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: Florida Banks, Inc.
Commission File No. 333-50867
THE SOUTH FINANCIAL GROUP [LOGO OMITTED]
acquisition of
FLORIDA BANKS, INC. [LOGO OMITTED]
Dynamic lending in Florida growth markets
March 18, 2004
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. These statements include, but are not
limited to, factors that may affect earnings, return goals, expected financial
results for mergers, estimates of merger synergies and merger-related charges,
and credit quality assessment. 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. TSFG undertakes no obligation to release
revisions to these forward-looking statements or reflect events or circumstances
after today's presentation.
This presentation contains certain non-GAAP measures, which TSFG management uses
in its analysis of TSFG's performance. TSFG believes presentations of financial
measures excluding the impact of these items provide useful supplemental
information and better reflect its core operating activities. Management uses
operating earnings, in particular, to analyze on a consistent basis and over a
longer period of time, the performance of which it considers to be its core
banking operations.
TSFG also provides data eliminating intangibles and related amortization in
order to present data on a "cash basis." Operating earnings adjust GAAP
information to exclude the effects of non-operating items, such as
merger-related costs, gains or losses on asset sales, and non-operating
expenses. Cash basis items exclude intangibles and their amortization. The
limitations associated with utilizing operating earnings and cash basis
information are the risk that persons might disagree as to the appropriateness
of items comprising these measures and different companies might calculate these
measures differently. Management compensates for these limitations by providing
detailed reconciliations between GAAP information and operating earnings. These
disclosures should not be viewed as a substitute for GAAP operating results. 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 Overview
Transaction summary
Implied value per FLBK common share(1): $22.84
Aggregate transaction value(1): Approximately $169 million
Form of consideration: 100% common stock
Exchange ratio: Fixed at 0.770x TSFG shares per FLBK share
Board representation: 1 FLBK director to join TSFG Board of Directors
Expected closing: July 2004; simultaneously with the CNB closing
Break-up fee: $5 million
Walk-away provision: Double trigger: TSFG declines 10% relative to an index and 15% absolute, with TSFG
retaining right to fill gap
Other terms: Identified cost savings - approximately $8.0 million pre-tax fully-phased in by 2005
(represents approximately 25% of FLBK's cash non-interest expense base)
Identified funding savings - approximately $4.6 million pre-tax fully-phased in by
2007
Anticipated merger-related costs of $3.5 million
Estimated direct acquisition costs (including other identifiable intangibles) of
$19.4 million
Due diligence: Completed
Required approvals: Regulatory (Federal Reserve, FDIC, State of Florida),
FLBK shareholders
(1) Based on TSFG's March 17, 2004 closing stock price of $29.66 per share; Deal value excludes 291,500 FLBK common shares and $5mm
of Florida Banks preferred stock already owned by TSFG
4
Creating value for TSFG shareholders
|_| Consistent with TSFG's stated disciplined approach to acquisitions:
|X| Accretive to cash EPS in the first full year
|X| Advances 3-year goals
|X| In-market transaction with low execution risk
|X| Neutral to capital ratios
|X| Conservative assumptions with meaningful upside
|_| Florida Banks operates in Florida's key high growth metropolitan
markets with superior business growth dynamics
|_| Excellent fit with TSFG's recently announced acquisition of CNB
- Florida Banks and CNB combined represent 14% of the pro forma
Company's assets
|_| Combines a unique, high-touch lending platform with TSFG's enhanced
scale, distribution and product suite
|_| Upon completion of the CNB and Florida Banks transactions, 39% of the
Company's total deposits will be in high growth Florida markets
|_| Integration risk is minimal
- TSFG, Florida Banks and CNB all have similar cultures and banking
philosophies
- Florida Banks and CNB are complementary rather than overlapping
- Florida Banks and CNB are both on the same operating system
- TSFG is an experienced and proven integrator
5
Who is Florida Banks?
|_| Founded in 1997, Florida Banks is a $944mm asset bank headquartered in
Jacksonville, Florida
|_| TSFG and Florida Banks have a longstanding relationship
- TSFG has been an investor in Florida Banks since its inception
|_| Florida Banks' strategy has been to expand in Florida's high-growth
metropolitan markets through the development of 1 or 2 full-service
"financial centers" in each target market
- Florida Banks has assembled a core team of high caliber lenders with
decades of experience gained at Florida's biggest and most successful
banking institutions
- Florida Banks leverages its experienced bankers and high-touch,
personalized service to penetrate the small to medium size businesses
in each target market
- Florida Banks' strategy has lent itself to the creation of a
commercial loan engine with secondary focus on additional products
|_| Florida Banks has successfully executed its strategy in five of the six
largest banking markets in Florida
|_| In October 2002, after rapid success in commercial lending, Florida
Banks launched a mortgage business to complement its commercial lending
strength
6
Focused on Florida's key high-growth metropolitan markets
[MAP OMITTED]
Business expansion in FLBK markets
- ----------------------------------
10 year
population Private business 10 year private
growth establishments employment growth
- -------------------------------------------------------------------------
U.S. 13.1% 7,008,444 18.4%
Florida 23.5 424,089 29.3
FLBK markets 22.4 169,191 31.0
- -------------------------------------------------------------------------
Top 10 Florida MSAs by population
- ----------------------------------
Growth(1)
------------------------------------
Rank MSA Population Household Per capita FLBK
income presence
- --------------------------------------------------------------------------------
1 Tampa-St. Petersburg 8.1% 8.2% 15.9% X
2 Miami 7.3 5.8 11.0
3 Orlando 14.3 14.0 13.3 X
4 Fort Lauderdale 9.2 7.1 11.7 X
5 West Palm Beach-Boca Raton 10.2 9.7 12.7 X
6 Jacksonville 10.0 10.9 16.7 X
7 Sarasota-Bradenton 10.0 10.8 14.2
8 Daytona Beach 10.3 11.0 12.7
9 Lakeland-Winter Haven 9.5 10.1 14.9
10 Melbourne-Titusville-Palm 8.7 10.7 14.6
Bay
Southeast(2) average 7.1% 8.3% 15.8%
U.S. average 5.3% 6.0% 14.7%
- --------------------------------------------------------------------------------
Source: US Census Bureau, SNL Financial, Claritas
(1) Growth figures projected for the period 2003 - 2008
(2) Includes AL, FL, GA, MS, NC, SC, TN, VA
7
Augments TSFG's strong Northeast/Central Florida presence
Florida
- -------
Percent
Total Total of
deposits market parent
Branch in market share deposits
