The relevant calculations under Section 382 are technical and highly complex. In some circumstances, issuances or sales of our stock (including any debt-for-equity exchanges and certain transactions involving our stock that are outside of our control) could result in an “ownership change” under Section 382. An “ownership change” could occur if, due to the sale or issuance of additional common stock, the aggregate ownership of one or more persons treated as “5% shareholders” were to increase by more than fifty percentage points over such shareholders’ lowest percentage ownership during the relevant testing period. As of September 30, 2009, our net operating loss was approximately $298 million. If an “ownership change” were to occur, we believe we would permanently lose the ability to realize a portion of the net operating losses and a portion of the net unrealized built-in losses, resulting in reduction to our total shareholders’ equity.
If an “ownership change” were to occur, it is possible that the limitations imposed on our ability to use pre-change losses and certain recognized built-in losses could cause a net increase in our U.S. federal income tax liability and U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect.
Current economic conditions, particularly in the financial markets, have resulted in government regulatory agencies and political bodies placing increased focus on and scrutiny of the financial services industry. The U.S. government has intervened on an unprecedented scale. In addition to the Capital Purchase Program (in which we participated), under the Troubled Asset Relief Program (“TARP”) announced last fall and the CAP (in which we have not participated), the U.S. government has taken steps that include enhancing the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances, and increasing insurance on bank deposits. It is possible that we could voluntarily apply to participate in the CAP, although we currently do not intend to do so. Such participation would subject us to additional limitations regarding our business operations, would increase our preferred stock dividend obligations and would result in increased stockholder dilution. The U.S. Congress, through the Emergency Economic Stabilization Act of 2008 (“EESA”) and the American Recovery and Reinvestment Act of 2009 (“ARRA”), also has imposed a number of restrictions and limitations on the operations of financial services firms participating in the federal programs. There can be no assurance as to the impact that the these programs and measures will have on the financial markets, including the high levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies. The failure of these programs and measures to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit, or the trading price of our common stock.
These programs and measures also subject participating financial institutions, like us, to additional restrictions, oversight and costs that may have an adverse impact on our business, financial condition, results of operations or the price of our common stock. In particular, ARRA made amendments to the executive compensation provisions of EESA, under which TARP was established. These amendments apply not only to future participants under TARP, but also apply retroactively to companies like us that are current TARP participants. The full scope and impact of these amendments is uncertain and difficult to predict. ARRA directs the Secretary of the U.S. Treasury to adopt standards that implement the amended provisions of EESA and directs the SEC to issue rules in connection with certain of the amended provisions. While the U.S. Treasury has adopted interim final rules, the full scope and impact of the new standards and rules is not fully known.
In addition, new legislative proposals continue to be introduced in the U.S. Congress that could further substantially increase regulation of the financial services industry and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including with respect to compensation, interest rates and the impact of bankruptcy proceedings on consumer real property mortgages and otherwise. These, and any future legal requirements and implementing standards under TARP may have unforeseen or unintended adverse effects on TARP participants and on the financial services industry as a whole. Further, federal and state regulatory agencies also frequently adopt changes to their regulations and/or change the manner in which existing regulations are applied. We cannot predict the substance or impact of pending or future legislation, regulation or the application thereof. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner by requiring us to expend significant time, effort and resources to ensure compliance. Additionally, the evolving regulations concerning executive compensation may impose limitations on us that affect our ability to compete successfully for executive and management talent.
We are subject to extensive government regulation and supervision and could be subjected to additional restrictions on our business and operations.
TSFG and its subsidiaries are subject to extensive federal and state regulation and supervision affecting, among other things, our lending practices, capital structure, investment practices, dividend policy, and growth. Banking regulations are primarily intended to protect depositors’ funds, consumers, federal deposit insurance funds, and the banking system as a whole, not security holders. Under federal and state law, our regulators have broad powers with respect to our company and subsidiaries, which entail risks and uncertainties. These risks and uncertainties include the risk that additional capital will be required by our regulators. In addition, our regulators may impose other directives relating to various aspects of our business, such as risk management, credit and lending policies and procedures, asset/liability management, loan and securities portfolio composition, funding and liquidity and dividend policies if they determine that any of these aspects of our business pose undue risk to the institution and we fail to take or are unable to take sufficient action to mitigate such risks. Any such laws, requirements or directives, or the failure or inability to comply with them, could result in negative regulatory consequences, including becoming subject to supervisory action or to the imposition of restrictions on our business and operations. Such restrictions could adversely impact our financial condition, our access to the equity and capital markets, the way in which we operate our businesses and the value of our common stock.
