United Community Banks Inc (UCBIO) 2005 Q3 法說會逐字稿

Good morning and welcome to the United Community Bank's third quarter 2005 conference call. Hosting the call today is Jimmy Tallent, President of Community Bank, and Rex Schuette, United's Chief Financial Officer. Rex Schuette will begin the conference call by reviewing United's forward-looking statements. Mr. Schuette?

Thank you, operator. During this call, we may make certain forward-looking statements. These include all statements that are not statements of historical fact, or that a statements regarding the intent, belief, or expectation of United Community Bank's and its management with respect to trends affecting the company's operations, its financial economic and market conditions, and its growth and operating strategies. Specifically of course, earnings expectations and growth estimates are forward-looking statements.

We filed our news release on form 8-K this morning, and we also encourage you to review the sections of our most recent form 10-Q 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 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 third quarter conference call. I am pleased to report that during the third quarter our team of bankers continued to do what they do best, and that's deliver personal community bank service, supported by the resources of our holding company. This is a winning combination for our company and its shareholders, and has produced another record quarter for United Community Banks.

Rex will provide detail on our financial performance in just a few minutes, but let me first review some of the highlights and update you on our business growth. First, we continue to be on course this year for our key performance goals of sustained double-digit earnings per share growth and a return on tangible equity above 18%. During the third quarter, total revenue grew 28% from the same period a year ago, driven by strong loan growth, expanding margin, and growth across all categories of fee revenue.

Our net operating income increased 20%. Diluted operating earnings per share increased 13%. Return on tangible equity was 18.9%, and total assets increased 24% from a year ago to $5.7 billion.

Loan and deposit growth continued to be solid across all of our markets. During the third quarter we added $181 million in loans, up 18% on an annualized basis, while maintaining an uncompromising commitment to sound credit quality. Deposits increased $237 million this quarter, which exceeded our loan growth by more than $50 million.

We continue to promote out very successful Refer-a-Friend core deposit program that rewards our many satisfied customers for referring their friends and family members to us. During the quarter, the program added in 11,700 new accounts, and balances of $108 million. Year-to-date the program has added 36,000 accounts and balances of $218 million.

Our goals this year continue to be driven by our balanced growth strategy, which focuses on organic growth within our markets as well as expansion through selected De Novo offices. During the third quarter we opened two De Novo banking offices in Tyrone and Newnan Lakes, located in Fayette and Coweta Counties, which further strengthened our presence in the fast-growing Southside Metropolitan Atlanta. This is how we grow.

You may recall that during the second quarter of 2004 we expanded our franchise with the acquisition of First Community Bank, that was located on the south side of Metro Atlanta, and had five offices in three excellent markets. In just over one year, we've successfully integrated those offices and met some of the early financial goals, and increased our presence in two of those markets by finding the right people. Not only have we grown in the initial bank, but we have expanded into two new locations in this dynamic market. This is how we grow. This is our balanced growth strategy and action. We don't buy our growth, we grow what we buy.

Now I will update you on our entry into Gainesville, which you will recall again in May 5 months ago. This is another great example of how we grow organically through De Novo expansion into new high-growth markets. Gainesville is the county seat of Hall County, which is one of the fastest-growing counties in the United States, and our bankers there are respected long-time business and community leaders in that market. The first location that we opened was out temporarily main office, which is located in downtown Gainesville. Within two weeks we will move into a new permanent full-service office, located on the same block as out temporarily office. In September, we opened our second banking offices in the Gainesville market. This morning, as we speak, the grand opening of our third banking offices taking place in the North Gainesville market, and a fourth location is planned on the south side of Gainesville, by early 2006.

Already, our Gainesville bankers have produced $205 million in loans and $105 million in deposits in the first five months of operation. Especially noteworthy is that half of the deposit growth was from checking, money market, and savings accounts, and don't forget, we had only one temporarily office opened during most of this period. We are off to a great start and we are very excited about the future of this new bank, in Gainesville, Hall County, Georgia.

Let me just add here that I appreciate and greatly respect our other bankers for keeping their focus on our company's long-term goals while so much attention has been directed to the significant De Novo expansion in the Gainesville market. Their discipline and their dedication are the underpinnings and strength of this franchise that year after year deals long-term shareholder value. And as we've said in the past, we plan on opening about two to four De Novo offices each year. Opportunities like the one we've had in Gainesville do not present themselves very often and a difficult to predict. They are truly extraordinary. Outside of Gainesville, we've opened three De Novo offices this year, two as I noted earlier this quarter, and the third was in Trion, located in Chattooga County in North Georgia, which was opened earlier this month.

