Shares of United Community Banks Inc. in Blairsville, Ga., fell for a second straight day after an analyst downgraded its stock and said it could face heavy construction and development loan losses.
The two-day decline sent the stock below $11 a share late Wednesday, its lowest price in more than five years.
Adam Barkstrom, the Sterne, Agee & Leach Inc. analyst who downgraded the $8.3 billion-asset United Community's stock to "sell" Tuesday, said it has an " 'A' management team" but also has a high number of loans in Atlanta, which he called a "D-minus" market. Housing inventory in Atlanta is backlogged by up to four or five years, he said.
"The Atlanta market is terrible from a residential real estate construction perspective, and that was a big part of the growth for United Community," Mr. Barkstrom said in an interview Wednesday. He said up to half of the lender's construction and development loans in the Atlanta area could end up going bad.
United Community said Mr. Barkstrom is overstating the severity of the Atlanta market's condition. Rex Schuette, its chief financial officer, said construction and development loans in Atlanta are at the "top of our radar screen," but Atlanta is not "burning."
United Community's nonperforming loans and chargeoffs are likely to rise in Atlanta, Mr. Schuette said, but he could not specify how much and the company is not giving earnings guidance this year.
"It's difficult in the environment to give clarity when the clarity is difficult to see," he said.
United Community's loan portfolio is $5.9 billion overall, with $2.5 billion in commercial loans and $1.8 billion in residential construction.
The company has the bulk of its loans, $2.3 billion, in the Atlanta area and also has about $2 billion of loans in north Georgia, which includes Blairsville. United Community's $844 million portfolio of residential construction in the Atlanta area is down about 19% year over year.
Some analysts said United Community's loan performance in the Atlanta market will not be as bad as Mr. Barkstrom is predicting.
Matt Olney of Stephens Inc. said he expected United Community to post about $70 million of losses on the Atlanta construction and development portfolio in the next two years, with about $40 million of that coming this year.
Mr. Barkstrom said he believed United Community would try to raise capital within the next two quarters. He estimated it would need to raise $300 million, assuming his high-end prediction on loan losses came to fruition.
Mr. Schuette called United Community "well above well capitalized" and predicted it will post "solid core earnings going up through 2009." He pointed out that even Mr. Barkstrom's note said the company would likely earn 87 cents a share in 2008 and $1.05 in 2009, which, the CFO said, would add to capital levels.
"To the extent we earn through this, we don't believe there's a need to issue capital," Mr. Schuette said.
Should United Community reach a point where it needs more capital, it would raise it through trust-preferred or subordinated debt and not through a common stock offering that would dilute existing shares, Mr. Schuette said.