Laws and regulations also exist that require financial institutions like us to take steps to prevent the use of our banking subsidiary to facilitate the flow of illegal or illicit money, to report large currency transactions, and to file suspicious activity reports. We are also required to develop and implement a comprehensive anti-money laundering compliance program. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.
In addition, Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. It is likely that there will be significant changes to the banking and financial institutions regulatory regimes in the near future in light of the recent performance of and government intervention in the financial services sector. Changes to statutes, regulations, regulatory policies, or regulatory ratings (including changes in interpretation or implementation), could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit access to certain funding sources, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things.
We have incurred significant losses and will incur additional losses.
We incurred a net loss available to common shareholders of $568.6 million, or $7.77 loss per share, for the year ended December 31, 2008, and $543.1 million, or $4.67 loss per share, for the nine months ended September 30, 2009. We expect to incur a net loss for the three months ended December 31, 2009 (and a related decrease in shareholders’ equity as of such date). These losses and our expectations are primarily a result of losses in our loan portfolio and associated write-offs of goodwill, as well as the increase in our deferred tax asset valuation allowance, and we expect to continue to suffer losses at significant levels in fourth quarter 2009 and into the first half of 2010. Additional detail regarding various matters relating to our credit exposure, portfolio concentrations, non-performing assets and related matters is included below.
If we experience greater credit losses than anticipated, our earnings may be adversely affected.
As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their contractual terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating results. Our credit risk with respect to our real estate and construction loan portfolio relates principally to the creditworthiness of corporations and the value of the real estate serving as security for the repayment of loans. Our credit risk with respect to our commercial and consumer loan portfolio relates principally to the general creditworthiness of businesses and individuals within our local markets.
Our credit risk management system is defined by policies approved by our board of directors that govern the risk, underwriting, portfolio monitoring, and problem loan administration processes. We seek to ensure adherence to underwriting standards through a credit approval process and after-the-fact review by credit risk management, and supervise compliance with underwriting and loan monitoring policies through daily reviews by credit risk managers,
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monthly reviews of exception reports and ongoing analysis of asset quality trends. We administer problem loans through the use of policies that require written plans for resolution and periodic meetings with credit risk management to review progress. Ultimately, credit risk management activities are monitored by our board of directors’ risk committee. As part of our credit quality efforts, we continually assess the effectiveness of our policies and processes, and we have been and will continue to seek to reduce our levels of problem loans, address weaknesses in lending relationships and manage lending concentrations. However, our credit and risk management efforts are subject to substantial risks, including the risk of failure to develop adequate policies and procedures, failure to reduce problem loans and address lending and concentration weaknesses, failure of personnel to comply with our policies and procedures, assumptions and judgments that are not realized and other failures of our policies and procedures. Such failures could result in credit losses that exceed our expectations and adversely impact our financial condition, our capital position and the potential for criticism or adverse action by our regulators or the rating agencies.
In connection with our credit risk management, business planning and forecasting, we make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for estimated credit losses based on a number of factors. We believe that our allowance for credit losses is adequate. However, if our assumptions or judgments are wrong, our allowance for credit losses may not be sufficient to cover our actual credit losses. We may need to increase our allowance in the future in response to regulatory requests, changing conditions and assumptions, or deterioration in the quality of our loan portfolio. The actual amount of future provisions for credit losses cannot be determined at this time and may vary from the amounts of past provisions.
Our geographic and product concentrations and the downturn in the real estate market have significantly affected our results of operations, and further credit deterioration could have further adverse effects on collateral values and borrowers’ ability to repay, and consequently our financial condition and results of operations.
Our commercial, real estate and consumer loans are concentrated predominantly in South Carolina, western North Carolina and larger markets in Florida. In addition, commercial real estate loans and residential construction loans in South Carolina, North Carolina and Florida represented approximately 42% of our total loan portfolio as of September 30, 2009. Included in these commercial loans are loans related to residential construction, which represented approximately 12% of our total loan portfolio as of September 30, 2009. Because of the concentration of real estate and other loans in the same geographic regions, adverse economic conditions in these areas have contributed to higher rates of loss and delinquency on our loans than if the loans had been more geographically diversified.
