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| The South Financial Group Reports Third Quarter Results |
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GREENVILLE, S.C.--(BUSINESS WIRE)--The South Financial Group, Inc. (NASDAQ: TSFG) today reported a third quarter 2008 net loss of $25.0 million, compared with a second quarter 2008 net loss of $10.9 million. The net loss per diluted share was $(0.43) for third quarter 2008, compared with $(0.23) for second quarter 2008. Excluding non-operating items, the third quarter 2008 operating loss totaled $22.6 million and $(0.40) per diluted share. Reconciliations of GAAP-reported results to operating results and year-to-date results are provided in the attached financial highlights. Third quarter 2008 results reflect the following items:
"Capital, credit, and liquidity remain our top priorities in this tumultuous environment," said Mack I. Whittle, Jr., Chairman, President and Chief Executive Officer of The South Financial Group. "We're managing balance sheet growth to preserve capital, continuing to address problem loans, and focusing on growing core deposits." Whittle continued, "Residential construction loans, particularly in Florida, remain problematic. Continuing our approach from last quarter, we've sold $25.9 million of problem loans, moved $22.6 million of nonperforming loans to held for sale based on pending transactions, and continued to increase our loan loss reserves. It was a tough quarter for deposit pricing, and our decision to trade margin to improve liquidity contributed to the net interest margin compression. Increasing core deposits remains a key strategic objective as we weather the economic downturn and work to emerge even stronger. As we prepare for my retirement by the end of the year, our Operating Council, which includes James Gordon, Lynn Harton, and Chris Holmes, will continue to provide the core leadership both now and throughout the transition to our new Chief Executive Officer, spearheading the execution of our strategic objectives." Net Interest Income and Average Balance Sheet Third quarter 2008 tax-equivalent net interest income decreased $4.6 million to $96.9 million from $101.5 million in second quarter 2008. This decrease related to a lower net interest margin and a slight decline in average earning assets. The tax-equivalent net interest margin for third quarter 2008 decreased to 3.08%, down 16 basis points from 3.24% for second quarter 2008, primarily from funding mix shifts to improve and maintain liquidity, intense competition for customer deposits, and an increase in the reversal of interest income on loans moving to nonaccrual status. Before increasing last quarter, the net interest margin had remained relatively stable in the previous six quarters, ranging from 3.07% to 3.12%, during which time the target Federal funds rate dropped by 325 basis points. Average funding costs increased 5 basis points while the yield on average earning assets declined 14 basis points. Within funding costs, wholesale funding costs increased 22 basis points, reflecting a shift in wholesale funding balances into longer-term, higher-cost sources, while customer funding costs declined 3 basis points. Third quarter 2008 average earning assets decreased $23.3 million, or (0.2)% linked-quarter, to $12.6 billion. Third quarter 2008 average loans remained unchanged at $10.5 billion; however, period-end loans held for investment decreased $176.1 million. In May, TSFG ceased production of indirect loans in Florida and is letting the existing portfolio run off over time. At September 30, 2008, this portfolio totaled $428.6 million, down $55.3 million from June 30, 2008. Third quarter 2008 average customer funding, defined as total deposits less brokered deposits plus customer sweep accounts, increased $50.4 million, or 0.6% linked-quarter, from adding higher-cost customer deposits, primarily certificates of deposit. Third quarter 2008 average wholesale borrowings, including brokered deposits and excluding customer sweep accounts, decreased $132.3 million in connection with the increase in average customer funding and decline in average investment securities. Noninterest Income Third quarter 2008 operating noninterest income (which excludes the non-operating items mentioned below) totaled $28.6 million, down $1.7 million from $30.3 million for second quarter 2008. Linked-quarter, customer fee income and wealth management income increased $407,000 and $104,000, respectively. Together, these two categories account for approximately 77% of the operating noninterest income for third quarter 2008. Increases in these categories were offset by declines in mortgage banking income (down $979,000), losses on sales and write-downs of other real estate owned (down $768,000), and a negative swing in the valuations associated with certain derivative activities (down $435,000). Total noninterest income, including non-operating items, was $27.9 million for third quarter 2008, compared with $32.2 million for second quarter 2008. Non-operating noninterest income for third quarter 2008 included a $725,000 net loss on securities from the recognition of approximately $1.8 million of other than temporary impairment on certain community bank-related investments with a remaining carrying value of $3.6 million partially offset by gains on the sale of other investments totaling $1.1 million. Noninterest Expenses Operating noninterest expenses (which exclude the non-operating items mentioned below) totaled $88.9 million for third quarter 2008, a $4.2 million increase from $84.7 million for second quarter 2008. The linked-quarter increase reflects items related to the current operating environment, including a $1.9 million increase for loan collection and monitoring, $646,000 for higher FDIC insurance premiums, and $940,000 for lower loan origination salary deferrals. Increases in professional service fees and occupancy expense were partially offset by declines in advertising and business development and other expenses. Total noninterest expenses, including non-operating items, were $93.4 million for third quarter 2008, compared with $87.6 million for second quarter 2008. Third quarter 2008 non-operating noninterest expenses included $4.6 million related to the retirement of Mack Whittle (announced in September 2008) and a $125,000 gain on early extinguishment of debt. Credit Quality At September 30, 2008, nonperforming loans held for investment totaled $240.1 million, a $19.9 million increase from $220.2 million at June 30, 2008. In addition, TSFG had $22.6 million in nonperforming loans held for sale, for which the consummation of the proposed sales is pending. Approximately 53%, or $127.3 million, of nonaccrual loans held for investment at September 30, 2008 related to residential construction loans, with approximately 76% of these loans located in Florida. At September 30, 2008, nonperforming assets increased to $293.2 million, or 2.83% of loans and foreclosed property, from $241.9 million, or 2.30%, at June 30, 2008. Excluding nonperforming loans held for sale, nonperforming assets totaled 2.62% of loans held for investment and foreclosed property at September 30, 2008. The provision for credit losses for third quarter 2008 totaled $84.6 million, compared with $63.8 million for second quarter 2008 and $73.3 million for first quarter 2008. For third quarter 2008, the provision for credit losses exceeded net loan charge-offs by $9.2 million. This increased the allowance for credit losses to $203.0 million, or 1.97% of loans held for investment, up from $193.8 million, or 1.85% of loans held for investment, at June 30, 2008, and $177.0 million, or 1.72%, at March 31, 2008. The allowance coverage of nonperforming loans held for investment totaled 0.84 times, in line with 0.87 times at June 30, 2008 and 0.78 times at March 31, 2008. Net loan charge-offs in third quarter 2008 totaled $75.4 million, or 2.87% of average loans held for investment, an increase from $47.0 million, or 1.81%, for second quarter 2008. Approximately 59%, or $44.6 million, of the third quarter 2008 net loan charge-offs related to residential construction loans, with nearly 90% of these charge-offs in Florida. Third quarter 2008 net loan charge-offs included $28.1 million for loan sales and loans held for sale and $17.6 million from the recognition of previously-established specific reserves on impaired loans as charge-offs. Net loan charge-offs totaled 1.90% for 2008 year-to-date and averaged $49.1 million per quarter. The third quarter 2008 sale of approximately $25.9 million of problem loans increased the level of net loan charge-offs, but moderated nonperforming loan levels. The loans sold were primarily residential construction-related loans in Florida and included one of TSFG's largest nonperforming loans. Capital Tangible shareholders' equity at September 30, 2008 remained relatively unchanged at $1.0 billion, and tangible book value per common share assuming conversion of the preferred stock totaled $9.42 at September 30, 2008, compared with $9.63 at June 30, 2008. TSFG's tangible equity to tangible assets ratio at September 30, 2008 was 7.94%, unchanged from June 30, 2008 and up from 6.61% at December 31, 2007. Despite a third quarter 2008 net loss, TSFG's capital ratios remained relatively unchanged, principally from a $281.7 million reduction in total assets at period-end. TSFG and its banking subsidiary exceed "well-capitalized" standards for all regulatory capital ratios. Conference Call / Webcast Information The South Financial Group will host a conference call on Wednesday, October 22nd at 10:00 a.m. (ET) to discuss third quarter 2008 financial results. Additional material information, including forward-looking statements such as trends and projections, may be discussed during the presentation. For supplemental financial information and financial review presentation slides, please refer to the Form 8-K filed by TSFG with the Securities and Exchange Commission on October 21st or visit the Investor Relations section of its website under the Quarterly Earnings button. To participate in the conference call or webcast, please follow the instructions listed below. Conference Call: Please call 1-888-405-5393 or 1-517-645-6236 using the access code "The South." A 7-day rebroadcast of the call will be available via 1-800-234-8715 or 1-402-220-9691. Webcast: To gain access to the webcast, which will be "listen-only," please go to www.thesouthgroup.com under the Investor Relations tab and click on the link "Webcast/The South Financial Group 3rd Quarter Earnings Conference Call." For those unable to participate during the live webcast, it will be archived on The South Financial Group website until November 5, 2008. General Information The South Financial Group is the largest publicly-traded bank holding company headquartered in South Carolina and ranks among the top 50 U.S. commercial bank holding companies in total assets. At September 30, 2008, it had approximately $13.7 billion in total assets and 180 branch offices in Florida, North Carolina, and South Carolina. TSFG operates Carolina First Bank, which conducts banking operations in North Carolina and South Carolina (as Carolina First Bank), in Florida (as Mercantile Bank), and on the Internet (as Bank CaroLine). At September 30, 2008, approximately 45% of TSFG's total customer deposits were in South Carolina, 41% were in Florida, and 14% were in North Carolina. Investor information is available at www.thesouthgroup.com. 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 earnings or loss (which exclude gains or losses on certain items deemed not to reflect core operations). In addition, TSFG provides data eliminating intangibles and related amortization in order to present data on a "tangible" or "cash operating" basis. 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, objectives or goals for future operations, and predictions, forecasts or other statements about future operations. They also include such items as return goals, loan growth, loan sales, customer funding growth, expense control, income tax rate, 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.
