United Community Banks Inc (UCBIO) 2003 Q3 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the United Community Bank's third quarter 2003 earnings conference call.

At this time, I would like to inform you that all participants are in a listen-only mode.

At the request of the company, we will open up the conference for questions and answers after the presentation.

I will now turn the conference over to Jimmy Tallent, President and CEO of United Community Bank.

Please go ahead, Mr. Tallent.

Good morning and thank you for joining United Community Bank's third quarter 2003 earnings conference call.

I'm Jimmy Tallent, Chief Executive Officer of United Community Banks, and with me today is Rex Schuette, our Chief Financial Officer.

During today's conference call, we will update you on our financial performance and business growth for the third quarter, the factors driving our performance, and our guidance for the fourth quarter, as well as for 2004.

I also will discuss our ongoing growth strategy, which includes the integration of our recent acquisitions, branch purchases in North Carolina, and de novo offices in key markets.

First, I'd like Rex Schuette to review our forward-looking disclaimer.

Thanks, Jimmy.

I want to remind everyone that our earnings announcement that was released earlier this morning is available on our website as well as other financial sites.

Also, this call is being simulcast on our website at ucbi.com in the Investor Relations sections, and it will be archived for 90 days.

During the course of the conference call, certain forward-looking statements may be made.

This includes all statements that are not statements of historical fact, or statements regarding the intent, belief or expectation of United Community Banks and its senior management with respect to trends affecting our operations, financial, economic and market conditions, and our growth and operating strategies.

Specifically, earnings expectations and estimates are forward-looking statements.

During the call, we may refer to non-GAAP financial measures.

Our press release describes the difference between non-GAAP earnings measures and earnings calculated under GAAP.

We believe these non-GAAP measures are helpful in analyzing our company's core performance trends.

We filed our press release on form 8-K earlier this morning, and we urge you to review the sections of our most recent forms 10-K and 10-Q that describe the factors that may affect our future results of operations.

And forward-looking statements contained in this or other public statements of United Community Banks or made by a senior management should be considered in light of those factors.

Thank you, Rex.

As the numbers will demonstrate, our third quarter was a strong one.

Our earnings increase was, again, driven by loan growth across all of our markets, and by continued growth in fee revenues.

Net income rose 23% from the same period a year ago to $10.4 million for the quarter.

Now, that's not only a record for the quarter, it is the first time in the history of United Community Banks that we have topped the $10-million level in quarterly net income.

And to put this in perspective, in 1996 -- only seven years ago -- United Community Banks earned a total of $10 million for the entire year.

So, we consider our third quarter to be quite a milestone.

This performance translated to a 13% increase in diluted earnings per share to 43 cents.

Total revenue rose 25% to $45.2 million.

During this conference call, we will discuss how our company continued to grow in the third quarter against a backdrop of historically low interest rates and a sluggish national economy.

I've said this before but it's worth repeating because it is the essence of who we are and what we do.

We have grown and we will continue to grow by focusing on an unwavering commitment to customer service, combined with disciplined expense controls and strong credit quality.

These principles apply to both internal and external growth, and they are the basis for our ability to produce consistent performance that reinforces the strong relationships we enjoy with our customers, which, in turn, increases the value of our franchise.

During the quarter, United Community Banks generated a 12% increase in loans, or $277 million.

That's without the help of our recent acquisitions, which contributed an additional $310 million in loans.

United Community Banks operates in some of the most attractive markets in the United States; markets with strong demographics and healthy economies.

Our markets are located where people live, work, play and retire.

And the ongoing strength of these markets relative to the national economy, again, helped drive loan growth in the third quarter.

Net interest revenue for the third quarter rose 20% to $36.3 million from the same period a year ago.

Recent acquisitions contributed approximately $3.5 million, which means our core growth was approximately 9%, despite a 34-basis-point decline in our margin a year ago.

Net interest margin was 3.97% for the quarter, compared with 4.31% a year ago, and 3.99% for the second quarter of 2003.

