The South Financial Group Reports First Quarter Earnings.* Provision for Credit Losses Exceeds Net Loan Charge-Offs by $48.3 Million; Increases Allowance for Credit Losses to 1.72% * Progress in Other Key Operating Fundamentals: Net Interest Margin Stable, Customer Funding Growth, and Noninterest Expense Control * Increased Tangible Equity Ratio to 6.72%; Remains "Well-Capitalized" * Non-Cash, Pre-Tax Goodwill Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. Charge of $188.4 Million for the Florida Banking Segment; Does Not Impact Tangible Capital or Regulatory Capital GREENVILLE, S.C. -- The South Financial Group, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : TSFG TSFG The South Financial Group ) today announced first quarter 2008 results. These results reflect the following items: * Higher credit costs: First quarter results were adversely affected by the acceleration of credit deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. , primarily related to the Florida-based residential construction and land development loan portfolios. This led to a first quarter 2008 provision for credit losses of $73.3 million, net loan charge-offs of $25.0 million, and higher nonperforming assets Nonperforming asset An asset that is not effectively producing income, such as an overdue loan. nonperforming asset An asset that produces no income. representing 2.26% of loans and foreclosed property at March 31, 2008. TSFG's provision exceeded charge-offs by $48.3 million, which increased the allowance for credit losses to 1.72% of outstanding loans at March 31, 2008. These actions were taken to proactively address current market conditions and the overall uncertainty of the duration and depth of the downturn. * Goodwill impairment: TSFG recorded a $188.4 million pre-tax, non-cash goodwill impairment charge for its Florida Banking Segment as discussed below. The goodwill impairment charge had no impact on cash flows, tangible equity, or regulatory capital ratios. * Other nonoperating Items: TSFG recorded gains from the Visa Inc. initial public offering of $1.9 million and $863,000 from the reversal of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. costs recorded in the fourth quarter. Additionally, TSFG recorded investment securities net gains of $396,000 and net losses on extinguishment The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. of debt of $547,000. Reflecting these items, TSFG reported a first quarter 2008 net loss of $201.3 million, or $(2.77) per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with first quarter 2007 net income of $20.5 million, or $0.27 per diluted share. Excluding the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. goodwill impairment charge and other non-operating items discussed above, TSFG reported a first quarter 2008 operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $14.5 million, or $(0.20) per diluted share, compared with operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before of $22.6 million, or $0.30 per diluted share, for first quarter 2007. Reconciliations of GAAP-reported results to operating results are provided in the attached financial highlights. At March 31, 2008, TSFG reported a tangible equity ratio of 6.72%, above its 6% to 6.5% target, and both TSFG and Carolina First Bank (including its Mercantile Relating to trade or commerce; commercial; having to do with the business of buying and selling; relating to merchants. A mercantile agency is an individual or company in the business of collecting data about the financial status, ability, and credit of individuals Bank division) exceeded the "well-capitalized" levels for all regulatory capital ratios. "While we made progress in several operating fundamentals, industry-wide credit pressure and difficult market conditions overshadowed our results in the first quarter," said Mack I. Whittle, Jr., Chairman, President and Chief Executive Officer of The South Financial Group. "At the end of the first quarter, residential construction market weakness, particularly in Florida, became more pronounced, and net charge-offs and nonperforming assets increased reflecting the stressed environment Stressed environment: In radiocommunications, an environment that is under the influence of extrinsic factors that degrade communications integrity, such as when (a) the benign communications medium is disturbed by natural or man-made events (such as an intentional nuclear burst), . We continue to proactively identify and seek resolutions of problem loans and aggressively address credit risks. As of the end of March, we increased our allowance for credit losses by 46 basis points to 1.72% of loans held for investment." "We continue to execute our strategic plan," Whittle continued. "As a result of our strategic focus, in the first quarter, our customer funding balances increased at a faster pace than loans and contributed to stable margin performance while managing 200 basis points of reductions in the federal funds Federal Funds Funds deposited to regional Federal Reserve Banks