The South Financial Group, Inc. (NASDAQ: TSFG) today reported a
second quarter 2010 net loss available to common shareholders of
$314.9 million, or $(1.46) per diluted share. Included in second
quarter 2010 results is a non-operating, non-cash goodwill
impairment charge of $214.1 million, or $(0.99) per diluted share,
representing the write-off of remaining goodwill amounts
attributable to TSFG’s Carolinas Banking segment and insurance
operations. The net loss available to common shareholders,
excluding the goodwill impairment charge, of $100.8 million, or
$(0.47) per diluted share, compares to a net loss available to
common shareholders of $85.8 million, or $(0.40) per diluted share,
for first quarter 2010. Reconciliations of GAAP-reported results to
operating results are provided in the attached financial
highlights.
“Our second quarter results are in line with our previous
forecasts, with credit costs remaining elevated as expected given
the continuing economic cycle,” said H. Lynn Harton, President and
CEO of The South Financial Group. “Our previously announced merger
with TD Bank is progressing well through the various approval
processes and we currently anticipate the transaction closing in
September, subject to shareholder and regulatory approval,” added
Harton.
Key points for second quarter included:
-- GAAP results include net gains on sales of securities and a
non-cash goodwill impairment charge
- TSFG sold $255 million of
available-for-sale securities during the second quarter and is in
the process of liquidating a significant portion of the remaining
investment portfolio to enhance capital and liquidity subsequent to
June 30, 2010; these actions resulted in a net gain of $10.5
million during the second quarter
- A $214.1 million non-cash
goodwill impairment charge related to the write-off of the
remaining goodwill amounts attributable to the Carolinas Banking
segment and insurance operations based on the implied valuation of
TSFG using the proposed merger consideration; this non-operating,
non-cash charge did not significantly impact our operations,
liquidity or regulatory capital
-- Based on capital ratios at June 30, 2010, Carolina First Bank
is considered “adequately capitalized” under applicable regulatory
definitions
- At June 30, 2010, TSFG’s
preliminary Tier 1 capital ratio, Total risk-based capital ratio
and Leverage ratio were 8.52%, 10.24% and 6.11%, respectively, and
Carolina First Bank’s preliminary regulatory capital ratios were
8.24%, 9.85%, and 5.90%, respectively (compared to the “adequately
capitalized” requirements of 4.00%, 8.00% and 4.00%,
respectively)
- Tangible common equity ratio
declined to 2.33% from 2.90% at March 31, 2010
- Tangible common book value per
common share was $1.25 at June 30, 2010, down from $1.64 at March
31, 2010
- The proposed merger is expected
to provide TSFG with the additional capital required by our
previously disclosed regulatory orders, which require capital
levels in excess of the regulatory “well-capitalized”
thresholds
-- Credit costs continue to stabilize in our Florida markets
while the Carolinas continue to show deterioration primarily
related to on-going residential construction stress
- Nonperforming loans increased to
$460.6 million from $374.2 million in first quarter 2010
- Net charge-offs were consistent
with expectations, increasing to $93.7 million from $87.8 million
in the prior quarter
- Florida-related commercial
nonperforming loans declined modestly, reflecting the fifth
consecutive quarterly decline while net charge-offs improved for
the third consecutive quarter; however, nonperforming loans and net
charge-offs in the Carolinas increased from last quarter,
reflecting the continued deterioration in TSFG’s coastal South
Carolina and western North Carolina residential construction
portfolios
- The provision for credit losses
of $113.9 million was in line with management expectations and
exceeded net charge-offs by $20.2 million, increasing the allowance
for credit losses to 5.23% of loans held for investment compared to
4.75% in first quarter 2010
- Potential problem loans
decreased to $885.8 million from $944.3 million at March 31,
2010
- Loan sales continued to decline
from 2009 levels and further declined from $55 million in first
quarter 2010 to $22 million during second quarter 2010
- Nonaccrual inflows were $229
million for second quarter 2010, compared to $110 million for first
quarter 2010
- Following is a summary of
quarterly trends in nonperforming loans and net charge-offs:
Nonperforming Loans Net Charge-Offs 2Q 2010
1Q 2010 4Q 2009 2Q 2010 1Q 2010
4Q 2009 Commercial South
Carolina $ 170.1 $ 108.9 $ 120.0 $ 31.6 $ 19.5 $ 43.1 North
Carolina 106.9 79.7 84.9 31.7 13.0 18.0 Florida 147.4 148.2 156.7
19.7 44.3 61.8 Consumer 4.5 6.1 7.2 5.3 6.3 9.1 Lot Loans 11.3 9.3
9.1 3.5 2.9 5.1 Mortgage 20.4 22.0
21.1 1.9 1.6 5.8 Total $
460.6
$ 374.2 $ 399.0 $ 93.7 $ 87.8 $ 142.9
“Credit quality continues to reflect the ongoing stress in the
residential construction sector and movement from Florida into
coastal South Carolina and western North Carolina. The retail
portfolios reflect ongoing economic stabilization but improvement
remains subdued,” stated Rob Edwards, Chief Credit Officer.
