GREENVILLE, S.C., April 17 /PRNewswire-FirstCall/ -- The South Financial Group, Inc. today reported first quarter 2006 net income of $27.8 million, or $0.37 per diluted share, compared with a net loss $16.4 million, or $(0.22) per diluted share, for the fourth quarter of 2005, and $22.4 million, or $0.31 per diluted share, for the first quarter of 2005. During the fourth quarter 2005, TSFG realized losses from the sale of investment securities and the early extinguishment of debt as part of its balance sheet repositioning.
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Operating earnings for the first quarter of 2006 totaled $27.8 million, or $0.37 per diluted share, same as reported earnings. This compares with $26.8 million, or $0.36 per diluted share, for the fourth quarter of 2005 and $32.7 million, or $0.45 per diluted share, for the first quarter of 2005. A reconciliation of net income to operating earnings is provided in the financial highlights.
"I am encouraged by our first quarter results," said Mack I. Whittle, Jr., Chairman, President and Chief Executive Officer of The South Financial Group. "Building on our 2005 actions to improve our balance sheet mix and risk profile as well as our incremental investments in people and processes, we increased pre-tax operating earnings over the prior quarter by $4.1 million, despite having two fewer calendar days and a lower average earning asset base. Our results were driven by incremental improvements in most key ratios and lower operating expenses. Importantly, our nonperforming asset and net loan charge-off ratios continued to improve, and provision expense exceeded net loan charge-offs by 1.46 times. However, we are not satisfied with our existing earnings per share run rate or our profitability and are working diligently to return to and exceed historical levels."
Whittle continued, "The banking industry continues to operate in a difficult interest rate environment. To counter this challenge, our team will remain focused on controlling expenses, while at the same time maintaining our emphasis on building profitable revenue through our community banking model. In 2005, we made investments in several key fee income businesses and our deposit capabilities to improve profitability and maximize the potential of our customers and markets. We are optimistic about the long-term benefits of these investments and are beginning to see initial results."
Revenue
Total revenue, defined as net interest income plus noninterest income, was $132.2 million in first quarter 2006, compared with $80.0 million in fourth quarter 2005. Fourth quarter 2005 total revenue includes a $52.7 million loss from the sale of investment securities related to actions designed to improve the balance sheet mix and a $2.1 million decline in fair value of interest rate swaps related to certain derivatives.
Excluding these and other non-operating items, first quarter 2006 total operating revenue (tax-equivalent net interest income plus operating noninterest income) decreased $2.9 million to $133.4 million from $136.3 million for the fourth quarter 2005. This decline resulted principally from two fewer calendar days in the first quarter of 2006 (an approximate $1.4 million negative impact on net interest income) and lower average investment securities. TSFG is striving to increase the percentage of its balance sheet and earnings that are related to customers. To that end, investment securities as a percentage of total assets declined to 21.2% on March 31, 2006 from 22.1% on December 31, 2005 and 32.9% on March 31, 2005.
First quarter 2006 tax-equivalent net interest income totaled $104.7 million, a decrease of $2.0 million from $106.7 million in fourth quarter 2005. As a result of its decision to reduce its investment securities portfolio, TSFG's average earning assets declined in the first quarter of 2006 to $12.8 billion from $13.4 billion in the fourth quarter of 2005. These balance sheet actions resulted in an improved earning asset mix, net interest margin, and return on average assets. Even with a significantly lower average earning asset base, first quarter 2006 tax-equivalent net interest income, adjusted for the two fewer calendar days, approached fourth quarter 2005 levels.
TSFG's operating noninterest income for first quarter 2006 totaled $28.6 million, down $1.0 million from $29.6 million for the fourth quarter 2005, principally from declines in NSF/returned check income, trading and certain derivative activities, and bank-owned life insurance. Importantly, each of TSFG's fee-based businesses -- merchant, mortgage, treasury services, and wealth management -- posted strong double-digit linked-quarter annualized growth. In 2005, TSFG made incremental investments in the leadership, products, and sales of these fee-based lines of business. Throughout the fall of 2005 and into 2006, TSFG has been integrating its fee-based products into the daily sales of its commercial and retail bankers with encouraging results.
