2006 Summary Annual Report
Corporate Profile
The South Financial Group, Inc. (NASDAQ: TSFG), the largest publicly-traded bank holding company headquartered in South Carolina, ranks among the top 50 U.S. commercial bank holding companies in total assets. The Company focuses on fast-growing banking markets in the Southeast, concentrating its growth in metropolitan statistical areas. TSFG operates through two subsidiary banks: Carolina First Bank (NC, SC, and on the Internet as Bank CaroLine) and Mercantile Bank (FL). Founded in 1986, The South Financial Group uses a super-community bank strategy, serving small and middle-market businesses and retail customers. As a super-community bank, TSFG combines an exceptional level of personalized customer service and local decision-making, typical of community banks, with a full range of financial services normally found at larger regional institutions. Total assets: Branch offices: Market capitalization: $14.2 billion 167 $2.0 billion
Contents
Letter to Shareholders ...............................................1 Financial Highlights ..................................................5 Our Progress .............................................................6 Our Potential ..........................................................12 Selected Financial Information ................................14 Leadership...............................................................18 Boards of Directors ..................................................20 Advisory Boards ......................................................23 Shareholder Summary..............................................24 Company Information/Locations .....Inside Back Cover
Forward-Looking Statements
The South Financial Group’s 2006 Annual Report contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements may address issues that include significant risks and uncertainties. Although we believe that the expectations reflected in this discussion are reasonable, actual results may be materially different. Please refer to The South Financial Group’s Annual Report on Form 10-K for a more thorough description of the types of risks and uncertainties that may affect management’s forward-looking statements. The information contained herein shall be deemed to be updated by any future filings made by The South Financial Group with the Securities and Exchange Commission.
To Our Shareholders
2006 was a pivotal year for The South Financial Group. Following a period of significant investment, in which we created one of the banking industry’s unique footprints, we refocused our efforts and resources on improving organic revenue growth and profitability. We have taken aggressive steps to fill key management and revenue-producing positions and strengthen our balance sheet. These steps should help position us to realize the potential of our high-growth markets, as we work to improve our profitability.
2006 Results 2006 was a challenging environment for us and the banking industry. With short-term interest rates rising faster and higher than longer-term rates, we were forced to deal with a difficult environment for revenue growth. First, we faced narrowing, and even disappearing, interest spreads for large portions of our balance sheet. Second, customer loan pay-offs accelerated, as longer-term borrowers had a greater incentive to more quickly seek permanent financing. These larger-than-normal loan pay-offs slowed earning asset growth – a key driver of our bank’s revenue and earnings.
Mack I. Whittle, Jr. Chairman, President and Chief Executive Officer
We have worked diligently to improve the quality of our balance sheet. We have increased the percentage of customer assets and funding, improved our asset quality, reduced our interest rate and capital risk, and made recent investments that will allow us to better monitor product and customer profitability.
In spite of this environment, our credit quality and capital measures showed strong improvements. This is particularly important because a strong balance sheet is the foundation for any successful bank. Our decision, therefore, was to focus on our balance sheet, and not stretch for current earnings. We believe this focus will put us in a much stronger position in the future. A summary of 006 versus 005 earnings, charge-offs, and capital follows: • n 006, we earned net income of I $11.9 million, or $1.49 per diluted share, and operating earnings of $115.1 million, or $1.5 per diluted share. For operating earnings, this compares with $16.1 million, or $1.69 per diluted share, in 005. • et loan charge-offs improved N $5.5 million from $31.9 million in 005 to $6.4 million in 006. • angible book value per share totaled T $11.63 at December 31, 006 com- pared with $10.64 at December 31, 005, an increase of 9.3%. progress in key areas In 006, we sought to round out our management team with additional talent, develop new revenue sources, improve the quality of our balance sheet, and
initiate customer funding strategies. I am happy to report that we made significant progress in each of these areas. 1. Attract and Develop Management Talent Our rapid growth from 000 to 004 left us with a need for additional talent and experience. Over the last three years, our management team has evolved as we’ve added talent in key positions. Five of our 13 Executive Committee members have joined us since 004, with each previously holding a senior position at a much larger financial institution. Over the last 18 months, we’ve also added proven players in critical revenue and support positions. Our remarkable degree and depth of talent now warrants as much discussion as our well-publicized footprint. 2. Develop New Revenue Sources Merchant and Treasury Services, two areas where we invested heavily in 005, performed extremely well in 006. Each grew approximately 30% year over year. In addition to providing fee income, these two business lines are important tools in helping cement our commercial customer relationships and gather deposits, including the customer’s primary deposit account. In 006, we expanded our corporate banking operations to include Florida. This should help diversify our balance
sheet by increasing our commercial and industrial business. Lastly, we continue to enhance the ways we prospect for business. Most recently, we have introduced aggressive call blitzes in several key markets. These call blitzes have been very successful in building market recognition, as well as closing new business. 3. Build a Stronger Balance Sheet We have worked diligently to improve the quality of our balance sheet. We have increased the percentage of customer assets and funding, improved our asset quality, reduced our interest rate and capital risk, and made recent investments that will allow us to better monitor product and customer profitability. • alance sheet mix: Average loans as a B percentage of average earning assets increased to 76.7% for the fourth quarter 006 from 70.1% a year earlier. Our average customer funding as a percentage of total funding increased to 66.4% for the fourth quarter of 006 versus 61.3% for a year earlier. These improvements are on top of similar progress achieved in 005. • sset quality: Loans past due 90 days A or more with interest accruing improved $1.4 million from $4.5 million at December 31, 005 to $3.1 million at December 31, 006. Non erforming p
progress in key areas The actions we took in 2006 should assist us in returning to higher profitability and realizing the potential of our high-growth markets. 1. Attract and develop talent 2. Develop new revenue sources 3. Build a stronger balance sheet 4. Increase the level and mix of customer funding 2007 outlook We enter 2007 with locations in the right part of the country, an augmented team, and our balance sheet strength improving. As we strive to increase our profitability, our key objectives include: 1. Focus on key revenue drivers 2. Continue to improve our asset quality 3. “Right-size” our Company to improve efficiency 4. Maximize our capital structure
• nterest rate/capital risk: Our new I Treasury team, aided by more sophisticated software, is providing better analytics, allowing us to address the risks inherent in a bank’s balance sheet. This should help us deliver more consistent growth in earnings and capital over time. As a result of our new analytics, actions were taken in the second half of 006 to lessen the impact on net income from a change in interest rates. • rofitability: We recently installed a P funds transfer pricing system that will allow us to measure and evaluate the profitability of our deposits and loans on a transaction basis. Funds transfer pricing is an integral part of our 007 budget and incentive plans. It will also become a key component of our new profitability system, which will more accurately provide product, customer, business line, and relationship manager profitability. 4. Increase the Level and Mix of Customer Funding One of our biggest opportunities for earnings and profitability improvement is funding. In late 005 and early 006, we developed specific plans to attract more commercial and retail funding. These plans included product development, pricing, marketing, and training. With gathering deposits being as competitive
as it has ever been, I am pleased with our first-year results. After allowing a large amount of single-product, higher-priced CDs to runoff in early 006, we have seen steady growth. Excluding these CDs, and adjusting for a branch sale, average customer deposits increased 3.5% from December 005 to December 006 and 8.7% annualized from May 006 when many of our retail initiatives took hold. Average commercial sweep balances increased 61% from December 005 to December 006. 2007 outlook 007 looks to be another challenging year for the industry, as we expect interest rates to remain relatively unchanged. Nevertheless, we are excited to enter a new phase in 007 with locations in the right part of the country, an augmented team, and our balance sheet strength improving. Our key objectives for 007 include: • ocus on key revenue drivers: We are F a sales organization focused on com- mercial and retail customer acquisition. After a period of significant reductions in investment security balances and a $360 million indirect auto loan sale, we are focused on balance sheet growth and margin stabilization. In addition to our historically strong middle-market and
assets improved $.5 million from $44.0 million at December 31, 005 to $41.5 million at December 31, 006. The net loan charge-off ratio improved to 0.8% for 006 from 0.36% a year earlier.
