UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
------ ------
Commission file number 0-15083
THE SOUTH FINANCIAL GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0824914
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
102 SOUTH MAIN STREET, GREENVILLE, SOUTH CAROLINA 29601
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (864) 255-7900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
The number of outstanding shares of the issuer's $1.00 par value common stock as
of August 1, 2002 was 40,350,185.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
June 30,
------------------------------
2002 2001 December 31,
(Unaudited) (Unaudited) 2001
----------- ----------- ----
Assets
Cash and due from banks $ 137,925 $ 127,036 $ 149,170
Interest-bearing bank balances 40,532 28,511 91,497
Securities
Trading 2,244 4,622 1,577
Available for sale 1,575,324 1,044,116 1,560,986
Held to maturity (market value $81,585, $70,927 and
$81,878, respectively) 79,671 70,255 80,832
---------- ---------- ----------
Total securities 1,657,239 1,118,993 1,643,395
---------- ---------- ----------
Loans
Loans held for sale 19,636 85,416 6,513
Loans held for investment 3,915,405 3,717,029 3,730,250
Allowance for loan losses (46,985) (43,765) (44,587)
---------- ---------- ----------
Net loans 3,888,056 3,758,680 3,692,176
---------- ---------- ----------
Premises and equipment, net 112,992 116,686 114,224
Accrued interest receivable 38,242 34,417 38,241
Intangible assets 96,554 104,455 97,145
Other assets 193,957 205,327 203,594
---------- ---------- ----------
$6,165,497 $5,494,105 $6,029,442
========== ========== ==========
Liabilities and shareholders' equity
Liabilities
Deposits
Noninterest-bearing $ 553,579 $ 503,776 $ 524,437
Interest-bearing 3,170,038 3,152,640 3,080,818
---------- ---------- ----------
Total deposits 3,723,617 3,656,416 3,605,255
---------- ---------- ----------
Federal funds purchased and repurchase agreements 1,299,898 633,935 1,269,538
Other borrowed funds 439,374 549,731 523,912
Subordinated notes 37,344 37,344 37,344
Trust preferred debt 31,000 - 31,000
Accrued interest payable 25,406 37,201 20,337
Other liabilities 50,249 56,656 46,859
---------- ---------- ----------
Total liabilities 5,606,888 4,971,283 5,534,245
---------- ---------- ----------
Minority interest in consolidated subsidiary 86,471 37,034 37,023
---------- ---------- ----------
Shareholders' equity
Preferred stock - no par value; authorized 10,000,000
shares; issued and outstanding none - - -
Common stock - par value $1 per share; authorized
100,000,000 shares; issued and outstanding 40,341,762,
42,598,944 and 41,228,976 shares, respectively 40,342 42,599 41,229
Surplus 290,685 331,733 311,305
Retained earnings 132,741 99,135 113,288
Guarantee of employee stock ownership plan debt and
nonvested restricted stock (1,624) (2,029) (1,544)
Accumulated other comprehensive income (loss), net of tax 9,994 14,350 (6,104)
---------- ---------- ---------
Total shareholders' equity 472,138 485,788 458,174
---------- ---------- ----------
$6,165,497 $5,494,105 $6,029,442
========== ========== ==========
See accompanying notes to consolidated financial statements.
1
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Interest income
Interest and fees on loans $ 67,049 $ 80,415 $131,929 $165,821
Interest and dividends on securities:
Taxable 21,217 15,670 42,784 29,167
Exempt from Federal income taxes 1,064 954 2,155 1,964
-------- -------- -------- --------
Total interest and dividends on securities 22,281 16,624 44,939 31,131
Interest on short-term investments 218 360 687 968
-------- -------- -------- --------
Total interest income 89,548 97,399 177,555 197,920
-------- -------- -------- --------
Interest expense
Interest on deposits 21,253 40,082 42,829 84,988
Interest on borrowed funds 13,665 13,356 26,690 26,025
-------- -------- -------- --------
Total interest expense 34,918 53,438 69,519 111,013
-------- -------- -------- --------
Net interest income 54,630 43,961 108,036 86,907
Provision for loan losses 6,244 5,600 12,482 10,108
-------- -------- -------- --------
Net interest income after provision for loan losses 48,386 38,361 95,554 76,799
Noninterest income 13,515 13,125 25,275 26,040
Noninterest expenses 38,402 36,293 75,926 74,451
-------- -------- -------- --------
Income before income taxes, minority interest, and
cumulative effect of change in accounting principle 23,499 15,193 44,903 28,388
Income taxes 7,740 5,242 14,590 9,992
-------- -------- -------- --------
Income before minority interest and cumulative
effect of change in accounting principle 15,759 9,951 30,313 18,396
Minority interest in consolidated subsidiary, net of tax (758) (307) (1,186) (402)
-------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 15,001 9,644 29,127 17,994
Cumulative effect of change in accounting principle,
net of tax - - - 282
-------- -------- -------- ---------
Net income $ 15,001 $ 9,644 $ 29,127 $ 18,276
======== ======== ======== ========
Average common shares outstanding, basic 40,217,873 42,458,303 40,699,166 42,441,246
Average common shares outstanding, diluted 41,232,890 43,179,212 41,646,176 43,148,241
Per common share, basic:
Net income before cumulative effect of change in
accounting principle $ 0.37 $ 0.23 $ 0.72 $ 0.42
Cumulative effect of change in accounting principle - - - 0.01
------ ------ ------ ------
Net income $ 0.37 $ 0.23 $ 0.72 $ 0.43
====== ====== ====== ======
Per common share, diluted:
Net income before cumulative effect of change in
accounting principle $ 0.36 $ 0.22 $ 0.70 $ 0.41
Cumulative effect of change in accounting principle - - - 0.01
------ ------ ------ ------
Net income $ 0.36 $ 0.22 $ 0.70 $ 0.42
====== ====== ====== ======
Cash dividends declared per common share $ 0.12 $ 0.11 $ 0.24 $ 0.22
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
2
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(dollars in thousands, except share data) (Unaudited)
Retained Accumulated
Shares of Earnings Other
Common Common and Comprehensive
Stock Stock Surplus Other* Income (Loss) Total
----- ----- ------- ------ ------------- -----
Balance, December 31, 2000 42,460,358 $ 42,460 $ 332,095 $ 87,538 $6,560 $ 468,653
Net income - - - 18,276 - 18,276
Other comprehensive income,
net of tax of $3,769 - - - - 7,790 7,790
---------
Comprehensive income - - - - - 26,066
---------
Cash dividends declared
($0.22 per common share) - - - (9,273) - (9,273)
Common stock activity:
Repurchase of stock (60,000) (60) (1,872) - - (1,932)
Acquisitions 15,270 15 135 - - 150
Dividend reinvestment plan 81,350 81 1,037 - - 1,118
Employee stock purchase plan 8,078 8 107 - - 115
Restricted stock plan (2,711) (2) (37) 394 - 355
Exercise of stock options 96,599 97 285 - - 382
Miscellaneous - - (17) 171 - 154
---------- -------- --------- -------- ------- ---------
Balance, June 30, 2001 42,598,944 $ 42,599 $ 331,733 $ 97,106 $14,350 $ 485,788
========== ======== ========= ======== ======= =========
Balance, December 31, 2001 41,228,976 $ 41,229 $ 311,305 $ 111,744 $ (6,104) $ 458,174
Net income - - - 29,127 - 29,127
Other comprehensive income,
net of tax of $7,766 - - - - 16,098 16,098
---------
Comprehensive income - - - - - 45,225
---------
Cash dividends declared
($0.24 per common share) - - - (9,674) - (9,674)
Common stock activity:
Repurchase of stock (1,135,600) (1,136) (24,181) - - (25,317)
Dividend reinvestment plan 34,244 34 648 - - 682
Employee stock purchase plan 5,331 6 98 - - 104
Restricted stock plan 59,096 59 1,583 (246) - 1,396
Exercise of stock options 149,715 150 1,196 - - 1,346
Miscellaneous - - 36 166 - 202
---------- -------- --------- --------- ------- ---------
Balance, June 30, 2002 40,341,762 $ 40,342 $ 290,685 $ 131,117 $ 9,994 $ 472,138
========== ======== ========= ========= ======= =========
* Other includes guarantee of employee stock ownership plan debt and nonvested
restricted stock.
See accompanying notes to consolidated financial statements.