Rank Institution count ($mm) (%) (%)
- --------------------------------------------------------------------------------
1 Bank of America 730 $54,233 20.2% 10.6%
2 Wachovia 640 40,008 14.9 20.3
3 SunTrust 424 29,396 11.0 39.5
4 SouthTrust 283 10,949 4.1 34.6
5 Washington Mutual 149 10,369 3.9 7.7
6 Regions Financial 145 6,907 2.6 12.8
7 AmSouth 190 6,559 2.5 23.1
8 Golden West 47 5,751 2.1 12.8
9 Citigroup 35 5,468 2.0 3.0
10 Ohio Savings Financial 15 4,983 1.9 60.3
11 Colonial 122 4,835 1.8 49.1
12 Ocean Bankshares 22 3,704 1.4 100.0
13 Northern Trust 28 3,324 1.2 23.7
14 BB&T 91 3,158 1.2 4.8
15 BankUnited Financial 42 3,155 1.2 100.0
16 BankAtlantic Bancorp 73 2,905 1.1 100.0
(17) Pro forma 57 2,889 1.1 39.3
17 First Natl Bkshs of FL 60 2,741 1.0 100.0
18 Mercantil Servicios 10 2,497 0.9 99.9
19 Fidelity Bankshares 42 2,277 0.9 100.0
20 The South Financial Group 50 2,120 0.8 32.2
35 Florida Banks 7 769 0.3 100.0
- --------------------------------------------------------------------------------
Northeast/Central Florida(1)
- ----------------------------
Percent
Total Total of
deposits market parent
Branch in market share deposits
Rank Institution count ($mm) (%) (%)
- --------------------------------------------------------------------------------
1 Bank of America 332 $23,651 23.3% 4.6%
2 Wachovia 288 16,748 16.5 8.5
3 SunTrust 241 16,174 15.9 21.7
4 SouthTrust 158 5,895 5.8 18.6
5 AmSouth 127 4,120 4.1 14.5
(6) Pro forma 55 2,819 2.8 37.4
6 Colonial 68 2,440 2.4 24.8
7 The South Financial Group 50 2,120 2.1 32.2
8 BB&T 55 2,042 2.0 3.1
9 Golden West 11 1,725 1.7 3.8
10 Washington Mutual 41 1,720 1.7 1.3
11 Regions Financial 35 1,419 1.4 2.6
12 Alliance Capital 4 1,240 1.2 100.0
13 First Natl Bkshs of FL 35 1,073 1.1 39.1
14 Compass 32 1,042 1.0 6.8
15 Third FS&LA 5 876 0.9 12.1
16 Raymond James 1 804 0.8 100.0
17 Florida Banks 5 698 0.7 90.8
18 FFLC Bancorp 15 691 0.7 100.0
19 Synovus Financial 15 620 0.6 3.9
20 Alabama National 16 549 0.5 16.8
- --------------------------------------------------------------------------------
98% of TSFG's pro forma Florida deposits are in its targeted Northeast/Central
Florida markets
Source: SNL Financial
Note: Deposits and market shares as of June 30, 2003, pro forma for acquisitions
(TSFG stand-alone is pro forma for the pending acquisition of CNB>
(1) Includes counties of Alachua, Baker, Bradford, Citrus, Clay, Columbia,
Dixie, Duval, Flagler, Gilchrist, Hamilton, Hernando, Hillsborough,
Lafayette, Lake, Levy, Marion, Nassau, Orange, Osceola, Pasco, Pinellas,
Polk, Putnam, Seminole, St. Johns, Sumter, Suwannee, Union, Volusia
8
Florida Banks' superior strategic fit with TSFG
|_| Hillsborough county (Tampa) is a great example of how well TSFG's existing
branch network surrounds FLBK's financial centers
|_| In addition to Tampa, this will also be the case in Jacksonville, Orlando
and Gainesville
[MAP OMITTED}
TSFG delivers:
|_| Convenient branch network
|_| A variety of deposit products tailored to meet customer needs
|_| Cash management and other ancillary business services
|_| Greater support network
A superior Florida banking experience
FLBK delivers:
|_| Experienced, high-profile lending officers
|_| High-touch service catering to the business community
|_| Strategically located financial/corporate banking centers
|_| Scaleable mortgage platform
Source: SNL Financial
9
The fit is evident across all of TSFG's key markets
Tampa
- -----
[MAP OMITTED]
Tampa MSA
- ---------
Branch Deposits Market
Rank Institution count ($mm) share(%)
- ---------------------------------------------------
1 Bank of America 118 8,980 24.9
2 Wachovia 97 4,752 13.2
3 SunTrust 87 4,727 13.1
4 SouthTrust 56 2,803 7.8
5 AmSouth 58 2,529 7.0
6 Golden West 9 1,509 4.2
7 BB&T 31 1,343 3.7
(8) Pro forma 20 1,076 3.0
8 Colonial 23 914 2.5
9 Third FS&LA 5 876 2.4
10 First Natl Bkshs 29 831 2.3
of FL
11 Raymond James 1 804 2.2
12 The South 18 626 1.7
Financial Group
15 Florida Banks 2 450 1.3
- ---------------------------------------------------
Jacksonville
- ------------
[MAP OMITTED]
Jacksonville MSA
- -----------------
Branch Deposits Market
Rank Institution count ($mm) share(%)
- ---------------------------------------------------
1 Bank of America 47 5,264 31.9
2 Wachovia 52 4,799 29.1
3 Alliance Capital 4 1,240 7.5
4 SunTrust 17 944 5.7
5 Compass 25 808 4.9
6 SouthTrust 28 793 4.8
7 AmSouth 19 358 2.2
(8) Pro forma 6 326 2.0
8 Prosperity Banking 8 257 1.6
9 The South 5 232 1.4
Financial Group
10 First Guaranty 6 228 1.4
B&TC
11 Atlantic Coast 6 198 1.2
Federal
12 Jacksonville 3 152 0.9
Bancorp
17 Florida Banks 1 94 0.6
- ---------------------------------------------------
Gainesville, Ocala, Orlando
- ---------------------------
[MAP OMITTED]
Branch Deposits Market
Rank Institution count ($mm) share(%)
- ---------------------------------------------------
1 SunTrust 68 6,805 24.5
2 Bank of America 90 5,305 19.1
3 Wachovia 63 3,558 12.8
4 Washington Mutual 30 1,276 4.6
5 Colonial 24 1,097 4.0
6 AmSouth 37 952 3.4
7 SouthTrust 39 949 3.4
(8) Pro forma 13 761 2.7
8 The South 11 607 2.2
Financial Group
9 FFLC Bancorp 11 583 2.1
10 Villages Bancorp 5 415 1.5
11 Alabama National 10 343 1.2
12 Southern Community 6 323 1.2
30 Florida Banks 2 154 0.6
- ---------------------------------------------------
Source: SNL Financial
Note: Deposits and market share as of June 30, 2003, pro forma for acquisitions
10
TSFG's overall geographic mix: Now 39% in Florida
Loans
- -----
TSFG - current
- --------------
South Carolina 63.5
Florida 22.7
North Carolina 13.8
Pro forma with CNB and FLBK
- ---------------------------
South Carolina 50%
Florida 39%
North Carolina 11%
Deposits
- --------
TSFG - current
- --------------
South Carolina 62%
Florida 24%
North Carolina 14%
Pro forma with CNB and FLBK
- ---------------------------
South Carolina 49%
Florida 39%
North Carolina 11%
Source: Federal Reserve
11
Florida Banks' demographic fit with TSFG: Superior growth characteristics
Project household growth
- ------------------------
Ocala 14%
Jacksonville 10.9%
Gainesville 10.8%
West Palm 10.2%
Ft. Lauderdale 9.2%
Tampa 8.2%
Florida 10%
TSFG Florida 10.4%
TSFG 9.5%
Southeast median 8.2% (1)
U.S. median 6.0%
Source: SNL Financial, Claritas
Note: TSFG's projected household growth is deposit weighted by county; growth
figures for 2003 - 2008
(1) Includes AL, FL, GA, MS, NC, SC, TN, VA
12
Florida Banks' robust and geographically diverse loan growth
Tampa Jacksonville Pinellas Broward Ocala Gainesville Palm Beach
1999 72 47 7.5 6 23
2000 94 78 17 30 21 41
2001 104 97 54 53 48 44
2002 112 116 81 79 72 68 11
2003 126 134 92 118 115 98 27
1999 - 2003 total asset CAGR = 44.2%
Source: Company documents
13
Florida Banks' outstanding ESP growth trend
FLBK stand-alone historical EPS (fully-diluted GAAP)
1999 -0.32
2000 -0.19
2001 0.1
2002 0.2
2003 0.62
Source: Company filings
14
Funding has been a constraint on Florida Banks' performance
|_| FLBK's lack of a branch network has made traditional deposit gathering
more difficult and less of a focus
|_| As a result, FLBK has funded a significant amount of its growth through
