Filed by The South Financial Group, Inc.
Pursuant to Rule 425 under the
Securities Act of 1933, as amended,
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934.
Subject Company: MountainBank Financial Corporation
Commission File No. 000-32547
[THE SOUTH FINANCIAL GROUP LOGO OMITTED]
102 South Main Street
Greenville, SC 29601
864.255.4919
NEWS RELEASE
Date: May 14, 2003
Release Date: Immediate
THE SOUTH FINANCIAL GROUP TO ACQUIRE MOUNTAINBANK;
EXPANDS INTO WESTERN NORTH CAROLINA MARKETS
GREENVILLE, SC - The South Financial Group, Inc. (Nasdaq: TSFG) today announced
a definitive agreement to acquire MountainBank Financial Corporation (Nasdaq:
MBFC) in an all stock transaction valued at approximately $137 million.
MountainBank, the largest community bank headquartered in Western North
Carolina, operates 18 branch offices in 10 counties with approximately $850
million in assets.
MountainBank has the #2 deposit market share in Henderson County, with 24% of
the market, and an expanding presence in attractive Western North Carolina
markets, including Asheville. Immediately following the merger, MountainBank's
banking subsidiary will retain the MountainBank name.
"The merger with MountainBank fits solidly with our disciplined acquisition
criteria," said Mack I. Whittle, Jr., President and Chief Executive Officer of
The South Financial Group. "As previously stated, we will only do mergers that
enhance our geographic franchise and are accretive to our financial goals.
MountainBank exceeds these standards. We expect the merger to be accretive to
both GAAP and cash earnings per share in the first full year and to enhance our
financial and strategic goals. We have similar banking cultures, ones that
emphasize superior customer service and knowing our customers well."
Whittle continued, "The Hendersonville and Asheville markets are strong, growing
markets, which we have targeted for expansion for many years. It's a logical
extension of our franchise into neighboring communities. Many of our existing
customers have vacation homes in these attractive mountain communities. Plus, we
bring a track record of successful operations in resort communities from our
experience in the coastal Carolinas and Florida. The MountainBank merger fits
extremely well with what we already do and where we already are, while advancing
our focus on profitability."
J. W. Davis, President and Chief Executive Officer of MountainBank, who will
join the TSFG Board of Directors, said, "We are excited to be joining The South
Financial Group. Our companies bring a shared commitment to our customers and
our communities. MountainBank expresses this philosophy with its tag line,
`Taking care of our own.' The South Financial Group shares this operating
philosophy, which will make for an outstanding partnership. In keeping with our
original commitment to shareholders, we are extremely pleased that over the past
five and one half years we have produced superior returns to our charter
shareholders. This strategic alignment greatly enhances our shareholders'
liquidity and provides them with continued long-term investment value."
MountainBank shareholders will receive $32.50 per MountainBank common share,
payable in TSFG common stock. The TSFG common stock will be valued based upon
the 10-day trading average immediately subsequent to Federal Reserve consent,
subject to pricing collars. In the merger, TSFG expects to issue approximately
5.5 million shares of common stock for all the common stock, preferred stock and
stock obligations of MountainBank, based on current market prices. The
transaction, which is expected to close in October 2003, is subject to
regulatory and MountainBank shareholder approvals.
Assuming expense savings of 20%, TSFG anticipates that the merger will be
accretive in the first year. This estimate does not include any anticipated
revenue enhancements. TSFG expects to incur pre-tax merger charges of
approximately $13 million. The transaction is valued at approximately 2.4x
MountainBank's book value at March 31, 2003 and 20.4x earnings for the
last-twelve-months through March 31, 2003.
The South Financial Group, headquartered in Greenville, South Carolina, is a
financial services company with approximately $9.0 billion in total assets and
115 branch offices in South Carolina, Florida, and North Carolina. It operates
two subsidiary banks: Carolina First Bank and Mercantile Bank. Carolina First
Bank, the largest South Carolina-based commercial bank, operates in South
Carolina, North Carolina, and on the internet under the brand name, Bank
CaroLine. Mercantile Bank operates in Florida, principally in the Jacksonville,
Orlando, and Tampa Bay markets. The South Financial Group's common stock trades
on the Nasdaq National Market under the symbol TSFG. Press releases along with
additional information may also be found at The South Financial Group's web
site: www.thesouthgroup.com.
