South Financial Group Inc. has learned some hard lessons, and is finally reversing course.

Problem loans piled up during years of rapid expansion and recently cost its chief executive his job, and the $13.7 billion-asset banking company is on the verge of announcing another cost-cutting plan. So it is not surprising that its interim CEO is talking about being less aggressive.

"Our focus now is really getting back to our roots," H. Lynn Harton said in an interview Monday. "This bank started for a reason — it was very focused on delivering incredibly personal service to family-owned businesses and private banking and wealth management to their business owners."

South Financial has completed 10 deals in the past 10 years, seven of them in Florida, where it feverishly booked residential construction loans that have led to huge provisions and loan losses. At the end of the third quarter Florida accounted for 34% of South Financial's loan book and 28% of its assets. The company has not reported a profit since last year's fourth quarter.

Mr. Harton, 47, who was South Financial's chief risk officer until October, when he took over after the abrupt retirement of Mack I. Whittle Jr., said acquisitions were not the only culprit. The company also expanded during this decade by aggressively hiring teams from other banking companies, which changed its original culture, Mr. Harton said.

"We focused too much on a risk process that emphasized prospects versus growing our business with referrals from existing customers," he said.

That strategy led South Financial to do too much business with out-of-market developers in an effort to take advantage of torrid growth in Florida.

"We thought we were involved with individual consumers who wanted to own their own home, but we really were involved with speculators — we just didn't know that," he said.

Some analysts said that South Financial should have changed direction sooner.

"They should have made a change in management long ago; their earnings have been disappointing for years, not just [in recent] quarters," said Andrew W. Stapp, a senior equity research analyst at B. Riley & Co.

Mr. Harton, meanwhile, is not promising a quick turnaround. He said the company is battling too hostile an operating environment for an instant makeover.

"The economy has weakened over the past 60 days, and 2009 is going to be a very difficult year for the industry in terms of credit quality," he said. "But we believe we've got a team in place to manage through it."

However, he said, the company would continue to work on credit-quality issues by reworking or selling residential construction and land development loans, and reducing expenses.

Adam Barkstrom, an analyst at Sterne, Agee & Leach Inc., said that South Financial may have to take sizable haircuts — anywhere from 25% to 60% — as other banks trying to sell Florida residential construction loans have done.

Mr. Harton said that South Financial expects to announce its latest cost-cutting plan next week. It has tried to cut expenses for the last couple of years. Of the latest plan, Mr. Harton would say only, "there are no sacred cows — everything is on the table."

Mr. Harton also said he views South Financial's receipt Friday of $347 million from the Treasury Department's Capital Purchase Program as "a vote of confidence from the government."

Mr. Whittle, 61, who founded the company in 1986, was instrumental in its rapid expansion. As recently as 2005, he cited an ambition to increase its assets to between $20 billion and $40 billion. (Neither Mr. Harton nor the company would comment on its search for a permanent CEO, though Mr. Harton is on the candidate list.)

Mr. Barkstrom said that he viewed management changes "as a positive for the future prospects of the company." South Financial's executives have "a lot of things on their plate," he said.

As with many of its peers in the Southeast, it will face significant credit issues during the next couple of quarters, he said. Fortunately, South Financial's $239 million capital raising last May in a convertible preferred stock offering boosted its tangible equity ratio to 7.94%, which enables it to better absorb credit losses, Mr. Barkstrom said.

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