
Loans held for sale at December 31, 1994 included $69.5 million in credit card loans and $2.2 million in mortgage loans. On January 24, 1995, the Company completed the securitization of the credit card loans held for sale at year end.
Securities
Debt securities held as assets are classified as investment securities, securities available for sale or trading securities. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities classified as investments are carried at cost, adjusted for the amortization of premiums and the accretion of discounts. In order to qualify as an investment asset, the Company must have the ability and a positive intention to hold them to maturity. Securities available for sale are carried at market value with unrealized gains or losses reported in stockholders' equity (net of tax effect). These securities may be disposed of if management believes that the sale would provide the Company and its subsidiaries with increased liquidity or, based upon prevailing or projected economic conditions, that such sales would be a safe and sound banking practice and in the best interest of the stockholders. Trading securities are carried at market value with adjustments for unrealized gains or losses reported in noninterest income. The Company's policy is to acquire trading securities only to facilitate their sale to customers.
The Company's subsidiaries are generally limited to investments in (i) United States Treasury securities or United States Government guaranteed securities, (ii) securities of United States Government agencies, (iii ) mortgage-backed securities, (iv) general obligation municipal bonds and revenue bonds which are investment grade rated and meet certain other standards, and (v) money market instruments which are investment grade rated and meet certain other standards. To date, the Company does not use derivative products.
During the first quarter of 1993, the Bank received approval to establish dealer bank operations to sell United States Treasury, Federal agency and municipal bonds to individuals, corporations and municipalities through its investments division. Income from the Company's dealer activity is not material.
At December 31, 1994, the total investment portfolio had a book value of $118.3 million and a market value of $113.7 million for an unrealized loss of $4.6 million. The investment portfolio had a weighted average duration of approximately 2.15 years. Securities (i.e., investment securities, securities available for sale and trading securities) averaged $128.0 million in 1994, 1% above the 1993 average of $126.4 million. The average portfolio yield declined slightly from 5.07% in 1993 to 5.03% in 1994.
During the past two years, average securities have been a lesser component of average earning assets, decreasing from 20.0% in 1993 to 14.8% in 1994. The Company decreased the relative level of its investment portfolio to fund loans in its banking markets. At December 31, 1994, securities totaled $117.1 million, up $2.4 million from the $114.7 million invested at the end of 1993.
Other Assets
At December 31, 1994, other assets included other real estate owned of $517,000 and intangible assets of $29.8 million. The intangible assets balance is attributable to goodwill of $9.1 million, core deposit balance premiums of $11.1 million, excess and purchased mortgage servicing rights of $8.7 million and purchased credit card premiums of $345,000.
Deposits
The primary source of funds for loans and investments is deposits which are gathered through the Bank's branch network. Competition for deposit accounts is primarily based on the interest rates paid thereon and the convenience of and the services offered by the branch locations. The Company's pricing policy with respect to deposits takes into account liquidity needs, the direction and levels of interest rates and local market conditions. The Company does not believe that any of its deposits qualify as brokered deposits. It is the Company's policy not to accept brokered deposits.
During 1994, interest-bearing liabilities averaged $794.9 million, compared with $574.7 million for 1993. This increase resulted principally from branch acquisitions. The average interest rates were 3.77% and 3.78% for 1994 and 1993, respectively. At December 31, 1994, interest-bearing deposits comprised approximately 87% of total deposits and 88% of interest-bearing liabilities. During 1994, the Company increased its use of short-term borrowings to fund loan growth. Short-term borrowings averaged $41.4 million and $14.0 million in 1994 and 1993, respectively.
The Company uses its deposit base as its primary source of funds. Deposits grew 28% to $925.4 million at December 31, 1994 from $724.6 million at December 31, 1993. Of the $200.8 million increase in deposits, approximately $141.2 million resulted from the acquisition of branches. Internal growth generated the remaining new deposits. During 1994, total interest-bearing deposits averaged $752.3 million with a rate of 3.75%, compared with $559.4 million with a rate of 3.79% in 1993. As the level of interest rates fell in 1993, the Company was able to reprice deposits to more than recover declines in the yields on earning assets. During the first half of 1994, which was a period of rising interest rates, the Company generally kept deposit interest rates unchanged which caused the average deposit rate to continue to decline, primarily from the repricing of certificates of deposit. Beginning with the third quarter of 1994, however, the Company raised deposit interest rates, causing the Company's interest rate paid on deposits to rise.