by commercial banks, including funds in excess of reserve requirements. Notes: These non-interest bearing deposits are lent out at the Fed funds rate to other banks unable to meet overnight reserve target rate. In addition, we controlled operating noninterest expenses for the fifth consecutive quarter and held them essentially flat versus first quarter a year ago while absorbing certain industry-related cost increases. We ended the quarter with a higher tangible capital ratio and remain 'well-capitalized' for all regulatory ratios. We are committed to maintaining a strong balance sheet throughout this credit environment. As we navigate (1) "Surfing the Web." To move from page to page on the Web. (2) To move through the menu structure in a software application. through these difficult times, we'll continue to focus on the execution of our strategic objectives." Non-Cash Goodwill Impairment TSFG recorded goodwill in connection with the acquisitions of several banks in Florida between 1999 and 2005. As previously disclosed, TSFG has continued to perform evaluations of the goodwill associated with its Florida Banking Segment. TSFG's evaluation as of March 31, 2008 reflected decreases in projected cash flows for the Florida Banking Segment, and accordingly the estimated fair value of the segment declined. This decline resulted in the recognition of a $188.4 million pre-tax goodwill impairment charge in the first quarter 2008 and a corresponding reduction in the goodwill balance for the Florida Banking Segment to $239.5 million at March 31, 2008. The goodwill impairment charge is non-cash and has no impact on cash flows. Additionally, it has no impact on TSFG's tangible equity or regulatory capital ratios, since goodwill is excluded from tangible equity and regulatory capital. TSFG remains committed to its Florida franchise and believes Florida is a key part of TSFG's long-term success. Net Interest Income and Average Balance Sheet First quarter 2008 tax-equivalent net interest income totaled $94.2 million, a decrease of $2.3 million from $96.5 million in fourth quarter 2007, principally from slight compression in the net interest margin, lower earning assets Earning Assets Any income-earning asset owned by a company. Notes: These assets are generally interest-bearing accounts, bonds, and securities available for sale. See also: Asset, Asset Valuation, Earnings, Net Interest Margin , and one fewer day in the first quarter. For first quarter 2008, average customer funding growth of 7.8% linked-quarter annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. exceeded average loan growth of 1.9%. The tax-equivalent net interest margin for first quarter 2008 declined 2 basis points to 3.07% from 3.09% for fourth quarter 2007, primarily from higher nonperforming loans and the associated reversal of previously accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. income. Given the Federal Reserve actions during the quarter, average earning asset Earning asset An asset that generates income, e.g., income from rental property. yields decreased due to loan repricings as well as the impact of nonaccrual loans, which were offset by a similar decline in average funding costs (a 57 basis points decline for average earning assets versus 58 basis points for average funding costs). The shift into loans, which had a first quarter 2008 average tax-equivalent yield Tax-equivalent yield The pre-tax yield required from a taxable bond in order to equal the tax-free yield of a municipal bond. tax-equivalent yield The pretax yield that provides the same return as a specified aftertax yield. of 6.73%, and away from investment securities, which had an average tax-equivalent yield of 4.73%, partially offset the earning asset yield decline. Within total funding, the higher level of customer funding, which had a first quarter 2008 average cost of 2.97%, and lower level of wholesale borrowings, which had a first quarter average cost of 4.26%, contributed to the decline in funding costs. During the last six quarters, the net interest margin has remained relatively stable, ranging from 3.07% to 3.12%. First quarter 2008 average earning assets declined 3.3% linked-quarter annualized to $12.3 billion, as loan growth partially offset planned reductions of investment securities. First quarter 2008 average loans increased $49.2 million, or 1.9% linked-quarter annualized, from fourth quarter 2007. Commercial and industrial (C&I) loans led the growth, as TSFG continues to alter the mix of its commercial loan portfolio to concentrate on C&I and income-producing CRE CRE Commercial Real Estate CRE Corporate Real Estate CRE Commission for Racial Equality (Scotland) CRE CCD (Charge Coupled Device) and Readout Electronics CRE Camp Response Element loans. Average loans as a percentage of average earning assets totaled 83.1% for first quarter 2008, up from 77.8% for the year earlier period. Average securities declined $154.9 million during first quarter 2008. First quarter 2008 average customer funding, defined as total deposits less