PAGE 1, FINANCIAL HIGHLIGHTS
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data) (unaudited)
----------------------------------------------------------------------
Three Months Ended
-------------------------------------
9/30/08 6/30/08 9/30/07
----------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income (tax-
equivalent) $ 96,923 $ 101,540 $ 98,312
Less: tax-equivalent adjustment 1,304 1,335 1,538
------------ ------------ -----------
Net interest income 95,619 100,205 96,774
Provision for credit losses 84,608 63,763 10,504
Noninterest income:
Operating noninterest income
(noninterest income,
excluding non-operating
items) 28,625 30,314 29,630
Gain (loss) on securities (725) 1,876 287
------------ ------------ -----------
Non-operating noninterest
income (loss) (725) 1,876 287
------------ ------------ -----------
Total noninterest income 27,900 32,190 29,917
------------ ------------ -----------
Noninterest expenses:
Operating noninterest
expenses (noninterest
expenses, excluding non-
operating items) 88,896 84,673 77,440
Employment contracts and
severance 4,621 2,299 -
Branch acquisition and
conversion costs - 731 -
(Gain) loss on early
extinguishment of debt (125) (83) 1,299
------------ ------------ -----------
Non-operating noninterest
expenses 4,496 2,947 1,299
------------ ------------ -----------
Total noninterest expenses 93,392 87,620 78,739
------------ ------------ -----------
Income (loss) before income
taxes (54,481) (18,988) 37,448
Income tax expense (benefit) (29,526) (8,056) 11,609
------------ ------------ -----------
Net income (loss) (24,955) (10,932) 25,839
Preferred stock dividends 6,250 5,833 -
------------ ------------ -----------
Net income (loss) available
to common shareholders $ (31,205) $ (16,765) $ 25,839
============ ============ ===========
Earnings:
Operating earnings (loss) $ (22,564) $ (10,262) $ 26,537
Operating earnings (loss)
available to common
shareholders (28,814) (16,095) 26,537
Per common share data:
Basic earnings (loss) $ (0.43) $ (0.23) $ 0.35
Diluted earnings (loss) (0.43) (0.23) 0.35
Operating earnings (loss)
available to common
shareholders, diluted (0.40) (0.22) 0.36
Cash dividends declared per
common share 0.01 0.01 0.18
Average common shares
outstanding:
Basic 72,755,480 72,611,024 73,146,211
Diluted (1) 72,755,480 72,611,024 73,605,752
PERFORMANCE RATIOS:
Total revenue: (2)
GAAP $ 123,519 $ 132,395 $ 126,691
Operating (3) 125,548 131,854 127,942
Return on average assets (4) (0.72)% (0.32)% 0.73%
Return on average common equity
(5) (9.53) (4.97) 6.75
Return on average equity (4) (6.39) (2.94) 6.75
Net interest margin (tax-
equivalent) 3.08 3.24 3.12
Efficiency ratios: (6)
GAAP 75.61 66.18 62.15
Cash operating (3) 69.63 63.01 59.04
(1) For the three months ended September 30, 2008 and June 30, 2008,
average diluted shares exclude preferred stock and outstanding equity
awards since their effect would be antidilutive.
(2) The sum of net interest income and noninterest income.
(3) Total revenue and the cash efficiency ratio, on an operating
basis, are calculated using tax-equivalent net interest income and
exclude non-operating items. The cash operating efficiency ratio also
excludes amortization of intangibles.
(4) Return on average assets and return on average equity are
calculated as net income divided by either average assets or average
total equity.
(5) Return on average common equity is calculated as net income
available to common shareholders divided by average common equity.
(6) Calculated as noninterest expenses divided by the sum of net
interest income and noninterest income.
A Quarterly Financial Data Supplement is available in the Investor
Relations section of TSFG's web site: www.thesouthgroup.com.
PAGE 1, FINANCIAL HIGHLIGHTS
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data) (unaudited)
----------------------------------------------------------------------
% Change 9/30/08 vs.
---------------------------
6/30/08
6/30/08 Annualized 9/30/07
--------------------------------------------------- ---------- -------
EARNINGS SUMMARY
Net interest income (tax-equivalent) (4.5)% (18.1)% (1.4)%
Less: tax-equivalent adjustment (2.3) (9.2) (15.2)
------- --------- ------
Net interest income (4.6) (18.2) (1.2)
Provision for credit losses 32.7 130.1 705.5
Noninterest income:
Operating noninterest income
(noninterest income, excluding non-
operating items) (5.6) (22.2) (3.4)
Gain (loss) on securities n/m n/m n/m
------- --------- ------
Non-operating noninterest income (loss) n/m n/m n/m
------- --------- ------
Total noninterest income (13.3) (53.0) (6.7)
------- --------- ------
Noninterest expenses:
Operating noninterest expenses
(noninterest expenses, excluding non-
operating items) 5.0 19.8 14.8
Employment contracts and severance n/m n/m n/m
Branch acquisition and conversion costs n/m n/m n/m
(Gain) loss on early extinguishment of
debt n/m n/m n/m
------- --------- ------
Non-operating noninterest expenses n/m n/m n/m
------- --------- ------
Total noninterest expenses 6.6 26.2 18.6
------- --------- ------
Income (loss) before income taxes n/m n/m n/m
Income tax expense (benefit) n/m n/m n/m
------- --------- ------
Net income (loss) n/m n/m n/m
Preferred stock dividends n/m n/m n/m
------- -------- -------
Net income (loss) available to common
shareholders n/m % n/m % n/m %
======= ========= ======
Earnings:
Operating earnings (loss) n/m % n/m % n/m %
Operating earnings (loss) available to
common shareholders n/m n/m n/m
Per common share data:
Basic earnings (loss) n/m % n/m % n/m %
Diluted earnings (loss) n/m n/m n/m
Operating earnings (loss) available to
common shareholders, diluted n/m n/m n/m
Cash dividends declared per common share - n/m (94.4)
Average common shares outstanding:
Basic 0.2 % 0.8 % (0.5)%
Diluted (1) 0.2 0.8 (1.2)
PERFORMANCE RATIOS:
Total revenue: (2)
GAAP (6.7)% (26.7)% (2.5)%
Operating (3) (4.8) (19.0) (1.9)
Return on average assets (4) %
Return on average common equity (5)
Return on average equity (4)
Net interest margin (tax-equivalent)
Efficiency ratios: (6)
GAAP
Cash operating (3)
(1) For the three months ended September 30, 2008 and June 30, 2008,
average diluted shares exclude preferred stock and outstanding equity
awards since their effect would be antidilutive.