-- Excess cash reserves and securities provide a strong
liquidity position but negatively impacted the net interest
margin
- Excess cash reserves and
unpledged securities totaled $1.9 billion at June 30, 2010,
compared to $2.2 billion at March 31, 2010
- Customer funding totaled $7.9
billion at June 30, 2010, compared to $8.1 billion at March 31,
2010 reflective of seasonal declines in public funds of
approximately $160 million and continued pricing discipline on
money market accounts, which declined $115 million; time deposits
increased approximately $187 million
-- Operating results continue to be negatively impacted by
credit-related and liquidity costs and reduced earning asset
levels
- Net interest income declined by
$4.1 million during the quarter from lower outstanding loan
balances while the net interest margin declined to 2.55% from
2.75%
- Liquidity-related costs
accounted for approximately 12 basis points of the margin decline
while credit-related items accounted for 7 basis points of the
margin decline
- Operating noninterest income
increased $5.0 million linked-quarter, from $21.5 million to $26.5
million as a result of higher BOLI income and lower credit
valuation adjustments on customer swaps as well as increases in
customer-related revenues
- Operating noninterest expenses,
excluding credit-related and regulatory costs, increased $1.8
million to $67.3 million reflecting the absence of certain employee
benefit adjustments in first quarter 2010
- Included in first and second
quarter operating noninterest expenses was $1.6 million and $1.4
million of expenses, respectively, related to the proposed merger
and capital-raising activities
- Credit-related and regulatory
costs increased $6.7 million to $24.0 million from $17.3 million in
first quarter 2010
“We continue to work on improving loan pricing while continuing
to lower funding costs, which have been offset by our ongoing
liquidity initiatives. We also continue to focus on maintaining
core customer revenues while lowering our overall controllable
expense base. As previously announced, we reduced FTEs to 2,066 at
June 30, 2010 from 2,144 at March 31, 2010,” stated James R.
Gordon, Chief Financial Officer.
Net Interest Income and Average Balance Sheet
Second quarter 2010 net interest income decreased $4.1 million
to $69.5 million from $73.5 million in first quarter 2010 as a
result of continued contraction in outstanding loan balances,
increased liquidity and higher interest reversals from loans placed
on nonaccrual status, partially offset by lower funding costs and
one additional day as compared to the prior quarter.
The tax-equivalent net interest margin for second quarter 2010
decreased to 2.55%, down 20 basis points from 2.75% for first
quarter 2010. The margin decline was primarily driven by TSFG’s
ongoing liquidity positioning (approximately 12 basis points) and
higher levels of nonperforming assets and nonaccrual interest
reversals (approximately 7 basis points).
Second quarter 2010 average loans decreased $369.2 million, or
4.5% linked-quarter, to $7.9 billion, and period-end loans held for
investment decreased $344.3 million. For internal management
purposes, TSFG segregates its loan portfolio into core ($6.6
billion at period-end) and non-core ($1.0 billion at period-end)
loans, principally based on its ability to establish or expand a
banking relationship. During second quarter 2010, period-end core
loans declined $215.7 million, or 3.2% linked-quarter, while
non-core loans declined $128.6 million, or 11.0% linked-quarter
($1.6 billion since the beginning of 2009).
Second quarter 2010 average securities increased $157.7 million,
or 7.4% linked-quarter, to $2.3 billion as excess cash was
redeployed in short-term investments. Period-end securities
declined $174.7 million to $2.1 billion, reflecting securities
sales that occurred late in the second quarter. Subsequent to June
30, 2010, TSFG sold $1.2 billion of additional securities at an
estimated realized gain of $35.6 million. All sales proceeds were
reinvested in short-term, highly liquid securities.
Second quarter average core deposits (noninterest-bearing,
interest checking, money market, and savings) decreased $209.1
million, or 4.6% linked-quarter, and period-end core deposits
decreased $302.0 million. Second quarter 2010 average customer
funding levels (defined as total deposits less brokered deposits
plus customer sweep accounts) increased $174.0 million, or 2.2%
linked-quarter, as increases in certificates of deposit, savings
and demand deposits more than offset the decline in money market,
interest checking and customer sweep accounts. Second quarter 2010
average wholesale borrowings, including brokered deposits and
excluding customer sweep accounts, decreased $3.7 million, while
period-end wholesale borrowings decreased $213.9 million.
Noninterest Income
Operating noninterest income for second quarter 2010 totaled
$26.5 million, up $5.0 million from first quarter 2010. The
increase was largely attributable to a $2.0 million increase in
BOLI income, a $2.0 million decrease in credit valuation
adjustments on customer swaps, as well as higher customer fee and
mortgage income.
Total noninterest income, including non-operating items, was
$37.0 million for second quarter 2010, compared with $21.1 million
for first quarter 2010.
Second quarter non-operating items include $11.5 million of
gains on sales of available-for-sale securities, partially offset
by $1.0 million of other-than-temporary impairment write-downs for
securities in an unrealized loss position at June 30, 2010 for
which a decision to sell was made prior to the end of the quarter,
resulting in a net gain on sales of investment securities of $10.5
million for the quarter.
Non-operating noninterest income items for first quarter 2010
included a $0.4 million net loss on securities, primarily due to
the write-down of certain equity investments.
Noninterest Expenses
Operating noninterest expenses totaled $91.3 million for second
quarter 2010, an $8.5 million linked-quarter increase from $82.8
million for first quarter 2010, due to higher credit-related
expenses, FDIC insurance premiums and personnel costs.
Excluding the impact of credit-related expenses and FDIC
insurance premiums, all other operating noninterest expenses
increased $1.8 million, or 2.8%, linked-quarter, driven by the
absence of $2.1 million of accrual reversals related to the
restructure of certain executive retirement plans during the first
quarter. Full-time equivalent employees totaled 2,066 at June 30,
2010, down from 2,144 at March 31, 2010.
Credit-related noninterest expenses, which include loan
collection and foreclosed asset expenses, gains or losses on
nonmortgage loans held for sale, losses on other real estate owned,
and FDIC insurance premiums increased $6.7 million linked-quarter,
primarily from increases in OREO write-downs, a full quarter of
higher FDIC insurance premiums and increases in loan collection
costs.
Total noninterest expenses, including non-operating items, were
$305.5 million for second quarter 2010, compared with $83.7 million
for first quarter 2010.