brokered CDs which are meaningfully more expensive than TSFG's and peers'
cost of funds
|_| By overlaying TSFG's branch network around FLBK's financial centers, FLBK
will have access to an attractive, in-market core funding source
|_| In addition, TSFG's scale and more sophisticated treasury area allows for
greater access to less expensive funding and enhanced investment
optionality
Funding savings ($mm)
- ---------------------
2003 Q4
- ---------------------------------------------------------------
Deposit costs:
FLBK 2.20%
FLBK peer(1) average 1.58%
TSFG 1.63%
Difference in cost of deposits:
FLBK vs. TSFG average 0.57%
FLBK's average deposits $804.1
Funding savings:
Annual run rate savings $4.6
Estimated savings realization
- -----------------------------
2005(2) 2006 2007
- ---------------------------------------------------------------
Phase-in 33% 67% 100%
- ---------------------------------------------------------------
Source: Company filings, SNL Financial
(1) Peers include Capital City Bank Group (CCBG), Centerstate Banks of Florida
(CSFL), Commercial Bankshares (CLBK), Pointe Financial Corporation (PNTE),
Seacoast Banking (SBCF), and TIB Financial (TIBB)
(2) Approximately $120 million of brokered CDs mature or are callable before
year-end 2005 with an average cost of approximately 3.00%
15
Eliminating the funding constraint reveals another compelling aspect of the
combination
FLBK stand-alone New funding structure
---------------- ---------------------
Net interest margin 3.19% 3.71%
Non-interest income to revenue 32.5% 29.3%
Efficiency ratio 75.9% 68.4%
ROAA 0.56% 0.87%
ROAE 9.2% 14.3%
4th quarter net income annualized $5.3mm $8.2mm
Source: Company filings, SNL Financial
Note: Both cases exclude the impact of preferred dividends
16
TSFG remains price disciplined
Recent Florida transactions
----------------------------------------------------------------------------
South- Alambam
TSFG/ Trust/ National/
Florida TSFG/ Florida Colonial/ BB&T/ Indian Synovus/
Banks CNB First P.C.B. Republic River Peoples
----- --- ----- ------ -------- ----- -------
Price to forward EPS 26.4x(1) 19.9x(1) 26.6x(3) NA 36.1x(1) 19.9x(3) 21.0x(3)
17.4x(2)
Price to tangible 2.90x 3.08x 1.59x 4.16x 2.20x 2.89x 4.56x
book value
Price to assets 17.9% 19.8% 18.8% 21.5% 15.7% 21.8% 33.7%
Price to deposits 23.0% 21.6% 27.9% 27.1% 20.0% 27.8% 41.2%
(1) Assumes median forward I/B/E/S EPS estimate; FLBK's estimate has been
adjusted to exclude the preferred dividend and the issuance of additional
equity assumed by one covering analyst
(2) Assumes run-rate funding structure from page 15
(3) Based on forward EPS estimates assumed in the fairness opinions as published
in the S-4 filings for each respective transaction
17
Financial assumptions
|_| Due diligence has been completed
|_| Transaction targeted to close in July 2004
|_| Approximately $8.0 mm pre-tax merger cost savings (25%); 100% realized
by 2005
|X| Salaries and benefits: $4.8 mm
|X| Data processing / FFE: $1.6 mm
|X| Other operating: $1.6 mm
|_| Change in funding mix resulting in approximately $4.6 mm in additional
pre-tax earnings as outlined; phased in 33% in 2005, 67% in 2006, and
100% in 2007 due to CD maturity schedules
|_| Excludes impact of revenue enhancements
|_| Estimated merger-related costs of $3.5 mm and direct acquisition costs
(including other identifiable intangibles) of $19.4 mm Merger-related
costs:
|X| Systems conversion $1.8 mm
|X| Other merger-related costs $1.7 mm
Direct acquisition costs:
|X| Employment contracts $7.3 mm
|X| Non-compete agreements $3.5 mm
|X| Real estate lease buyouts $3.5 mm
|X| Systems contract terminations $3.3 mm
|X| Professional fees & severance $1.8 mm
|_| Core deposit premium of 2.2%; core deposit intangibles amortized over
10-year period using the sum-of-the-years digits method
|_| Approximately 5.7mm TSFG shares issued in the transaction assuming
cancellation of 291,500 common shares and $5mm of preferred stock owned
by TSFG
18
Financial impact
2005 2006
Pro forma results ($mm, except per share data)
Stand-alone net income
TSFG(1) $141.5 $154.2
FLBK(2) 7.6 9.1
------ ------
Pro forma net income $149.0 $163.3
Transaction adjustments (net of tax)
Add: merger cost savings $5.9 $6.2
Subtract: core deposit amortization 1.1 1.0
Subtract: other identifiable amortization 0.5 0.5
Subtract: dividend from preferred interest 0.2 0.2
------ ------
Adjusted pro forma GAAP net income $153.2 $167.8
Cash adjustments (net of tax)
New amortization $1.6 $1.5
Existing amortization 4.5 4.5
------ ------
Adjusted pro forma cash net income $159.3 $173.8
Pro forma share count 71.5 71.5
Pro forma GAAP EPS $2.14 $2.35
Stand-alone TSFG GAAP EPS $2.15 $2.34
Pro forma cash EPS $2.23 $2.43
Stand-alone TSFG cash EPS $2.22 $2.41
- --------------------------------------------------------------------------------
GAAP accretion (0.3%) 0.2%
Cash accretion 0.4% 0.8%
- --------------------------------------------------------------------------------
(1) Based on First Call consensus estimates of $2.15 in 2005 and $2.34 (using
consensus long-term growth) in 2006 multiplied by 65.8 million fully
diluted shares
(2) Based on median of published net income estimates for 2005; 2006 assumes
20% growth on 2005 net income figure; both years are adjusted to exclude
preferred dividends
19
Financial impact - with funding change
Pro forma results ($mm, except per share data)
2005(3) 2006(3)
------- -------
Stand-alone net income
TSFG(1) $141.5 $154.2
FLBK(2) 7.6 9.1
------ ------
Pro forma net income $149.0 $163.3
Transaction adjustments (net of tax)
Add: merger cost savings $5.9 $6.2
Add: funding change 1.1 2.2
Subtract: core deposit amortization 1.1 1.0
Subtract: other identifiable amortization 0.5 0.5
Subtract: dividend from preferred interest 0.2 0.2
------ ------
Adjusted pro forma GAAP net income $154.2 $170.0
Cash adjustments (net of tax)
New amortization $1.6 $1.5
Existing amortization 4.5 4.5
------ ------
Adjusted pro forma cash net income $160.3 $176.0
Pro forma share count 71.5 71.5
Pro forma GAAP EPS $2.16 $2.38
Stand-alone TSFG GAAP EPS $2.15 $2.34
Pro forma cash EPS $2.24 $2.46
Stand-alone TSFG cash EPS $2.22 $2.41
- --------------------------------------------------------------------------------
GAAP accretion 0.3% 1.5%
Cash accretion 1.1% 2.1%
- --------------------------------------------------------------------------------
(1) Based on First Call consensus estimates of $2.15 in 2005 and $2.34 (using
consensus long-term growth) in 2006 multiplied by 65.8 million fully
diluted shares
(2) Based on median of published net income estimates for 2005; 2006 assumes
20% growth on 2005 net income figure; both years are adjusted to exclude
preferred dividends
(3) Assumes $4.6mm incremental pre-tax earnings based on funding savings phased
in 33% in 2005 and 67% in 2006
20
Background on Florida Banks
History
Assets ($mm)
2003 $944
2002 $756
2001 $522
2000 $373
1999 $218
1998 $114
1998 - $114MM - Completed IPO; acquired First National Bank of Tampa; opened
Jacksonville Financial Center
1999 - $218MM - Opened Financial Centers in Gainsville, Ft. Lauderdale and St.