3
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
Six Months Ended June 30,
---------------------------------
2002 2001
---- ----
Cash flows from operating activities
Net income $29,127 $18,276
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization, and accretion, net 15,145 14,393
Provision for loan losses 12,482 10,108
Gain on sale of securities (278) (545)
(Gain) loss on equity investments 139 (1,002)
Loss on disposition of assets and liabilities - 1,232
Gain on sale of loans (860) (2,659)
Gain on disposition of premises and equipment (40) (332)
(Gain) loss on disposition of other real estate owned 405 (203)
Impairment loss from write-down of assets - 215
Impairment recovery on mortgage servicing rights (177) -
Loss on changes in fair value of hedges 11 98
Minority interest in consolidated subsidiary 1,186 402
Cumulative effect of change in accounting principle - (282)
Trading account assets, net (604) 523
Originations of mortgage loans held for sale (222,152) (206,119)
Sale of mortgage loans held for sale 209,909 209,156
Other assets, net (4,160) 2,448
Other liabilities, net 2,710 16,732
--------- ---------
Net cash provided by operating activities 42,843 62,441
--------- ---------
Cash flows from investing activities
Sale of securities available for sale 307,363 137,993
Maturity or call of securities available for sale 670,869 215,149
Maturity or call of securities held to maturity 6,428 11,119
Purchase of securities available for sale (971,207) (454,806)
Purchase of securities held to maturity (5,345) (3,689)
Purchase of bank-owned life insurance - (25,000)
Origination of loans, net (199,382) (195,469)
Sale of loans held for investment 11,349 -
Sale of other real estate owned 2,874 1,825
Sale of premises and equipment 1,134 746
Capital expenditures (5,660) (3,143)
Disposition of assets and liabilities, net - 498
--------- ---------
Net cash used for investing activities (181,577) (314,777)
--------- ---------
Cash flows from financing activities
Deposits, net 116,024 (238,142)
Borrowed funds, net (54,809) 434,529
Issuance of minority interest stock, net 49,448 37,034
Cash dividends paid (9,780) (9,349)
Cash dividends paid on minority interest (1,376) (83)
Repurchase of common stock (25,317) (1,932)
Other common stock activity 2,334 1,919
--------- ---------
Net cash provided by financing activities 76,524 223,976
--------- ---------
Net change in cash and due from banks (62,210) (28,360)
Cash and cash equivalents at beginning of year 240,667 183,907
--------- ---------
Cash and cash equivalents at end of period $ 178,457 $ 155,547
========= =========
See accompanying notes to consolidated financial statements.
4
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The foregoing unaudited consolidated financial statements include the accounts
of The South Financial Group, Inc. and subsidiaries (collectively, "TSFG,"
except where the context requires otherwise). All significant intercompany
accounts and transactions are eliminated in consolidation, and all adjustments
considered necessary for a fair presentation of the results for interim periods
presented have been included. (Such adjustments are normal and recurring in
nature.) Certain prior year amounts have been reclassified to conform to 2002
presentations.
The consolidated financial statements and notes are presented in accordance with
the instructions for Form 10-Q. The information contained in the footnotes
included in TSFG's 2001 Annual Report on Form 10-K should be referred to in
connection with the reading of these unaudited interim consolidated financial
statements.
ACCOUNTING ESTIMATES AND ASSUMPTIONS
Certain policies require management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ significantly from these
estimates and assumptions.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishments of Debt" ("SFAS 4"), and an
amendment of SFAS 4, SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." SFAS 145 requires that gains and losses from
extinguishment of debt should be classified as an extraordinary item only if
they meet the criteria of FASB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("FASB Opinion 30"). Applying the provisions of FASB Opinion 30 will distinguish
transactions that are part of an entity's recurring operations from those that
are unusual or infrequent or that meet the criteria for classification as an
extraordinary item.
The provisions of SFAS 145 are effective for financial statements issued for
fiscal years beginning after May 15, 2002 and interim periods within those
fiscal years, and early adoption is encouraged. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in FASB Opinion 30 for
classification as an extraordinary item will be reclassified.
TSFG adopted SFAS 145 effective July 1, 2002. In connection with this adoption,
TSFG reclassified losses on the early extinguishment of debt, which were
incurred in the second half of 2001 and totaled $3.1 million pre-tax, as
noninterest expenses.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"), which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 applies to
costs associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
No. 144,
5
"Accounting for the Impairment or Disposal of Long-Lived Assets." Those costs
include, but are not limited to, the following: a) termination benefits provided
to current employees that are involuntarily terminated under the terms of a
benefit arrangement that, in substance, is not an ongoing benefit arrangement or
an individual deferred compensation contract (hereinafter referred to as
one-time termination benefits), b) costs to terminate a contract that is not a
capital lease, and c) costs to consolidate facilities or relocate employees.
This Statement does not apply to costs associated with the retirement of a
long-lived asset covered by SFAS No. 143, "Accounting for Asset Retirement
Obligations." A liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair value in the
period in which the liability is incurred. A liability for a cost associated
with an exit or disposal activity is incurred when the definition of a liability
is met. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The impact of adoption on the Corporation is not known at this time.
(2) SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
The following presents the details for noninterest income and noninterest
expense (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Noninterest income:
Service charges on deposit accounts $ 5,421 $ 4,812 $ 10,328 $ 9,180
Fees for investment services 1,853 1,499 3,280 2,742
Mortgage banking income 1,357 1,904 2,547 4,323
Bank-owned life insurance 1,803 2,157 3,609 3,552
Merchant processing income 1,715 1,747 2,963 2,961
Gain on sale of securities 219 63 278 545
Gain (loss) on equity investments (150) 181 (139) 1,002
Loss on disposition of assets and liabilities - (970) - (1,232)
Other 1,297 1,732 2,409 2,967
-------- -------- -------- --------
Total noninterest income $ 13,515 $ 13,125 $ 25,275 $ 26,040
======== ======== ======== ========
Noninterest expenses:
Salaries and wages $ 16,133 $ 14,480 $ 32,357 $ 29,094
Employee benefits 3,925 3,327 8,303 7,407
Furniture and equipment 3,483 3,333 7,079 6,731
Occupancy 3,686 3,541 7,231 7,204
Professional fees 1,189 1,321 2,516 2,633
Merchant processing expense 1,373 1,506 2,417 2,335
Amortization of intangibles 281 1,432 591 3,002
Impairment loss from write-down of assets - - - 215
Restructuring and merger-related recoveries - - - (413)
Other 8,332 7,353 15,432 16,243
-------- -------- -------- --------
Total noninterest expenses $ 38,402 $ 36,293 $ 75,926 $ 74,451
======== ======== ======== ========
6
CONSOLIDATED STATEMENTS OF CASH FLOW
The following summarizes supplemental cash flow data (in thousands) for the six
months ended June 30:
2002 2001
---- ----
Interest paid $ 63,587 $ 108,980
Income taxes paid (refunded) 16,894 (9,153)
Significant non-cash investing and financing transactions are summarized as follows:
Loans securitized and reclassed to available for sale securities - 112,174
Loans held for investment transferred to loans held for sale - 75,000
Change in unrealized gain on available for sale securities 23,650 12,059
Loans transferred to other real estate owned 6,006 3,192
(3) OTHER COMPREHENSIVE INCOME
The following summarizes other comprehensive income, net of tax (in thousands)
for the six months ended June 30:
2002 2001
---- ----
Unrealized gains on securities:
Unrealized holding gains arising during the period $23,726 $12,907
Income tax expense (7,712) (4,253)
Less: Reclassification adjustment for gains included in net income (76) (848)
Income tax expense 25 299
Unrealized gains (losses) on cash flow hedges:
Cumulative effect of change in accounting principle - (70)
Income tax benefit - 26
Unrealized gain (loss) on change in fair values 214 (430)
Income tax (expense) benefit (79) 159
-------- -------
$ 16,098 $ 7,790
======== =======
(4) BUSINESS COMBINATIONS
In March 2002, TSFG signed a definitive agreement to acquire Gulf West Banks,
Inc. ("Gulf West"), headquartered in St. Petersburg, Florida. At June 30, 2002,
Gulf West operated through 15 branches in the greater Tampa Bay area of Florida
through its subsidiary, Mercantile Bank, and had total assets of $526.9 million.
In the merger, TSFG will issue 4,465,141 shares of common stock and pay
$32,400,178 in cash in exchange for all the shares of Gulf West common stock
outstanding at closing, calculated on a fully diluted basis. This transaction,
which is expected to close on August 31, 2002, will be accounted for using the
purchase method of accounting and is subject to regulatory approvals. Gulf West
shareholders approved the merger on July 11, 2002.
7
(5) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, TSFG adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). It requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142 also requires
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121").
