United Community Banks Inc (UCBIO) 2005 Q2 法說會逐字稿

Good morning and welcome to the United Communities Banks' Second Quarter 2005 Conference Call. Hosting the call today is Jimmy Tallent, President and Chief Executive Officer of the United Community Banks and Rex Schuette, Uniteds' Chief Financial Officer. Rex Schuette will begin the Conference Call by reviewing Uniteds' forward-looking statements.

Mr. Schuette?

Thank you operator.

During this call we may make certain forward-looking statements These include all statements that are now statements of historical fact, or that are statements regarding the the intent, belief or expectation of United Community Banks or its management with respect to trends effecting to the company's operations, its financial, economic and market conditions and its growth and operating strategies. Specifically, of course earnings expectations and estimates are forward-looking statements.

We filed our news release on Form 8-K this morning and we encourage you to review the sections of our most recent Form 10-K that describes the factors that may affect the future results of our operations. Any forward-looking statements made today or contained in other public statements of the United Community Banks or made by its management should be considered in light of those factors.

And now we will begin our call with Jimmy Tallent, President and Chief Executive Officer of United Community Banks.

Jimmy?

Thanks, Rex, and good morning, ladies and gentlemen. Thank you for joining our Second Quarter Conference Call. Once again I am pleased to report that our growing team of Community Bankers has delivered another successful quarter for our Company and its shareholders.

Rex will provide more detail on our financial performance for the quarter in just a few minutes, but first I would like to share some of the highlights with you.

The second quarter of 2005 produced record financial results that keep us on course to continue achieving our primary financial goals of sustained double-digit growth in operating earnings per share and a return on tangible equity above 18%. I want to add it is a testament to the strength of our franchise that our bankers were able to deliver a strong second quarter and stay on course toward our long-term goal, rearranging some priorities while absorbing the cost of our significant de novo Bank expansion in the Gainesville (inaudible) market of north Georgia.

The dedication of our employees consistently pursuing a simple, focused community banking strategy has provided our share holders with an average annual return on investment of 24% over the past ten years.

Now, let's look briefly at the quarter. Total revenue grew 29% for the same period a year ago. Net operating income rose 21%, diluted operating earnings per share increased 13% and return on tangible equity was 19.21%. Loan growth during the quarter maintained a record pace and was consistent across our markets, all of which continued to show strong economic and demographic trends.

Here in the second quarter, we added one hundred and ninety five million dollars in loans, which equates to a 20% annualized growth rate and deposits increased $179 million.

Rex will discuss loan growth in a few minutes, but let me just say that our expansion into Gainesville, which began in early May, produced more than $90 million in loans and $50 million in new deposits by the end of the quarter. And I am pleased to report that over 50% of the growth in their deposits were from checking and savings accounts.

Also, during the second quarter net interest margin increased 7 basic points to 4.12%. Our total equity surpassed 400 million dollars and our market capitalization again surpassed $1 billion.

When you compare second quarter to last year, the revenue grew 26% with strong growth across all our categories. And total assets increase more than $1 billion to $5.5 billion. And for the first half of 2005, we funded our increase in loans of $338 million with non-broker deposits of $341 million. Our record second quarter performance and our track record of steady, sustained progress is driven by an unrelenting focus on our proven growth strategy, that we call our balanced growth strategy.

This strategy has three basic elements -

First, and most important is organic growth, both within our markets to increase market share as well as through de novo expansion into new markets with the right people. As a result, 70% of our balance sheet was grown organically.

Our recent entry into Gainesville is yet another example of our balanced growth strategy in action. We've taken advantage of a significant growth opportunity, partnering through a de novo bank with the right people that fit our community bank model and have a passion for customer service.

For those of you, who aren't familiar with the Gainesville, Georgia market, let me take just a few minutes to provide you with some background information.

Gainesville is a county seat, an economic center of Hall County and is located 50 miles North East of Atlanta on the eastern shore of Lake Lanier. This market is strategically important to us, because it helps us build the gap between our existing north Georgia market and Metro Atlanta market. The county itself is a MSA and has a population of 170,000 people, which grew 46% from 1990 to 2000, and is expected to grow at the same pace about 45% from 2000 to 2010, making it one of the fastest growing counties in Georgia and in the United States.

The Gainesville MSA was the seventh fastest growth MSA in the country, among those with populations greater than 100,000 people. In early May, we partnered with 3 experienced banking executives all of whom are long term bankers in the Gainesville market. These 3 bankers have 100 years of combined experience in the Hall County market.