Another element of our balanced growth strategy is a focus on disciplined expense controls, investing what is needed to achieve our goals, but also being mindful of expenses and keeping our efficiency ratio within our long-term target of 58 to 60%. We have a good track record here. Although we expect to see our ratio just above 60% for our few quarters, due to our significant expansion into Gainesville, we will continue to be diligent in managing the expense line.

In summary, our performance for the third quarter was strong, especially in light of integrating new market expansions, both in Gainesville and the south side of Metro Atlanta, while maintaining consistent and strong financial performance.

Now, Rex will share additional financial details. Rex?

Thank you Jimmy. For the third quarter of 2005, United Community Bank's net operating income rose 2.3 million to a record 14.3 million, up 20% from a year ago. Diluted operating earnings per share was $0.36, a 13% increase from the $.32 for the same period last year. And total revenue on a taxable equivalent basis was $64 million, an increase of 28%, from 50 million for the 3rd quarter of 2004.

Third quarter return on tangible equity was 18.90%, compared with 19.41% a year ago. Return on assets was 1.01% compared with 1.05% last year. Also for the first nine months of 2005, net operating income of 41.5 million increased $7.3 million or 21% from 34.2 million in the same period a year ago.

Diluted operating earnings per share of $1.05 increased 13% from $.93 a year ago and total revenue on a taxable equivalent basis increased 27% to 180.7 million, from 142.5 million in 2004. Also, for the nine months, return on tangible equity was 19.30% compared with 19.67% a year ago, and return on assets of 1.03%, compared with 1.07% last year.

Now let's look more closely at the key elements of our performance for the third quarter. Taxable equivalent net interest revenue while 55 million rose 12.8 million or 30% from the same period a year ago.

Acquisitions that were completed during the fourth quarter last year accounted for 2.9 million of the total increase resulting in a strong core growth rate of 23%. And on a consecutive quarter basis, net interest revenue was up approximately $3.7 million or 29% on an annualized basis.

Net interest margin for the third quarter increased 18 basis points, to 4.17% from the 3.99% a year ago, and was up 5 basis points from the 4.12% for the second quarter of 2005.

Our slightly assets sensitive balance sheet has allowed us to benefit modestly from this rising rate environment. However, over time, as the Fed and prime rates begin to level off, we feel that the competitive pressures on deposit pricing could bring our net interest margin down modestly to the 4% range where we have been for the past two years.

Now let's turn to loan growth. At the end of the third quarter, loans totaled $4.3 billion, up 816 million or 24% from a year ago. The acquisitions of Eagle National Bank and Liberty National Bank in the fourth quarter of 2004 accounted for approximately 206 million of the year over year increase in loans, leaving core loan growth at 610 million or 18%.

As Jimmy noted earlier, our strong growth came from all of our markets and we believe these growth opportunities will continue to provide us with 10 to 14% growth. I will now provide some additional detail on the 816 million increased in loans compared with a year ago, first by geographic region. In paragraph North Georgia had growth of 340 million, which includes 207 million for the Gainesville expansion. Metropolitan Atlanta increased 341 million, which includes 206 million from the two banks we acquired in the fourth quarter of 2004. West and North Carolina had growth of 45 million. Coastal Georgia growth was 51 million, and East Tennessee increased 39 million.

Looking at consecutive quarters, loans increased by 181 million, or 18% on an annualized basis.

Here is the consecutive quarter growth by market. 142 million in North Georgia, 25 million in Metro Atlanta, 14 million in West and North Carolina, 12 million in East Tennessee, and coastal Georgia was down 12 million, due to unusually high pay downs of construction loans that were completed during the quarter.

Looking at our growth by zone categories, let's first review the year over year comparisons. Construction and land development loans grew by 429 million, bringing the total to 1.6 billion. Commercial loans increased by 225 million to 1.3 billion, and residential mortgages increased by 142 million, to 1.2 billion. Looking at those same categories on a consecutive quarter basis, construction and land development loans increased by 136 million, commercial loans increased by 23 million, and residential mortgages increased by 20 million.