Average noninterest-bearing deposits, which increased 68% during the year, increased to 11.2% of average total deposits in 1994 from 9.2% in 1993. This increase was attributable to new accounts from commercial loan customers and escrow balances related to mortgage servicing operations.
The Company's core deposit base consists of consumer time deposits, savings, NOW accounts, money market accounts and checking accounts. Although such core deposits are becoming increasingly interest sensitive for both the Company and the industry as a whole, such core deposits continue to provide the Company with a large and stable source of funds. Core deposits as a percentage of average total deposits averaged approximately 86% in 1994. The Company closely monitors its reliance on certificates of deposit greater than $100,000, which are generally considered less stable and less reliable than core deposits.
Generally, certificates of deposits greater than $100,000 have a higher degree of interest rate sensitivity than other certificates of deposit. The percentage of the Company's deposits represented by certificates of deposit greater than $100,000 is higher than the percentage of such deposits held by its peers. However, the Company does not believe that this higher-than-peer percentage of certificates of deposits greater than $100,000 will have a material adverse effect because such certificates are principally held by long-term customers located in the Company's market areas.
Capital Resources and Dividends
The Company's capital needs have been met principally through public offerings of common and preferred stock and through the retention of earnings. In addition, the Company issued both common and preferred stock in connection with the acquisitions of the Savings Bank and the Mortgage Company.
The Company's initial public offering in 1986 raised $15.3 million in common equity and, to date, represents the largest amount of initial equity raised in connection with the startup of a financial institution in South Carolina. Other public offerings of capital stock include the offering of the 8.32% Cumulative Convertible Preferred Stock ("Series 1992 Preferred Stock") in May 1992, which raised $10.3 million, the offering of the 7.50% Noncumulative Convertible Preferred Stock Series ("Series 1993 Preferred Stock") in March 1993, which raised $14.5 million, and the offering of the Series 1994 Preferred Stock in April 1994, which raised $21.4 million. In December 1993, the Company redeemed the Series 1992 Preferred Stock. In connection with such redemption, substantially all of the outstanding shares of Series 1992 Preferred Stock were converted into 1,089,674 shares of Common Stock.
On September 30, 1993, the Company completed the acquisition of all of the outstanding stock of First Sun Mortgage Corporation in exchange for 60,000 shares of Series 1993B Preferred Stock which added $1.2 million in equity. There is currently no market for the Series 1993B Preferred Stock, and it is not expected that any market for such stock will develop.
The Company completed the offering of its Series 1994 Preferred Stock on April 15, 1994. In connection with this offering, the Company raised approximately $21.4 million after deduction of the related expenses and issued 920,000 shares of its Series 1994 Preferred Stock. Each share of Series 1994 Preferred Stock provides for cash dividends, when, as, and if declared by the Board of Directors, at the annual rate of $1.83 per share. Dividends on the Series 1994 Preferred Stock are not cumulative. A Series 1994 Preferred Stock share may be converted at the option of the holder into 1.7931 shares of common stock. The conversion ratio has been restated to reflect the 5% common stock dividend issued in May 1994. In addition, and upon compliance with certain conditions, the Company may redeem the Series 1994 Preferred Stock at the redemption prices set forth in the Company's Articles of Amendment related to the Series 1994 Preferred Stock.
Total stockholders' equity increased $16.1 million, or 26%, to $79.0 million at December 31, 1994 from $62.9 million at December 31, 1993. This change primarily reflects the capital raised in connection with
the Series 1994 Preferred Stock offering discussed above, which was issued on April 15, 1994, partially offset by the payment of dividends and the net loss for 1994.
Book value per share was $8.58 and $10.27 at December 31, 1994 and 1993, respectively. The decline in book value is attributable to the one-time restructuring charges. Tangible book value per share at December 31, 1994 was $4.16, down from $7.37 at December 31, 1993. Tangible book value is significantly below book value as a result of the purchase premiums associated with branch acquisitions and the purchase of the Mortgage Company. Tangible book value declined during 1994 from the addition of intangible assets related to the branch acquisitions and reclassifications of loan premiums to intangible assets.