Balance Sheet Trends
TSFG continues to focus on improving its relative level and mix of customer assets and liabilities in an effort to create a more profitable and sustainable net interest margin and more predictable longer-term earnings. On the asset side of the balance sheet, TSFG continued to generate strong loan growth with competitive yields. This strong loan growth, coupled with TSFG's decision not to reinvest its maturing investment securities, caused loans held for investment as a percentage of total assets to increase to 67.7% on March 31, 2006, up from 65.9% on December 31, 2005 and 57.1% on March 31, 2005. In first quarter 2006, TSFG's period-end organic loan growth totaled 12.1% linked-quarter annualized, driven primarily by commercial loans.
On the funding side of the balance sheet, TSFG has been implementing a number of actions since the summer of 2005 to create stronger deposit capabilities. Two senior executives have been hired to enhance the existing retail banking and treasury services initiatives. To date, expectations have been changed, products have been reviewed, and new sales processes and retail incentive plans are being implemented. Over time, these actions are expected to lead to a better funding mix and lower funding cost.
In first quarter 2006, TSFG heightened its focus on lower-cost core deposits. Specifically, retail bankers began the practice of targeting a higher number of new transaction accounts per week, and commercial relationship managers are focusing their efforts on obtaining the lead deposit account from larger transaction-oriented businesses. These efforts led to a modestly favorable shift in mix to lower-cost deposits as TSFG increased its three lowest-cost deposits categories -- noninterest-bearing deposits, interest-bearing checking, and savings -- with period-end linked-quarter annualized growth rates of 6.5%, 2.7%, and 9.4%, respectively.
Equally important to this process, TSFG elected not to aggressively price certificates of deposit as competition has done during the industry's recent focus on deposits. This decision was made in order to reduce the number of single-product, rate sensitive customers. This disciplined approach caused total period-end customer deposits (total deposits minus brokered CDs) to decline 6.1% linked-quarter annualized for first quarter 2006, largely due to a linked-quarter annualized decline in time deposits (including certificates of deposit) of 18.9%.
Net Interest Margin
The net interest margin (tax-equivalent) for first quarter 2006 totaled 3.31%, an improvement of 15 basis points from 3.16% for fourth quarter 2005. The higher net interest margin reflects the positive effects from TSFG's fourth quarter 2005 balance sheet repositioning, an improving earning asset mix/yield, and a greater contribution from noninterest-bearing deposits. In particular, the net interest margin benefited, as earning asset yields increased 43 basis points, as compared to funding costs, which increased only 34 basis points.
In the first quarter of 2006, the loan yield increased 27 basis points, while the total cost of customer deposits increased only 20 basis points. Interest rate spreads for investment securities relative to wholesale borrowing costs continued to narrow. In the first quarter 2006, the investment security yield increased 43 basis points from the prior quarter, while wholesale borrowing costs (including brokered CDs) increased 50 basis points.
Operating Efficiency and Noninterest Expenses
TSFG's GAAP efficiency ratio totaled 60.4% for first quarter 2006. Its cash operating efficiency ratio was 57.8%, a 316 basis point improvement from the fourth quarter 2005 cash operating efficiency ratio of 60.9%. Cash operating noninterest expense reductions exceeded the decline in operating revenue, leading to positive operating leverage for first quarter 2006. Beginning in the fourth quarter, TSFG increased its focus on noninterest expense management, in light of lower investment securities income and the challenging interest rate environment, and this is reflected in the improved efficiency ratio.
Noninterest expenses for first quarter 2006 totaled $79.8 million, compared with $101.0 million for the fourth quarter 2005. Fourth quarter 2005 noninterest expenses included $10.0 million in employment contract buyouts and a $5.1 million loss on early extinguishment of debt. Excluding these items, intangible amortization, and other non-operating items, cash operating noninterest expenses totaled $77.0 million for first quarter 2006, down $6.0 million from $83.0 million for fourth quarter 2005.
Lower personnel expense and professional fees accounted for much of the decrease. Personnel expense declined $3.0 million, largely from lower incentive compensation accruals and savings associated with branch staffing analyses and fourth quarter 2005 employment contracts buyouts, which were identified as part of TSFG's profitability enhancement project. This improvement more than offset the $838,000 increase from stock option expense as TSFG adopted a new accounting pronouncement effective January 1, 2006. Professional fees declined $1.3 million, due to the elimination one-time costs incurred in the fourth quarter 2005 and lower internal audit co-sourcing costs.
