Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OF TSFG AND GULF WEST AT AND FOR THE SIX MONTHS ENDED JUNE 30, 2002
AND FOR THE YEAR ENDED DECEMBER 31, 2001
The following unaudited pro forma combined financial information and
explanatory notes are presented to show the impact of the merger on our
companies' historical financial positions and results of operations under the
purchase method of accounting. Under this method of accounting, the assets and
liabilities of the company not surviving the merger are, as of the effective
date of the merger, recorded at their respective fair values and added to those
of the surviving corporation. The unaudited pro forma combined condensed
financial information combines the historical financial information of TSFG and
Gulf West at and for the six months ended June 30, 2002, and for the year ended
December 31, 2001. The unaudited pro forma combined condensed balance sheet at
June 30, 2002 assumes the merger was consummated on that date. The unaudited pro
forma combined condensed statements of income give effect to the merger as if
the merger had been consummated at the beginning of each period presented.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the actual results that would have occurred if the merger had been consummated
during the period or as of the date for which the pro forma data is presented,
nor is it necessarily indicative of future results. The pro forma data does not
reflect any potential benefits from potential cost savings or synergies expected
to be achieved following the merger. The pro forma fair values for assets and
liabilities are subject to change as a result of final valuation analyses and
include no adjustments for evaluation of credit risk, principally related to
loans, which may be impacted by TSFG's plan to reclassify certain Gulf West
loans from loans held for investment to loans held for sale. In addition, the
pro forma data assumes no changes to the combined capitalization, such as
increases in long-term debt or the repurchase of shares issued in connection
with the merger.
The unaudited pro forma combined condensed financial information is
based on and should be read in conjunction with the historical consolidated
financial statements and the related notes of both TSFG and Gulf West, which are
incorporated in this document by reference.
THE SOUTH FINANCIAL GROUP, INC. AND GULF WEST BANKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(dollars in thousands)
The following unaudited pro forma combined condensed balance sheet combines the consolidated historical balance sheets
of TSFG and Gulf West assuming the companies had been combined as of June 30, 2002, on a purchase accounting basis.
June 30, 2002
-------------------------------------------------------
Gulf Pro Forma Pro Forma
TSFG West Adjustments Combined
---- ---- ----------- --------
Assets
Cash and due from banks (Note 4) $ 137,925 $ 15,072 $ (36,705) $116,292
Interest-bearing bank balances 40,532 35,231 - 75,763
Securities
Trading 2,244 - - 2,244
Available for sale (Note 4) 1,575,324 130,036 62 1,705,422
Held to maturity 79,671 - - 79,671
---------- --------- -------- ----------
Total securities 1,657,239 130,036 62 1,787,337
---------- --------- -------- ----------
Loans
Loans held for sale 19,636 - - 19,636
Loans held for investment 3,915,405 317,179 2,194 4,234,778
Allowance for loan losses (46,985) (3,751) - (50,736)
---------- --------- -------- ----------
Net loans 3,888,056 313,428 2,194 4,203,678
---------- --------- -------- ----------
Premises and equipment, net 112,992 12,771 4,533 130,296
Accrued interest receivable 38,242 2,282 - 40,524
Intangible assets 96,554 1,282 79,653 177,489
Other assets 193,957 16,834 - 210,791
---------- --------- -------- ----------
$6,165,497 $ 526,936 $ 49,737 $6,742,170
========== ========= ======== ==========
Liabilities and shareholders' equity
Liabilities
Deposits
Noninterest-bearing $ 553,579 $ 86,744 $ - $640,323
Interest-bearing (Note 4) 3,170,038 325,057 1,094 3,496,189
---------- ---------- --------- ----------
Total deposits 3,723,617 411,801 1,094 4,136,512
---------- ---------- --------- ----------
Federal funds purchased and repurchase
agreements 1,299,898 20,000 - 1,319,898
Other borrowed funds 439,374 48,320 - 487,694
Subordinated notes 37,344 - - 37,344
Trust preferred debt 31,000 - - 31,000
Accrued interest payable 25,406 - - 25,406
Other liabilities (Note 4) 50,249 1,969 10,895 63,113
---------- ---------- --------- ----------
Total liabilities 5,606,888 482,090 11,989 6,100,967
---------- ---------- --------- ----------
Minority interest in consolidated subsidiary 86,471 - - 86,471
---------- ---------- --------- ----------
Shareholders' equity
Preferred stock - - - -
Common stock (Notes 2 and 4) 40,342 8,004 (4,078) 44,268
Surplus (Note 4) 290,685 31,080 49,814 371,579
Retained earnings (Note 4) 132,741 4,527 (6,753) 130,515
Guarantee of employee stock ownership plan
debt and nonvested restricted stock (1,624) - - (1,624)
Accumulated other comprehensive income,
net of tax (Note 4) 9,994 1,235 (1,235) 9,994
---------- --------- -------- ----------
Total shareholders' equity 472,138 44,846 37,748 554,732
---------- --------- -------- ----------
$6,165,497 $ 526,936 $ 49,737 $6,742,170
========== ========= ======== ==========
See notes to the unaudited pro forma combined financial information.