Shortly after joining with us, they had 55 experienced bankers from the market and as I said by the end of the quarter, less than 50 days in business, our newest bank had grown loans more than $90 million with over $50 million in deposits. These 58 bankers combined have more than 400 years of bank experience in the Hall County market. Our team is now assembled and they are prepared to take advantage of the significant growth opportunities in this market. The main office in downtown Gainesville should be open within 90 days and the two banking offices in the surrounding markets should be open within the next 30 days.

Also, two additional banking offices are planned for early 2006. Our growth strategy has worked. If we find the right bankers in the right markets as we did in Gainesville, we will build the bricks and mortar around them.

The second element of our growth strategy is selective mergers. We currently operate as 24 local community banks. However, by combining our community business model with the resources of our $5.5 billion holding company, we have a significant competitive advantage in the markets that we serve. So to preserve our community banking culture and ensure our continuing success, our potential partners must meet three criteria -

First, they must share our passion for customer service and our commitment to community banking. Second, they must strengthen the United Community Banks' footprint in similar high-growth markets. And last the acquisition must be accredited to earnings in a relatively short period of time, typically in the first year.

The last element of our balanced growth strategy is a focus on disciplined expense controls. All these elements are built on the foundation of uncompromising credit quality.

So, in summary, it was a very strong quarter both in terms of financial performance and specially in terms of positioning our sales for future growth. With that let me turn the call over to Rex.

Thank you Jimmy. For the second quarter of 2005, United Community Banks' net operating income rose $2.4 million or 21% to 13.8 million from a year ago. Diluted operating earnings per share of total $0.35, a 13% increase from $0.31 for the same period last year and total revenue on a tax equivalent basis was 60.6 million, an increase of 29% from 47.1 million for the second quarter of 2004.

Second quarter return on tangible equity was 19.21% compared with 19.70% a year ago. Return on assets was 1.03% compared with 1.07% last year.

For the first 6 months of 2005, net operating income, up $27.2 million, increased $4.9 million or 22% from the same period a year ago. Diluted operating earnings per share of $0.69 increased 13% from $0.61 a year ago and total revenue on a tax equivalent basis increased 26% to a $116.7 million from $92.4 million in 2004.

For the first 6 months returns on tangible equity was 19.52% compared 19.79% a year ago. Return on assets of 1.04% compared with 1.07% of last year.

Net operating income for the second quarter of 2004 excludes merger-related charges. You will find a full reconciliation of these charges in the news release.

Now let's look more closely at the key elements of our performance for the second quarter. Tax equivalent interest revenue of $51.3 million rose $12 million or 31% from the same period a year ago. Recent acquisitions accounted for about 3.8 million of the total increase resulting in a core growth rate of 21%. And on a consecutive quarter basis, net interest revenue was up approximately $3 million or 25% on an annualized basis.

Net interest margin for the second quarter increased 17 basis points to 4.12% from 3.9% a year ago and up 7 basis points from 4.05% last quarter. Our (inaudible) asset sensitive balance sheet is allowing is to benefit marvelously from this rising rate environment. That said we have maintained our net interest margin near the 4% level for the past 11 quarters.

However, we expect that our margin will come down slightly from the second quarter level to the balance of 2005 due to continued pricing pressures and growing deposits. I slightly doubt, I mean the 4% range, where we have been for the past few quarters.

Now let's turn to loans growth. At the end of the second quarter loans totaled $4.1 billion dollars, up $735 million or 22% from a year ago. Our acquisitions accounted for approximately $207 million of a year-over-year increase, therefore core loan growth was $528 million or 16%.

That strong performance came across all of our markets and we believe these excellent growth opportunities will continue in the future due to the economic and demographic trends we are experiencing.

I will now provide some additional detail on the $735 million increase in loans compared to a year ago, first by geographic region. North Georgia had growth of $235 million, which includes $93 million for the Gainesville de novo. Metro Atlanta increased $352 million, which includes $207 million from recent acquisitions. Western North Carolina had growth of 43 million. Coastal Georgia had growth of $65 million. And east Tennessee increased $40 million.

Looking at consecutive quarters, loans increased by a $195 million or 20% on an annualized basis. Here's the consecutive quarter growth by market., a $132 million in north Georgia, $37 million in Metro Atlanta, $5 million in Western North Carolina, $10 million in CoastalGeorgia and $11 million in east Tennessee.

Again these broad based contributions to loan growth clearly reaffirms the strength of United Community Banks' unique foot print as well as the continued economic strength of our markets.

