By Scott Miller
smiller@scbiznews.com
Published May 17, 2010

The South Financial Group likely needed an $800 million infusion of capital to remain independent, said President and CEO Lynn Harton.

That’s based on the $1 billion in future credit losses that its acquirer, TD Bank Financial Group of Toronto, expects to report, he said.

“This is a huge investment for them,” Harton said. “They were able to look beyond the problems and see the potential.”

Greenville-based South Financial announced its merger this morning with Toronto-based TD Bank Financial Group. South Financial’s Carolina First Bank and Mercantile Bank in Florida will become TD Bank. South Financial has been in negotiations with TD Bank representatives since late December or early January, as well as with other financial institutions, about a potential merger, Harton said.

The TD Bank merger may be the best case scenario for South Financial employees and bank branches. Asked if branches would close, Harton noted that TD Bank has no presence in North or South Carolina and that branch closings typically occur only where a service overlap occurs. Currently, South Financial employs about 1,500 statewide, and no layoffs are announced, he said.

Harton, pictured, and his management team will remain with TD Bank. While any organizational changes will be announced later, Harton said he would not characterize TD Bank’s Greenville operations as a regional headquarters. Based in Toronto, TD has U.S. executive offices in New Jersey and Maine.

“Beyond stability, this is a growth story for our employees, our customers,” Harton said, saying the acquisition completes TD Bank’s link from the Northeast to Florida. “They’re a growing company. We’re a key piece of that, but we’re certainly not the last piece of that.”

Harton did say he wished South Financial could have secured a better outcome for its shareholders. Under terms of the agreement, South Financial shareholders will receive $61 million in cash or TD common stock. Shareholders will receive either 28 cents per share or 0.004 shares of TD common stock for each share of South Financial stock owned.

Additionally, TD Financial will purchase the $347 million in preferred shares the United States Department of the Treasury acquired under the Treasury's Capital Purchase Program for a total cash consideration of approximately $130.6 million.

South Financial’s board of directors approved the merger Sunday. The merger still requires regulatory approval, which is expected to be finalized in late July, Harton said. South Financial shareholders will be able to vote on the merger agreement after that, he said.

South Financial announcements
TD Bank Merger News Release
TD Bank Merger Q & A

Since the beginning of 2008, South Financial has lost nearly $1.4 billion. In April, the company entered into a consent order with the Federal Deposit Insurance Corp. that required South Financial to raise capital and rid its books of troubled assets. The bank was set to ask shareholders at its annual meeting on Tuesday to authorize an additional 1 billion shares of common stock. That meeting has been postponed.

The addition of TSFG marks TD Bank's entry into the Carolinas and bolsters its Florida franchise.

"TSFG offers us a strong platform for expansion in the U.S. Southeast, further expands our presence in Florida and demonstrates our continued commitment to growing our business," said Bharat Masrani, president and CEO, TD Bank. "We believe that we can add significant upside by applying our retail expertise and WOW! culture to this established regional bank. The transaction builds on our organic growth capability and the momentum of our recent acquisitions in the deposit-rich Florida market. It also gives us a strong position in North and South Carolina, where Carolina First is a leading community bank with a solid base for market share growth and asset generation."

TD Bank is a subsidiary of TD Bank Financial Group. It is the sixth-largest bank in North America by branches and serves more than 18 million customers around the globe. The company had $567 billion in assets on Jan.31. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges. TD stock was down in early trading at $68.70 per share.