Filed by The South Financial Group, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company:
Gulf West Banks, Inc.
Commission File No. 000-23713
The following is the text of (1) a joint press release issued by The South
Financial Group, Inc. and Gulf West Banks, Inc. following the close of the
markets on March 21, 2001, (2) the contents of slides available on the investor
relations portion of The South Financial Group's web site, and (3) the text of
a conference call held by The South Financial Group, Inc. and Gulf West Banks,
Inc. on March 22, 2002, which is available on the investor relations portion of
The South Financial Group's web site.
(SEE ATTACHED.)
TRANSCRIPTION OF 3/22/2002 INVESTOR PRESENTATION
ED MATTHEWS: Thank you and good morning. This morning we are going to give you
some details of the merger announcement of Gulf West Bank in the Tampa Bay Area
that we put out last night. We will go through some overview of that, go
through the pricing, what we think the financial impact of that deal will be.
With me this morning here in Greenville, South Carolina is Mack Whittle and
also Bill Hummers and also joining from St. Petersburg is Gordon Campbell,
chairman and president of Gulf West Bank. Before I turn the call over to Mack
Whittle, I would like to just remind everyone that on the call this morning
that we will be making forward-looking statements and that they are subject to
risk and uncertainties and the South Financial Group's actual results may
differ materially from those set forth in such forward-looking statements. We
will refer you to the references made in The South Financial Group's reports
filed with the Securities Exchange Commission for a discussion of factors that
may cause such differences to occur. If you are sitting in front of your
computer this morning, you may access the presentation that we will be going
over this morning by our Web site which is www.thesouthgroup.com. If you will
go to the Investors Relations tab and click at the very bottom of that, you
will also have a visual and audio of this conference call. With that, I am
going to turn the call over to Mack Whittle.
MACK WHITTLE: Thank you Ed and good morning. To give you a quick overview of
the transaction, the indicated per share price is $13.60. The initial exchange
ratio is .695 shares of The South Financial Group for each Gulf West share. The
value is approximately $115 million consisting approximately of 4.5 million
shares of The South Financial Group common stock and $32.4 million in cash. The
consideration is The South Financial Group's common
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stock and cash--the allocation roughly is 70/30. The expected closing is late
in the third quarter of this year. We anticipate the merger related charges to
be between $15 and $17 million. We anticipate synergies of approximately $2.7
million after tax in '03. The due diligence has been completed. We now need
approval of regulatory authorities and the Gulf West shareholders. We are
fortunate that Gordon Campell will be joining us as Vice Chairman of the
Florida subsidiary and a director of both The South Financial Group corporate
board and the Florida Subsidiary Board. Joining us along with Gordon, Robert
Blakely will be President of the greater Tampa/St. Petersburg area and Doug
Winton will be Executive Vice President in the Florida subsidiary. Joining
Gordon on the Florida subsidiary board will be four other directors from the
Gulf West group, so they will have a total of five directors on the Florida
subsidiary. With that, I would like to turn it over to Gordon and let Gordon
make some comments about Gulf West and the overview of the Tampa/St. Pete area.
GORDON CAMPBELL: Thanks Mack and good morning. Gulf West is the holding company
that owns Mercantile Bank. Mercantile was formed in 1986. It is a thrift
converted under FIRREA in 1990 to a commercial bank at which time I became
involved. We have grown from that point to 15 offices serving the Tampa Bay
market which has about 3 million people in it. The early part of our history
and going to the financial highlights, you will see that our growth in 1997 to
2001 was total assets of $204 million to $516 million and our offices grew from
2 to 15 during the period of 1992 to 2002 with 15 offices and an operations
center. Our strategy originally was to concentrate on market share and
sacrifice short term earnings in order to achieve a good penetration into the
Tampa Bay market. We are serving most of the market we want to serve now and
started to slow down on branch openings. We have only had
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one acquisition, in Pasco County, the rest have been de novo openings. The
earnings improvement that you will see is due to the fact that we have been
able to do exactly what we plan to do and increase earnings after we stop
spending so much money on expansions. The tactical strategy of the bank has
always been to serve business customers. The offices we have are located not
strictly in residential areas but in commercial areas where we can attract
commercial customers with a high percentage of transaction accounts and
corollary services on a fee basis and we have been very very successful in
doing that. We look for locations as close as possible to the major regional
banks because all of our customers come from one of the major banks looking for
better service. We have a very effective advertising campaign. Our name is the
best recognized among businessmen and women in the Bay area, even though our
budget is puny compare to Bank of America or First Union. Most of our business
now comes from referrals from existing business customers and, by that
strategy, we have been able to keep our deposit costs, as you can see, lower,
significantly, than our competition. Our efficiency ratio is improving
tremendously as we stop the growth mode and just concentrate on earnings. The
overview shows where our loan portfolio is. While we say commercial real estate
is a high percentage of it, a number of those are warehouses or factories of
our commercial customers so it is not strictly a non-deposit relationship with
the customer. Although Florida continues to be in a very fast growing state,
all of the commercial construction going on and it is a very good segment of
the banking business to go after that particular kind of business. We have all
the retail products of all the major banks. We can offer everything to the
individual who wants to bank with us but we do concentrate on the commercial
side. We don't have the trust and brokerage services and we are sorely in need
of that because so many of our customers have grown into wealthy business
people over the last
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10 years that I am getting of tired of referring them to Northern Trust
Company, so that will be a big plus for us to be able to handle our trust
operations. That's a pretty brief overview of our market, Mack. Is there
anything more you want me to say?
