United Community Banks Inc (UCBIO) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the United Community Bank fourth quarter 2005 earnings conference call.

My name is Cindy and I will be your coordinator for today.

[Operator Instructions]

Hosting the call today is Jimmy Tallent, President and Chief Executive Officer of United Community Banks and Rex Schuette, United Chief Financial Officer.

Please be aware that during this call, Mr. Tallent and Mr. Schuette may make certain forward-looking statements about United Community Banks.

Any forward-looking statements made today should be considered in light of the risks, uncertainties and other information provided by the company in its filings with the SEC and included on their website.

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

Mr. Tallent?

Thanks and good morning to all of you.

I'm pleased today to share with you another strong quarter, which is a fitting close to what was a busy and a very successful year.

For 2005, we achieved our key financial goals for earnings per share growth and return on tangible equity.

And this is especially noteworthy in a year when we invested substantially in expanding and enhancing the franchise.

The credit for this strong performance goes to the people throughout this company who always keep their eye on the ball, who always remained focused on what is important, and that is our special brand of customer service that defines this company and sets us apart.

Among the highlights of the fourth quarter, we continued to build a highly successful de novo expansion, one that you will recall we began earlier in the year in fast growing Hall County, Georgia.

That is primarily the Gainesville market located just Northeast of Atlanta.

Also during the quarter, we expanded into Trion with a de novo banking office to compliment the business building efforts of our Summerville bank in our North Georgia market.

We raised $40.5 million in new capital through a common stock offering.

This was our first equity offering since we listed on NASDAQ in 2002, as well as the first public stock offering for United.

We sold the new shares within two days at a strong multiple to earnings.

We were gratified by this enthusiastic response and the opportunities it provides us to continue our balanced growth strategy.

That strategy, as you know, is to grow organically within our markets and that comes from leveraging our commitment to outstanding customer service, to grow through selective de novo expansions such as we have described in Gainesville and Trion, and to grow through acquisitions when we find the right partners in the right markets, such as the three acquisitions completed in 2004 on the East and South side of metro Atlanta.

This year, all of these banks have contributed to our strong organic loan growth in metro Atlanta.

Our balanced growth strategy also calls for disciplined expense controls with an efficiency ratio target of 58% to 60%.

Our ratio was 58.8% for the fourth quarter.

So we were back in the desired range more quickly than expected, given our substantial investment in the de novo expansion.

We did all of this during the fourth quarter while achieving strong financial results.

Now, Rex will provide the details in just a minute.

But let me share just a few more highlights for the fourth quarter.

Total revenue increased 20%.

Net operating income increased 18%.

Return on tangible equity was 18.2%.

And the return on assets was 1.05%.

Total assets increased 15% to $5.9 billion.

Diluted operating earnings per share increased 12% to $0.38 per share.

For the year, diluted operating earnings per share increased 13% to $1.43 per share.

Loan and deposit growth continued to be solid across all of our markets during the quarter.

We added $144 million in loans, a 14% increase on an annualized basis while maintaining our commitment to sound credit quality.

Deposits increased $281 million in the fourth quarter, nearly doubling our strong loan growth.

This was due to the focus by our bank CEOs to grow CDs as well as to continue our very successful core deposit referral program.

Once we have these new customers, our excellent customer service allows us to retain them and earn more referrals.

We see this monthly as we continue to score above 90% on our customer satisfaction surveys, significantly higher than the industry average.

Our slightly asset-sensitive balance sheet helped us raise our net interest margin to 4.2%, which was three basis points higher than the third quarter and 15 basis points higher than the fourth quarter of 2004.

Annualized net charge-offs to average loans were 16 basis points for the fourth quarter.

That compares to 13 basis points in both the third quarter of 2005 and the fourth quarter of 2004.

Towards the end of the year, we were able to resolve some problem loans and this slightly increased our charge-offs.

Non-performing assets were $13 million compared to $13.6 million at the end of the third quarter.

Our asset quality continues to compare favorably with peer banks and remains well within our tolerance levels.

Our operations in Hall County continue to grow.

The new Hall County bank now has five offices, with a fifth office opening last week.