The effects of recent mortgage market challenges, combined with the ongoing decrease in commercial and residential real estate market prices and demand, could result in further price reductions in commercial and residential real estate values, adversely affecting the value of collateral securing the loans that we hold, as well as loan originations and gains on sale of real estate and construction loans. Prices of properties in South Carolina, North Carolina and Florida – where a large portion of our loans have real estate as a primary or secondary component of collateral – remain under significant pressure, with rising unemployment levels and the impact of the real estate downturn on the general economy. If we are required to liquidate the collateral during this period of reduced real estate values, our profitability and financial condition could be further adversely affected. As the extent and duration of this downturn is not known, we must estimate, based on current portfolio knowledge and analysis, the amount of our probable losses when recording our allowance for loan losses. This estimate requires substantial judgment on the part of management which may or may not prove valid and could be too low.
As noted above, as part of our credit quality and risk management efforts, we have been seeking to reduce our levels of problem loans and nonperforming assets, address weaknesses in lending relationships and manage geographic and product lending concentrations. However, while we expect that these actions will help mitigate the overall effects of the credit down cycle, the weaknesses in our loan portfolio are expected to continue, and we will continue to have substantial geographic and product concentrations even with respect to new loans. Accordingly, it is anticipated that our non-performing asset and charge-off levels will remain elevated and could accelerate as a result of efforts (including by further charge-offs and loan sales) to reduce our levels of problem loans. In addition, our regulators could require us to take more aggressive measures in the future in connection with our non-performing assets. If we are not successful in our efforts to successfully manage our existing loan portfolio or new lending activities, or if we experience higher than expected delinquencies and greater than expected charge-offs in future periods, we could experience additional credit losses that materially and adversely affect our financial condition, our results of operations and our capital position and we could be exposed to increased potential for criticism or adverse action by our regulators or the rating agencies.
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Our access to the capital markets and other sources of funding and liquidity remains under pressure.
We fund our business operations through a combination of customer deposits, other customer funding and wholesale borrowing (including short-term and long-term borrowings as well as brokered deposits). These funding sources have been less available and have become more expensive in recent periods as a result of our financial performance, including the performance of our loan portfolio, decreased confidence in the financial markets generally among borrowers, lenders and depositors, as well as disruption and extreme volatility in the capital and credit markets and the failure of some entities in the financial sector. Our customer deposit funding has been low relative to peers because of our traditional focus on commercial lending, which has caused us to utilize wholesale funding to a greater degree than some of our peers. Customer deposits typically provide cost and liquidity advantages relative to wholesale funding, particularly in a higher interest rate environment. We have been working to strengthen our liquidity by shifting into customer deposits, reducing our reliance on wholesale funding and, where we do rely on wholesale funding, shifting to longer-term and more diversified borrowings. However, we may not be successful in increasing customer deposits, and any occurrence that limits participation in the capital markets or our access to the capital markets, such as the loss of access to the brokered CD market, the Federal Reserve Bank discount window or FHLB advances, or a downgrade of our debt ratings, may adversely affect our capital costs, our ability to raise capital and our ability to raise capital on terms that meet our funding and liquidity needs. The failure to establish and maintain appropriate funding and capital markets access on acceptable terms when needed could have a material adverse effect on our businesses, financial condition and results of operations, the willingness of certain counterparties and customers to do business with us and on the potential for criticism or adverse action by our regulators or the rating agencies.
Our credit ratings are reviewed periodically, and could be subject to further downgrade.
A further downgrade to our, or our affiliates’, credit ratings could increase our cost of funds and negatively impact our profitability. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, and level and quality of earnings, and there can be no assurance that we will maintain the aforementioned credit ratings. In addition, ratings agencies have themselves been subject to scrutiny arising from the financial crisis and there is no assurance that ratings agencies will not make or be required to make substantial changes to their ratings policies and practices or that such changes would not affect ratings of our securities or of securities in which we have an economic interest. Failure to execute successfully on our Capital Plan, further credit quality deterioration and other factors relating to our business could cause us to have lower capital ratios, which could result in the further downgrade of our credit ratings.