Petersburg
2000 - $373MM - Opened Ocala Financial Center; 1st Profitable Quarter
2001 - $522MM - Completed $7MM Preferred Stock Private Placement
2002 - $756MM - Opened Mortgage Division; West Palm Beach LPL; $5MM Private
Placement
2003 - $944MM - Conversion of West Palm Beach to Full Financial Center;
Record Profitability
22
Jacksonville Gainesville Tampa
Don D. Roberts, Mark D. Walker, Douglas A. Tuttle,
President President President
- --------------------------- -------------------------- ----------------------------------
Anchor city: Jacksonville Anchor city: Gainesville Anchor city: Tampa
Heritage firm: Barnett Heritage firm: Barnett Heritage firm: SouthTrust, Barnett
Deposits: $125.2mm Deposits: $89.6mm Deposits: $242.0mm
Loans: $127.8mm Loans: $95.2mm Loans: $127.4mm
Pinellas County Broward County Marion County
David Rupple, David Seleski, Thomas D. Ingram,
President President President
- ----------------------------- ----------------------------- -------------------------
Anchor city: St. Petersburg Anchor city: Ft. Lauderdale Anchor city: Ocala
Heritage firm: SouthTrust Heritage firm: SouthTrust Heritage firm: SouthTrust
Deposits: $839.mm Deposits: $68.8mm Deposits: $101.2mm
Loans: $87.1mm Loans: $112.0mm Loans: $110.4mm
Florida Banks Mortgage
Mark F. Johnson,
President
- ----------------------------------
Anchor city: NM
Heritage firm: Homeside Lending
Source: Company filings
Note: Palm Beach office currently reports to Broward County President David
Seleski with loans of $26.0mm and deposits of $11.7mm; Loan and deposit
data as of December 31, 2003
23
Summary market share by county
Deposit totals in ($mm)
Market Total % of
County City share rank Branch count deposits in market Market share total deposits
------ ---- ---------- ------------ ------------------ ------------ --------------
Hillsborough, FL Tampa 8 1 $378.5 2.9% 49.2%
Duval, FL Jacksonville 14 1 94.5 0.7 12.3
Marion, FL Ocala 9 1 82.5 2.6 10.7
Alachua, FL Gainesville 11 1 71.6 3.4 9.3
Pinellas, FL St. Petersburg 22 1 71.4 0.4 9.3
Broward, FL Ft. Lauderdale 33 1 62.0 0.2 8.1
Palm Beach, FL Palm Beach 52 1 8.7 0.0 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Source: SNL Financial
Note: Deposit data as of June 30, 2003 and pro forma for recent transactions
24
Summary balance sheet
($000)
2000 2001 2002 2003
---- ---- ---- ----
Balance sheet
-------------
Cash and balances due $43,688 $73,989 $89,480 $112,130
Investment securities 36,757 38,886 53,652 56,886
Net loans 282,015 396,752 597,866 748,029
Intangible assets 0 0 0 0
Other assets 10,337 12,696 15,068 27,416
Total assets 372,797 522,323 756,066 944,461
Deposits 305,240 451,249 664,910 796,613
Other liabilities 29,001 19,113 21,719 90,054
Total liabilities 334,241 470,362 686,629 886,667
Total mezzanine 0 5,819 16,473 0
Total equity 38,556 46,142 52,964 57,794
Total liabilities and equity $372,797 $522,323 $756,066 $944,461
- ------------------------------------------------------------------------------------------------------------------
Source: Company filings
25
Summary income statement
($000)
2000 2001 2002 2003
---- ---- ---- ----
Interest income $23,766 $31,380 $34,927 $43,568
Interest expense 13,711 16,548 15,584 16,891
Net interest income 10,055 14,832 19,343 26,677
Provision 1,912 1,889 3,026 2,936
Non-interest income 1,011 1,974 4,044 15,603
Non-interest expense 10,886 13,693 18,005 32,198
Pre-tax income (1,732) 1,298 2,352 7,146
Income taxes (652) 490 885 2,490
Net income (1,080) 808 1,467 4,656
Preferred dividends 0 250 140 250
Net income to common ($1,080) $558 $1,327 $4,406
Diluted shares (mm) 5.7 5.7 6.5 7.1
Diluted EPS $(0.19) $0.10 $0.20 $0.62
- -------------------------------------------------------------------------------------------------------------
Source: Company filings
26
Summary asset quality
Allowance 2000 2001 2002 2003
--------- ---- ---- ---- ----
Beginning balance $1,858 $3,511 $4,692 $7,263
Provision 1,912 1,889 3,026 2,936
Charge-offs (401) (828) (486) (1,187)
Recoveries 142 120 31 45
Acquisitions 0 0 0 0
Ending balance $3,511 $4,692 $7,263 $9,057
Ratios 2000 2001 2002 2003
------ ---- ---- ---- ----
NPAs/loans + OREO 0.54% 1.06% 0.94% 0.63%
Reserves to NPLs 227% 312% 161% 347%
Reserves to loans 1.23% 1.17% 1.32% 1.31%
NCOs to average loans 0.12% 0.21% 0.09% 0.19%
- -------------------------------------------------------------------------------------------------------------------
Source: Company filings
27
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OPERATOR:
Good morning and welcome to The South Financial Group's announcement of its
Florida Banks' acquisition. All participants will be placed in a listen-only
mode until the question and answer session. This conference is being recorded at
the request of The South Financial Group. If you have any objections you may
disconnect at this time. I would like to introduce your conference host, Ms.
Mary Gentry, Director of Investor Relations of The South Financial Group. Ms.
Gentry you may begin.
MARY GENTRY:
Good morning and thank you for joining us. This morning Mack Whittle, our Chief
Executive Officer, will summarize the acquisition of Florida Banks, the
strategic reasons behind it and the financial impact. We will follow Mack's
remarks with an analyst question and answer session. Bill Hummers, our Chief
Financial Officer and Mike Sperry our Chief Credit Officer are also with us and
available for questions. Presentation slides which accompany this morning's
remarks are available with our webcast, or in the investor relations section of
our website under presentations. Before we begin, I want to remind you that a
number of our comments today constitute forward-looking statements and are
subject to risks and uncertainties. We disclaim any obligation to update any
such forward-looking statements to reflect events or circumstances that occur
after today. Our actual results may differ materially from those set forth in
any forward-looking statements. Please refer to our reports filed with the
Securities and Exchange Commission for discussion of factors that may cause such
differences to occur. In addition, I would point out that our presentation today
contains non-GAAP financial information which TSFG management uses in analyzing
its performance. In particular, a number of measures presented are just GAAP
information to present cash basis performance measures and to exclude the
effects of non-operating items, such as merger related costs, gains or losses on
asset sales, loss on early extinguishment of debt and other non-operating
expenses. We believe that presentations of non-GAAP financial measures provide
useful supplemental information and better reflect our core operating activity.
However, these measures should not be viewed as a substitute for GAAP operating
results and, furthermore, our non-GAAP measures may not necessarily be
comparable to non-GAAP performance measures of other companies. Now I would like
to turn the presentation over to our President and Chief Executive Officer, Mack
Whittle.
MACK WHITTLE:
Thanks Mary and good morning. I want to thank everyone for joining us today. We
are very excited about our merger with Florida Banks as will be evident from our
comments this morning. Florida Banks fits into our franchise exceptionally well.
As a shareholder of Florida Banks since its founding in 1997, we are partnering
with the management team and with a company that we know quite well. Florida
Banks' merger is expected to close in July 2004, concurrent with our pending
merger with CNB Florida. Both of these companies are headquartered in
Jacksonville. Once both mergers are complete, we expect to have 58 branches and
over $4b in assets in Florida. We will be #6 in deposit share in the North East
to Central Florida market and #17 in deposit share for the entire Florida
market. On page 4 of our slides, we have summarized the transaction. We are
acquiring Florida Banks for 100% stock at a fixed exchange ratio of 0. 77. As of
yesterday's close, this represents a price per share for Florida Banks of $22.
84, with a total deal value of approximately $169 million. We have completed due
diligence. Given our pending merger with CNB Florida, The South Financial Group
team spent considerable time understanding Florida Banks' business and how
Florida Banks would fit into The South Financial Group. The ensuing integration
should not be a distraction for us from delivering from the stated goals we made
earlier last year. Here is why this acquisition is an outstanding opportunity
for The South Financial Group shareholders: First, as you can see, our
acquisition with Florida Banks is very similar in structure, terms and overall
strategic fit with our previously-announced acquisition of CNB Florida. That
announcement was in January of this year. Florida Banks and CNB Florida are
complementary rather than overlapping. We are combining the lending strengths of
Florida Bank with the strong retail network of CNB Florida. Secondly, we are
acquiring an exceptional loan generation platform run by one of the most
talented banking teams in Florida. Third, this advances our stated goals of
continuing to grow in Florida. With this acquisition, approximately 39% of The
South Financial Group's total deposits will be in high growth Florida markets.