Our team of 78 bankers has added $246 million in loans and brought in $132 million in deposits in just eight months.

We wanted to get this new bank up and running as quickly and as efficiently as possible, and we believe our team is off to an impressive start by any measure.

Let me add three comments about United Community Bank of Hall County.

First, I believe the willingness and enthusiasm of these skilled, tenured bankers to make a career change and come to work at United says something very positive about our company and also our business model.

I feel it speaks volumes that people who have been in this business for 30 years look to us with an entrepreneurial kind of ambition and excitement.

The second comment is that these customers wanted to join us too as the strong result of our business building effort show in the first eight months.

One of the key reasons why they joined us is because their bankers joined us.

Customers like the bank with people they know and they trust.

At United we live by the golden rule of banking, "treat customers they way you would want to be treated".

We also remind one another, this is a people business.

We are not taking a single one of our new customers for granted.

We are going to cultivate those relationships by providing the best Community Banking service, the best service of any competitor for that matter in the Gainesville and Hall County market.

And the third comment and this is very important.

I want to emphasize again, that while so much attention has been focused on Hall County, our people in the other 23 banks are keeping their focus on their communities and their customers.

By doing so, they enable us to meet our financial performance goals for the year.

They are the unsung heroes of 2005 and they are the reason why we are able to report so much good news today.

We are following the same formula for growing the business during 2006.

When opportunities come about, we are able to move quickly due to our strong earnings performance and a commitment to reinvest in the future growth of our franchise.

Now, Rex will share additional financial details, Rex?

Thank you, Jimmy.

For the fourth quarter of 2005, net operating income rose $2.3 million to a record $15.2 million, up 18% from a year ago.

Diluted operating earnings per share were $0.38, a 12% increase from the $0.34 for the same period last year.

Total revenue on a tax equivalent basis was $64.8 million, an increase of 20% from $54.1 million for the fourth quarter of 2004.

Fourth quarter return on intangible equity was 18.20% compared to 19.96% in the fourth quarter of 2004.

Return on assets was 1.05% compared to 1.07% last year.

For the year, net operating income of $56.7 million reflected an increase of 9.6 million or 20% from 47.2 million for 2004.

Diluted operating earnings per share increased 13% to $1.43 from $1.27 a year ago.

Total revenue on a tax equivalent basis increased 25% to $245.4 million from $196.5 million in 2004.

Also for the year return on intangible equity was 18.99% compared to 19.74% a year ago.

Return on assets of 1.04% compared to 1.07% last year.

Now, let's look more closely at the key elements of our performance for the fourth quarter.

Tax equivalent net interest revenue of $56.9 million rose 11.6 million or 26% for the same period a year ago.

Acquisitions completed during the fourth quarter 2004 accounting for about $1.8 million of this total increase, leaving a strong core growth rate of 22%.

On a consecutive quarter basis, net interest revenue increased $1.9 million or 14% on an annualized basis.

As Jimmy mentioned, net interest margin for the fourth quarter increased 15 basis points to 4.20% from 4.05% a year ago.

The margin was up three basis points from 4.17% for the third quarter 2005.

Our balance sheet remains slightly asset sensitive, which should allow us to benefit modestly from any further increases in interest rates during the first half of 2006.

However, as we continue efforts to fund loan growth with new deposits, competitive pricing pressures could offset any gains and possibly compress our margins slightly in the second half of 2006.

Particularly as short term rates begin to level off.

Now, let's turn to loan growth.

At the end of the fourth quarter, loans totaled $4.4 billion up $663 million or 18% from a year ago.

All of the loan growth during 2005 was organic, including $246 million from Gainesville and a strong 11% growth rate spread across the balance of our markets.

We anticipate that loan growth opportunities for 2006 will continue within our targeted range of 10% to 14%.

I will now provide some additional details on the $663 million increase in loans compared to a year ago, first by geographic region.

North Georgia had loan growth of $412 million, which again includes $246 million for the Gainesville expansion.

Metro Atlanta increased $145 million.

Western North Carolina had growth of $35 million.

East Tennessee increased $38 million and Coastal Georgia growth was $33 million.