Now, Rex will provide more discussion on our margin, but I want to point out that our net interest margin has been effectively managed in the 4%-range for the past four quarters.

And we expect it to remain in this range through 2004, given this low-interest-rate environment.

I also want to stress that we believe United Community Banks is uniquely positioned to continue to deliver earnings growth, in spite of the low-interest-rate environment, primarily because of two factors: first, our responsive customer-focused banking style makes United Community Bank the financial institution of choice in the communities where we do business.

We have the number one market share in several of our core North Georgia and Western North Carolina markets.

That's because our customers value our products and services and our style of doing business.

Now, I'm not just saying this.

In the fourth quarter last year, we had an independent company conduct an extensive benchmark study of our customers in all of our markets.

The results showed that over 90% of respondents had already, or would likely recommend United Community Banks to others.

And we are humbled and gratified by their overwhelming support of our banks.

As a follow-up to that survey, we initiated this year with a third party vendor a quality-enhancement program across all of our markets.

The monthly program monitors our customers' responses to the level and the quality of service they receive during their visits to all of our banks.

Our third quarter results show that we are consistently performing at the 90% level.

As I would say, "We are walking the walk."

We are committed to providing the highest level of customer service, and it is paying off.

The second reason we believe United Community Banks is uniquely positioned for continued growth carries back to what I mentioned a few minutes ago.

We operate in markets that offer some of the best demographics in the United States, and that translates to loan demand for construction, small business and mortgage loans.

The result is that we continue to experience increased demand for new loans.

We are in the right markets at the right time with the right people.

Now, let's look at credit quality.

During the third quarter, our credit quality remained strong and continued to compare very favorably to our peers.

We have diligently protected United Community Banks' loan portfolio as we've grown.

We reduced non-performing assets by $1.6 million from a year ago, while adding two new loan portfolios from our acquisitions, in addition to internally growing loans by 12%.

Non-performing assets as a percentage of total assets decreased to 20 basis points at the end of the third quarter from 31 basis points a year ago.

Our provision from loan losses was $1.5 million and unchanged from the second quarter of 2003.

Our credit quality is driven by two key factors: the first factor is our team of bankers.

Our bank is built on a community-focused model, consisting of 19 community banks with local bank presidents and board of directors.

For the most part, these bank presidents have doing business in their communities for decades.

They know their communities and are extremely experienced lenders with very solid underwriting skills.

The second factor is dirt.

As I've said many times, we're dirt lenders.

We secure loans with real estate.

It's a successful strategy and it has produced a good track record at United Community Banks for a long, long time.

Turning briefly to expenses, when you exclude acquisitions, total revenue grew 12% during the third quarter, while our operating expenses increased 11%.

This provided a positive operating leverage of 1%, which contributed to our 12% growth in diluted earnings per share.

During the third quarter, our efficiency ratio was 61.34%, compared with 59.66% a year ago.

Costs associated with the recent acquisitions accounted for a significant portion of the increase over last year.

We are striving for an efficiency ratio of between 58 and 60%.

Since our service-oriented community banking platform includes local presidents and their boards, this is one of the primary reasons that our efficiency ratio is higher than many of our peers.

Although having bank presence in each community results in a higher efficiency ratio, they are also a major contributor to our credit quality, which drives our low charge-offs and non-performing asset levels, and ultimately a lower provision for loan losses.

The higher proficiency ratio is a trade-off -- one that we are willing to make since, in our view, it is a matter of a higher mix of operating expenses versus a lower provision level.

We believe that an efficiency ratio between 58 and 60% is a reasonable target for us, given our success in generating revenue and operating earnings.

During the quarter we achieved a return on tangible equity, which excludes the effects of acquisition-related intangibles of 19.94%, compared to 17.88% a year ago.

Our primary long-term financial goal is to sustain double-digit earnings per share growth.