THE SOUTH FINANCIAL GROUP, INC. AND GULF WEST BANKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(dollars in thousands, except share data)
The following unaudited pro forma combined condensed statement of income combines the consolidated historical
statements of income of TSFG and Gulf West assuming the companies had been combined as of January 1, 2002, on a
purchase accounting basis.
Six Months Ended June 30, 2002
-------------------------------------------------------
Gulf Pro Forma Pro Forma
TSFG West Adjustments Combined
---- ---- ----------- --------
Interest income
Interest and fees on loans (Note 5) $ 131,929 $ 12,005 $ (183) $ 143,751
Interest and dividends on securities:
Taxable (Note 5) 42,784 3,355 (5) 46,134
Exempt from Federal income taxes 2,155 167 - 2,322
--------- -------- ------ ---------
Total interest and dividends on securities 44,939 3,522 (5) 48,456
Interest on short-term investments 687 250 - 937
--------- -------- ------ ---------
Total interest income 177,555 15,777 (188) 193,144
--------- -------- ------- ---------
Interest expense
Interest on deposits (Note 5) 42,829 3,637 (547) 45,919
Interest on borrowed funds 26,690 1,052 - 27,742
--------- -------- ------ ---------
Total interest expense 69,519 4,689 (547) 73,661
--------- -------- ------ ---------
Net interest income 108,036 11,088 359 119,483
Provision for loan losses 12,482 375 - 12,857
--------- -------- ------ ---------
Net interest income after provision
for loan losses 95,554 10,713 359 106,626
Noninterest income 25,275 1,878 - 27,153
Noninterest expenses (Note 5) 75,926 7,809 948 84,683
--------- -------- ------ ---------
Income before income taxes and minority
interest 44,903 4,782 (589) 49,096
Income taxes (Note 5) 14,590 1,659 (206) 16,043
--------- -------- ------ ---------
Income before minority interest 30,313 3,123 (383) 33,053
Minority interest in consolidated subsidiary,
net of tax (1,186) - - (1,186)
--------- -------- ------ ---------
Net income $ 29,127 $ 3,123 $ (383) $ 31,867
========= ======== ====== =========
Average common shares outstanding:
Basic (Note 6) 40,699,166 7,954,110 (4,062,047) 44,591,229
Diluted (Note 6) 41,646,176 8,209,376 (4,140,643) 45,714,909
Per common share:
Net income, basic $ 0.72 $ 0.39 $ - $ 0.71
Net income, diluted $ 0.70 $ 0.38 $ - $ 0.70
See notes to the unaudited pro forma combined financial information.
THE SOUTH FINANCIAL GROUP, INC. AND GULF WEST BANKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(dollars in thousands, except share data)
The following unaudited pro forma combined condensed statement of income combines the consolidated historical
statements of income of TSFG and Gulf West assuming the companies had been combined as of January 1, 2002, on a
purchase accounting basis.