Next, let me update you on the interest rate sensitivity of our balance sheet at quarter end. Our interest rate sensitivity reflects a 3.25% increase in net interest revenue based on a 200 basis point ramp up in interest rates. Our sensitivity was down about 75 basis points compared to a year ago and down about 25 basis points from last quarter. At quarter end, total prime daily loans were approximately $2.5 billion, up 138 million from the last quarter, and the investment securities portfolio effective duration was 2.2 years, and the average life was 2.8 years, both up slightly from last quarter and 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 to slightly assets sensitive position. However, as we continue to focus on funding loan growth with deposits, we expect that competitive pricing pressures will offset any further market gains.

Moving to fee revenue, it remains strong across all categories. For the third quarter, total fee revenue of 12.4 million was up 2.5 million or 26% from a year ago. Service charges and fees on deposit accounts were 6.6 million for the quarter, up 1.1 million from a year ago. The increase was primarily due to the growth in transactions and new accounts resulting from our core deposit program and successful efforts to cross sell other products and services, as well as a higher level of ATM fees.

Mortgage loan fees of 2.4 million were up 620,000 or 35% from a year ago, due to continued strong growth in our markets. We closed 122 million of loans this quarter, compared with 65 million last year.

Consulting fees totaled 1.8 million, up 351,000 or 25% from a year earlier, due primarily to growth in our risk management and financial services practices.

Brokerage fees of 571,000 increased 194,000 or 51% due to strong market activity. Other fee revenue of 1.2 million was up 466,000, due primarily to 160,000 gain on the sale of a former banking office, and 118,000 of gains on the sale of SBA loans.

Now to operating expenses, which totaled 41.3 million during the third quarter, and was up 10 million or 32% from the 3rd quarter of 2004. Nearly 1.8 million of this increase was related to operating expenses of the two banks we acquired in the fourth quarter of 2000 and for that were not included in last year's results.

Also contributing to the rise in expenses was our expansion into the Gainesville market that Jimmy mentioned earlier, and three additional De Novo offices opened this year.

Now let's look at the key components of the third quarter's operating expenses. Salaries and employee benefit costs totaled 26.3 million, up 6.7 million or 34%. Approximately 2.7 million of this increase resulted from acquisitions and recent De Novo expansion. The balance was due to an increase in staff to support business growth, related hiring costs, and higher commissions related to the increase in mortgage and brokerage revenue.

At September 30, 2005, total staff was 1695, an increase of 243 over last year.

More than two thirds of this increase, or 164 staff members, was due to our acquisitions and new De Novo offices.

Let me breakdown further the increase of 164 people. We added 68 staff members for the mergers with Liberty National and Eagle National banks, and 96 were added for the new banking Gainesville and for the three De Novo offices in Trion, Newnan Lakes, and Tyrone. Looking at the remainder of this increase, what I would call core staff growth, represent about 6% increase in staff to support business growth across all of our markets.

Keep in mind that our core loan growth was 18% over this same period. Communications and equipment expenses of 3.5 million reflected an increase of 656,000 or 23% due to the 2004 bank acquisitions and investment in technology equipment to support business growth.

Advertising and marketing expense of 1.7 million rose 560,000, reflecting high of program costs of initiatives to raise core deposits and marketing campaigns that generate brand recognition in new markets.

Occupancy expense of 2.7 million increased 391,000, reflecting the high cost of operating additional office locations that were located through bank acquisitions in our De Novo office expansions noted earlier.

Professional fees of 1.2 million were up 139,000 due to higher costs related to the volume in new loans generated and overall business growth.

The increase in other operating expenses was due to recent acquisitions and business growth. Our operating efficiency ratio was 61.16% for the quarter, which is slightly above our long-term goal of 58 to 60%, due primarily to our recent De Novo expansion informing the new banking Gainesville.

Now let's look at credit quality. The third quarter provision for no losses was $3.4 million, up 1.4 million from last year, and up 600,000 from the second quarter of 2005. The allowance to loan ratio of at quarter end was 1.22% as compared to 1.27% a year ago and 1.22% at last quarter end. The decrease from last year was primarily due to our strong loan growth while our credit quality has been consistent and favorable to our peers.

Net charge of is for the quarter were 1.4 million compared with 1.4 million for last quarter and one million for the third quarter of 2004.

Annualized net charge of is to average loans were 13 basis points compared with 14 basis points for the second quarter of 2005 and 12 basis points for the third quarter of 2004.

