Staff Report

GREENVILLE -- The South Financial Group said Tuesday it lost $340.8 million in the third quarter, the largest of seven consecutive quarterly losses since the beginning of 2008.

Bad loans and related costs continue to be the problem. The bank reduced the amount of its nonperforming assets for the first time in this cycle, however, noted President and CEO Lynn Harton.

“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.

“We can’t return to profitability until we put the credit behind us,” he said, declining to make any predictions on when the bank might return to profitability. “I think our odds are a lot better than the odds of a lot of other institutions.”

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.

South Financial is the parent company of Carolina First, which has locations throughout North and South Carolina, and Mercantile Bank in Florida.

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.

Despite the losses, the company remains well capitalized by regulatory standards and has raised $280 million in Tier 1 common capital this year.

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%.

Also in the third quarter, South Financial reported a $200 million non-cash charge related to the recording of a valuation allowance for deferred tax assets.

Published Oct. 20, 2009