TRANSACTION SUMMARY
- -------------------
Price per common share $32.50 per share of MBFC
Aggregate transaction value Approximately $137 million
Form of consideration 100% common stock
Implied exchange ratio 1.310 based on 10 trading day average ending
5/13/03, though subject to change
Pricing mechanism TSFG stock will be valued based on the 10
trading day average immediately subsequent
to Federal Reserve approval, though not less
than $21.00 nor greater than $25.00 per
share. (At $25.00 or above, MBFC
shareholders receive a fixed exchange ratio
of 1.300; at $21.00 or below MBFC
shareholders receive a fixed exchange ratio
of 1.548)
Walkaway provision Either party can terminate the merger if the
10 trading day average is above $29.00 or
below $17.00 (although the non-terminating
party can reinstate the merger by allowing
the TSFG stock to be valued at its actual 10
day average)
Expected closing October 2003
Anticipated merger cost savings Approximately $5.1 million pre-tax in 2004,
or 20%
Anticipated merger-related Approximately $13 million pre-tax
charges
MBFC preferred stock To be converted into TSFG common stock based
on the number of shares of MBFC common stock
into which it converts
MBFC options To be converted into the right to purchase
TSFG common stock based on the exchange
ratio
Due diligence Completed
Required approvals Regulatory, MountainBank shareholders
PRICING OVERVIEW
- ----------------
Price to LTM EPS ($1.59) 20.4x
Price to 3/31/03 book value ($13.62) 2.4x
Price to 3/31/03 tangible book value ($12.33) 2.6x
MOUNTAINBANK PROFILE
- --------------------
- $850 million full-service community bank headquartered in
Hendersonville, NC
- 18 branches in 10 counties
- Ranks #2 in deposit market share in Henderson County (24% of market)
- ROA: annualized 0.80% for 1Q03 and 0.90% for 2002
- ROE: annualized 12.42% for 1Q03 and 13.07% for 2002
CONFERENCE CALL / WEBCAST INFORMATION
- -------------------------------------
The South Financial Group will host a conference call on Thursday, May
15, 2003 at 10:00 a.m. (ET) to discuss the acquisition of MountainBank and
answer analyst questions. It will also provide a live webcast of the call, which
may be accessed through The South Financial Group's Internet site at under the
Investor Relations tab. Additional material information, including
forward-looking statements such as future projections, may be discussed during
the presentation. To participate in the conference call, please call
1-888-405-5393 or 1-484-630-4135 using the access code "The South." A 7-day
rebroadcast of the call will be available via 1-800-289-1164 or 1-402-998-1038.
The South Financial Group will also provide a copy of the presentation in the
Investor Relations section of its website.
This press release contains financial information determined by methods
other than in accordance with Generally Accepted Accounting Principles ("GAAP").
The South Financial Group's management uses these non-GAAP measures in their
analysis of TSFG's performance. In particular, a number of measures presented
adjust GAAP information to exclude the effects of non-operating item (such as
merger-related costs, gains or losses on asset sales, and non-operating
expenses) and the amortization of intangibles for "cash basis" performance
measures. Since these items and their impact on TSFG's performance are difficult
to predict, management believes presentations of financial measures excluding
the impact of these items provide useful supplemental information that is
essential to a clear understanding of the operating results of TSFG. These
disclosures should not be viewed as a substitute for GAAP operating results, and
furthermore TSFG's non-GAAP measures may not necessarily be comparable to
non-GAAP performance measures of other companies.
Certain matters set forth in this news release may contain
forward-looking statements that are provided to assist in the understanding of
anticipated future financial performance. These statements, as well as other
statements that may be made by management in the conference call, include, but
are not limited to, factors which may affect earnings, expected financial
results for the MountainBank merger, estimates of merger-related cost savings
and charges, and credit quality assessment. However, such performance involves
risks and uncertainties, such as market deterioration, that may cause actual
results to differ materially from those in such statements. For a discussion of
certain factors that may cause such forward-looking statements to differ
materially from TSFG's actual results, see TSFG's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003. TSFG undertakes no obligation to release
revisions to these forward-looking statements or reflect events or circumstances
after the date of this release.
The foregoing may be deemed to be offering materials of TSFG in
connection with TSFG's proposed acquisition of MountainBank, on the terms and
subject to the conditions in the Agreement and Plan of Merger, dated May 14,
2003, between TSFG and MountainBank. This disclosure is being made in connection
with Regulation of Takeovers and Security Holder Communications (Release Nos.
33-7760 and 34-42055) adopted by the Securities and Exchange Commission ("SEC").
Shareholders of MountainBank and other investors are urged to read the proxy
statement/prospectus that will be included in the registration statement on Form
S-4, which TSFG will file with the SEC in connection with the proposed merger
because it will contain important information about TSFG, MountainBank, the
merger, the persons soliciting proxies in the merger and their interests in the
merger and related matters. After it is filed with the SEC, the proxy
statement/prospectus will be available for free, both on the SEC web site
(http://www.sec.gov) and from TSFG and MountainBank as follows:
Mary M. Gentry, Investor Relations, The South Financial Group, Inc.,
102 South Main Street, Greenville, SC 29601, Phone: (864) 255-4919, mary.gentry
@thesouthgroup.com.
J.W. Davis, President and CEO, MountainBank Financial Corporation,
201 Wren Drive, Hendersonville, NC 28792, Phone: (828) 693-7376.
In addition to the proposed registration statement and proxy
statement/prospectus, TSFG files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by TSFG at the SEC's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549 or at the
SEC's other public reference rooms in New York and Chicago. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. TSFG's
filings with the SEC are also available to the public from commercial
document-retrieval services and on the SEC's web site at http://www.sec.gov.