Looking at our growth rate by loan categories, let's first review the year over year comparisons. In (inaudible) Atlanta, land development loans grew by $374 million bringing the total to $1.5 billion. Commercial loans increased by $201 million to $1.2 billion and residential mortgages increased by $144 million to $1.2 billion.

Looking at the same categories on a consecutive quarter basis, construction and land development loans increased by $104 million, commercial loans grew by $63 million and residential mortgages increased by $24 million.

Next, let me update you on the interest rate sensitivity of our balance sheet at quarter end. Our interest rate sensitivity at quarter end was 3.5% of non-interest revenue based on a 200 basis point wrap up of interest rates. We are up about 40 basis points compared to a year ago and a 100 basis points from last quarter.

The increase in sensitivity is due to our growth in loans, which were prime based and due to the shortening of our securities portfolio duration and average lives. Total prime daily loans were approximately $2.4 billion dollars, up a 100 million from last quarter. And the securities portfolio effective duration was 1.87 years and an average life was 2.32 years, both out a little over a half a year from last quarter as well as a year ago.

At quarter end we are in a position to benefit slightly from further expected Fed rate increases and we will continue to manage towards a neutral but slightly asset sensitive position.

Moving to fee revenue. Fee revenue remains strong across all categories. For the second quarter, total fee revenue of 12.2 million was up 2. 5 million dollars or 26% from a year ago, due primarily to growing deposits through our core deposit program, as well as cross selling products and services. We also experienced strong growth in Consulting, mortgage and brokerage fee revenue.

Additionally, another fee revenue, we recognized gains was approximately $500,000 from the sale of two banking offices. One of the banking offices was in western north Carolina and was consolidated with another office in the same town.

The other office was in Metro Atlanta and was being relocated to a more favorable location. Most of the remaining increase and other fee revenue was due to $235,000 of gains from the sale of SBA loans, which is a new business initiative we began in 2005. Mortgage loan and related fee was $1.7 million, up 10% from last year. Service charges and fees on deposit accounts were 6.3 million for the quarter up 968,000 from a year ago.

The increase is about evenly split between acquisitions and the growth in transaction and new deposit accounts resulting from successful core deposit program that we began in 2004.

Consulting fees totaled $1.7 million, up $283,000 or 20% from a year earlier, primarily due to continued growth in risk management and financial service practices as well as strong growth across our other consulting service practices.

Next, I will comment on operating expenses. Total operating expenses for the second quarter were 38.8 million, up $9.4 million or 32% from the second quarter of 2004. Nearly $5.3 million of this increase was related to the operating expenses of the three banks we acquired in 2004 that were not included in last year's results. And operating costs for de novo expansion into the Gainesville MSA during the second quarter, which Jimmy discussed earlier.

Let's review the key components of the second quarter's operating expenses. Salaried Employee benefit cost totaled $25.3 million, up 6.6 million or 35%. Approximately 3.9 million of this increase resulted from acquisition and recent de novo expansion. The balance was due to increase in staff to support business growth and related hiring cost and higher commissions related to the increase in mortgage and brokers' fee revenue.

On June 30th, 2005, total staff was 1659, an increase of 216 compared with last year. Nearly 60% of that increase or 125 people related to staff, edits (ph) or acquisitions at de novo offices. That leaves our net staff growth rate year-over-year about 6%.

Communications and equipment expense total $3.1 million dollars, up 438,000 or 16% due to acquisitions and investments in technology equipment to support business growth.

Advertising and Marketing total $1.7 million up 708,000 reflecting higher program cost of initiatives to raise core deposits and marketing campaigns in our new markets.

Occupancy expense of $2.7million, up $445,000 primarily reflect in the operating cost of bank offices added through acquisitions and de novo expansion. And professional fees total 1.1 million up 276,000 due to a higher cost related to the volumes of new loans generated and overall business growth. increase in other operating expense categories related to recent acquisitions and business growth.

Our operating ratio is 61.18% for the quarter, which is slightly above our long-term goal of 58 to 60%, the rise is primarily due to the operating costs for our recent expansion in the Gainesville.

Now let's look at credit quality. The second quarter provision for loan losses was $2.8 million, up $1 million from last year and up 400,000 from the first quarter of 2005. The (inaudible) ratio was 1.22% as compared to 1.27% a year ago and 1.25% at last quarter end. The decrease was primarily due to our strong loan growth while our credit quality has been consistent and favorable to our peers.