3
One of our biggest opportunities for earnings and profitability improvement is funding. In late 2005 and early 2006, we developed specific plans to attract more commercial and retail funding. These plans included product development, pricing, marketing, and training. With gathering deposits being as competitive as it has ever been, I am pleased with our first-year results.
small business areas, we expect support from our expanded corporate and retail banking efforts. In 2007, we will also be adding a stronger business banking platform. Equally important, our team is well trained to cross-sell our fee income products, improving the customer relationship and increasing profitability. • Continue to improve our asset quality: We plan to build on the improvements we have made over the last two years in this area. While our net loan charge-off ratio declined to 0.28% in 2006 from 0.36% in 2005 and 0.46% in 2004, we believe that there is still room to improve: • “Right-size” our Company to improve efficiency: Controlling expenses is especially important in this difficult revenue environment. We recently challenged our leadership team to take a hard look at their expenses. We believe this review has identified a number of expense reductions that can take place without any impairment of our revenue-generating capabilities. We expect the majority of these savings to be substantially implemented by the end of the first quarter. • Maximize our capital structure: We continuously review our capital structure and feel that our strengthened balance sheet allows us the flexibility to repurchase common stock. Going forward, our plan is to maintain our
tangible equity to tangible capital ratio between 6% and 6.5% – an adequate level to meet our growth plans. We continue to evaluate ways to ensure we are operating with the most efficient and cost-effective capital structure. ouR potential Our potential is unlimited. We serve a large and growing market, and continued Southeastern bank acquisitions have left fewer players to serve the growing need for financial services. By most standards, we have only begun to tap the many opportunities that are available to us. I am confident that the leadership we have established will maximize the many longterm investments we have made, and that The South Financial Group will continue to become a more meaningful force in Southeastern banking. Sincerely,
William s. HummeRs iii eigHteen yeaRs of dedicated seRvice
Mack I. Whittle, Jr. Chairman, President and Chief Executive Officer March , 2007
We extend a special thank you to Bill Hummers, who retired in December after serving as Chief Financial Officer and Chief Risk and Administrative Officer. Bill helped to build our Company from a local bank with $150 million in assets in 1988 to a threestate, super-community bank with over $14 billion in assets. We’ve benefited greatly as Bill provided wise counsel, motivated our team, and kept us true to our community banking roots. We are fortunate that Bill will continue to serve us as a Board member. Thank you, Bill.
4
Financial Highlights
(In thousands, except per common share)
2006
$ 533,422 537,267 112,866 115,101 $ 1.49 1.52 0.69 20.73 11.63 26.59 $ 9,701,867 2,795,764 14,210,516 7,892,309 1,562,032 $ 9,621,846 3,043,385 12,692,872 14,202,649 7,727,642 1,506,195 $
2005
464,266 535,737 69,82 26,30 0.94 .69 0.65 9.90 0.64 27.54 $ 9,439,395 3,59,67 4,39,285 7,895,756 ,486,907 $ 8,883,837 4,388,35 3,307,956 4,752,973 7,285,06 ,463,25 $
2004
460,78 458,820 9,508 27,308 .80 .92 0.6 9.56 0.98 32.53 $ 8,07,757 4,30,088 3,798,689 6,454,072 ,393,460 $ 6,927,336 4,58,202 ,0,95 2,208,069 5,95,535 ,64,004 $
2003
35,629 35,490 83,583 87,73 .66 .74 0.57 6.46 0.48 27.75 $ 5,732,205 4,007,57 0,724,75 5,330,787 972,299 $ 4,95,437 3,47,324 8,425,590 9,26,657 4,592,482 709,79 $
2002
284,706 273,4 63,833 63,00 .49 .48 0.50 3.76 8.65 20.66 $ 4,434,0 2,572,86 7,939,960 4,047,639 65,683 $ 4,008,094 ,850,798 5,924,077 6,496,692 3,493,34 499,579
% Change Five-Year 2006/2005 Compound(e)
5% – 62 (9) 59% (0) 6 4% 9 (3) 3% (2) () – 5 8% (3) (5) (4) 6 3 8% 9 22 23 9% 0 9 3 6 8 2% 9 8 28 2% 22 2 2 7 25
eaRnings summaRy Total revenue(a) Total operating revenue(a) (b) Net income Operating earnings peR common sHaRe Net income – diluted Operating earnings – diluted(b) Cash dividends declared At year-end: Book value Tangible book value Market price Balance sHeet, at yeaR-end Loans held for investment Securities Total assets Customer deposits(c) Shareholders’ equity Balance sHeet, aveRages Loans Securities Earning assets Total assets Customer deposits Shareholders’ equity Ratios Performance: Return on average assets Return on average assets, operating(b) Return on average equity Return on average equity, operating(b) Net interest margin (tax-equivalent) Efficiency ratio, as reported(d) Cash operating efficiency ratio(b) (d) Credit quality: Net loan charge-offs as a % of average loans held for investment (HFI) Nonperforming assets as a % of loans HFI and foreclosed property Capital: Tangible equity to tangible assets
$
$
$
$
0.79% 0.81 7.49 7.64 3.22 63.76 60.47 0.28 0.43 6.48
0.47% 0.85 4.77 8.62 3.2 70.66 55.32 0.36 0.47 5.83 74,72 $ 2,057,829 2,607 72 67
0.98% .04 0.27 0.94 3.06 54.32 50.29 0.46 0.69 5.93 7,252 $ 2,37,839 2,308 54 45
0.90% 0.95 .78 2.36 3.0 58.92 55.52 0.62 .06 5.97 59,064 $ ,639,036 ,98 34 22
0.98% 0.97 2.78 2.6 3.59 57.20 55.23 0.49 .67 5.32 47,347 978,97 ,700 7 05 % (3) – (3) 3% 22 4 3 7
miscellaneous infoRmation Common shares outstanding 75,341 Market capitalization $ 2,003,325 Full-time equivalent employees 2,618 Branch offices 167 ATMs 169
$
Notes: (a) Total revenue is the sum of net interest income and noninterest income. Total operating revenue is calculated using tax-equivalent net interest income and operating noninterest income.
(b)
Operating results exclude nonoperating items, such as gains or losses on asset sales, certain changes in fair value of interest rate swaps, impairment charges, employment contract buyouts, merger-related costs, and other nonoperating items. Please see page 7 for reconciliation of GAAP to non-GAAP operating measures. Customer deposits include total deposits less brokered deposits. Efficiency ratio is calculated as noninterest expenses divided by the sum of net interest income and noninterest income. Cash operating efficiency ratio is calculated using tax-equivalent net interest income and excludes nonoperating items and amortization of intangibles. Includes impact of acquisitions accounted for using the purchase method of accounting.