Risk-based capital guidelines for financial institutions adopted by the regulatory authorities went into effect after December 31, 1990. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), signed into law on December 19, 1991, provides authority for special assessments against insured deposits and for development of a general risk-based deposit insurance assessment system, which the Federal Deposit Insurance Corporation ("FDIC") implemented on a transitional basis effective January 1, 1993.
At December 31, 1994, the Company and the Savings Bank were in compliance with each of the applicable regulatory capital requirements and exceeded the "adequately capitalized" regulatory guidelines. The Bank exceeded the "adequately capitalized" regulatory guidelines for the Tier 1 risk-based capital and leverage ratios, but was "undercapitalized" for the total risk- based capital ratio. In February 1995, the Company received a letter from the FDIC which indicated that, based on its analysis of the Bank's Report of Condition and income as of December 31, 1994, that the Bank was undercapitalized with respect to its total risk-based capital ratio. Specifically, the FDIC determined that the Bank's total risk-based capital ratio was 6.70%, as compared to the minimum 8%.
As a result of the capital deficiency, the Bank committed to (1) combine the Savings Bank and the Bank; (2) consummate the credit card securitization; (3) have the Company contribute capital of $3.5 million to the Bank; and (4) sell certain purchase mortgage servicing rights. All of these steps were taken except for the sale of the purchase mortgage servicing rights, which is expected to be consummated by March 31, 1995. At the end of February, and as a result of the January and February operating results (and without the consummation of the sale of the purchase mortgage servicing rights), the Bank's total risk-based capital ratio was 8.10%. The Bank expects that its total risk-based capital ratio will continue to increase as a result of monthly operating results and the consummation of the acquisitions of Aiken County National Bank and Midlands National Bank (which the Bank expects to consummate in April and May of 1995).
As a result of its total risk-based capital ratio declining below 8%, the Company, the Bank and the FDIC entered into a Capital Maintenance Commitment and Guaranty Agreement (the "Guaranty Agreement") pursuant to which the Company guaranteed that the Bank will comply with the restoration plan described above until the Bank has been adequately capitalized on average during each of four consecutive quarters. The Guaranty Agreement provides that in the event the Bank fails to comply with the applicable capital requirements, the Company will pay to the Bank or its successors or assigns an amount equal to the lesser of (a) 5% of the Bank's total assets at the time the Bank was notified or deemed to have notice that the Bank was undercapitalized, or (b) the amount which is necessary to bring the Bank into compliance with all capital standards applicable to the Bank at the time the Bank failed to so comply.
Management does not believe that it will be required to make payments under the Guaranty Agreement or that the Bank will not be at least adequately capitalized in the foreseeable future.
The following table sets forth certain capital ratios and the amount of capital of the Company and the Bank at December 31, 1994 and 1993, giving full effect to the exclusion of intangible assets.
The Company and its subsidiaries are subject to certain regulatory restrictions on the amount of dividends they are permitted to pay. The Company has paid all scheduled cash dividends on the Series 1993 Preferred Stock, the Series 1993B Preferred Stock and the Series 1994 Preferred Stock since their respective issuances. During each of the last six years, the Company issued 5% common stock dividends to common stockholders.
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. The Board of Directors increased the quarterly cash dividend to $0.06 beginning in the first quarter of 1995. 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.
In the future, the Company may engage in offerings of equity or debt to raise capital.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the Company monitors and controls the mix and maturities of its assets and liabilities. The essential purposes of asset/liability management are to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities. Liquidity management involves meeting the cash flow requirements of the Company. These cash flow requirements primarily involve withdrawals of deposits, extensions of credit, payment of operating expenses and repayment of purchased funds. The Company's principal sources of funds for liquidity purposes are customer deposits, principal and interest payments on loans, maturities and sales of debt securities, temporary investments and earnings. Temporary investments averaged 1.18% and 2.31% of earning assets in 1994 and 1993, respectively. Management believes that the Company maintains an adequate level of liquidity by retaining liquid assets and other assets that can easily be converted into cash and by maintaining access to alternate sources of funds, including federal funds purchased from correspondent banks and borrowing from the Federal Home Loan Bank.