Second quarter 2010 non-operating noninterest expense includes
$214.1 million of non-cash goodwill impairment write-downs related
to TSFG’s Carolinas Banking segment and insurance operations. The
impairment charge was the result of TSFG’s annual goodwill
impairment evaluation reflecting the valuation of the company
implied by the merger agreement with TD Bank. First quarter 2010
non-operating noninterest expense items included $0.9 million of
severance-related benefits associated with staff reduction
initiatives implemented in March 2010.
Credit Quality
The following table shows the loan and credit quality
composition at June 30, 2010 (dollars in millions):
Outstanding Balance Nonaccrual Loans
HFI QTD Net Charge-Offs
30-Day Past Due % C&I $ 1,797 $ 79
$ 32.1 2.20%
Owner-occupied
CRE 1,270 51 4.2 1.15%
Completed income property
2,065 100 19.1
2.40%
Commercial development 389 43 (0.5)
0.49%
Residential construction 705 152 28.2
4.36%
Indirect-Sales finance 179 - 1.3 0.95%
Home
equity 773 4 3.2 0.99%
Mortgage (a) 401 32
5.3 9.93%
Other 79 - 0.8
1.00%
Total Loans HFI at June 30, 2010 $
7,658 $ 461 $ 93.7 2.43% Total
Loans HFI at March 31, 2010 (b) $ 8,003 $
374 $ 87.8 1.81%
(a) Includes Consumer Lot Loans of $121 million.
(b) For March 31, 2010 comparisons, refer to page 5 of the
Investor Presentation included as Exhibit 99.3 to TSFG’s Form 8-K
as filed with the Securities and Exchange Commission on April 20,
2010.
At June 30, 2010, nonperforming loans held for investment
totaled $460.6 million, an $86.4 million increase from $374.2
million at March 31, 2010, as stabilization in TSFG’s Florida
markets was offset by deterioration in our coastal South Carolina
and western North Carolina residential construction portfolios.
Nonperforming asset balances also increased from first quarter
2010, increasing $89.7 million to $608.0 million at June 30, 2010.
Nonperforming assets as a percentage of total assets increased to
5.24% at June 30, 2010 from 4.17% at March 31, 2010. Sales of
nonperforming assets were $38.7 million in second quarter 2010.
The provision for credit losses for second quarter 2010 totaled
$113.9 million, compared with $95.1 million for first quarter 2010.
The provision increased the overall allowance for credit losses to
$400.7 million, or 5.23% of loans held for investment, up from
$380.5 million, or 4.75% of loans held for investment, at March 31,
2010. The allowance coverage of nonperforming loans held for
investment decreased to 0.86 times at June 30, 2010 from 1.00 times
at March 31, 2010.
Net loan charge-offs in second quarter 2010 increased $5.9
million to $93.7 million, or 4.78% annualized, of average loans
held for investment, from $87.8 million, or 4.32% annualized, for
first quarter 2010. Commercial net charge-offs were the primary
driver of the second quarter increase. Retail losses remained
stable with first quarter net charge-offs of approximately $11
million.
General Information
The South Financial Group is a bank holding company focused on
serving small businesses, middle market companies, and retail
customers in the Carolinas and Florida. At June 30, 2010, it had
approximately $11.6 billion in total assets and 176 branch offices.
TSFG operates Carolina First Bank, which conducts banking
operations in North Carolina and South Carolina (as Carolina First
Bank), and in Florida (as Mercantile Bank). At June 30, 2010,
approximately 44% of TSFG’s total customer deposits were in South
Carolina, 45% were in Florida, and 11% were in North Carolina.
Investor information is available at www.thesouthgroup.com.
More Information About The Merger And Where To Find
It
The proposed merger will be submitted to TSFG shareholders for
their consideration. TD has filed with the Securities and Exchange
Commission (“SEC”) a registration statement on Form F-4 that
includes a preliminary proxy statement of TSFG that also
constitutes a preliminary prospectus of TD. TSFG will mail the
definitive proxy statement-prospectus to its shareholders. You may
obtain copies of all documents filed with the SEC regarding the
proposed merger, free of charge, at the SEC’s website
(www.sec.gov). You may also obtain free copies of these documents
by contacting TSFG, as follows: Investor Relations, Attn: Brian
Wildrick, 104 South Main Street, Poinsett Plaza - 6th Floor,
Greenville, SC 29601.
TSFG shareholders and other investors are urged to read the
preliminary proxy statement-prospectus and the definitive proxy
statement-prospectus when it becomes available because they
describe the proposed merger and contain other important
information.
The South Financial Group, Inc., The Toronto-Dominion Bank,
their respective directors and executive officers and other persons
may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. Information about TSFG’s
directors and executive officers and their ownership of TSFG common
stock is contained in the definitive proxy statement for TSFG’s
2009 annual meeting of shareholders, as filed by TSFG with the SEC
on Schedule 14A on April 7, 2010. Information regarding The
Toronto-Dominion Bank’s directors and executive officers is
available in its Annual Report on Form 40-F for the year ended
October 31, 2009, which was filed with the Securities and
Exchange Commission on December 3, 2009 and its notice of
annual meeting and proxy circular for its most recent annual
meeting, which was filed with the Securities and Exchange
Commission on February 25, 2010. The proxy
statement-prospectus for the proposed merger provides more
information about participants in the solicitation of proxies from
TSFG shareholders.
Explanation of TSFG’s Use of Certain Unaudited Non-GAAP
Financial Measures and Forward-Looking Statements
This press release contains financial information determined by
methods other than Generally Accepted Accounting Principles
(“GAAP”). The attached financial highlights provide reconciliations
between GAAP net income (loss) and operating measures, which
exclude gains or losses on certain items deemed not to reflect core
operations and goodwill impairment charges. TSFG uses these
non-GAAP measures in its analysis of TSFG’s performance and
believes presentations of “operating” financial measures provide
useful supplemental information, a clearer understanding of TSFG’s
performance, and better reflect TSFG’s core operating activities.