CONTACTS:
William S. Hummers III, Executive Vice President, (864) 255-7913
Mary M. Gentry, Treasurer, (864) 255-4919
***END***
Transcript from Conference Call/Web Cast, May 15, 2003, 10:00 a.m. ET
THE OPERATOR: Good morning and welcome to the South Financial Group announcement
of the MountainBank acquisition. All participants will be able to listen only
until the question and answer session. At that time you will be instructed how
to ask a question. This conference is being recorded. Should you have any
objections you may disconnect. I would now like to introduce your host today,
Mr. Bill Hummers, Principal Financial Officer of The South Financial Group. Sir,
you may begin. MR. WILLIAM HUMMERS: Thank you and good morning. Welcome to The
South Financial Group call on the acquisition of MountainBank Financial
Corporation. Before we begin, I would like to make a statement about
forward-looking statements in non-GAAP financial information. The
forward-looking statements being made today are subject to risks and
uncertainties. TSFG actual results may differ materially from those set forth in
such forward-looking statements. References made to TSFG's reports filed with
the Securities and Exchange Commission for the discussion of factors which may
cause such differences to occur. This presentation contains certain non-GAAP
measures which TSFG management uses in our analysis of TSFG's performance. These
measures typically adjust GAAP measures to exclude the effects of non-operating
items such as merger-related costs and gains or losses on asset sales and the
amortization of intangibles for cash basis performance measures. These
disclosures should not be viewed as a substitute for disclosure determined in
accordance with GAAP, nor are they necessarily compatible to the GAAP
performance measures presented by our companies. A reconciliation of GAAP
results and non-GAAP performance measures is provided on our website. Again
welcome to the transaction -- welcome to the call on the transaction. I would
like to give just a few brief summary of the transaction. The price per common
shares is $32.50. The aggregated approximate deal value is approximately $137
million and the form of consideration is a 100 percent TSFG common stock. The
pricing mechanism is that TSFG stock will be valued based on a 10-day trading
average immediately following the Federal Reserve approval of not less than $21
a share and not greater than $25 per share. At above $25 a share, MBFC
shareholders receive a fixed exchange ratio of 1.3. At below $21, MBFC
shareholders receive a fixed exchange ratio of 1.548 shares. A walk away
provision if the price goes above $29 or below $17 during the average period.
The expected closing will be October 2003. Other assumptions include
approximately $5.1 million in cost saves in 2004 or approximately 20 percent of
MBFC's non-interest expenses. Merger-related charges approximately total $13
million from employment contracts, contract termination, professional fees,
system conversions, and other costs. The MBFC preferred stock is going to be
converted into TSFG common stock. Due diligence is complete. Our required
approvals include the MBFC shareholders and regulatory bodies meaning the
Federal Reserve and the State of North Carolina. This deal is priced at about
2.4 times MBFC's book. This compares to the Southeast Regional median of about
2.4, and it's 2.5 times their tangible book which is again slightly above the
Southeastern average of 2.3 percent. It is 20.4 times MBFC's trailing 12-months
earnings with the Southeast median of 23.2. With that I'll ask Mr. Mack Whittle,
Chief Executive Officer of South Financial Group to continue the presentation.
MR. MACK WHITTLE: Thank you Bill and good morning. I want to lead out with some
comments we've made at some of our earlier analyst calls and some of our
quarterly calls and that is a little recap of what our acquisition strategy has
been and what it continues to be. Our commitment is that we will do no
acquisition that is not accretive to the financial goals that we have set forth.
And I am pleased to report that this transaction is accretive both on a cash and
a GAAP EPS basis within the first 12-months of the transaction. And that we
would be equally as disciplined in the demographic footprint that we look at. We
feel that in order to enhance the value of our franchise that we need to be the
most attractive markets in the Southeast and we truly believe that the
Hendersonville, Asheville, Brevard markets in North Carolina meet that test with
the attractiveness. With that I'll talk a little bit -- the other thing that we
are committed to was that we would not do a transaction in the first half of
2003 and as Bill pointed out earlier, this transaction is scheduled to close in
the fourth quarter. So our strategic and financial focus that we've talked about
in a number of our meetings of building consistent quarter-to-quarter operating
EPS should be able to continue with this transaction, will continue with this
transaction. The franchise of MountainBank Financial Corporation is about an
$850 million asset company. They are headquartered in Hendersonville in North
Carolina. They began operations in 1997. They operate 18 branches in 10
Counties. They are the largest community bank headquartered in Western North
Carolina. Their geographic footprint as I've talked about before includes
Asheville and Hendersonville, North Carolina and a branch soon to open in
Brevard. These markets as you'll see in the presentation that will be sent out
are contiguous to the South Carolina markets. Henderson County really is
contiguous to Greenville County. 70 percent of these deposits are within 50
miles of our headquarters office in Greenville, South Carolina. They have an
exceptional customer service culture which is in keeping with our culture. We
think the cultures will work very well together and they have impressive net
income and balance sheet growth over the years. As I've mentioned earlier, in
Henderson County which includes Hendersonville, they are the second largest
financial institution with over $310 million in deposits which represents about
24 percent of market share and there are a new entry into the Asheville market.