The liquidity ratio is an indication of a company's ability to meet its short-term funding obligations. FDIC examiners suggest that a commercial bank maintain a liquidity ratio of between 20% and 25%. At December 31, 1994, the Bank's liquidity ratio was approximately 13%. At December 31, 1994, the Bank had unused short-term lines of credit with correspondent banks of $17.8 million. All of the lenders have reserved the right to withdraw these lines of credit at their option. In addition, the Company, through its subsidiaries, has access to borrowing from the Federal Home Loan Bank. At December 31, 1994, unused borrowing capacity from the Federal Home Loan Bank totaled $33 million. Management believes that these sources are adequate to meet its liquidity needs. On January 24, 1995, the Company completed the securitization of the majority of its credit card loans. In connection with this securitization, the Company received approximately $70 million which provided additional liquidity.
As reported in the Consolidated Statements of Cash Flows, changes in deposits, borrowed funds, investments and equity provided cash in 1994 of $157.4 million, $89.2 million, $51.4 million and $21.9 million, respectively. The Company used this cash to increase loans by $265.4 million, capital expenditures by $10.4 million, cash balances by $27.7 million, operating activities by $13.5 million and dividends by $2.9 million.
The Company plans to meet its future cash needs through the proceeds of stock offerings, liquidation of temporary investments, maturities or sales of loans and investment securities and generation of deposits. By increasing the rates paid on deposits, the Company would be able to raise deposits.
The interest sensitivity gap is the difference between total interest sensitive assets and liabilities in a given time period. The objective of interest sensitivity management is to maintain reasonably stable growth in net interest income despite changes in market interest rates by maintaining the proper mix of interest sensitive assets and liabilities. Management seeks to maintain a general equilibrium between interest sensitive assets and liabilities in order to insulate net interest income from significant adverse changes in market rates. The Asset/Liability Management Committee uses an asset/liability simulation model which quantifies balance sheet and earnings variations under different interest rate environments to measure and manage interest rate risk.
ASSET QUALITY
Prudent risk management involves assessing risk and managing it effectively. Certain credit risks are inherent in making loans, particularly commercial, real estate and consumer loans. The Company attempts to manage credit risks by adhering to internal credit policies and procedures. These policies and procedures include a multi-layered loan approval process, officer and customer limits, periodic documentation examination and follow-up procedures for any exceptions to credit policies. Loans are assigned a grade and those that are determined to involve more than normal credit risk are placed in a special review status. Loans that are placed in special review status are required to have a plan under which they will be either repaid or restructured in a way that reduces credit risk. Loans in this special review status are reviewed monthly by the loan committee of the Board of Directors.
As demonstrated by the following key analytical measures of asset quality, management believes the Company has effectively managed its credit risk. Net loan charge-offs, excluding credit card loans, decreased to $779,000 in 1994, from $1.3 million in 1993 and $1.2 million in 1992. During 1994, net loan charge-offs as a percentage of average loans have remained low at 0.11%, compared with 0.26% for 1993 and and 0.31% in 1992. Nonperforming assets as a percentage of loans and foreclosed property were 0.25% and 0.28% at December 31, 1994 and 1993, respectively. At December 31, 1994, the allowance for loan losses was 312%
of nonperforming loans. At December 31, 1994, the Company had $1.0 million in non-accruing loans, $675,000 in restructured loans and $1.3 million in loans greater than ninety days past due on which interest was still being accrued. These asset quality measures compare favorably to the Company's bank holding company peer group.
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, interest rates have a more significant effect on the Company's performance than do 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 generally manageable through asset/liability management. See "-- Liquidity and Interest Rate Sensitivity."
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. See "Business-- Supervision and Regulation."
ACCOUNTING ISSUES
The Financial Accounting Standards Board ("FASB") has issued Standards No. 114, "Accounting by Creditors for Impairment of a Loan, " which proposes that all creditors value all loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement at the present value of the expected future cash flows. This discounting would be done at the loan's effective interest rate. The periodic effect on net income has not been fully determined, but is not expected to have a material impact on the Company's financial position or results of operations. This proposed standard would apply for fiscal years beginning after December 15, 1994. In October 1994, the FASB issued SFAS 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." SFAS 118 amends SFAS 114 in the areas of disclosure requirements and methods for recognizing interest income on an impaired loan. The Statement is effective concurrent with the effective date of SFAS 114.
