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 SEPTEMBER 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 November 5, 2002 was 44,111,530.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,
--------------------------------
2002 2001 DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2001
----------- ----------- ----
ASSETS
Cash and due from banks $ 175,315 $ 121,391 $ 149,170
Interest-bearing bank balances 41,849 45,162 91,497
Federal funds sold 10,022 - -
Securities
Trading 3,473 6,334 1,577
Available for sale 1,854,165 1,092,878 1,560,986
Held to maturity (market value $84,790, $73,457 and
$81,878, respectively) 82,086 71,783 80,832
---------- ---------- ----------
Total securities 1,939,724 1,170,995 1,643,395
---------- ---------- ----------
Loans
Loans held for sale 62,699 16,691 6,513
Loans held for investment 4,152,054 3,739,620 3,730,250
Allowance for loan losses (50,011) (43,944) (44,587)
---------- ---------- ----------
Net loans 4,164,742 3,712,367 3,692,176
---------- ---------- ----------
Premises and equipment, net 126,928 114,168 114,224
Accrued interest receivable 32,730 32,278 38,241
Intangible assets 176,802 98,480 97,140
Other assets 217,856 198,536 203,599
---------- ---------- ----------
$6,885,968 $5,493,377 $6,029,442
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 678,899 $ 496,353 $ 524,437
Interest-bearing 3,514,780 3,138,304 3,080,818
---------- ---------- ----------
Total deposits 4,193,679 3,634,657 3,605,255
---------- ---------- ----------
Federal funds purchased and repurchase agreements 1,219,149 680,179 1,269,538
Other borrowed funds 662,793 533,756 523,912
Subordinated notes 11,000 37,344 37,344
Trust preferred debt 73,500 - 31,000
Accrued interest payable 23,179 31,104 20,337
Other liabilities 61,762 63,250 46,859
---------- ---------- ----------
Total liabilities 6,245,062 4,980,290 5,534,245
---------- ---------- ----------
Minority interest in consolidated subsidiary 86,339 37,023 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 43,588,415,
41,300,221 and 41,228,976 shares, respectively 43,588 41,300 41,229
Surplus 355,545 312,607 311,305
Retained earnings 140,336 105,495 113,288
Guarantee of employee stock ownership plan debt and
nonvested restricted stock (3,308) (1,766) (1,544)
Accumulated other comprehensive income (loss), net of tax 18,406 18,428 (6,104)
---------- ---------- ----------
Total shareholders' equity 554,567 476,064 458,174
---------- ---------- ----------
$6,885,968 $5,493,377 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----
Interest income
Interest and fees on loans $ 67,751 $ 76,432 $199,680 $242,253
Interest and dividends on securities:
Taxable 22,011 16,799 64,795 45,966
Exempt from Federal income taxes 1,084 1,002 3,239 2,966
-------- -------- -------- --------
Total interest and dividends on securities 23,095 17,801 68,034 48,932
Interest on short-term investments 252 213 939 1,181
-------- -------- -------- --------
Total interest income 91,098 94,446 268,653 292,366
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits 20,493 33,668 63,322 118,656
Interest on borrowed funds 14,115 13,918 40,805 39,943
-------- -------- -------- --------
Total interest expense 34,608 47,586 104,127 158,599
-------- -------- -------- --------
NET INTEREST INCOME 56,490 46,860 164,526 133,767
PROVISION FOR LOAN LOSSES 5,567 5,476 18,049 15,584
-------- -------- -------- --------
Net interest income after provision for loan losses 50,923 41,384 146,477 118,183
NONINTEREST INCOME 17,119 12,664 42,394 38,704
NONINTEREST EXPENSES 46,253 36,417 122,067 110,868
-------- -------- -------- --------
Income before income taxes, minority interest, and
cumulative effect of change in accounting principle 21,789 17,631 66,804 46,019
Income taxes 6,645 6,128 21,235 16,120
-------- -------- -------- --------
Income before minority interest and cumulative
effect of change in accounting principle 15,144 11,503 45,569 29,899
Minority interest in consolidated subsidiary, net of tax (1,033) (503) (2,219) (905)
-------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 14,111 11,000 43,350 28,994
Cumulative effect of change in accounting principle,
net of tax - - (1,406) 282
-------- -------- -------- --------
NET INCOME $ 14,111 $ 11,000 $ 41,944 $ 29,276
======== ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING, BASIC 41,507,843 42,340,019 40,969,925 42,407,504
AVERAGE COMMON SHARES OUTSTANDING, DILUTED 42,504,741 43,091,562 41,933,995 43,129,348
PER COMMON SHARE, BASIC:
Net income before cumulative effect of change in
accounting principle $ 0.34 $ 0.26 $ 1.06 $ 0.68
Cumulative effect of change in accounting principle,
net of tax - - (0.04) 0.01
------ ------ ------ ------
Net income $ 0.34 $ 0.26 $ 1.02 $ 0.69
====== ====== ====== ======
PER COMMON SHARE, DILUTED:
Net income before cumulative effect of change in
accounting principle $ 0.33 $ 0.26 $ 1.03 $ 0.67
Cumulative effect of change in accounting principle,
net of tax - - (0.03) 0.01
------ ------ ------ ------
Net income $ 0.33 $ 0.26 $ 1.00 $ 0.68
====== ====== ====== ======
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.12 $ 0.11 $ 0.36 $ 0.33
====== ====== ====== ======
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 - - - 29,276 - 29,276
Other comprehensive income,
net of tax of $5,499 - - - - 11,868 11,868
---------
Comprehensive income - - - - - 41,144
---------
Cash dividends declared
($0.33 per common share) - - - (13,912) - (13,912)
Common stock activity:
Repurchase of stock (1,450,000) (1,450) (21,668) - - (23,118)
Acquisitions 15,270 15 135 - - 150
Dividend reinvestment plan 121,091 121 1,697 - - 1,818
Employee stock purchase plan 11,245 11 159 - - 170
Restricted stock plan (1,378) (1) (15) 561 - 545
Exercise of stock options 143,635 144 217 - - 361
Miscellaneous - - (13) 266 - 253
---------- -------- --------- --------- ------- ---------
Balance, September 30, 2001 41,300,221 $ 41,300 $ 312,607 $ 103,729 $18,428 $ 476,064
========== ======== ========= ========= ======= =========
Balance, December 31, 2001 41,228,976 $ 41,229 $ 311,305 $ 111,744 $ (6,104) $ 458,174
Net income - - - 41,944 - 41,944
Other comprehensive income,
net of tax of $11,348 - - - - 24,510 24,510
---------
Comprehensive income - - - - - 66,454
---------
Cash dividends declared
($0.36 per common share) - - - (14,893) - (14,893)
Common stock activity:
Acquisitions 4,174,599 4,175 85,825 (1,926) - 88,074
Repurchase of stock (2,141,907) (2,142) (46,341) - - (48,483)
Dividend reinvestment plan 70,012 70 1,312 - - 1,382
Employee stock purchase plan 8,094 8 148 - - 156
Restricted stock plan 59,096 59 1,698 (87) - 1,670
Exercise of stock options 194,545 194 1,670 - - 1,864
Cancellation of stock (5,000) (5) (108) - - (113)
Miscellaneous - - 36 246 - 282
---------- -------- --------- --------- ------- ---------
Balance, September 30, 2002 43,588,415 $ 43,588 $ 355,545 $ 137,028 $18,406 $ 554,567
========== ======== ========= ========= ======= =========
