South Financial Group Inc.'s chief financial officer said Mack Whittle's decision to retire as chief executive by yearend should not be interpreted by investors as a sign the Greenville, S.C., company is poised to deliver bad news.
The CFO, James Gordon, said Tuesday's announcement was not triggered by any single event or adverse change to the company's operation but was the "culmination of discussions" over the past six months between Mr. Whittle and the board about his desire to retire ahead of the company's mandatory retirement age of 72. Mr. Whittle, who is 59, founded South Financial in 1986.
The company said Mr. Whittle was unavailable for an interview Wednesday.
Because his retirement had not been widely anticipated, there was some speculation Wednesday about the $13.9 billion-asset South Financial, which suffered heavy losses on bad residential construction loans in Florida.
Robert Patten, an analyst with Regions Financial Corp.'s Morgan Keegan & Co. Inc., said Mr. Whittle's departure may indicate that more pain is on the way for South Financial, which reported a $201.3 million first-quarter loss and a $16.8 million net loss last quarter, both because of credit-quality deterioration. In May it raised $239 million in a convertible preferred stock offering in a bid to boost capital levels.
The company did not have a succession plan in place and said its board has appointed a committee to oversee a nationwide search for Mr. Whittle's successor.
"I can't remember a founder and a CEO of a small bank leaving suddenly like this without bad news following," Mr. Patten said.
Asked about the timing Wednesday, Mr. Gordon said, "I don't think there's a perfect timing for any of these things, but the board felt that it was better to go ahead and put in place a plan now for Mack to leave the company so that we can openly search for a new CEO." Mr. Gordon continued: "Mack is looking at what he wants to do with his life, and the board is looking at what it wants to do with the company. The next couple of quarters will continue to be difficult with the credit environment, but we need to be really focused on what lies ahead on the other side of this economy."
Jeff Davis, with First Horizon National Corp.'s FTN Midwest Securities Corp., said he takes South Financial at its word that there are "no shoes to drop," but, "I think this is about the board holding Mack accountable for what happened over the last 18 months."
South Financial reported that its second-quarter loan-loss provision was $68.3 million, 272.3% higher than a year earlier, though it was 13% lower than the first-quarter provision. Nonperforming assets increased 431.1%, to $241 million, from a year earlier and 4.3% compared with the first quarter. Nearly 60% of nonperforming loans were related to residential construction, and over 70% of those loans were in Florida, the company said in July when it reported second-quarter earnings. Most of its credit-quality problems have been around the Tampa area, a high-growth region hit hard by the housing slowdown. Florida accounts for about 40% of South Financial's $10.5 billion loan book and is home to 40% of its branches.
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said he believes that South Financial is signaling a change in direction on several fronts and that it could be more open to a sale.
Mr. Gordon said the board would entertain a sale, but first the company needs to work through its credit-quality troubles and return to a "top performance level." "You've got to have good performance," he said. "It opens most of the doors that would be out there."