Looking at consecutive quarters, total loans increased by $144 million or 14% on an annualized basis.

Here is the consecutive quarter growth by market: $88 million in North Georgia; which includes $39 million for Gainesville; $35 million in Metro Atlanta; $5 million in Western North Carolina; $4 million in East Tennessee and $12 million in Coastal Georgia.

Looking at growth by loan categories, let's first review the year-over-year comparisons.

Construction and land development loans grew by $434 million, bringing the total to $1.7 billion.

Commercial loans increased by $114 million to $1.3 billion.

And residential mortgages increased by $104 million to $1.2 billion.

Looking at a consecutive quarter basis; construction and land development loans increased by $122 million and commercial loans increased by $30 million.

Next, let me update you on the interest rate sensitivity of our balanced sheet at quarter end.

Our interest rate sensitivity reflects a 2% increase in net interest revenue, based on a 200 basis point ramp-up of interest rates.

We are down about 7 basis points compared to a year ago and down about 125 basis points from last quarter.

The decrease is primarily due to a change in our re-pricing assumptions for 2006, relating to the re-pricing of core deposits that are expected to increase at a faster pace than our prior models.

And we have loan spreads narrowing slightly both reflecting an outlook of more competitive pricing for 2006.

At quarter end, total prime daily loans were $2.5 billion, up $100 million from last quarter.

The effective duration of the securities portfolio was 2.5 years, up slightly from 2.1 years at the end of 2004 and the average life of the portfolio was 3.2 years as compared to 2.4 years at the end of 2004.

Fee revenue remains strong across all categories.

For the fourth quarter total fee revenue of $11.4 million was up $616,000 or 6% from a year ago.

This growth rate understates our core business growth due to security losses recognized in the fourth quarter of 2005.

Without net security losses, fee revenue grew $1.3 million or 12% year-over-year.

The security losses include a $500,000 impairment charge reported on the Freddie Mac investment security we hold.

We took a similar write down last year and as noted last year the loss was considered to be other than temporary as defined by the accounting pronouncements.

We do not expect any further write downs at this time.

Looking at the other categories of fee revenue, service charges and fees on deposit accounts increased $970,000 to $6.6 million primarily due to the growth in transaction in new accounts resulting from our core deposit program and cross selling of other products and services.

Consulting fees of $1.7 million were down slightly compared to last year, primarily due to the timing of work completed last year for assisting clients with documentation and testing of internal controls in our risk management practice.

In 2004, a significant portion of that work was completed in the fourth quarter, while in 2005 most clients got an earlier start on their stock documentation and fees were spread more evenly throughout the year.

Brokerage fees increased 85% to $789,000 due to strong market activity.

Operating expenses totaled $40.5 million during the fourth quarter up 6.8 million or 20% from the fourth quarter of 2004.

Approximately $4 million of this increase related to the operating expenses of the two banks we acquired in the fourth quarter of 2004 and our significant de novo expansion in 2005.

Now, let's look at the key components of the fourth quarter's operating expenses.

Salary and employee benefit costs of $25.6 million increased $4 million or 19% with approximately $2.8 million resulting from the acquisitions and de novo expansion.

The balance was due to an increase in staff to support business growth and related hiring costs and higher commissions related to the increase in brokerage revenue.

At December 31, 2005, total staff was 1,703 an increase of 163 over last year.

About 60% of the increase of 97 staff members was due to the de novo office expansion.

Without that expansion our net staff growth rate year-over-year was 4%.

Communications and equipment expenses of $3.6 million reflected an increase of $683,000 due to the acquisitions and the investment in technology and equipment to support business growth.

Advertising and marketing expense of $2 million increased $463,000 again, reflecting the higher program costs of initiatives to raise core deposits and marketing campaigns to generate brand awareness in markets.

Occupancy expense of $2.7 million increased $342,000 reflecting the cost of operating additional banking offices, added through acquisitions and the de novo office expansion noted earlier.

Postage, printing and supplies expense was up $328,000 due to the de novo expansion and business growth.

The increase in other operating expense was primarily due to acquisitions, losses incurred in the disposal of other real estate, higher amortization of low income housing tax credit investments and business growth.