Credit Quality
The nonperforming asset and net charge-off ratios continued to improve in first quarter 2006, reaching their best levels since 2000. As a percent of loans held for investment and foreclosed property, nonperforming assets improved to 0.46% at March 31, 2006 from 0.47% last quarter-end and 0.58% a year earlier. Annualized first quarter 2006 net loan charge-offs improved to 0.29% of average loans held for investment from the previous quarter's 0.38% and 0.45% in first quarter 2005.
The first quarter 2006 provision for credit losses exceeded net loan charge-offs by $3.1 million, or 1.46 times. The allowance for credit losses at March 31, 2006 was 1.16% of loans held for investment, the same as the previous quarter-end and down from 1.18% at March 31, 2005. First quarter 2006 allowance coverage of nonperforming loans totaled 3.11 times, compared with 3.24 times a quarter earlier and 2.48 times a year earlier.
Capital
Tangible shareholders' equity at March 31, 2006 totaled $792.8 million, or $10.58 per share, representing 5.80% of tangible assets. This compares with $795.1 million, or $10.64 per share, representing 5.83% of tangible assets at December 31, 2005. Tangible equity per share decreased 2.3% linked-quarter annualized during this period, due to an increase in the after-tax unrealized loss on available for sale securities to $66.1 million at March 31, 2006 from $46.4 million at December 31, 2005 partially offset by earnings for the first quarter of 2006. Excluding the impact of the unrealized loss on available for sale securities, TSFG's tangible equity to tangible assets ratio improved to 6.24% at March 31, 2006 from 6.14% at December 31, 2005.
Conference Call / Webcast Information
The South Financial Group will host a conference call on Tuesday, April 18th at 9:00 a.m. (ET) to discuss the first quarter 2006 results. Additional material information, including forward-looking statements such as trends and projections, may be discussed during the presentation. For supplemental financial information, please refer to the Form 8-K filed by TSFG with the Securities and Exchange Commission on April 17, 2006 or visit the Investor Relations section of its website under the financial information 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 1-866-513-1228 or 1-203-369-1971.
Webcast: To gain access to the webcast, which will be "listen-only," please go to http://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 2, 2006.
General Information
The South Financial Group, the largest publicly-traded bank holding company headquartered in South Carolina, ranks among the top 50 U.S. commercial bank holding companies in total assets. At March 31, 2006, it had approximately $14.4 billion in total assets and 172 branch offices in Florida, North Carolina, and South Carolina. TSFG focuses on fast-growing banking markets in the Southeast and concentrates its growth in metropolitan statistical areas. TSFG operates through two subsidiary banks: Carolina First Bank, operating in North Carolina, South Carolina, and on the Internet under the brand name, Bank CaroLine; and Mercantile Bank, operating in Florida. At March 31, 2006, approximately 48% of TSFG's total customer deposits were in South Carolina, 39% were in Florida, and 13% were in North Carolina. The South Financial Group's common stock trades on the Nasdaq National Market under the symbol TSFG. Press releases along with additional information may also be found at The South Financial Group's website: http://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 in accordance with Generally Accepted Accounting Principles ("GAAP"). The attached financial highlights provide reconciliations between GAAP net income, operating earnings (which exclude gains or losses on asset sales, changes in fair value of certain interest rate swaps, merger-related costs, early extinguishment of debt, impairment charges, employment contract buyouts, and other non-operating expenses), and certain measures excluding or including the net cash settlement of certain interest rate swaps. In addition, TSFG provides data eliminating intangibles and related amortization in order to present data on a "cash operating basis."
TSFG's management uses these non-GAAP measures in its analysis of TSFG's performance and believes presentations of financial measures on an operating basis provide useful supplemental information, a clearer understanding of TSFG's financial performance, and better reflect TSFG's core operating activities. Management utilizes operating earnings in the calculation of certain of TSFG's ratios, in particular, to analyze on a consistent basis and over a longer period of time the performance of which it considers to be its core operating activities. 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 others in the financial services industry.
The limitations associated with utilizing 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 information 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, customer deposit growth, 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, performance following TSFG's balance sheet repositioning, 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.
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except share data) (unaudited)
Three Months Ended % Change 3/31/06 vs.