Our business may be further adversely affected by conditions in the financial markets and economic conditions generally.
Since late 2007, the United States has been in a recession. Business activity across a wide range of industries and regions is greatly reduced and local governments and many businesses are in serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. Unemployment has increased significantly.
Since mid-2007, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. This was initially triggered by declines in home prices and the values of subprime mortgages, but spread to all mortgage and real estate asset classes, to leveraged bank loans and to nearly all asset classes, including equities. Over this period, the global markets have been characterized by substantially increased volatility and short-selling and an overall loss of investor confidence, initially in financial institutions, but more recently in companies in a number of other industries and in the broader markets.
Market conditions have also led to the failure or merger of a number of prominent financial institutions. Financial institution failures or near-failures have resulted in further losses as a consequence of defaults on securities issued by them and defaults under contracts entered into with such entities as counterparties. Furthermore, declining asset values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to increase credit default swap spreads, to cause rating agencies to lower credit ratings, and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions. Some banks and other lenders have suffered significant losses and have become reluctant to lend, even on a secured basis, due to the increased risk of default and the impact of declining asset values on the value of collateral. The foregoing has significantly weakened the strength and liquidity of some financial institutions worldwide. In 2008 and 2009, the U.S. government, the Federal Reserve and other regulators have taken
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numerous steps to increase liquidity and to restore investor confidence, including investing in the equity of banking organizations, but asset values have continued to decline and access to liquidity continues to be constrained.
Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon the business environment in the markets where we operate. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; natural disasters; or a combination of these or other factors. Overall, during 2008 and 2009, the business environment has been adverse for many households and businesses in the United States and worldwide. It is expected that the business environment in the United States and worldwide will continue to be challenged for the foreseeable future. There can be no assurance that these conditions will improve in the near term. Such conditions could adversely affect the credit quality of our loans, results of operations and financial condition.
The NASDAQ’s listing requires that companies have a minimum bid price of $1 per share.
NASDAQ rules classify a security as “deficient” if it has a closing bid price of less than $1 per share for thirty consecutive business days. Once deficient, issuers have an automatic 180-day period to regain compliance by having a closing bid price of at least $1 per share for ten consecutive business days, and can receive an additional 180 days if all other listing requirements are met. Our common stock has traded below $1 for a number of days in October and November 2009. If we do not meet this listing requirement, liquidity in our stock could be materially and adversely affected.
The performance of our investment portfolio is subject to fluctuations due to changes in interest rates and market conditions.
Changes in interest rates can negatively affect the performance of most of our investments. Interest rate volatility can reduce unrealized gains or create unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, our investment securities.
The fair market value of the securities in our portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations.
While we currently do not pay dividends on our common stock, holders of our common stock may be unable to use the dividends-received deduction with respect to any distributions we may make on our common stock in the future.
While we currently pay no dividends on our common stock, if we were to pay a dividend or other distribution on our common stock, distributions paid to corporate U.S. holders on our common stock may be eligible for the dividends received deduction if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Although we presently have accumulated earnings and profits, we may not have sufficient current or accumulated earnings and profits during future taxable years for the distributions on our common stock to qualify as dividends for federal income tax purposes. If any distributions on our common stock with respect to any taxable year are not eligible for the dividends-received deduction because of insufficient current or accumulated earnings and profits, the amount for which you may be able to sell our common stock may decline.
We may not be able to redeem the Series T Preferred Stock and the warrant sold to the U.S. Treasury as soon as we desire.
Until such time as we redeem our Series T Preferred Stock, we will remain subject to the respective terms and conditions set forth in the agreements we entered into with the U.S. Treasury under the Capital Purchase Program. Among other things, prior to December 5, 2011, unless we have redeemed the Series T Preferred Stock issued to the U.S. Treasury or the U.S. Treasury has transferred the Series T Preferred Stock to a third party, the consent of the U.S. Treasury will be required for us to (1) declare or pay any dividend or make any distribution on our common stock (other
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than regular quarterly cash dividends of not more than $0.01 per share of common stock) or (2) redeem, purchase or acquire any shares of our common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the related purchase agreement. It is unlikely that we will be able to redeem the Series T Preferred Stock until, among other things, we increase our capital and return to profitability. See “Risk Factors— We have incurred significant losses and will incur additional losses,” above.