Fourth, we believe the integration risk is minimal, given our strategies and our
complementary cultures and the historical association we have with the Florida
Banks. It is also helpful and important to note, that Florida Banks and CNB
Florida use the exact same operating system, so that too should be a factor in
minimizing the integration risk. Lastly, one of the key opportunities in this
merger is to capitalize on Florida Banks' funding situation. If you normalize
their funding costs to be in line with The South Financial Group's cost of
funds, which can readily be done, we will save approximately $4.6 million per
year. In reality, this merger makes sense without considering these funding cost
savings. With the funding cost pick-up, it becomes even more compelling. One of
the reasons I feel confident about this acquisition is that our management team
knows the Florida Banks very well. The South Financial Group was one of the
original shareholders in Florida Banks back in 1997. Florida Banks has assembled
a very impressive management group and core lending team consisting of Florida
industry veterans from large successful institutions, such as Barnett and
SouthTrust. The commercial loan relationships and loan growth generated by this
team is outstanding and offers us a great opportunity in Florida. With this
acquisition, not only are we growing in Florida, but we are growing in the right
markets in Florida. As summarized on page 7, Florida Banks provides us with
greater access to larger metropolitan markets in Florida with superior business
growth dynamics. Consistent with our stated Florida acquisition strategy,
Florida Banks is primarily concentrated in our targeted markets of Central and
Northern Florida. As you can see on page 8, with our acquisition of Florida
Banks and CNB Florida, we will be the sixth largest bank in the North East
Central Florida region. I want to reiterate that not only is Florida Bank a
great business, it is also a strategic fit for The South Financial Group,
combining our extensive range of products and strong core deposit base with
their loan generation capabilities. Our company has great potential and a strong
management team focused on realizing that potential for our shareholders.
Florida Banks' branches are financial centers and loan production offices as
opposed to the traditional branches. As you can see on page 9, Florida Banks'
office in Tampa will be surrounded by a support network of existing South
Financial Group retail branches. That same situation exists in Jacksonville,
Orlando and Gainesville. The potential for us to expand the services that
together we offer our customers is tremendous and the results will be very
dynamic for this franchise. We have previously stated that over the next three
to five years we would like for Florida to be equal in size to our South
Carolina operation. This goal was one of the key drivers in the acquisition of
CNB Florida, just as is now with the Florida Banks. Following the acquisition of
Florida Banks and CNB Florida, 39% of The South Financial Group's total deposits
will reside in Florida. As you can see, Florida Banks offers The South Financial
Group a strong foothold in some of Florida's fastest growing and most attractive
markets. Florida Banks' loan growth, summarized on page 13, illustrates why we
think so highly of Florida Banks' management team. It is quite impressive what
Charles Hughes and his team have accomplished in terms of loan growth. Over the
past five years, Florida Banks grew at an annualized rate of 44% with growth
geographically diversified throughout its markets. Like CNB Florida, Florida
Banks is a growth company in growth markets, the ideal opportunity for us. One
of the key aspects of this acquisition is the opportunity to change how Florida
Banks has funded its loan growth. Given its limited branch infrastructure,
Florida Banks has relied primarily on wholesale funding. We are confident that
we can wrap our branch network around Florida Banks' financial centers and that
will result in funding costs more in line with the peers and more in line with
what The South Financial Group's current funding costs are. We are confident
that this will happen in several ways. First Florida Banks' brokered CDs mature
over the next several years and we will replace that funding with our core
deposits. Second, we will offer Florida Banks' customers greater deposit
products, offering an enhancing banking convenience through more locations.
Thirdly, the new loan growth will be funded with a greater mix of low-cost
deposits. We expect to see significant improvement also in Florida Banks'
efficiency ratio as well as in its net interest margin expansion when we combine
the two companies. This should make this merger both a strategic and a financial
win for The South Financial Group's shareholders. As you can see by the pricing
comparison on page 17, we continued to remain price disciplined. This
transaction compares favorably to other recent similar sized Florida
transactions on a book, deposit and asset basis. Given that the focus and growth
characteristics of Florida Bank are different than the targets of many of the
other Florida transactions, we thought it would make sense to show the resulting
PE two ways. First is on a stand alone basis, and the one below that is adjusted
for the earnings for a more normalized funding base. As I mentioned earlier, we
have completed our due diligence and are, along with the Florida Bank team,
comfortable with the financial assumptions for the transaction, which are
summarized on page 18. Furthermore, as I indicated earlier, we know this
business and management team very well. We have all examined how Florida Banks,
CNB Florida and The South Financial Group fit together and have come up with a
plan to drive our business forward. Mike Sperry led the effort to review the
credit side and was pleased with his findings. What we are showing today are
realistic cost savings, meaningful upside from shifting Florida Banks' funding
strategies to one more in line with The South Financial Group and no revenue
enhancements. We expect to record approximately $125 million in goodwill, a $6.5
million core deposit intangible and $3.5 million in other identifiable
intangibles. This acquisition is expected to be cash accretive in 2005. Page 19
summarizes these calculations. On page 20 we have highlighted the impact of the
anticipated funding cost savings which makes our merger even more accretive and
more compelling. Florida Banks is an outstanding merger with the management team
that we know very well. They bring proven high quality loan production strength
that complements our existing retail strategy and with this merger we solidify
our growing presence in the robust Northeast and Central Florida markets. That
concludes the prepared part of our remarks. Mike Sperry is here and Bill Hummers
and myself to answer any questions that you might have.
OPERATOR:
Thank you. We will now begin the question and answer session. If you would like
to ask a question please press `*1', you will be prompted to record your name.
To withdraw your question you may press `*2'. Once again, if you would like to
ask a question, please press `*1'. One moment please for the first question. Our
first question comes from Todd Hagerman of Fox-Pitt. Sir you may ask your
question.
TODD HAGERMAN:
Mack I have a couple of questions. The first is with respect to Florida Banks'
wholesale mortgage operation. What are your thoughts there, given the current
environment, the size of your institution and the pricing dynamics in the
secondary mortgage market right now? Is that something that you intended to keep
or build upon or any thoughts in terms of where that thing goes at this
standpoint?
MACK WHITTLE:
We have a fairly large retail mortgage origination network throughout our
existing South Financial Group, both Mercantile and Carolina First. So the
wholesale piece of what they bring, we think again is a really natural fit. They
have limited retail. CNB has limited retail. So we want to expand the retail
piece, but the wholesale aspect of what they are doing we think really offers
some interesting dynamics for us going forward. This was really a bonus in
addition to what we got from the balance of the company. We have expanded our
mortgage originators as you know. In 2003, we virtually doubled the number we
had in the market places that we were in, and this will give us obviously some
more markets, and some wholesale experience and expertise that ought to improve
the profitability of what we are doing on a retail basis.
TODD HAGERMAN:
Great. With Bill there, talk a little bit more about the balance sheet impact?
You talked a little bit about the funding, if you could go into a little bit
more detail in terms of Florida Banks' balance sheet, particularly on the asset
side on a pro forma basis, how that is going to -- any changes or repositioning
that you might do and what South Financial Group is going to look like? I talk
with reference to the securities portfolio, reserve and any potential asset
sales that might be contemplated that you can talk about?
WILLIAM HUMMERS:
Right at this minute we don't expect any asset sales. I think the balance sheet
fits very well. Obviously what this does is accomplish one of the things that
our strategic plan talked about for this year, which is to reduce the securities
as a percent of total assets by adding these loans in and that will be very
positive in that way. Also, on the funding side, approximately half of their
loans or half of their deposits are CDs greater than $100,000 and we feel very
confident that we can reduce this, as I think we say in the slide presentation,
about 46 basis points. They have an average cost of funds about 2.20% and our
average cost of funds is about 1.57% I think, so we can come out and reduce
that, bring that down to our level within the first 18 months of acquiring them
and that gives us a real boost in the [markets] in Florida.
TODD HAGERMAN:
Do you intend to do that? Is that going to be a combination through purchase
accounting, adjustments or re-price?
WILLIAM HUMMERS:
I think it will be accomplished through a number of items as Mack pointed out.
Obviously as they run off we will replace the CDs. Second, purchase accounting
will have some impact on that, and thirdly we will go in there and we will look
at opportunities to do things to their balance sheet right now that they don't
have, such as international markets, such as maybe possibly doing interest rate
swaps on their brokered CDs, in order to bring that rate down. So, it will be a
combination of things, time, and the back balance sheet, the purchase accounting
adjustments and our greater access to the national markets in order to
accomplish that more quickly than you would with just maturities.
TODD HAGERMAN:
Just quickly on the reserve position. They have around a 1.20% reserve, how do
you see that folding into the mix?
MACK WHITTLE:
I'd like Mike Sperry answer that if you're okay with that.