In connection with the transitional goodwill, SFAS 142 requires TSFG to perform
an assessment of whether there is an indication that goodwill is impaired as of
January 1, 2002. To accomplish this, TSFG had to identify its reporting units
and determine the carrying value of each reporting unit by assigning the assets
and liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. TSFG had until June 30, 2002 to
determine the fair value of each reporting unit and compare it to the reporting
unit's carrying amount. To the extent a reporting unit's carrying amount exceeds
its fair value, an indication exists that the reporting unit's goodwill may be
impaired, and the second step of the transitional impairment test must be
performed. In the second step, the implied fair value of the reporting unit's
goodwill, determined by allocating the reporting unit's fair value to all of it
assets (recognized and unrecognized) and liabilities in a manner similar to a
purchase price allocation in accordance with SFAS 141, "Business Combinations,"
is compared to its carrying amount, both of which would be measured as of
January 1, 2002.
TSFG has completed its analysis of the fair value of its intangible assets and
determined that the goodwill associated with Carolina First Mortgage Company may
be impaired. TSFG is currently completing the second step of its impairment
analysis and expects to record a transitional impairment loss of approximately
$1.4 million. This transitional impairment loss is expected to be recognized as
the cumulative effect of a change in accounting principle in the consolidated
statements of income for the nine months ended September 30, 2002 (although it
will not be reflected in the third quarter 2002 results since the impairment is
reflected as of January 1, 2002). There was no change in the carrying amount of
goodwill at June 30, 2002 compared to December 31, 2001.
As of the January 1, 2002 adoption of SFAS 142, TSFG had unamortized goodwill in
the amount of $89.1 million, unamortized identifiable intangible assets in the
amount of $5.5 million, and unamortized unidentifiable intangible assets in the
amount of $2.5 million related to branch purchases. Under SFAS 142, the
amortization of goodwill ceased effective January 1, 2002. The amortization of
goodwill approximated $4.2 million pre-tax (or $4.1 million after tax) during
2001 and $2.3 million pre-tax (or $2.1 million after-tax) during the six months
ended June 30, 2001. TSFG will continue to amortize the identifiable intangible
assets, which relate to core deposit premiums, and unidentifiable intangible
assets from branch purchases, which fall under the provisions of SFAS Statement
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions."
Also, see Notes 6 and 7 for additional financial statement disclosure
requirements under SFAS 142.
8
The following presents the details for goodwill amortization expense and net
income (in thousands, except share data):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 15,001 $ 9,644 $ 29,127 $ 18,276
Amortization of goodwill, net of tax - 999 - 2,096
-------- -------- -------- --------
Adjusted net income $ 15,001 $ 10,643 $ 29,127 $ 20,372
======== ======== ======== ========
Net income per common share, basic $ 0.37 $ 0.23 $ 0.72 $ 0.43
Amortization of goodwill, net of tax - 0.02 - 0.05
-------- -------- -------- --------
Adjusted net income per common share, basic $ 0.37 $ 0.25 $ 0.72 $ 0.48
======== ======== ======== ========
Net income per common share, diluted $ 0.36 $ 0.22 $ 0.70 $ 0.42
Amortization of goodwill, net of tax - 0.02 - 0.05
-------- -------- -------- --------
Adjusted net income per common share, diluted $ 0.36 $ 0.24 $ 0.70 $ 0.47
======== ======== ======== ========
(6) INTANGIBLE ASSETS
Intangible assets are summarized as follows (in thousands):
June 30,
--------------------------------- December 31,
2002 2001 2001
---- ---- ----
Goodwill $89,063 $ 94,367 $ 89,063
Core deposit premium 14,546 15,816 14,546
Less accumulated amortization (9,485) (9,040) (9,006)
------- -------- --------
5,061 6,776 5,540
------- -------- --------
Unidentifiable intangible assets from branch purchases 5,002 6,264 5,002
Less accumulated amortization (2,572) (2,952) (2,460)
------- -------- --------
2,430 3,312 2,542
------- -------- --------
$96,554 $104,455 $ 97,145
======= ======== ========
Amortization of intangibles totaled $479,000 for core deposit premiums and
$112,000 for unidentifiable intangible assets from branch purchases for the six
months ended June 30, 2002. Amortization of intangibles totaled $713,000 for
core deposit premium, $158,000 for unidentifiable intangible assets from branch
purchases, and $2.1 million for goodwill for the six months ended June 30, 2001.
Under SFAS 142, the amortization of goodwill ceased effective January 1, 2002.
See Note 5.
The estimated amortization expense for core deposit premium for the years ended
December 31 is as follows: $959,000 for 2002, $867,000 for 2003, $735,000 for
2004, $666,000 for 2005, $580,000 for 2006, and $1.7 million for all the years
thereafter. These estimates exclude amortization expense for the core deposit
premium related to TSFG's pending merger with Gulf West, expected to close on
August 31, 2002. The estimated amortization expense for unidentifiable
intangible assets from branch purchases is $186,000 for the years ended December
31, 2002, 2003, 2004, and 2005; $128,000 for the year ended December 31, 2006;
and $1.7 million for all the years thereafter.
9
(7) MORTGAGE SERVICING RIGHTS
Capitalized mortgage servicing rights ("MSRs") totaled $7.3 million, $8.9
million, and $11.1 million at June 30, 2002, December 31, 2001, and June 30,
2001, respectively. Amortization expense for MSRs totaled $1.8 million and $2.2
million for the six months ended June 30, 2002 and 2001, respectively.
The estimated amortization expense for MSRs for the years ended December 31 is
as follows: $3.1 million for 2002, $2.8 million for 2003, $2.7 million for 2004,
$300,000 for 2005, and none for all the years thereafter. The estimated
amortization expense is based on current information regarding loan payments and
prepayments. Amortization expense could change in future periods based on
changes in the volume of prepayments and economic factors.
(8) MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
Carolina First Mortgage Loan Trust (the "REIT") is a majority-owned subsidiary
of SCOREIT Inc., which is a wholly-owned subsidiary of Carolina First Bank, that
holds real estate-related assets, including mortgage loans. Carolina First Bank
is a wholly-owned banking subsidiary of TSFG. SCOREIT, Inc.'s ownership in the
REIT is evidenced by common and preferred equity. On June 11, 2002, Carolina
First Bank sold 131 shares of the REIT's Series 2000A Cumulative Fixed Rate
Preferred Shares (the "Series A Trust Preferred Stock") and 385 shares of the
REIT's Series 2002C Cumulative Floating Rate Preferred Shares (the "Series C
Trust Preferred Stock") to institutional buyers. The Series A Trust Preferred
Stock and Series C Trust Preferred Stock have a stated value of $100,000 per
share. Proceeds to Carolina First Bank from these sales totaled approximately
$49.4 million, net of issuance costs totaling $2.2 million, and are reported as
minority interest in consolidated subsidiary on the consolidated balance sheet.
The minority interest in consolidated subsidiary qualifies as capital under
Federal Reserve Board guidelines.
In 2001, Carolina First Bank sold 132 shares of Series A Trust Preferred Stock
and 250 shares of the REIT's Series 2000B Cumulative Floating Rate Preferred
Shares (the "Series B Trust Preferred Stock") to institutional buyers. For
details on the Series A Trust Preferred Stock and Series B Trust Preferred
Stock, see TSFG's Annual Report on Form 10-K for the year ended December 31,
2001.
Dividends on the Series C Trust Preferred Stock are cumulative, and will accrue
whether or not the REIT has earnings, whether or not there are funds legally
available for the payment of such dividends, and whether or not such dividends
are declared. The dividends for the Series C Trust Preferred Stock are computed
at a rate per annum equal to three month LIBOR plus 350 basis points of the
stated value and are payable quarterly.
The shares of Series C Trust Preferred Stock are mandatorily redeemable on May
31, 2012, or upon earlier redemption as provided in the terms of the Series C
Trust Preferred Stock. TSFG has the right to redeem the Series C Trust Preferred
Stock in whole or in part, on or after May 31, 2007, on any quarterly dividend
payment date, at redemption price equal to the liquidation value ($100,000 per
share). After the occurrence of a tax event or capital event (as defined in the
terms of the Series C Trust Preferred Stock), TSFG may redeem all or a portion
of the Series C Trust Preferred Stock at a redemption price equal to 101% of the
liquidation value if the redemption is prior to May 31, 2007 or 100% of the
liquidation value thereafter.
The dividends earned by institutional holders of the Series A Trust Preferred
Stock, the Series B Trust Preferred Stock, and the Series C Trust Preferred
Stock for the six months ended June 30, 2002 amounted to $1.2 million (net of
related income taxes of $697,000) and have been expensed on TSFG's consolidated
statement of income as minority interest in consolidated subsidiary.
10
(9) AVERAGE SHARE INFORMATION
The following is a summary of the basic and diluted average common shares
outstanding.