YEAR ENDED DECEMBER 31, 2001
-------------------------------------------------------
GULF PRO FORMA PRO FORMA
TSFG WEST ADJUSTMENTS COMBINED
---- ---- ----------- --------
Interest income
Interest and fees on loans (Note 5) $ 311,759 $ 27,101 $ (366) $ 338,494
Interest and dividends on securities:
Taxable (Note 5) 65,381 5,577 (10) 70,948
Exempt from Federal income taxes 4,025 264 - 4,289
--------- -------- ------ ---------
Total interest and dividends on securities 69,406 5,841 (10) 75,237
Interest on short-term investments 1,383 616 - 1,999
--------- -------- ------ ---------
Total interest income 382,548 33,558 (376) 415,730
--------- -------- ------- ---------
Interest expense
Interest on deposits (Note 5) 144,858 11,934 (1,094) 155,698
Interest on borrowed funds 52,466 2,115 - 54,581
--------- -------- ------ ---------
Total interest expense 197,324 14,049 (1,094) 210,279
--------- -------- ------ ---------
Net interest income 185,224 19,509 718 205,451
Provision for loan losses 22,045 761 - 22,806
--------- -------- ------ ---------
Net interest income after provision for
loan losses 163,179 18,748 718 182,645
Noninterest income 53,827 3,981 - 57,808
Noninterest expenses (Note 5) 148,504 15,019 1,895 165,418
--------- -------- ------ ---------
Income before income taxes, minority interest,
extraordinary item, and cumulative effect
of change in accounting principle 68,502 7,710 (1,177) 75,035
Income taxes (Note 5) 23,571 2,669 (412) 25,828
--------- -------- ------ ---------
Income before minority interest, extraordinary
item, and cumulative effect of change in
accounting principle 44,931 5,041 (765) 49,207
Minority interest in consolidated subsidiary,
net of tax (1,364) - - (1,364)
--------- -------- ------- ---------
Income before extraordinary item and cumulative
effect of change in accounting principle $ 43,567 $ 5,041 $ (765) $ 47,843
========= ======== ======= =========
Average common shares outstanding:
Basic (Note 6) 42,098,395 7,845,911 (4,006,791) 45,937,515
Diluted (Note 6) 42,823,513 7,982,042 (4,048,706) 46,756,849
Per common share:
Income before extraordinary item and cumulative
effect of change in accounting principle, basic $ 1.04 $ 0.64 $ - $ 1.04
====== ====== ==== ======
Income before extraordinary item and cumulative
effect of change in accounting principle, diluted $ 1.02 $ 0.63 $ - $ 1.02
====== ====== ==== ======
See notes to the unaudited pro forma combined financial information.
THE SOUTH FINANCIAL GROUP AND SUBSIDIARIES AND GULF WEST BANKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) The acquisition will be accounted for using the purchase method of
accounting, and accordingly, the assets and liabilities of Gulf West will be
recorded at their respective fair values as of August 31, 2002.
The pro forma financial information includes estimated adjustments to
record certain assets and liabilities of Gulf West at their respective fair
values. The pro forma adjustments included herein are subject to updates as
additional information becomes available and as additional analyses are
performed. Certain other assets and liabilities of Gulf West, such as long-term
debt, will also be subject to adjustment to their respective fair values.
Pending more detailed analyses, no pro forma adjustments are included herein for
these assets and liabilities.
TSFG plans to reclassify certain Gulf West loans from loans held for
investment to loans held for sale. Final determination of such reclassifications
have not been determined and are excluded from the pro forma adjustments.
The final allocation of the purchase price will be determined after
completion of thorough analyses to determine the fair values of Gulf West's
tangible and identifiable intangible assets and liabilities as of August 31,
2002. Any change in the fair value of the net assets of Gulf West will change
the amount of the purchase price allocable to goodwill. Additionally, changes to
Gulf West's shareholders' equity including net income after June 30, 2002,
through August 31, 2002, will also change the amount of goodwill recorded. In
addition, the final adjustments may be materially different from the unaudited
pro forma adjustments presented herein.
(2) The pro forma financial information for the merger is included only as of
and for the six months ended June 30, 2002, and for the year ended December 31,
2001. The pro forma adjustments in the pro forma financial statements reflect
the issuance of 3,925,890 shares of TSFG common stock and payment of $32,400,178
in cash in exchange for all the outstanding shares of Gulf West common stock.
The agreement provides for the issuance of 4,465,141 shares of TSFG common
stock. The difference between the 4,465,141 shares issuable and the 3,925,890
shares assumed to be issued for Gulf West common stock are issuable in
connection with Gulf West's stock option plan. The fair value of the shares
issuable under the Gulf West stock option plan is reflected in the purchase
price calculation. In addition, approximately 12,262 shares are assumed to be
issued for Gulf West's employee stock purchase plan, and the associated fair
value is reflected in the purchase price calculation. The unaudited pro forma
information presented in the pro forma financial statements is not necessarily
indicative of the results of operations or the combined financial position that
would have resulted had the merger been completed at the beginning of the
applicable periods presented, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the combined
company.