Management utilizes non-GAAP measures in the calculation of certain
of TSFG’s ratios, in particular, to analyze on a consistent basis
over time the performance of what it considers to be its core
operations. TSFG believes the non-GAAP measures enhance investors’
understanding of TSFG’s business and performance. These measures
are also useful in understanding performance trends and facilitate
comparisons with the performance of other financial institutions.
The limitations associated with operating measures and cash basis
information are the risk that persons might disagree as to the
appropriateness of items comprising these measures and that
different companies might calculate these measures differently.
Management compensates for these limitations by providing detailed
reconciliations between GAAP and operating measures. These
disclosures should not be considered an alternative to GAAP.
This news release contains forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995)
that are provided to assist in the understanding of anticipated
future financial performance. These statements (as well as other
forward-looking statements that may be made by management in the
related conference call) include, but are not limited to,
descriptions of management's plans, expectations, goals,
projections, and statements, which are subject to numerous
assumptions, risks, and uncertainties. They also include such items
as return goals, loan growth, loan sales, customer funding growth,
expense control, goodwill impairment, income tax rate and deferred
tax assets, expected financial results for acquisitions,
noninterest income, adequacy of capital and future capital levels,
factors that will affect credit quality and the net interest
margin, effectiveness of its hedging strategies, risks and effects
of changes in interest rates, effects of future economic
conditions, and market performance. However, such statements
necessarily involve risks and uncertainties and there are a number
of factors – many of which are beyond TSFG’s control -- that could
cause the actual conditions, events, or results to differ
materially from those in such statements. For a discussion of
certain factors that may cause such forward-looking statements to
differ materially from TSFG’s actual results, please refer to
TSFG’s filings with the Securities and Exchange Commission. The
South Financial Group undertakes no obligation to release revisions
to these forward-looking statements or reflect events or
circumstances after the date of this release.
This news release contains forward-looking statements about TSFG
and the proposed transaction between TSFG and TD. There are several
factors – many beyond TSFG’s control – that could cause actual
results to differ significantly from expectations described in the
forward-looking statements. Among these factors are the receipt of
necessary regulatory approvals, the approval of TSFG’s shareholders
and other conditions to the completion of the pending merger with
TD. Forward-looking statements speak only as of the date they are
made, and we do not undertake any obligation to update them to
reflect changes that occur after that date. For a discussion of
factors that may cause actual results to differ from expectations,
refer to TSFG’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, and Annual Report on Form 10-K for the year ended
December 31, 2009, including information incorporated into
TSFG’s 10-K from its 2009 annual report, filed with the Securities
and Exchange Commission (SEC) and available on the SEC’s website
at www.sec.gov. For a discussion of certain risks relating to
the pending merger with TD, see “More Information About The Merger
And Where To Find It” above.
PAGE 1, FINANCIAL HIGHLIGHTS THE SOUTH FINANCIAL GROUP,
INC. AND SUBSIDIARIES (dollars in thousands, except share
data) (unaudited)
Three Months
Ended % Change 6/30/10 vs. 3/31/10
6/30/10 3/31/10 6/30/09 3/31/10
Annualized 6/30/09
EARNINGS SUMMARY Net interest
income (tax-equivalent)
$ 69,528 $ 73,650 $ 87,046
(5.6 ) % (22.4 ) % (20.1
)%
Less: tax-equivalent adjustment
60
125 1,116
(52.0 ) (208.6
) (94.6 ) Net interest
income
69,468 73,525 85,930 (5.5 ) (22.1 ) (19.2 ) Provision
for credit losses
113,884 95,123 131,337 19.7 79.1 (13.3 )
Noninterest income: Operating noninterest income (noninterest
income, excluding non-operating items)
26,478 21,521 27,692
23.0 92.4 (4.4 ) Gain (loss) on securities
10,487 (389
) 4,580 n/m
n/m n/m
Non-operating noninterest income (loss)
10,487 (389
) 4,580 n/m
n/m n/m Total
noninterest income
36,965
21,132 32,272
74.9 300.5
14.5 Noninterest expenses: Operating
noninterest expenses (noninterest expenses, excluding non-operating
items)
91,335 82,775 112,763 10.3 41.5 (19.0 ) Goodwill
impairment
214,118 - 2,511 n/m n/m n/m Severance related
benefits
- 878 829 n/m n/m n/m Impairment of long lived
assets
- - 17,376 n/m n/m n/m FDIC special assessment
- - 5,700 n/m n/m n/m Gain on early extinguishment of debt
- -
(2,991 ) n/m
n/m n/m Non-operating
noninterest expenses
214,118
878 23,425
n/m n/m n/m
Total noninterest expenses
305,453 83,653
136,188 n/m
n/m n/m Income (loss)
before income taxes
(312,904 ) (84,119 ) (149,323 )
n/m n/m n/m Income tax expense (benefit)
(3,359 )
(3,525 ) (59,647
) n/m n/m
n/m Net income (loss)
(309,545 )
(80,594 ) (89,676 ) n/m n/m n/m Preferred stock dividends and other
(1)
(5,358 )
(5,235 ) (21,809
) n/m n/m
n/m Net income (loss) available to common
shareholders
$ (314,903
) $ (85,829
) $ (111,485 )
n/m %
n/m %
n/m
%
Per common share data: Basic earnings (loss)
$
(1.46 ) $ (0.40 ) $ (1.23 ) n/m % n/m % n/m
%
Diluted earnings (loss)
(1.46 ) (0.40 ) (1.23 ) n/m
n/m n/m Cash dividends declared per common share
- - 0.01
n/m n/m n/m Average common shares outstanding: Basic
215,987,294 215,522,634 90,986,862 0.2 % 0.9 % 137.4
%
Diluted
215,987,294 215,522,634 90,986,862 0.2 0.9 137.4
PERFORMANCE RATIOS: Total revenue: GAAP (2)
$
106,433 $ 94,657 $ 118,202 12.4 % 49.9 %
(10.0)
%
Operating (3)
96,006 95,171 114,738 0.9 3.5
(16.3)
Return on average assets (4)
(10.35 ) % (2.74 )
% (2.75
)%
Return on average common equity
(5)
(225.95 ) (54.11 ) (43.79 )
Return on average equity (4)
(138.91 ) (33.37 ) (23.36 ) Net interest margin
(tax-equivalent)
2.55 2.75 2.94
Cash operating efficiency ratio
(6)
84.30 80.14 77.69
(1) For the quarter ended June 30,
2009, included $14.0 million for the value of common shares
recorded as an inducement for early conversion of mandatorily
convertible preferred stock.
