This is a country of second chances, and United Community Banks is making the most of its opportunity.
After ripping off 11 straight quarters of losses, the Blairsville, Ga., company reported a second-period profit last week. That turned heads.
"They look like a relatively healthy bank today in terms of capital and nonperforming asset levels," said Jeff Davis, an analyst at Guggenheim Securities LLC.
Some analysts even believe United Community could find its way onto the Federal Deposit Insurance Corp.'s list of bidders for failed banks. United Community has "positioned themselves pretty well relative to other competitors," said Bill Young, an analyst at Macquarie Research.
As the bank slowly re-enters the mergers-and-acquisitions conversation, it's also competing aggressively for commercial loans in Georgia, a shell-shocked state with the nation's greatest number of failed banks and some former powerhouses — SunTrust Banks and Synovus Financial — struggling to maintain their status.
While SunTrust is in a better position to defend its turf (its second-quarter earnings more than doubled from a year earlier), Synovus spent the last quarter in the red — again.
"We're still in a very much recessionary market where unemployment is extremely high," said Rex Schuette, United Community's chief financial officer, in an interview Thursday. "It seems to be a very sluggish economy for [another] two to three years." Still, he believes the once-listless company is now in a "position of growth."
Schuette said United Community hired a few commercial loan officers in the past quarter, mostly from regional banks, and plans to hire up to eight more in coming months. The bank is targeting commercial loans in cities such as Atlanta; Knoxville, Tenn.; Asheville, N.C.; and Savannah, Ga.
United Community has put the past behind it, Schuette said. "Even though it's been a tough road through the whole process … we do feel we're on the other side and going forward, credit metrics are improving," he said.
That would be welcome news for a company that lost nearly $660 million from 2008 to early 2011, including $880 million in net chargeoffs.
In the second quarter, nonperforming assets reached their lowest levels in years, at $118 million, or 1.6% of total assets. Without a "fire sale" approach to problematic loans, Schuette said it might have taken until 2012 to get to where they are today.
The "de-risking of the balance sheet accelerated us from getting to the five-yard line down to the one-yard line," he said.
Analysts applauded the hiring of commercial loan officers. Young at Macquarie said they "should drive top-line growth … though it might take a few quarters to get evidence of that." United Community has started to see some new loan growth in the commercial lines, but with interest rates remaining low and pricing wars in major markets, core revenues continue to struggle.
The company logged $90 million in revenues during the second quarter, up 3.5% from the previous quarter, but down 8.5% from a year earlier.
"One of the things that we all have to deal with is the competition for very strong [commercial] credits and a focus on pricing," Schuette said. For a strong credit commercial loan of $3 million to $5 million, the bigger banks can "price anywhere from 175 to 250 above Libor … and we're not out looking to make loans that are thinly priced that aren't being appropriately risked for the taking." he said.
United Community, like many other banks, must also find ways to rebuild its loan portfolio, which has contracted by $1.7 billion since 2008.
Going forward, lending especially in the Atlanta area "is going to be a very competitive environment just because everyone is going after" commercial and industrial loans, Young said. "The larger guys are going to price out the smaller guys."
Still, Young said United Community, with its $7.6 million profit, gained the most earnings momentum so far this quarter, compared with the other financial institutions he covers.
Brett Scheiner, an analyst at FBR Capital Markets, said while United Community still has some construction loans weighing down its prospects, "the bottom line is they have done a fantastic job of recapitalizing the bank and moving out the most stressed credit, and I applaud that."
However, simply stealing business is unsustainable against a prolonged portfolio runoff and stagnant economy. Knowing this, United Community is attempting to get on the FDIC's failed-bank bidders list, using its most recent recapitalization led by Corsair Capital LLC and a cleaner balance sheet.
If successful, United Community would join the ranks of the local few who have been able to land capital and buy former competitors. Most notable are State Bank Financial Corp. in Atlanta and Ameris Bancorp in Moultrie, Ga. Each raised some of the highest amounts of capital in the state since 2009 and have bought multiple failed banks.
United's president and chief executive, Jimmy Tallent, said in a conference call Thursday that while its annual examination is in September, the bank's management was "very pleased with the outcome" of an initial exam in May.
Most analysts agreed that United would become an acquirer in coming years. But the stronger United becomes, the more attractive it is as a target for larger buyers because of its 106-branch network in three Southeast states.
"When M&A picks up … say next year to 2013, if the economy is relatively healthy, they could be a buyer but they could also be a seller," Davis said. "Corsair did not put money into United Community out of the kindness of their heart to be a charity in a bank; they put money in to make money."