Three Months Ended June 30,
--------------------------------------
2002 2001
---- ----
Basic:
Average common shares outstanding (denominator) 40,217,873 42,458,303
========== ==========
Diluted:
Average common shares outstanding 40,217,873 42,458,303
Dilutive potential common shares 1,015,017 720,909
---------- ----------
Average diluted shares outstanding (denominator) 41,232,890 43,179,212
========== ==========
Six Months Ended June 30,
--------------------------------------
2002 2001
---- ----
Basic:
Average common shares outstanding (denominator) 40,699,166 42,441,246
========== ==========
Diluted:
Average common shares outstanding 40,699,166 42,441,246
Dilutive potential common shares 947,010 706,995
---------- ----------
Average diluted shares outstanding (denominator) 41,646,176 43,148,241
========== ==========
The following options were outstanding at the period end presented but were
excluded from the calculation of diluted earnings per share because the exercise
price was greater than the average market price of the common shares:
Number Range of
of Shares Exercise Prices
--------- ---------------
For the three months ended
June 30, 2002 760,594 $22.34 to $31.26
June 30, 2001 1,258,630 $16.64 to $31.26
For the six months ended
June 30, 2002 942,437 $21.06 to $31.26
June 30, 2001 1,495,782 $15.40 to $31.26
(10) COMMITMENTS AND CONTINGENT LIABILITIES
TSFG is currently subject to various legal proceedings and claims that have
arisen in the ordinary course of its business. In the opinion of management
based on consultation with external legal counsel, any reasonably foreseeable
outcome of such current litigation would not materially affect TSFG's
consolidated financial position or results of operations.
On November 4, 1996, a derivative shareholder action was filed in the South
Carolina Circuit Court for Greenville County against TSFG and several of its
officers. The complaint was subsequently amended several times. The amended
complaint names as additional defendants the majority of the directors of TSFG
and Carolina First Bank. The named plaintiffs in the amended complaints are
TSFG, pursuant to Section 33-7-400 of the South Carolina Code of Laws, by and
through several named minority shareholders. Plaintiffs allege four causes of
action based generally on the payment to the defendant officers of a bonus in
11
stock held by TSFG in Affinity Technology Group, Inc. ("Affinity") as a reward
for their efforts in connection with the Affinity investment, and other matters.
The complaint seeks damages for the benefit of TSFG in the amount of
approximately $32 million. TSFG believes that this lawsuit is without merit and
has defended it vigorously. The trial court granted the Company's motion to
dismiss the lawsuit on November 26, 1997. The plaintiffs appealed. On November
1, 2000, the South Carolina Court of Appeals affirmed the dismissal of the
lawsuit. The plaintiffs have sought further review by the South Carolina Supreme
Court. That appeal is currently pending before the state Supreme Court.
(11) BUSINESS SEGMENTS
TSFG has three principal operating subsidiaries, which are evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
assess performance. Two of these subsidiaries, by virtue of exceeding certain
quantitative thresholds, are reportable segments. The reportable segments,
Carolina First Bank and Citrus Bank, engage in general banking business focusing
on commercial, consumer and mortgage lending to small and middle market
businesses and consumers in their market areas. The reportable segments also
provide demand transaction accounts and time deposit accounts to businesses and
individuals. Carolina First Bank offers products and services primarily to
customers in South Carolina, coastal North Carolina and on the Internet. Citrus
Bank offers products and services primarily to customers in its market areas in
northern and central Florida. Revenues for Carolina First Bank and Citrus Bank
are derived primarily from interest and fees on loans, interest on investment
securities, service charges on deposits and other customer service fees. No
single customer accounts for a significant amount of the revenues of either
reportable segment.
TSFG evaluates performance based on budget to actual comparisons and segment
profits. The accounting policies of the reportable segments are the same as
those described in TSFG's Annual Report on Form 10-K for the year ended December
31, 2001.
Segment information (in thousands) is shown in the table below. The "Other"
column includes all other business activities that did not meet the quantitative
thresholds and therefore are not shown as a reportable segment.
12
Carolina Citrus Eliminating
First Bank Bank Other Entries Total
---------- ---- ----- ------- -----
Three Months Ended June 30, 2002:
Net interest income $ 48,225 $ 7,848 $ (1,443) $ - $ 54,630
Provision for loan losses 4,290 1,968 (14) - 6,244
Noninterest income 10,954 1,147 15,485 (14,071) 13,515
Noninterest expense 32,047 5,468 14,958 (14,071) 38,402
Amortization of intangibles 281 - - - 281
Income tax expense 7,433 385 (78) - 7,740
Minority interest in consolidated
subsidiary, net of tax (758) - - - (758)
Net income 14,651 1,174 (824) - 15,001
Three Months Ended June 30, 2001:
Net interest income $ 38,739 $ 5,979 $ (757) $ - $ 43,961
Provision for loan losses 3,503 1,984 113 - 5,600
Noninterest income 9,488 874 15,241 (12,478) 13,125
Noninterest expense 31,157 4,763 12,851 (12,478) 36,293
Amortization of intangibles 1,380 - 52 - 1,432
Income tax expense 5,336 37 (131) - 5,242
Minority interest in consolidated
subsidiary, net of tax (307) - - - (307)
Net income 7,924 69 1,651 - 9,644
Six Months Ended June 30, 2002:
Net interest income $ 95,918 $ 14,894 $ (2,776) $ - $ 108,036
Provision for loan losses 8,440 4,047 (5) - 12,482
Noninterest income 20,068 2,103 30,075 (26,971) 25,275
Noninterest expense 61,639 10,496 30,762 (26,971) 75,926
Amortization of intangibles 591 - - - 591
Income tax expense 14,703 783 (896) - 14,590
Minority interest in consolidated
subsidiary, net of tax (1,186) - - - (1,186)
Net income 30,018 1,671 (2,562) - 29,127
Six Months Ended June 30, 2001:
Net interest income $ 77,087 $ 11,385 $ (1,565) $ - $ 86,907
Provision for loan losses 6,939 2,944 225 - 10,108
Noninterest income 18,978 1,408 31,966 (26,312) 26,040
Noninterest expense 64,001 9,410 27,352 (26,312) 74,451
Amortization of intangibles 2,897 - 105 - 3,002
Income tax expense 9,368 156 468 - 9,992
Minority interest in consolidated
subsidiary, net of tax (402) - - - (402)
Cumulative effect of change in
accounting principal, net of tax - - 282 - 282
Net income 15,355 283 2,638 - 18,276
13
Carolina Citrus Eliminating
First Bank Bank Other Entries Total
---------- ---- ----- ------- -----
June 30, 2002:
Total assets $ 5,404,998 $ 875,295 $ 666,045 $ (780,841) $6,165,497
Loans 3,238,428 729,552 35,540 (68,479) 3,935,041
Deposits 3,141,045 616,528 - (33,956) 3,723,617
June 30, 2001:
Total assets $ 4,880,808 $ 701,888 $ 601,627 $ (690,218) $5,494,105
Loans 3,214,070 582,562 5,813 - 3,802,445
Deposits 3,184,203 495,737 - (23,524) 3,656,416
(12) SUBSEQUENT EVENTS
SECURITIES
Subsequent to June 30, 2002, TSFG transferred approximately $200 million from
available for sale securities to trading securities at fair value. The
unrealized gain at the date of transfer, which totaled $1.6 million, will be
recognized in noninterest income in the consolidated statement of income for the
third quarter 2002. TSFG subsequently sold $101.3 million of these securities.
In July 2002, TSFG sold $300.0 million of U.S. treasury securities from
available for sale securities for a gain of $783,000. In July 2002, TSFG also
purchased $350.0 million of U.S. treasury securities, classified as trading
securities, and contemporaneously hedged this purchase with futures contracts.
Any ineffectiveness resulting from differences between the changes in fair value
of the U.S. treasury securities and the futures contracts will be recognized in
the consolidated statements of income as gains or losses in trading securities.
See Item 2, "Securities."
TRUST PREFERRED DEBT
On July 11, 2002, TSFG Capital Trust 2002-A (the "Capital Trust 2002-A"), a
wholly-owned subsidiary of TSFG, issued and sold floating rate securities having
an aggregate liquidation amount of $25.0 million (the "Capital Securities
2002-A") to institutional buyers in a pooled trust preferred issue. The Capital
Securities 2002-A generated gross proceeds of $25.0 million. The Capital Trust
2002-A loaned these proceeds to the parent company to use for general corporate
purposes. Issuance costs from the July 11, 2002 sale totaled $750,000. The trust
preferred debt qualifies as tier 1 capital under Federal Reserve Board
guidelines.
The Capital Securities 2002-A accrue and pay distributions quarterly at a rate
per annum equal to three-month LIBOR plus 365 basis points. This rate may not
exceed 12.5% through July 2007. The distributions payable on the Capital
Securities 2002-A are cumulative and payable quarterly in arrears. TSFG has the
right, subject to events of default, to defer payments of interest on the
Capital Securities 2002-A for a period not to exceed 20 consecutive quarterly
periods, provided that no extension period may extend beyond the maturity date
of October 7, 2032. TSFG has no current intention to exercise its right to defer
payments of interest on the Capital Securities 2002-A.