MACK WHITTLE: I think that covers it. We will have an opportunity for questions
and answers at the end.
ED MATTHEWS: Ok, if you are following along on your computer, if you will go to
slide #11, it gives you an overview of the transaction pricing and the expected
financial impact of the acquisition. The price of $13.60 per share is
equivalent to 21.6 times the last 12 months EPS of 63. The price to the book
value is 2.65 times and to tangible book value is 2.73. And a ratio to price of
$516 million is just over 22%. On slide 12, you see a pro forma of 2001 if it
were combined for the full year 2001 of the impact on the balance sheet and on
the following slide on the income statement. You can see there that on the
balance sheet between total assets and loans, deposits, and equity range
somewhere between 8% and 10% Gulf West at the total pro forma. The pro forma
ownership of Gulf West shareholders to the pro forma combined entity would be
just slightly over 9%. On slide 13, we have a slide on net interest income.
Again, a total net income is going to run in the same area: around 9 to 10%,
giving us a net income for 2001 pro forma ranging up to $46.9 million up from
our stated $41.9 so it's a full $5 million increase. Slide fourteen on
assumptions of the financial impact, we are assuming that we will close the
transaction in the third quarter of this year and we are assuming that we can
realize synergies, after tax, of $2.7 million in 2003. We are assuming that we
will come out with a core deposit premium of 3% and that we will amortize that
premium over a 10-year period. We also anticipate repurchasing a million shares
following the transaction and that's in
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addition to the roughly one and a half million shares that we still have
outstanding on what the Board has already authorized. So the total of shares
that we would anticipate repurchasing from where we are now is a total of two
and a half million.
On slide 15, you can see Pro forma Results for 2002. You can see that the
transaction is accretive a penny in 2002. That reflects a late third quarter
closing. It is accretive 6 pennies in 2003, or 4%. It is accretive to our book
value of slightly over 4% increasing our pro forma book value to 11.58. I am
going to turn the call back over to Mack. He will go through the rationale for
the acquisition and summarize again some of the highlights of the acquisition
and then we will open up for Q&A.
MACK WHITTLE: The transaction enhances and accelerates the 3-year plan to
improve overall profitability of the company that many of you have heard us
discuss in the past. To just recap those, we have committed to a 1.25 ROA by
the end of next year. That's 12/31/03 and an ROE in the neighborhood of 14.50
by that same time. So we still are very focused on profitability being our most
important strategic initiative, risk and then growth, but we felt that this
transaction goes a long way to help us reach this 3-year plan. The Tampa/St.
Pete market is the largest consumer market in Florida and with our Elevate
sales process that we have underway, we feel that it gives us a great
opportunity to get the number of products per customer up to 2.5 again by the
end of this year. You also may remember that as we look at markets, we look at
the per capita income growth and we look at the population growth of markets
that we serve. As we begin to fill out the footprint in Florida and even
complete that in South Carolina, those are important strategies to accomplish
this 3-year goal. Obviously the Tampa/St. Pete market is a strong market from a
per capita income growth growing at 18.4%
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compared to a U.S. median of 14.8%. Population growth is also strong in this
market. As Gordon pointed out, there are about 3 million people in the greater
Tampa/St. Pete area. Just as a point of reference, the state of South
Carolina's population is 4 million, so this market in and of itself is almost
equal to the entire market in South Carolina. That population growth in the
Tampa/St. Pete area is 8.1% on a U.S. median of 5.1%.