* 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)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 41,944 $ 29,276
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation, amortization, and accretion, net 23,247 22,365
Provision for loan losses 18,049 15,584
Gain on sale of available for sale securities (1,005) (1,539)
(Gain) loss on trading securities 267 (207)
Gain on equity investments (3,388) (1,019)
Loss on disposition of assets and liabilities - 1,251
Gain on sale of loans (1,671) (3,057)
Gain on disposition of premises and equipment (55) (266)
Loss on disposition of other real estate owned 762 386
Impairment loss from write-down of assets - 391
Impairment loss from write-down of mortgage servicing rights 592 509
Loss on early extinguishment of debt 354 1,093
Loss on changes in fair value of hedges 228 114
Minority interest in consolidated subsidiary 2,219 905
Cumulative effect of change in accounting principle 1,406 (282)
Trading account assets, net 206,000 (1,122)
Originations of mortgage loans held for sale (325,259) (280,832)
Sale of mortgage loans held for sale 296,655 353,175
Other assets, net 5,098 11,861
Other liabilities, net 728 17,038
-------- --------
Net cash provided by operating activities 266,171 165,624
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of securities available for sale 629,343 264,233
Maturity or call of securities available for sale 1,054,079 304,522
Maturity or call of securities held to maturity 6,787 11,756
Purchase of securities available for sale (2,021,568) (712,322)
Purchase of securities held to maturity (8,156) (5,897)
Purchase of bank-owned life insurance - (25,000)
Origination of loans held for investment, net (160,955) (230,247)
Sale of loans held for investment 11,961 -
Sale of other real estate owned 4,224 5,666
Sale of premises and equipment 1,443 785
Capital expenditures (10,565) (4,598)
Disposition of assets and liabilities, net - (40,382)
Cash equivalents acquired, net of payment for purchase acquisition 29,227 -
-------- --------
Net cash used for investing activities (464,180) (431,484)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits, net 163,246 (216,615)
Borrowed funds, net 19,615 464,480
Redemption of subordinated notes (26,344) -
Prepayment penalty on early extinguishment of debt - (1,093)
Issuance of minority interest stock, net 49,247 37,023
Issuance of trust preferred debt, net 41,176 -
Cash dividends paid (14,622) (14,002)
Cash dividends paid on minority interest (2,878) (921)
Repurchase of common stock (48,483) (23,118)
Other common stock activity 3,571 2,752
-------- --------
Net cash provided by financing activities 184,528 248,506
-------- --------
Net change in cash and due from banks (13,481) (17,354)
Cash and cash equivalents at beginning of year 240,667 183,907
-------- --------
Cash and cash equivalents at end of period $227,186 $166,553
======== ========
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 June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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, "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 in accordance with FASB Concepts Statements No.
6, "Elements of Financial Statements." 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 TSFG, if any,
is not known at this time.
See Note 5 for new accounting pronouncements that TSFG adopted in 2002.
5
(2) SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
The following presents the details for noninterest income and noninterest
expense (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Noninterest income:
Service charges on deposit accounts $ 6,108 $ 4,568 $ 16,436 $ 13,748
Fees for investment services 1,359 1,462 4,639 4,204
Mortgage banking income 850 927 3,397 5,250
Bank-owned life insurance 1,877 1,845 5,486 5,397
Merchant processing income 1,778 1,657 4,741 4,618
Gain on sale of available for sale securities 790 1,134 1,005 1,539
Gain (loss) on trading securities (330) 67 (267) 207
Gain on equity investments 3,527 17 3,388 1,019
Loss on disposition of assets and liabilities - (19) - (1,251)
Other 1,160 1,006 3,569 3,973
-------- -------- ------- -------
Total noninterest income $ 17,119 $ 12,664 $ 42,394 $ 38,704
======== ======== ======== ========
Noninterest expenses:
Salaries and wages $ 18,594 $ 14,101 $ 50,951 $ 43,195
Employee benefits 3,538 3,369 11,841 10,776
Furniture and equipment 3,993 3,366 11,072 10,097
Occupancy 3,919 3,626 11,150 10,830
Professional fees 1,343 1,369 3,859 4,002
Merchant processing expense 1,381 1,436 3,798 3,771
Amortization of intangibles 352 1,423 831 4,425
Impairment loss from write-down of assets - 176 - 391
Merger-related costs (recoveries) 4,465 (89) 4,465 (502)
Loss on early extinguishment of debt 354 1,093 354 1,093
Other 8,314 6,547 23,746 22,790
-------- -------- -------- --------
Total noninterest expenses $ 46,253 $ 36,417 $122,067 $110,868
======== ======== ======== ========
6
CONSOLIDATED STATEMENTS OF CASH FLOW
The following summarizes supplemental cash flow data (in thousands) for the nine
months ended September 30:
2002 2001
---- ----
Interest paid $100,080 $162,663
Income taxes paid (refunded) 25,278 (9,150)
Significant non-cash investing and financing transactions are summarized as follows:
Available for sale securities transferred to trading securities and subsequently sold 208,163 -
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 35,526 18,321
Loans transferred to other real estate owned 9,336 8,623
Business combinations:
Fair value of assets acquired (includes cash and cash equivalents) 613,440 -
Fair value of common stock issued and stock options recognized (88,074) -
Cash paid (32,406) -
-------- --------
Liabilities assumed 492,960 -
(3) OTHER COMPREHENSIVE INCOME
The following summarizes other comprehensive income, net of tax (in thousands)
for the nine months ended September 30:
2002 2001
---- ----
Unrealized gains on securities:
Unrealized holding gains arising during the period $ 39,919 $20,270
Income tax expense (12,763) (6,531)
Less: Reclassification adjustment for gains included in net income (4,393) (1,949)
Income tax expense 1,538 679
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 332 (884)
Income tax (expense) benefit (123) 327
-------- -------
$ 24,510 $11,868
======== =======
(4) BUSINESS COMBINATIONS
GULF WEST
On August 31, 2002, TSFG completed the merger with Gulf West Banks, Inc. ("Gulf
West"), a bank holding company headquartered in St. Petersburg, Florida. Gulf
West operated through Mercantile Bank, a Florida-chartered, non-member bank with
fifteen locations in the greater Tampa Bay area. This merger represents TSFG's
first banking locations in the Tampa Bay area and advances TSFG's strategy to
expand in markets with favorable population and per capita income growth
7
prospects. Upon acquiring Gulf West, TSFG combined all of its Florida operations
under the Mercantile Bank name. TSFG acquired all the outstanding common shares
of Gulf West in exchange for 3,925,588 shares of TSFG common stock and $32.4
million in cash.
