Carolina First Corporation

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Carolina First Corporation

102 South Main Street
Greenville, South Carolina 29601
U.S.A.
Telephone: (864) 255-7900
Toll Free: (800) 476-6400
Fax: (864) 299-6401
Web site: http://www.carolinafirst.com

Public Company
Incorporated: 1986
Employees: 900
Sales: $203.41 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: CAFC
NAIC: 52211 Commercial Banking

As North Carolina’s larger banks began to acquire South Carolina banks in the mid-1980s, Carolina First Corporation was created to fill the gap between the large and small players. Carolina First positions itself as offering the personalized attention of smaller community banks with the range of services of the larger institutions. The company has assets of $3 billion, nearly 70 offices in South Carolina and more than a dozen in Florida, and an increasing online presence.

Origins: Mid-1980s

In 1985 the South Carolina General Assembly passed legislation allowing out-of-state banks to expand into South Carolina. The next year, NCNB, which would become NationsBank, then Bank of America, bought Bankers Trust, a Columbia-based bank which had earlier been known as State Bank and Trust.

One of the bank’s key executives was Senior Vice-President Mack I. Whittle, Jr., who had started his career there by rolling coins as a college student in 1969. He went to work full time after graduating from the University of South Carolina with a degree in business in 1972. Two years later, Bankers Trust bought Peoples National Bank, based in Greenville, and Whittle moved there. For the next several years he moved around the state as the fast-growing bank acquired new branches. Whittle settled in Greenville in 1982.

When NCNB bought Bankers Trust, it appeared that Whittle was slated for yet another transfer, most likely to Maryland or Florida. The prospect of uprooting his family again gave Whittle reason to seek another position. In addition, Whittle felt that the new interstate banks were not appropriately responsive to their customers, and he envisioned a better alternative.

After twenty years in business in South Carolina, Whittle had plenty of contacts to troll for support for a new, locally owned bank. Many prominent businessmen, Whittle’s old clients, became stockholders or clients of the new bank, Carolina First Corp. In May 1986, Whittle hired his former secretary and rented an office. Its initial public offering in September raised $15 million, and the bank opened for business on December 18, 1986.

Carolina First’s first branch office had been vacated after the merger of South Carolina National Bank and the First National Bank of South Carolina. Two years later, Carolina First moved into another property vacated by the same merger, a historic bank building in downtown Greenville dating back to 1873.

The flood of mergers in the banking business provided Carolina First with an ongoing stream of potential clients disillusioned with the increasingly impersonal nature of banking. It also provided a source of experienced employees. Nap Vandiver went to work as chairman emeritus at Carolina First after the bank he founded in 1961, Southern Bank and Trust Co., was sold to First Union, another North Carolina bank. Vandiver was in his late seventies at the time. Some of the loan officers Whittle hired brought their loyal customers with them. There appeared to be a niche just right for the new bank. By the first quarter of 1988, deposits had swelled to $95 million, up from $38 million a year earlier. Employment had increased from 20 to 30.

The bank had to be diligent in protecting its rather generic trademark as smaller, new banks sometimes adopted similar names. One was called 1st Carolina, another First Carolina. Yet another, in Myrtle Beach, called itself Carolina First.

In March 1989, Carolina First’s $150 million in assets made it South Carolina’s fifteenth-largest bank, and at the and of that year Carolina First acquired Georgetown’s First Federal Savings and Loan Association. The deal was made possible by new federal legislation allowing the purchase of savings and loan institutions that were not failing. That purchase and an earlier branch opened in Georgetown helped establish the bank in the fast-growing coastal region.

The Expansive Early 1990s

Local businessman Foster McKissick was named the company’s first chairman. After he died in a private plane crash in 1990, William R. Timmons, Jr., succeeded him as chairman. The bank had four offices in Greenville at the time, and its executives had a goal of expanding throughout the state.

In 1991 Carolina First bought two branches of American Federal Savings Bank in Anderson, bought four First Savings Bank branches in Myrtle Beach, and opened another Greenville office. It eventually created the Carolina First Savings Bank subsidiary to manage its thrifts. The next year, the bank gained a foothold in the Midlands with the purchase of 12 Columbia branches of Republic National Bank. It bought another three branches there from Omni Savings Bank, a subsidiary of FirstFed Michigan Corp. Next on the agenda was a regional headquarters for the area. These acquisitions raised Carolina First’s assets to $800 million and gave it 22 branches.

Between 1992 and 1994, Carolina First raised $48 million through preferred stock offerings. Its assets topped $1 billion in 1995. In May 1994, the goal of becoming a truly statewide bank seemed close at hand as Citadel Federal Savings and Loan was acquired. However, its attempted purchase of seven offices of another Charleston thrift, Cooper River Federal Savings Association, was thwarted by a higher bid from Columbia-based First Citizens Bank.

High-Tech Initiatives in the Mid-1990s

Carolina First’s involvement with a new technology company came to be seen as both a boon for shareholders and a notorious enterprise. In 1994 Whittle and two other executives teamed Carolina First with Affinity Technology Group Inc., a Columbia-based company that was developing an “automated loan machine” (ALM) similar to automated teller machines. The deal gave Affinity a $200,000 loan and consulting expertise in exchange for a 20 percent share of the company. Affinity began marketing the ALMs in November 1994. In January 1996 the Carolina First board awarded the three executives ten percent of the company’s Affinity stock, then worth about $580,000.

