United Community Banks, Inc. (NASDAQ:UCBI)

CAPS Rating: 2 out of 5

A bank holding company; conducts its activities by its wholly-owned state chartered bank subsidiaries. Banks are community-oriented, offering a full range of retail and corporate banking services.

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Player Avatar floridabuilder2 (99.26) Submitted: 11/4/2009 3:57:09 PM : Underperform Start Price: $19.65 UCBI Score: +11.15

i would be amazed if they didn't go under. 20% of loans are residential construction, 8% commercial construction and 34% commercial RE...

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Member Avatar JakilaTheHun (99.93) Submitted: 11/6/2009 2:51:16 PM
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You might be right. They do have some bad assets on the books.

All the same, there is a lot of insider buying, they are reasonably capitalized, they are not in the absolute worst markets (Atlanta has been hit; but not as bad as FL, AZ, CA, or NV), they are unloading some of their portfolio, cash flows have been positive for the year and look pretty reasonable, interest margins are also reasonable; plus they did an offering not that long ago, which should cushion them a bit.

I'd rather bet on this one going up than down. Reasonable chance it will hit $10+ in a few years.

Member Avatar floridabuilder2 (99.26) Submitted: 11/6/2009 10:56:39 PM
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I will green thumb it if the federal gov't allows them to eat at the trough... still working on chp 4 blog

Member Avatar JakilaTheHun (99.93) Submitted: 11/7/2009 4:20:14 PM
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Can't wait to read it, fb. :)

Back on UCBI --- United Security Bank of Sparta, GA was shut down by the FDIC over the weekend. Admittedly, I'm not sure if their operations encroached into the Atlanta metro area, but just a look at how bad off this institution was:

1.56% Tier 1 Leverage
2.17% Tier 1 Risk-Based Capital
3.43% Total Risk-Based Capital

Untd. Sec. Bank's Allowance for Loan Losses is at 2.1% of total loans.

Compare that to UCBI:

9.8% Tier 1 Leverage
13.33% Tier 1 Risk-Based Capital
15.10% Total Risk-Based Capital

UCBI's allowance for Loan Losses is about 2.7% of total loans. UCBI's higher allowance either reflects more conservative accounting or greater exposure to losses; difficult to say with certainty.

I'm not sure about USecBank's interest margins, but if you look at the margins for Net Interest Income/Total Interest Income, they had a gross margin of 34.4%, while UCBI has a gross margin of 46.9%. From that I would assume that UCBI's earnings power and interest margins are much higher, as well. Another thing to note is that after you make adjustments for one-time items and cyclical highs in the provision for loan losses, UCBI appears to be fairly profitable, while United Security Bank would still appear to be very much in the red.

Now, obviously, one of the big differences here is that UCBI has more exposure to the Atlanta market. However, UCBI also has operations in similar areas as United Security Bank. Naturally, there's potential for UCBI's portfolio to suffer more in the future, but based on what I know, I believe this bank is more likely than not to survive and it is much more profitable to bet on the long-side than the short-side.

I'll disclose that I've recently gone long on UCBI, but it's one of my longs that I've had the most concerns about. All the same, I wouldn't pronounce them dead merely because they have exposure to construction and commercial RE. If they can maintain high enough cash flows, they should survive. Moreover, if they fail and you go long, you lose 100% of your investment. If they succeed, and one goes short, they potentially lose 200% - 600%. And I think the odds actually favor this one climbing back over $10.

I'd love to hear the opposing case, though, and can't wait for your blog.

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