We have modified one of our secondary financial goals, return on equity to return on tangible equity.

As we noted last quarter, our return on equity for the past six quarters was in the mid-16% level, in line with our prior goal of 16 to 18%.

We also noted that our return on equity would drop by approximately 150 basis points due to the recent acquisitions.

Our growth strategies for the company include both strong internal growth and selective mergers in other high-growth markets to expand our franchise.

Under the recently-changed purchase accounting rules, pooling of interests are no longer allowed, and all acquiring companies must record intangible assets reflecting the purchase premium.

This recorded premium, or goodwill, increases stockholders' equity, thereby diluting the return on equity.

We believe that return on tangible equity is a more accurate reflection of financial performance for a growth company like United, and we have modified our secondary financial goal accordingly.

To sum up our third quarter's financial performance, the quarter was characterized by continued strong loan and fee revenue growth, combined with disciplined expense controls.

We drove net interest revenue up $6.2 million and held our net interest margin near 4%.

Excluding the acquisitions, net interest revenue increased about $2.7 million over the third quarter a year ago, which reflects healthy core growth in this environment.

During the third quarter, we continued to operate within our stated annual financial goal of sustained double-digit earnings per share growth.

Looking forward, we expect our loan growth to remain solid for the balance of 2003 in the range of 10 to 14%, excluding the impact of acquisitions.

Despite the slow pace of the national economy, we are confident we can reach these objectives.

I'm now going to ask Rex Schuette, our Chief Financial Officer, to review our financial performance in more detail, and then I want to come back for a moment and review our growth strategies.

Rex?

Thank you, Jimmy.

The first exhibit included in the earnings release provides a summary of our financial results, key ratios and trend information for the last five quarters, and year-to-date information through September 30th, 2003.

Once again, our third quarter was driven by loan and fee revenue growth.

The 23% increase in net income for the quarter resulted in record earnings of $10.4 million.

Diluted earnings per share increased 13% to 43 cents, in line with our stated objectives.

Our return on tangible equity was a solid 19.94%, as compared to 17.88% last year.

Looking at the quarter in more detail, net interest revenue was $36.3 million -- up 6.2 million, or 20% from last year, and up 1.5 million from the second quarter of 2003.

Consistent with earlier quarters, the underlying increase was due primarily to acquisitions and strong loan growth across all of our markets, but was offset partially by a 3.97% net interest margin that was 34 basis points lower than last year.

Consistent with our previous conference calls this year, the pressure on our margin on a year-over-year basis continued through the third quarter.

Margin compression this year was primarily attributed to strong growth in prime-based floating rate loans, a continuation of low interest rates, and maturing investment securities and fixed-rate loans that were reinvested at lower rates.

On a consecutive quarter basis, we were able to hold our margin compression to two basis points from 399 in the second quarter to 397 this quarter.

We stabilized the net interest margin around the 4% level over the past four quarters, and on a link-quarter basis, net interest revenue was up $1.5 million.

If acquisitions are excluded, the increase is approximately $700,000, or about 10% on an annualized basis.

To update you on interest rate sensitivity of our balance sheet at quarter-end, we expect net interest revenue would increase about 2% on a 200-basis point ramp scenario over the next 12 months.

In comparison to a year ago, prime daily floating rate loans totaled approximately $920 million, and this quarter the total is approximately one billion, 260 million.

Our long-term objective is to manage our net interest margin in the 425 to 450 basis-point range.

However, in this continuing low-rate environment, we expect our margin will remain around the 4% level through next year, given that we expect the Fed to maintain this low interest level though 2004.

When you look at our quarterly

information, net interest revenue declined on a consecutive-quarter basis during the third and fourth quarters of last year due to margin compression.

Like the past three quarters, we have held the margin compression to only a few basis points, thereby allowing loan growth to drive the increase in net interest revenue.

This quarter, we were able to maintain our margin, in spite of the earlier Fed rate cut by closely managing our loan pricing and our funding costs.