Net charge off for the quarter were $1.4 million compared to $1.2 million for the last quarter and $800,000 for the first quarter of 2004. Net charge off for average loans were 14 basis points compared to 12 basis points for the first quarter of 2005 and 10 basis points for the second quarter of 2004.

Non-performing assets at quarter end totaled $13.5 million, compared with $13.7 million at the end of the first quarter of 2005 and 8.8 million a year ago. At quarter end, non-performing assets include $11.5 million of non-performing loans and 2 million of (inaudible). There were no loans 90 days past due and accruing interest at quarter end.

Non-performing assets as a percent of total assets were 24 basis points at quarter end compared with 26 basis points on March 21st, 2005 and 19 basis points at June 30th, 2004. All of our credit quality indicators remain strong and we continue to compare favorably to our peers.

Turning towards capital at quarter end, all of our capital ratios are above the regulatory well capitalized level.

This concludes my comments on the record second quarter performance. Now let me turn the call back to Jimmy.

Thanks Rex. We have completed another very successful quarter at United Community Banks, one that has delivered financial performance and one that has clearly demonstrated our long term growth strategy through our expansion into Gainesville. Gainesville also shows that we can move quickly when opportunities are presented to us.

Let me add that the bankers who joined us in Gainesville saw us out. They knew our style of banking, they knew the way United Community Banks does business, they share our values and our vision of banking. Today, they are leveraging their experience and relationship to better serve their customers as part of the United Community Bank family, which in turn builds long term value for our share holders.

A few final thoughts. The key to our success has been and will always be our focused team of bankers, doing what we do best. And that is treating our customers the way we as individuals would like to be treated.

Our customers tell us how we are doing every month. Both through our customer satisfaction survey and in the business relationships they grow with us. In the second quarter, our success with refer a friend program and other initiatives to grow core deposits added 12,000 new accounts and $75 million in deposits. Again this quarter our customer satisfaction scores exceeded 90%, well above the comparable industry average of 75%. So as I always say our strategy remains very simple, achieve high quality loan growth, funded by core deposit growth one customer at a time.

Our focus is primarily organic growth, while being opportunistic with the right people to expand in other fast growing markets through selective de novos and mergers. And accomplish all of this while maintaining diligent expense control and a business culture that demands strong credit quality.

In the second quarter, we demonstrated focused, disciplined execution of a strategy, delivering strong financial results, while also capitalizing on our Gainesville opportunity.

Also want to extend my continued appreciation to all of our employees who provide the best customer service day after day, while elevating our reputation in the communities in which we serve and helping us to build, shareholder value every quarter.

Looking at the remainder of 2005, United Community Banks is on the target to deliver double digit growth in operating earnings per share. We expect to meet our 2005 goal of 12 to 15 % although as we previously said, we expect that our result will be at the lower end of this range, due to the significant Gainesville expansion.

We expect core loans growth will continue, slightly above the high-end of our targeted range of 10 to 14% and that our net interest margin will remain just above the 4% level.

This outlook is based on a continued stable economic environment in all of our markets, combined with our ability to maintain strong credit quality. We are also well positioned for additional increases, in short term interest rates and should benefit slightly, if and when they occur.

With that let me thank you for your continued in United Community Banks and open the call to your questions.

(Operator Instructions)

And your first question will come from Sam Couldvo (ph) with KBW. Please proceed.

Good morning

Good morning Sam.

Good morning Sam.

My question is on the net interest margin, trying to get my hands around the moving parts here, I know that in the past you guys have used 6 SWAPs to kind of offset some of the asset sensitivity from your loan portfolio, Is this something you are still doing and did? Any of these SWAPs building off has any positive impact on the margin, is that why the margin might be going down next quarter and can you comment on how you are using SWAPs and if that is having any impact?

Sure, Sam, and this is Rex that's a good question . To cancelize our margins for the quarter was 412 as they indicated were up 17 basis points over last year and again we've been at the 4 % range for the last quarters. And looking at the 17 basis points, Sam, I'd probably highlight it this way that we are benefiting from being asset sensitive. And we do use our SWAPs and part of the security portfolio manager sensitivity but we have been in the 2 to 3 percent range for the past year. So we are getting that benefit flow through with the rising rates.

Also our loans are fairly asset sensitive also within that category, we $4.1 billion, as I know, $2.4 billion, our prime daily, and over 85 percent of our portfolio re-prices within a year. So that benefit is coming through as the rates move up.