The FASB has also issued an exposure draft, "Accounting for the Impairment of Long Lived Assets," which proposes standards for the identification of long-lived assets, identifiable intangibles and goodwill that may need to be written down because of an entity's inability to recover the assets' carrying values. The periodic effect of the adoption of this standard on net income has not been fully determined. This proposed standard would apply for fiscal years beginning after December 15, 1994 with earlier application encouraged.
The FASB has issued an exposure draft, "Accounting for Mortgage Servicing Rights and Excess Servicing Receivables for Securitization of Mortgage Loans," that proposes that an entity recognize, as separate assets, rights to service mortgage loans for others irrespective of how those servicing rights are acquired (i.e., whether purchased or originated). If adopted, this statement would also require that gains on sales of loans be recorded as income in the period of sale (i.e., such gain would not reduce capitalized servicing rights). Under this proposed statement, impairment of capitalized mortgage servicing rights would
be measured by type of mortgage servicing right, based on fair value using a reserve methodology. This proposed statement would be applied prospectively in fiscal years beginning after December 15, 1995, to transactions in which an entity acquires mortgage servicing rights and to impairment evaluations of all capitalized mortgage servicing rights and capitalized excess servicing receivables whenever acquired. Retroactive application would be prohibited. The effect of this proposed statement on the Company's results of operations has not yet been fully determined.
ITEM 8


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth on pages 24 through 42 in the Company's 1994 Annual Report to Shareholders, which information is incorporated herein by reference.
ITEM 9

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
At its Board meeting on March 15, 1995, the Company's Board of Directors determined to dismiss Elliott Davis & Company, LLP ("ED&C") and to engage KPMG Peat Marwick LLP ("KPMG") as the Company's auditors for the 1995 fiscal year. ED&C has served as the Company's principal accountants since its inception in 1986. The change in auditors resulted from the Board's decision that it was in the Company's best interest to utilize a national accounting firm, with its attendant size, experience and expertise.
ED&C's report on the financial statements for the past two years has not contained an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles.
The determination to change the Company's principal accounting firm was recommended to the Board of Directors by the Company's Audit Committee.
The Company has filed a current report on Form 8-K dated March 15, 1995 regarding the change in the Company's auditors. The information in such report is incorporated herein by reference.
PART III
ITEM 10



ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on pages 2 through 4, page 8, pages 19 and 20 of the Company's definitive Proxy Statement for the 1995 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item may be found on pages 9 through 14 of the Company's definitive Proxy Statement for the 1995 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on pages 15 through 18 of the Company's definitive Proxy Statement for the 1995 Annual Meeting of the Stockholders and is incorporated herein by reference.
ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on pages 18 through 19 of the Company's definitive Proxy Statement for the 1995 Annual Meeting of the Stockholders and is incorporated herein by reference.
PART IV
ITEM 14

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 24 through 42 in the Company's 1994 Annual Report to Shareholders, which information is incorporated herein by reference. The Report of Independent Public Accountants, dated February 3, 1995 of Elliott, Davis & Company, L.L.P. is included on page 24 of the Company's 1994 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 -- Bylaws: Incorporated by reference to Exhibit 4.2 of Carolina First Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, 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 -- Specimen Noncumulative Convertible Preferred Stock Series 1993 certificate: Incorporated by reference to Exhibit 4.3 from Carolina First Corporation's Registration Statement on Form S-2, Commission File No. 33-57110. 4.3 -- Specimen Convertible Preferred Stock Series 1993B certificate: Incorporated by reference to Exhibit 4.3 from Carolina First Corporation's Registration Statement on Form S-2, Commission File No. 33-75458. 4.4 -- Specimen Noncumulative Convertible Preferred Stock Series 1994 certificate: Incorporated by reference to Exhibit 4.12 from Carolina First Corporation's Registration Statement on Form S-2, Commission File No. 33-75458. 4.5 -- Articles of Incorporation: Included as Exhibit 3.1. 4.6 -- Bylaws: Included as Exhibit 3.2. 4.7 -- Series 1993 Preferred Stock Dividend Reinvestment Plan: Incorporated by reference to the Prospectus in Carolina First Corporation's Registration Statement on Form S-3, Commission File No. 33-72868. 4.8 -- 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. 33-73280. 4.9 -- Series 1994 Preferred Stock Dividend Reinvestment Plan: Incorporated by reference to the Prospectus in Carolina First Corporation's Registration Statement on Form S-3, Commission File No. 33-79774. 4.10 -- Shareholders' Rights Agreement: Incorporated by reference to Exhibit 2 of Carolina First Corporation's Current Report on Form 8-K dated November 9, 1993, Commission File No. 0-15083.