The pro forma financial information reflects the payment of $32,400,178,
the addition of 3,925,890 shares of TSFG common stock with an aggregate par
value of $3.9 million, an increase in surplus of $74.3 million for the excess of
the fair value of the shares over the par value, an increase in surplus of $6.5
million for the fair value of outstanding employee stock options, an increase in
surplus of $98,000 for the fair value of shares issuable under the employee
stock purchase plan, and goodwill and deposit base premium of $72.5 million and
$8.4 million, respectively.
The Gulf West stock options were exchanged for fully-vested stock options
of the combined company with the number of options and option price adjusted for
the exchange ratio of 0.6921. Employee stock options issued by the combined
company in exchange for stock options held by employees of Gulf West were
considered part of the purchase price, and accordingly, the purchase price
includes the fair value of employee stock options of $6.5 million.
The fair value of the combined company options that were issued in exchange
for the Gulf West options was calculated using the Black-Scholes option pricing
model. Option pricing models require the use of highly subjective assumptions,
including expected stock price volatility, which when changed can materially
affect fair value estimates. Accordingly, the model does not necessarily provide
a reliable single measure of the fair value of employee stock options. The more
significant assumptions used in estimating the fair value of the TSFG stock
options to be issued in exchange for Gulf West stock options include a risk-free
interest rate of 2.56%, a dividend yield of 2.6%, weighted average expected life
of 3 years, and volatility of the combined company stock of 38%. Additionally,
the pro forma balance sheet adjustments include payment of an estimated $2.3
million in investment banking fees; payment of an estimated $1.3 million in
severance; payment of an estimated $691,000 in contract termination; accrual of
an estimated $3.4 million in merger-related expenses; a $796,000 charge-off of
fixed assets; an estimated net adjustment of $3.5 million to reflect net assets
of Gulf West at their respective fair values; and an estimated $6.1 million to
reflect the amounts allocated to liabilities assumed in the purchase business
combination. The liabilities assumed in the merger consist principally of
acquisition costs related to capitalized equipment and software, professional
fees, contract and lease terminations, severance, and other. The merger-related
expenses, which are charged to retained earnings, are for estimated costs, such
as advertising, personnel training, retention program expenses, and system
conversion, for both companies.
The merger-related adjustments are not included in the pro forma statements
of income since they will be recorded in the combined results of operations
after completion of the merger and are not indicative of what the historical
results of the combined company would have been had our companies been actually
combined during the periods presented.
(3) The computation of the purchase price, the allocation of the purchase price
to net assets of Gulf West based on fair values estimated at June 30, 2002, and
the resulting amount of goodwill are presented below (in thousands). The
exchange ratio, percent of Gulf West shares settled in stock, and per share
value of TSFG common stock reflects the calculations in the merger agreement
using a market value of TSFG common stock of $19.93, total TSFG stock
consideration of 4,465,141 shares, and total cash consideration of $32,400,178.
Estimated purchase price
Consideration for Gulf West common shares outstanding
Gulf West common shares outstanding (in thousands) 8,021
Exchange ratio 0.6921
Percent of Gulf West shares settled in stock 70.7 %
----
TSFG common shares issued (in thousands) 3,926
Calculated per share value of TSFG common stock $ 19.9138 $ 78,182
---------
Cash payment 32,400
Fair value of outstanding employee stock options 6,540
Fair value of shares issuable under employee stock purchase plan 98
-------
Total purchase price 117,220
Estimated net assets acquired
Gulf West shareholders' equity 44,846
Gulf West goodwill and other intangible assets (1,282) 43,564
------ -------
Excess purchase price over carrying value of net assets acquired 73,656
Fair value adjustments:
Investment securities $ (62)
Loan portfolio (2,194)
Premises and equipment (2,329)
Fixed maturity deposits 1,094 (3,491)
------
Acquisition costs:
Investment banking and professional fees 3,549
Contract and lease terminations 1,835
Premises and equipment 796
Severance 1,563
Other 500 8,243 4,752
------ ------
Gross amounts subject to deferred tax:
Core deposit intangibles 8,424
Fair value adjustments 3,491
Acquisition related costs (4,694) 7,221
-------
Income tax 0.3500 2,527
------
Estimated core deposit intangible (8,424)
------
Estimated goodwill $ 72,511
(4) The pro forma adjustments related to the pro forma combined condensed
balance sheet at June 30, 2002, are presented below (in thousands).