(c) (d)
(e)
5
OuR PROGRESS: Risk Profile
Simpler, disciplined, predictable…these words describe the structural changes we made to our balance sheet to reduce risk exposure, make it more customer-focused, and position TSFG for a more stable, stronger future. impRoved Balance sHeet WitH Reduced inteRest Rate and capital Risk Since March 2005, we took approximately $2 billion in investment securities off our balance sheet and replaced much of it with customer loans. We also took steps to improve credit quality and ended 2006 with improved ratios for nonperforming assets, as well as net loan charge-offs. Our community bank focus keeps us close to our customers, a big plus from a credit perspective. Additionally, our 2006 sale of indirect auto loans and investment security runoffs have increased our capital ratios, providing us with capital flexibility and the opportunity to repurchase shares. The result? An improved balance sheet mix with reduced interest rate, capital, and earnings risks. Refocused Balance sHeet WitH BetteR gRoWtH oppoRtunities Our balance sheet, today, more directly reflects our community bank roots. We are intent on generating assets and liabilities that have the highest probability of becoming broad-based customer relationships. This helps us better serve our customers, while giving us a more stable, profitable earnings base with better growth opportunities. To this end, we have improved our balance sheet mix with a higher percentage of average earning assets from customer loans and a higher percentage of average total funding from customer deposits and sweeps. neW Risk management and tReasuRy teams Our efforts to more astutely manage risk are gaining traction. We have established an organization-wide risk management department whose objective is to assess interest rate, credit, capital, and operational risks. Additionally, we strengthened the role of our Asset/Liability Management Committee, whose responsibility it is to manage the balance sheet. Moreover, we welcomed a new Treasury team – a Treasurer, Assistant Treasurer, and Director of Asset/Liability Management. These professionals bring strong backgrounds in asset/liability modeling and balance sheet strategy. In fourth quarter 2006, they implemented a new asset/liability modeling system, BancWare, that provides a clearer understanding of our balance sheet and ways to manage it in varied interest rate scenarios. There is still work to do, but the balance sheet continues to improve as assets and liabilities with limited profitability, as well as additional funding with optionality, move off our balance sheet. …with more funding from customer deposits…
80 75
improved balance sheet mix by adding customer loans…
75.8%
70
80 75 70
67.7% 62.4% 58.3%
66.8%
65
65 60 55 50
59.6% 54.6% 54.1% 55.4%
62.0%
60 55 50
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
Average Loans as a % of Average Earning Assets
Average Customer Deposits* as a % of Average Total Funding * ustomerdepositsincludetotaldepositsless C brokereddeposits.
…improving credit quality…
1.67%
1.670000 1.391667
…and building tangible equity.
6.48% 5.97% 5.32%
5.10 6.75 6.20
5.93%
1.06% 0.69%
0.49% 0.62% 0.46%
1.113333 0.835000
5.83%
5.65
0.47%
0.36%
0.43%
0.28%
0.556667 0.278333 0.000000
4.55
4.00
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
Credit Quality Ratios Nonperforming Assets* Net Loan Charge-Offs** * sa%ofloansheldforinvestmentand A foreclosedproperty **Asa%ofaverageloansheldforinvestment
Tangible Equity as a % of Tangible Assets
6
Financial Planning and analysis Team In 2006, we put a dedicated team in place to focus on financial planning, management reporting, and performance measurement. This team is implementing new tools such as funds transfer pricing and a profitability system that will allow us to accurately measure customer, relationship manager, market, and business unit profitability. All this will help us ensure our returns exceed our minimum profitability thresholds.
Left to Right: John Wavro, Budgeting and Forecasting; Roy Jones, FP&A Team Leader; Mike Dymski, Management Reporting; Lynn Courchaine, Performance Measurement
OuR PROGRESS: Profitability Potential
We are committed to growing profitable businesses and striving to increase our returns on assets and equity. Accordingly, we have more products to offer today, as well as people trained to execute our strategies. Small cross-sells can dramatically change the ROE of a prospective customer relationship, and as we build for the future, such small steps are exceedingly important. incReased RetuRns on indiRect auto loans Over the past months, we reviewed certain assets to determine if they met our profitability thresholds. This resulted in the sale of investment securities, indirect auto loans, and a branch location. In June 2006, we sold $360 million of indirect auto loans that had been generating returns lower than internal profitability goals. We also retooled the pricing process for our indirect auto loans and nearly doubled their potential ROE. BetteR tools and infoRmation New tools are helping us measure profitability and grow products that contribute more to the bottom line. We rolled out a funds transfer pricing system in fourth quarter 2006. This tool will allow us to better manage the net interest income each loan and deposit account generates by comparing it to a matched funding cost or yield. A new profitability system will be implemented in 2007, which will allow us to analyze profitability by product, customer, business unit, lender, and market. This information – in addition to improvments in other areas of management reporting – helps management make smarter decisions. pRofitaBility top-of-mind Employees in every area of TSFG are focused on increasing profitability, from top management to the Company’s front-line bankers dealing directly with customers. We are educating our relationship managers on the profitability difference between singleproduct and multi-product customers, so they can lead the charge in becoming our customers’ total banker, not just their lender. An internal focus on profitability and operating leverage, that is growing revenues faster than expenses, now permeates TSFG. Our employees understand the importance of our return on equity and ways to improve it through revenues, expenses, credit, taxes, or share count. And, we have reworked incentive compensation to align it with desired profitability metrics.
7
OuR PROGRESS: Funding
If you studied our Annual Report from five years ago, there wouldn’t have been much discussion about deposits. Historically, we were commercial lenders, focused on generating high-quality loans at good yields, with the business of funding being the concern of our Treasury area. We are now actively managing both sides of the balance sheet, loans and deposits. Customer funding is a top priority and a big opportunity for earnings and profitability improvements, given the lower cost and higher stability of deposits. moRe coRe opeRating and tRansaction accounts Both commercial and retail banking now emphasize funding as well as loan growth. Improved training, restructuring of incentive plans, and enhanced tracking tools have helped to make every employee aware of this strategy. Our front-line bankers understand the importance to the net interest margin of bringing in more customer funding. In mid-2005, we hired Chris Gompper as Director of Treasury Services, and he is doing an excellent job working with our bankers to improve our ability to attract the core operating accounts of our commercial customers. We have also experienced strong growth in our commercial sweep accounts and balances for Treasury Service customers. In 2006, Chris Holmes joined us to lead our retail banking area. He has made a big impact by refocusing our branches on producing core transaction accounts. Our weekly tracking of core transaction account openings per branch per week has contributed to significant increases in checking account openings, up 27% in 2006. These increases have provided more granular and stable funding. For new branches, we have developed a successful grand opening program. We are testing various grand opening offers and monitoring where we get the biggest impact. Convenience banking was also recently introduced, which extends our hours and our depository cut-off. We’re early in this rollout, but the feedback from customers is extremely positive. moRe multi-RelationsHip accounts We are working to increase and deepen customer relationships. For example, during 2006, we allowed a large number of single-product, high-priced deposits, particularly time deposits greater than $00,000, to mature without renewal. We did this knowing we had plans in place to replace that funding with smaller, multi-relationship accounts. This move has given us increased stability in our balance sheet and increased predictability in our net interest margin, even though the funding cost has come up.
7.5 7.3 7.1 6.9 6.7 6.5
While the level of customer funding was largely unchanged during 2006…
$8.5
8.2
$8.2
$8.3
7.9
7.6
7.3
$7.0
Dec 05
($ in billions)
Dec 06
Total Customer Funding*
…time deposits greater than $100,000 declined, masking 6% growth in other categories.
$7.5
7.3
$7.2
7.1
6.9
$6.8
6.7
dec05jan06 feb06mar06apr06may06jun06 jul06 aug06sep06oct06nov06dec06
$6.5
Dec 05
Dec 06
Total Customer Funding Excluding Time Deposits > $100,000* ($ in billions) * veragedailybalances.Customerfundingincludes A customerdeposits(totaldepositslessbrokered deposits)pluscustomersweeps.9/06to12/06 balancesincreasedby$28milliontoinclude depositssoldrelatedtoabranchsale.
smaRteR, moRe pRofitaBle BRancHes To optimize our branch network, we are seeking better locations for branch traffic. During 2006, TSFG opened five de novo branches, relocated two branches, sold one branch, and consolidated nine branches, reflecting efforts to rationalize the branch network and concentrate on high-growth markets. We’ll continue this discipline in 2007.