brokered deposits plus customer sweep accounts Sweep Account A bank account that, at the close of each business day, automatically transfers amounts that exceeds (or falls short of) a certain level into a higher-interest earning account. , increased $157.2 million, or 7.8% linked-quarter annualized. Average interest checking balances increased $77.2 million reflecting progress in recent deposit initiatives. First quarter 2008 average customer sweeps for Treasury Services Treasury services is a function of an investment bank which provides transaction, investment and information services for chief financial officers, treasurers. Treasury services concentrates and invests client money, and provides trade finance and logistics solutions as well as customers, a source of funding tied directly to core commercial accounts, totaled $684.8 million, representing a $94.1 million increase from fourth quarter 2007. First quarter 2008 average wholesale borrowings, including brokered deposits and excluding customer sweep accounts, declined $213.7 million, or 21.1% linked-quarter annualized, in connection with the decline in investment securities and customer funding growth. Noninterest Income Noninterest income for first quarter 2008 included a $1.9 million gain from the Visa IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. shares redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. and a $396,000 net gain on other security transactions. This compares with losses on securities of $1.3 million and $1.4 million for fourth quarter 2007 and first quarter 2007, respectively. Operating noninterest income (which excludes the non-operating items mentioned above) totaled $28.6 million, down from $30.0 million for fourth quarter 2007 and up 0.9% from $28.4 million for first quarter 2007. In first quarter 2008, noninterest income declined largely from lower deposit-related fees, down $1.0 million linked-quarter, which tend to be seasonally lower in the first quarter of the year. Year-over-year, noninterest income increased from higher customer fee income, including double-digit increases for Treasury Services, debit card debit card, card that allows the cost of goods or services that are purchased to be deducted directly from the purchaser's checking account. They can also be used at automated teller machines for withdrawing cash from the user's checking account. income, and merchant processing income. These increases were partially offset by declines in mortgage banking, insurance, and brokerage income. Noninterest Expenses As discussed above, first quarter 2008 noninterest expenses included a $188.4 million goodwill impairment charge, an $863,000 expense reduction for the reversal of an accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. for the settlement of Visa-related litigation, and a $547,000 non-operating pre-tax loss on early extinguishment of debt. This compares with an $881,000 accrual for the settlement of Visa-related litigation and a $499,000 loss on early extinguishment of debt for fourth quarter 2007 and $1.8 million employment contract buyouts and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when in first quarter 2007. Operating noninterest expenses (which exclude the non-operating items mentioned above) totaled $80.1 million for first quarter 2008, a $963,000 increase from $79.1 million for fourth quarter 2007 and up 0.4% from $79.7 million for first quarter 2007. The linked-quarter increase included $613,000 related to the full-quarter impact of higher FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). insurance premiums, $417,000 in higher advertising and business development costs related to the customer funding initiatives, and higher personnel expense from incentive adjustments in fourth quarter 2007. Year-over-year, noninterest expenses declined in most categories, except for advertising and the expected increase in the FDIC insurance premiums, reflecting continued focus on expense control. In first quarter 2008, TSFG opened 2 new branch offices in the Hilton Head area of South Carolina South Carolina, state of the SE United States. It is bordered by North Carolina (N), the Atlantic Ocean (SE), and Georgia (SW). Facts and Figures Area, 31,055 sq mi (80,432 sq km). Pop. (2000) 4,012,012, a 15. and announced plans to purchase 5 retail branch offices in the Orlando area from BankAtlantic. This transaction is expected to close in the later part of the second quarter 2008, pending customary regulatory approval. Credit Quality The provision for credit losses for first quarter 2008 totaled $73.3 million, compared with $31.9 million for fourth quarter 2007. For first quarter 2008, the provision for credit losses exceeded net loan charge-offs by $48.3 million. The higher provision largely reflected credit deterioration due to continued weakness in housing markets, particularly in Florida, and additional specific reserves for nonperforming loans and the overall land development portfolios in Florida. The overall allowance for credit losses as a percentage of loans