MICHAEL SPERRY:
Todd when you look at the reserve you see 1.20%. We exclude the mortgages held
for sale in that calculation. So if you exclude that it was 1.31% at the end of
the year. Our analysis shows that the reserve may go up a little bit, but not
materially. We go through a process of transforming their risk ratings to our
risk ratings. Our risk ratings are a default risk rating, more conservative we
think than most banks, and that was the finding we had there. We balanced that
against our reserve allocation model and came back with a "how does it look if
we were doing it today in our bank?" The conclusion is that it is going to go up
a little bit from year end. It has already gone up internally in the bank a
little bit, so they are different to where they are today and where we would put
it if we merged them today is not material.
TODD HAGERMAN:
Great. Thanks very much.
OPERATOR:
Kevin Reynolds with Morgan Keegan you may ask your question.
KEVIN REYNOLDS:
I have a couple of questions. I tried to follow along as quickly as I could in
the presentation. On the cost savings number I think you said 25% Mack?
MACK WHITTLE:
Yes roughly 25%.
KEVIN REYNOLDS:
Okay. Can you tells us how that might be achieved, because on a bank that is
this small it seems to me that that might be a little bit of a difficult number
to achieve?
MACK WHITTLE:
Well, historically this is larger than our normal acquisition and we have a
history of +30% in cost saves in acquisitions. We normally do 20% to 25% when
there is no overlap and there is some overlap here. Obviously there is some
systems overlaps that will have some material cost saves in it. Historically we
have done better than 25%. Again, as I tried to point out, we try to be
conservative in these assumptions. These are assumptions that we have run
through our earnings model to make sure that it is in fact accretive to the
guidance that we have given to the street and that they are achievable well
within the time frame that we put here.
MICHAEL SPERRY:
Excuse me Mack. Kevin if you look on page 18 we weigh them out into three big
categories. The largest single category obviously is salaries and benefits. We
expect to save on an annualized basis about $4.8 million on that. On data
processing and fees and [indiscernible] we expect $1.6 million and then other
operating, which is made up of everything else, we expect an additional $1.6
million in cost saves.
MACK WHITTLE:
When we do these cost saves, we do these in conjunction with the company we are
acquiring. So, these are not numbers that we have put in place independent of
any discussions. These are round-the-table discussions with the bank that is
being acquired, and there is concurrence on the numbers, and we get down to the
very specifics before we get to this stage in a transaction.
KEVIN REYNOLDS:
Okay. Another point, did I hear you correctly that relative to the guidance that
you have given to the street, that you believe this acquisition will be
accretive, earnings per share?
MACK WHITTLE:
Yes.
KEVIN REYNOLDS:
When you say that is that 2004 or 2005?
MACK WHITTLE:
Both of these transactions will close in July. We will close these
simultaneously in July. What we have told the street is that we will give you at
least two clean quarters, and if we are going to do an acquisition there will be
at least two clean quarters between those. So we will have the first and second
quarter of this year that will be clean, having followed the MountainBank
acquisition in October and the equity offering in early November. So, the first
and second quarters are clean. We will do these in the early part of the third
quarter. There will obviously be merger noise in the third quarter, hopefully
that will be minimized in the fourth quarter and there will be at least two
clean quarters going forward before we will consider any other potential
acquisitions. So, we are pretty much out of the acquisition market now for some
time.
KEVIN REYNOLDS:
Okay. Well that actually answered my next question, as to whether or not you
might slow down a bit in the near term and focus on these integrations and
getting everything--
MACK WHITTLE:
That is precisely what we will do. If you look at Q4 2003 and look at the
efficiency ratio, we merged MountainBank in, in early October and for the fourth
quarter the efficiency ratio was not materially impacted. That efficiency ratio
should be better in the first quarter. It should be more normalized I will even
say in the first quarter, which says that we were able to integrate, get the
cost saves out of a $1 billion acquisition and move on. So, our ability to
integrate, get cost saves, and combine the cultures is becoming more routine and
a line of business for us, and something that we can do fairly quickly and
fairly seamlessly. As long as it doesn't exceed 10% to 15% of the total asset
size, and that is where these two combined companies are.
KEVIN REYNOLDS:
Okay. I have one last question, I will let others come on if they need to. As
far as the senior management, senior lenders, specifically Florida Banks, given
that it is a lending machine, have you locked up the majority of those? Can you
give us maybe a number as far as the senior management there and the senior
lenders, as to who will be staying?
MACK WHITTLE:
Charles Hughes is going to be around for a couple of years. He has committed
that to us, and then we are working with a number of the lenders. Ironically as
I mentioned in this, most of these folks all worked together. The gentleman that
is President of our Florida Bank was at Barnett and all of these guys worked
together at Barnett Banks. If you look at our top management team within The
South Financial Group, six of them came from the old Barnett. So, this is really
just reassembling a lot of what was the old Barnett. So, culturally, socially
these folks all know each other and have worked together. In many cases they
have worked for and with each other before in these markets.
KEVIN REYNOLDS:
Okay, thank you.
OPERATOR:
Jeff Davis with FTN Securities you may ask your question.
JEFF DAVIS:
Most of my questions have been covered, but Mack since Florida Banks had some
offices down in the Fort Lauderdale area, does your interest in other areas of
geography of Florida is that changing, or is that still primarily Central and
North East?
MACK WHITTLE:
It is still principally Central and Northern Florida. We are going to look at
Fort Lauderdale and the bulk of West Palm area as we did the Virginia area when
we did MountainBank. We are going to study it, and if it makes sense, if the
markets are similar and the cultures are similar, then we will consider, and
that will take place probably over the next several weeks and months. Obviously
we know those are growth markets, we know they are very attractive markets so
getting in or getting out will be a decision we will make probably in the next
month or so.
JEFF DAVIS:
Okay. Then another geography [question], the pan handle is not really on the
radar screen?
MACK WHITTLE:
Not really on the radar screen. We have got 2% of market share in Orlando and 2%
of market share in Tampa and 1% of market share in Jacksonville. Pre-CNB and
pre-Florida Banks we are still going to be under 5% share in all of those. We
need to focus on trying to build that share primarily before we start expanding
our footprint too much.
JEFF DAVIS:
Okay.
MACK WHITTLE:
We're trying to stay focused and disciplined and do what we say we are going to
do. As all of you know, acquisitions come when they come, they don't necessarily
come when you want them to come. It would have been very nice for this one to
have happened or been announced sometime in September, but it just didn't happen
that way. So we were able to fit the two together, close them simultaneous, have
two companies that on the identical operating platform, which makes it look more
like one transaction from an operations standpoint than two, that we will be
integrating. We are comfortable with that.
JEFF DAVIS:
Okay. Acquisitions aside Mack, I assume you have got February numbers in?
MACK WHITTLE:
We do.
JEFF DAVIS:
How has loan demand progressed?
MACK WHITTLE:
I think we told everyone that we were looking for strong double digit loan
growth and I think through February on an annualized basis we were 17% to 18%
companywide.
JEFF DAVIS:
Okay.
MACK WHITTLE:
So it has been very strong and that is very geographically dispersed. North
Carolina, South Carolina, and Florida all are doing quite well. We are seeing
good strong loan growth and continue to have a good pipeline out there from
talking to our folks. Again, this is something we look at on a weekly basis.
Something that we measure and monitor based on each market in the company.
JEFF DAVIS:
You may not be able to read it that precise, but as we get into March, does it
feel like things are picking up or holding? You're marking it out at a pretty
good pace?
MACK WHITTLE:
The pipeline looks as strong now or maybe a little stronger now than it did
earlier in the year. So, we are seeing -- even the mortgage origination piece of
it seems to be coming back for us.
JEFF DAVIS:
Okay, very good. Thank you.
OPERATOR:
Gary Tenner with Robinson-Humphrey you may ask your question.
GARY TENNER:
Basically all of my questions have been answered, but I will ask just briefly.
On the timing of the merger charges and the direct acquisition costs, should we
expect most of those to be in the third quarter?
MACK WHITTLE:
Yes, most of those should be in the third quarter.
GARY TENNER:
Okay.
MACK WHITTLE:
Hopefully these acquisitions will look, from a timing standpoint, very similar
to MountainBank. Where we will begin to get the saves in and be able to do some
things right at closing. So, if we close one of these transactions early in the
quarter, then we can contain most of it in that quarter, and that is what our
goal is on this one.
GARY TENNER:
Okay. Thank you.
OPERATOR:
Jefferson Harralson of KBW you may ask your question.
