PrintPrintLynn Harton, president and CEO of The South Financial Group, said the Greenville bank may take a goodwill impairment charge related to Carolina First bank. Such a move would push third quarter losses beyond the $340.8 million reported Tuesday.
By Scott Miller
smiller@scbiznews.com
Published Oct. 21, 2009
Lynn Harton, president and CEO of The South Financial Group, said the Greenville bank may take a goodwill impairment charge related to Carolina First bank.
Such a move would push third quarter losses beyond the $340.8 million reported Tuesday.
Last year, South Financial recorded a $237.6 million goodwill impairment charge for its Mercantile Bank in Florida but did not do so for Carolina First, which operates in North Carolina and South Carolina.
Now, a third party is evaluating if South Financial needs to take a charge for Carolina First during the third quarter, Harton said. The charge would not impact the company’s cash flows, he said.
The preliminary $340.8 million loss is the largest of seven consecutive quarterly losses dating to the beginning of 2008. Since the first quarter of 2008, South Financial has now lost $1.1 billion, including $543.1 million in the first three quarters of 2009. The company lost $562.5 million last year.
Bad loans and related costs continue to be the problem.
“We can’t return to profitability until we put the credit behind us,” he said. “I think our odds are a lot better than the odds of a lot of other institutions.”
In the third quarter, the bank reduced its nonperforming assets for the first time in this cycle, Harton noted. While costly, the move gives the bank a stronger footing for the future. It’s also a positive sign for the economy as a whole that investors are now willing to purchase these assets, Harton said.
“It’s really all about credit losses. All of the other pieces of the business are moving in the right direction,” Harton said, acknowledging that this won’t be the company’s last quarterly loss.
Florida real estate has been the main culprit, and Harton said that market appears to have hit bottom. The Carolinas are about nine months behind, he said.
“We are seeing a leveling out of the economy,” he said.
South Financial continues to deploy a turnaround strategy focused on improving capital, addressing problem credit, strengthening liquidity, reducing expenses and non-core loans and returning to its roots as a relationship-based bank.
Despite the losses, the company remains well capitalized by regulatory standards and has raised $280 million in Tier 1 common capital this year. South Financial is evaluating whether it needs to raise additional capital, Harton said.
In the third quarter, nonperforming assets declined from $464.9 million to $431.8 million and South Financial reported a $224.2 million provision for credit losses. In addition, core deposits increased 4.1%, and non-core loans held for investment declined by $295 million.
Net interest income decreased by $5.9 million in the quarter to $81.1 million, while noninterest operating expenses declined by $5.3 million, or 6.9%.
“All of the things we’ve focused on are the right things to focus on to survive,” Harton said.
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