United Community Banks Inc posted a wider-than-expected quarterly loss, hurt by higher provision for loan losses, but said it expected to return to profitability in 2010.
It does appear that the level of bad loans and charge-offs may be peaking, Chief Executive Jimmy Tallent said and expected the challenges to continue going forward.
With the rapid decline in the Atlanta residential construction book and the related problems largely behind us, our future losses and NPAs (non-performing assets) should decline, Tallent said on a conference call.
Shares of the company were down 8 percent at $4.42 in afternoon trade Friday on Nasdaq. They touched a low of $4.23 earlier in the session.
Residential construction issues continue to be bulk of issues, analyst Albert Savastano of Fox-Pitt Kelton said, and added, however, that the non-performing loan inflows for Atlanta appear to be showing some signs of slowing.
The company, which is aggressively disposing off problem credits, said it expects its Atlanta residential to be under $300 million by the end of the year.
They're going to continue to have losses next several quarters. Charge-offs will continue to be elevated, at around Q3 levels for another quarter or two, but i would think that they'd start to decline at some point next year, hopefully early next year, analyst Matt Olney of Stephens Inc said.
United community, which has seen a streak of losses in the last five quarters, also said it is constantly reviewing its $2.5 billion commercial loan portfolio that it does not think will be as hard hit as its residential one.
The Atlanta residential construction market represented the majority of United's net charge-offs in the quarter, totaling $44 million, or 48 percent, the company said.
MORE FDIC-BACKED DEALS?
CEO Tallent said the bank, which recently raised $222.5 million from a public offering, is looking to maximize opportunities in terms of organic growth, of competitor dislocation and of potential FDIC-assisted transactions.
In June, United Community acquired Southern Community Bank in an FDIC-assisted transaction.
I wouldn't expect anything of much size, given they have a lot on their plate. You may see them do some fill-in acquisitions from the FDIC within Atlanta. There'll be several more banks fail in that market, so they'll have a pick of what they want to acquire, analyst Olney of Stephens Inc said.
The company posted a net operating loss of $43.7 million, or 93 cents per share, for the third quarter, compared with analysts' consensus view of a loss of 91 cents, according to Thomson Reuters I/B/E/S.
United Community said total interest revenue fell to $100.6 million, compared with $112 million a year ago.
Provision for loan losses rose 22 percent to $95 million in the quarter, while net charge-offs were $90.5 million compared with $55.7 million last year.
We think provision in the third-quarter will be the peak, but don't think it's going to come off too hard from that. It's going to be a gradual decline, analyst Olney said.
(Reporting by Archana Shankar in Bangalore; Editing by Maju Samuel and Gopakumar Warrier)