For Jimmy Tallent, the low point of the financial crisis came years after it had supposedly ended. It was 2012 and his company, United Community Banks in Blairsville, Ga., was finally profitable after losing more than $900 million on soured real estate loans in the three years prior. United was flush with capital too, thanks to a $385 million infusion it received in early 2011 from a group of investors led by Corsair Capital.
The problem was credit quality. Though United had already unloaded or restructured hundreds of millions of dollars in problem real estate and construction loans, its nonperforming assets remained stubbornly high, masking improvements in efficiency and suppressing its stock price. United's main markets of suburban Atlanta and north and coastal Georgia were hit especially hard by the real estate bust and many borrowers were still struggling to make their payments.
"By mid-2012 we were making incremental progress each quarter, but our credit costs were still way too high," Tallent, United's longtime president and chief executive, says. "Our choices were to spend another couple of years getting better each quarter or once and for all putting all of this behind us."
After many sleepless nights, Tallent concluded that the company needed to be even more aggressive in shedding troubled loans if it hoped to win back investors' confidence and start growing again. It took time to find the right buyer, but in mid-2013 United struck a deal to unload roughly $171 million of classified, nonperforming and foreclosed assets in a bulk sale, instantly ridding itself of the most troublesome loans.
It was a pivotal decision that dramatically sped up what had been a plodding turnaround for the $7.4 billion-asset United.
The sale, along with eight consecutive quarters of profits, allowed United to immediately recover the valuation allowance on its deferred tax asset, providing a big boost to its tangible book value. It also set the stage for United's exit from the Troubled Asset Relief Program and the removal of an enforcement order that had inhibited its ability to invest in new business lines or markets.
Though it is too soon to say the turnaround is complete United's shares still trade at a discount to its peers momentum is building. Problem loans are history, analysts are once again touting its stock and, perhaps most importantly, United is back to playing offense.
The company recently launched a health care lending unit in Nashville and acquired a small firm that specializes in Small Business Administration lending moves aimed at diversifying the loan mix. Tallent is also eyeing acquisitions as United looks to bulk up in existing markets and expand into new ones, such as Charleston, S.C., and Raleigh, N.C.
Walt Moeling, a longtime Atlanta banking attorney with the firm Bryan Cave, says he believes that United survived the crisis when so many other Georgia banks didn't because Tallent spotted problems sooner than most and was unafraid to keep making tough decisions. Too many bankers, he says, made the mistake of trying to ride out the crisis, and their banks failed as a result.
"Jimmy is a survivor," says Moeling, who has known Tallent for decades. "No one had a tougher job out in front of him than Jimmy and no one did a better job of reacting to something they didn't see coming."
In some ways, it's surprising that Tallent stuck around to lead the recovery effort. In the aftermath of the financial crisis, many severely troubled banks fired their top executives and brought in new people to execute their turnarounds. And if boards were reluctant to make changes, often CEOs would step down voluntarily or private-equity groups that rescued so many banks with fresh capital would demand that management be replaced as condition of their investment.
But at United, the board never considered bringing in a new CEO even on the handful of occasions that Tallent volunteered to quit.
"Jimmy never lost the confidence of the board," says W.C. Nelson, the company's chairman. "We knew that if we were going to survive he would be the one to bring us out of it."
Nelson says he doubts that United could have succeeded in raising capital at all if the board had shaken up the management ranks. Yes, Tallent and his deputies certainly bore responsibility for the credit woes, but the past was the past and the private-equity group, by and large, was investing in the future.
Chris Marinac, managing principal and head of research at FIG Partners in Atlanta, agrees. Acquisitions in particular will be key to United's revival, he says, and Tallent has proven to be one of the industry's most adept dealmakers.
"The reality is that not only the board, but investors recognized that Jimmy knows where all the bodies are buried in north Georgia and throughout the footprint," Marinac says.
No doubt, United would not be the company it is today if not for Tallent, who was barely 30 when he became president of what was then Union County Bank. At the time, the bank had just $40 million of assets and one branch, and through more than a dozen acquisitions over the subsequent decades, Tallent built it into a regional power with more than 100 branches in four states.
Tallent's strength as an acquirer is his persistence. Gregarious and outgoing, he takes the time to get to know CEOs of banks he is interested in buying and, in some cases, stays in touch with them for years until they are finally ready to sell. In one case, it was eight years from the time Tallent initiated contact to the time the bank agreed to sell itself to United.
Tallent is also not above poaching top producers from rival banks, as evidenced by his audacious hiring of roughly 60 bankers from several Regions Bank offices in Hall County, Ga.
Tallent had long wanted to bulk up in the north Georgia county, where United had just one branch and miniscule market share, but found the prices to be too high for his liking. Then in 2005, three Regions Bank lenders who he had known for years approached Tallent about joining United. He quickly hired them and they, in turn, brought along dozens of employees over the course of a single weekend. Within a year, United had built four new branches in the county and today it has the No. 4 deposit share there.
Tallent says bankers like teaming up with United because he gives them significant autonomy. When it first started doing deals, United would retain the acquired bank's name and charter and let the executives run it as they always had minus the operational, back-office and compliance headaches. Even today, long after United consolidated those charters and ditched the local names, Tallent runs a very decentralized operation made up of 10 regional presidents and 27 local CEOs.