(2) The sum of net interest income
and noninterest income.
(3) The sum of tax-equivalent net
interest income and operating noninterest income.
(4) Return on average assets and
return on average equity are calculated as net income (loss)
divided by either average assets or average total equity.
(5) Return on average common
equity is calculated as net income (loss) available to common
shareholders divided by average common equity.
(6) The cash operating efficiency
ratio is calculated as operating noninterest expenses before
gain/loss on OREO, loss on nonmortgage loans held for sale, and
amortization of intangibles divided by the sum of tax-equivalent
net interest income and operating noninterest income.
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
PAGE 2, FINANCIAL HIGHLIGHTS THE SOUTH
FINANCIAL GROUP, INC. AND SUBSIDIARIES (dollars in
thousands, except share data) (unaudited)
Six Months Ended
6/30/10 6/30/09 % Change
EARNINGS
SUMMARY Net interest income (tax-equivalent)
$
143,178 $ 173,267 (17.4
)%
Less: tax-equivalent adjustment
185
2,319 (92.0
) Net interest income
142,993 170,948 (16.4 )
Provision for credit losses
209,007 273,964 (23.7 )
Noninterest income: Operating noninterest income (noninterest
income, excluding non-operating items)
47,999 54,387 (11.7 )
Gain (loss) on securities
10,098
1,626 n/m
Non-operating noninterest income (loss)
10,098 1,626
n/m Total noninterest income
58,097 56,013
3.7 Noninterest expenses: Operating noninterest
expenses (noninterest expenses, excluding non-operating items)
174,110 202,380 (14.0 ) Goodwill impairment
214,118
2,511 n/m Severance related benefits
878 829 n/m Impairment
of long lived assets
- 17,376 n/m FDIC special assessment
- 5,700 n/m (Gain) loss on early extinguishment of debt
- (3,043 ) n/m Loss on repurchase of auction rate securities
- 676
n/m Non-operating noninterest expenses
214,996 24,049
n/m Total noninterest expenses
389,106 226,429
71.8 Income (loss) before income taxes
(397,023 ) (273,432 ) n/m Income tax expense
(benefit)
(6,884 )
(109,353 ) n/m
Net income (loss)
(390,139 ) (164,079 ) n/m Preferred
stock dividends and other (1)
(10,593
) (38,217 )
n/m Net income (loss) available to common
shareholders
$ (400,732
) $ (202,296
) n/m
%
Per common share data: Basic earnings (loss)
$
(1.86 ) $ (2.34 ) n/m
%
Diluted earnings (loss)
(1.86 ) (2.34 ) n/m Cash
dividends declared per common share
- 0.02 n/m Average
common shares outstanding: Basic
215,756,248
86,629,235 149.1
%
Diluted
215,756,248 86,629,235 149.1
PERFORMANCE
RATIOS: Total revenue: GAAP (2)
$ 201,090 $
226,961 (11.4
)%
Operating (3)
191,177 227,654 (16.0 )
Return on average assets (4)
(6.58
) %
(2.48
) %
Return on average common equity (5)
(134.48 ) (39.05
)
Return on average equity (4)
(84.02 ) (21.07 ) Net interest margin
(tax-equivalent)
2.67 2.88 Cash operating efficiency ratio
(6)
82.23 77.09
(1) For the six months ended June
30, 2009, included $20.5 million for the value of common shares
recorded as an inducement for early conversion of mandatorily
convertible preferred stock.
(2)The sum of net interest income
and noninterest income.
(3)The sum of tax-equivalent net
interest income and operating noninterest income.
(4)Return on average assets and
return on average equity are calculated as net income (loss)
divided by either average assets or average total equity.
(5)Return on average common equity
is calculated as net income (loss) available to common shareholders
divided by average common equity.
(6)The cash operating efficiency
ratio is calculated as operating noninterest expenses before
gain/loss on OREO, loss on nonmortgage loans held for sale, and
amortization of intangibles divided by the sum of tax-equivalent
net interest income and operating noninterest income.