held for investment increased to 1.72% at March 31, 2008 from 1.26% at December 31, 2007. Net loan charge-offs in first quarter 2008 totaled $25.0 million, or 0.98% of average loans held for investment, compared to 0.92% for fourth quarter 2007 (0.57% excluding the Penland Development loans). Approximately 70% of the first quarter 2008 net loan charge-offs related to loans in Florida. At March 31, 2008, nonperforming assets increased to $232.0 million, or 2.26% of loans held for investment and foreclosed property, from $89.9 million, or 0.88%, at December 31, 2007. The significant increase in nonperforming assets in first quarter 2008 was primarily attributable to accelerating market deterioration in residential construction and development-related loans, principally in Florida markets. Approximately 80% of the increase in nonperforming loans related to loans in Florida. The allowance for credit losses totaled $177.0 million, or 1.72% of loans held for investment, at March 31, 2008, compared with $128.7 million, or 1.26%, at December 31, 2007. The allowance coverage of nonperforming loans totaled 0.78 times at March 31, 2008, compared with 1.55 times at December 31, 2007. Capital Tangible shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at March 31, 2008 totaled $890.2 million, or $12.26 per share, compared with $872.1 million, or $12.04 per share, at December 31, 2007 and $878.0 million, or $11.76 per share, at March 31, 2007. TSFG's tangible equity to tangible assets Tangible Asset An asset that has a physical form such as machinery, buildings and land. Notes: This is the opposite of an intangible asset such as a patent or trademark. Whether an asset is tangible or intangible isn't inherently good or bad. ratio at March 31, 2008 was 6.72%, up from 6.61% at December 31, 2007 and 6.52% at March 31, 2007. The increase in tangible equity resulted primarily from an overall positive change in other comprehensive income, including an improvement of $28.9 million in the after-tax unrealized loss Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on available for sale securities to $1.9 million. TSFG and its banking subsidiary remain well-capitalized for all regulatory capital ratios, and TSFG ended the quarter with a tier 1 capital Tier 1 Capital A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves. Notes: Equity capital includes instruments that can't be redeemed at the option of the holder. ratio of 9.33%, compared with 9.49% at December 31, 2007. Effective January 1, 2008, TSFG adopted the provisions of SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 157 and 159 which did not have a material impact on TSFG's equity or operating results for the quarter. Conference Call / Webcast Information The South Financial Group will host a conference call on Wednesday, April 23rd at 10:00 a.m. (ET) to discuss first quarter 2008 financial results. Additional material information, including forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. such as trends and projections, may be discussed during the presentation. For supplemental financial information, please refer to the Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. filed by TSFG with the Securities and Exchange Commission on April 22nd or visit the Investor Relations Investor relations The process by which the corporation communicates with its investors. 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 1-866-434-5274 or 1-203-369-1013. 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 1st Quarter Earnings Conference Call." For those unable to participate during the live webcast, it will be archived on The South Financial Group website until May 7, 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 March 31, 2008, it had approximately $13.7 billion in total assets and 174 branch offices in Florida, North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. , and South Carolina. TSFG focuses on fast-growing banking markets in the Southeast, concentrating its growth in metropolitan statistical areas. 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 March 31, 2008, approximately 46% of TSFG's total customer deposits were in South Carolina, 39% were in Florida, and 15% 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 The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "). The attached financial highlights provide reconciliations between GAAP net income and operating earnings (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 The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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, customer funding growth, expense control, income tax rate, expected financial results for acquisitions, factors that will affect credit quality and the net interest margin, the effectiveness of its hedging strategies, the 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 CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or after the date of this release. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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