The Gulf West transaction has been accounted for using the purchase method of
accounting, and accordingly, the assets and liabilities of Gulf West were
recorded at their estimated fair values as of the merger date. The fair values
are preliminary and are subject to adjustment as information relative to the
fair values as of August 31, 2002 becomes available. TSFG uses an allocation
period, not to exceed one year, to identify and quantify the fair value of the
assets acquired and liabilities assumed in business combinations accounted for
as purchases. The consolidated financial statements include the results of Gulf
West's operations since the August 31, 2002 merger date.
The following summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of merger based on information currently
available (in thousands):
AUGUST 31,
2002
ASSETS
Cash and due from banks $ 23,377
Interest-bearing bank balances 37,471
Securities 125,473
Loans
Loans held for sale 25,966
Loans held for investment 286,645
Allowance for loan losses (2,877)
--------
Net loans 309,734
--------
Premises and equipment, net 12,383
Accrued interest receivable 2,147
Intangible assets 79,502
Other assets 19,644
--------
Total assets acquired 609,731
--------
LIABILITIES
Deposits 418,933
Other borrowed funds 67,901
Accrued interest payable 372
Other liabilities 5,299
--------
Total liabilities assumed 492,505
--------
NET ASSETS ACQUIRED $117,226
========
The aggregate purchase price was $117.2 million, including $32.4 million of
cash, 3,925,588 shares of TSFG common stock valued at $78.2 million, outstanding
employee stock options valued at $6.5 million, and shares issuable under
employee stock purchase plan valued at $98,000.
The merger agreement provided each Gulf West shareholder the right to elect to
convert their Gulf West common stock into cash, shares of TSFG common stock, or
a mixture of both, subject to allocation procedures. The per share stock
consideration was 0.6921 shares of TSFG common stock for each Gulf West share.
The per share cash consideration was $13.7942 for each Gulf West share.
8
The Gulf West purchase price and the amount of the purchase price allocated to
goodwill and other intangible assets are presented below (in thousands):
AUGUST 31,
2002
Purchase price $117,226
Gulf West tangible shareholders' equity 44,275
--------
Excess of purchase price over carrying value of
net tangible assets acquired 72,951
Fair value adjustments (1,776)
Direct acquisition costs 4,561
Deferred income taxes 3,766
--------
Total intangible assets 79,502
Core deposit premiums 8,424
--------
Goodwill $ 71,078
========
The core deposit premium intangible asset is amortized over 10 years on an
accelerated basis until the straight-line amortization method is greater at
which time the straight-line method is used. The core deposit premium valuation
and amortization method are based upon a historical study of the deposits
acquired. All of the Gulf West intangible assets were assigned to the Mercantile
Bank segment. The goodwill will not be amortized but will be tested at least
annually for impairment in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets." The total amount of goodwill expected to be deductible for
income tax purposes is $2.3 million.
The following unaudited pro forma financial information presents the combined
results of operations of TSFG and Gulf West as if the merger had occurred as of
the beginning of the period for each period presented, after giving effect to
certain adjustments, including amortization of core deposit premium intangible
asset and related income tax effects (in thousands, except per common share).
The pro forma financial information does not necessarily reflect the results of
operations that would have occurred had TSFG and Gulf West constituted a single
entity during such periods.
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
2002 2001
---- ----
Net interest income $ 60,128 $ 51,695
Noninterest income 17,650 13,633
Net income 14,376 12,025
Per common share:
Net income, basic 0.32 0.26
Net income, diluted 0.31 0.26
9
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
2002 2001
---- ----
Net interest income $ 178,712 $ 147,166
Noninterest income 44,803 41,427
Income before cumulative effect of change in
accounting principle 45,993 31,354
Net income 44,587 31,636
Per common share:
Net income, basic 0.99 0.68
Net income, diluted 0.97 0.67
In connection with the Gulf West merger, TSFG recorded pre-tax merger-related
costs of $4.5 million, included in noninterest expenses, and direct acquisition
costs of $4.6 million, included in goodwill. The merger-related and acquisition
costs were recorded as incurred. The following summarizes these charges (in
thousands) at and for the nine months ended September 30, 2002:
TOTAL AMOUNTS REMAINING
COSTS PAID ACCRUAL
----- ---- -------
Merger-related costs:
Compensation-related expenses $ 2,448 $ 1,205 $ 1,243
System conversion costs 614 317 297
Travel 464 438 26
Personnel training 219 79 140
Advertising 148 148 -
Other 572 295 277
------- ------- -------
$ 4,465 $ 2,482 $ 1,983
======= ======= =======
TOTAL AMOUNTS REMAINING
COSTS PAID ACCRUAL
----- ---- -------
Direct acquisition costs:
Investment banking and professional fees $ 3,958 $ 3,012 $ 946
Contract and lease terminations 330 320 10
Severance 273 - 273
------- ------- -------
$ 4,561 $ 3,332 $ 1,229
======= ======= =======
Severance charges are associated with the involuntary termination of
approximately 59 former Gulf West employees who were notified that their
positions were redundant within the combined organization. These positions were
primarily in centralized corporate support and data processing areas. The
contract termination costs are primarily comprised of payments required to be
made to certain executives of Gulf West pursuant to their employment contracts.
