4. United Community Banks

Company Profile

Shares of United Community Banks ( UCBI) of Blairsville, Ga. closed at $1.71 Monday, declining 62% over the previous year.

Matt Olney said the company "fits a different type of bidder. Private equity might be a better fit for UCBI."

This outlook was supported by United Community's announcement early this month that it would defer interest payments on $54.6 million in trust-preferred securities, in a move the bank said was taken in consultation with the Federal Reserve Bank of Atlanta, which would "improve the company's liquidity position," according to CEO Jimmy Tallent.

Chip MacDonald, a partner at Jones Day, also named United Community Banks as a target, as the company is "looking to recapitalize or sell I suspect," he said. This view is supported by 10 consecutive quarters of operating losses, a year-end tangible common equity ratio of 6.35% and $180 million in TARP money owed to the government.

The company's fourth-quarter results showed some signs of a turnaround in credit quality.

Income Statement

United Community reported a fourth-quarter net loss of $16.4 million, or 20 cents a share, following a net loss of $239 million, or $2.52 a share, in the third quarter, when the company recorded a noncash goodwill charge of $210.6 million In the fourth quarter of 2009, the net loss was $39.9 million, or 45 cents a share.

The fourth quarter results included a partial reversal of previously recorded fraud losses, of $.2 million. After $2.6 million in preferred dividends and discount accretion, the bottom-line net loss to common shareholders was $19 million.

The provision for loan losses declined to $47.8 million in the fourth quarter, from $$50.5 million in the third quarter and $90 million in the fourth quarter of 2009. The fourth-quarter provision kept pace with net charge-offs of $47.7 million.

Jimmy Tallent said that "credit quality improved from the third quarter in every measure, with nonperforming assets, net charge-offs and provision for loan losses falling to their lowest levels in many quarters." He added that with the housing market and economy within United Community's footprint remaining week, the company was looking "toward the future with guarded optimism."

The net interest margin was 3.58% in the fourth quarter, increasing from 3.40% a year earlier. Tallent said the margin would have been 30 basis points higher in the fourth quarter if the company hadn't maintained "liquidity significantly above historical levels in light of the uncertain times."

Balance Sheet

Total assets were $7.4 billion as of December 31, and the nonperforming assets ratio was 4.32%, declining from 4.96% the previous quarter and 4.81% a year earlier. The fourth-quarter net charge-off ratio was 4.03% and loan loss reserves covered 3.79% of total loans as of December 31.

Stock Ratios

The shares trade for 0.4 times the $4.76 tangible book value per share reported by the company as of December 31.

Analyst Ratings

All nine analysts covering the company have neutral ratings.

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