They've got about $50 million in deposits in Asheville and will soon be opening
in Brevard. Again these are retirement markets that are very much like the
markets that we operate in along the Coast of South Carolina and the Florida
markets. Oddly enough as we got into this we discovered that many of our
customers in the Florida markets that we serve vacation in the summer in these
markets in North Carolina, which is very favorable to the transaction. One of
the things that we have done in the presentation is we've talked about
population growth, we've talked about household income growth, and we've talked
about the footprint in the demographics of the markets that we serve. The
population growth, household growth and median household income growth in the
primary markets that MountainBank operates in are in keeping with those of the
other markets that we operate in. Quickly the Hendersonville, Henderson County
market, its population growth projected for the next five years is 8.2 percent.
The median weighted South Financial Group is 7.7. So it exceeds the median
weighted of our franchise in total. The United State median population growth is
4.8 percent. So you can see it's growing. The Hendersonville market is growing
at about twice the rate of the United States. The Buncombe County market is
growing at 5.3 percent which is again in excess of the United States median.
Household growth looks very similar. Household income growth in the Buncombe
County, Asheville, North Carolina market is our second fastest growth market
behind Myrtle Beach at 19.6. The weighted average of the South Financial Group
household income growth is 18 percent. So it is over that market. It exceeds the
Tampa market. It exceeds the Jacksonville market. It exceeds all but the Myrtle
Beach market in our demographic footprint. So you can understand why we are
excited the way the demographics of the transaction fit within the footprint of
The South Financial Group. The other thing that we've talked about is the
financial performance of the company and that we will do acquisitions that were
fairly priced but would be accretive to the financial goals that we have set
forth as a company. As Bill pointed out earlier on, the price of trailing
earnings at 20.4 is below the median of the Southeastern transactions. The price
to book at 2.4 is slightly above the median of the Southeastern transactions,
and the premium to tangible book is slightly below the Southeastern average. So
we feel like it's a very favorably priced from our standpoint. Due diligence is
completed as I've mentioned earlier. The transaction is expected to close in
October of this year. Approximately $5.1 million pre-tax merger cost saves or
roughly 20 percent are estimated in the numbers that we are talking about today.
We've not included any revenue enhancements. If you followed our company over
the last several quarters, you have seen the growth that we have seen. We've
been able to generate a non-interest income as measured by a percentage of
revenue. There are tremendous opportunities in these markets and they look very
similar to our South Carolina and Florida markets. In closing I want to just
kind of highlight the transaction one more time. Again it is in very attractive,
high growth banking markets in keeping with the message that we have sent to the
market. It is consistent with the strategy to operate in the most attractive
Southeastern banking markets. Again 75 percent of the markets -- the deposits of
this franchise are within 50 miles of our headquarters. Many of their customers
are our customers. Many of the people who work in the Asheville/Hendersonville
market live in Greenville and many who live in Hendersonville and Asheville work
in the Greenville market. So there's a lot of closeness within those two
markets, although they are in different states. It does enhance the financial
and strategic goals that we have set forth in the past. As I've mentioned
earlier, the growth is occurring in these markets. A lot of it is resort
communities. A lot of it is the increased number of retirees that are moving to
these mountain markets. They are typically higher income. They typically have a
greater need for non-interest income services. Not unlike many of the Florida
markets that we serve. And with that I will turn the program back over to the
moderator and we can open it up for questions. THE OPERATOR: Thank you. At this
time The South Financial Group will address question from analysts. (CALLER
INSTRUCTIONS) John Kline from Sander O'Neill. THE CALLER: Just a quick question
from a technology standpoint, are there any concerns in terms in being able to
integrate this, Mack? MR. MACK WHITTLE: This should be - they are on a FiServ
platform which is the platform we're on. They have done that on an outsource
basis. We absolutely see no issues at all. We spent almost three days. Our
technology folks spent about three days up there with them and it should be a
seamless transition. THE CALLER: Really enhances the map when I look at the
franchise. Any thoughts on Georgia? MR. MACK WHITTLE: You know we like this
market because it is so close to Greenville. We like these markets because
there's a lot of resort growth or retirement growth occurring there. The markets
that are contiguous to South Carolina that are Georgia markets don't really
offer that unless you went down to the Coastal area of Georgia. The Coastal area
of Georgia has always intrigued us. There are just not a lot of opportunities
down there. But Atlanta and some of those other interior markets within Georgia
really are not within that market that we call our footprint right now. THE
CALLER: Okay very good. Thanks. THE OPERATOR: Thanks and the next question comes
from Gary Tenner of Sun Trust Robinson Humphrey. THE CALLER: I wonder Mack if
you could talk about the asset quality at MountainBank. It looks like in the
first quarter pretty significant increases in charge-offs and non-performing
assets kind of how you guys went about when you were doing studying here? MR.
