With more than $1 billion in market cap, Georgia's United Community Banks
What UCB is, though, is a customer service-focused lender that's positioned in some of the fastest-growing parts of the country, but particularly so in Georgia. The company's lending is fairly broad-based, though much of it is secured by real estate. This bank also happens to target relatively affluent communities/counties, and that's not a bad piece of business to have.
Although management guidance has recently been in the low- to mid-teens for earnings growth, income came in 19% higher this quarter (up 15% on a per share basis), with revenue growth of 21%. Net interest income was up nearly 24%, non-interest income was up 15%, and the net interest margin actually improved by a pretty fair degree (from 4.05% to 4.33%).
It probably won't surprise you, then, to read that loan growth was nearly 19% this quarter, with deposits growing at a 24% rate. While the cost of funds wasn't particularly special, the company's spread did improve -- that is, the difference between what it earned on assets and what it paid for assets moved in its favor. I was also pleased to note that the balance of brokered deposits declined from last year.
The bad news here is that the company's cost structure is high (the efficiency ratio is about 59) and the returns on equity and assets are rather low. Keep that in the context, though, of a bank committed to opening new branches and delivering high levels of customer service. Strong customer service models often require more in the way of personnel, and I think the balance here of growth vs. returns is OK for the time being.
I'm also a little surprised at the amount of interest UCB earns from its loans -- over 8% on average. I'm not sure if that's a product of great customer service (maybe you can charge more when the customer likes you), or riskier lending (though charge-offs and non-performing assets look fine now), but it stood out to me.
There aren't an abundance of growth stories in the banking world, at least not at the $1 billion-plus market-cap level, so I guess it's not surprising that these shares are a mite expensive. All the same, I'm going to be keeping an eye on them, and I'd suggest that other Fools interested in the banking sector do likewise.
For more Foolishness that you can bank on:
- Small Banks Need Love, Too: Capital Corp. of the West
- Small Banks Need Love, Too: Mercantile Bank
- A Closer Look at Bank Stocks
Looking for bigger banks with heftier dividends? Try a free 30-day guest pass to our Motley Fool Income Investor newsletter service.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