8
OuR PROGReSS: Revenue Sources
Our objective of growing customer-related revenues has intensified as we redirect our efforts toward the assets and liabilities that have the highest probability of becoming broad-based customer relationships. In 2006, TSFG made important strides in supplementing our current strength in commercial lending with a greater emphasis on retail banking and fee-based businesses. As we work to sell our customers more services, we have transformed our lenders into Relationship Managers. Blitzing the market We have launched periodic “calling blitzes” in several key markets. These reflect the energy of our bankers and involve not only commercial relationship managers, but also line-of-business partners and executive management. As a team, we get out into the market on a single day to meet and talk with existing and potential customers about their needs. In some markets, merely closing the opportunities uncovered on these days will allow us to meet monthly targets. introducing new revenue drivers Last spring, we set up a Corporate Banking group to grow C&I loans, deposits, and noninterest income by targeting larger middle-market companies. We launched these efforts in Florida when Rob Dewey, formerly President of SouthTrust’s corporate banking division, joined us to lead corporate banking in Florida. This group is a great addition to our existing Florida business and will help us diversify our mix of customers and loans. We are also doing a pilot test that centers on expanding our small business capabilities. In addition to introducing a new small business cash management suite, eBusiness, we are also implementing automated credit scoring methodology, looking for faster, more consistent and less expensive credit approval. With business banking, we can still be a community bank but better institutionalize the underwriting, and performance, of small business loans. growing fee-Based revenue TSFG has invested in new and enhanced products in international, merchant, treasury services, and wealth management. We have also hired proven leadership from some of the country’s top financial institutions to lead these fee-based businesses. This new leadership has a track record in dealing with multiple products, pricing, incentives, and profitability. Because these efforts have been under way since 2005, advances are becoming apparent.
RElationship ManagERs Our Commercial Relationship Managers do an outstanding job of staying close to the customer, as well as understanding each customer’s needs. We understand that the return from a loan with fees, deposits, and fee income is greater than the return from a loan only. Importantly, we know that our existing customers are our best “new” customers.
Left to Right: Rob Dewey and Kevin Short, Corporate Banking; Mary Suddeth, Treasury Services
OuR PROGRESS: People
Today, TSFG is a super-community bank, almost triple its size of just six years ago. We’ve grown from $5 billion in assets in 2000 to $4 billion in 2006. Our footprint now encompasses Florida, North Carolina, and South Carolina with 67 branches and 2,68 full-time equivalent employees at year-end 2006. talent in many places Growth brings the need for additional talent, and TSFG has identified the talent. We look for high-potential, high-performing individuals, both inside and outside our Company. As a result, outstanding professionals are in place, and quality teams are formed. Recently, we have added two new Market Presidents, trained and promoted from our internal team. New revenue-producers from banks such as Charter One, Fifth Third, National Commerce, SouthTrust, and Wells Fargo are now at TSFG in Corporate Banking, Retail Banking, Treasury Services, Wealth Management, and Mortgage. We now also enjoy the talents of new support partners in Asset/Liability Management and Treasury, as well as a new Head of Operations, Chief Risk Officer, and General Auditor, bringing experience from Capital One, Colonial, First Horizon, Regions, and Synovus. gRoWing and Retaining talent Growing and retaining top leadership talent is a key component of our overall strategy. In 2006, we launched Leaders Teaching Leaders – a year-long leadership development process for top-performing individuals. We selected the first 3 participants based on their ability to consistently demonstrate a commitment to excellence and their potential for expanded responsibility. In addition to training and coaching, our participants are engaged in one of two action teams charged to implement sustainable solutions for employee engagement/retention and organizational communication. Importantly, they will share what they learn with others across our Company. coRe values do not cHange Top management’s commitment to TSFG’s future is evident in the “town hall” meetings held in multiple locations throughout the organization during 2006. The purpose of these meetings was to listen: to assess the needs of our customers, to understand our employees, to hear the ideas of the people “on the line” on how to keep our customers first, and to apply this feedback in tangible ways to help us operate smarter. These meetings were so successful that they continue today in a “Virtual Town Hall” on our Intranet. Any employee can, at any time, make a suggestion to management, which will be read and receive a direct response.
0
While personnel, focus, tools, and geography may change, core values do not. We know that corporate culture is a vital part of excellence in customer service and corporate governance. We are committed to continually developing our employees and have adopted the following core values: integrity, professionalism, relationships, balance, and passion. Included in these values is our shared commitment to “doing the right thing” and “doing what we say we will do.” passion dRives ouR people People drive our business, but passion drives our people. We have a passion for our customers and for our communities. Our “Market President” structure keeps local people running our markets and allows them to maintain personal banking relationships with customers. Their local authority also helps to meet customers’ needs quickly and efficiently.
Growth brings the need for additional talent, and TSFG has identified the talent. We look for high-potential, high-performing individuals, both inside and outside our Company. As a result, outstanding professionals are in place, and quality teams are formed.
leadeRs Teaching leadeRs Emerging leaders of TSFG are learning what it takes to carry our organization into the future. In 2006, Leaders Teaching Leaders was launched with 13 individuals who represent multiple business lines and staff positions across our footprint. Our inaugural participants are shown below.
Left to Right: Scott Plyler, Coastal Market; David Bell, Human Resources; Trish Springfield, Retail Banking; Scott Frierson, North Carolina Markets; Chris Yancey, Mid Florida Market; Vikki Colucci, South Florida Market; Todd Lumpkin, Commercial Banking; Marilyn Drayton, Regulatory Risk; Quintin Sykes, Technology Group; David Frances, Credit Risk; Tanya Butts, Operations; Chris Speaks, Finance; David Lominack, Midlands Market
The team, the market footprint, and a number of specific strategies position TSFG for the future. We’ve restructured our balance sheet, added management talent, and implemented new systems to better model our balance sheet and more profitably price our loans and deposits. We’re focused on continued improvement in credit quality, building on improvements we’ve made in
Total:
recent years. Funding remains both an opportunity and a challenge, and we’re working hard to increase our level of core 0.0 0.0 customer funding over time. We’re also 0.0 0.0 0.0 striving to diversify our revenues through 0.0 0.0 0.0 our0.0 fee-based businesses and to gain efficiencies by “right-sizing” our Company. 0.0 0.0 0.0 It’s an exciting time. Risk profile, profitability potential, funding, revenue 4Q04 3Q03 4Q03 1Q04 2Q04 3Q04
00.0% 00.0% 00.0% 00.0% 00.0%
00.0%
00.0%
sources, and people…these are areas where we’ve made progress and have potential to do much more. As we embrace the challenges ahead, we are rededicating 0.0 0.0 our energies to do the right things, 0.0 0.0 execute our plans, and make all possible progress toward long-term profitability. We enter 2007 stronger, more focused, and 2Q05 1Q05 better prepared.
00.0%
geographically diversified our customer funding base as we built our footprint...
15.7
100%
...in strategic markets with high-growth potential.
15.3
0.4 14.9
13% 87%
12% 2%
86%
15% 2% 83%
28%
25%
40%
40%
39%
1.9
11.7 8.9
1.0 10.7
13.8
15
2% 70%
12% 63% 10% 50% 11% 49% 14%
south 6.4 6.0 carolina 1.2
5.2
1.0 7.9
florida
39%
12
10.8%
9
6.9%
47%
00
01
47%
02
03
04
05
6
14%
3
98
99
00 FL
01
02 NC
03
04 SC
05
06
north carolina
U.S. U.S.0 Median Median
TSFG TSFG Markets Markets
PercentofdepositsbystateasofDecember31; reflectscustomerdepositsfor12/31/05and12/31/06.