Completing and filling out the footprint in Florida has been a strategy of the
company. We felt that in order to serve the Central Northern Florida market
that we needed to have more scale and obviously the I-4 corridor between
Tampa/St. Pete and Orlando is a critical part of that market. We feel that this
transaction really puts us in the right position to leverage that as we go
forward. The transaction roughly doubles our Florida presence. We would have
approximately $1.3 billion in assets. We will go from 16 branches to 31
branches in that marketplace and would be obviously primarily in the three
fastest growing markets in that footprint, that is the Jacksonville and Orlando
markets and the Tampa/St. Pete market.
We feel the transaction provides low risk. It is a great market. It is
contiguous to the markets that we currently serve and we are fortunate to be
picking up some strong management of the senior executives who will join The
South Financial Group team. The Florida executives that we currently have know
and are familiar with the Gulf West senior executives. Those executives have
over 30 years experience. Most of that has been in the Tampa/St. Pete market.
Gordon touched on this earlier but the strategy of Gulf West has been very much
like the strategy of The South Financial Group and that has been to go after
middle market commercial business and grow the retail behind that. And they
have been very successful. So we feel that the two strategies will fit very
well together. They started that company in 1986,
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which is when we started ours and as I said, the cultures are very, very
similar. There will be no branch closings so this should be a fairly seamless
transaction. And there should be very limited interruption with the customers
involved in this transaction.
In summary, I want to say that this is consistent with the strategy that we
have communicated to the market over the last 12 months. This should improve
and enhance the shareholder value both from a profitability standpoint and from
a footprint of the franchise. It obviously improves our attractiveness in the
Florida market and we feel the Florida market is one of the most attractive
banking markets in the country. You saw from the pro forma that it is accretive
to the financials and again we feel that being in contiguous markets and seeing
limited risk in the transaction, that it will be a benefit to all shareholders.
And with that, I will open it up for questions.
QUESTIONS:
Q. John Balkind, Fox-Pit: Good morning guys. Just a couple of quick
questions for Ed or you, Mack. In terms of the cost savings, could you
break down where you plan to get them from and then number two, a
reasonably sizeable deal but probably not as much as you want in
Florida. How long of break do you think you would take before you look
at something else? Do you think you can do multiple deals at the same
time if you do plan to get bigger in Florida?
A: Mack Whittle: Obviously the strategy is to get larger in Florida. We
think probably with this transaction, it would nice to get it on
board, get it implemented into our system before we do any other
acquisitions in the Florida
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market. But the Florida market is obviously a focus. We want to have a
reasonable share within that footprint that we consider our Florida
footprint.
Ed Matthews: And John, to your first questions as far as the breakdown
of the synergy of the $2.7 million, we are not prepared at this time
to give you a lot of detail on that. We will be coming out with that
maybe as early as our press release for the first quarter earnings. We
have some discussions that we need to have internally regarding those
cost savings. At this time, we feel comfortable with the $2.7 million.
Q: Great. Thanks Ed. Thanks Mack.
Q. Jennifer Demba, SunTrust Robinson: Good morning. This question is for
Mr. Campbell. I was just wondering if he could comment in general on
his hospitality loan portfolio and specifically the large
non-performing loan.
A. Gordon Campbell: Certainly. The non-performing loan, and you can look
at the history and see that it is unusual, is a hotel in Lakeland, a
Sheraton Hotel that the owner and his wife who owned it together have
gone through a very, very nasty divorce and are suing each other. And
basically, Sheraton has brought people in to run the hotel themselves.
It is a modern, new hotel which appears to be doing all right
considering what happened in September, but the lack of attention from
the owner is causing them to have somewhat of a cash flow problem.
There is a second position another Bank has of a couple million
dollars. We have gotten a new appraisal of the property and we feel
very, very
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confident there is no exposure to loss at all except the loss of
income and it is very possible that--and it is in bankruptcy now but
bankruptcy court will be able to sell it high enough to recover our
lost interest. The hotel portfolio, I think I can describe that best
by commenting that our FDIC examiners recently gave us a very, very
good exam. In Florida, they look at hospitality different because it
is the largest industry in the state. Tourism edges out agriculture,
slightly, in the economic product of Florida and therefore tourism
industry is looked at differently and more favorably by the examiners
in this state than perhaps they would in Iowa or even South Carolina.
We look for geographic distribution of the hotels. They are not all in
one place and we are very conservative in our lending and try to keep
the amount outstanding in the 70% range of appraisal and economic
value. So we feel very comfortable with these properties and whether
we continue to carry that percentage or not, I think will depend a
great deal upon the advice we get from South.
Q. Mr. Campbell, how many loans, approximately, are in that $44 million
portfolio, do you know?