Adjustments
Increase (Decrease)
Assets
Cash and due from banks
Cash consideration for Gulf West common shares $ (32,400)
Contract termination (691)
Severance (1,290)
Investment banking fees (2,324) $ (36,705)
---------
Available for sale securities, fair value adjustment 62
Loans held for investment, fair value adjustment 2,194
Premises and equipment, net
Fair value adjustment 2,329
Capitalized equipment and software 3,000
Fixed asset charge-offs (796) 4,533
---------
Intangible assets
Purchased goodwill 72,511
Elimination of Gulf West goodwill and other intangible assets (1,282)
Core deposit intangibles 8,424 79,653
--------- --------
$ 49,737
========
Liabilities and shareholders' equity
Liabilities
Interest-bearing deposits
Fixed maturity deposits, fair value adjustment $ 1,094
Other liabilities
Accrual for capitalized equipment and software $ 3,000
Accrual for professional fees 1,225
Accrual for lease and contract terminations 1,144
Accrual for severance 273
Accrual for other 500
Accrual for merger-related expenses (advertising, personnel
training, and retention program expense, and system
conversion) 3,425
Current income tax benefit on acquisition-related expenses
at 35% (1,199)
Deferred income taxes 2,527 10,895
------- -------
11,989
-------
Shareholders' equity
Common stock
Par value of TSFG stock issued (3,925,890 shares at
$1 par value) 3,926
Elimination of Gulf West common stock (8,004) (4,078)
-------
Surplus
Value of TSFG common stock issued in excess of par 74,256
Fair value of outstanding employee stock options 6,540
Fair value of shares issuable under employee stock
purchase plan 98
Elimination of Gulf West surplus (31,080) 49,814
-------
Retained earnings
Acquisition-related expenses, net of current income
tax benefit (2,226)
Elimination of Gulf West retained earnings (4,527) (6,753)
-------
Accumulated other comprehensive income, net of tax
Elimination of Gulf West accumulated other comprehensive
income, net of tax (1,235)
--------
Total shareholders' equity 37,748
--------
$ 49,737
========
(5) The pro forma adjustments related to the pro forma combined condensed
statements of income for the six months ended June 30, 2002, and for the year
ended December 31, 2001, are presented below (in thousands).
Six Months Year Ended
Ended December 31,
June 30, 2002 2001
------------- ----
Interest income
Amortization of the securities and loan fair value
adjustment over a period of six years using the
straight-line method $ (188) $ (376)
Interest expense
Amortization of the fixed maturity deposits fair value
adjustment over a period of one year using the
straight-line method (547) (1,094)
------ ------
Total net interest income adjustment 359 718
------ ------
Noninterest expense
Amortization of the core deposit intangible over a period of
ten years 611 1,222
Depreciation expense from capitalized equipment and software
related to the acquisition over a period of five years
using the straight-line method 300 600
Depreciation expense from mark-up of Gulf West's premises and
estimated fair value over a 12 to 40-year period equipment
to using the straight-line method 37 73
------ ------
Total noninterest expense adjustment 948 1,895
------ ------
Decrease in income before income taxes, extraordinary item
and cumulative effect of change in accounting principle (589) (1,177)
Income taxes at 35% (206) (412)
------ ------
Decrease in income before extraordinary item and cumulative
effect of change in accounting principle $ (383) $ (765)
====== ======
(6) The pro forma computation of basic and diluted average common shares
outstanding for the six months ended June 30, 2002, and for the year ended
December 31, 2001, is presented below.
Six Months Year Ended
Ended December 31,
June 30, 2002 2001
------------- ----
Average common shares outstanding, basic:
TSFG average common shares outstanding, basic 40,699,166 42,098,395
TSFG common shares issued for Gulf West common shares:
Gulf West average common shares outstanding, basic 7,954,110 7,845,911
Exchange ratio 0.6921 0.6921
Percent of Gulf West shares settled in stock 70.70% 70.70%
---------- ----------
TSFG common shares issued for Gulf West common shares 3,892,063 3,839,120
---------- ----------
44,591,229 45,937,515
========== ==========
Average common shares outstanding, diluted:
TSFG average common shares outstanding, diluted 41,646,176 42,823,513
TSFG common shares issued for Gulf West common shares 3,892,063 3,839,120
Gulf West diluted potential common shares:
Gulf West average common shares outstanding, diluted 8,209,376 7,982,042
Gulf West average common shares outstanding, basic 7,954,110 7,845,911
---------- ----------
255,266 136,131
Exchange ratio 0.6921 0.6921
---------- ----------
Diluted potential common shares for Gulf West stock options 176,670 94,216
---------- ----------
45,714,909 46,756,849
========== ==========