Source:SNLFinancial, depositweightedbycounty
Total Deposits by State
Projected Household Growth 2006-2011
OuR POTEN
461 500
500 400
352
285
300
216
229
200
Continues To Build
100 0
00
01
02
03
04
05
2
maRkeT FooTPRinT We have strategically built our footprint to be in high-growth markets. As these areas grow, so will our opportunities.
Entered Market: 2000 Loans: $1.6 billion Customer Deposits: $1.1 billion Branches: 24
North Carolina
Entered Market: 1986 Loans: $4.3 billion Customer Deposits: $3.7 billion Branches: 77
South Carolina
Entered Market: 1999 Loans: $3.9 billion Customer Deposits: $3.1 billion Branches: 66
Florida
Information as of December 31, 2006
On Our Community Bank Focus
TIAL:
3
Condensed Consolidated Balance Sheets
December 3,
(In thousands, except per share data)
2006 $ 326,567 31,264 – 2,743,456 52,308 2,795,764 28,556 9,701,867 (111,663) 9,590,204 219,163 77,523 650,492 35,076 455,907 $ 14,210,516 $
2005 34,95 2,50 ,402 3,095,567 62,648 3,59,67 37,7 9,439,395 (07,767) 9,33,628 93,574 70,838 647,907 43,85 47,994 $ 4,39,285
assets Cash and due from banks Interest-bearing bank balances Securities Trading Available for sale Held to maturity (market value $52,0 in 2006 and $62,697 in 2005) Total securities Loans held for sale Loans held for investment Less: Allowance for loan losses Net loans held for investment Premises and equipment, net Accrued interest receivable Goodwill Other intangible assets Other assets
liaBilities and sHaReHoldeRs’ equity Liabilities Deposits Noninterest-bearing Interest-bearing Total deposits Federal funds purchased and repurchase agreements Other short-term borrowings Long-term debt Accrued interest payable Other liabilities Total liabilities Commitments and contingencies Shareholders’ equity Preferred stock – no par value; authorized 0,000,000 shares; issued and outstanding none Common stock – par value $ per share; authorized 200,000,000 shares; issued and outstanding 75,34,276 shares in 2006 and 74,72,46 shares in 2005 Surplus Retained earnings Guarantee of employee stock ownership plan debt and nonvested restricted stock Accumulated other comprehensive loss, net of tax Total shareholders’ equity
$ 1,280,908 8,235,832 9,516,740 1,421,099 347,620 1,130,475 68,940 163,610 12,648,484 –
$ ,458,94 7,775,523 9,234,437 ,42,30 53,064 ,922,5 54,40 47,024 2,832,378 –
– 75,341 1,167,685 367,261 (151) (48,104) 1,562,032 $ 14,210,516
– 74,72 ,5,005 309,768 (2,687) (45,900) ,486,907 $ 4,39,285
4
Condensed Consolidated Statements of Income
Year Ended December 3,
(In thousands, except per share data)
2006 $ 21,020 7 124,850 12,819 137,669 1,511 860,200
2005 $ 568,222 73,657 ,243 84,900 ,75 754,297
2004 $376,742 57,7 8,090 65,26 229 542,232
inteRest income Interest and fees on loans Interest and dividends on securities: Taxable Exempt from Federal income taxes Total interest and dividends on securities Interest on short-term investments Total interest income inteRest expense Interest on deposits Interest on short-term borrowings Interest on long-term debt Total interest expense net inteRest income pRovision foR cRedit losses Net interest income after provision for credit losses noninteRest income noninteRest expenses Income before income taxes and discontinued operations Income taxes Income from continuing operations Discontinued operations, net of income tax net income aveRage common sHaRes outstanding, Basic aveRage common sHaRes outstanding, diluted peR common sHaRe, Basic Income from continuing operations Discontinued operations Net income peR common sHaRe, diluted Income from continuing operations Discontinued operations Net income
291,292 86,524 81,013 458,829 401,371 32,789 368,582 132,051 340,085 160,548 47,682 112,866 – $ 12,866 1 74,940 75,543 1.51 – 1.51 1.49 – 1.49 $ $ $ $
96,689 49,38 99,7 345,24 409,056 40,592 368,464 55,20 328,053 95,62 25,404 70,27 (396) $ 69,82 73,307 74,595 0.96 (0.0) 0.95 0.94 – 0.94 $ $ $ $
24,868 8,908 62,65 206,39 335,84 34,987 300,854 24,877 250,244 75,487 55,489 9,998 (490) $9,508 64,592 66,235 .86 (0.0) .85 .8 (0.0) .80
$ $ $ $
5
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders The South Financial Group, Inc.: We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (united States), the consolidated financial statements of The South Financial Group, Inc. as of December 3, 2006 and for the period ended December 3, 2006, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 3, 2006, and the effectiveness of the Company’s internal control over financial reporting as of December 3, 2006; and in our report dated February 28, 2007, we expressed unqualified opinions thereon. The consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting referred to above (not presented herein) appear in Item 8 of The South Financial Group, Inc.’s Annual Report on Form 0-K for the year ended December 3, 2006. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.
Charlotte, North Carolina February 28, 2007
Explanation of TSFG’s use of Certain Non-GAAP Financial Measures
ThisSummaryAnnualReportcontainscertainfinancialmeasuresdeterminedbymethodsotherthanGenerally AcceptedAccountingPrinciples(“GAAP”).Thetableonpage17providesreconciliationsbetweenGAAPresultsand non-GAAPperformancemeasures.OperatingmeasuresadjustGAAPinformationtoexcludetheeffectsofnonoperating items(includinggainsorlossesoncertainitems,merger-relatedcosts,employmentcontractbuyouts,andcertainother nonoperatingitemsdeemednottoreflectcoreoperations).Inaddition,TSFGprovidesdataeliminatingintangiblesand relatedamortizationinordertopresentdataona“cashoperatingbasis.” TSFGusesthesenon-GAAPmeasuresinitsanalysisofTSFG’sperformanceandbelievespresentationsof“operating” financialmeasuresprovideusefulsupplementalfinancialinformation,aclearerunderstandingofTSFG’sperformance,and betterreflectTSFG’scoreoperatingactivities.Managementutilizesoperatingmeasuresinthecalculationofcertainof TSFG’sratios,inparticular,toanalyzeonaconsistentbasisovertimetheperformanceofwhatitconsiderstobeits coreoperations.TSFGbelievesthenon-GAAPmeasuresenhanceinvestors’understandingofTSFG’sbusinessandperformance.Thesemeasuresarealsousefulinunderstandingperformancetrendsandfacilitatecomparisonswiththe performanceofotherfinancialinstitutions. Thelimitationsassociatedwithoperatingmeasuresandcashbasisinformationaretheriskthatpersonsmight disagreeastotheappropriatenessofitemscomprisingthesemeasuresandthatdifferentcompaniesmightcalculate thesemeasuresdifferently.Managementcompensatesfortheselimitationsbyprovidingdetailedreconciliations betweenGAAPandoperatingmeasures.ThesedisclosuresshouldnotbeconsideredanalternativetoGAAP.