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. 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 -- Noncompetition and Severance Agreement dated November 9, 1993, between Carolina First Corporation and Mack I. Whittle, Jr.: Incorporated by reference to Exhibit 10.1 of Carolina First Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, Commission File No. 0-15083. 10.6 -- Noncompetition and Severance Agreement dated November 9, 1993, between Carolina First Corporation and William S. Hummers III: Incorporated by reference to Exhibit 10.2 of Carolina First Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, Commission File No. 0-15083. 10.7 -- Noncompetition and Severance Agreement dated November 9, 1993, between Carolina First Corporation and James W. Terry, Jr.: 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.
10.8 -- Reorganization Agreement entered into as of October 13, 1994 by and among Carolina First Bank, Carolina First Corporation and Aiken County National Bank. Incorporated by referenced to Exhibit 2.1 of Carolina First Corporation's Registration Statement on Form S-4, Commission File No. 33-57389. 10.9 -- Reorganization Agreement dated as of November 14,1994 between and among Carolina First Corporation, Carolina First Bank and Midlands National Bank: Incorporated by reference to Exhibit 10.8 of Carolina First Corporation's Registration Statement on Form S-4, Commission File No. 33-57389. 10.10 -- 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. 10.11 -- Carolina First Corporation Long-Term Management Performance Plan. 10.12 -- 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. 10.13 -- 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. 10.14 -- 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. 10.15 -- 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. 10.16 -- Capital Maintenance Commitment and Guaranty between Carolina First Corporation, Carolina First Bank and the Federal Deposit Insurance Corporation.
10.17 -- Servicing Rights Purchase Agreement between Bank of America, F.S.B. and Carolina First Bank dated as of March 31, 1995: To be filed by amendment when available. 11.1 -- Computation of Per Share Earnings. 13.1 -- 1994 Annual Report to Shareholders of the Company. 21.1 -- Subsidiaries of the Registrant: Carolina First Bank and Carolina First Mortgage Company. 23.1 -- Consent of Elliott, Davis & Company, L.L.P. 27.1 -- Financial Data Schedules.
(b) Certain reports on Form 8-K dated January 24, 1995, Commission File No. 0-15083 and March 15, 1995, Commission File No. 0- 15083.
(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
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 27, 1995 Mack I. Whittle, Jr. Executive Officer and Director
/s/ William S. Hummers III Executive Vice President and March 27, 1995 William S. Hummers, III Secretary (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. Director March 27, 1995 William R. Timmons, Jr.
/s/ Mack I. Whittle, Jr. Director March 27, 1995 Mack I. Whittle, Jr.
/s/ William S. Hummers III Director March 27, 1995 William S. Hummers III
/s/ Judd B. Farr Director March 27, 1995 Judd B. Farr
Director March , 1995 C. Claymon Grimes, Jr.
/s/ Robert E. Hamby, Jr. Director March 27, 1995 Robert E. Hamby, Jr.
/s/ M. Dexter Hagy Director March 27, 1995 M. Dexter Hagy
Director March , 1995 R. Glenn Hilliard
/s/ Richard E. Ingram Director March 27, 1995 Richard E. Ingram
Director March , 1995 Charles B. Schooler
/s/ Elizabeth P. Stall Director March 27, 1995 Elizabeth P. Stall
/s/ William M. Webster III Director March 27, 1995 William M. Webster III
INDEX TO EXHIBITS
Exhibit Number Description
10.11 Carolina First Corporation Long-Term Management Performance Plan. 10.16 Capital Maintenance Commitment and Guaranty between Carolina First Corporation, Carolina First Bank and the Federal Deposit Insurance Corporation. 11.1 Computation of Per Share Earnings. 13.1 1994 Annual Report to Shareholders of the Company. 23.1 Consent of Elliott, Davis & Company, L.L.P.