Hammered by merger-related charges and securities losses, Southern National Corp. lost $12.6 million, or 13 cents a share, in the first quarter, compared to pro-forma earnings of $55 million a year earlier.
Southern National, which was formed last month from the union of Southern National and BB&T Financial Corp., took $88 million in pretax charges relating to the merger and $19.8 million in securities losses, for a total after-tax loss of $70.5 million.
Analysts had expected both charges. But while the company had announced the merger charge several months ago, it had not provided clear guidance on the extent of the securities loss.
"The company had been telling people they were doing some securities restructuring. They obviously couldn't say to what extent, so it was kind of a guessing game," said David West, with Davenport & Co., Richmond, Va. Mr. West said he had guessed about $10 million in securities losses, half the amount reported late Thursday.
Excluding the special charges, Southern National, which is based in Winston-Salem, N.C., earned $58 million, up 5% from the year-earlier quarter.
Mr. West said he expects Southern National's earnings to improve later in the year, particularly after May, when the company completes its technology integration.
Chairman and chief executive John A. Allison said merger-related cost savings would contribute between $65 million and $68 million annually in future pretax earnings.
But margin erosion was also a problem for Southern National in the first quarter. The margin fell 12 basis points to 4.14% from 4.26% in the fourth quarter due to deposit pricing pressures.
"I'm beginning to feel that the bigger issue with Southern National is not whether this merger lives up to expectations, but from a more near-term perspective, margin" pressure, said David Stumpf, with Wheat, First, Butcher & Singer Inc. "The cost savings are clearly important to the earnings capacity of Southern National going forward, but that margin is real important too."
Mr. Stumpf noted that the full impact of a recent certificate of deposit rate war in North Carolina would be felt in the second quarter, rather than the first.