(Annualized)
3/31/06 12/31/05 3/31/05 12/31/05 3/31/05
TOTAL REVENUE (1)
GAAP $132,232 $79,973 $111,520 265.0 % 18.6 %
Operating (2) 133,358 136,262 128,110 (8.6) 4.1
EARNINGS
GAAP earnings (loss) $27,807 $(16,397) $22,416 n/m % 24.0 %
Operating earnings 27,757 26,837 32,667 13.9 (15.0)
Cash operating earnings 29,201 28,485 33,877 10.2 (13.8)
DILUTED SHARE DATA
Average common shares
outstanding 75,339,283 75,485,436 73,021,005 (0.8)% 3.2 %
GAAP earnings (loss) $0.37 $(0.22) $0.31 n/m 19.4
Operating earnings 0.37 0.36 0.45 11.3 (17.8)
Cash operating earnings 0.39 0.38 0.46 10.7 (15.2)
PERFORMANCE RATIOS (Annualized)
RETURN ON AVERAGE ASSETS:
GAAP earnings (loss) 0.78 % (0.44)% 0.64 %
Operating earnings 0.78 0.72 0.93
Cash operating earnings on
average tangible assets 0.87 0.80 1.00
RETURN ON AVERAGE EQUITY:
GAAP earnings (loss) 7.56 (4.34) 6.52
Operating earnings 7.55 7.11 9.50
Cash operating earnings on
average tangible equity 14.80 14.05 17.53
NET INTEREST MARGIN:
Tax equivalent 3.31 3.16 3.13
Including net cash
settlement of certain
interest rate swaps (3) 3.31 3.15 3.28
NONINTEREST INCOME (LOSS) AS A
% OF TOTAL REVENUE(4):
GAAP 22.17 (31.21) 11.90
Operating (2) 21.48 21.72 22.27
Operating, excluding
net cash settlement
of certain interest
rate swaps (5) 21.48 21.93 18.58
EFFICIENCY RATIOS (6):
GAAP 60.37 126.26 59.64
Operating (2) 59.42 62.64 52.29
Cash operating (2) 57.76 60.92 50.88
CREDIT
Net charge-offs as a % of
average loans held
for investment
(annualized): 0.29 0.38 0.45
(1) The sum of net interest income and noninterest income.
(2) Total revenue, noninterest income as a % of total revenue, and the
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.
(3) Calculated as tax-equivalent net interest income plus net cash
settlement on certain interest rate swaps divided by average earning
assets, annualized.
(4) Calculated as noninterest income, divided by the sum of net interest
income and noninterest income.
(5) Calculated as operating noninterest income excluding the net cash
settlement of certain interest rate swaps divided by operating
revenues.
(6) Calculated as noninterest expenses, divided by the sum of net interest
income and noninterest income.
Supplemental financial information may be found in the Investor Relations
section of TSFG's web site: http://www.thesouthgroup.com/.
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except share data) (unaudited)
Three Months Ended % Change 3/31/06 vs.
(Annualized)
3/31/06 12/31/05 3/31/05 12/31/05 3/31/05
INCOME STATEMENT
Interest income
(tax-equivalent) $207,168 $206,142 $171,575 2.0 % 20.7 %
Interest expense 102,455 99,479 72,000 12.1 42.3
Net interest income
(tax-equivalent) 104,713 106,663 99,575 (7.4) 5.2
Less: tax-equivalent
adjustment 1,801 1,730 1,326 16.6 35.8
Net interest income 102,912 104,933 98,249 (7.8) 4.7
Provision for credit losses 9,911 10,833 10,962 (34.5) (9.6)
Net interest income after
provision for credit
losses 93,001 94,100 87,287 (4.7) 6.5
NONINTEREST INCOME (LOSS):
Customer fee income 14,218 14,456 10,923 (6.7) 30.2
Wealth management income 7,124 6,743 4,141 22.9 72.0
Mortgage banking income 1,884 1,720 1,487 38.7 26.7
Bank-owned life insurance 2,819 3,253 2,761 (54.1) 2.1
Merchant processing income 2,686 2,202 2,038 89.1 31.8
(Loss) gain on trading and
certain derivative
activities (1) (1,125) (610) 904 (342.4) (224.4)
Net cash settlement of
certain interest rate
swaps (2) - (288) 4,737 405.6 (100.0)
Other 1,039 2,123 1,544 (207.1) (32.7)
Operating noninterest
income (noninterest
income, excluding
non-operating items) 28,645 29,599 28,535 (13.1) 0.4
Change in fair value of
interest rate swaps (2) - (2,106) (17,209) n/m n/m
(Loss) gain on sale of
available for sale