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
PAGE 3, FINANCIAL HIGHLIGHTS THE SOUTH FINANCIAL GROUP,
INC. AND SUBSIDIARIES (dollars in thousands, except share
data) (unaudited) % Change
6/30/10 vs. 3/31/10
6/30/10 3/31/10 6/30/09
3/31/10 Annualized 6/30/09
BALANCE
SHEET DATA (Averages - Three Months Ended) Total assets
$ 11,999,530 $ 11,924,946 $ 13,085,556 0.6
% 2.5 % (8.3 ) % Intangible assets
(225,943 )
(229,299 ) (244,040
) (1.5 ) (5.9
) (7.4 ) Tangible assets
11,773,587
11,695,647 12,841,516
0.7 2.7
(8.3 ) Loans
7,880,965
8,250,159 9,875,268 (4.5 ) (17.9 ) (20.2 ) Securities (1)
2,284,595 2,126,869 1,926,894 7.4 29.7 18.6 Total earning
assets
10,947,673 10,827,782 11,875,332 1.1 4.4 (7.8 )
Noninterest-bearing deposits
1,111,239 1,088,131
1,074,739 2.1 8.5 3.4 Total deposits (2)
9,567,979 9,360,437
9,265,643 2.2 8.9 3.3 Customer funding (3)
7,956,097
7,782,080 7,673,784 2.2 9.0 3.7 Wholesale borrowings (4)
2,985,708 2,989,364 3,636,319 (0.1 ) (0.5 ) (17.9 ) Total
funding
10,941,805 10,771,444 11,310,103 1.6 6.3 (3.3 )
Preferred stock
334,811 336,168 518,968 (0.4 ) (1.6 )
(35.5 ) Common equity
558,994
643,325 1,021,053
(13.1 ) (52.6
) (45.3 ) Shareholders'
equity
893,805 979,493 1,540,021 (8.7 ) (35.1 ) (42.0 )
Intangible assets
(225,943
) (229,299 )
(244,040 ) (1.5
) (5.9 ) (7.4
) Tangible equity
667,862
750,194
1,295,981 (11.0 )
(44.0 ) (48.5 )
Loans/total earning assets
72.0 % 76.2 % 83.2
% Securities/total assets
19.0 17.8 14.7 Customer
funding/total funding
72.7 72.2 67.8 Wholesale
borrowings/total assets
24.9 25.1 27.8 Loans/customer
funding
99.1 106.0 128.7
BALANCE SHEET DATA
(Averages - Year to Date) Total assets
$
11,962,444 $ 11,924,946 $ 13,319,542 0.3 % 1.3 % (10.2 ) %
Intangible assets
(227,611
) (229,299 )
(244,687 ) (0.7
) (3.0 ) (7.0
) Tangible assets
11,734,833
11,695,647 13,074,855
0.3 1.3
(10.2 ) Loans
8,064,542
8,250,159 10,030,953 (2.2 ) (9.0 ) (19.6 ) Securities (1)
2,206,167 2,126,869 2,023,286 3.7 15.0 9.0 Total earning
assets
10,799,437 10,827,782 12,054,465 (0.3 ) (1.0 ) (10.4
) Noninterest-bearing deposits
1,099,749 1,088,131
1,048,217 1.1 4.3 4.9 Total deposits (2)
9,464,781 9,360,437
9,317,030 1.1 4.5 1.6 Customer funding (3)
7,869,569
7,782,080 7,795,697 1.1 4.5 0.9 Wholesale borrowings (4)
2,987,526 2,989,364 3,720,480 (0.1 ) (0.2 ) (19.7 ) Total
funding
10,857,095 10,771,444 11,516,177 0.8 3.2 (5.7 )
Preferred stock
335,486 336,168 525,662 (0.2 ) (0.8 )
(36.2 ) Common equity
600,926
643,325 1,044,604
(6.6 ) (26.4
) (42.5 ) Shareholders'
equity
936,412 979,493 1,570,266 (4.4 ) (17.6 ) (40.4 )
Intangible assets
(227,611
) (229,299 )
(244,687 ) (0.7
) (3.0 ) (7.0
) Tangible equity
708,801
750,194
1,325,579 (5.5 )
(22.1 ) (46.5 )
Loans/total earning assets
74.7 % 76.2 % 83.2
% Securities/total assets
18.4 17.8 15.2 Customer
funding/total funding
72.5 72.2 67.7 Wholesale
borrowings/total assets
25.0 25.1 27.9 Loans/customer
funding
102.5 106.0 128.7
(1)The average balances for
investment securities exclude the unrealized gain/loss recorded for
available for sale securities.
(2)Total deposits include brokered
deposits.
(3)Customer funding includes total
deposits less brokered deposits plus customer sweep accounts.
(4)Wholesale borrowings include
borrowings less customer sweep accounts plus brokered deposits.
