After reporting lower-than-expected first quarter earnings Monday, executives at the acquisitive South Financial Group Inc. of Greenville, S.C., said they are swearing off more deals, at least until next year.
The $14.6 billion-asset company has been an active acquirer in North and South Carolina as well as in Florida. But it told investors Monday that once it buys Pointe Financial Corp. of Boca Raton, Fla., this quarter, it plans to wait unit 2006 before entering the deal arena again.
For the first quarter, South Financial reported profits of $34.6 million, 7% higher than a year earlier. The company reported earnings per diluted share of 47 cents, 4 cents below analyst estimates. Revenue of $129 million was up 16%.
Mack I. Whittle Jr., South Financial's president and chief executive, said it will still look for fill-in deals in the Carolinas as well as coastal Georgia. But "this quarter was not one that would make us look aggressively to the acquisition front," he added.
South Financial's acquisition strategy has affected "the earnings of the company and the underlying performance," Mr. Whittle added.
Merger-related costs of $305,000 were down 81% from the fourth quarter. The costs were related to the acquisitions, completed last July, of CNB Florida Bancshares Inc. and Florida Banks Inc., a spokeswoman said.
First-quarter earnings were also dampened by net interest margins, which slipped 8 basis points from a year earlier, to 3.31%, as well as lower deposit service charges.
Service charges on deposits totaled $8.5 million, 5.7% more than a year earlier but 10% less than in the fourth quarter, South Financial said. Noninterest income fell 12% from a year earlier, to $25.7 million, though deposits were up 35% to $8.1 billion.
"Like many banks, we also experienced increasing pricing competition on loans and deposits and lower service charges on deposit accounts," Mr. Whittle said.
"The first quarter was also challenging because it followed a quarter that had two additional calendar days and unusually low earnings asset growth."
Mr. Whittle said that the company is working toward "restoring" income from deposit service charges and evaluating its balance sheet to minimize interest rate sensitivity.
Gary B. Tenner, an analyst at SunTrust Robinson Humphrey, said the decision to halt the dealmaking for a while is a positive and "should be well received by investors," given the company's active M&A strategy. South Financial should seek to improve earnings without distractions from deals, he said in a telephone interview.
The company had previously said that typically it provides two "clean quarters" after a deal is done before closing on another one.
There were a few bright spots in South Financial's earnings.
Loan growth rose 40% from the first quarter of last year, to $8.4 billion. Two-thirds of South Financial's loan portfolio is commercial loans, which analysts say have picked up lately.
Credit quality, an issue that South Financial, has been improving over the last several quarters also improved. Nonperforming assets declined 12% from the fourth quarter, to $39 million, and net chargeoffs were 5 basis points lower, at 0.45%.
Expenses rose 16% year over year, to $66 million, but fell 3% from the fourth quarter.
Shares of South Financial fell 0.9 % on Monday.