Non-performing assets at quarter end totaled 13.6 million compared with 13.5 million at the end of the second quarter of 2005, and 10.5 million a year ago.

At quarter end, non-performing assets included 12.8 million of non-performing loans and 781,000 of (inaudible). There were no loans 90 days past due in accruing interest at quarter end. Non-performing assets as a percentage of total assets were 24 basis points at quarter end compared with 24 basis points at June 30, 2005, and 23 basis points at September 30, 2004.

All of our credit quality indicators remain strong, and we continue to compare favorably to our peers.

Turning to capital at quarter end, all of our capital ratios are above the regulatory well capitalized level. This concludes my comments on our third quarter's performance. Now let me turn the call back to Jimmy.

Thanks, Rex. As you can see, we have completed another successful quarter at United Community Banks. We've moved quickly to capitalize on the opportunities in Gainesville, and we added to banking offices on the south side of Atlanta, while continuing to meet our financial goals of double-digit earnings per share growth.

All of the elements of our balanced growth strategy were working together to produce another solid quarter. High-quality loan growth, funded by retail deposit growth, other De Novo expansion in fast-growing markets, with the right people, maintenance of diligent expense controls, and strong credit quality. But the real key to our success is equally our service vision and our business strategy. United Community Banks' customers get local service and local rates from bankers they know, bankers who can make decisions quickly for them, bankers who practice what we call the golden rule of banking. That means treating every person who comes through our doors exactly as we would want to be treated. It's simple, it sounds basic, but Community Banking is where our roots are and we stayed close to them, and that's our competitive advantage. It's why our customer satisfaction scores continue to exceed 90%, well above the industry average of 75%.

Looking forward we believe we are on target to complete the year with operating earnings per share growth within our long-term goal of 12 to 15%, but at the lower end of this range, due to our significant Gainesville expansion.

We anticipate that core loan growth during the fourth quarter of 2005 will be within our targeted range of 10 to 14%, and that our net interest margin could come down slightly due to expected pricing competition for deposits.

For 2006 we look forward to operating earnings per share growth within our long-term goals of 12 to 15%, core loan growth within our targeted range of 10 to 14%, and that our net interest margin could trend down slightly to the 4% range as we continue to fund loan growth with retail deposits.

Our outlook is based on our continued stable economic environment in our markets, combined with our ability to maintain strong credit quality.

To sum up, we are in the right markets with the right people at the right time. Our communities are markets and our franchise continues to grow. We owe everything that we've achieved and everything we will become to our 1700 bankers, for it is their unique brand of personal customer service that our customers internally would with their trust, their loyalty, and their banking business. With that, let me thank you for your continued interest in United Community Banks, and open the call to your questions.

Thank you. (Operator Instructions)

We will take a question from Scott Alaniz, of Sandler O'Neill. Please proceed.

Good morning.

Good morning, Scott.

Good morning, Scott.

A few questions - First, start with that core deposits program. You mentioned earlier that you have added a little under call thousand accounts in the quarter and 108 million in deposits, and that ends up being a little over $9,000 per account, which is almost double what the average account balance was in the first half of the year. Could you perhaps add a little color to as to why that balance appears to be going higher?

Scott, this is Rex. The balance probably for the quarter was a little higher than normal, but there's nothing in there from an unusual standpoint. It just happened to be high this quarter coming in. So we are not seeing anything on trends affecting that.

OK. Second, continuing on a long the deposits, I think -- believe the company has nearly $1 billion in CDs that are repricing was supposed to reprice over the next 12 months. Rex, do you know what the average cost of those CDs are and where you're modeling those costs to go?

We are looking at -- we are modeling those from the standpoint of repricing into the market, the Federal Home Loan Bank rate is right now, and that's probably about 440 to 460, and we've been able to actually price underneath that in the market competitively. That's why you see little bit of the expansion in margin in the last quarter, last two quarters that we've been able to price under that, but we go out there and we target select markets where we have the opportunity to grow core deposit, grow CDs, and not have to affect the other balances across our broader markets, so we've been able to focus our growth in selected markets and adding it, and probably we target right now in the 440 to 460 range, which is again off the Federal Home loan bank rate. We expect - again, over the past two quarters and actually year-to-date we've more than funded our loan growth, both on a quarterly and year-to-date basis with deposits, and its the combination of core deposit growth with the core deposit program, as well as focused growth in our CDs across all of our markets, so we've been very positive with respect to the results so far in the program we have in place.