A. I think it is about 15.
Q. Thank you very much.
Q. Jeff Davis, Midwest Research: Good morning. A couple of questions. Ed,
let me start with you on the financing side. On the cash portion, how
will that be financed and are we going to have some sort of trust
preferred issue? Secondly,
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as part of the financing, would you look to monetize the net bank
position, I think, what do you have a million or two shares left to
raise some capital from dollar terms as well as regulatory capital?
A. Jeff, we are looking at that. We did a trust preferred issue of $31
million late in the fourth quarter of last year. We are exploring that
alternative as well as other alternatives that we also exercised in
2001, issuing shares through our REIT. We have done that last year.
That gives us some tax advantages that we may leverage again.
Q. Ed, how big is the capital likely to be?
A. Jeff, honestly, I can't tell you that right now.
Q. And the $15 to $17 million of merger charges, how does that break down
and is any of that going to reserve building?
A. Reserve building for an allowance?
Q. Yes.
A. No. That would not be reserve building for the allowance with size
being 141 and 142, we will bring over their allowance of whatever
their allowance is at the time of acquisition. Those loans and
deposits will be marked to market, though. So it will not be building
an allowance.
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Q. And Ed, the 15 to 17, if we close third quarter, when will those
charges be incurred?
A. You will see some probably 3rd quarter and 4th quarter of this year.
And we should be substantially finished with those in 4th quarter.
Q. Okay. And then Mack, for you, this looks to be a great strategic
acquisition of getting some more flesh on your bones and great
marketing in Florida. What about from the conversion standpoint? I
know the Anchor conversion was difficult. Are they operating on a
common what are you guys running Fiserv now?
A. Yes. We have Fiserv CVS.
Q. Okay. Are they on the same system and should we expect a little
smoother conversion here?
A. Mack Whittle: The actual Anchor conversion really, the issues we had
there dealt more with our system conversion than it did with the
Anchor actual transaction. And you know we have done 15 acquisitions
in the history of this company and the integration of an acquisition
has never been an issue. The issues that existed around Anchor dealt
with the conversion from the old Liberty system. It was a system we
started the company on to the Fiserv CVS and it was just
unfortunate...necessary but unfortunate that we did those within two
weeks of each other. So we don't anticipate.... and obviously we have
done due
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diligence on their system and where they are and we don't really
anticipate any issues and we will run the company, the entire South
Financial Group, off of one operating system which will be the Fiserv
CVS system.
A. Ed Matthews: Jeff, they are currently on ITI system platform, which is
also owned by Fiserv.
Q And a question for Mr. Campbell is a question on why you guys elected
to sell now versus, maybe at some point in the future?
A. Gordo Campbell: Well. That's a good question. We were doing so well
and the forecast for this year is to be somewhat better and of course
you see our earnings have been dramatic over the last five years that
frankly, over the past year or so, we were receiving a great deal of
attention. I am receiving a lot of visitors from every bank holding
company who wants to come into Florida who missed the boat by not
coming this soon. We reached the point where I wouldn't have been
surprised to have had a bear hug from one or more of these in such a
way that we would be forced to take some action that perhaps wouldn't
be as desirable to our customers and our employees. It would be fine
for the shareholders. But the board decided about a year ago that we
only wanted to talk to companies who did not have a major presence in
Florida because a big intangible of our company is the talent. We have
superior talent in our lending capabilities and our operations and
human resource and we have attracted very good people. We pay people
more than major bank holding companies. All
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these people must have at least 10 years experience in major holding
companies before we will bring them on board in a senior position. As
Ed mentioned, there is a 30-year average experience of these bankers
who we have and that is something that if an acquirer was trying for
efficiencies alone that we would lose. And we think we owed something
to these people that have helped us grow so fast. We were looking for
a company that wanted good talent as well as good earnings, and a good
deposits base. And so we then talked to a couple of banks that fit
that mold. The South Financial Group very definitely fit that mold and
also we discovered had similar strategies and philosophies that we
felt would make a good merge and that's how we reached this point.
Q. Thanks, and then Ed, I just found your parent's only financials that I
should have looked at beforehand. So the parent company you guys are
sitting on looks to be about $30 million of liquidity. Is that still
the case?
A. That's true.
Q. Thank you gentlemen.
Q. Holly Clark, Scott & Stringfellow: Good morning. I have a couple of
questions. My first one is a follow to John's question and this
relates to the cost savings. On the $2.7 million that you all had
targeted in synergies, is that all cost savings or are you including
some revenue enhancements in that figure?
A. Ed Matthews: I would say revenue enhancements and cost savings.
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Q. And how about...you are not prepared...or not...
