South Financial Group, which is trying to become a southeastern midcap banking company, plans to remain independent for at least the next five to 10 years.
"There is so much opportunity in the South. There is no reason to even consider" selling, Tim Schools, the Greenville, S.C., company's executive vice president of corporate development, said in a telephone interview Tuesday.
Companies that put themselves up for sale usually have executive succession or financial problems, Mr. Schools said. "We don't have either of those."
South Financial is scouting for deals of its own, though, specifically in North Carolina, Florida, and along the Georgia coast. It has a three-year plan to reduce its dependence on portfolio securities by building its loan portfolio and making acquisitions.
The $13.7 billion-asset company said it plans to increase assets by 30% a year - half from loan growth and half from buying small banks.
South Financial serves consumers and small and midsize businesses through two subsidiaries: Carolina First Bank, which does primarily commercial business in the Carolinas; and Mercantile Bank, which operates in Florida.
Since August 2002, South Financial has bought or invested in six banks. In July it bought CNB Florida Bancshares Inc. and Florida Banks Inc., both of Jacksonville. The two purchases brought South Financial $1.8 billion of assets and increased its presence in central Florida.
The Sunshine State now accounts for 40% of South Financial's deposits.
Analysts have been giving its stock a thumbs-up lately. The shares have risen nearly 25% since hitting a 52-week low a year ago.
South Financial reported better-than-expected third-quarter earnings last week. The profits rose 35% from a year earlier, to $31 million. Earnings per share of 50 cents beat analysts' expectations by three cents. The July acquisitions generated six cents of the earnings per share, according to Thomson First Call.
Todd Hagerman, an analyst with Swiss Reinsurance Co.'s Fox-Pitt, Kelton Inc. in New York, upgraded South Financial shares Tuesday to "in line," from "underperform."
South Financial has been one of the "better-performing small-cap bank stocks," since 2000, Mr. Hagerman said in an interview, with double-digit earnings growth over much of that time.
The stock has underperformed Fox-Pitt's small-cap bank group since January. But Mr. Hagerman wrote that he believes South Financial will start trading more in line with banking companies of similar size, despite concerns about a bigger "risk appetite," as evidenced by its aggressive growth strategy.
If short-term interest rates keep rising, loan and deposit growth could slow, putting pressure on South Financial's funding base. Under those circumstances it "could be faced with an unwanted portfolio restructuring to the detriment of capital and earnings," Mr. Hagerman wrote.
On Tuesday, South Financial's stock rose 1%.