MACK WHITTLE: Mike Sperry, our Chief Risk Officer, spent about two weeks up
there. And I might add that J.W. Davis, the President of this bank, and Mike
Sperry worked together at NCNB for a number of years when J.W. Davis worked in
South Carolina. We know each other very well, and we are comfortable with his
credit skills. The increase in charge-offs were the result of one loan. It
represented $1.5 million if you normalize the charge-offs net of that then the
charge-offs will look fairly flat. The non-performers -- we studied quite a bit
and really we didn't see anything that was alarming in those non-performers that
created any issues with Mike or any of Mike's people. You know, I think from a
credit's standpoint, again we got a company with about $800 million of assets. A
lot of these people are people that J.W. Davis and his lenders have known
through their banking in the Hendersonville, Asheville market. It's not unlike a
typical financial institution of that size where character and the individuals
play a big role in the way you underwrite your credits. Not unlike the way our
company looked at this age. So I would say that at this size and this age the
company looks very similar to the way our company looked at five years old and a
billion dollars in assets. THE CALLER: And one follow-up question, Mack. What
will J.W.'s role be at the firm? I know he's with the Board but is he going to
have a day-to-day role? MR. MACK WHITTLE: J.W. will be a member of our Corporate
Board. He will be an Executive Vice President of The South Financial Group and
will be President of the North Carolina bank. THE CALLER: Okay, which will
retain the name MountainBank? MR. MACK WHITTLE: Yes. THE CALLER: Thank you. THE
OPERATOR: Todd Hagerman with Fox-Pitt, Kelton. THE CALLER: Mack, I was wondering
if you could just talk a little bit about the earnings growth assumptions you
have for MountainBank in terms of your model, your expectations for accretion,
and when I look at some of the recent history in terms of the performance matrix
of MountainBank, I noticed that some of the profitability matrix can
particularly kind of fall well short of The South Financial Group's goals in
terms of profitability matrix here. I was wondering if you just reconcile, kind
of what are your expectations here going forward and what assumptions you build
in terms of earnings and the integration between the two franchises? MR MACK
WHITTLE: Mary, I'll start on that and you come in. Our model looks at about 15
percent growth for their company which is quite below where they have averaged
over the last five years. We've approached it on a fairly conservative basis. As
I've mentioned earlier, the assumptions on cost saves are at 20 percent. We have
historically done a little better than that but we want to make sure that we can
retain the customer-friendly culture that they have been able to establish and
at looking at this transaction financially and making sure that it is accretive
to what we are proposing as our goals. We wanted to air on the conservative
side, but as I've mentioned earlier both from a GAAP and a cash standpoint on
our model and on the street estimate, it is accretive. MS. MARY GENTRY: This is
Mary Gentry, Todd we have presentation files which are available on our website.
In there, in page 11, we laid out the pro forma results that get to the
estimated accretion for 2004 on both a GAAP and a cash basis. And in there we
show the estimates for MountainBank's net income that we used as projections. So
I think that will assist you in looking at the projections. MR. MACK WHITTLE:
Todd, there's also a breakdown of the cost saves that are in that presentation
as well. As Mary has said they are available -- should be available now on our
website. THE CALLER: Okay great. And perhaps maybe, Mack, could you just quickly
comment in terms of the expected capital impact, I know just from a tangible
capital basis, you guys have been running somewhat thin in that respect. But
what are your expectations on that front? MR. MACK WHITTLE: You know with the
models that we run showed relatively neutral to the tangible capital. It is
below where we normally like to see it, but it is neutral to that ratio. THE
CALLER: Okay thank you. THE OPERATOR: David West of Davenport & Company. THE
CALLER: I have two questions. First, given pro forma-wise you have a franchise
in Western part of North Carolina's Coastal area. I was wondering if you could
comment about your possible interest in the Piedmont area of the state? And the
second question was MountainBank had a 10-day transaction with CNB of Pulaski in
Virginia. I'm wondering if you could comment about the impact of this merger
upon that pending transaction? Thank you. MR. MACK WHITTLE: I'll talk a little
bit about North Carolina. Again we will be very disciplined about markets and
markets that we move into. And they would need to meet the demographic profile
that we have talked about and that the population growth, the household growth,
and household median income growth exceed the United States and the Southeastern
average. At least the core part of the franchise exceeds that. Now there are
one-off branches in some of the acquisitions we have done that we reasonably
studied to determine whether it's a market we could stay in and expand or one
that we should exit or should look at an exit strategy on. So I don't see us
looking aggressively elsewhere in North Carolina. Charlotte proper is probably a
market we would not move into. As you know we are in York County, which is the
South Carolina County just south of Mecklenberg County. We have great growth and
experience in that market and would look to continue to build around that
peripheral market of Charlotte and not Charlotte proper market, but we'll do
that from organic standpoint rather than from acquisitions. There are other
markets in North Carolina that exceed the demographic profile that we've talked
about that we would be interested in. Nothing currently on the radar. The
Virginia transaction, I think, today. They met with their shareholders yesterday
to discuss the future of MountainBank and they will go forward with that