securities (183) (52,677) 234 n/m n/m
Gain on equity investments 858 224 1,711 n/m n/m
Non-operating noninterest
income (loss) 675 (54,559) (15,264) n/m n/m
Total noninterest
income (loss) 29,320 (24,960) 13,271 882.0 120.9
NONINTEREST EXPENSES:
Personnel expense 40,485 43,454 33,638 (27.7) 20.4
Occupancy 7,313 7,455 6,099 (7.7) 19.9
Furniture and equipment 5,952 5,966 5,533 (1.0) 7.6
Professional services 5,779 7,124 4,436 (76.6) 30.3
Advertising and business
development 2,506 2,277 1,909 40.8 31.3
Merchant processing expense 2,165 1,773 1,632 89.7 32.7
Telecommunications 1,418 1,559 1,326 (36.7) 6.9
Amortization of intangibles 2,207 2,354 1,806 (25.3) 22.2
Other 11,411 13,398 10,608 (60.1) 7.6
Operating noninterest
expenses (noninterest
expenses, excluding
non-operating items) 79,236 85,360 66,987 (29.1) 18.3
Employment contract buyouts
(reversals) 598 9,998 (37) n/m n/m
Merger-related costs - 529 305 n/m n/m
Charitable contribution
to foundation - - 683 n/m n/m
Loss (gain) on early
extinguishment of debt - 5,086 (1,428) n/m n/m
Non-operating noninterest
expenses 598 15,613 (477) n/m n/m
Total noninterest
expenses 79,834 100,973 66,510 (84.9) 20.0
Income (loss) before income
taxes and discontinued
operations 42,487 (31,833) 34,048 n/m 24.8
Income tax expense
(benefit) 14,680 (15,436) 11,236 n/m 30.7
Discontinued operations,
net of income tax - - (396) n/m n/m
Net income (loss) $27,807 $(16,397) $22,416 n/m % 24.0 %
SHARE DATA:
Net income (loss) per
common share, basic $0.37 $(0.22) $0.31 n/m % 19.4 %
Net income (loss) per
common share, diluted 0.37 (0.22) 0.31 n/m 19.4
Cash dividends declared
per common share 0.17 0.17 0.16 - 6.3
Average common shares
outstanding, basic 74,685,192 74,453,225 71,376,085 1.3 4.6
Average common shares
outstanding, diluted 75,339,283 75,485,436 73,021,005 (0.8) 3.2
(1) Includes any ineffectiveness on derivatives qualifying for hedge
accounting and the fair value adjustments and net cash settlements on
all derivatives not qualifying for hedge accounting.
(2) Relates to derivatives originally documented under the short-cut
method. All of these derivatives were either terminated or
redesignated as hedges under the long-haul method during fourth
quarter 2005.
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except share data) (unaudited)
% Change 3/31/06 vs.
(Annualized)
3/31/06 12/31/05 3/31/05 12/31/05 3/31/05
BALANCE SHEET (Period End)
Cash and due from banks $249,324 $341,195 $219,968 (109.2)% 13.3 %
Interest-bearing bank
balances 10,406 21,510 5,793 (209.4) 79.6
Securities 3,040,082 3,159,617 4,833,811 (15.3) (37.1)
Loans held for sale 23,536 37,171 23,958 (148.8) (1.8)
Loans held for
investment 9,720,891 9,439,395 8,398,360 12.1 15.7
Allowance for loan
losses (111,219) (107,767) (97,989) 13.0 13.5
Net loans held for
investment 9,609,672 9,331,628 8,300,371 12.1 15.8
Premises and equipment,
net 203,953 193,574 178,044 21.7 14.6
Intangible assets 691,328 691,758 611,921 (0.3) 13.0
Other assets 533,624 542,832 526,514 (6.9) 1.4
Total assets $14,361,925 $14,319,285 $14,700,380 1.2 % (2.3)%
Noninterest-bearing
deposits $1,536,796 $1,512,508 $1,290,427 6.5 % 19.1 %
Interest-bearing customer
deposits (1) 6,240,115 6,383,248 5,532,028 (9.1) 12.8
Total customer
deposits (1) 7,776,911 7,895,756 6,822,455 (6.1) 14.0
Brokered deposits 1,401,771 1,338,681 1,352,515 19.1 3.6
Total deposits 9,178,682 9,234,437 8,174,970 (2.4) 12.3
Federal funds purchased
and repurchase
agreements 1,534,680 1,421,301 1,724,813 32.4 (11.0)
Other short-term
borrowings 36,356 53,064 36,312 (127.7) 0.1
Long-term debt 1,911,929 1,922,151 3,211,887 (2.2) (40.5)
Other liabilities 216,173 201,425 188,195 29.7 14.9
Total liabilities 12,877,820 12,832,378 13,336,177 1.4 (3.4)