The lease termination costs were for buyouts on Gulf West leased facilities.
GARDNER ASSOCIATES, INC.
On September 20, 2002, TSFG acquired Gardner Associates, Inc., an independent
insurance agency based in Columbia, South Carolina. This acquisition was
accounted for using the purchase method of accounting, and accordingly, the
assets and liabilities of Gardner Associates, Inc. were recorded at their
estimated fair values as of the merger date. The fair values are preliminary and
are subject to refinement as information relative to the fair values as of
September 20, 2002 becomes available. TSFG issued 156,426 shares of common stock
10
valued at $3.3 million, acquired tangible assets totaling $1.3 million, assumed
liabilities totaling $455,000, recorded a non-compete agreement intangible asset
of $663,000, recorded goodwill of $876,000, and recorded a customer list
intangible asset of $858,000. The non-compete agreement intangible is amortized
on a straight-line basis over its estimated useful life of 2 years. The customer
list intangible is amortized on a straight-line basis over its estimated useful
life of 10 years. In addition, the principals of Gardner Associates have the
right to receive a maximum of 92,585 shares of TSFG common stock under earnout
provisions based on Gardner Associates' annual and five-year financial
performance.
ROCK HILL BANK AND TRUST
On October 31, 2002, TSFG completed its asset sale agreement to acquire
substantially all of the assets and deposits of Rock Hill Bank & Trust ("Rock
Hill"), which is the wholly-owned banking subsidiary of RHBT Financial
Corporation ("RHBT"). At September 30, 2002, Rock Hill operated 3 branches in
York County, South Carolina, and had deposits of $184.9 million. Under the asset
sale agreement, Rock Hill received 430,017 shares of TSFG common stock, valued
at $9.3 million, plus the right to receive a cash earnout essentially equal to
30% of the net improvement in the aggregate charge-offs and reserves in the
entire designated loan pool and 50% of net amounts recovered under RHBT's
blanket bond insurance policy with respect to such loans. TSFG also agreed to
repurchase such number of these 430,017 shares as are not distributed to RHBT
shareholders in RHBT's pending liquidation. TSFG has identified a potential
liability related to certain Rock Hill trust accounts. Any liability recorded
would increase the goodwill recorded.
TSFG owns 382,500 shares, or approximately 22% of RHBT outstanding stock, which
is included in available for sale securities. During the third quarter, TSFG
wrote-down its investment in RHBT by $1.2 million to its September 30, 2002
estimated fair value of approximately $1.9 million, or $5.00 per share. The
Board of Directors of RHBT presently plans to distribute most, but not
necessarily all, of the 430,017 shares of TSFG common stock received by Rock
Hill to RHBT shareholders after closing of the sale of assets. Upon the
distribution of the TSFG common stock to RHBT shareholders, TSFG will cancel any
TSFG shares received.
CENTRAL BANK OF TAMPA
In October 2002, TSFG signed a definitive agreement to acquire Central Bank of
Tampa ("CBT"), a closely held community bank headquartered in Tampa, Florida. At
September 30, 2002, CBT operated through 5 branches in Tampa and had total
assets of $215.4 million. TSFG will issue common stock equal to $68.0 million in
exchange for all the outstanding common shares of CBT. Such TSFG common stock
will be valued at the average closing price on the ten trading days ending on
the second trading day prior to closing (except that the value will never be
deemed less than $15.00 or greater than $25.00). This transaction, which is
expected to close in the fourth quarter of 2002, will be accounted for using the
purchase method of accounting and is subject to receipt of CBT shareholder and
regulatory approval.
(5) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, TSFG adopted the provisions of 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 or Disposal of Long-Lived
Assets" ("SFAS 144").
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
11
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,
using a discounted cash flow method, and determined that the goodwill associated
with Carolina First Mortgage Company was impaired. TSFG recorded a transitional
impairment loss of $1.4 million. This transitional impairment loss was
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 was not reflected in the third quarter 2002 results since the
impairment is reflected as of January 1, 2002).
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 $3.2 million pre-tax (or $3.1 million after-tax) during the nine months
ended September 30, 2001. TSFG continues to amortize the identifiable intangible
assets, which relate to core deposit premiums and customer lists. Also, see
Notes 6 and 7 for additional financial statement disclosure requirements under
SFAS 142.
The following presents the details for goodwill amortization expense and net
income (in thousands, except share data):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 14,111 $11,000 $ 41,944 $29,276
Amortization of goodwill, net of tax - 999 - 3,095
-------- ------- -------- -------
Adjusted net income $ 14,111 $11,999 $ 41,944 $32,371
======== ======= ======== =======
Net income per common share, basic $ 0.34 $ 0.26 $ 1.02 $ 0.69
Amortization of goodwill, net of tax - 0.02 - 0.07
------ ------ ------ ------
Adjusted net income per common share, basic $ 0.34 $ 0.28 $ 1.02 $ 0.76
====== ====== ====== ======
Net income per common share, diluted $ 0.33 $ 0.26 $ 1.00 $ 0.68
Amortization of goodwill, net of tax - 0.02 - 0.07
------ ------ ------ ------
Adjusted net income per common share, diluted $ 0.33 $ 0.28 $ 1.00 $ 0.75
====== ====== ====== ======
RECLASSIFICATION OF LOSSES ON EARLY EXTINGUISHMENT OF DEBT
In April 2002, the FASB 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
12
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, to
noninterest expenses.