The Capital Securities 2002-A are mandatorily redeemable upon maturity on
October 7, 2032. TSFG has the right to redeem the Capital Securities 2002-A in
whole or in part, on or after July 7, 2007. If the Capital Securities 2002-A are
redeemed on or after July 7, 2007, the redemption price will be 100% of the
principal amount plus accrued and unpaid interest. In addition, TSFG may redeem
the Capital Securities 2002-A in whole (but not in part) at any time within 90
days following the occurrence of a tax event, an investment company event, or a
capital treatment event at a special redemption price (as defined in the
indenture).
On July 30, 2002, South Financial Capital Trust II (the "Capital Trust II"), a
wholly-owned subsidiary of TSFG, issued and sold floating rate securities having
an aggregate liquidation amount of $17.5 million (the "Capital Securities II")
14
to institutional buyers in a pooled trust preferred issue. The Capital
Securities II generated gross proceeds of $17.5 million. The Capital Trust II
loaned these proceeds to the parent company to use for general corporate
purposes. The trust preferred debt qualifies as tier 1 capital under Federal
Reserve Board guidelines. Issuance costs from the July 30, 2002 sale totaled
$574,000.
The Capital Securities II accrue and pay distributions semi-annually at a rate
per annum equal to six-month LIBOR plus 362.5 basis points. This rate may not
exceed 12.0% through July 30, 2007. The distributions payable on the Capital
Securities II are cumulative and payable quarterly in arrears. TSFG has the
right, subject to events of default, to defer payments of interest on the
Capital Securities II for a period not to exceed 20 consecutive quarterly
periods, provided that no extension period may extend beyond the maturity date
of July 30, 2032. TSFG has no current intention to exercise its right to defer
payments of interest on the Capital Securities II.
The Capital Securities II are mandatorily redeemable upon maturity on July 30,
2032. TSFG has the right to redeem the Capital Securities II in whole or in
part, on or after July 30, 2007. If the Capital Securities II are redeemed on or
after July 30, 2007, the redemption price will be 100% of the principal amount
plus accrued and unpaid interest. In addition, TSFG may redeem the Capital
Securities II in whole (but not in part) at any time within 90 days following
the occurrence of a tax event, an investment company event, or a capital
treatment event at a special redemption price (as defined in the indenture).
REDEMPTION OF SUBORDINATED NOTES
TSFG is redeeming its 9.00% Subordinated Notes Due 2005 (the "Notes") on August
31, 2002. This constitutes a full redemption of all of the outstanding Notes,
which have a current principal balance of $26.3 million. The Notes are being
redeemed at their par value. The associated unamortized issuance costs, which
had a balance of $376,000 at June 30, 2002, will be written off on the
redemption date.
(13) MANAGEMENT'S OPINION
The financial statements in this report are unaudited, except for the
consolidated balance sheet at December 31, 2001, which is derived from TSFG's
consolidated audited financial statements. In the opinion of management, all
adjustments necessary to present a fair statement of the results for the interim
periods have been made. All such adjustments are of a normal, recurring nature.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis are presented to assist in understanding
the financial condition and results of operations of The South Financial Group,
Inc. and its subsidiaries ("TSFG", which also may be referred to as "we", "us",
or "our", except where the context requires otherwise). This discussion should
be read in conjunction with the consolidated financial statements and related
notes and with the statistical information and financial data appearing in this
report as well as the Annual Report of TSFG on Form 10-K for the year ended
December 31, 2001. Results of operations for the three and six month periods
ended June 30, 2002 are not necessarily indicative of results that may be
attained for any other period. Percentage calculations contained herein have
been calculated based upon actual, not rounded, results.
TSFG, a South Carolina corporation headquartered in Greenville, South Carolina,
is a financial holding company, which commenced banking operations in December
1986, and conducted business through 70 locations in South Carolina, 5 locations
in North Carolina and 16 locations in northern and central Florida as of June
30, 2002. TSFG operates through two wholly-owned subsidiary banks: Carolina
First Bank, a South Carolina state-chartered commercial bank, and Citrus Bank, a
Florida state-chartered commercial bank (which are collectively referred to as
the "Subsidiary Banks"). Through our subsidiaries, we provide a full range of
financial services, including asset management, investments, insurance, and
trust services, designed to meet substantially all of the financial needs of our
customers.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995) to assist in the understanding
of anticipated future operating and financial performance, growth opportunities,
growth rates, and other similar forecasts and statements of expectations. These
forward-looking statements reflect current views, but are based on assumptions
and are subject to risks, uncertainties, and other factors, which may cause
actual results to differ materially from those in such statements. These factors
include, but are not limited to, the following:
o risks from changes in economic, monetary policy, and industry conditions;
o changes in interest rates, deposit rates, the net interest margin, and
funding sources;
o market risk and inflation;
o risks inherent in making loans including repayment risks and value of
collateral;
o loan growth, the adequacy of the allowance for loan losses, and the
assessment of problem loans;
o fluctuations in consumer spending;
o competition in the banking industry and demand for our products and
services;
o dependence on senior management;
o technological changes;
o ability to increase market share;
o expense projections;
o risks associated with income taxes, including the potential for adverse
adjustments;
o acquisitions, related cost savings, and expected financial results;
o changes in accounting policies and practices;
o costs and effects of litigation; and
o recently-enacted or proposed legislation.
Such forward-looking statements speak only as of the date on which such
statements are made. We undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made to reflect the occurrence of unanticipated events. In
addition, certain statements in future filings by TSFG with the Securities and
Exchange Commission, in press releases and in oral and written statements made
by or with the approval of TSFG, which are not statements of historical fact,
constitute forward-looking statements.
16
PENDING MERGER
In March 2002, TSFG signed a definitive agreement to acquire Gulf West Banks,
Inc. ("Gulf West"), headquartered in St. Petersburg, Florida. At June 30, 2002,
Gulf West operated through 15 branches in the greater Tampa Bay area of Florida
through its subsidiary, Mercantile Bank, and had total assets of $526.9 million.
In the merger, TSFG will issue 4,465,141 shares of common stock and pay
$32,400,178 in cash in exchange for all the shares of Gulf West common stock
outstanding at closing, calculated on a fully diluted basis. This transaction,
which is expected to close on August 31, 2002, will be accounted for using the
purchase method of accounting and is subject to regulatory approvals. Gulf West
shareholders approved the merger on July 11, 2002.
EARNINGS REVIEW
OVERVIEW
Net income for the six months ended June 30, 2002 totaled $29.1 million, up
59.4% compared with $18.3 million for the six months ended June 30, 2001.
Earnings per diluted share for the first half of 2002 were $0.70, a 66.7%
increase from $0.42 per diluted share in the first half of 2001. Higher net
interest income and efficiency improvements contributed to the increases in net
income and earnings per diluted share. Net interest income increased from a
higher net interest margin and growth in average earning assets. Key factors
responsible for TSFG's results of operations are discussed throughout
Management's Discussion and Analysis below.
Average common shares outstanding on a diluted basis were 41.6 million in the
first six months of 2002, down 3.5% from 43.1 million for first six months of
2001. In connection with share repurchase programs, TSFG repurchased and
cancelled 1,135,600 shares during the first half of 2002.
At June 30, 2002, TSFG had approximately $6.2 billion in assets, $3.9 billion in
loans, $3.7 billion in deposits, and $472.1 million in shareholders' equity. At
June 30, 2002, the ratio of nonperforming assets to loans and other real estate
owned was 1.19%.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on assets and
the interest paid for the liabilities to support such assets as well as such
items as loan fees and dividend income. The net interest margin measures how
effectively a company manages the difference between the yield on earning assets
and the rate paid on funds to support those assets. Fully tax-equivalent net
interest income adjusts the yield for assets earning tax-exempt income to a
comparable yield on a taxable basis. Table 1 presents average balance sheets and
a net interest income analysis on a tax equivalent basis for the three and six
months ended June 30, 2002 and 2001.