I see. And then last question, on the staffing. I believe it was also mentioned that 96 people were added that came from Gainesville and the three new offices that were opened. What was the staffing for the three new offices? Because what it looks to me like if you added 10 people per office that it would suggest that you added a few more folks in Gainesville that momentum continues there.

Scott, this is Jimmy. We've got 70 people in the Gainesville bank, and that's from last quarter, 10 or 12, but you know, Gainesville, the initial people that came on were people that were very experienced in the landing area, commercial lenders, real estate lenders, branch managers and so forth. As we are now gearing up to open up our branches of course we've got to bring on tellers and customer service representatives. So that's what that differential is. We've opened on Thomson Bridge, Quinlan's corner (ph) is actually having their groundbreaking this morning, so certainly you've got to bring on the staff a little earlier to get them trained, get them accustomed to our systems and then open up the locations. The third location in Gainesville should be open within two weeks. When I say at the third I'm talking about our main office because we have temporarily quarters now. That will also bring about the need for tellers and new accounts people, but the officers, the management staff, the landing staff and the support folks are in place.

Terrific, thank you very much.

Thank you.

We will take our next question from Mr. Chris Bermarinak (ph) of Jake Partners (ph).

Hi Jimmy, hi Rex. How are you?

Fine Chris, you OK?

Hi Chris.

Yes sir. I wanted to ask about the pricing competition more specifically in Gainesville. Can you talk about the deposits in Gainesville, what you are having to pay there to get new funding, as well as what you are seeing on loans?

Well, let me address the landing side first. Certainly we have seen the competition relative to pricing in Hall County get pretty strong. Certainly, that's an opportunity may be for banks to retain business and we have looked at that very carefully and it doesn't make business sense for us relative to pricing then, we certainly are not going to lower ourselves to that thin a margin, but what is so exciting is the new business generated down there. Certainly, there has been a good amount has transferred over that has followed our bankers, but just the economic activity there is very strong. Typically we are getting better pricing on that versus transferring business over. From the deposit side, you know, the deposit pricing is obviously very competitive, as it is in most any market that we are involved in, but what again we are so pleased with is the deposit composition within this market. Our bankers in Gainesville a relationship bankers, and when you take our deposit base, which is now over $105 million, and over 50 per cent of that is checking and savings accounts, certainly, that goes along way is in keeping the funding costs down. So that kind of sheds some color on both sides.

I'll just add to that, in looking at Gainesville is what you would expect, and Jimmy said, the rates are a little bit higher and they are probably close to market, as I commented to Scott just a minute ago, so we are seeing CDs priced probably in the 440, 460 range for 12 months, 18 months. And that is competitive in the market. If you look at all of our CDs, over the past two or three months on aggregate they've come in about 4%, so we are paying a little higher in Gainesville, offset in some other markets.

OK, great, and Jimmy, separately, any other I guess thoughts on M&A as we head into the next year or two, particularly outside of Georgia?

Well you know, we are constantly looking within our defined footprint, Chris. You know, we have calls on a fairly regular basis. Again, there is all those pieces of criteria that must align from culture, to location, to pricing, and also the composition of the balance sheet certainly on a lot of the newer banks we are seeing what I call basically a loan production office, funded by CDs, and that's just not part of what we are looking at. Pricing is still pretty -- the expectations are still very strong. Again, our focus is organic growth, assuming the right opportunity comes along that would give us an interest into these new markets, we certainly would be very interested in pursuing that.

But there is a possibility into 06 that you do nothing. That's still a scenario?

Well you know, that's a possibility, as it is in 05 because unless all of those pieces come together, acquiring a bank or merging a new partner is not a priority at our company because again as we said earlier, you know, we don't buy our growth, we grow what we buy. And that's really how mentality, always has been. You've seen in the past -- in fact, in 04 we had a couple of bank mergers that came together within 30 days. That was not the way it was planned, it's just the way it happened. So going forward we are at the same position we have always been, we are open for opportunities in our defined market. It must fit within that fairly regimented criteria. If it aligns up, then we would move forward.

Great, that's helpful guys, thank you.

Operator instructions

We will take a question from Sam Caldwell from ACW.

Good morning, Jimmy, Good morning Rex.

Hi Sam.

Hello Sam.