(2) The sum of net interest income and noninterest income.
(3) Total revenue and the cash efficiency ratio, on an operating
basis, are calculated using tax-equivalent net interest income and
exclude non-operating items. The cash operating efficiency ratio also
excludes amortization of intangibles.
(4) Return on average assets and return on average equity are
calculated as net income divided by either average assets or average
total equity.
(5) Return on average common equity is calculated as net income
available to common shareholders divided by average common equity.
(6) Calculated as noninterest expenses divided by the sum of net
interest income and 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)
----------------------------------------------------------------------
Nine Months Ended
-------------------------
9/30/08 9/30/07 % Change
----------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income (tax-
equivalent) $ 292,619 $ 292,567 - %
Less: tax-equivalent adjustment 4,089 4,734 (13.6)
------------ ------------ ---------
Net interest income 288,530 287,833 0.2
Provision for credit losses 221,663 36,642 504.9
Noninterest income:
Operating noninterest income
(noninterest income, excluding
non-operating items) 87,555 87,905 (0.4)
Gain (loss) on securities 1,547 (3,335) n/m
Gain on Visa IPO share redemption 1,904 - n/m
------------ ------------ ---------
Non-operating noninterest income
(loss) 3,451 (3,335) n/m
------------ ------------ ---------
Total noninterest income 91,006 84,570 7.6
------------ ------------ ---------
Noninterest expenses:
Operating noninterest expenses
(noninterest expenses, excluding
non-operating items) 253,633 236,531 7.2
Goodwill impairment 188,431 - n/m
Employment contracts and
severance 6,920 2,306 n/m
Branch acquisition and conversion
costs 731 - n/m
(Gain) loss on early
extinguishment of debt 339 1,530 n/m
Visa-related litigation (863) - n/m
------------ ------------ ---------
Non-operating noninterest
expenses 195,558 3,836 n/m
------------ ------------ ---------
Total noninterest expenses 449,191 240,367 86.9
------------ ------------ ---------
Income (loss) before income taxes (291,318) 95,394 n/m
Income tax expense (benefit) (54,139) 31,107 n/m
------------ ------------ ---------
Net income (loss) (237,179) 64,287 n/m
Preferred stock dividends 12,083 - n/m
------------ ------------ ---------
Net income (loss) available to
common shareholders $ (249,262) $ 64,287 n/m %
============ ============ =========
Earnings:
Operating earnings (loss) $ (47,322) $ 69,071 n/m %
Operating earnings (loss)
available to common shareholders (59,405) 69,071 n/m
Per common share data:
Basic earnings (loss) $ (3.43) $ 0.87 n/m %
Diluted earnings (loss) (3.43) 0.86 n/m
Operating earnings (loss)
available to common
shareholders, diluted (0.82) 0.93 n/m
Cash dividends declared per
common share 0.21 0.54 (61.1)
Average common shares outstanding:
Basic 72,605,990 73,970,963 (1.8)%
Diluted (1) 72,605,990 74,504,940 (2.5)
PERFORMANCE RATIOS:
Total revenue: (2)
GAAP $ 379,536 $ 372,403 1.9 %
Operating (3) 380,174 380,472 (0.1)
Return on average assets (4) (2.29)% 0.61 %
Return on average common equity
(5) (23.65) 5.58
Return on average equity (4) (20.60) 5.58
Net interest margin (tax-
equivalent) 3.13 3.11
Efficiency ratios: (6)
GAAP 118.35 64.54
Cash operating (3) 65.47 60.58
(1) For the nine months ended September 30, 2008, average diluted
shares exclude preferred stock and outstanding equity awards since
their effect would be antidilutive.
(2) The sum of net interest income and noninterest income.
(3) Total revenue and the cash efficiency ratio, on an operating
basis, are calculated using tax-equivalent net interest income and
exclude non-operating items. The cash operating efficiency ratio also
excludes amortization of intangibles.
(4) Return on average assets and return on average equity are
calculated as net income divided by either average assets or average
total equity.
(5) Return on average common equity is calculated as net income
available to common shareholders divided by average common equity.
