United Community Banks reports $40M loss

In a sign of continued troubles for Georgia’s banking and housing sectors United Community Banks said Monday it will report a $40 million loss, or 84 cents per share in the third quarter because of its worsening residential construction loan portfolio.

Blairsville-based United Community, Georgia’s third-largest bank holding company headquartered here, attributed the expected loss to an uptick in bad housing loans and continued expectations that that will continue.

The company said it increased its loan loss allowance reserve to 1.91 percent of total loans outstanding from 1.53 percent in the second quarter. It also said it would take aggressive measures to sell many of its problem loans.

It reported $56 million in charge-offs against a total loan-loss reserve of $76 million. More than 80 percent of those charge-offs were related to residential construction in metro Atlanta.

“Economic pressures on the housing market, particularly in Atlanta, continue to have an impact on our loan portfolio,” Jimmy Tallent, United Community’s president and chief executive officer said in a statement. “In the third quarter, we saw some rise in the level of classified and non-performing assets and also a steepening of discounts. In light of this environment, with disappointing summer sales and increasing inventories in the marketplace, we have taken steps to dispose of some of our larger exposures before surplus real estate inventory valuations deteriorate further.”

The company’s shares, which have eroded 49.25 percent in the last 12 months, plunged on the news, diving as much as 12 percent during the trading day before rebounding slightly to a loss of 9 percent, or $1.30 per share, to close at $12.70 Monday.

In a conference call with analysts Monday, Tallent said $611 million of the bank’s $1.6 billion total residential construction loan portfolio is in metro Atlanta and that that’s down $117 million from the second quarter.

In the boom years, metro Atlanta’s robust housing market was great for the balance sheets of many financial institutions. But too much exposure — 61 percent of United Community’s bad residential construction loans were in metro Atlanta — proved to be bad with the slightest economic hiccup.

“We have a larger concentration than I guess that we would have liked to have had, but we’re working our way through it,” Rex S. Schuette, United Community’s chief financial officer said in an interview Monday.

Indeed, the bank is aggressively trying to rid its portfolio of some of its more toxic holdings. The bank sold non-performing assets totaling $66 million in the quarter, including its 13 most problematic loans representing $42 million of the total amount in the quarter.

At least one analyst applauded those moves, which should help in the long run. But short-term, “we suspect that the stock has very limited upside over the next few quarters given the likelihood that the inflow of new NPAs [non-performing assets] will continue at an elevated pace and that the valuation discounts on future sales of NPAs will prove increasingly punitive,” Sandler O’Neill & Partners banking analyst Kevin Fitzsimmons wrote in a research note.

He also lowered his 2008 earnings per share expectations to a loss of 32 cents from a profit of $1.24. He also lowered his 2009 estimate to a loss of 42 cents from a profit of 15 cents.

United Community did not give guidance for 2008, citing the volatile economic conditions.