Tallent says he tells potential acquirees, "'You do what you do best, run and grow your bank, and we'll deal with the compliance and operational issues.'
"It's a pretty easy sell," he adds.
Still, one could argue that the business model is partly to blame for its massive losses on real estate loans. If regional heads had the authority to make credit decisions, shouldn't they take some of the blame for making questionable loans? "I blame nobody but myself," Tallent says.
Besides, no one could have predicted the size and scope of the collapse, particularly in United's markets, which for years had been among the fastest-growing in the country, he says. Moreover, the largest loans still had to go through headquarters, and no one there told the market presidents to ease up on the construction lending until it was too late.
"I'm the one who allowed us to get too concentrated," Tallent says. "I didn't do a good job of making sure that our loan book was diversified."
The first major warning came in mid-2007, when North Carolina officials shut down a real estate project that turned out to be an elaborate Ponzi scheme. United was one of several banks that made loans to investors in the project and its losses alone totaled nearly $24 million.
But even before that debacle, Tallent and his team were starting to worry that the market was getting overheated. As early as 2006 United had stopped making development loans in metro Atlanta and by early 2007 it had already started to unload and work out loans that executives feared might default.
"United started getting rid of problem assets long before anyone else did, and that's a fact," says Marinac. "They were fighting fire with fire as early as anybody disposing of assets, working through problems, seeing where they can help viable borrowers."
As the problems mounted, United took even more decisive action, accelerating the pace of its loan sales, loading up on liquidity and, most painfully, laying off hundreds of employees in order to reduce overhead.
"Once the world turned and we knew what we were dealing with, we didn't put our heads in the sand," says Tallent. "We never felt hope was a strategy."
The decision to consolidate its multiple bank charters, made several years earlier, also turned out to be a blessing.
At the time, the aim was to cut costs, improve efficiency and give customers full access to its entire branch network. Little did Tallent and his team know that the move would wind up saving much of the franchise.
"No doubt, if we had not collapsed the charters, a number of those banks would have failed," says Rex Schuette, United's chief financial officer. "It's that simple."
If there's one mistake Tallent made in responding to the crisis it was waiting too long to seek private-equity capital, Marinac says. United had already raised roughly $225 million in a stock sale in late 2009, and management was reluctant to raise more. But 18 months later, when it became clear that a full recovery was still years away, the company had little choice but to bring in Corsair. That group owns a roughly 22% stake in United and has one seat on the company's board.
"Jimmy was very careful not to raise equity because he didn't want to dilute his shareholders," says Marinac. "What happened was he ended up diluting them more than he ever wanted to, but it was just because it was much bigger than imagined."
United has paid a price for waiting. Its stock is up more than 50% since the start of 2013, but its price to book value remains lower than many of its peers because, ultimately, its cleanup took longer. At July 29, its stock was trading at roughly 1.35 times its tangible book value, according to FIG Partners, compared with an average of 2.08 times tangible book for 20 peer companies of similar size that FIG tracks.
"There are companies out there in the marketplace that everyone praises because their stocks are trading at big premiums," Marinac says. "They had the exact same problems as [United], made the same errors, but they just raised capital sooner."
Still, as United shifts from defense to offense, some analysts say it's a good time for investors to rediscover the stock, which trades under the symbol "UCBI." In June, Brad Milsaps at Sandler O'Neill & Partners resumed coverage on United with a "buy" rating, setting a price target of $19. The shares were trading at around $16 in early August.
The transition "from a credit turnaround story to a revenue-generating story is difficult, but we believe that UCBI is well-positioned," Milsaps wrote in a research note.
It's reasonable to ask how long Tallent plans to stick around. He's 61 now and admits that his mind does wander sometimes thinking "about all the fly fishing I'm missing." The board also seems to be laying the groundwork for Tallent's eventual departure; earlier this year Chief Operating Officer Lynn Harton was promoted to president in a move that seemed to designate him as the heir apparent.
But Tallent says he won't leave until "this company gets back on its feet."
Chief among his priorities is ensuring that the loan portfolio is sufficiently diverse. At the end of 2007, nearly one-third of United's loans were in construction and land development, and that's too high of a ratio for a bank of its size, Tallent says. Today, that ratio is down to roughly 6% as the bank has moved into new business lines, including health care, SBA and automobile lending, and Tallent and his team continue to eye new areas of lending that would further diversify the loan mix.
Geographic expansion is also back on the table. United operates primarily in Georgia and North Carolina, with only a handful of loan offices and branches in Tennessee and South Carolina. The company has stated publicly that it wants to be one of the top five in asset size in South Carolina within five years it's barely on the radar in that state now and Tallent says it can get there by both building branches and acquiring banks.
In Tennessee, United operates in markets just over the Georgia border and Tallent would like to see its presence extended up the I-75 corridor toward Knoxville.
"I can envision us being a bank with $12 to $15 billion [of assets] that operates with a community banking model but has the resources to compete against a $100 billion bank," Tallent says.
Most of all, he feels especially obligated to do right by shareholders, who saw the value of their shares tank when the crisis hit and then were further diluted by the capital raise. Tallent had spent nearly three decades building the company into a valuable, highly profitable franchise and it hurt him deeply to see that value deteriorate so profoundly.
"Jimmy very much wants to earn back the value that was lost in the recession," Marinac says. "It's a personal mission of his."