(6) Calculated as noninterest expenses divided by the sum of net
interest income and 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)
----------------------------------------------------------------------
9/30/08 6/30/08 9/30/07
----------------------------------------------------------------------
BALANCE SHEET DATA (Averages -
Three Months Ended)
Total assets $13,835,936 $13,868,149 $14,022,518
Intangible assets (487,061) (487,440) (680,526)
----------- ----------- -----------
Tangible assets 13,348,875 13,380,709 13,341,992
----------- ----------- -----------
Loans 10,458,765 10,458,571 10,065,454
Securities (1) 2,058,892 2,099,257 2,472,628
Total earning assets 12,554,806 12,578,084 12,544,656
Noninterest-bearing deposits 1,059,565 1,079,390 1,198,350
Total deposits (2) 10,115,872 9,534,806 9,843,553
Customer funding (3) 8,077,968 8,027,539 8,195,078
Wholesale borrowings (4) 4,027,626 4,159,954 4,067,181
Total funding 12,105,594 12,187,493 12,262,259
Preferred stock 249,717 137,783 -
Common equity 1,302,890 1,357,598 1,519,488
----------- ----------- -----------
Shareholders' equity 1,552,607 1,495,381 1,519,488
Intangible assets (487,061) (487,440) (680,526)
----------- ----------- -----------
Tangible equity 1,065,546 1,007,941 838,962
----------- ----------- -----------
Loans/total earning assets 83.3% 83.1% 80.2%
Securities/total assets 14.9 15.1 17.6
Customer funding/total funding 66.7 65.9 66.8
Wholesale borrowings/total assets 29.1 30.0 29.0
Loans/customer funding 129.5 130.3 122.8
BALANCE SHEET DATA (Averages -
Year to Date)
Total assets $13,849,613 $13,856,527 $14,087,424
Intangible assets (549,688) (581,345) (682,564)
----------- ----------- -----------
Tangible assets 13,299,925 13,275,182 13,404,860
----------- ----------- -----------
Loans 10,384,557 10,347,045 9,955,125
Securities (1) 2,077,893 2,087,498 2,624,627
Total earning assets 12,484,545 12,449,029 12,586,839
Noninterest-bearing deposits 1,074,100 1,081,447 1,217,798
Total deposits (2) 9,710,897 9,506,183 9,771,448
Customer funding (3) 8,110,845 8,127,465 8,266,147
Wholesale borrowings (4) 4,015,200 4,008,918 4,046,813
Total funding 12,126,045 12,136,383 12,312,960
Preferred stock 129,607 68,892 -
Common equity 1,408,103 1,461,288 1,539,098
----------- ----------- -----------
Shareholders' equity 1,537,710 1,530,180 1,539,098
Intangible assets (549,688) (581,345) (682,564)
----------- ----------- -----------
Tangible equity 988,022 948,835 856,534
----------- ----------- -----------
Loans/total earning assets 83.2% 83.1% 79.1%
Securities/total assets 15.0 15.1 18.6
Customer funding/total funding 66.9 67.0 67.1
Wholesale borrowings/total assets 29.0 28.9 28.7
Loans/customer funding 128.0 127.3 120.4
(1) The average balances for investment securities exclude the
unrealized 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 3, FINANCIAL HIGHLIGHTS
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data) (unaudited)
----------------------------------------------------------------------
% Change 9/30/08 vs.
---------------------------
6/30/08
6/30/08 Annualized 9/30/07
-------------------------------------------------------------- -------
BALANCE SHEET DATA (Averages - Three Months
Ended)
Total assets (0.2)% (0.9)% (1.3)%
Intangible assets (0.1) (0.3) (28.4)
-------- --------- ------
Tangible assets (0.2) (0.9) 0.1
-------- --------- ------
Loans - - 3.9
Securities (1) (1.9) (7.6) (16.7)
Total earning assets (0.2) (0.7) 0.1
Noninterest-bearing deposits (1.8) (7.3) (11.6)
Total deposits (2) 6.1 24.2 2.8
Customer funding (3) 0.6 2.5 (1.4)
Wholesale borrowings (4) (3.2) (12.7) (1.0)
Total funding (0.7) (2.7) (1.3)
Preferred stock n/m n/m n/m
Common equity (4.0) (16.0) (14.3)
-------- --------- ------
Shareholders' equity 3.8 15.2 2.2
Intangible assets (0.1) (0.3) (28.4)
-------- --------- ------
Tangible equity 5.7 22.7 27.0
-------- --------- ------
Loans/total earning assets
Securities/total assets
Customer funding/total funding
Wholesale borrowings/total assets
Loans/customer funding
BALANCE SHEET DATA (Averages - Year to
Date)
Total assets (1.7)%
Intangible assets (19.5)
------
Tangible assets (0.8)
------
Loans 4.3
Securities (1) (20.8)
Total earning assets (0.8)
Noninterest-bearing deposits (11.8)
Total deposits (2) (0.6)
Customer funding (3) (1.9)
Wholesale borrowings (4) (0.8)
Total funding (1.5)
Preferred stock n/m
Common equity (8.5)
------
Shareholders' equity (0.1)
Intangible assets (19.5)
------
Tangible equity 15.4
------
Loans/total earning assets
Securities/total assets
Customer funding/total funding
Wholesale borrowings/total assets
Loans/customer funding
(1) The average balances for investment securities exclude the
unrealized 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)
----------------------------------------------------------------------
9/30/08 6/30/08 9/30/07
----------------------------------------------------------------------
BALANCE SHEET DATA (Period
End)
Loans held for sale (1) $ 37,575 $ 21,871 $ 19,572
Loans held for investment 10,299,640 10,475,731 10,173,237
Allowance for loan losses (200,748) (191,727) (118,861)
Allowance for credit losses (203,000) (193,825) (120,424)
Securities 2,020,199 2,013,909 2,364,415
Intangible assets 484,570 487,886 679,669
Total assets 13,695,178 13,976,870 14,100,221
Noninterest-bearing deposits 1,022,632 1,107,115 1,164,312
Total deposits (2) 10,008,808 9,886,369 9,501,669
Customer funding (3) 7,986,534 8,032,661 8,117,185
Wholesale borrowings (4) 3,984,312 4,208,266 4,187,268
Total funding 11,970,846 12,240,927 12,304,453
Preferred stock 249,000 250,000 -
Common equity 1,284,614 1,309,202 1,548,252
Shareholders' equity 1,533,614 1,559,202 1,548,252
CAPITAL RATIOS
Tier 1 risk-based capital 11.14 % 11.05 % 9.89 %
Total risk-based capital 12.64 12.54 11.28
Leverage ratio 9.70 9.81 8.64
Tangible equity to tangible
assets 7.94 7.94 6.47
SHARE DATA
Preferred shares outstanding 249,000 250,000 -
Common shares outstanding 73,005,766 72,795,797 72,971,394
Common book value per common
share (5) $ 17.60 $ 17.98 $ 21.22
Common tangible book value
per common share (5) 10.96 11.28 11.90
Market price per share of
common stock 7.33 3.92 22.74
Market capitalization 535,132 285,360 1,659,369
Assuming preferred stock
conversion: (6)
Common shares outstanding 111,313,458 111,257,335
Book value per common
share $ 13.78 $ 14.01
Tangible book value per
common share 9.42 9.63
OPERATIONS DATA
Branch offices 180 180 172
ATMs 202 200 183
Employees (full-time
equivalent) 2,535 2,572 2,457
(1) Includes $22.6 million of nonperfoming 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.