Shareholders' equity 1,484,105 1,486,907 1,364,203 (0.8) 8.8
Total liabilities and
shareholders'
equity $14,361,925 $14,319,285 $14,700,380 1.2 % (2.3)%
Securities as a percentage
of total assets 21.2 % 22.1 % 32.9 %
Wholesale borrowings as a
percentage of total
assets (2) 34.0 33.1 43.0
BALANCE SHEET
(Averages - Three
Months Ended)
Total assets $14,367,256 $14,854,460 $14,302,030 (13.3)% 0.5 %
Intangible assets (691,262) (693,016) (610,914) (1.0) 13.2
Tangible assets 13,675,994 14,161,444 13,691,116 (13.9) (0.1)
Loans 9,630,573 9,392,454 8,283,500 10.3 16.3
Securities (3) 3,187,325 3,947,099 4,592,887 (78.1) (30.6)
Total earning assets 12,839,407 13,395,486 12,906,414 (16.8) (0.5)
Interest-bearing
liabilities 11,199,815 11,707,125 11,545,582 (17.6) (3.0)
Total deposits 9,130,484 9,163,599 7,968,408 (1.5) 14.6
Shareholders' equity 1,491,408 1,497,231 1,394,839 (1.6) 6.9
Intangible assets (691,262) (693,016) (610,914) (1.0) 13.2
Tangible equity 800,146 804,215 783,925 (2.1) 2.1
(1) Customer deposits include total deposits less brokered deposits.
(2) Wholesale borrowings include borrowings and brokered deposits.
(3) The average balances for investment securities exclude the unrealized
loss recorded for available for sale securities.
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except share data) (unaudited)
% Change 3/31/06 vs.
(Annualized)
3/31/06 12/31/05 3/31/05 12/31/05 3/31/05
CREDIT QUALITY
Nonperforming loans (1) $35,722 $33,255 $39,563 (9.7)%
Foreclosed property (other
real estate owned and
personal property
repossessions) 9,323 10,722 9,416 (1.0)
Nonperforming assets $45,045 $43,977 $48,979 (8.0)
Nonperforming loans as a
% of loans held for
investment 0.37 % 0.35 % 0.47 %
Nonperforming assets as a
% of loans held for
investment and foreclosed
property 0.46 0.47 0.58
Allowance for loan
losses $111,219 $107,767 $97,989
Allowance for credit
losses (2) $112,454 $109,350 $98,690
Allowance for loan losses
as a % of loans HFI 1.14 1.14 1.17
Allowance for credit losses
as a % of loans HFI (2) 1.16 1.16 1.18
Allowance for loan losses
to nonperforming loans 3.11 x 3.24 x 2.48 x
Impaired loans (1) $22,055 $16,911 $25,654 (14.0)
Specific allowance for
impaired loans 4,904 4,336 5,247 (6.5)
Loans past due 90 days
or more (mortgage and
consumer with interest
accruing) 2,369 4,548 1,816 30.5
Net loan charge-offs
(three months ended) 6,807 8,864 9,190 (25.9)
Average loans held for
investment (three
months ended) 9,606,556 9,342,761 8,263,252
Net loan charge-offs as
a % of average loans
held for investment
(three months ended,
annualized) 0.29 % 0.38 % 0.45 %
CAPITAL RATIOS
Total risk-based capital 10.36 10.45 10.77
Tier 1 risk-based capital 8.82 8.86 9.17
Leverage ratio 7.47 7.07 7.16
Tangible equity to tangible
assets 5.80 5.83 5.34
SHARE DATA
Book value per common
share $19.81 $19.90 $19.01 (1.8)% 4.2 %
Tangible book value per
common share 10.58 10.64 10.48 (2.3) 1.0
Shares outstanding 74,907,489 74,721,461 71,757,924 1.0 4.4
STOCK PERFORMANCE
Market price per share of
common stock $26.15 $27.54 $30.54 (20.5)% (14.4)%
Indicated annual dividend 0.68 0.68 0.64 - 6.3
Dividend yield 2.60 % 2.47 % 2.10 %
Price/book ratio 1.32 x 1.38 x 1.61 x
Market capitalization $1,958,831 $2,057,829 $2,191,487 (19.5) (10.6)
OPERATIONS DATA
Branch offices 172 172 155 - % 11.0 %
ATMs 167 167 146 - 14.4
Employees (full-time
equivalent) 2,526 2,607 2,336 (12.6) 8.1
Active internet banking
customers 93,973 75,674 72,991 98.1 28.7
(1) At March 31, 2006, December 31, 2005 and March 31, 2005, these credit
quality indicators (nonperforming loans and impaired loans) included
$693,000, $1.9 million, and $6.7 million, respectively, in
restructured loans.
