Watch Out for Georgia's Worst Banks

Wachovia Card Services, held by Wachovia(WB Quote), is in the news every day because of its continuing problems with its huge portfolio of option-payment adjustable-rate mortgages acquired from the former Golden West Financial.

As its name implies, Wachovia Card Services is a credit card bank, formed in March 2007. While most of the institution's assets are credit card receivables, the holding company has not yet put it to much use, as total assets were only $2.2 billion as of March 31, and its leverage ratio was over 52%. With so much capital committed here, we expect very significant expansion of this charter at some point.

United Community Bank (held by United Community Banks, Inc.(UCBI Quote)) had total assets of $8.4 billion as of March 31. After a bad fourth quarter where earnings were nearly wiped-out as the bank beefed-up loan loss reserves, earnings recovered in the first quarter, with net income of $16.6 million, or a return on average assets of 0.79% and a return on average equity of 7.84%.

The bank paid dividends totaling $50 million up to the holding company during the first quarter. This was more than three times net income, and had the effect of pushing down capital ratios quite a bit. However, this is not of major concern over the short term, since loan loss reserves covered 133% of nonperforming loans as of March 31.