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
PAGE 4, FINANCIAL HIGHLIGHTS THE SOUTH FINANCIAL GROUP,
INC. AND SUBSIDIARIES (dollars in thousands, except share
data) (unaudited) % Change
6/30/10 vs. 3/31/10
6/30/10 3/31/10
6/30/09 3/31/10
Annualized 6/30/09
BALANCE
SHEET DATA (Period End) Loans held for sale (1)
$
31,457 $ 13,296 $ 40,290 n/m % n/m % (21.9 ) % Loans held
for investment
7,658,395 8,002,694 9,306,009 (4.3 ) (17.3 )
(17.7 ) Allowance for loan losses
(394,155 ) (373,146
) (285,290 ) 5.6 22.6 38.2 Allowance for credit losses
(400,678 ) (380,493 ) (289,680 ) 5.3 21.3 38.3
Securities
2,145,352 2,320,003 1,891,102 (7.5 ) (30.2 ) 13.4
Intangible assets
13,690 228,816 240,932 (94.0 ) (377.1 )
(94.3 ) Total assets
11,595,369 12,428,152 12,588,231 (6.7 )
(26.9 ) (7.9 ) Noninterest-bearing deposits
1,100,373
1,109,153 1,099,743 (0.8 ) (3.2 ) 0.1 Total deposits (2)
9,429,153 9,764,170 9,388,652 (3.4 ) (13.8 ) 0.4 Customer
funding (3)
7,936,832 8,095,110
7,663,645 (2.0 ) (7.8 ) 3.6 Wholesale borrowings (4)
2,871,794 3,085,691 3,194,596 (6.9 ) (27.8 ) (10.1 ) Total
funding
10,808,626 11,180,801 10,858,241 (3.3 ) (13.4 ) (0.5
) Mandatorily convertible preferred stock
- 4,650 190,026
n/m n/m n/m Perpetual preferred stock
332,943 332,031
329,380 0.3 1.1 n/m Common equity
283,878 582,969 989,847
(51.3 ) (205.8 ) (71.3 ) Shareholders' equity
616,821
919,650 1,509,253 (32.9 ) (132.1 ) (59.1 )
CAPITAL
RATIOS Tier 1 risk-based capital (preliminary)
8.52
% 9.52 % 12.36 % Total risk-based capital (preliminary)
10.24 10.83 13.65 Leverage ratio (preliminary)
6.11
7.41 10.30 Tangible equity to tangible assets
5.21 5.66
10.27 Tangible common equity to tangible assets
2.33 2.90
6.07
SHARE DATA Convertible preferred shares
outstanding
- 4,650 190,026 n/m % n/m % n/m % Common shares
outstanding
216,403,004 215,624,517 160,248,170 0.4 1.4 35.0
Common book value per common share (5)
$ 1.31 $ 2.70
$ 6.18 (51.5 ) (206.5 ) (78.8 )
Common tangible book value per
common share (5)
1.25 1.64 4.67 (23.8 ) (95.4 ) (73.2 )
OPERATIONS
DATA Branch offices
176 176 177 - % - % (0.6 ) % ATMs
194 196 200 (1.0 ) (4.1 ) (3.0 ) Employees (full-time
equivalent)
2,066 2,144 2,345 (3.6 ) (14.6 ) (11.9 )
(1)For the quarter ended June 30,
2009, loans held for sale included $376,000 of nonperforming loans
held for sale.
(2)Total deposits include brokered
deposits.
(3)Customer funding includes total
deposits less brokered deposits plus customer sweep accounts.
(4)Wholesale borrowings include
borrowings less customer sweep accounts plus brokered deposits.
(5)Common book value per common
share is calculated as total shareholders equity less preferred
stock divided by common shares outstanding. Common tangible book
value per common share also excludes intangible assets.
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
PAGE 5, FINANCIAL HIGHLIGHTS THE SOUTH FINANCIAL GROUP,
INC. AND SUBSIDIARIES (dollars in thousands, except share
data) (unaudited)
% Change 6/30/10 vs. 3/31/10
6/30/10
3/31/10 6/30/09
3/31/10 Annualized 6/30/09
CREDIT QUALITY Loans held for investment
$
7,658,395 $ 8,002,694 $ 9,306,009 (4.3 ) % (17.3 ) % (17.7 )
% Allowance for loan losses
(394,155 ) (373,146 )
(285,290 ) 5.6 38.2 Allowance for credit losses
(400,678
) (380,493 ) (289,680 ) 5.3 38.3 Nonperforming loans
held for investment
$
460,617
$ 374,156 $ 464,565
23.1
%
(0.8
) % Nonperforming loans held for sale
- - 376 - n/m
Foreclosed property (other real
estate owned and personal property repossessions)
147,400
144,128 95,752
2.3 53.9 Nonperforming
assets
$
608,017
$ 518,284 $
560,693
17.3
%
8.4
%
Restructured loans not included in
nonperforming assets
$ 75,451 $ 45,051 $ 17,291
Nonperforming loans held for
investment as a % of loans held for investment
6.01
% 4.68 % 4.99 %
Nonperforming assets as a % of
loans and foreclosed property
7.76
6.35 5.94 Nonperforming assets as a % of total assets
5.24
4.17 4.45 Allowance for loan losses as a % of loans HFI
5.15
4.66 3.07
Allowance for credit losses as a %
of loans HFI
5.23 4.75 3.11
Allowance for loan losses to
nonperforming loans HFI
0.86
x 1.00 x 0.61 x
Loans past due 90 days or more
(interest accruing)
$ 14,150 $ 3,442 $ 11,107 27.4 % Average loans held
for investment: Three months ended
7,862,877 8,240,922
9,847,366 Year to date
8,050,855 8,240,922 10,000,260 Net
loan charge-offs: Three months ended
93,699 87,756 120,611
6.8 % (22.3 ) % Year to date
181,455 87,756 229,687 (21.0 )
Net loan charge-offs as a % of
average loans held for investment (annualized):
Three months ended
4.78 % 4.32 % 4.91 % Year to date
4.55 4.32 4.63
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
PAGE 6, FINANCIAL HIGHLIGHTS THE SOUTH FINANCIAL GROUP,
INC. AND SUBSIDIARIES (dollars in thousands, except share
data) (unaudited) Three Months
Ended % Change 6/30/10 vs. 3/31/10
6/30/10
3/31/10 6/30/09 3/31/10
Annualized 6/30/09
NONINTEREST INCOME Customer fee income
$
13,138 $ 12,565 $ 12,967 4.6 % 18.3 % 1.3 % Wealth