transaction. THE CALLER: Thank you very much. THE OPERATOR: (CALLER
INSTRUCTIONS) Jeff Davis (ph) with FTN MidWest Research (ph). THE CALLER: Hi,
good morning. MR. MACK WHITTLE: Good morning, Jeff. THE CALLER: Actually most of
my (indiscernible) questions have been answered but a little bit of follow-up on
Mack. What type of lending does MountainBank mostly do and how does that compare
to what you all do in your core Greenville (indiscernible) market? And then
secondly, from a broader prospective, what are you seeing in terms of loan
demand? You have a little bit of a pick up at the end of the quarter, following
through [have] things softened up throughout your footprint. MR. MACK WHITTLE:
That's a good question. [The] Ashville\Hendersonville markets look similar to
the Greenville South Carolina. Again if you drew a circle 50 miles around
Greenville, South Carolina which is where we got 10 percent of our franchise in
our headquarters you would cover 75 percent of their business loans and
deposits. Many of their customers we know. Most of their business is not unlike
what our business look like early on. They are small, locally owned businesses
usually first or second generation family-owned businesses that they do business
with. So predominantly, our small commercial business in those markets, although
they are beginning to grow not only their interest income, but their retail side
as well. On the loan growth question, we are still seeing nice loan growth in
South Carolina. I think I've mentioned this in the earlier call. We introduced
the commercial part of our elevate process, which is our Cohen Brown sales
culture changes to our commercial lenders back at the end of last year. We are
at double-digit, strong double digit loan growth in South Carolina. It is
basically moving business or taking share from other banks. As you know, there's
a major acquisition taking place in South Carolina between First Union and
Wachovia. And we are the recipient of some of that business as we hoped we would
be. We're seeing strong loan growth in South Carolina and in the Florida market
as well, but especially in the South Carolina, both in deposits and loans. I
think we have given guidance earlier that we would have double digit loan growth
this year. And I can tell you that we are on a run rate to have double digit
loan growth. THE CALLER: Okay very good. Thank you, Mack. THE OPERATOR:
Jefferson Harralson with KBW. THE CALLER: My question is regarding, and you
might already answered it and I apologize I came on just a little late, how much
due diligence have you done in MountainBank and a general question, when you do
due diligence what percentage of the loan do you usually look at before you buy
a bank? MR. MACK WHITTLE: Mike and his team spent the better part of two weeks
up in MountainBank. We typically start with the -- and the way our process we do
- -- we generally do a random sample. And we random sample all loans of any size
in a random basis both for credit quality, underwriting, and collateral. Making
sure that collateral is back in place. We will look at every loan that is
non-performing and that is on their "watch" list from the same perspective---
from underwriting, from guarantor strength, from collateral and from
documentation standpoint. So all of those have been reviewed. And we look at
general underwriting skills and spend a paramount of time with the Chief Credit
Officer which we have done with this institution. Again it's not unlike a
typically bank of this size underwriting as ---a little different as ours
- ---character of the individuals and the collateral play a big role in the credit
position. Then there's cash flow which again is not unlike [most] financial
institutions look at this stage. We know many of the borrowers because we
operate in the same markets. So we feel really good about -- We feel as good
about the quality of these credits as we do about the other transactions that
we've done in the past (technical difficulty). THE CALLER: Okay thanks a lot.
THE OPERATOR: Dan Hash (ph) of Millenium Partners. THE CALLER: My question was
answered so I'm all set. Thank you. MR. MACK WHITTLE: Okay thanks. THE OPERATOR:
Thank you. A replay of this call will be available through May 22. You may
access the replay by dialing 18002891164 or 4029981038. (CALLER INSTRUCTIONS)
Thank you. This concludes The South Financial Group conference call. All
participants may disconnect at this time. MR. MACK WHITTLE: Thanks. (CONFERENCE
CALL CONCLUDED)
THE SOUTH FINANCIAL GROUP
ACQUISITION OF
MOUNTAINBANK FINANCIAL CORPORATION
May 14, 2003
FORWARD-LOOKING STATEMENTS AND NON-GAAP FINANCIAL INFORMATION
The forward-looking statements being made today are subject to risks and
uncertainties. TSFG's actual results may differ materially from those set forth
in such forward-looking statements. Reference is made to TSFG's reports filed
with the Securities and Exchange Commission for a discussion of factors that may
cause such differences to occur.
This presentation contains certain non-GAAP measures, which TSFG management uses
in our analysis of TSFG's performance. These measures typically adjust GAAP
measures to exclude the effects of non-operating items, such as merger-related
costs and gains or losses on asset sales, and the amortization of intangibles
for "cash basis" performance measures. These disclosures should not be viewed
as a substitute for disclosure determined in accordance with GAAP, nor are they
necessarily comparable to non-GAAP performance measures presented by other
companies. A reconciliation of GAAP results and non-GAAP performance measures
is provided on our web site, www.thesouthgroup.com, in the Investor Relations
section under Financial Information.
TRANSACTION SUMMARY
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
Price per Common Share: $32.50 per share of MBFC
Aggregate Valuation: Approximately $137 million
Form of Consideration: 100% common stock
Implied Exchange Ratio:(1) 1.310, though subject to change
Pricing Mechanism: TSFG stock will be valued based on the 10
trading day average immediately subsequent to
Federal Reserve approval, though not less than
$21.00 nor greater than $25.00 per share.