As I mentioned, loan growth is a key driver of our increase in net interest revenue this quarter.

Loans, excluding our Tennessee and Coastal Georgia acquisitions increased $277 million, or 12%.

Our Tennessee and Coastal Georgia Banks added another $310 million in loans at the acquisition date.

Loan growth by geographic markets was as follows: $133 increase this past year across our markets in North Georgia, $112 million increase in our Metro Atlanta markets, $28 million in Western North Carolina.

Also, we had new loans of $94 million in East Tennessee related to the acquisition of First Central Bank, and $220 million in Coastal Georgia related to the acquisition of First Georgia Bank.

When you compare consecutive quarters, excluding East Tennessee and Coastal Georgia, loans increased $58 million, primarily from $36 million in North Georgia, and $19 million in our Metro Atlanta markets.

On a consecutive-quarter basis, the annualized growth rate in loans was 11%.

When you exclude the large customer pay-off in July -- that went to a super regional bank.

Moving to fee revenue, total fee revenue of $10.4 million for the third quarter represented a 35% increase from the same period a year ago.

Excluding contributions from the recent acquisitions, fee revenue was approximately $8.9 million -- up 15% from a year ago.

As was the case in the second quarter, the major drivers of this increased continued to be mortgage refinancing fees and service charges on deposit accounts.

Mortgage loan and related fees of $3.1 million increased $1.3 million over last year's level due to the ongoing refinancing activities related to the low interest rate environment.

We closed $99 million in mortgage loans this quarter, compared to $83 million last year.

In the second quarter of 2003, we peaked at $119 million in closed mortgage loans.

The $1.4 million, or 40% increase in service charges and fees was primarily impacted by the two acquisitions included in this quarter's numbers, and new products and services rolled out during the first half of last year.

Excluding acquisitions, we had solid growth of 14%.

Additionally, growth in transactions and the number of new deposit accounts, as well as strong growth in ATM fees, contributed to higher revenue this quarter.

Now, I'd like to turn to operating expenses.

Operating expenses for the quarter totaled $28.7 million -- an increase of $6.2 million, or 27% from a year ago.

Excluding the mergers, which accounted for approximately 3.7 million of this increase, core expenses were up 11%.

Salary and employee benefit costs totaled $18 million, and were up $3.6 million, or 25%.

Acquisitions accounted for approximately 60% of the 25% increase, or $2.2 million.

The rest of the increase was due to normal merit increases and higher incentive costs related to the growth in mortgage refinancing revenue.

At September 30th, excluding the acquisitions, we had total full-time staff of 1.091 -- down seven persons from September of last year.

The acquisitions added 177 staff at quarter-end, bringing our total full-time staff to 1,268.

Communication and equipment costs of $2.3 million were up $625,000, primarily due to recent acquisitions.

Excluding acquisitions, our core expenses increased approximately 10%, primarily due to depreciation and amortization costs for software, telecommunications, and technology equipment added over the past 12 months.

Combined, all of the expenses were up slightly due to recent acquisitions, as tighter expense controls have been successful at holding down the growth in all other expense categories.

Turning to credit quality factors, the provision for loan losses was $1.5 million for the third quarter -- down $300,000 from a year ago, and equal to the provision for the second quarter of 2003.

The allowance to loan ratio was 1.29% - down slightly due to loan growth from the 1.30% for the third quarter of 2002, and 1.31% for the prior quarter.

All of our asset and credit quality factors continue to be strong.

Net charge-offs for the quarter were $1.1 million, and net charge-offs to average loans were 15 basis points -- well below the level of our peer banks and industry averages, and very much in line with the last four quarters.

There were no credit quality surprises during the third quarter.

Non-performing assets of eight million were lower than the $9.6 million for the same period last year, and down $200,000 from last quarter.

The ratio of non-performing assets to total assets was 20 basis points, which compares very favorably to our peers and industry averages, and was down 11 basis points from last year.