The other part of the benefit is in two other areas, in particular, our lag on transaction account pricing could not have the razor rates in the same timetable, and the other part is on our CDs that we have been able to price under market over this last year.

And my point of looking forward is that we see that we are going to have continued pressure with respect to the transaction account in particular, money market going forward to fund our long growth as well as CDs that we are going to have to be more competitive in the market to continue to grow our CD portfolio to help fund. Overall we still should be back around the same 4 percent range or slightly above the range for the balance of '05.

OKay. Thank you.

And your next question will come from John Pandtle with Raymond James & Associates.

Very good morning, guys. Well, I had a couple of questions you can imagine they are about Gainesville. The first is may be, Rex, you can touch on the margin impact of Gainesville in the quarter and I guess I am wondering if you know your guidance were slightly lower margin going forward it relates to the funding in that market.

I will characterize it this way John, looking at we have $90 million as we noted, a little over $90 million and quarter (inaudible). On average for the quarter that's not a significant number in our $4.5 billion of running assets, so really has not had a significant impact with respect to the margin.

Additionally, when we look at it they have been pricing pretty competitively there, I mean there is pricing pressures in the market but now they have been averaging a round prime for fee and so we have been able to keep it pretty competitive but there is pressure there ongoing and we see that continuing in the balance of '05. That's probably isn't a really a driving factor with our margin coming down.

OK. How are the margin compared. though I guess that's a may be a better way to ask is how are the margin in Gainesville compared to the average for the entire company?

John, let me take a stab at that. Our loan yields are close to the prime rate, you know slightly underneath where you know where our Company is, but given the fact that certainly there is probably little extra competitive pressure right now, that does not include fees that they are able to get relief better then a lot of the other remaining parts of our banks.

So really the yield, the overall yield is still pretty good. Let me add just a flavor to this, the margin thing, as we don't want any of you all to get the wrong impression. What we are trying to do is just be totally conservative; certainly we have enjoyed the increase in the margin as Rex here accurately explained.

But we also see and sense that deposit pricing is probably going to get pricier and with our opportunity to grow loans throughout the Company and certainly in the Gainesville market. We just want to take a pretty conservative approach to that, so that again we just feel with this continued rise in interest rates, the fact we have been able to lag on core deposit range as most banks have. How long that luxury will last we just don't know?

OK, that's fair. And as a follow up question. In Gainesvilkle, may be could you touch on your expectations for future balance sheet growth over the next year, and also kind of your profitability expectations going forward that kind of help us you know frame the opportunity I guess.

Sure, sure. That's very good question, John. Let me just add two or three comments. One is that certainly we want to accelerate our distribution layer, with the five locations that we talked about three within the 90-day period, two by early '06. We think that's very important so that we can take advantage of the business relationships that this group of leaders have been banking from many years.

So that is going to be accelerated as we say it. We feel that the break even point will come in late '06. Certainly that keeps within our target of 18 to 24 months on any de novo. We feel that we will have a very solid $300 million bank, by the end of '07 as we have previously stated.

We are obviously well on our way of achieving that, and still being able to make that type of investments, absorb the cost of that, in addition to continue our expansion with four other de novos, all fitting within that earnings per share growth of double digit in the 12 to 15 percent range.

OK, great. Thank you.

And your next question will come from Scott Alaniz with Sandler O'Neill. Please proceed.

Good morning.

Hello, Scott.

A quick question first on the other real estate. I believe Rex mentioned it hit $2 million there , how long do you think that will stay on the books with you. What were your expectations with respect to that?

Let me answer that Scott. We hope although that will be done very quickly. Actually one is already sold, one piece that has sold and we have taken a pretty nice gain in the third quarter. We also have the largest piece of oreo (ph) which is about $1.1 million on the contract to close at the end of this month.

OKay, and secondly, Rex, if you could amplify on the explanation for the increase in deposit service charges. Sequentially, I think there was a fairly significant increase from the first quarter. Could you just give a little color commentary on that, please?

All right. On a length quarter was up just under $700,000, and on a year-to-year basis just about a $1 million dollars, so as I indicated in there a little over 400,000 related to the acquisition, about half of which that was issued out last year, on a year-to-year comparison. The other key driver in there, with our ATM service fees that's driving it all sorts of another big proportion about the same, coming through all sorts of -- so that's one of the big drivers.

I mean.

And we expect that's being continuing at a same pace out there too.

Right. I guess what I am asking is given the expectations for a more competitive market deposit gathering, and how should we look at over the next couple of years, the relationship between deposit service charges and overall deposit growth.

