South Financial loses $315 million

By Dick Hughes  

JULY 21, 2010 5:56 p.m. (0)

The South Financial Group, in what  could be its last quarterly financial report before being taken over by TD Bank of Canada, said it lost $315 million in the second quarter.

It was the Greenville bank’s 10th straight quarterly loss and the biggest one for a three-month period since the loss of $323 million in the third quarter of 2009.

The loss was inflated by a noncash write-off of $214 million of goodwill value of Carolina First’s banking and insurance assets in the Carolinas to bring their value into line with “the implied valuation of TSFG using the proposed merger consideration” with TD Bank, the company said.

Goodwill is the intangible projection of future earnings for assets.   TSFG previously wrote off all the value of its Florida operation, Mercantile Bank, but had held the Carolina goodwill on its books until now.

“Our previously announced merger with TD Bank is progressing well through the various approval processes, and we currently anticipate the transaction closing in September, subject to shareholder and regulatory approval,” said H. Lynn Harton, president and CEO.

TD Bank has agreed to buy TSFG for 28 cents a share in cash or 0.004 shares of TD common stock for each TSFG share.  As far as shareholders are considered, the sale price amounts to $61 million. TD Bank notes it also is paying back the U.S. Treasury for $130.6 million TSFG owes for TARP shares.

TSFG said in the second quarter losses on nonperforming loans dwindled “modestly” in Florida but increased in the Carolinas “reflecting the continued deterioration in TSFG’s coastal South Carolina and western North Carolina residential construction portfolios.”

The company said the bank’s capital continued to be eaten away by heavy loan losses but that once TD Bank completes its purchase Carolina First and Mercantile Bank will have additional capital to exceed regulatory requirements for a well-capitalized bank.  TSFG is under orders of federal regulators to raise capital.

TSFG said its “potential problem loans decreased to $886 million from $944 million” in the second quarter; however, loans that deteriorated into nonperforming increased by $87 million to $461 million.