Turning to other matters, in August, we agreed to acquire three banking offices located in Avery, Mitchell and Graham Counties in Western North Carolina.

As of September 30th, the three branches had aggregate deposits of approximately $74 million and loans of $11 million.

We received all regulatory approvals, and two of the branches were closed and converted to our systems this past weekend, and the third branch will close in mid-November.

Jimmy will tell you more about our growth strategies, including de novo banks and branches in a few minutes.

Late in the third quarter, we issued 35 million in callable, subordinated step-up notes.

The notes were issued primarily to raise tier-two capital to support our business growth.

The notes pay interest at a fixed rate of 6.25% for the first seven years, and then become callable at a rate of 7.50% for the next five years.

On October 23rd, the board of directors declared a regular fourth-quarter cash dividend of 7.5 cents per common share, which brings our 2003 annual dividend to 30 cents per share, or approximately an 18% pay-out ratio.

The annual dividend is up 20% from the 25 cents per share for 2002, and up 50% from the 20-cent dividend for 2001.

Based on our earnings guidance for 2004, we would expect to continue the pay-out ratio at the same or slightly higher ratio for next year.

Under the stock purchase program, we are authorized to purchase up to 1.5 million shares of common stock through December 31st, 2004.

During the third quarter, we purchased 68,000 shares at a cost of $27.62 per share, and as of September 30th, 2003, we have purchased a total of 874,000 shares over the past two years at an average cost per share of $22.17.

As for our guidance for the fourth quarter of 2003 and for 2004, operating earnings per share of growth should remain at our long-term goal of 12 to 15%.

Our expectation is based on the same strong performance as we have achieved in the first nine months of 2003, as well as a continued stable economic environment in our markets and strong credit quality.

If the long-term yield curve continues to trend upward, we would see a rise in mortgage rates and would expect a slow-down in mortgage refinancing revenue.

A good portion of this decline in mortgage fee revenue would be offset by lower incentive costs paid on that fee revenue, as well as expected higher yields on our investment securities portfolio.

As Jimmy said, we anticipate loan growth for the balance of 2003, excluding acquisitions, will be in the range of 10 to 14%, and we are planning for that level of growth to continue through 2004.

And, as I discussed earlier, we expect continued pressure on our net interest margin.

However, we feel that we have stabilized our margin over the past four quarters, and our margins should remain around the 4% level through 2004.

This is based on our outlook that Fed funds and prime rates will remain flat through 2004.

Jimmy, I'll turn it back over to you for closing comments.

Thanks, Rex.

A few closing comments before we open the call to questions.

As you can see, United Community Banks keeps growing; not growth for growth's sake, but growth that offers our customers a broader range of products and services over a larger geographic footprint, growth that offers our employees new opportunities and our shareholders a more valuable franchise.

We are dedicated to growing our business internally and in new markets that offer strong potential.

And in so doing, we are increasing revenue and earnings according to plan.

Over the long-term, this means our expanding franchise will command a premium value for our shareholders.

Our acquisition strategy relies on both opportunity and discipline.

We want to find the right partner, a bank in a market with plenty of opportunity for growth, with a management team that shares our culture, but maybe lacks the resources to leverage those opportunities, a bank where management wants to remain energized with a strong entrepreneurial drive, and where management is willing to invest with us for the future, rather than to take the money and run.

We have a similar strategy for de novo banks and branches.

We first look for the management team and then build the bricks and mortar to support loan and deposit growth.

Let's look at our recent acquisitions.

Our moves into East Tennessee and Coastal Georgia provide United Community Banks with footholds in growth markets with huge potential.

With First Central, we have eight banking offices, and we are in five high-growth East Tennessee counties, and in the Knoxville MSA.

It is a natural extension of our North Georgia and Western North Carolina markets, and serves as a gateway to other attractive Tennessee markets.

This quarter we completed the conversion of First Central to our systems according to our timeline.

