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South Financial Group Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 7, 2009 06:31PM

South Financial Group Inc. (TSFG) filed Quarterly Report for the period ended 2009-06-30. The South Financial Group is a financial services company. It operates Carolina First Bank the largest South Carolina-based commercial bank; Citrus Bank a Florida banking subsidiary; Carolina First Mortgage Company the second largest mortgage loan servicer in South Carolina; and Carolina First Bank F.S.B. a savings bank which offers Bank CaroLine. Other subsidiaries include a full service brokerage company an automobile finance company and a small business investment company that invests principally in bank technology companies. (PRESS RELEASE) South Financial Group Inc. has a market cap of $160.3 million; its shares were traded at around $1.88 with and P/S ratio of 0.2. The dividend yield of South Financial Group Inc. stocks is 2.1%. South Financial Group Inc. had an annual average earning growth of 5% over the past 10 years.

Highlight of Business Operations:

TSFG reported a net loss available to common shareholders of $202.3 million, or $(2.34) per diluted share, for the first six months of 2009, primarily attributable to higher credit and related costs. For the first six months of 2008, TSFG reported a net loss available to common shareholders of $218.2 million, or $(3.01) per diluted share, which included a goodwill impairment charge of $188.4 million resulting from a decrease in expected cash flows of the Mercantile banking segment. The following is a summary of the consolidated statements of operations (in thousands, except per share data):

with this plan, TSFG issued $75 million of common equity in a public offering in June, with net proceeds of $69.9 million. (An additional $10 million was issued in July in connection with the exercise of the underwriters’ over-allotment, with net proceeds of $9.5 million.) Also in June, TSFG exchanged $94.5 million of the Series 2008 Convertible Preferred Stock for a new series of preferred stock, Series 2009-A Convertible Preferred Stock, which automatically converts into 24.0 million common shares (including 9.4 million shares valued at $14.0 million as an inducement to convert) upon shareholder approval. (Shareholder approval is expected to be obtained in third quarter 2009.) In addition, TSFG reduced its assets during second quarter 2009, partly by sales of indirect auto loans and shared national credits. Other provisions of the Capital Plan include exchanging common stock for the remaining $95.5 million of Series 2008 Convertible Preferred Stock, converting $20 to $30 million of certain TRUP and REIT preferred securities into common, and selling ancillary businesses.

In January 2009, 48,674 shares of our Series 2008 Convertible Preferred Stock were converted into approximately 10.0 million common shares, which included 2.5 million shares (valued at $6.5 million) issued as an inducement to convert. In total, $20.5 million for the first six months of 2009 was treated as a deemed dividend to preferred shareholders resulting from induced conversions for purposes of computing net loss available to common shareholders, including $6.5 million in first quarter 2009 and $14.0 million in second quarter 2009.

Noninterest income totaled $56.0 million for the first six months of 2009, compared to $63.3 million for the first six months of 2008. The decrease was largely attributable to decreases in most categories of noninterest income, including a $2.6 million decline in the net gain on securities and declines in customer fee income and wealth management income due to the effects of the economic downturn. However, mortgage banking income improved for second quarter 2009 versus first quarter 2009.

Noninterest expenses totaled $226.4 million for the first six months of 2009, compared to $356.0 million for the six months ended June 30, 2008. Goodwill impairment charges totaling $188.4 million were recorded in the first half of 2008. In the first half of 2009, regulatory assessments and credit-related expenses continued to increase, and TSFG recorded $17.4 million in impairment charges on long-lived assets.

Loans held for investment decreased $886.1 million, or 8.7%, to $9.3 billion at June 30, 2009 from $10.2 billion at December 31, 2008. During the three and six months ended June 30, 2009, TSFG transferred $335.8 million and $346.5 million, respectively, from the held for investment portfolio to the held for sale portfolio. Included in the second quarter amounts were $230.3 million of indirect auto loans (all of which were sold prior to quarter-end) and $88.8 million of shared national credits (of which $24.7 million were still included in held for sale at June 30, 2009). After recording a $4.5 million allowance adjustment, TSFG recorded a $3.2 million net loss on the indirect auto loan and shared national credits transactions. Subsequent to quarter-end, in July 2009, the $24.7 million of shared national credits held for sale were sold.

Read the The complete Report

TSFG is in the portfolios of Lee Ainslie of Maverick Capital.

Stocks Discussed: TSFG,
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