management income
4,348 4,565 5,477 (4.8 ) (19.1 ) (20.6 )
Mortgage banking income
1,493 1,289 2,050 15.8 63.5 (27.2 )
Bank-owned life insurance
4,480 2,444 2,560 83.3 334.1 75.0
Merchant processing income, net
- - 817 n/m n/m n/m Gain on
certain derivative activities
573 59 1,085 n/m n/m (47.2 )
Other
2,446 599
2,736 n/m
n/m (10.6 )
Operating noninterest income
(noninterest income, excluding non-operating items)
26,478 21,521 27,692 23.0 92.4 (4.4 ) Non-operating
noninterest income (loss)
10,487
(389 ) 4,580
n/m n/m n/m
Total noninterest income
$
36,965 $ 21,132
$ 32,272 74.9
%
300.5 %
14.5 %
NONINTEREST EXPENSES Personnel expense
$
35,878 $ 34,348 $ 43,664 4.5 % 17.9 % (17.8 ) % Occupancy
9,771 9,700 9,506 0.7 2.9 2.8 Furniture and equipment
6,335 6,606 6,801 (4.1 ) (16.5 ) (6.9 ) Professional
services
5,295
5,329 4,351
(0.6
) (2.6 ) 21.7 Project NOW expense
- - 281 n/m n/m n/m
Advertising and business development
986 1,169 2,109 (15.7 )
(62.8 ) (53.2 ) Telecommunications
1,563 1,536 1,551 1.8 7.1
0.8 Amortization of intangibles
1,008 1,009 1,286 (0.1 )
(0.4 ) (21.6 ) Regulatory assessments
8,708 7,150 6,479 21.8
87.4 34.4 Loan collection and foreclosed asset expense
5,940
4,692 7,247 26.6 106.7 (18.0 ) Loss on nonmortgage loans held for
sale
- - 9,461 n/m n/m n/m Loss on OREO
9,394 5,492
12,873 n/m n/m n/m Other
6,457
5,744 7,154
12.4
49.8
(9.7 )
Operating noninterest expenses
(noninterest expenses, excluding non-operating items)
91,335 82,775 112,763 10.3 41.5 (19.0 ) Non-operating
noninterest expenses
214,118
878 23,425 n/m
n/m n/m Total
noninterest expenses
$
305,453 $ 83,653
$ 136,188 n/m
%
n/m %
n/m %
Six Months Ended
6/30/10 6/30/09
% Change
NONINTEREST INCOME Customer
fee income
$ 25,703 $ 25,369 1.3 % Wealth management
income
8,913 12,051 (26.0 ) Mortgage banking income
2,782 3,255 (14.5 ) Bank-owned life insurance
6,924
5,062 36.8 Merchant processing income, net
- 1,427 n/m Gain
on certain derivative activities
632 2,220 (71.5 ) Other
3,045 5,003
(39.1 )
Operating noninterest income
(noninterest income, excluding non-operating items)
47,999 54,387 (11.7 ) Non-operating noninterest income
10,098 1,626
n/m Total noninterest income
$ 58,097
$ 56,013 3.7 %
NONINTEREST EXPENSES Personnel expense
$
70,226 $ 87,778 (20.0 ) % Occupancy
19,471 18,942 2.8
Furniture and equipment
12,941 13,746 (5.9 ) Professional
services
10,624
8,858 19.9 Project NOW expense
- 1,579 n/m Advertising and
business development
2,155 3,390 (36.4 ) Telecommunications
3,099 3,077 0.7 Amortization of intangibles
2,017
2,577 (21.7 ) Regulatory assessments
15,858 11,134 42.4 Loan
collection and foreclosed asset expense
10,632 12,138 (12.4
) Loss on nonmortgage loans held for sale
- 11,299 n/m Loss
on OREO
14,886 12,997 n/m Other
12,201
14,865 (17.9 )
Operating noninterest expenses
(noninterest expenses, excluding non-operating items)
174,110 202,380 (14.0 ) Non-operating noninterest expenses
214,996
24,049 n/m Total noninterest
expenses
$ 389,106
$ 226,429 71.8 %
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
PAGE 7, FINANCIAL HIGHLIGHTS THE SOUTH FINANCIAL GROUP,
INC. AND SUBSIDIARIES (dollars in thousands, except share
data) (unaudited) Three Months Ended
6/30/10
3/31/10 6/30/09
RECONCILIATION OF
GAAP TO NON-GAAP MEASURES NET INCOME (LOSS), AS
REPORTED (GAAP)
$ (309,545 ) $ (80,594 ) $
(89,676 ) Add: Income tax expense (benefit)
(3,359 )
(3,525 ) (59,647
) Income (loss) before income taxes
(312,904
) (84,119 ) (149,323 ) Non-operating items: (Gain) loss on
securities
(10,487 ) 389 (4,580 ) Goodwill impairment
214,118 - 2,511 Severance related benefits
- 878 829
Impairment of long lived assets
- - 17,376 FDIC special
assessment
- - 5,700 Gain on early extinguishment of debt
- -
(2,991 )
PRE-TAX OPERATING LOSS (income
(loss) before taxes, excluding non-operating items)
(109,273 ) (82,852 ) (130,478 ) Add: Provision for
credit losses
113,884
95,123 131,337
PRE-TAX, PRE-PROVISION OPERATING EARNINGS
$
4,611 $ 12,271
$ 859
Six Months
Ended 6/30/10
6/30/09
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES NET INCOME (LOSS), AS REPORTED (GAAP)
$ (390,139 ) $ (164,079 ) Add: Income tax
expense (benefit)
(6,884
) (109,353 )
Income (loss) before income taxes
(397,023 ) (273,432
) Non-operating items: (Gain) loss on securities
(10,098
) (1,626 ) Goodwill impairment
214,118 2,511
Severance related benefits
878 829 Impairment of long lived
assets
- 17,376 FDIC special assessment
- 5,700
(Gain) loss on early extinguishment of debt
- (3,043 ) Loss
on repurchase of auction rate securities
- 676
PRE-TAX OPERATING LOSS (income
(loss) before taxes, excluding non-operating items)
(192,125 ) (251,009 ) Add: Provision for credit
losses
209,007
273,964 PRE-TAX, PRE-PROVISION OPERATING
EARNINGS
$ 16,882
$ 22,955
A Quarterly Financial Data
Supplement is available in the Investor Relations section of TSFG's
web site: www.thesouthgroup.com.
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