17
Table 1
- -----------------------------------------------------------------------------------------------------------
COMPARATIVE AVERAGE BALANCES - YIELDS AND COSTS
- -----------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months Ended June 30,
------------------------------------------------------------
2002 2001
---------------------------- -----------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
Assets
Earning assets
Loans (1) $3,886,445 $ 67,049 6.92% $3,772,618 $ 80,415 8.55 %
Investment securities (taxable) (2) 1,598,062 21,217 5.31 960,795 15,670 6.54
Investment securities (nontaxable) (3) 91,674 1,636 7.14 79,644 1,468 7.39
Interest-bearing bank balances 49,324 218 1.77 24,174 360 5.97
---------- -------- ---------- --------
Total earning assets 5,625,505 90,120 6.43 4,837,231 97,913 8.12
---------- -------- ---------- --------
Non-earning assets 505,331 540,780
---------- ----------
Total assets $6,130,836 $5,378,011
========== ==========
Liabilities and shareholders' equity
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking $ 585,400 $ 1,791 1.23 $ 584,918 $ 3,831 2.63
Savings 117,284 216 0.74 114,033 629 2.21
Money market 700,293 2,898 1.66 726,923 7,083 3.91
Time deposits 1,722,779 16,348 3.81 1,832,885 28,539 6.25
---------- ------- --------- -------
Total interest-bearing deposits 3,125,756 21,253 2.73 3,258,759 40,082 4.93
Borrowings 1,912,274 13,665 2.87 1,054,261 13,356 5.08
---------- ------- --------- -------
Total interest-bearing liabilities 5,038,030 34,918 2.78 4,313,020 53,438 4.97
------- -------
Noninterest-bearing liabilities
Noninterest-bearing deposits 525,368 473,997
Other noninterest-bearing liabilities 74,606 89,462
--------- ----------
Total liabilities 5,638,004 4,876,479
Minority interest in consolidated subsidiary (4) 38,701 18,877
Shareholders' equity 454,131 482,655
--------- ----------
Total liabilities and shareholders' $6,130,836 $5,378,011
equity ========== ==========
Net interest margin $ 55,202 3.94% $ 44,475 3.69 %
======== ========
Tax-equivalent adjustment (3) $ 572 $ 514
======== ========
(1) Nonaccrual loans are included in average balances for yield computations.
(2) The average balances for investment securities exclude the unrealized gain
recorded for available for sale securities.
(3) The tax-equivalent adjustment to net interest income adjusts the yield for
assets earning tax-exempt income to a comparable yield on a taxable basis.
(4) The minority interest in consolidated subsidiary pertains to REIT preferred
stock, which qualifies as regulatory capital and pays cumulative dividends.
Note: Average balances are derived from daily balances.
18
Table 1 (Continued)
- ------------------------------------------------------------------------------------------------------------
COMPARATIVE AVERAGE BALANCES - YIELDS AND COSTS
- ------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Six Months Ended June 30,
---------------------------------------------------------------
2002 2001
----------------------------- ------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Assets
Earning assets
Loans (1) $ 3,830,972 $131,929 6.94 % $ 3,760,969 $165,821 8.89 %
Investment securities (taxable) (2) 1,620,800 42,784 5.28 884,855 29,167 6.65
Investment securities (nontaxable) (3) 91,668 3,315 7.23 82,128 3,022 7.42
Interest-bearing bank balances 79,863 687 1.73 31,963 968 6.11
----------- -------- ---------- --------
Total earning assets 5,623,303 178,715 6.41 4,759,915 198,978 8.43
----------- -------- ---------- --------
Non-earning assets 509,226 537,832
----------- ----------
Total assets $ 6,132,529 $5,297,747
=========== ==========
Liabilities and shareholders' equity
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking $ 590,027 $ 3,601 1.23 $ 577,188 $ 8,214 2.87
Savings 116,011 430 0.75 114,624 1,317 2.32
Money market 716,822 5,813 1.64 730,996 15,504 4.28
Time deposits 1,700,075 32,985 3.91 1,888,678 59,953 6.40
--------- ------- ---------- -------
Total interest-bearing deposits 3,122,935 42,829 2.77 3,311,486 84,988 5.18
Borrowings 1,931,030 26,690 2.79 956,513 26,025 5.49
--------- ------- ---------- -------
Total interest-bearing liabilities 5,053,965 69,519 2.77 4,267,999 111,013 5.25
------- ---------- -------
Noninterest-bearing liabilities
Noninterest-bearing deposits 510,522 456,124
Other noninterest-bearing liabilities 70,507 79,610
--------- ----------
Total liabilities 5,634,994 4,803,733
Minority interest in consolidated subsidiary (4) 37,866 12,023
Shareholders' equity 459,669 481,991
--------- ----------
Total liabilities and shareholders' $6,132,529 $5,297,747
equity ========== ==========
Net interest margin $109,196 3.92 % $87,965 3.73 %
======== =======
Tax-equivalent adjustment (3) $ 1,160 $ 1,058
======== =======
(1) Nonaccrual loans are included in average balances for yield computations.
(2) The average balances for investment securities exclude the unrealized gain
recorded for available for sale securities.
(3) The tax-equivalent adjustment to net interest income adjusts the yield for
assets earning tax-exempt income to a comparable yield on a taxable basis.
(4) The minority interest in consolidated subsidiary pertains to REIT preferred
stock, which qualifies as regulatory capital and pays cumulative dividends.
Note: Average balances are derived from daily balances.
19
Fully tax-equivalent net interest income for the first six months of 2002
increased $21.2 million, or 24.1%, to $109.2 million from $88.0 million in the
first six months of 2001. The net interest margin increased to 3.92% in the
first half of 2002 from 3.73% in the first half of 2001. These increases were
due to the increase in average earning assets, the prompt repricing of funding
sources as the Federal Reserve lowered rates during 2001, and repricing maturing
certificates of deposit at significantly lower rates.
Average earning assets grew $863.4 million, or 18.1%, to $5.6 billion in the
first half of 2002 from $4.8 billion in the first half of 2001, primarily from
higher investment securities. Average loans remained relatively flat, unadjusted
for the July and December 2001 sales of $150.3 million of residential mortgage
loans from the held for investment portfolio, at $3.8 billion in both the first
six months of 2002 and 2001 with growth of $70.0 million. Average investment
securities, excluding the average net unrealized securities gains, increased
from $967.0 million in the first half of 2001 to $1.7 billion in the first half
of 2002. During 2001, prepayments of mortgage-backed securities accelerated.
TSFG increased the U.S. Treasury security portfolio by $520.1 million during the
fourth quarter of 2001, largely in anticipation of additional prepayments. TSFG
purchased these securities to leverage the capital position (which takes
advantage of opportunities to increase net interest income) and to manage
interest rate risk.
During 2001, the Federal Reserve reduced the target for the federal funds rate
11 times for a total of 475 basis points. Five of these reductions occurred in
the last six months of the year for a total of 200 basis points. The majority of
our variable rate loans, which constitute approximately 52% of the loan
portfolio, reprice immediately following changes in interest rates by the
Federal Reserve. During the last half of 2001, the net interest margin improved,
primarily from repricing certificates of deposits at significantly lower rates
and prepaying higher-cost Federal Home Loan Bank ("FHLB") advances. Accordingly,
as TSFG reduced its interest rates during the year, the decline in the funding
source rate outpaced the decline in the earning asset yield. From the first six
months of 2001 to the first six months of 2002, the earning asset yield declined
202 basis points to 6.41%, whereas the funding source rate declined 248 basis
points to 2.77%.
TSFG expects certificates of deposit to continue to reprice downward in the
second half of 2002, although with a lesser benefit than that realized in 2001.
TSFG's certificates of deposit include approximately $158.5 million that
presently pay an annualized percentage yield equal to or slightly higher than
7%, which mature during the last half of 2002. As a result of the significant
decline in interest rates in 2001, the current market rates for similar
certificates of deposits are significantly lower. Excluding these 7%
certificates of deposit, the magnitude of additional downward repricing
opportunities related to certificates of deposit and other interest-bearing
deposits is limited.
Average total deposits declined to $3.6 billion during the first six months of
2002 from $3.8 billion during the first six months of 2001. These balances
declined due to the competitive nature of the deposit markets. TSFG has elected
to keep deposit rates offered on par with competitors and reduce deposit
rate-driven promotions. Average borrowings increased to $1.9 billion during the
six months ended June 30, 2002 from $956.5 million during the six months ended
June 30, 2001 due to repurchase agreements and the use of other funding sources,
such as FHLB advances, to fund the growth in earning assets. Repurchase
agreements, which increased in connection with TSFG's purchases of securities to
leverage the capital position, accounted for the majority of this increase.
Deposits generated through Bank CaroLine, an Internet banking division of
Carolina First Bank, generally pay higher rates than those offered by our branch
locations. During the first six months of 2002, TSFG priced the Bank CaroLine
deposits less aggressively than it did in 2001 in an effort to lower the overall
cost of funds. Bank CaroLine deposits totaled $38.7 million as of June 30, 2002
compared with $55.3 million and $155.1 million as of December 31, 2001 and June
30, 2001, respectively.