By the time of Affinity’s initial public offering in April 1996, Carolina First had itself installed several ALMs around the state in places like grocery stores, with agreements in the works to place them at auto dealerships as well. Columbus, Ohio-based BancOne was also testing ALMs in West Virginia, paying Affinity a commission on loans approved. The ALMs stimulated loan business and saved employee time spent on conventionally processed loans. They spared customers what some perceived as the ordeal of meeting with a loan officer and potentially being turned down in person, and promised discrimination-proof lending. With customers already accustomed to using computerized banking technology such as ATMs, the ALMs seemed likely to be readily accepted, as Affinity president Mel Ray told the Greenville News. The devices were programmed to handle mortgages and other large loans, but were initially limited to amounts between $1,000 and $5,000.

Affinity offered shares to the public at $13 a share (in January, it had been valued at 88 cents a share). By May, its price hit $21 a share. The value of the shares the board had given the executives were worth $14 million. The interest in Affinity’s public offering also benefited Carolina First’s shareholders. The bank’s stock value rose from $14 per share to $21 between November 1995 and May 1996.

Investors filed a $32 million lawsuit over the executive bonus in the fall of 1996, stating that Whittle and another Carolina First board member, Edward Sebastian, were also members of Affinity’s board and most likely knew about the impending public offering that sent Affinity stock skyward. Within a year, however, the Affinity stock in question had fallen to a value of $30 million. The lawsuit also dealt with alleged improprieties related to the acquisition of Midlands National Bank in late 1994. This part of the complaint claimed that Carolina First executives had hidden large losses before the deal and asked for $24 million in damages. It alleged that Carolina First had paid too much for credit card accounts held by Republic National Bank, whose parent company had Sebastian for a CEO and chairman, then exaggerated the amortization of the payment to make its figures look better. Another lawsuit arose in September 1995 from two brothers who were officers and board members of Midlands National who claimed breach of contract. The two Midlands National lawsuits were settled in April 1997 and the Affinity lawsuit was dismissed that December.

Besides automated loan machines, the focus of Carolina First’s next ten years was home banking via the Internet. It began developing this system in earnest in 1995 and began marketing it a year later after first testing it with about 90 employees who used it for their personal banking needs. In 1996 the company operated 55 offices throughout South Carolina and had acquired Blue Ridge Finance, a Greenville auto finance company. Carolina First sold most of its credit card accounts in 1997, a year that saw record levels of consumer debt and an increase in bad loan write-offs at the bank.

Company Perspectives:

Carolina First was created in 1986 with one simple, bold mission: to become a premier bank by putting customers first After more than ten years of service, that guiding principle is more important than ever. Through our progressive and innovative approach to our customers, Carolina First delivers personable, flexible and responsive banking. Our commitment to knowing our customers and developing the right mix of services to meet their needs has always been the hallmark of Carolina First.

In 1996 Carolina First acquired forty percent of Atlanta Internet Bank. In 1997 it had a public offering of half its shares in Net.B@ank Inc., the company taking over Atlanta Internet. At the time, the online bank had attracted more than $40 million in deposits from customers in 44 states. In March 1997 the bank announced plans for a $10 million, seven-story office complex in downtown Columbia. The city of Columbia promised $3 million to lure the bank into space vacated by Macy’s and Belk’s department stores years before.

Carolina First bought Resource Processing, a credit card company, early in 1998. The bank sought to expand its retail credit offerings to complement its commercial banking strengths. In February its venture capital subsidiary, CF Investment Co., made its first investment, gaining a 49 percent share of ITS Inc. in exchange for a $1.2 million line of credit. ITS was a 20-person digital document storage operation based in Greenville. The bank invested in Syneractive Marketing LLC in November 1998.

As Carolina First grew and prepared to expand outside of South Carolina, it reorganized its executive ranks, adding three new executive vice-presidents in 1998. During the year, it had bought First National Bank, Colonial Bank of South Carolina, and Poinsett Financial Corp., as well as banks in Pickens County and Camden. Carolina First had $2.7 billion in assets at the end of the year.

Finding Room in Florida in 1999

Carolina First announced plans to buy its first out-of-state bank, Citizens First National Bank, in January 1999. Whittle drew similarities between the business climate in Florida, where NationsBank Corp. had just bought Barnett Banks Inc. for $15 billion, and that in South Carolina at the time that Carolina First was founded. The purchase of Citizens First was worth about $12 million, and gave Carolina First entry into the highly lucrative Jacksonville market. Before the Citizens First deal could close, Carolina First announced that it was buying another Florida bank, Orlando-based Citrus Bank. It would also use the Citrus name for its other Florida acquisitions. Citrus had a dozen locations and assets of $300 million; Carolina First’s assets were about $2.5 billion.

In late 1999 Carolina First announced plans for a $25 million disaster-proof data center in Lexington County, which was designed to give the bank transaction security in the event of a hurricane. Upon opening in 2000, the center would employ 350.

Carolina First introduced its own Internet bank, Bank Caro-Line, on September 15, 1999. Bank CaroLine, officials stated, competed for a different, less “tech-savvy” customer than that of Net.B@ank. CaroLine Bank at first operated through Carolina First Bank, FSB, the thrift subsidiary. Before starting CaroLine, Carolina First had sought to reduce its share in Net.B@nk by giving part of its stake to a nonprofit charity, Carolina First Foundation. Carolina First then owned about nine percent of Net.B@nk, worth about $90 million.

Principal Subsidiaries

Carolina First Bank; Carolina First Mortgage Company; Carolina First Bank, F.S.B.; Citrus Bank; Blue Ridge Finance Company, Inc.; Resource Processing Group, Inc.

Principal Competitors

Bank of America; Wachovia; First Union; SunTrust Bank.

Key Dates:

1986:: Carolina First founded as NCNB buys Bankers Trust.
1994:: Bank teams with automated loan machine pioneer Affinity Technology Group.
1996:: Company invests in Atlanta Internet Bank.
1999:: Carolina First enters Florida market; Bank CaroLine debuts.