6
Reconciliations of GAAP to Non-GAAP Operating Measures
For the Year Ended December 3,
(In thousands, except per share data)
2006
2005
2004
$ 340,97 (4,356) 335,84 $ 8,623 4,723 2,350 6,998 – 2,550 (0,367) 6,254 24,877 $ 236,796 ,080 ,429 7,866 (277) 3,350 3,448 250,244 $ 9,508 490 – 55,489 75,487 (6,254) 3,448 82,68 55,373 27,308 4,089 3,397 66,235 $ .80 .92 $
2003
$ 253,57 (2,68) 250,890 $ 97,99 5,376 60 ,080 – (4,237) – 2,820 00,739 $ 98,564 52 2,699 5,27 268 – 8,606 207,70 $ 83,583 – – 38,283 2,866 (2,820) 8,606 27,652 39,939 87,73 2,374 90,087 50,328 .66 .74 $
2002
$ 22,495 (2,352) 20,43 $ 60,96 3,35 – 2,985 – 7,527 – 3,647 74,563 $ 52,527 ,846 354 6,664 ,449 – 0,33 62,840 $ 63,833 – ,406 3, 96,350 (3,647) 0,33 93,06 30,006 63,00 ,053 64,063 42,75 .49 .48
net inteRest income Net interest income (tax equivalent) Less: Tax-equivalent adjustment Net interest income noninteRest income Operating noninterest income Nonoperating noninterest income (loss): Gain on equity investments Gain on disposition of assets and liabilities (Loss) gain on available for sale securities Loss on sale of indirect auto loans previously HFI Change in fair value of interest rate swaps Impairment of perpetual preferred stock Nonoperating noninterest income (loss) Total noninterest income noninteRest expenses Operating noninterest expenses Nonoperating noninterest expenses: Employment contract buyouts Loss on early extinguishment of debt Merger-related costs Impairment loss (recovery) from write-down of assets Other (a) Nonoperating noninterest expenses Total noninterest expenses eaRnings Net income, as reported GAAP Discontinued operations, net of tax Cumulative effect of change in accounting principle, net of tax Add: Income tax expense Income before income taxes, discontinued operations, and cumulative effect of change in accounting principle Nonoperating noninterest (income) loss Nonoperating noninterest expenses Pre-tax operating earnings Related income taxes Operating earnings Add: Amortization of intangibles, net of tax Cash operating earnings Average common shares outstanding, diluted Per common share: Net income – diluted Operating earnings – diluted select Balance sHeet (aveRages) Shareholders’ equity Intangible assets Tangible equity Notes:
$ 408,274 $ 45,0 (6,903) (6,054) 401,371 409,056 $ 128,993 $ 20,627 4,483 2,498 (446) (3,477) – – 3,058 132,051 2,839 – (54,978) – (3,278) – (65,47) 55,20
$ 333,676 $ 305,06 5,588 821 – – – 6,409 340,085 $ 112,866 $ – – 47,682 160,548 (3,058) 6,409 163,899 48,798 115,101 6,301 121,402 75,543 $ 1.49 $ 1.52 0,327 7,0 4,009 97 683 23,037 328,053 69,82 396 – 25,404 95,62 65,47 23,037 84,075 57,945 26,30 5,939 32,069 74,595 0.94 .69
$ ,506,195 $,463,25 1 (689,116) (663,274) 817,079 799,85
$,64,004 (468,060) 695,944
$ 709,79 (267,46) 442,375
$ 499,579 (25,732) 373,847
(a)
Other includes charitable contribution of $683 in 2005 and conservation grant of land of $3,350 in 2004.
7
ExECuTIVE COMMITTEE: The South Financial Group
Left to Right:AndrewB.Cheney,WilliamP.Crawford,Jr.,J.W.Davis,H.LynnHarton,ChristopherT.Holmes,MaryA.Jeffrey,TimothyK.Schools
AndrewB.Cheney
Chairman, MercantileBank YearJoinedTSFG:2000
J.W.Davis
President, CarolinaFirstBank/NC YearJoinedTSFG:2003
ChristopherT.Holmes
ExecutiveVicePresident, DirectorofRetailBanking YearJoinedTSFG:2006
TimothyK.Schools
ExecutiveVicePresident, ChiefFinancialOfficer YearJoinedTSFG:2004
WilliamP.Crawford,Jr.
ExecutiveVicePresident, GeneralCounsel YearJoinedTSFG:2002
H.LynnHarton
ExecutiveVicePresident, ChiefRiskandCreditOfficer YearJoinedTSFG:2007
MaryA.Jeffrey
ExecutiveVicePresident, HumanResources YearJoinedTSFG:2002
Left to Right:MauriceJ.Spagnoletti,KendallL.Spencer,MichaelW.Sperry,JamesW.Terry,Jr.,MackI.Whittle,Jr.,KeithD.Williamson
MauriceJ.Spagnoletti
President, CarolinaFirstBank/SC andTSFGMortgage YearJoinedTSFG:2006
MichaelW.Sperry
ExecutiveVicePresident, ChiefCreditOfficer YearJoinedTSFG:1998
MackI.Whittle,Jr.
Chairman,Presidentand ChiefExecutiveOfficer YearJoinedTSFG:1986
KeithD.Williamson
ExecutiveVicePresident, GeneralAuditor YearJoinedTSFG:2005
KendallL.Spencer
President,MercantileBank YearJoinedTSFG:2000
JamesW.Terry,Jr.
ExecutiveVicePresident, DirectorofCorporateBanking YearJoinedTSFG:1991
8
BANK LEADERSHIP: Carolina First Bank and Mercantile Bank
BANK PRESIDENT/CHAIRMAN caRolina fiRst Bank North Carolina
MARKET PRESIDENTS ScottM.Frierson Mountain Offices:19 Assets:$1,530million Yearsinbanking:22 Yearsinmarket:3 ScottM.Frierson Wilmington Offices:5 Assets:$124million Yearsinbanking:22 Yearsinmarket:1
J.W.Davis President,CarolinaFirstBank/ NorthCarolina
caRolina fiRst Bank South Carolina
MauriceJ.Spagnoletti President,CarolinaFirstBank/ SouthCarolinaandTSFGMortgage
RobertE.Brown Piedmont Offices:5 Assets:$254million Yearsinbanking:37 Yearsinmarket:20 DavidM.Lominack Midlands Offices:24 Assets:$1,167million Yearsinbanking:10 Yearsinmarket:1
RichardD.Ocheltree Upstate Offices:25 Assets:$1,400million Yearsinbanking:26 Yearsinmarket:2 R.ScottPlyler Coastal Offices:23 Assets:$1,350million Yearsinbanking:15 Yearsinmarket:14
meRcantile Bank Florida
AndrewB.Cheney Chairman,MercantileBank KendallL.Spencer President,MercantileBank
DonaldL.Gaudette,Jr. Central Florida Offices:9 Assets:$461million Yearsinbanking:23 Yearsinmarket:15 SuzanneM.Norris North Central Florida Offices:12 Assets:$746million Yearsinbanking:21 Yearsinmarket:14 R.CarlPalmer,Jr. South Florida Offices:11 Assets:$666million Yearsinbanking:43 Yearsinmarket:26
CynthiaS.Stover Northeast Florida Offices:12 Assets:$672million Yearsinbanking:25 Yearsinmarket:24 DouglasA.Tuttle Tampa Bay Offices:19 Assets:$880million Yearsinbanking:24 Yearsinmarket:24 ChristopherF.Yancey Mid Florida Offices:3 Assets:$268million Yearsinbanking:24 Yearsinmarket:24
Information as of December 31, 2006
9
BOARD OF DIRECTORS: The South Financial Group
LEFT TO RIGHT:
William P. Brant J. W. Davis C. Claymon Grimes, Jr. M. Dexter Hagy William S. Hummers III Challis M. Lowe Darla D. Moore Jon W. Pritchett H. Earle Russell, Jr., M.D. Charles B. Schooler, O.D. Edward J. Sebastian John C.B. Smith, Jr. William R. Timmons III Samuel H. Vickers David C. Wakefield III Mack I. Whittle, Jr.