UNIDENTIFIABLE INTANGIBLE ASSETS FROM BRANCH PURCHASES
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9" ("SFAS 147"). SFAS 147 removes acquisitions of financial
institutions from the scope of both FASB Statements No. 72 ("SFAS 72") and FASB
Interpretation No. 9 and requires that those transactions be accounted for in
accordance with FASB Statements No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," except for transactions between two or
more mutual enterprises. Thus, the requirement in SFAS 72 to recognize (and
subsequently amortize) any excess of the fair value of liabilities assumed over
the fair value of tangible and identifiable assets acquired as an unidentifiable
intangible asset no longer applies to acquisitions within the scope of the scope
of SFAS 72. In addition, SFAS 147 amends FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), to include in its
scope long-term customer-relationship intangible assets of financial
institutions such as depositor- and borrower-relationship intangible assets and
credit cardholder intangible assets. Consequently, those intangible assets are
subject to the same undiscounted cash flow recoverability test and impairment
loss recognition and measurement provisions that SFAS 144 requires for other
long-lived assets that are held and used. The provisions of SFAS 147 are
effective for financial statements issued on or after October 1, 2002, and early
adoption is permitted.
In the third quarter, TSFG adopted SFAS 147 effective as of January 1, 2002. The
unamortized unidentifiable intangible assets related to branch purchases, which
totaled $2.5 million net of accumulated amortization as of January 1, 2002, were
reclassified as goodwill. In connection with this adoption, TSFG reversed
pre-tax amortization of intangibles totaling $112,000, which was recorded in the
first half of 2002.
13
(6) INTANGIBLE ASSETS
Intangible assets are summarized as follows (in thousands):
SEPTEMBER 30, DECEMBER 31,
---------------------------
2002 2001 2001
---- ---- ----
Goodwill $162,148 $92,699 $91,600
Core deposit premiums 22,970 14,546 14,546
Less accumulated amortization (9,832) (8,765) (9,006)
-------- ------- -------
13,138 5,781 5,540
-------- ------- -------
Customer list intangible 858 - -
Less accumulated amortization (1) - -
-------- ------- -------
857 - -
Non-compete agreement intangible 663 - -
Less accumulated amortization (4) - -
-------- ------- -------
659 - -
-------- ------- -------
$176,802 $98,480 $97,140
======== ======= =======
The following summarizes the changes in the carrying amount of goodwill related
to each of TSFG's business segments (in thousands) for the nine months ended
September 30, 2002:
CAROLINA MERCANTILE
FIRST BANK BANK OTHER TOTAL
---------- ---- ----- -----
Balance, December 31, 2001 $90,194 $ - $ 1,406 $ 91,600
Goodwill acquired during year 876 71,078 - 71,954
Impairment losses - - (1,406) (1,406)
------- -------- ------- --------
Balance, September 30, 2002 $91,070 $ 71,078 $ - $162,148
======= ======== ======= ========
Amortization of intangibles totaled $826,000 for core deposit premiums, $4,000
for non-compete agreement intangibles, and $1,000 for customer list intangibles
for the nine months ended September 30, 2002. Amortization of intangibles
totaled $1.0 million for core deposit premiums, $210,000 for unidentifiable
intangible assets from branch purchases, and $3.2 million for goodwill for the
nine months ended September 30, 2001. Under SFAS 142, the amortization of
goodwill ceased effective January 1, 2002. Under SFAS 147, the amortization of
unidentifiable intangible assets from branch purchases ceased effective January
1, 2002. See Note 5.
The estimated amortization expense for core deposit premiums for the years ended
December 31 is as follows: $1.4 million for 2002, $2.1 million for 2003, $1.7
million for 2004, $1.5 million for 2005, $1.3 million for 2006, and an aggregate
of $5.9 million for all the years thereafter. The estimated amortization expense
for customer list intangibles is $24,000 for the year ended December 31, 2002
and $86,000 for the years ended December 31, 2003 to 2006 and an aggregate of
$490,000 for all the years thereafter. The estimated amortization expense for
non-compete agreement intangibles for the years ended December 31 is as follows:
$92,000 for 2002, $332,000 for 2003, and $239,000 for 2004.
(7) MORTGAGE SERVICING RIGHTS
Capitalized mortgage servicing rights ("MSRs") totaled $5.6 million, $8.9
million, and $10.8 million at September 30, 2002, December 31, 2001, and
September 30, 2001, respectively. Amortization expense for MSRs totaled $2.7
14
million and $3.3 million for the nine months ended September 30, 2002 and 2001,
respectively.
The estimated amortization expense for MSRs for the years ended December 31 is
as follows: $3.5 million for 2002, $3.1 million for 2003, $1.7 million for 2004,
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) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), TSFG records derivatives at fair value, as
either assets or liabilities, on the consolidated balance sheets. At September
30, 2002, the fair value of derivative assets totaled $6.7 million and was
related to derivatives with no hedging designation and fair value hedges. At
September 30, 2002, the fair value of derivative liabilities totaled $541,000
for cash flow hedges and $208,000 for futures, options, and other derivatives,
which do not qualify for hedge accounting under SFAS 133.
Derivative transactions are measured in terms of the notional amount, but this
amount is not recorded on the consolidated balance sheets. The notional amounts
related to TSFG's derivatives at September 30, 2002, which are not recognized on
the consolidated balance sheets, totaled $283.0 million for the derivative
assets and $417.9 million for the derivative liabilities.
(9) REDEMPTION OF SUBORDINATED NOTES
TSFG redeemed its 9.00% Subordinated Notes Due 2005 (the "Notes") on August 31,
2002. This constituted a full redemption of all of the outstanding Notes, which
had a principal balance of $26.3 million. The Notes were redeemed at their par
value. The associated unamortized issuance costs, which had a balance of
$354,000 at August 31, 2002, were written off on the redemption date and
included in noninterest expenses.
(10) 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 quarters,
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).
15
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")
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. Issuance costs from the July 30, 2002 sale totaled $574,000. The trust
preferred debt qualifies as tier 1 capital under Federal Reserve Board
guidelines.
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 quarters,
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).
(11) 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
$49.2 million, net of issuance costs totaling $2.4 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.
16
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 nine months ended September 30, 2002 amounted to $2.2 million (net
of related income taxes of $1.3 million). These dividends and the amortization
of issuance costs, which totaled $69,000 pre-tax for the nine months ended
September 30, 2002, are expensed on TSFG's consolidated statement of income as
minority interest in consolidated subsidiary.