I've said this before, but I think it's worth repeating: our new Tennessee markets have over eight billion dollars in deposits, and we have only 2%.

And the largest market shares are held by large regional and super regional banks.

That's great potential.

Now, let's look at the acquisition of First Georgia.

It has provided us with a strong banking team and six locations in coastal Georgia.

We are now located in one of the fastest-growing and affluent markets on the Southeast coast.

As we anticipated, both banks are continuing to grow under the United Community Banks' banner, and are making valuable contributions to our operating performance.

As Rex mentioned, we have acquired three banking offices in Western North Carolina -- a move that has increased our franchise to 16 banking offices in 11 counties.

The new markets of Newland and Bakersville have a similar customer base, while expanding our franchise and footprint in Western North Carolina.

Already, we have had excellent bankers approach us in those markets, and we have hired one 30-year veteran in the market to assist us in growing our loan portfolios.

Updating our de novo activities, we announced yesterday that we will open a de novo bank in Savannah that will significantly expand our presence in Coastal Georgia over the next 12 months.

Our new offices are located in the historic downtown area of Savannah, and we will begin with four seasoned bankers who have collectively over 50 years of banking experience in that market.

Heading up the bank will be Michael

, who has over 35 years of banking experience, and a large amount of his experience is there in Savannah.

We now have a strong and attractive foothold at both ends of the coastal Georgia markets.

As with First Georgia Bank, Savannah has a very healthy tourism industry, as well as a strong trade business supported by the fourth-largest port in the United States, and is further supported by two military bases, and a significant base of service, retail and manufacturing companies.

We are very proud to have the Savannah team as part of the United family of banks.

Also, we will be opening a ninth location in Athens, Tennessee in 2004.

Consistent with our growth strategy, we find the right person and then build the facility to support their business.

We are fortunate to have John

to head up this new office.

John is a 25-year veteran from Athens with much of it as CEO of a former bank within that community.

This office compliments our Tennessee franchise as we expand south on the Interstate 75 corridor toward Chattanooga.

Finally, let me point out that United Community Banks can support continued growth without significant additions to infrastructure.

The systems, processes and management teams are already in place to fuel additional growth, though I also stress that this growth will come in a very disciplined fashion.

How do we define discipline?

Well, our growth strategy has been and will continue to be built on four key cornerstones: first, superior customer service.

It is something we live; not just pay lip service to.

Walk into any one of our banks and I guarantee you will see what I mean.

Second, we will grow both internally and through selective mergers.

Don't get too distracted by geographical expansion, because in the past 12 years, over 70% of our growth has been achieved organically.

Third, we will diligently control expenses.

We have a good track record in this area; evidenced by our performance in this low-interest-rate environment.

And fourth, we will maintain solid credit quality.

As I said earlier, we're dirt lenders; securing our loans with hard assets.

And our management team knows and understands our markets and our customers.

So, let me end by thanking our employees who, every day, live and work understanding that they really do make a positive difference in the lives of their customers.

I also want to thank our shareholders for their continued support.

And, of course, I want to thank our customers for choosing United Community Banks.

In many, many cases, our customers also have chosen to be shareholders as well.

That's tremendously gratifying, and I want you to know we at United Community Banks will continue to work hard to earn your business, your support and your confidence.

Thank you for being with us this morning.

Now, I would like our moderator to open the lines for questions.

Thank you, Mr. Tallent.

The question and answer session will begin at this time.

If you are using a speakerphone, please pick up the handset before pressing any numbers.

Should you have a question, please press star, one on your push-button telephone.

If you wish to withdraw your question, please press star, two.

Your question will be taken in the order it is received.

Please stand by for your first question, gentlemen.

Our first question comes from Christopher Marinac with FIG Partners.

Please state your question.

Yes, good morning, Jimmy and Rex.

I hope you are doing well.

Thank you, Chris.

Hope you are.

Yes.

I wanted to ask you two things.