WilliamP.Brant SeniorPartner Brant,Abraham,Reiter,McCormick&Greene,P.A. ChiefExecutiveOfficer ThayendanegeaTimber,LLC J.W.Davis President CarolinaFirstBank/NorthCarolina C.ClaymonGrimes,Jr. Attorney M.DexterHagy Principal VaxaCapitalManagement,LLC
WilliamS.HummersIII DeputyChairman TheSouthFinancialGroup ChallisM.Lowe ExecutiveVicePresident DollarGeneralCorporation DarlaD.Moore VicePresident Rainwater,Inc. JonW.Pritchett PresidentandChiefExecutiveOfficer NextranCorporation
20
H.EarleRussell,Jr.,M.D. Surgeon GreenvilleSurgicalAssociates CharlesB.Schooler,O.D. Optometrist EdwardJ.Sebastian Retired–Founder,ChairmanandCEO ResourceBancsharesMortgageGroup,Inc. ResourceBancsharesCorporation CEO,SMRGroup,LLC
JohnC.B.Smith,Jr. Owner JohnC.B.SmithRealEstate Attorney/OfCounsel NelsonMullinsRiley&ScarboroughLLP WilliamR.TimmonsIII Secretary,Treasurerand SeniorVicePresidentofInvestments CanalInsuranceCompany
SamuelH.Vickers ChairmanandChiefExecutiveOfficer DesignContainers,Inc. DavidC.WakefieldIII President WakefieldEnterprises,LLC MackI.Whittle,Jr. Chairman,PresidentandChiefExecutiveOfficer TheSouthFinancialGroup
2
BOARDS OF DIRECTORS: Carolina First Bank and Mercantile Bank
caRolina fiRst Bank Mary Rainey Belser Community Volunteer Converse College Board of Trustees Robin H. Dial Partner Dial, Dunlap & Edwards, LLC Claude M. Epps, Jr. Attorney Bellamy, Rutenberg, Copeland, Epps, Gravely & Bowers, P.A. Judd B. Farr (Emeritus) President Greenco Beverage Co., Inc. Maj. Gen. John S. Grinalds, uSMC (Ret) Former President The Citadel M. Dexter Hagy Principal Vaxa Capital Management, LLC Michael R. Hogan President Puckett, Scheetz & Hogan Insurance Charles B. McElveen Co-Owner Swamp Fox Timber Co. W. Gairy Nichols III Principal Dunes Realty, Inc. Thomas J. Rogers Secretary and Treasurer Strand Media, Inc. H. Earle Russell, Jr., M.D. Surgeon Greenville Surgical Associates John C.B. Smith, Jr. Owner John C.B. Smith Real Estate Attorney/Of Counsel Nelson Mullins Riley & Scarborough LLP Andrew A. Sorensen, Ph.D. President university of South Carolina David H. Swinton, Ph.D. President Benedict College William R. Timmons III Secretary, Treasurer and Senior Vice President of Investments Canal Insurance Company David C. Wakefield III President Wakefield Enterprises, LLC Mack I. Whittle, Jr. Chairman, President and Chief Executive Officer The South Financial Group Algis Koncius President Koncius Enterprises, Ltd. D. Richard Mead, Jr. President and Chief Executive Officer D.R. Mead and Company M. Rodney Metz Retired/Real Estate Investor Cecil D. Moore Moore Foundry & Machine Louis P. Ortiz Senior Partner Garcia & Ortiz, P.A. R. Carl Palmer, Jr. South Florida Market President Mercantile Bank Jon W. Pritchett President and Chief Executive Officer Nextran Corporation Ross E. Roeder Chairman Smart & Final, Inc. Kendall L. Spencer President Mercantile Bank Michael W. Sperry Executive Vice President and Chief Credit Officer The South Financial Group William R. Timmons III Secretary, Treasurer and Senior Vice President of Investments Canal Insurance Company Samuel H. Vickers Chairman and Chief Executive Officer Design Containers, Inc. Mack I. Whittle, Jr. Chairman, President and Chief Executive Officer The South Financial Group Mark E. Wolfson Certified Public Accountant Senior Partner Wolfson & Associates, P.A.
meRcantile Bank Carlos J. Alfonso Chief Executive Officer Alliant Partners, LLC Alfonso Architects, Inc. William P. Brant Senior Partner Brant, Abraham, Reiter, McCormick & Greene, P.A. Chief Executive Officer Thayendanegea Timber, LLC Audrey S. Bullard Certified Public Accountant Gordon W. Campbell Vice Chairman Mercantile Bank Paul D. Causey President Causey Fern, Inc. u.S. Exports, Inc. Andrew B. Cheney Chairman Mercantile Bank Thomas B. Drage, Jr. County Attorney Orange County Florida Millard K. Joyner Chief Executive Officer Joyner Construction Inc.
22
ADVISORY BOARDS: Carolina First Bank and Mercantile Bank
andeRson, sc
Chrissy Adams Robert G. Austin, D.M.D. David Burriss Phillip C. Cahaly Gene Clary Todd Davidson Tom Dunaway III Phil Little James C. Mills III, M.D. Brad W. Moorhouse Chris Rozakos Greg Shore Kim R. Varner David Wakefield
conWay, sc
Larry L. Biddle Jonathan L. Dieter, Jr., M.D. J. Charley Ray Bobby J. Smith Kenneth Ward William D. Witherspoon
lake city, sc
Marlene Askins Joe F. Boswell Rev. Matthew C. Brown William C. Garner, Jr. Roger K. Kirby James C. Lynch, Sr. E. Leroy Nettles, Jr. William J. Sebnick
noRtH centRal, fl
Jon Baxter, D.M.D. Howard Freeman Charles Holden, Jr. Millard K. Joyner Scott Medley, M.D. James Parrish, Jr. Nancy Perry Jon W. Pritchett Portia Taylor Scott Whitaker
piedmont Region, sc
Edwin L. Barnes William C. Beaty, Jr. Claude W. Burns III Hugh L. Harrelson, Sr. Jerry Padgett, Ph.D. Richard S. Powell Betty Jo Rhea Elvin F. Walker
geoRgetoWn county, sc
T. M. Andrews William S. Duncan John P. Grimes William N. Miller III Charles A. Moore Mark A. Nash L. Payton Parsons, Jr. Brigadier Gen. Robert B. Plowden, Jr. Julian A. Reynolds, Jr. Wright S. Skinner III, M.D. R. Frank Swinnie, Jr. John B. Trotter
lauRens county, sc
Lumus Byrd, Jr. Robert L Cason George Cornelson Joy Gault Joe J. Gresham John V. Griffith, Ph.D. Lykes Henderson, Jr. J. Jay Peay
RutHeRfoRd county, nc
John Mark Bennett, M.D. Terry M. Campbell H. Lee Harrill Todd B. Morse Peter O’Leary Timothy J. Ridenhour
noRtH stRand, sc
Jay O. Baldwin III Martin H. Barrier John L. Martini, Jr. Raymond L. Sessions, Jr. C. Gene Sheppard Lattie M. upchurch, Jr. Terry W. White, Sr.
cHaRleston, sc
Samuel H. Altman Henry Berlin W. Carlyle Blakeney, Jr. Paul Heinauer Hank Hofford Chris Kerrigan Ernest L. Masters Dennis E. O’Neill Thomas J. Parsell Harold R. Pratt-Thomas, Jr. Michael C. Robinson Raymond C. Smith, Jr. William S. Stuhr, Sr.
sHelBy, nc
Sallie Barker Gaye DeVoe Hampton C. Hager, Jr. Mark A. Hudson Jennie L. Lambert
maRion/citRus county, fl
Nancy Deichman David DeSantis Guy Lemieux Michael Paglia Harvey Vandeven Sid Varner
noRtHeast, fl
Jack Diamond John G. Harrison III William A. McArthur A. C. Skinner III Harvey E. Stringer Edgar B. Vickers Mark S. Wood
gReenville, sc
Judy P. Alexander Glenn E. Batson Alfred N. Bell, Jr. Susan J. Bichel Steven R. Brandt Nathan A. Einstein C. Douglass Harper A. Foster McKissick III Mary Louise Mims Jay Mattison Puckett, CPCu, AAI E. Hays Reynolds III Porter B. Rose Morris E. Williams, M.D.
