TSFG has put its nearly completed corporate campus off I 85 on the market.

TSFG records losses

by Dick Hughes

The South Financial Group, parent of Carolina First and Mercantile Bank of Florida, lost $111.5 million, or $1.23 per share, in the second quarter, the company reported.

It was the Greenville-based company’s sixth consecutive quarterly loss and exceeded the consensus Wall Street expectation of red ink equivalent to 80 cents per share.

In the first six months of 2009, TSFG has lost $202.3 million. Since the collapse of the mortgage and credit market struck TSFG with force 18 months ago, the bank has lost $771 million, and a return to profitability is not on the immediate horizon.

“Losses are going to continue for a couple of additional quarters but not as high as this quarter,” said Chief Financial Officer James Gordon.

“As expected, higher credit costs led to a net loss for the second quarter,” said H. Lynn Harton, president and chief operating officer. This pressure will “remain challenging” in the months ahead, he said.

There were glimmers of positive trends, however: the interest margin rose 2.96 percent; core deposits grew 2.4 percent; noninterest income was up 3.7 percent; the bank’s capital was boosted with sale of 75 million common shares at a $1 apiece; loss reserves grew; the rate of growth in nonperforming assets slowed; and ongoing operational expenses fell, though one-time costs rose.

The company also reported a decline of $50 million in nonaccrual commercial loans in Florida, which has been the heaviest drag on TSFG’s balance sheet with the credit and building collapse hitting Mercantile Bank particularly hard. Still, that bright note was offset by an increase of $100 million in nonperforming commercial loans at Carolina First, which felt the recessionary drag later.

Gordon said the improvement in Florida was a welcome but cautious sign: “One Quarter does not a trend make, but there are signs that Florida is going to bottom out.”

The posted loss for the quarter was driven primarily by setting aside $131 million for losses related to deteriorating real estate loans.

The bank said lot loans and consumer nonperforming loans declined for the second quarter but overall commercial loan losses continued to take a toll.

“Approximately 68 percent, or $82.1 million, of the second quarter 2009 net charge-offs related to commercial real estate loans, including $52.5 million for residential construction loans,” the bank said.

Approximately 50 percent of the foreclosed property held by the bank is in Florida, 30 percent in North Carolina and 18 percent in South Carolina.

The company said it still has $465 million in bad loans on its books, but Harton said the bank’s ability to absorb ongoing hits has been fortified “by the successful execution of the first phase of our capital program.”

After putting itself through the same “stress tests” U.S. Treasury required of the nation’s largest banks, TSFG raised $75 million with the sale of common shares in June and is poised to increase capital equity by $190 million by early conversion of preferred shares to common. These steps strengthen the capital base but at a cost, particularly in dilution of already distressed per share value.

Harton also reported aggressive steps to reduce expenses, including a reducing the workforce by 10 percent since the beginning of the year to bring TSFG’s full-time equivalent positions to 2,345, the lowest since 2004.

The bank laid off 72 employees early this month and shed 23 positions with the sale of its Mount Pleasant pension management subsidiary, American Pensions Inc.

TSFG also has put its nearly completed corporate campus off I 85 on the market, although it will use a portion of completed office space to move some back office functions. Headquarters remains downtown Greenville. TSFG has $90 million invested in the campus complex.

The company also has plans to sell its corporate jet, close three branches and two other office locations.

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