(6) As of September 30, 2008 and June 30, 2008, assuming a $6.50
conversion price, the shares of preferred stock are mandatorily
convertible into approximately 38.3 million and 38.5 million common
shares, respectively, by May 1, 2011.
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 9/30/08 vs.
---------------------------
6/30/08
6/30/08 Annualized 9/30/07
-------------------------------------------------------------- -------
BALANCE SHEET DATA (Period End)
Loans held for sale (1) 71.8 % 285.7 % 92.0 %
Loans held for investment (1.7) (6.7) 1.2
Allowance for loan losses 4.7 18.7 68.9
Allowance for credit losses 4.7 18.8 68.6
Securities 0.3 1.2 (14.6)
Intangible assets (0.7) (2.7) (28.7)
Total assets (2.0) (8.0) (2.9)
Noninterest-bearing deposits (7.6) (30.4) (12.2)
Total deposits (2) 1.2 4.9 5.3
Customer funding (3) (0.6) (2.3) (1.6)
Wholesale borrowings (4) (5.3) (21.2) (4.8)
Total funding (2.2) (8.8) (2.7)
Preferred stock n/m n/m n/m
Common equity (1.9) (7.5) (17.0)
Shareholders' equity (1.6) (6.5) (0.9)
CAPITAL RATIOS
Tier 1 risk-based capital
Total risk-based capital
Leverage ratio
Tangible equity to tangible assets
SHARE DATA
Preferred shares outstanding n/m % n/m % n/m %
Common shares outstanding 0.3 1.1 -
Common book value per common share (5) (2.1) (8.4) (17.1)
Common tangible book value per common share
(5) (2.8) (11.3) (7.9)
Market price per share of common stock 87.0 346.1 (67.8)
Market capitalization 87.5 348.2 (67.8)
Assuming preferred stock conversion: (6)
Common shares outstanding
Book value per common share
Tangible book value per common share
OPERATIONS DATA
Branch offices - % - % 4.7 %
ATMs 1.0 4.0 10.4
Employees (full-time equivalent) (1.4) (5.7) 3.2
(1) Includes $22.6 million of nonperfoming 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.
(6) As of September 30, 2008 and June 30, 2008, assuming a $6.50
conversion price, the shares of preferred stock are mandatorily
convertible into approximately 38.3 million and 38.5 million common
shares, respectively, by May 1, 2011.
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)
----------------------------------------------------------------------
9/30/08 6/30/08 9/30/07
----------------------------------------------------------------------
CREDIT QUALITY
Loans held for investment $10,299,640 $10,475,731 $10,173,237
Allowance for loan losses (200,748) (191,727) (118,861)
Allowance for credit losses (203,000) (193,825) (120,424)
Nonperforming loans held for
investment $ 240,091 $ 220,151 $ 53,257
Nonperforming loans held for
sale 22,576 - -
Foreclosed property (other
real estate owned and
personal property
repossessions) 30,503 21,780 5,658
------------ ------------ ------------
Nonperforming assets $ 293,170 $ 241,931 $ 58,915
------------ ------------ ------------
Nonperforming loans held for
investment as a % of loans
held for investment 2.33 % 2.10 % 0.52 %
Nonperforming assets as a %
of loans and foreclosed
property (1) 2.83 2.30 0.58
Allowance for loan losses as
a % of loans HFI 1.95 1.83 1.17
Allowance for credit losses
as a % of loans HFI 1.97 1.85 1.18
Allowance for loan losses to
nonperforming loans HFI 0.84x 0.87x 2.23x
Loans past due 90 days or
more (mortgage and consumer
with interest accruing) $ 12,899 $ 8,779 $ 2,629
Average loans held for
investment:
Three months ended 10,441,580 10,435,248 10,042,419
Year to date 10,366,359 10,328,336 9,925,410
Net loan charge-offs:
Three months ended 75,433 46,954 16,801
Year to date 147,358 71,925 28,906
Net loan charge-offs as a %
of average loans held for
investment (annualized):
Three months ended 2.87 % 1.81 % 0.66 %
Year to date 1.90 1.40 0.39
(1) Excluding nonperforming loans held for sale, nonperforming assets
as a % of loans held for investment and foreclosed property totaled
2.62% at September 30, 2008.