JEFFERSON HARRALSON:
I just want to get a number checked and then ask a question. Was the total
intangibles created here $135 million by your estimations? $125 million for
goodwill and $6.5 million for CDI and $3.5 million for other intangibles?
BILL HUMMERS:
Yes, that is correct.
JEFFERSON HARRALSON:
My second question is, merging CNB and Florida Banks into Mercantile, you have
got some pretty serious senior management of all three banks now in the
Jacksonville area and in the Tampa area. I guess, how are you going to knot all
that together? Are you going to make announcements on who is going to run each
city, or how does the management shake out from the three banks becoming one?
MACK WHITTLE:
This is Mack and I am in Florida today and we are having these conversations as
we speak. The organizational chart at least at that level is already put
together and we are communicating that to all the employees today. What we are
able to do now because the Florida part of the franchise is beginning to be a
more complete bank with retail and commercial, we are able to structure it more
like we structured South Carolina. In South Carolina we have what we call the
corporate side of the bank and where the larger commercial loans are, which is
primarily what Florida Banks has done. Florida Bank lenders will report up to
Charlie and will be in the corporate bank, in the exact same structure that we
now have in the South Carolina Bank. Then ultimately Charles will report to Andy
Cheney who is President of Florida Bank. That is a structure that we have had in
South Carolina now for about three years and have found it to be a very
successful structure. We support that with treasury management products and some
of the corporate products that we have been able to roll out here in the last
couple of years. So, as the people come together it fits very well. In Tampa for
instance, their presence in Tampa was a loan production, more of a corporate
commercial lender. Our presence in Tampa was through the Central Bank of Tampa
and the original Mercantile Bank, Gulf West Banks and they were predominantly
retail. We now have 20 offices and $1b in assets in deposits in the Tampa
market, but we had limited corporate business and this will give us the
opportunity to leverage that side of it and to use our branch network as a
funding source for this commercial loan growth.
JEFFERSON HARRALSON:
Thank you.
OPERATOR:
John Kline with Sandler O'Neill you may ask your question.
JOHN KLINE:
A quick question for you. You touched on it earlier, but purchase accounting
adjustments. It sounds to me as if maybe some of the funding there is above
market rate? Is that true?
WILLIAM HUMMERS:
Are you saying that some of their funding, the funding that they are doing is
above market rates? That's absolutely correct.
JOHN KLINE:
Yes. So I would think you'd have an opportunity with purchase accounting
adjustments to obviously increase your goodwill and enhance your earnings
through accretion of a discount?
WILLIAM HUMMERS:
Yes sir that will occur on the liability side. However, there will be some off
setting adjustments on the asset loan side that would not make that 100% of that
adjustment on the liability side will not follow through because there will be
adjustments also for purchase accounting on the asset side that will offset
that.
JOHN KLINE:
They generally have above market priced loans?
WILLIAM HUMMERS:
They have above market loan pricing, yes sir.
JOHN KLINE:
Okay, interesting. So, I would think hopefully net, net, have you included
purchase accounting adjustments at all in your pro formas?
WILLIAM HUMMERS:
No sir.
JOHN KLINE:
Okay.
WILLIAM HUMMERS:
We have not completed the study yet - I mean a thorough study.
JOHN KLINE:
Okay, I understand. Okay, one more question was this a...?
MACK WHITTLE:
John I think your question - if it can happen quicker through purchase
accounting then it will happen quicker. If it just runs its normal course, which
is the way we have looked at it, that could be 18 months from now. The
assumption we have made is that it runs its course over 18 months and that we
normalize their funding to our funding, and that is where we get the $4.6
million.
WILLIAM HUMMERS:
One of the other things, as I mentioned to a similar question earlier is we have
got access to national markets and other products that may allow us, such as
interest rate swaps, that may allow us to be able to do this quicker anyway.
JOHN KLINE:
Okay, understood.
MACK WHITTLE:
One thing John, you didn't ask this, but I think it does probably warrant being
said. We have set a number of objectives with our financial plans that we rolled
out in September. One of which was that we would keep the tangible equity to
asset ratio above 6% and this transaction pro forma's above 6%. So we are able
to do that. When we model this transaction --we model it even with the CNB
Florida in the core South Financial Group-- it still allows us to meet those
financial goals. The assumption here with the Florida Banks is that we are able
to normalize that efficiency ratio over a reasonable period of time, down closer
to where our efficiency ratio is.
JOHN KLINE:
One more question if I may. Was the deal negotiated, or was it an option?
MACK WHITTLE:
I don't know. You will have to ask the bankers involved.
JOHN KLINE:
I can't talk to them.
MACK WHITTLE:
As you know we were Florida Banks' largest shareholder. We were involved with
Florida Banks when they originally went public and owned 4.9% of the company.
Over the years, through various equity offerings and preferred offerings our
[percentage of their total equity] got close to 10%. So we knew them quite well.
They were in the process of an equity offering. They were along the road of
doing an equity offering and, I think as they looked at raising equity, I think
one of the things they asked themselves is now the time to exit? We got a
telephone call and had a discussion and we were at a point where again it would
have been nice to have had this one later on in the year, but if we had waited
later on in the year they would have had more equity and it wouldn't have worked
the way it works today. But they elected not to proceed with the equity offering
but to look at selling and having our companies join up together. So, whether
others were involved I am really not certain.
JOHN KLINE:
Okay. Thanks a lot Mack.
OPERATOR:
Jeff Hayden with JP Morgan you may ask your question.
JEFF HAYDEN:
All my questions have been answered thanks.
OPERATOR:
Kevin Reynolds of Morgan Keegan you may ask your question.
KEVIN REYNOLDS:
I have another question here you guys if that's okay? This is a little bit
beyond this particular merger, but something that we talked about on the
conference call for earnings, then a follow up disclosure in the 10-K with
respect to that letter of credit that was not called. I think you said in the K
that you believe now that it may be called in Q1, is that correct?
MACK WHITTLE:
Mike do you want to answer that?
MICHAEL SPERRY:
Yes that is correct.
KEVIN REYNOLDS:
Okay. Now assuming that that does happen, the language I was a little confused
on, it said net of collections and charge-offs, about half of it could be
expected to go on non-accrual status. Could you provide anything else with
respect to the language net of collections and charge-offs, just the sort of
magnitude or what actually happens to the other 50%?
MICHAEL SPERRY:
Approximately $3 million of it will be in non-accrual. Was that your question?
KEVIN REYNOLDS:
Okay, so $3 million are non-accrual, and just doing the basic math, that leaves
$5.6 million that either is collected or charged-off or a combination of both?
MICHAEL SPERRY:
Correct. $4 million of it will be collected in cash, that's roughly half of it.
About $1 million will be written down and $3 million will be in non-accrual.
Those are round figures. Those are our estimates at this point.
KEVIN REYNOLDS:
Okay. Thanks a lot.
OPERATOR:
Once again, if you would like to ask a question please press `*1'. To withdraw
your question please press `*2'. Once again, if you would like to ask a question
please press `*1'. John Kline of Sandler O'Neill you may ask your question.
JOHN KLINE:
Just a quick follow up. Mack you indicated loan growth through February is very
strong % to 18%. I am curious, are you funding that wholly through deposits or
are you also funding that through securities run down, like you have indicated
in the past?
MACK WHITTLE:
A combination of both.
JOHN KLINE:
Okay, so it would be fair to say we could expect to see the securities to asset
ratio--?
MACK WHITTLE:
Our commitment was that it would begin to come down quarter by quarter, maybe
not material but you would begin to see improvement in that.
JOHN KLINE:
Okay, great. Thanks.
OPERATOR:
At this time there are no further questions.
MARY GENTRY:
I want to thank everyone for joining us this morning and this concludes our
conference call for this morning. Thank you.
OPERATOR:
If you wish to call in on the replay for today's call the phone number is 800
873 2051. Once again the replay number for today's call is 800 873 2051. The
toll number is 402 220 5370. Thank you. You may disconnect at this time.