At $25.00 or above, MBFC shareholders receive a
fixed exchange ratio of 1.300
At $21.00 or below, MBFC shareholders receive a
fixed exchange ratio of 1.548
Walkaway provision: Either party may terminate the merger if the 10
trading day average is above $29.00 or below
$17.00
The non-terminating party can reinstate the
merger by allowing the TSFG stock to be valued
at its actual 10 trading day average
Expected Closing: October 2003
Other Terms: Anticipated cost savings - approximately $5.1
million pre-tax in 2004, or approximately 20% of
projected MBFC non-interest expenses
Anticipated merger-related charges -
approximately $13.0 million pre-tax charges,
including employment contracts and severance
($3.3 million), contract terminations ($2.2
million), professional fees ($3.0 million),
system conversion costs ($1.9 million) and other
costs ($2.6 million)
MBFC preferred stock - to be converted into TSFG
stock
Due diligence - completed
Required approvals - regulatory, MBFC
shareholders
- ----------------------------------------
(1) Based on average TSFG's closing stock price of $24.80 per share for the 10
trading days ended May 13, 2003
2
MOUNTAINBANK FINANCIAL CORPORATION
MOUNTAINBANK FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
FRANCHISE OVERVIEW
|_| $850 million total assets
|_| Headquartered in Hendersonville, North Carolina
Commenced operations in 1997
Operates 18 branch offices in 10 counties
Largest community bank headquartered in Western North Carolina
Geographic footprint includes Asheville and Hendersonville, two
of North Carolina's most attractive growth markets
Exceptional customer service driven culture
|_| Impressive net income and balance sheet growth
4
MOUNTAINBANK FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Fiscal Year Ended December 31,
------------------------------------- March 31,
2000 2001 2002 2003
---- ---- ---- ----
Net Income $ 1.06 $ 2.51 $ 6.16 $ 1.65
Total Assets $ 259.1 $ 561.1 $ 841.1 $ 847.3
Net Loans 197.4 483.9 699.3 706.8
Total Deposits 233.3 467.5 677.3 696.8
Shareholders' Equity 18.2 37.0 52.5 53.9
Equity/Assets 7.03% 6.60% 6.24% 6.36%
Fully Diluted Earnings Per Share $ 0.48 $ 1.01 $ 1.58 $ 0.42
Tangible Book Value Per Share $ 9.73 $ 11.18 $ 11.92 $ 12.33
ROAA 0.57% 0.66% 0.90% 0.80%
ROAE 7.14 12.71 13.07 12.42
Net Interest Margin 3.86 3.60 4.12 4.13
Non-Int. Income/Total Revenue 16.23 17.78 17.96 22.10
Efficiency Ratio 56.40 56.60 54.40 59.60
NPAs/Loans+OREO 0.13% 0.31% 0.65% 0.79%
Allowance for Loan Losses 1.50 1.45 1.65 1.54
Net Chargeoffs/Average Loans 0.11 0.13 0.21 1.07
- ---------------------------------------------------
Dollar values in millions, except per share amounts
Source: MountainBank reported results
5
MOUNTAINBANK FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
MARKET SHARE: HENDERSON COUNTY
Includes Hendersonville, NC
June 30, 2002 June 30, 2001
-------------------- -------------------
Total Market Total Market
Branch Deposits Share Deposits Share
Count ($ mill) (%) ($ mill) (%)
1 First Citizens Bancshares Inc. (NC) 8 325 25.22 291 24.64
2 MountainBank Financial Corp. (NC) 3 310 24.03 241 20.42
3 Wachovia Corp. (NC) 2 192 14.90 180 15.19
4 National Commerce Finl Corp. (TN) 3 106 8.22 131 11.10
5 Hometown Bank (NC) 1 93 7.19 93 7.86
6 Bank of America Corp. (NC) 1 58 4.49 52 4.38
7 Royal Bank of Canada 1 49 3.78 54 4.56
8 Macon Bancorp (NC) 2 41 3.20 32 2.70
9 Financial Guaranty Corporation (NC) 1 34 2.68 34 2.85
10 Asheville Savings Bank, SSB (NC) 1 31 2.37 29 2.43
11 BB&T Corp. (NC) 1 30 2.36 29 2.45
12 United Community Banks Inc. (GA) 1 20 1.56 17 1.43
Totals 25 1,288 1,182
Deposit Market Growth $106 9.0%
MBFC Growth $ 69 28.6%
Source: SNL Financial
6
MOUNTAINBANK FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
MARKET SHARE: BUNCOMBE COUNTY
Includes Asheville, NC
June 30, 2002 June 30, 2001
-------------------- -------------------
Total Market Total Market
Branch Deposits Share Deposits Share
Rank Institution Count ($ mill) (%) ($ mill) (%)
- -----------------------------------------------------------------------------------------------------
1 Wachovia Corp. (NC) 10 914 33.83 970 37.16
2 Bank of America Corp. (NC) 8 326 12.06 291 11.13
3 First Citizens BancShares Inc. (NC) 11 288 10.66 248 9.48
4 National Commerce Finl Corp. (TN) 8 279 10.31 287 11.00
5 Asheville Savings Bank, SSB (NC) 7 251 9.30 240 9.20