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 9/30/08 vs.
---------------------------
6/30/08
6/30/08 Annualized 9/30/07
--------------------------------------------------- ---------- -------
CREDIT QUALITY
Loans held for investment (1.7)% (6.7)% 1.2%
Allowance for loan losses 4.7 68.9
Allowance for credit losses 4.7 68.6
Nonperforming loans held for investment 9.1 % 350.8%
Nonperforming loans held for sale n/m n/m
Foreclosed property (other real estate
owned and personal property repossessions) 40.1 439.1
------- ------
Nonperforming assets 21.2 % 397.6%
------- ------
Nonperforming loans held for investment as
a % of loans held for investment
Nonperforming assets as a % of loans and
foreclosed property (1)
Allowance for loan losses as a % of loans
HFI
Allowance for credit losses as a % of loans
HFI
Allowance for loan losses to nonperforming
loans HFI
Loans past due 90 days or more (mortgage
and consumer with interest accruing) 390.6%
Average loans held for investment:
Three months ended
Year to date
Net loan charge-offs:
Three months ended 60.7 % 349.0%
Year to date 409.8
Net loan charge-offs as a % of average
loans held for investment (annualized):
Three months ended
Year to date
(1) Excluding nonperforming loans held for sale, nonperforming assets
as a % of loans held for investment and foreclosed property totaled
2.62% at September 30, 2008.
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
------------------------
9/30/08 6/30/08 9/30/07
----------------------------------------------------------------------
NONINTEREST INCOME
Customer fee income $14,807 $14,400 $14,584
Wealth management income 7,203 7,099 7,434
Mortgage banking income 879 1,858 834
Bank-owned life insurance 2,881 2,910 2,974
Merchant processing income, net 916 809 928
Gain (loss) on certain derivative activities (199) 236 198
Other 2,138 3,002 2,678
-------- ------- -------
Operating noninterest income (noninterest
income, excluding non-operating items) 28,625 30,314 29,630
Non-operating noninterest income (loss) (725) 1,876 287
-------- ------- -------
Total noninterest income $27,900 $32,190 $29,917
-------- ------- -------
NONINTEREST EXPENSES
Personnel expense $46,952 $45,249 $43,397
Occupancy 9,770 8,972 8,723
Furniture and equipment 6,991 6,733 6,543
Professional services 4,573 3,579 4,278
Advertising and business development 2,114 2,731 1,443
Telecommunications 1,628 1,476 1,404
Amortization of intangibles 1,474 1,589 1,907
Regulatory assessments 3,020 2,374 300
Loan collection and monitoring 4,112 2,167 710
Other 8,262 9,803 8,735
-------- ------- -------
Operating noninterest expenses
(noninterest expenses, excluding non-
operating items) 88,896 84,673 77,440
Non-operating noninterest expenses 4,496 2,947 1,299
-------- ------- -------
Total noninterest expenses $93,392 $87,620 $78,739
-------- ------- -------
PAGE 6, FINANCIAL HIGHLIGHTS
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data) (unaudited)
----------------------------------------------------------------------
% Change 9/30/08 vs.
---------------------------
6/30/08
6/30/08 Annualized 9/30/07
-------------------------------------------------------------- -------
NONINTEREST INCOME
Customer fee income 2.8 % 11.2 % 1.5 %
Wealth management income 1.5 5.8 (3.1)
Mortgage banking income (52.7) (209.6) 5.4
Bank-owned life insurance (1.0) (4.0) (3.1)
Merchant processing income, net 13.2 52.6 (1.3)
Gain (loss) on certain derivative
activities n/m n/m n/m
Other (28.8) (114.5) (20.2)
-------- --------- ------
Operating noninterest income (noninterest
income, excluding non-operating items) (5.6) (22.2) (3.4)
Non-operating noninterest income (loss) n/m n/m n/m
-------- --------- ------
Total noninterest income (13.3)% (53.0)% (6.7)%
-------- --------- ------
NONINTEREST EXPENSES
Personnel expense 3.8 % 15.0 % 8.2 %
Occupancy 8.9 35.4 12.0
Furniture and equipment 3.8 15.2 6.8
Professional services 27.8 110.5 6.9
Advertising and business development (22.6) (89.9) 46.5
Telecommunications 10.3 41.0 16.0
Amortization of intangibles (7.2) (28.8) (22.7)
Regulatory assessments 27.2 108.3 906.7
Loan collection and monitoring 89.8 357.1 479.2
Other (15.7) (62.5) (5.4)
-------- --------- ------
Operating noninterest expenses
(noninterest expenses, excluding non-
operating items) 5.0 19.8 14.8
Non-operating noninterest expenses n/m n/m n/m
-------- --------- ------
Total noninterest expenses 6.6 % 26.2 % 18.6 %
-------- --------- ------
Nine Months Ended
------------------
9/30/08 9/30/07 % Change
----------------------------------------------------------------------
NONINTEREST INCOME
Customer fee income $ 42,843 $ 42,519 0.8 %
Wealth management income 21,330 22,272 (4.2)
Mortgage banking income 4,222 4,780 (11.7)
Bank-owned life insurance 8,938 10,279 (13.0)
Merchant processing income, net 2,582 2,434 6.1
Gain (loss) on certain derivative
activities 49 (1,202) n/m
Other 7,591 6,823 11.3