A. Holly...the deal is...until we have gone through in those...we have
got 25 percent synergies, plus this number works out to be. We have
pretty firm ideas of where we will realize this synergy and I would
much rather than tell you than shoot from the hip where they are going
to be. I would much rather wait and give us a little bit of time and
let's just say that's going to be when we release our first quarter
earnings. That would be much more specific about it than tell you
something now that is just a shot from the hip. A 25% cost savings
synergies and revenue enhancements you heard Gordon talk about--they
totally lack brokerage and trust services. We have abilities there. We
will have cost savings from system integrations. I'd just as soon
delay that question if I could...giving you an answer to the specifics
here, if that would be okay, if you'll let us buy a little time here.
Q. That is fine. I totally understand. My other question is on the
reserves, I noticed their reserves are a little bit lower than yours.
Will we see the reserves come right up to the about the 120 level?
A. We would expect that on a consolidated level, we would maintain the
reserve levels you have seen. You have watched what you have over the
past 3 or 4 years and the reserve level has progressively moved up.
It's not taking leaps and bounds, but it has progressively moved up
from, basically where they are at 102, to where we are at a 118-120
range.
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Q. My last question. Is there a collar on the pricing of the transaction?
A. Ed Matthews: The pricing of the transaction is fixed at .695 shares
financial exchange.
Q. Okay. So there is no collar in the event that your stock moves one way
or another?
A. Ed Matthews: Holly, there is a double trigger walkaway and that double
trigger walkaway--is basically 2 things have to happen. That our stock
price has to go down 15% and the NASDAQ bank index has to go down 10%.
Bill Hummers: Our stock has to go down 15% and we have to
under-perform the NASDAQ Bank Stock Index by 10%. Those are your 2
triggers Holly.
Q. Mike Hess, Dm Investments : Congratulations on the Merger. In the
press release it said that holders will receive approximately .695
shares? Does that vary under any circumstances?
A. No, it's fixed at .695. The "approximately" comes in that they have
the option...we will issue 30% cash and so if you elect that you want
all the stock and the shareholders have the options here. They can get
all stock. They can get all cash or they can get a combination of
stock and cash and that is why you see "approximately" there. If you
choose to elect cash and stock, there has to be a price adjustment in
the total in the mix for any change in our stock.
Q. Is the 13.60 in cash fixed as well?
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A. It is.
Q. Okay, great. Thank you very much.
Q. James Dail, SNL Financial: Good morning. I was just wondering who were
the financial advisors and lawyers who worked on the deal?
A. On their side, they had as their financial advisor Sandler O'Neill and
as their legal counsel Skadden out of New York, and on our side, we
had Robinson-Humphries and our legal counsel is Nelson Mullins.
Q. Alright, thank you very much. Congratulations.
A. Thank you.
Q. Todd Pulvino, Northwestern University. Just have a quick question for
you regarding the 4.5 million shares that you intend to issue. I am
having a hard time backing that out and am thinking that I'm missing a
number of shares from Gulf Western. Can you share any light on that?
A: Bill Hummers: The number of shares outstanding...are you picking up
the outstanding options?
Q: No, I must be missing those and I wonder if you could just tell me the
fully diluted number of shares would be?
A. Do you have that handy? About 8.4 million shares outstanding right now
of Gulf West and they have options of about 865,000.
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Q. Okay, great. Thank you very much.
Q. Karen Bendry, Bank Dorsey: Good morning. My question has been
answered, thank you.
Q. Angela Knight, Federal Reserve Bank of Richmond: Good morning.
A. Good morning Angela. We'll see you in a little while.
Q. Yes, you sure will. How are you all doing?
A. Good, thanks.
Q. I have a real quick question. When do you all plan to start the
regulatory process and the shareholder approval?
A. Ed Matthews: We will start that process next week. We will take this
weekend off and will start next week.
Q. When do you plan to have the shareholder meeting at the Gulf West for
approval of the transaction?
A. Bill Hummers: It depends on how soon we can get the regulatory and the
SEC work done, Angela, but our plan would be to have it sometime in
the September timeframe.
Q. Michael Hess, Dm Investments: I want to know if Gulf Western will
continue to pay dividends?
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A. Ed Matthews: Yes they can continue to pay dividends.
Q. Thank you very much.
NO FURTHER QUESTIONS.
Ed Matthews: We would like to thank you for your time this morning. Hopefully,
we have answered your questions. We are very excited about this acquisition.
Still, as Gordon and Mack have both said, we feel very good about the chemistry
between the companies. It is an excellent market. Fifteen branches in markets
and places we don't have. These are excellent opportunities for us. Thank you
for your participation and we will talk to you again in approximately a month
when we release our first quarter earnings.
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