As Jimmy indicated in his comments you know we have a focus on growing core deposits, it has been very successful for us. That really has helped to contribute also we are being able to grow the other service fees that are related to that. So I'd think -- I would expect it to continue probably in the 8 to10% range or at least if not a little bit higher as we continue to grow our deposits.

OKay and then lastly, subsequent to quarter end, how has type of loan and growth deposit growth have you seen out of the Gainesville market, I would assume that it's continued and that you are well beyond the $90 million mark ?

Scott, yes, our loans continue to grow very nicely as well as is the deposit base, which certainly there is a difference as I said, relative to or compared the second quarter, $90 million in loan, $50 million in deposits.

What is very encouraging is the composition of those deposits. Again, half of that 50 million is literally checking and savings accounts, that percentage holds through this morning, I just checked the numbers an hour ago. And keep in mind, we hired our first teller, which is the only one that we have, about a week ago. So we are pretty optimistic that our loan growth will continue, as well as the deposit growth certainly when we get our distribution in place.

Excellent. Thank you very much.

And your next question will come from Christopher Marinac of FIG Partners. Please proceed.

Thanks Jimmy. To the extent that you can comment on this is on the HR part of the change in Gainesville behind you from a legal sampling.?

Chris, we really felt that there was no legal portion to that with us or behind us all along. We were very very specific in our steps, certainly, we had the advice of our legal counsel. But also you have to understand that there is no non compete that exists and certainly if they did, that would be a total different picture. You know, we were very fortunate to have this group of folks have the trust and confidence in our business model, when they came to work for us. But I think, you know, we, United has not been the only benefactor of some of those people as well.

Great and longer term is three or are three branches in Hall County sufficient or would you add further there?

Now we will have (inaudible) by early '06 we are in a real (inaudible) now to open what we would call our main office, which is right downtown. That is taking a little long because we have to build in the drive-in facilities, but that will be in place with 90 days or less. Two other locations, the Thompson bridge road should be open within two weeks, the Collin's (ph) corner which is on the north end of the county should follow about two weeks after this.

So, we'll have three full services offices opened within 90 days, followed up with an additional two by the end of the first quarter of '06. Now what we plan on doing is putting marginal units in plus, we already got them sitting on the sites today, once we get those opened and things settle down and certainly as we focus on the profitability, we will start to brick and mortar very very quickly thereafter.

So, we will have 5 locations within the, by the end of the first quarter of '06 we will continue to analyze the market, because that is a large market, it is a fast growing market and we certainly want to take advantage of all the business relationships, this team of 58 people have.

Great, that's all. My last question is, you know, any interest in expanding foot print in the next couple of years.

Well we are always, that's you know a part of our business strategy is the expansion -- first is the focus on organic growth -- a $50 billion of deposits in the markets that we operate in today, we have a little of 4 billion of those. we have articulated where we see our expansion being over the next many years.

We're not in any type of a race to get there. As we find other bankers who want to join up in these fast growing markets, within our stated foot print -- as we find other banks that provide for what we are looking from a management and a service and culture and certainly with pricing then we will also take advantage of that.

We are just so very fortunate being part of these fast growing markets in the entire country. And then again, our focus is organic growth, like it has always been and a strong EPS growth that is consistent high quality and dependable.

Great. Thanks guys very much.

And your next question will come from Jerry Conan (ph) with Sandler O'Neil Asset Management. You may proceed.

Great. Good morning guys.

Hello Jerry. How you doing?

Couple of questions on the Gainesville. I wanted to follow up with some of the questions that John had asked. Could you guys quantify of the $4 million sequential quarter increase in non interest expenses maybe what percentage of that was due to Gainesville alone.

Jerry, we normally don't disclose information at that low level, at a business unit level.

OKay

But again as generally recapped before, it is well on track of all of our expectations and profitability estimates going into next year.

OKay, let me try it in a different angle.

Otherwise you can give up.

Can you suggest me be, how much of what you would expect to be the final full, managed expense run rate for Gainesville would be in the second quarter?

Would be in the second quarter, going into the third quarter?

Yeah. That would already be in the numbers.

Again we normally don't get into that level. I think if you look at the map and the 58 people and look at ther are all fairly senior people,

OKay

And with that you can get a pretty good run rate pretty easily in think.

OKay.

: I think the key was that also, Jerry, is that the you know looking at the loan growth and expectations in the next year as Jimmy indicated, you know, they really have a solid base and a lot of opportunity to , you know with 58 people, we'd expect it to grow faster from a front end and get up to speed in the early part of our time-period of looking at profitability in the next year.