During the last half of 2001, TSFG sold available for sale investment securities
resulting in a $3.1 million pre-tax gain. In addition, during this same period,
TSFG recorded a $3.1 million pre-tax loss associated with the early
extinguishment of approximately $54.3 million in FHLB advances. TSFG engaged in
these transactions to take advantage of the opportunity to reinvest the proceeds
20
and refinance the borrowings at more favorable rates, thereby enhancing net
interest income. TSFG continues to evaluate the relative cost and benefit of
incurring additional prepayment penalties from the early extinguishment of debt.
TSFG is also redeeming its 9.00% Subordinated Notes Due 2005 on August 31, 2002.
See "Borrowed Funds."
PROVISION FOR LOAN LOSSES
The provision for loan losses is recorded to bring the allowance for loan and
lease losses (the "Allowance") to a level deemed appropriate by management based
on factors discussed in "Balance Sheet Review - Allowance for Loan Losses." The
provision for loan losses was $12.5 million and $10.1 million for the first six
months of 2002 and 2001, respectively. The increase was attributable to
continued loan growth, higher loan losses, and uncertain economic conditions.
The Allowance equaled 1.20% and 1.18% of loans held for investment as of June
30, 2002 and 2001, respectively. Although nonperforming loans increased by $3.8
million over this period, specific reserves allocated to impaired loans, which
consist of commercial nonaccrual loans, did not increase proportionately. Based
on management's analysis of impairment as defined in Statement of Financial
Accounting Standards ("SFAS") 114, specific reserves allocated to impaired loans
totaled $4.3 million, or 12.0% of impaired loans at June 30, 2002, compared with
$6.8 million and 20.7% of impaired loans at June 30, 2001. See "Allowance for
Loan Losses."
NONINTEREST INCOME
Noninterest income totaled $25.3 million in the first six months of 2002,
compared with $26.0 million in the first six months of 2001. Mortgage banking
income declined $1.8 million, as net gains of $1.0 million related to the
securitization of mortgage loans and sale of mortgage servicing rights were
realized during the first six months of 2001. In addition, mortgage banking
income declined as a result of a smaller servicing portfolio and the outsourcing
of servicing to outside, third party servicers, beginning in 2002. Increases in
service charges on deposit accounts and fees for investment services of $1.1
million and $538,000, respectively, partially offset the decline in mortgage
banking income. Table 2 shows the components of noninterest income for the three
and six months ended June 30, 2002 and 2001.
Table 2
- --------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NONINTEREST INCOME
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
Service charges on deposit accounts $ 5,421 $ 4,812 $ 10,328 $ 9,180
Fees for investment services 1,853 1,499 3,280 2,742
Mortgage banking income 1,357 1,904 2,547 4,323
Bank-owned life insurance 1,803 2,157 3,609 3,552
Merchant processing income 1,715 1,747 2,963 2,961
Other 1,330 1,793 2,472 3,107
-------- -------- -------- --------
Noninterest income, excluding gain (loss) on asset sales 13,479 13,912 25,199 25,865
-------- -------- -------- --------
Gain on available for sale securities 186 2 215 405
Gain (loss) on equity investments (150) 181 (139) 1,002
Loss on disposition of assets and liabilities - (970) - (1,232)
-------- -------- -------- --------
Gain (loss) on asset sales 36 (787) 76 175
-------- -------- -------- --------
Total noninterest income $ 13,515 $ 13,125 $ 25,275 $ 26,040
======== ======== ======== ========
21
Noninterest income included gains on asset sales of $76,000 and $175,000 in the
first six months of 2002 and 2001, respectively. During the first half of 2002,
the loss on equity investment included a $150,000 write-off of an investment in
a technology company. This loss was partially offset by an $11,000 gain on the
sale of an investment in a community bank. During the six months ended June 30,
2001, the gain on equity investments included $1.1 million from the exchange of
Star Systems, Inc. stock for stock of Concord EFS, Inc. (a publicly-traded
company) and the subsequent sale of the investment in Concord EFS, Inc., as well
as a $63,000 gain from the sale of common stock of Affinity Technology Group,
Inc. These gains were partially offset by a $200,000 loss associated with the
write-down of an Internet-related investment. During the first six months of
2001, the loss on disposition of assets and liabilities related to a $970,000
loss associated with the sale of four branch office locations, which closed in
July 2001, and a $262,000 loss associated with the sale-leaseback of a branch
office.
Service charges on deposit accounts, the largest contributor to noninterest
income, rose 12.5% to $10.3 million in the first six months of 2002 from $9.2
million for the same period in 2001. The increase was attributable to attracting
new transaction accounts, improving collection of fees, and revising fee
structures to reflect competitive pricing. Average balances for deposit
transaction accounts, which impact service charges, increased approximately 2.9%
for the same period.
Fees for investment services, which include trust and brokerage income, for the
first half of 2002 and 2001 were approximately $3.3 million and $2.7 million,
respectively. During this period, brokerage income increased $343,000, and trust
income increased $195,000. At June 30, 2002 and 2001, the market value of assets
administered by the trust department totaled $676.2 million and $769.2 million,
respectively.
Mortgage banking income includes origination fees, servicing fees (net of the
related amortization for the mortgage-servicing rights and subservicing
payments), gains and losses on sales of mortgage loans (both current production
and portfolio loans), gains and losses on sales of mortgage servicing rights,
and losses and recoveries related to the impairment of mortgage-servicing
rights. Mortgage banking income in the first six months of 2002 decreased $1.8
million to $2.5 million from $4.3 million in the first six months of 2001. In
March 2001, TSFG securitized mortgage portfolio loans resulting in a $1.6
million gain in the first half of 2001. This gain was partially offset by
$546,000 in losses from the March 2001 sale of mortgage servicing rights related
to approximately $949 million in mortgage loans.
TSFG realigned its mortgage banking strategy to place more emphasis on mortgage
originations. In connection with these efforts, TSFG securitized mortgage loans,
sold mortgage loans, and sold mortgage-servicing rights in 2001. Beginning in
December 2001, TSFG contracted with non-affiliated companies to service mortgage
loans for TSFG's affiliates. TSFG expects its 2002 mortgage banking income to
decrease as a result of the declining servicing portfolio and the outsourcing of
servicing to third party servicers.
Mortgage loans originated by TSFG originators totaled approximately $212.1
million and $96.4 million in the first six months of 2002 and 2001,
respectively. Mortgage origination volumes by TSFG originators increased in the
first half of 2002 due to lower mortgage loan rates and the hiring of additional
mortgage originators. First half of 2001 mortgage loan originations also
included $89.2 million attributable to correspondent relationships. TSFG
discontinued its correspondent relationships in the second quarter of 2001. With
the realignment of the mortgage banking strategy in 2001, the benefit associated
with correspondent originations, which were principally related to increasing
the servicing volumes, diminished.
CF Mortgage's total servicing portfolio includes mortgage loans owned by
Carolina First Bank, mortgage loans owned by Citrus Bank, and other mortgage
loans for which Carolina First Bank owns the rights to service. At June 30,
2002, CF Mortgage's servicing portfolio included 7,305 loans having an aggregate
principal balance of approximately $619.3 million. At June 30, 2001, the
aggregate principal balance for CF Mortgage's servicing portfolio totaled $1.9
billion, significantly higher than June 30, 2002 due to sales of mortgage
servicing rights and mortgage portfolio loans during 2001. Fees related to
servicing other loans, for which Carolina First Bank owns the rights to service,
are offset by the related amortization of mortgage servicing rights.
22
First half of 2002 mortgage banking income also included a $393,000 reduction in
the gain associated with the fourth quarter 2001 sale of portfolio mortgage
loans. In addition, TSFG recorded a $177,000 recovery of impairment from the
valuation of mortgage servicing rights. In the first half of 2001, TSFG recorded
a $280,000 charge for impairment from the valuation of mortgage servicing
rights. At June 30, 2002, the valuation allowance for capitalized mortgage
servicing rights totaled $892,000.
Bank-owned life insurance income remained relatively constant at $3.6 million
for both the first six months of 2002 and 2001. Merchant processing income also
remained constant at $3.0 million for both periods.
Other noninterest income totaled $2.5 million in the first half of 2002,
compared with $3.1 million in the first half of 2001. This decrease was
primarily the result of $405,000 in losses on the sale of real estate acquired
in partial or total satisfaction of problem loans in the first half of 2002,
compared with a $203,000 gain for the first half of 2001. Other noninterest
income includes income related to customer service fees, debit cards, insurance
commissions, and international banking services. These fee income sources,
except for insurance commissions, increased over the prior year and the
preceding quarter, due in part to TSFG's rollout of Elevate, a customer-centered
sales process.