Can you comment a little on Harold Brewer's retirement and what's happening with Brintech going forward?

And then I have a follow-up.

Sure.

Originally,

, when we brought Brintech into the family, at that time Harold and I had an agreement that in three years he would probably want to retire, and that was what was honored.

We certainly miss him and certainly wish him the very best.

He'll continue on with the holding company board through this year.

And he will continue to be somewhat in a semi-consulting role with our company through next year.

As far as Brintech, we have hired Hal Oswalt, who now is our President of Brintech.

He was the -- he headed up the banking division for Sheshunoff for a number of years, and he was also someone that Harold has known for a long time and certainly had input in that selection process.

And we're very happy that we have someone of his caliber as part of the team, and certainly leading Brintech going forward.

OK.

That's helpful.

Separately, on the de novo front in Savannah, what is just, I guess, the proper timeframe to expect that to break even?

And is that going to be any longer or shorter to what you've done de novos in past years?

Chris, you know, our strategy has always been first, find the people, and then, of course, the building.

We will open there in the very near future -- I'm talking about within weeks -- in a loan production office mode.

We will actually occupy the ground level floor, which is where our retail bank with be, early in 2004.

It'll take 90 days of renovations.

And then, at that point in time, we'll have a full-fledged bank.

This group of bankers have a lot of experience, have a very strong following and customer relationships, and we're excited about it.

It's probably one that we feel will be on line certainly as quick, if not quicker than any de novo expansion that we've done before.

OK.

So, would that be something that is probably maybe a breakeven at some point next year, and then it really contributes in 2005?

Would that be a proper ...

I think that's certainly a fair assessment,

.

Thanks.

That's helpful.

Thanks a lot.

Thank you.

Our next question comes from Sam

from KBW.

Please state your question.

Good morning, gentlemen.

How are you all this morning?

Hi, Sam.

Very good, Sam.

Did you guys walk through the loan breakdown by geography for quarter-over-quarter, or was that just year-over-year that you did?

I think I was a bit ...

That was -- Sam, Rex -- I indicated that the loans increased approximately 58 million over last quarter.

Right.

And that was 36 million in North Georgia, 19 million in metro Atlanta.

And again, that took into account we had a pay-off of just under 20 million early in the second quarter.

So, loan growth is really -- loan growth underneath it was really up by about 78 million, or about 4% on a quarter-over-quarter basis, on a consecutive quarter basis.

Got it.

OK, that was what I needed.

Thanks.

Um-hmm.

Thank you.

As a reminder, if you do have a question, please press star, one on your push-button telephone at this time.

Thank you.

Our next question comes from Arielle Whitman from Sandler O'Neill.

Please state your question.

Hi, guys.

Very nice quarter.

Hi, Arielle.

Thank you, Arielle.

I was just wondering -- I don't know if you could talk a little bit about your branch expansion strategy.

Are we talking more fill in the footprint, or expand the footprint?

And what the thought process is.

Well, Arielle, we have always said that, number one -- that the number one item that drives the decision is people.

We like to use that in both directions, and certainly in back-filling, but also, in the expansion mode -- such as a Savannah, such as an Athens, Tennessee.

We don't force these.

What we do is we continue to look for the right banker or group of bankers that want to get into an environment, or a community banking environment.

Many times they may have been involved in a more large, or a large regional bank.

And when we found that opportunity, then we try to find a way to create that expansion.

And the other piece of that that is so important; when you get into a new market with seasoned bankers with relationships within those markets, you can make that profitable in a very, very reasonable period of time.

So, you will see -- for example, we've only had one de novo this year.

We just expressed to you that we'll be coming on line.

We've said all along that between two and four within one particular year.

But again, that is a people-driven decision.

Um-hmm.

OK.

That's always been your strategy.

Yes.

Thank you.

Our next question comes from Bill McCrystal from McConnell, Budd & Romano.

Please state your question.

Good morning, Jimmy, Rex.