OK. One last question. If Gainesville is growing at the rate that it is and you would expect to get to $300 million sometime in I think it was late '06 or '07. Why do you believe, or why wouldn't you suggest upward your expected loan growth rate from the 12 to14% level to something a little bit north of that.

We have, Jimmy indicated in his comments that, you might have not picked it up that outlook again I think through the balance of '05 and into '06 is slightly above the 10 to 14% range we have and if you look at our core growth rate this quarter, is 16% on a core basis which has Gainesville in for two months. That's how, in the near term the balance of '05 is a more realistic core growth rate probably.

OKay great. Thanks a lot guys.

You're welcome.

And your next question will come from Bill McCrystal with McConnell, Budd & Romano. Please proceed.

Good morning, Jimmy, I'm Bill

Hello, Bill.

Hi, Bill.

Two questions, one on real estate evaluations, I know your foot print covers a lot of markets, but I was wonder if you could just sort of give us an overview on your thoughts on the valuation.

And, secondly if you could comment on what the just recently announced sale of 174 branches in Wachovia might have. You know what kind of implications that could have for you?

Let me try to answer that Bill, on real estate evaluation, we obviously monitor that very very closely, we're seeing still within our markets fairly consistent. appreciation, nothing that we would call over heated . There are obviously two or three areas that have become more pricey, you know, on the shores or some of the lakes, on the top of the mountains, on the rivers and this type of thing, which is a very limited supply there. But as far as the basic residential development in the growth and price evaluation there, It's just been very modest, it's been modest over a long period of time, we typically have seen, I think the last report that I have read was the like of 4% price appreciation in the 28 County Metro area last year.

So, we are seeing it pretty much on the low end, we're not seeing the 15 and 20% price appreciation on housing in our markets. so, again we watch that we monitor, we have a number of tools for our credit administration, that keeps us apprised as to what's going on.

When we look at the lot inventory in the southern north side of Atlanta, that has risen a little bit with a housing inventory basically being flat, this is over the last 12 months. On the south side the lot inventory has increased a couple of months, from 22 months supplier, from about a 20 month supply a year ago, and a housing inventory on the south side has been pretty consistent. So, we've not seen any major warning signs or signals at this time.

In regards to the rumor or the sale of some multi or branches from one of the large regional bank. We look at that as being, you know, the possibility of that becoming a available but typically what we have seen is those are bundled up in large packages and sold to other regional bank. Having a building really does do a lot for us. We will have to have the people, that team first and we will figure out the brick and mortar.

Right, maybe I wasn't - should have made it more clear. was wondering whether that presented any opportunities from your perspective to take advantage of that, you know I kind of assumed that you would be interested in large chunks that doesn't fit your profile as you explain. But does this present more of an opportunities from your perspective to take advantage of. Obviously I assume that you would be interested in large chunks that doesn't fit your profile as you explained, but does this present more of an opportunity for your community banking model in some of those markets.

Well any time there is disruption, it certainly creates opportunity, you know, we continue to have people talk to us that's considered changing, Certainly, when their world gets turned upside down, you know for a large regional bank and they can come into a quality community bank that allows them to do banking the way that they believe is far as customer service and so forth

We have been very very fortunate for being the recipient of a lot of very very good people so any additional disruption, we look at that as again an opportunity.

OK, and just sort of to follow the up again on the real state, you're not seeing any increase in the speculative investment in some of these developments that go up or some of the people or who may be coming in late in the game or may not have the financial wherewithal that some of the bigger players have. You know, people just purely speculate and then try to just cash in on some of the escalation in prices.

Well, generally in our market, we have not banked those kind of customers, again if you look at the metro Atlanta area, honestly, the small developer has a very difficult time in competing from a pricing stand point and we have basically stayed away from these folks. But keep in mind the greatest percentage and the greatest number of our real estate construction loans are one loan to one borrower to build one home.

So that gives a real low risk relatively speaking and we feel very comfortable with that again and as I say, we have a number of tools that we monitor there, certainly there are pockets that are heating up in the South East particularly in the pan handle of Florida and out in the West, Northeast -- we have not seen that in our markets thus far.

OK, thank you very much.

(Operator Instructions)

And your next question will come from Jennifer Demba with SunTrust Robinson Humphrey. Please proceed.

Good Morning, I was wondering what the loan books totaled for these regions hires prior to coming over to UCBI. Have you disclosed that, Jimmy?