(12) AVERAGE SHARE INFORMATION
The following is a summary of the basic and diluted average common shares
outstanding.
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
2002 2001
---- ----
Basic:
Average common shares outstanding (denominator) 41,507,843 42,340,019
========== ==========
DILUTED:
Average common shares outstanding 41,507,843 42,340,019
Dilutive potential common shares 996,898 751,543
---------- ----------
Average diluted shares outstanding (denominator) 42,504,741 43,091,562
========== ==========
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
2002 2001
---- ----
Basic:
Average common shares outstanding (denominator) 40,969,925 42,407,504
========== ==========
DILUTED:
Average common shares outstanding 40,969,925 42,407,504
Dilutive potential common shares 964,070 721,844
---------- ----------
Average diluted shares outstanding (denominator) 41,933,995 43,129,348
========== ==========
NUMBER RANGE OF
OF SHARES EXERCISE PRICES
--------- ---------------
For the three months ended
September 30, 2002 977,672 $21.03 to $31.26
September 30, 2001 1,353,857 $17.93 to $31.26
For the nine months ended
September 30, 2002 977,672 $21.03 to $31.26
September 30, 2001 1,561,080 $16.64 to $31.26
(13) 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.
17
TSFG has identified a potential liability related to certain Rock Hill trust
accounts. Any liability recorded would increase the goodwill recorded.
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
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.
(14) 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 Mercantile 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.
Mercantile Bank offers products and services primarily to customers in its
market areas in northern and central Florida. Revenues for Carolina First Bank
and Mercantile 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.
18
CAROLINA MERCANTILE ELIMINATING
FIRST BANK BANK OTHER ENTRIES TOTAL
---------- ---- ----- ------- -----
THREE MONTHS ENDED SEPTEMBER 30, 2002:
Net interest income $ 48,011 $10,092 $ (1,613) $ - $ 56,490
Provision for loan losses 3,865 1,718 (16) - 5,567
Noninterest income 10,380 1,441 17,376 (12,078) 17,119
Noninterest expenses 30,945 11,565 15,821 (12,078) 46,253
Amortization of intangibles (a) 246 106 - - 352
Merger-related costs (a) - 4,465 - - 4,465
Income tax expense 7,666 (560) (461) - 6,645
Minority interest in consolidated
subsidiary, net of tax (1,033) - - - (1,033)
Net income 14,882 (1,190) 419 - 14,111
THREE MONTHS ENDED SEPTEMBER 30, 2001:
Net interest income $ 40,903 $ 6,781 $ (824) $ - $ 46,860
Provision for loan losses 4,168 1,325 (17) - 5,476
Noninterest income 9,522 1,077 14,267 (12,202) 12,664
Noninterest expenses 31,170 4,947 12,502 (12,202) 36,417
Amortization of intangibles (a) 1,370 - 53 - 1,423
Merger-related recoveries (a) (89) - - - (89)
Income tax expense 5,217 545 366 - 6,128
Minority interest in consolidated
subsidiary, net of tax (503) - - - (503)
Net income 9,367 1,041 592 - 11,000
NINE MONTHS ENDED SEPTEMBER 30, 2002:
Net interest income $ 143,929 $24,986 $ (4,389) $ - $ 164,526
Provision for loan losses 12,305 5,765 (21) - 18,049
Noninterest income 30,448 3,544 47,451 (39,049) 42,394
Noninterest expenses 92,472 22,061 46,583 (39,049) 122,067
Amortization of intangibles (a) 725 106 - - 831
Merger-related costs (a) - 4,465 - - 4,465
Income tax expense 22,369 223 (1,357) - 21,235
Minority interest in consolidated
subsidiary, net of tax (2,219) - - - (2,219)
Cumulative effect of change in
accounting principal, net of tax - - (1,406) - (1,406)
Net income 45,012 481 (3,549) - 41,944
(a) Included in noninterest expenses.
19
CAROLINA MERCANTILE ELIMINATING
FIRST BANK BANK OTHER ENTRIES TOTAL
---------- ---- ----- -------
NINE MONTHS ENDED SEPTEMBER 30, 2001:
Net interest income $ 117,990 $ 18,166 $ (2,389) $ - $ 133,767
Provision for loan losses 11,107 4,269 208 - 15,584
Noninterest income 28,500 2,485 46,233 (38,514) 38,704
Noninterest expenses 95,171 14,357 39,854 (38,514) 110,868
Amortization of intangibles (a) 4,267 - 158 - 4,425
Merger-related recoveries (a) (502) - - - (502)
Income tax expense 14,585 701 834 - 16,120
Minority interest in consolidated
subsidiary, net of tax (905) - - - (905)
Cumulative effect of change in
accounting principal, net of tax - - 282 - 282
Net income 24,722 1,324 3,230 - 29,276
(a) Included in noninterest expenses.
SEPTEMBER 30, 2002:
Total assets $ 5,492,340 $1,461,921 $812,770 $ (881,063) $ 6,885,968
Loans 3,188,032 1,060,628 78,388 (112,295) 4,214,753
Deposits 3,139,876 1,074,644 - (20,841) 4,193,679
SEPTEMBER 30, 2001:
Total assets $ 4,796,168 $ 746,567 $599,933 $ (649,291) $ 5,493,377
Loans 3,137,723 613,734 4,854 - 3,756,311
Deposits 3,105,502 554,969 - (25,814) 3,634,657
(15) SUBSEQUENT EVENTS
On October 29, 2002, South Financial Capital Trust III (the "Capital Trust
III"), a wholly-owned subsidiary of TSFG, issued and sold floating rate
securities having an aggregate liquidation amount of $22.0 million (the "Capital
Securities III") to institutional buyers in a pooled trust preferred issue. The
Capital Securities III generated gross proceeds of $22.0 million. The Capital
Trust III 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 October 29, 2002 sale
totaled $680,000.
The Capital Securities III accrue and pay distributions semi-annually at a rate
per annum equal to 90-day LIBOR plus 345 basis points. This rate may not exceed
12.0% through October 29, 2007. The distributions payable on the Capital
Securities III 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 III for a period not to exceed 20 consecutive quarters,
provided that no extension period may extend beyond the maturity date of October
29, 2032. TSFG has no current intention to exercise its right to defer payments
of interest on the Capital Securities III.