-------- --------- -------
Operating noninterest income (noninterest
income, excluding non-operating items) 87,555 87,905 (0.4)
Non-operating noninterest income (loss) 3,451 (3,335) n/m
-------- --------- -------
Total noninterest income $ 91,006 $ 84,570 7.6 %
-------- --------- -------
NONINTEREST EXPENSES
Personnel expense $136,352 $131,731 3.5 %
Occupancy 27,365 25,876 5.8
Furniture and equipment 20,107 19,491 3.2
Professional services 11,679 13,295 (12.2)
Advertising and business development 7,316 5,347 36.8
Telecommunications 4,527 4,215 7.4
Amortization of intangibles 4,721 6,044 (21.9)
Regulatory assessments 7,471 1,164 541.8
Loan collection and monitoring 7,249 1,889 283.7
Other 26,846 27,479 (2.3)
-------- --------- -------
Operating noninterest expenses
(noninterest expenses, excluding non-
operating items) 253,633 236,531 7.2
Non-operating noninterest expenses 195,558 3,836 n/m
-------- --------- -------
Total noninterest expenses $449,191 $240,367 86.9 %
-------- --------- -------
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
------------------------------
9/30/08 6/30/08 9/30/07
----------------------------------------------------------------------
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
NET INCOME (LOSS), AS REPORTED (GAAP) $(24,955) $ (10,932) $ 25,839
Add: Income tax expense (benefit) (29,526) (8,056) 11,609
--------- ---------- ---------
Income (loss) before income taxes (54,481) (18,988) 37,448
Non-operating items:
(Gain) loss on securities 725 (1,876) (287)
Employment contracts and severance 4,621 2,299 -
Branch acquisition and conversion costs - 731 -
(Gain) loss on early extinguishment of
debt (125) (83) 1,299
--------- ---------- ---------
PRE-TAX OPERATING EARNINGS (LOSS)
(income (loss) before taxes, excluding
non-operating items) (49,260) (17,917) 38,460
Add: Provision for credit losses 84,608 63,763 10,504
--------- ---------- ---------
PRE-TAX, PRE-PROVISION OPERATING
EARNINGS (income (loss) before taxes
and provision, excluding non-operating
items) 35,348 45,846 48,964
Less: Provision for credit losses (84,608) (63,763) (10,504)
Related income tax expense (benefit) (26,696) (7,655) 11,923
--------- ---------- ---------
OPERATING EARNINGS (LOSS) (net income
(loss), exluding non-operating items) (22,564) (10,262) 26,537
Preferred stock dividends (6,250) (5,833) -
--------- ---------- ---------
OPERATING EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS (net income (loss)
less preferred dividends, excluding
non-operating items) (28,814) (16,095) 26,537
Add: Amortization of intangibles, net of
income tax 922 993 1,316
--------- ---------- ---------
CASH OPERATING EARNINGS (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS (net income
(loss) less preferred dividends,
excluding non-operating items and
amortization of intangibles) $(27,892) $ (15,102) $ 27,853
========= ========== =========
----------------------------------------------------------------------
Nine Months Ended
--------------------
9/30/08 9/30/07
----------------------------------------------------------------------
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
NET INCOME (LOSS), AS REPORTED (GAAP) $(237,179) $ 64,287
Add: Income tax expense (benefit) (54,139) 31,107
---------- ---------
Income (loss) before income taxes (291,318) 95,394
Non-operating items:
(Gain) loss on securities (1,547) 3,335
Gain on Visa IPO share redemption (1,904) -
Goodwill impairment 188,431 -
Employment contracts and severance 6,920 2,306
Branch acquisition and conversion costs 731 -
Loss on early extinguishment of debt 339 1,530
Visa-related litigation (863) -
---------- ---------
PRE-TAX OPERATING EARNINGS (LOSS)
(income (loss) before taxes, excluding
non-operating items) (99,211) 102,565
Add: Provision for credit losses 221,663 36,642
---------- ---------
PRE-TAX, PRE-PROVISION OPERATING
EARNINGS (income (loss) before taxes
and provision, excluding non-operating
items) 122,452 139,207
Less: Provision for credit losses (221,663) (36,642)
Related income tax expense (benefit) (51,889) 33,494
---------- ---------
OPERATING EARNINGS (LOSS) (net income
(loss), excluding non-operating items) (47,322) 69,071
Preferred stock dividends (12,083) -
---------- ---------
OPERATING EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS (net income (loss)
less preferred dividends, excluding
non-operating items) (59,405) 69,071
Add: Amortization of intangibles, net of
income tax 2,951 4,062
---------- ---------
CASH OPERATING EARNINGS (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS (net income
(loss) less preferred dividends,
excluding non-operating items and
amortization of intangibles) $ (56,454) $ 73,133
========== =========
A Quarterly Financial Data Supplement is available in the Investor
Relations section of TSFG's web site: www.thesouthgroup.com.
Source: The South Financial Group, Inc. |
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