We have not disclosed that, but the information that is available, if you look just at the one bank, the Bank in Hall County, they have $750 million in deposits, loans in excess of $1 billion, again they had the largest market share, 35% of the deposits. And again how Hal County today, which is almost 2 1/2 billion dollars, 75% of those deposits are owned by regional banks?

So you'd probably view your $300 size goal to be pretty conservative?

Well you know us pretty well Jennifer.

Enough said, enough said. Another topic. Do you have any other office sales you are planning, I guess you sold two offices in the second quarter, anything else on tap?

Let me explain that to you for just a moment. We sold two -- one as in Robbinsville in North Carolina, this is where we have actually had two locations now for about two and a half years and we have made the commitment to consolidate those, but we also make sure that we know who the recipient of the (inaudible) would be, so the local county bought that. This is been going on for several months in fact over a year. The second property is that in (inaudible) Springs which was the original headquarters of the Chartered Bank that we acquired in Metro about 4-5 years ago. What has happened as you all know in Metro Atlanta, the growth has moved sometimes and it only takes a few years for that you become kind of own an island.

So that was what we were dealing with there, we also had sold that, it was a commitment, a number of months ago and the local government there in (inaudible) county actually purchased that.

The two pieces of property honestly just came together at the same time for the closing in the same period. So that was not planned or orchestrated. It's just been out there for a while.

We don't have anything else planned today as far as actually selling any of our offices but we are constantly making sure that they are in the right location so that they can be convenient and our brand has - you can identify that very easily and being in that rare location is very important.

Great thanks a lot Jimmy, good quarter.

Thank you

And your next question will come from Green, Peyton of FTN Midwest Research. Please proceed.

Good morning, I had a question for you, Rex. In terms of the securities book, is there desire to allow that to run down on an absolute basis going forward and then also any interest rate risk from the roll off over the second half of the year moving down giving the recent flattening in the curve?

Good question Peyton, the securities portfolio is just under a billion, $999 million and our plans right now are probably to - at about that levels through the balance of the year. It is about 18% of assets and it has been in that 17 to18% range for the past year or two.

So it has not moved proportionately to the total balance sheet. We do have probably 300 million or so or 250 million or so over the next two quarter that are replacing and we will evaluate it if that comes off right now with the flattening of the curve as you have indicated.

We have been very selective when we build up the portfolio late last year so that we have had the growth and the interest yield on the securities over that time period and we monitor that very closely. So as they come up we evaluate that and our intention right now is to probably keep it at the same level, somewhat in par the overall asset sensitivity also patent trying to keep it up to 3% in the low range.

OK, And then, I guess the follow-up. Can you share with us what the loan yield were, on an average in the second quarter and then also with the securities yield was in the second quarter?

Overall, on the yields you will see coming off fairly soon in the queue. The yields have been at about 7% of loans and if you look at the taxable securities a little over 430, 431 in the quarter on the taxable.

OK great, thank you very much.

You are welcome.

And your next question will be follow-up from John Pandtle with Raymond James & Associates. You may proceed.

OK, thank you again and two quick follow-ups. Rex, I apologize but I missed the SPA long term gain in the quarter. How big was that?

About $235,000 dollars. This is where you know we have had opportunities you know market over the past couple of years we have been looking at, and we move the senior person over to head up and take charge of looking at the SPA loan opportunities that we have with all of our banks our there, so that individual works very closely with the other 24 CEOs in developing a pipeline of loans and again to look that to be an on-going business for us.

OK, and then the final question was on back on Gainesville, other than deposits service charges, would there have been any significant fee income contributions from them in the quarter?

Not outside of loan fees that ends up in a yield not at this time because again we don't have the other deposits, people in place and as Jimmy (inaudible) on tele, even though we have half the deposits in transaction accounts, we see that coming as we open the branches up over the next 30 days like that would give us some great opportunity.

OK and there was no other major re-investment or unusual expense items in the quarter outside of the initial impact of Gainsville?

No

OK, thank you.

And there are no further questions at this time, I turn the conference over to Mr. Tallent, any closing remarks?

Thank you operator and I would like to leave you with three points today. First, United Community Banks has a track record of high quality growth and consistent high performance. Second, our community banking model is designed to sustain that growth and performance and third our team has demonstrated our commitment to create and build value for our shareholders. With that we thank you all for participating with us today and Rex and I look forward to talking to you all again. Have a nice day.

Ladies and gentlemen, thank you so much for your participation in today's conference. This does conclude the presentation you may now please disconnect. Have a great day.