My question was on the loan-loss reserves. As a percentage of loans, it was flat with last quarter and 1.22%. Do you feel like this is kind of the level -- it had been trending down somewhat over maybe the last four or five quarters. Do you feel like this is kind of where it's at? Or do you feel like maybe it can go lower from here?

Well Sam, it has trended down because certainly of the robust loan growth, but as you can also see, the additional increases are contributions to our reserve over the same period of time. For example, $600,000 increase in third quarter versus second quarter. We are very pleased with the quality of our loan portfolio, and certainly there is a number of metrics that we have to focus on in order to make sure our reserve is adequate. We feel that it's within that range in a 122, and again, being down from 127 to 122 last year is because of the strength of the loan growth.

Right. Is there are a portion of that that is unallocated or -- and how much is bad? And if so, are you guys getting any pressure from your auditors to run that down ...

Sam, no we haven't had pressure from the auditors in the context of our allowance and the adequacy of the allowance. We go through, as Jimmy indicated, quite a few metrics in looking at each of the categories and looking at the overall allowance, and we've not had any pressure from our auditors with respect to that.

OK, thank you.

Thank you, Sam.

And we will take our next question from Jennifer Demba, from SunTrust Robinson Humphrey.

Good morning.

Hi Jennifer.

I was wondering if you could give us a flavor of the granularity of the loans that have been brought in by the Gainesville team over the last five months. Would it be fairly consistent with the current year overall portfolio or are there any kind of larger loans lumped in there?

Jennifer, the granularity really mirrors what our loan portfolio has been. We are seeing loans to -- you know, to the individuals, to construct homes, to the medical community, for you know business purposes, commercial lending that would be financing doctor's offices and this type of thing. Certainly, there is some acquisition and development loans within that category with relationships that these people have banked (ph) for many, many years, so it really mirrors the same type of lending that United has always done.

OK. Thank you, good quarter.

Thank you.

Thank you.

We will take our next question from Peyton Green, of FTN Midwest.

Hi, Good morning.

Hi, Peyton.

Rex, and Jimmy, you all kind of jawboned us down on the margin here from the last couple quarters and it keeps rising. Is there anything in particular that you have effected on the deposit pricing side over the last -- towards the end of the third quarter and into the fourth quarter that makes you feel I guess more certain that the margin direction is down?

Let me attempt to answer that, Peyton, and Rex can add his comments too. I think we are being just conservative and realistic. Again, we are really focused on deposit growth, retail deposit growth, as I think we've indicated for some time. In this rising interest rate environment, we have been fortunate whereby we've not had to price up on the demand accounts as rapidly as we probably thought we would have to. Certainly being asset sensitive with our balance sheet has assisted within those categories, the robust loan growth and fee generation has also helped. Going forward, we are just taking a very cautionary approach because we want to continue to grow core deposits and retail deposits to help fund the loan growth and within this rising rate environment certainly we feel that will -- the margin will come under pressure. I guess we feel more comfortable telling the investor world that it could come in at 4% range. We are not trying to sandbag or anything along those lines, we are just being realistic. Rex?

Yes, I think Peyton we are seeing probably in the last quarter, two quarters, and that's why we made the comments that our CD costs and other deposit costs are more in sync with the Fed rate increases. Obviously the market reacts faster than prime does, so when you look at the forward rates they are already reflecting to rate increases later this year as well as one next year, so if we are already pricing one-year money, we are already paying up for that in our CD pricing already from a wholesale standpoint, so I think it's just more, as Jimmy said, a cautionary. We see it coming back to us that in order to keep the retail deposit growth matching or equaling our loan growth we are going to have to pay up, continually pay up. So we were pleasantly surprised in the quarter, with again, widening the margin in a little bit.

OK, and then on the Refer-a-Friend program, was there any particular geographical I guess breakdown to why the balances were so high on the new balances coming in in the quarter versus what you did on a year-to-date basis?

Peyton, are you talking about the cost per account that Scott was ...

Well, I mean it seems like you all brought in about 11,000 accounts and 110 million of balances versus 36,000 year-to-date, and 220 million, and was just wondering if you had more success in metro Atlanta or some other markets where just naturally the balances a higher on your target customers.

It's across-the-board. Certainly I think we are getting better are and penetrating the metro Atlanta markets stronger. We've had our bake in Fairburn, Henry County and Conyers, the three that came online last year that now is fully engaged in our core deposit program, so I think that is where some of that strength has come from. But we continue to see that throughout the company. If we said is there are one particular area that may be showed a little more strength, I would have to say it's those newer banks that's come into the company within the last 12 months because you know we've not even implemented this in Hall County and won't until we get our distribution in place.