Further, the continued existence of the Capital Purchase Program investment subjects us to increased regulatory and legislative oversight. See “Risk Factors — Legislative and regulatory actions taken now or in the future to address the current liquidity and credit crisis in the financial industry may significantly affect our financial condition, results of operation, liquidity or stock price,” above.
Industry competition may have an adverse effect on our success.
Our profitability depends on our ability to compete successfully. We operate in a highly competitive environment. Certain of our competitors are larger and have more resources than we do and as a result may be perceived as stronger institutions. In our market areas, we face competition from other commercial banks, savings and loan associations, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of our non-bank competitors are not subject to the same extensive regulations that govern TSFG or Carolina First Bank and may have greater flexibility in competing for business. TSFG expects competition to intensify among financial services companies due to the recent consolidation of certain competing financial institutions and the conversion of certain investment banks to bank holding companies. Should competition in the financial services industry intensify, TSFG’s ability to market its products and services may be adversely affected.
We are a holding company and depend on our subsidiaries for dividends, distributions and other payments.
The holders our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available. As a legal entity separate and distinct from its subsidiaries, TSFG depends on the payment of dividends from its subsidiaries for its revenues. Current federal law prohibits, except under certain circumstances and with prior regulatory approval, an insured depository institution from paying dividends or making any other capital distribution if, after making the payment or distribution, the institution would be considered “under-capitalized,” as that term is defined in applicable regulations. South Carolina banking regulations restrict the amount of dividends that the subsidiary bank, Carolina First Bank, can pay to TSFG, and may require prior approval before the declaration and payment of any excess dividend. Carolina First Bank is not presently able to pay dividends without the approval of such agencies.
In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. Depending on the financial condition of Carolina First Bank, the applicable regulatory authority might deem us to be engaged in an unsafe or unsound practice if Carolina First Bank were to pay dividends. The Federal Reserve and other regulatory authorities have issued policy statements generally requiring insured banks and bank holding companies only to pay dividends out of current operating earnings.
Payment of dividends could also be subject to regulatory limitations. For example, if Carolina First Bank became “under-capitalized” for purposes of the current law providing the federal banking agencies with broad powers to take prompt corrective action to resolve problems of insured depository institutions. Under uniform regulations defining the capital levels issued by each of the federal banking agencies, a bank is considered “well capitalized” if (1) it has a total risk-based capital ratio of 10% or greater, (2) it has a tier 1 risk-based capital ratio of 6% or greater, (3) it has a leverage ratio of 5% or greater, and (4) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” bank is defined as one that has (1) a total risk-based capital ratio of 8% or greater, (2) a tier 1 risk-based capital ratio of 4% or greater, and (3) a leverage ratio of 4% or greater. A bank is considered (A) “under-capitalized” if it has (1) a total risk-based capital ratio of less than 8%, (2) a tier 1 risk-based capital ratio of less than 4% or (3) a leverage ratio of less than 4%; (B) “significantly under-capitalized” if the bank has (1) a total risk-based capital ratio of less than 6%, (2) a tier 1 risk-based capital ratio of less than 3%, or (3) a leverage ratio of less than 3%; and (C) “critically under-capitalized” if the bank has a ratio of tangible equity to total assets equal to or less than 2%. As of September 30, 2009, Carolina First Bank met the definition of well capitalized for all applicable capital ratios.
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In addition, if any of our subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on its assets. Our rights and the rights of our creditors will be subject to that prior claim, unless we are also a direct creditor of that subsidiary.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
TSFG has repurchased shares of our common stock in private transactions and open-market purchases, as authorized by our Board. The amount and timing of stock repurchases will be based on factors, including but not limited to, management’s assessment of TSFG’s capital structure and liquidity, the market price of TSFG’s common stock compared to management’s assessment of the stock’s underlying value, and applicable regulatory, legal, and accounting matters. The following table presents information about our stock repurchases for the three months ended September 30, 2009.