6 BB&T Corp. (NC) 3 115 4.24 96 3.69
7 Royal Bank of Canada 6 114 4.22 100 3.84
8 Hometown Bank (NC) 3 113 4.20 111 4.23
9 Capital Bank Corp. (NC) 2 85 3.15 88 3.38
10 Weststar Financial Svcs Corp (NC) 3 79 2.91 72 2.76
11 Financial Guaranty Corporation (NC) 2 51 1.87 49 1.89
12 MountainBank Financial Corp. (NC) 3 47 1.74 21 0.82
13 Black Mountain Savings Bank (NC) 1 21 0.77 19 0.75
14 First Charter Corp. (NC) 1 20 0.72 18 0.68
Total 68 2,703 2,611
Deposit Market Growth $ 92 3.5%
MBFC Growth $ 26 123.8%
Source: SNL Financial
7
TRANSACTION PRICING AND FINANCIAL IMPACT
TRANSACTION PRICING
- --------------------------------------------------------------------------------
IMPLIED MERGER MULTIPLES (1)
Recent Southeastern Transactions: (2)
--------------------------------------
$32.50
per share Median High Low
--------- ------ ---- ---
Price/LTM EPS: ($1.59) 20.4x 23.3x 51.0x 13.7x
Price/Book Value: ($13.62) 2.4x 2.3x 5.1x 1.4x
Price/Tangible Book Value: ($12.33) 2.6x 2.4x 5.1x 1.4x
Tang. Book Premium/
Core Deposits ($521 million) 12.5% 18.7% 43.4% 7.1%
- ------------------------------------------------------
(1) Financial data at or for twelve months ended March 31, 2003
(2) Represents merger multiples associated with 28 selected Southeastern mergers
and acquisitions announced since January 1, 2002 (data source: SNL
Financial)
9
FINANCIAL IMPACT
- --------------------------------------------------------------------------------
Assumptions
|_| Due Diligence has been completed
|_| Transaction closes in October 2003
|_| Approximately $5.1 million pre-tax merger cost savings (or 20%) realized
in 2004
Salaries and benefits: $3.0 million
Data processing/FFE: $1.2 million
Other operating: $0.9 million
|_| Excludes impact of revenue enhancements
|_| Core deposit premium of 2.5%; core deposit intangibles amortized over 10
year period (accelerated amortization)
10
FINANCIAL IMPACT
- --------------------------------------------------------------------------------
Pro Forma Results
GAAP Cash (1)
2004 2004
---- ----
TSFG Net Income - Implied Consensus Analyst (2) $ 89.3 $ 90.9
MBFC Net Income (3) 9.8 10.2
Pro Forma Combined 99.1 101.1
After-Tax Cost Savings 3.5 3.5
Purchase Accounting & Other Adjustments(4) (1.6) (0.5)
Pro Forma Net Income $101.0 $104.1
Average Fully Diluted Pro Forma Shares 53.5 53.5
Pro Forma Fully Diluted Earnings Per Share $ 1.89 $ 1.95
TSFG EPS Consensus Analyst Estimate(2) $ 1.86 $ 1.89
Accretion/(Dilution) 1.50% 2.73%
- ---------------------------------------------
(1) Excludes the amortization of intangibles from earnings
(2) Represents the mean of the First Call estimates, based on 48.0 million
average fully diluted shares
(3) Based on internal estimates
(4) Includes core deposit intangible amortization and purchase accounting
adjustments
11
TRANSACTION RATIONALE
TRANSACTION RATIONALE
- --------------------------------------------------------------------------------
Extends TSFG franchise into contiguous Western North Carolina markets...
[Graphic omitted - map of branch locations]
13
[Graph Omitted]
14
[Graph Omitted]
15
[Graph Omitted]
16
[Graph Omitted]
17
TRANSACTION RATIONALE
- --------------------------------------------------------------------------------
Low risk, contiguous market acquisition...
|_| Very attractive, high-growth banking markets
Consistent with strategy to operate in the most attractive Southeastern
banking markets
|_| Enhances financial and strategic goals
|_| Similar community banking cultures with compelling fee income
opportunities
|_| TSFG successfully operates in resort communities
|_| Overlap with existing TSFG customers with vacation homes in North
Carolina mountains
18
SUMMARY
SUMMARY
- --------------------------------------------------------------------------------
|_| Consistent with TSFG's strategy to further enhance shareholder value
|_| Extends TSFG's presence into attractive Western North Carolina markets
|_| Accretive pro forma financial impact
Financial results are not contingent upon aggressive cost cutting and
growth assumptions
Excludes revenue enhancements
|_| Low-risk, contiguous market acquisition
Familiar markets, customer base and lines of business
20
THE SOUTH FINANCIAL GROUP
NASDAQ/NM: TSFG
WWW.THESOUTHGROUP.COM
Contact: Mary Gentry, Treasurer
864.255.4919
mary.gentry@thesouthgroup.com