[THE SOUTH FINANCIAL GROUP, INC. LOGO OMITTED]
104 South Main Street
Greenville, SC 29601
864.255.4919
NEWS RELEASE
DATE: March 17, 2004
RELEASE TIME: Immediate
THE SOUTH FINANCIAL GROUP TO ACQUIRE FLORIDA BANKS;
DYNAMIC LENDING IN FLORIDA GROWTH MARKETS
GREENVILLE, SC - The South Financial Group, Inc. (Nasdaq/NM: TSFG) today
announced a definitive agreement to acquire Florida Banks, Inc. (Nasdaq/NM:
FLBK), headquartered in Jacksonville, Florida, in an all stock transaction
valued at approximately $169 million. Florida Banks operates 7 banking centers
in 7 counties and has approximately $944 million in assets at December 31, 2003.
Post merger, Florida Banks' operations will be conducted through TSFG's Florida
banking subsidiary, Mercantile Bank.
Florida Banks, founded in 1997, has offices in Tampa, Jacksonville, Alachua
County (Gainesville), Broward County (Ft. Lauderdale), Pinellas County (St.
Petersburg/ Clearwater/Largo), Marion County (Ocala), and West Palm Beach. These
markets represent some of Florida's largest, most dynamic and fastest-growing
markets.
The Florida Banks merger is expected to close in July 2004, concurrently with
TSFG's pending merger with CNB Florida Bancshares, Inc., which is also
headquartered in Jacksonville, Florida. Once both mergers are complete,
Mercantile Bank is expected to have 57 branches, approximately $4 billion in
assets, the #6 deposit market share in Northeast/Central Florida, and the #17
deposit market share in Florida. With the Florida Banks and CNB Florida mergers,
The South Financial Group's Florida deposits represent approximately 39% of
TSFG's total deposits.
"We have been a shareholder in Florida Banks since its founding and know the
management team very well," said Mack I. Whittle, Jr., President and CEO of The
South Financial Group. "We have built our Florida franchise by bringing together
strong banks and management teams who share our vision of delivering
outstanding, personalized service to customers. Florida Banks fit into this
franchise is exceptional. The benefits of the merger extend beyond the seamless
geographic fit and the ability to deliver our services through top-notch
employees. Florida Banks brings a unique, high-touch lending strategy that we
believe will enhance our own lending efforts in all our Florida markets. Also,
given how well our current branch network surrounds Florida Banks' banking
centers, we will be able to offer a much broader range of banking products to
Florida Banks' loyal customer base. It's a compelling match for our company and
one that will be additive to long-term shareholder value."
Whittle continued, "While our desire to achieve scale in key Florida markets is
important, we remain committed to doing so only in a manner that adds to
shareholder value. Our merger with Florida Banks is consistent with our
disciplined acquisition criteria. As we've previously stated, we will only do
mergers that are accretive to earnings per share in the first year, enhance our
three-year goals, and strengthen our geographic franchise. Given our pending
merger with CNB Florida, TSFG's team spent considerable time understanding
Florida Banks' business, how Florida Banks would fit into TSFG, and ensuring
that the integration would not distract us from delivering our stated goals. We
are confident that our track record of successful integration will continue.
Furthermore, completing the two mergers in tandem should work very well since
Florida Banks and CNB Florida's business focuses are complementary, rather than
overlapping. In addition, they are on the same operating system."
Charles E. Hughes, Jr., President and Chief Executive Officer of Florida Banks,
stated, "The Florida Banks' team is very enthusiastic about becoming part of The
South Financial Group. Our management team and Board respects what TSFG has
accomplished in Florida. Our companies operate in many of the same markets and
we are very familiar with TSFG's employees from working together at various
stages in our careers. Both Florida Banks and TSFG share a focus of delivering
exceptional service to small and medium-sized businesses located in high-growth
markets. We have said that if we were to ever merge with another institution
that it would be in a scenario where our level of customer service would not
diminish. TSFG is one of only a few institutions, if not the only one, where the
level of service will actually be enhanced. We look forward to being a
significant contributor to the on-going success of The South Financial Group.
This is a winning combination for our shareholders, our customers, and the
communities we both serve."
"I have been involved in Florida banking for 30 years," said Andrew B. Cheney,
President of Mercantile Bank, TSFG's Florida banking subsidiary. "I came to The
South Financial Group knowing that we could create a community-oriented bank
that provided a broad array of products with a level of service and convenience
to a customer base that was no longer being well served by the larger banks. We
have had tremendous success toward achieving these objectives. I can not say
enough good things about how well-rounded the franchise will be with the
additions of CNB Florida and Florida Banks. We have solidified our presence in
the robust Northeast Florida markets and have added additional high quality loan
production strength throughout our Florida franchise. The potential of those
additions, with our already strong franchise, is really powerful."
Under the terms of the agreement, Florida Banks' shareholders will receive 0.77
shares of The South Financial Group for each share of Florida Banks. Based on
TSFG's closing price of $29.66 on March 17, 2004, this represents $22.84 for
each common share of Florida Banks. The transaction is subject to regulatory and
Florida Banks' shareholder approvals.
Assuming expense savings of 25%, the merger is expected to be cash accretive in
2005. While not factored into this accretion, TSFG has identified over $4
million in annual interest expense savings from shifting Florida Banks' funding
strategy to one more consistent with TSFG.
The South Financial Group is a financial services company headquartered in
Greenville, South Carolina, which had total assets of approximately $10.7
billion at December 31, 2003. TSFG operates two primary subsidiary banks,
Carolina First Bank and Mercantile Bank, which conduct operations through
approximately 135 branch offices in South Carolina, Florida and North Carolina.
Carolina First Bank, the largest South Carolina-based commercial bank, operates
in South Carolina and 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 website: www.thesouthgroup.com.
TRANSACTION SUMMARY
Implied price per Florida Banks
common share1 $22.84
Aggregate transaction value1 Approximately $169 million
Form of consideration 100% common stock
Fixed exchange ratio 0.77 TSFG shares per Florida Banks share
Break-up fee $5 million
Expected closing July 2004
Anticipated merger cost savings Approximately $8 million pre-tax fully
phased in by 2005, or 25%
Florida Banks options To be converted into the right to purchase
TSFG common stock based on the exchange
ratio
Due diligence Completed
Walk-away provision Double trigger: TSFG declines 10% relative
to an index and 15% absolute with TSFG
retaining right to fill gap
Required approvals Regulatory approval; Florida Banks'
shareholder approval
PRICING OVERVIEW
Premium to 3/17/04 close 18.9%
Price to adjusted 2004 EPS ($0.81)(2) 28.0x
Price to adjusted 2004 EPS/2004 EPS growth
(PEG ratio) 1.08x
Price to adjusted 12/31/03 book value ($7.87)3 2.90x
Price to adjusted 12/31/03 tangible
book value ($7.87)(3) 2.90x
Pro forma tangible equity to tangible
assets at closing (07/04) 6.15%
Notes:
(1) Based on TSFG's 3/17/04 closing stock price of $29.66 per share after
cancellation of 291,500 Florida Banks common shares and $5 million of Florida
Banks preferred shares owned by TSFG.
(2) Excludes the impact of preferred dividends for Florida Banks preferred
shares owned by TSFG.
(3) Includes the impact of the preferred converting into common shares.
CONFERENCE CALL / WEBCAST INFORMATION
- -------------------------------------
The South Financial Group will host a conference call on Thursday, March 18,
2004 at 9:00 a.m. (ET) to discuss the acquisition of Florida Banks 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
www.thesouthgroup.com 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 1-800-873-2051 or
1-402-220-5370. The South Financial Group will also provide a copy of the
presentation in the Investor Relations section of its website.
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, return goals, expected financial results
for mergers, estimates of merger synergies and merger-related 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 Annual Report on Form 10-K for the year ended
December 31, 2003. The South Financial Group 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 Florida Banks, on the terms and subject to the
conditions in the Agreement and Plan of Merger, dated March 17, 2004, between
TSFG and Florida Banks. 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 Florida Banks 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, Florida Banks, 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 Florida Banks as follows:
Mary M. Gentry, Investor Relations, The South Financial Group, 102
South Main Street, Greenville, SC 29601, Phone: (864)
255-4919, mary.gentry@thesouthgroup.com.
T. Edwin Stinson Jr., Chief Financial Officer, Florida Banks, Inc.,
5210 Belfort Road, Suite 310, Jacksonville, FL 32256, Phone: (904) 332-7772,
estinson@flbk.com
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, Vice Chairman and CFO, (864) 255-7913
Mary M. Gentry, Director of Investor Relations, (864) 255-4919
***END***