| | | | | | | | | | | | | |
Issuer Purchases of Equity Securities | |
Period | | Total
Number
of Shares
Purchased | | Average
Price
Paid per
Share | | Total
Number of
Shares Purchased
as Part
of Publicly
Announced Plans
or Programs | | Approximate
Dollar Value of
Shares that
May Yet Be
Purchased
Under Plans or
Programs
(in thousands) | |
| | | | | | | | | |
| | | | | | | | | | | | | |
July 1, 2009 to July 31, 2009 | | | — | | $ | — | | | — | | $ | — | |
August 1, 2009 to August 31, 2009 | | | 183 | (1) | | 1.94 | | | — | | | — | |
September 1, 2009 to September 30, 2009 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
Total | | | 183 | | $ | 1.94 | | | — | | $ | — | |
| | | | | | | | | | | | | |
| |
(1) | These shares were canceled in connection with exercise of options, vesting of restricted stock, or distribution from the deferred compensation plan. Pursuant to TSFG’s stock option plans, participants may exercise stock options by surrendering shares of TSFG common stock the participants already own or, in some cases, by surrendering fully vested stock options as payment of the option exercise price. Pursuant to TSFG’s restricted stock plans, participants may tender shares of vested restricted stock as payment for taxes due at the time of vesting. Pursuant to TSFG’s Executive Deferred Compensation Plan, participants may tender shares of stock as payment for taxes due at the time of distribution. Shares surrendered by participants of these plans are repurchased at current market value pursuant to the terms of the applicable stock option, restricted stock, or deferred compensation plan and not pursuant to publicly announced share repurchase programs. |
On July 15, 2009, 91,033 shares of common stock were issued in connection with the settlement of a shareholder lawsuit. This issuance of shares was not registered under the Securities Act of 1933 in reliance upon the exemption set forth in Section 4(2) thereof.
On September 14, 2009, 94,500 shares of Preferred Stock Series 2009-A were converted into 23,988,422 common shares, which included 9,449,960 shares issued as an inducement to convert. This issuance of common shares was not registered under the Securities Act of 1933 in reliance upon the exemption set forth in Section 3a(9) thereof.
On September 23, 2009, 90,876 shares of Preferred Stock Series 2008 were converted into 20,915,430 common shares, which included 6,934,507 shares issued as an inducement to convert. This issuance of common shares was not registered under the Securities Act of 1933 in reliance upon the exemption set forth in Section 3a(9) thereof.
Item 3. Defaults upon Senior Securities
None.
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Item 4. Submission of Matters to a Vote of Securities Holders
On September 11, 2009, TSFG held a Special Meeting of Shareholders. The results of the Special Meeting of Shareholders follow.
Proposal #1 – Approve Amendment to TSFG’s Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock from 200,000,000 to 325,000,000. This proposed amendment was approved with 151,043,770 shares, or 81.6%, voting in favor, 4,836,993 shares voting against, and 1,704,067 shares abstaining.
Proposal #2 – Approve the conversion of TSFG’s Mandatory Convertible Non-cumulative Preferred Stock, Series 2009-A (the “Series 2009-A Preferred Stock”) into approximately 23,988,425 shares of TSFG common stock in accordance with the conversion terms of the Series 2009-A Preferred Stock. This proposal was approved with 118,885,363 shares, or 95.3%, voting in favor, 4,455,698 shares voting against, and 1,355,627 shares abstaining.
Item 5. Other Information
None.
Item 6. Exhibits
| |
3.1 | Amended and Restated Articles of Incorporation, as amended |
| |
31.1 | Certificate of the Principal Executive Officer pursuant to Rule 13a-14a/15(d)-14(a) of Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
31.2 | Certificate of the Principal Financial Officer pursuant to Rule 13a-14a/15(d)-14(a) of Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
32.1+ | Certificate of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
32.2+ | Certificate of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
+ This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Note for non-filed versions of this Form 10-Q
The above exhibits may be found on TSFG’s electronic filing of its September 30, 2009 Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”) and is accessible at no cost on TSFG’s web site, www.thesouthgroup.com, through the Investor Relations link. TSFG’s SEC filings are also available through the SEC’s web site at www.sec.gov.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, TSFG has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| The South Financial Group, Inc. |
| |
| |
Date: November 9, 2009 | /s/ James R. Gordon |
| |
| James R. Gordon |
| Senior Executive Vice President and |
| Chief Financial Officer |
| (Principal Financial Officer) |
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