Since calling off a round of capital-raising last fall, Citizens South Banking Corp. has adopted a more opportunistic approach to raising funds.

Last week the Gastonia, N.C., company raised $15 million, enough to cover its winning bid for a failed Georgia bank. Citizens South could replicate that strategy in coming months, Kim S. Price, the bank's president and chief executive officer, said in an interview Tuesday. He said raising capital as the company takes over failed banks offers benefits with little risk, and observers agreed.

The deal "seems to position [Citizens South] relatively well to participate in the ongoing consolidation of the Southeast markets adjacent to CSBC's core N.C. markets," wrote Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, in a research note. "The transaction coincides with completed capital moves, alleviating the need for a forthcoming public offering and limiting uncertainty for the stock."

Price said the company may not need to raise more capital if its acquisition targets are small enough, but in this case, the strategy worked well.

"This time it was a contingent raise, which means we would not accept nor would investors put forth capital until we were awarded the bid," Price said. "Then the bank doesn't dilute itself, and the investors were forthcoming because they didn't have uncertainty about putting capital into the company. You take away the execution risk."

If all goes according to plan, Citizens South aims to broaden its footprint, covering a wider geographic area in North Carolina, part of South Carolina and Georgia — the home state of the failed Bank of Hiawassee that it picked up Friday.

By acquiring the $300 million-asset Bank of Hiawassee from the Federal Deposit Insurance Corp., Citizens South increased its assets by 38%, to $1.1 billion.

Citizens South has shifted its strategy in only a few months' time. In October, it offered to sell $30 million of stock in a public offering. It was eyeing the money for growth plans and to repay funds issued through the Treasury Department's Troubled Asset Relief Program.

Yet the company nixed the offering after recognizing it could attract investors only by pricing shares too low, Price said, which would have been dilutive. The day after the announcement of the pending issue, its shares had fallen more than 10%, to close at $4.82. When the offer was called off on Oct. 28, the company's stock rebounded. The stock closed Tuesday at $6.25 a share, down 2.34%.

Citizens South is not the only bank to have found investors more receptive to equity in recent weeks as the economy slowly rebounds.

Several companies have announced and closed equity deals recently. Heritage Oaks Bancorp in Paso Robles, Calif., for example, added $56 million in capital, and Saehan Bank in Los Angeles added $60.5 million. Both institutions were facing regulatory pressure to bolster capital ratios.

Citizens South raised its fresh capital via a private placement that was a mixture of $6.7 million in common stock priced at $4.50 per share and $8.3 million in preferred stock that it will convert to common equity should shareholders vote to increase the number of shares outstanding.

The price of the common stock was a 7% discount to Citizens South's stock price on Thursday. The company said it will schedule a shareholders vote in the second quarter.

Price said he expects the company to make another acquisition later this year after it has digested its most recent one.

With the Bank of Hiawassee, Citizens South picked up $227 million in loans, $324 million in liabilities and five branches in Georgia.

Gray Medlin, a managing director in the Raleigh office of Carson Medlin Co., said he found the geographic location of the acquisition curious for Citizens South.

"I don't understand how that part works with the Charlotte-Gastonia franchise," he said. "It's about four hours from north Georgia. There is no direct route. As the crow flies it is probably not that far. It is probably 130 miles, but it's over the mountains, and there is no good way to get there."

Yet the Georgia deal could make more sense as Citizens South moves ahead with plans to enlarge its footprint, he said.

And Fitzsimmons added in his note that the deal has favorable implications for investors going forward as it provides "an implied stamp of approval" for future FDIC-assisted deals.

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