The Capital Securities III are mandatorily redeemable upon maturity on October
29, 2032. TSFG has the right to redeem the Capital Securities III in whole or in
part, on or after October 29, 2007. If the Capital Securities III are redeemed
on or after October 29, 2007, the redemption price will be 100% of the principal
amount plus accrued and unpaid interest. In addition, TSFG may redeem the
Capital Securities III 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).
20
(16) 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.
21
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 nine month periods
ended September 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 31 locations in northern and central Florida as of
September 30, 2002. TSFG operates through two wholly-owned subsidiary banks:
Carolina First Bank, a South Carolina state-chartered commercial bank, and
Mercantile Bank, a Florida state-chartered commercial bank (which are
collectively referred to as the "Subsidiary Banks"). Upon acquiring Gulf West,
TSFG combined all of its Florida operations, formerly known as Citrus Bank,
under the Mercantile Bank name. 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
22
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.
MERGERS
The following table summarizes TSFG's mergers completed during 2002. All of
these transactions were accounted for using the purchase method of accounting,
and accordingly, the assets and liabilities were recorded at their estimated
fair values, which are subject to adjustment, as of the merger date.
TABLE 1
- --------------------------------------------------------------------------------
SUMMARY OF COMPLETED ACQUISITIONS
- --------------------------------------------------------------------------------
IDENTIFIABLE
ACQUISITION TOTAL SHARES CASH INTANGIBLE
DATE ASSETS (1) ISSUED PAID ASSETS GOODWILL
---- ---------- ------ ---- ------ --------
Gulf West Banks, Inc.
St. Petersburg, FL 08/31/02 $526.9 million 3,925,588 $32.4 million $8.4 million $71.1 million
Gardner Associates, Inc.
Columbia, SC 09/20/02 $ 1.3 million 249,011(2) none $1.5 million $ 0.9 million
Closed subsequent to 9/30/02
- ----------------------------
Rock Hill Bank and Trust
Rock Hill, SC 10/31/02 430,017(3) none(3)
(1) The most recent quarter end prior to acquisition date.
(2) Of this amount, up to 92,585 of these shares are subject to forfeiture back
to TSFG if certain annual and five-year financial performance targets are
not met.
(3) TSFG agreed to pay a cash earnout based on collection and recoveries with
respect to certain loans. TSFG also agreed to repurchase such number of
these 430,017 shares as are not distributed to RHBT shareholders in RHBT's
pending liquidation.
On August 31, 2002, TSFG completed the merger with Gulf West Banks, Inc. ("Gulf
West"), a bank holding company headquartered in St. Petersburg, Florida. Gulf
West operated through Mercantile Bank, a Florida-chartered, non-member bank with
fifteen locations in the greater Tampa Bay area of Florida. This merger
represents TSFG's first banking locations in the greater Tampa Bay area and
advances TSFG's strategy to expand in markets with relatively high population
and per capita income growth prospects. Upon acquiring Gulf West, TSFG combined
all of its Florida operations under the Mercantile Bank name. TSFG's
consolidated financial statements include the results of Gulf West's operations
since the August 31, 2002 merger date.
On September 20, 2002, TSFG acquired Gardner Associates, Inc. ("Gardner
Associates"), an independent insurance agency based in Columbia, South Carolina,
which TSFG will use to build its insurance operations in the Midlands area of
South Carolina.
Subsequent to quarter end, on October 31, 2002, TSFG completed the acquisition
of substantially all of the assets and deposits of Rock Hill Bank & Trust ("Rock
Hill"), which is the wholly-owned banking subsidiary of RHBT Financial
Corporation ("RHBT"). Rock Hill operated 3 branches in York County, South
Carolina. Under the asset sale agreement, Rock Hill received 430,017 shares of
TSFG common stock, plus the right to receive a cash earnout essentially equal to
30% of the net improvement in the aggregate charge-offs and reserves in the
entire designated loan pool and 50% of net amounts recovered under RHBT's
blanket bond insurance policy with respect to such loans.
23
In connection with improper activities and bad lending practices by a former
executive officer with respect to a large number of Rock Hill's loans, Rock Hill
had to charge off or establish additional reserves for a material portion of its
loan portfolio, prior to closing of the merger. Accordingly, related to the
loans acquired from Rock Hill, TSFG expects its allowance for loan losses and
nonaccrual loans to increase to above historical levels. The ultimate impact is
not currently known.
TSFG owns 382,500 shares, or approximately 22% of RHBT outstanding stock, which
is included in available for sale securities. During the third quarter, TSFG
wrote-down its investment in RHBT by $1.2 million to its September 30, 2002
estimated fair value of approximately $1.9 million, or $5.00 per share. The
Board of Directors of RHBT presently plans to distribute most, but not
necessarily all, of the 430,017 shares of TSFG common stock received by Rock
Hill to RHBT shareholders shortly after closing of the sale of assets. Upon the
distribution of the TSFG common stock to RHBT shareholders, TSFG will cancel any
TSFG shares received.
PENDING MERGER
In October 2002, TSFG signed a definitive agreement to acquire Central Bank of
Tampa ("CBT"), a closely held community bank headquartered in Tampa, Florida. At
September 30, 2002, CBT operated through 5 branches in Tampa and had total
assets of $215.4 million. TSFG will issue common stock equal to $68.0 million in
exchange for all the outstanding common shares of CBT. Such TSFG common stock
will be valued at the average closing price on the ten trading days ending on
the second trading day prior to closing (except that the value will never be
deemed less than $15.00 or greater than $25.00). This transaction, which is
expected to close in the fourth quarter of 2002, will be accounted for using the
purchase method of accounting and is subject to receipt of CBT shareholder and
regulatory approval.
EARNINGS REVIEW
OVERVIEW
Net income for the nine months ended September 30, 2002 totaled $41.9 million,
up 43.3% compared with $29.3 million for the nine months ended September 30,
2001. Earnings per diluted share for the first nine months of 2002 were $1.00, a
47.1% increase from $0.68 per diluted share in the first nine months of 2001.
Higher net interest income, efficiency improvements, and a more favorable
effective tax rate 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.