OK, and then on Hall County, I mean how big do you think that bank could be when you get done with the build out? It sounds like you got most of the people in place that you need to have.

Well, you know, we have stated all along that we wanted to be a $300 million bank by the end of 2006. And we want to be profitable at that point in time. So that is what we are focusing on. Certainly, we feel that with the strength in the quality of our team there, there it is a tremendous future as an additional bank, our 24th bank for United Community Bank.

OK, and then any idea as to the contribution pretax that they provided in the third quarter plus or minus?

We just don't disclose on individual basis of each bank, Peyton.

OK. I mean would you think you were ahead of where you thought you'd be or right in line?

No, quite honestly, we are ahead. I mean again, over $200 million in five months on the lending side, half of that being self-funded, truly, only distribution in place was for two weeks in September, so I'm just amazed at the strength and the growth given the limitations that our customer base and their ability to bank with us. So once we get these offices opened, they can walk into these banks, -- you know, I'm very optimistic about that.

OK, great. And then, Rex, just a couple follow-up numbers questions. What was the average of non-interest bearing balance in the quarter? And then also the average interest-bearing liability balance.

Say that again and Peyton.

Average non-interest bearing balance in 3Q 05 and then average interest-bearing liabilities.

The average interest-bearing liabilities for the quarter were 4.6 billion.

OK.

That's total, right? Interest-bearing liabilities you are looking for, right?

Right, and then also non-interest-bearing deposits.

Hold on one second, we are pulling that out. Do you have another question? I'll come back to it (inaudible) ...

That's it, thank you very much.

Hold on one second, we've got it. Roughly 737 million.

OK. Great. Thank you very much.

Thank you.

We will take our next question from Justin Maurer, of Lord Abbett.

Good morning guys.

Good morning.

Rex, just a follow-up on the margin issue. To Jimmy's point, as you guys opened the branches in Gainesville, I suspect that should provide a nice lift in the deposit side, plus the three De Novos. It seems like you guys have done a pretty good job so far this year, keeping deposit growth in the range of loan growth. So -- and to your outlook about, you know, tend to 14% loan growth, I would think that the added opportunities from a bricks and mortar standpoint would be good for deposits, hence maybe offset a little bit of the deposit pressure. Sorry for such a long question.

It is a long question. I think -- I mean our outlook on it, Justin, is that in looking ahead for this next year we've done an excellent job of thinking in focus and growing not only just our core deposits, transactions, savings, and money market, but again, I focus in each of our markets and the CDs as well, and I think with Gainesville, with the to additional offices, three new De Novos, I think it's going to give us a little bit more flexibility because at the same time I think even though we have the volume coming in, there is a mix, again, with the CDs that I think it's going to have pricing pressure, and with additional Fed rate increases that are built into the market -- we've held our core deposit rates pretty flat throughout the balance of the year and haven't had to raise those and I think that's where we are going to see pressure locally on us to raise some of our core deposit accounts, and that's where we see some of the pressure coming back to us.

Yes, OK. That's certainly relative to your competition. I would think you guys stand in better stead, just in the sense that you are adding in those doors to collect deposits. Is that fair?

That is fair and that's helping us also to lower some of our wholesale funding, and that's another focus we've had to, again, bring down not only our brokerage CD where we could do it, but some of our other wholesale lending at the same time. So also deposits.

Just an additional comment, too Justin, our company is very, very focused on deposit growth and we still have a long ways to go. We realize that, but we are working on initiatives throughout the entire company to really get good at deposit acquisition. And as I've said many times, I think that is the main challenge, the real future for those that get good at acquiring deposit balances in the future.

Yes, OK. Thanks a lot, guys.

And I'm showing no questions at this time. I'll turn the callback over to the presenters for closing remarks.

Thank you Operator. Again, we were pleased to report our strong financial performance this quarter. As always, it was the direct result of the tireless work and dedication of nearly 1700 bankers putting our balanced growth strategy to work. We look forward to speaking with you next quarter, and again sharing with you our efforts and commitments to create and build for our shareholders. Thank you for your interest and support in United Community Banks, and have a great day.

Ladies and gentlemen, thank you for joining us on the conference call. You may now disconnect.