(2) Effective December 31, 2005, the reserve for unfunded lending
commitments was reclassified from the allowance for loan losses to
other liabilities. The allowance for credit losses is the sum of the
allowance for loan losses and the reserve for unfunded lending
commitments. The provision for credit losses is the sum of the
provision for loan losses and the provision for unfunded lending
commitments. Amounts presented for prior periods have been
reclassified to conform to the current presentation.
THE SOUTH FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except share data) (unaudited)
Three Months Ended % Change 3/31/06 vs.
(Annualized)
3/31/06 12/31/05 3/31/05 12/31/05 3/31/05
RECONCILIATION OF GAAP
TO NON-GAAP MEASURES
NET INCOME (LOSS), AS
REPORTED (GAAP) $27,807 $(16,397) $22,416 n/m % 24.0 %
Discontinued
operations, net of
income tax - - 396
Add: Income tax expense
(benefit) 14,680 (15,436) 11,236
Income (loss) before
income taxes and
discontinued
operations 42,487 (31,833) 34,048 n/m 24.8
Non-operating items:
Change in fair value
of interest rate
swaps - 2,106 17,209
Loss (gain) on sale of
available for sale
securities 183 52,677 (234)
Gain on equity
investments (858) (224) (1,711)
Employment contract
buyouts (reversals) 598 9,998 (37)
Merger-related costs - 529 305
Charitable
contribution to
foundation - - 683
Loss (gain) on early
extinguishment of
debt - 5,086 (1,428)
PRE-TAX OPERATING
EARNINGS (income
before taxes and
discontinued
operations, excluding
non-operating items) 42,410 38,339 48,835 43.1 (13.2)
Related income taxes 14,653 11,502 16,168
OPERATING EARNINGS (net
income, excluding
non-operating items) 27,757 26,837 32,667 13.9 (15.0)
Add: Amortization of
intangibles, net of
income tax 1,444 1,648 1,210
CASH OPERATING EARNINGS
(net income, excluding
non-operating items
and amortization of
intangibles) $29,201 $28,485 $33,877 10.2 (13.8)
NET INTEREST INCOME,
AS REPORTED (GAAP) $102,912 $104,933 $98,249
Add: Tax-equivalent
adjustment 1,801 1,730 1,326
Add: Net cash
settlement of
certain interest
rate swaps (1) - (288) 4,737
Net interest income
(tax equivalent),
including net
cash settlement of
certain interest
rate swaps (1) $104,713 $106,375 $104,312 (6.3) 0.4
OPERATING NONINTEREST
INCOME (see page 2) $28,645 $29,599 $28,535
Less: Net cash
settlement of
certain interest
rate swaps (1) - 288 (4,737)
Operating noninterest
income, excluding net
cash
settlement of certain
interest rate swaps
(1) $28,645 $29,887 $23,798 (16.9) 20.4
(1) Relates to derivatives originally documented under the short-cut
method. All of these derivatives were either terminated or
redesignated as hedges under the long-haul method during fourth
quarter 2005. TSFG is presenting prior periods to be comparable to
these current classifications under hedge accounting. Accordingly,
TSFG has presented these non-GAAP measures classifying the net cash
settlement for these certain derivatives in net interest income
instead of noninterest income.
Supplemental financial information may be found in the Investor Relations
section of TSFG's web site: http://www.thesouthgroup.com/.
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