Noninterest income for the nine months ended September 30, 2002 and 2001
included pre-tax gains on asset sales of $4.4 million and $1.3 million,
respectively. For the nine months ended September 30, 2002, TSFG recognized a
$4.7 million gain on the sale of NetBank, Inc. common stock, which was partially
offset by a $1.2 million write-down on its investment in RHBT. See "Earnings
Review - Noninterest Income" for details on the gain on asset sales. Noninterest
expenses for the first nine months of 2002 included the following pre-tax other
items: $4.5 million in merger-related costs, $1.6 million of personnel expense
related to the settlement of certain employment agreements from previous
mergers, and a $354,000 loss on early extinguishment of debt. For the first nine
months of 2001, noninterest expenses included the following pre-tax other items:
$1.1 million loss on early extinguishment of debt, $502,000 recovery of
merger-related costs related to the sale of real estate, and $391,000 impairment
loss from the write-down of assets.
On January 1, 2002, TSFG adopted SFAS 142 and ceased amortization of goodwill.
Amortization of intangibles that are not amortized in 2002 totaled $3.4 million
for the nine months ended September 30, 2001. In the third quarter 2002, TSFG
recorded a $1.4 million charge related to impairment of goodwill associated with
Carolina First Mortgage Company, which is shown as a cumulative effect of change
in accounting principle. In accordance with the accounting rules, this change
was recorded as of January 1, 2002 and therefore is reflected in the
year-to-date income, but not the quarter.
24
Average common shares outstanding on a diluted basis were 41.9 million in the
first nine months of 2002, down 2.8% from 43.1 million for first nine months of
2001. In connection with share repurchase programs, TSFG repurchased and
cancelled 2,141,907 shares during the first nine months of 2002.
At September 30, 2002, TSFG had approximately $6.9 billion in assets, $4.2
billion in loans, $4.2 billion in deposits, and $554.6 million in shareholders'
equity. At September 30, 2002, the ratio of nonperforming assets to loans and
other real estate owned was 1.07%.
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 2 presents average balance sheets and
a net interest income analysis on a tax equivalent basis for the three and nine
months ended September 30, 2002 and 2001.
25
TABLE 2
- ------------------------------------------------------------------------------------------------------
COMPARATIVE AVERAGE BALANCES - YIELDS AND COSTS
- ------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ----
Assets
Earning assets
Loans (1) $4,018,965 $67,751 6.69% $ 3,741,496 $76,432 8.10 %
Investment securities (taxable) (2) 1,707,479 22,011 5.16 1,046,714 16,799 6.37
Investment securities (nontaxable) (3) 93,301 1,669 7.16 84,243 1,541 7.26
Federal funds sold 7,214 26 1.43 968 8 3.28
Interest-bearing bank balances 50,154 226 1.79 36,819 205 2.21
----------- ------- ----------- -------
Total earning assets 5,877,113 91,683 6.19 4,910,240 94,985 7.67
----------- ------- ----------- -------
Non-earning assets 592,822 525,510
---------- -----------
Total assets $6,469,935 $ 5,435,750
========== ===========
Liabilities and shareholders' equity
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking $ 592,622 $ 1,731 1.16 $ 587,151 $ 3,472 2.35
Savings 124,611 224 0.71 114,016 570 1.98
Money market 834,111 3,725 1.77 772,515 6,798 3.49
Time deposits 1,744,858 14,813 3.37 1,626,509 22,828 5.57
---------- ------- ---------- -------
Total interest-bearing deposits 3,296,202 20,493 2.47 3,100,191 33,668 4.31
Borrowings 1,924,197 14,115 2.91 1,219,802 13,918 4.53
---------- ------- ---------- -------
Total interest-bearing liabilities 5,220,399 34,608 2.63 4,319,993 47,586 4.37
------- -------
Noninterest-bearing liabilities
Noninterest-bearing deposits 570,508 494,911
Other noninterest-bearing liabilities 80,410 92,510
---------- ----------
Total liabilities 5,871,317 4,907,414
Minority interest in consolidated
subsidiary 86,429 37,027
Shareholders' equity 512,189 491,309
---------- ----------
Total liabilities and shareholders'
equity $6,469,935 $5,435,750
========== ==========
Net interest margin $57,075 3.85% $47,399 3.83 %
======= =======
Tax-equivalent adjustment (3) $ 585 $ 539
======= =======
(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 the REIT
preferred stock, which qualifies as regulatory capital and pays cumulative
dividends.
Note: Average balances are derived from daily balances.
26
TABLE 2 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
COMPARATIVE AVERAGE BALANCES - YIELDS AND COSTS
- -----------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------
2002 2001
------------------------------ ------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
Assets
Earning assets
Loans (1) $3,894,325 $199,680 6.86 % $3,754,478 $242,253 8.63 %
Investment securities (taxable) (2) 1,650,010 64,795 5.24 938,807 45,966 6.55
Investment securities (nontaxable) (3) 92,218 4,984 7.21 82,833 4,563 7.37
Federal funds sold 2,431 26 1.43 446 13 3.90
Interest-bearing bank balances 69,851 913 1.75 33,458 1,168 4.67
---------- -------- ---------- --------
Total earning assets 5,708,835 270,398 6.33 4,810,022 293,963 8.17
-------- --------
Non-earning assets 537,398 533,726
---------- ----------
Total assets $6,246,233 $5,343,748
========== ==========
Liabilities and shareholders' equity
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Interest checking $ 590,902 $ 5,332 1.21 $ 580,509 $ 11,686 2.69
Savings 118,909 654 0.74 114,421 1,887 2.20
Money market 756,348 9,538 1.69 744,836 22,302 4.00
Time deposits 1,715,167 47,798 3.73 1,801,287 82,781 6.14
---------- -------- ---------- --------
Total interest-bearing deposits 3,181,326 63,322 2.66 3,241,053 118,656 4.89
Borrowings 1,928,727 40,805 2.83 1,044,276 39,943 5.11
---------- -------- ---------- --------
Total interest-bearing liabilities 5,110,053 104,127 2.72 4,285,329 158,599 4.95
---------- -------- ---------- --------
Noninterest-bearing liabilities
Noninterest-bearing deposits 530,737 469,053
Other noninterest-bearing liabilities 73,843 83,911
----------