soutH stRand, sc
Mike Arakas Al Hitchcock W. Winston Hoy, Jr. R. Kirkland McQuiddy W. Gairy Nichols Jerry W. Oakley Dennis G. Permenter E. J. Servant III Willie C. Shelley, Jr. John S. Springs J. Roddy Swaim Ryan R. Swaim
mcdoWell county, nc
Lanetta Byrd E. L. Cunningham Stephen T. Dirhold W. Hill Evans Richard Allen Gurley
oconee county, sc
Roy E. Adams Gregory Davis Gary Duncan William Gustafson, D.M.D. Sean McCallum, M.D. Alexander Shadwick
columBia, sc
T. Moffatt Burris William C. Cantey, Jr. Craig G. Dawson Charlie W. Devlin, M.D. Robin H. Dial D. Christian Goodall Charles R. Jackson S. Stanley Juk, Jr., M.D., FACC Jerome C. Kline Robert E. Kneece, Jr. Robert C. Pulliam John C. B. Smith, Jr. John P. Sutton, M.D. James T. Tharp
myRtle BeacH, sc pickens county, sc
C. E. Lawton Thomas O’Hanlan Phil Owens Christopher P. Robinson
Dorothy K. Anderson James Arakas HendeRson/BuncomBe J. Carson Benton, Jr. county, nc Penny Boling Thomas L. Cooper Cecil Brandon, Jr. Robert P. Ingle II David L. Brittain James F. Miller III D. Richard Crumpler W. Leonard Calhoun Cunningham, M.D. Overstreet III, M.D. A. Shaw Dargan III William W. DesChamps John S. Divine IV Frank H. DuRant Miles M. Herring Douglas R. Martin Stephen L. McMillan Leroy Rainbow
piedmont, sc (city)
Thomas A. Devenny, Ph.D. Norma Hedstrom Max Kennedy Dawn Nappi Elizabeth Pack T. D. Thomason, D.C. Jerry Yeargin
23
Shareholder Summary
dividend infoRmation Calendar Dividends are customarily paid to shareholders of record as follows: Record Dates: January 5, April 5, July 5, and October 5 Payment Dates: February , May , August , and November Quarterly Dividend Rate Our current quarterly dividend is $0.8 per share. Since the first dividend payment in 994, The South Financial Group has paid consecutive quarterly dividends and increased cash dividends every year. Direct Deposit The South Financial Group offers shareholders the convenience of automatic deposit of dividends into personal bank accounts on the same day dividends are paid. For more information, please contact the Transfer Agent by phone at (800) 368-5948 or by e-mail at info@rtco.com. Dividend Reinvestment Plan Shareholders may purchase additional shares of common stock by reinvesting cash dividends. Participants in the Plan may also invest additional cash, up to a maximum of $0,000 per month, for purchase of common stock at market value. For more information, please contact Investor Relations by phone at (888) 592-300 or by e-mail at investor@thesouthgroup.com. annual meeting The Annual Meeting of Shareholders will be held at 0:30 a.m., May 8, 2007 at the Gunter Theatre, Peace Center for the Performing Arts, Greenville, South Carolina. foRm 10-k A copy of The South Financial Group’s Annual Report on Form 0-K, as filed with the Securities and Exchange Commission, is available at no charge by contacting Investor Relations at the address under Contact Information on the inside back cover of this Report. stock listing The NASDAQ Global Select Market Ticker Symbol: TSFG stock infoRmation
For the Year 2006 2005 % Change
Stock price ranges (closing price): High $28.41 Low Close Cash dividends paid per share Total return to shareholders At December 3 Shares outstanding (000’s) Shareholders of record Multiples:
(b) (a)
$32.98 25.40 27.54 0.64 (2.9)% 68,222 74,72 8,894 29.3x 6.3 .4 2.6
(4)% (3) (3) 6 2 (3)
24.60 26.59 0.68 (0.9)% 69,663 75,341 8,596 17.8x 17.5 1.3 2.3
Annual shares traded (000’s)
Price/net income Price/operating earnings Price/book Price/tangible book
Notes: (a) Basedonstockpriceandcashdividendspaid,includingreinvesteddividends. (b) Basedonyear-endclosingstockpricedividedbyindicatedmeasurepershare.
summaRy annual RepoRt The 2006 Summary Annual Report is presented in a summary format intended to provide information in a concise, summarized manner that will be meaningful and useful to the widest range of readers. The audited financial statements and detailed analytical schedules are contained in The South Financial Group’s Annual Report on Form 0-K for the year ended December 3, 2006, filed with the Securities and Exchange Commission.
24
Company Information
Corporate Headquarters The South Financial Group 104 South Main Street Poinsett Plaza, 10th Floor Greenville, South Carolina 29601 (864) 255-7900 www.thesouthgroup.com ContaCt InformatIon Customer Service For customers requesting assistance regarding accounts, products or services, please contact our Sales and Service Center by phone at (800) 476-6400 (for NC and SC) or (800) 238-8681 (for FL) or by e-mail at customerassistance@thesouthgroup.com. Investor Relations For analysts, investors and others seeking financial information, please contact: Investor Relations The South Financial Group P.O. Box 1029 Greenville, South Carolina 29602 (888) 592-3001 E-mail: investor@thesouthgroup.com Transfer Agent For shareholders seeking help with a change of address, records or information about lost certificates, stock transfers, dividend checks, or dividend reinvestment, please contact our Transfer Agent: Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07015-3572 (800) 368-5948 E-mail: info@rtco.com www.rtco.com On the Internet News releases and other information about The South Financial Group are available on the Internet at our corporate Web site, www.thesouthgroup.com.
Locations
www.carolinafirst.com
nortH CarolIna
(26 Locations/20 Communities)
soutH CarolIna
(78 Locations/45 Communities)
Asheville (3) Brevard Burnsville Columbus Fletcher Forest City Franklin Hampstead Hendersonville (2) Lake Lure Marion Mills River Morganton Rutherfordton Shelby Spruce Pine Tryon Waynesville Weaverville Wilmington (4)
Aiken (2) Anderson (4) Andrews Camden Chapin Charleston (4) Clemson Clinton Columbia (9) Conway (2) Easley (2) Edgefield Florence (2) Fort Mill (2) Georgetown (2) Greenville (6) Greenwood Greer (2) Hilton Head Island (2) Irmo Lake City Laurens Lexington (2)
Litchfield Little River Marion Mauldin Moncks Corner Mount Pleasant Murrells Inlet Myrtle Beach (3) Newberry N. Myrtle Beach (2) Pendleton Pickens Piedmont Rock Hill (3) Seneca Simpsonville Spartanburg Summerville Surfside Beach Swansea Travelers Rest West Columbia
www.bankmercantile.com
florIda
(66 Locations/45 Communities)
Apollo Beach Aventura Boca Raton (2) Brandon Clearwater Coral Gables Coral Springs Crescent City Crystal River East Palatka Fort White Ft. Lauderdale Gainesville (3) Glen St. Mary Interlachen
Inverness Jacksonville (5) Kissimmee (2) Lake Butler Lake City (3) Largo Live Oak Longwood Macclenny Miami Miami Beach New Port Richey Ocala Ocean Ridge Orlando (3)
Palatka Pembroke Pines Port Richey S. Ponte Vedra St. Augustine St. Augustine Beach St. Petersburg (4) Starke Tampa (6) Temple Terrace Tierra Verde Wesley Chapel West Palm Beach Winter Garden Winter Park (2)
www.bankcaroline.com
104 South Main Street / Poinsett Plaza, 10th Floor Greenville, South Carolina 29601 (864) 255-7900 www.thesouthgroup.com