Hi, Bill.

Good morning, Bill.

I wonder if you could, on your loan growth going forward, give an idea of how geographically you would expect it to come out, and also, to some extent, by business line or by -- whether it's gonna be commercial real estate, construction, so forth.

Bill, we look, going forward, to be rather consistent with where it's been throughout 2003.

You know, as far as our construction lending, and certainly on the residential side, we have been very, very cautious through that whole process, as we have been for many, many years.

And we've not seen really any change.

We stay in that first-time homeowner market; certainly with folks that are building those type houses.

And we've found the absorption rate on those are excellent.

Certainly in our North Georgia markets and Western North Carolina markets, we still see a lot of people retiring and relocating here.

So, we really see that whole scenario playing out as it has over the past many years.

So, we really don't see any change in the dynamics of our loan mix.

OK.

And, if I might, could you just give a comment a little bit about -- obviously the speculation on deals has heated up as a result of the recent B of A deal.

What do the valuations -- where they are now for deals -- how do you feel about that?

Maybe you could just comment on your strategy and what your willingness is in terms of the pricing.

Well, Bill, you know, right now, certainly with the prices -- the stock values moving up certainly is creating more talk, more activity.

I think maybe even driven in this low-interest-rate environment, I think some banks are looking at it maybe as a way of growing earnings possibly necessitates an acquisition.

You know, we hear that a lot.

And our markets are very pricey.

You know, anybody getting into the Atlanta, the metro markets -- you will always see those being very, very pricey, as you would in Florida and other areas.

To really address our process and our model is, very simply, we look at a

number one, must have the people, the management and the culture, and it must be in a market that we feel we can grow, partnered up, faster than they can grow by themselves.

And our strategy simply is we take and we kind of -- we know what we can do as a company without the bank, relative to its growth; not only in assets, but certainly in the profitability.

Then we literally plug that prospective bank into our model and we see how that affects earnings per share, and that drives, you know, our decision.

So, you know, we're in some real interesting times.

Certainly the B of A, and Fleet yesterday has caused a lot of activity into the stock market.

But, you know, we're just a little country bank holding company located in North Georgia, and we're just gonna continue to scratch and claw.

Bill, I would add, as we've indicated in the past, when we look at deals or structures, generally within a year to two years at most, they would be accretive, and if not earlier in the first year, which we had in the two deals we announced this year.

So, I think that lends into our strategy.

As Jimmy talked about the people and how it fits into the growth market.

And, as Jimmy noted also, if you're looking in Metro Atlanta, they've been in the three to four range.

But we still need to get those accretive in the same period as we look at any potential deal from that standpoint.

Right, I understand.

I would just -- my view would be it's gonna become more difficult, given the ...

The Fleet ...

... just the sheer eating up of the valuations.

So, I understand your strategy.

I just -- your job's gonna become more difficult to find those bargains out there that are gonna be accretive in a short time period.

I'm not sure that the Fleet would impact us much, though, Bill, in our markets that we're in, you know, in North Georgia, Western North Carolina, even in East Tennessee.

It will impact, I think, the Metro Atlanta markets and Florida markets -- they probably will move up in their price a little bit because of the greater than three multiple for Fleet.

Um-hmm.

Very good.

Thanks very much.

Thanks, Bill.

Thank you.

Our next question comes from Christopher Marinac.

Please state your question, sir.

Yeah, hi.

My question was on M&A, and I think you covered that all in the last answer.

So, thanks again.

OK.

Thanks, Chris.

Thanks, Chris.

Thank you.

There are no further questions.

I will now turn the conference back to Jimmy Tallent.

Well, thank all of you for joining us today.

Thank you for participating.

We continually appreciate your interest in United Community Banks.

We look forward to talking to you again very soon.

And please have a nice day.

Thank you, ladies and gentlemen.

This concludes the conference for today.

Thank you all for participating, and have a nice day.

All parties may now disconnect.