NONINTEREST EXPENSES
Noninterest expenses increased to $75.9 million in the first six months of 2002
from $74.5 million in the first six months of 2001. Noninterest expenses in the
first quarter of 2001 included a $413,000 recovery of restructuring and
merger-related costs (which related to the sale of real estate at prices higher
than estimated) and a $215,000 impairment loss from the write down of assets
(which was primarily related to lease termination fees for abandoned locations).
Excluding these other charges, noninterest expenses increased $1.3 million, or
1.7%, to $75.9 million for the first half of 2002 from $74.6 million for the
first half of 2001. Increases in salaries, wages, and employee benefits were
partially offset by lower amortization of intangibles from ceasing goodwill
amortization.
Salaries, wages, and employee benefits increased to $40.7 million in the first
six months of 2002 from $36.5 million in the first six months of 2001. Full-time
equivalent employees were basically unchanged at 1,379 and 1,381 as of June 30,
2002 and 2001, respectively. The increase in personnel expense was attributable
to adding revenue-producing associates, at a higher cost per full-time
equivalent employee, and recording higher levels of incentive pay. Restricted
stock plan awards, which are expensed to salaries and wages, increased to $1.4
million in the first half of 2002 from $355,000 in the first half of 2001.
Occupancy and furniture and equipment expenses increased to $14.3 million for
the six months ended June 30, 2002 from $13.9 million for the corresponding
period from 2001, primarily from higher data processing costs. Professional fees
decreased to $2.5 million for the first half of 2002 from $2.6 million for the
first half of 2001, due to the hiring of former outside service providers.
Merchant processing expenses increased to $2.4 million for the first six months
of 2002, compared with $2.3 million in the same period for 2001. This increase
was the result of increased volume in merchant processing activity.
Amortization of intangibles decreased to $591,000 for the six months ended June
30, 2002 from $3.0 million for the six months ended June 30, 2001. This decrease
was primarily attributable to the January 1, 2002 adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), which requires TSFG to
cease the amortization of goodwill. TSFG is currently completing the second step
of its impairment analysis and expects to take a charge of approximately $1.4
million related to the impairment of goodwill associated with Carolina First
Mortgage Company, as calculated in connection with the adoption of SFAS 142. See
Item 1, Note 5 to the Consolidated Financial Statements.
Other noninterest expenses decreased $811,000 to $15.4 million in the first half
of 2002 from $16.2 million in the first half of 2001. The overall decrease in
other noninterest expenses was principally attributable to decreases in
23
telecommunications and regulatory assessments, partially offset by higher loan
collection expense and sundry losses.
Noninterest expenses for the second half of 2002 are expected to include
approximately $4 to $6 million (pre-tax) in merger-related charges in connection
with the pending merger with Gulf West.
INCOME TAXES
Income tax expense attributable to income from continuing operations increased
to $14.6 million for the first six months of 2002 from $10.0 million for the
first six months of 2001. The effective income tax rate as a percentage of
pretax income was 32.5% for the first half of 2002 and 35.2% for the first half
of 2001. The effective income tax rate declined in connection with ceasing the
amortization goodwill. The incremental statutory income tax rate was 36.94% for
both of these periods.
TSFG's effective income tax rates take into consideration certain assumptions
and estimates by management. No assurance can be given that either the tax
returns submitted by management or the income tax reported on the consolidated
financial statements will not be adjusted by either adverse rulings by the U.S.
Tax Court, changes in the tax code, or assessments made by the Internal Revenue
Service. TSFG is subject to potential adverse adjustments, including but not
limited to: an increase in the statutory federal or state income tax rates, the
permanent nondeductibility of amounts currently considered deductible either now
or in future periods, and the dependency on the generation of future taxable
income in order to ultimately realize deferred tax assets. Tax returns for 1998
and subsequent years are exposed to examination by taxing authorities.
SECOND QUARTER RESULTS
Net income for the three months ended June 30, 2002 totaled $15.0 million, up
55.5% compared with $9.6 million for the three months ended June 30, 2001.
Earnings per diluted share for the three months ended June 30, 2002 were $0.36,
a 63.6% increase from earnings per diluted share of $0.22 for the three months
ended June 30, 2001. This increase was largely from higher net interest income,
partially offset by increases in noninterest expenses and a higher provision for
loan losses.
Fully tax-equivalent net interest income totaled $55.2 million, an increase of
$10.7 million, or 24.1%, compared with the second quarter of 2001. Net interest
income increased from a higher net interest margin and 16.3% growth in average
earning assets, principally from investment securities. The net interest margin
was 3.94% for the second quarter 2002, up from 3.69% for the second quarter
2001. With significant interest rate cuts by the Federal Reserve, TSFG's net
interest margin improved, primarily from the repricing of maturing certificates
of deposits at significantly lower rates.
Noninterest income typically includes gains and losses on asset sales from
available for sale securities, equity investments, and disposition of assets and
liabilities. Noninterest income included a net gain on asset sales of $36,000
for the three months ended June 30, 2002 and a net loss of $787,000, principally
from the sale of branch offices, for the three months ended June 30, 2001. See
"Earnings Review - Noninterest Income" for details. Noninterest income,
excluding the net gain or loss on asset sales, decreased 3.1% to $13.5 million
for the second quarter of 2002 compared with $13.9 million for the second
quarter of 2001. Mortgage banking income, bank-owned life insurance, and losses
on the sale of other real estate owned contributed to this decrease, which was
partially offset by increases in service charges on deposit accounts, fees for
investment services, and other fee income sources.
Noninterest expenses increased 5.8% to $38.4 million for the second quarter of
2002 from $36.3 million for the second quarter of 2001. Increases in salaries,
wages, and employee benefits were partially offset by lower amortization of
intangibles from ceasing goodwill amortization.
24
BALANCE SHEET REVIEW
LOANS
Loans are the largest category of earning assets and generally produce the
highest yields. At June 30, 2002, outstanding loans totaled $3.9 billion, which
equaled 105.7% of total deposits and 63.8% of total assets. The loan portfolio
consisted principally of commercial loans, commercial real estate loans,
consumer loans (including both direct and indirect loans), and one-to-four
family residential mortgage loans. Substantially all loans were to borrowers
domiciled in TSFG's market areas in South Carolina, North Carolina, and Florida.
The portfolio did not contain any foreign loans or any "highly leveraged
transactions," as defined by regulatory authorities.
TSFG's only significant industry concentration is commercial real estate loans
(loans to finance real properties for sale or lease to unrelated third parties),
which totaled $1.2 billion, or 30.9.% of total loans, at June 30, 2002. In Table
3, these loans are included in the "Real estate - construction" and "Commercial
secured by real estate" categories, which also include loans to non-real estate
industry borrowers. All other industry concentrations represented less than 10%
of total loans.
Table 3 summarizes outstanding loans by collateral type for real estate secured
loans and by borrower type for all other loans.
Table 3
- -------------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
June 30,
-------------------------------- December 31,
2002 2001 2001
---- ---- ----
Commercial, financial and agricultural $ 783,638 $ 675,906 $ 742,218
Real estate - construction 565,040 485,928 532,037
Real estate - residential mortgages (1-4 family) 564,390 725,052 551,119
Commercial secured by real estate (1) 1,463,947 1,320,084 1,400,466
Consumer 538,171 508,436 503,900
Lease financing receivables 219 1,623 510
----------- ----------- -----------
Loans held for investment 3,915,405 3,717,029 3,730,250
Loans held for sale 19,636 85,416 6,513
Less: allowance for loan losses 46,985 43,765 44,587
----------- ----------- -----------
Total net loans $ 3,888,056 $ 3,758,680 $ 3,692,176
=========== =========== ===========
- -------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF LOANS HELD FOR INVESTMENT IN CATEGORY
- -------------------------------------------------------------------------------------------------------------------------
June 30,
---------------------------- December 31,
2002 2001 2001
---- ---- ----
Commercial, financial and agricultural 20.01 % 18.18 % 19.90 %
Real estate - construction 14.43 13.07 14.26
Real estate - residential mortgages (1-4 family) 14.41 19.51 14.77
Commercial secured by real estate (1) 37.40 35.51 37.54
Consumer 13.74 13.69 13.52
Lease financing receivables 0.01 0.04 0.01
------ ------ ------
Total 100.00 % 100.00 % 100.00 %
====== ====== ======
25
(1) This category includes loans to businesses other than real estate companies
where owner-occupied real estate is pledged on loans to finance operations,
equipment, and facilities. At June 30, 2002, such loans were approximately
56.1% of the category total.
Loans held for investment increased $198.4 million, or 5.3%, to approximately
$3.9 billion at June 30, 2002 from $3.7 billion at June 30, 2001. In December
2001, TSFG sold $79.5 million of residential mortgage loans from the held for
investment portfolio. Adjusting for the sale of mortgage loans, loans held for
investment increased approximat