Again as Jimmy noted, our operating efficiency ratio of 58.80% for the quarter is back within our long-term goal of 58% to 60%.

Now, let's look at credit quality.

The fourth quarter provision for loan losses was 3.5 million, up 1.5 million from last year and up 100,000 from the third quarter of 2005.

Net charge-offs for the quarter were 1.8 million compared to 1.4 million for the third quarter and 1.2 million for the fourth quarter of 2004.

The slight increase this quarter was related to several small loans that were resolved by year-end.

Net charge-offs to average loans were 16 basis points, compared to 13 basis points for the third quarter of 2005 and 13 basis points for the fourth quarter of 2004.

Non-performing assets at quarter end totaled $13 million compared with $13.6 million at the end of the third quarter of 2005 and $8.7 million a year ago.

At quarter end, non-performing assets included $12 million of non-performing loans and $1 million of (Oriel).

There were no loans 90 days past due in accruing interest at quarter end.

Non-performing assets, as a percentage of total assets, were 22 basis points at year end compared with 24 basis points at September 30, 2005 and 17 basis points at December 31, 2004.

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

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

As Jimmy mentioned earlier, we raised 40.5 million in new capital through our very successful equity offering in late November.

This increased our regulatory capital ratios 70 to 90 basis points.

Additionally, our tangible equity to asset ratio improved to 5.82% for the fourth quarter.

This ratio will increase to approximately 6.25% in the first quarter of 2006, reflecting the full quarter impact of the equity offering and will provide us with additional capital for several years to pursue and execute our balance growth strategy.

This concludes my comments and I will now turn the call back to Jimmy.

Thank you, Rex.

We have completed another record quarter at United Community Banks.

We met our financial goals while taking important strategic steps for the future.

I am pleased that our customers, employees and the investment community are showing their support for and belief in this company.

Looking forward to 2006, let me begin by saying that our outlook is based on a continued stable, economic environment in our markets, combined with our ability to maintain strong credit quality and discipline control over increasing expenses, while we reinvest in the future.

For the year 2006, we expect operating earnings per share will be within our long-term goal of 12% to 15% but at the lower end of the range.

Our earnings per share guidance includes the full-year impact of our equity offering in the fourth quarter of 2005 as well as expensing options, both having a $0.04 diluted impact on EPS for 2006.

We expect core loan growth to be within our target range of 10% to 14%.

Our net interest margins should continue at the fourth quarter level and could trend up slightly while the Fed continues to raise rates in the first half of 2006.

However, we expect most of these gains will be offset in the second half of 2006, if the Fed eases and short-term rates begin to level off, while competition continues to intensify for deposit growth.

As Rex mentioned, our organic loan growth during 2005 was up ($636 million).

That is a big number and it sends an important message and it validates to a "T" our discipline of not buying growth, but growing what we buy.

We are able to do this because our of community bank model focused on service.

We feel this makes people want to bank with United Community Banks.

It also speaks to the strength and the opportunities in our markets and when you get $663 million of organic growth the old fashioned way that is pretty impressive.

If you ask marketing folks, they will say that you can't repeat the most important message often enough.

So, I'll say it again, what really makes this bank different is service.

Service is United Community Banks reputation, one that has been earned over 55 years and it is still being earned every day.

It is attracting bankers, customers and investors to this company.

We are nearly $6 billion in assets and have 90 offices in three states.

But if you walk into one of our banks today, you will think that you are in a one office community bank.

A place where you are known, valued and welcomed.

If you are customer, we may have to look up your account number, but not your name.

We provide a very high threshold of personal service and it is genuine.

And at the same time, we provide the deep financial resources and capabilities of a much larger bank.

United customers really do get the best of both worlds and if our surveys are any indication, they understand and appreciate that.

Our most recent survey shows customer satisfaction at 91%, actually up slightly since our last call.

Again, this compares to the industry average of 75%.

In closing there is a question that I get from time to time including from some of you.

And the question is, how can we preserve our community bank culture as we continue to grow?

And the answer is leadership, especially at the community bank level.

When you understand that you are the bank president and CEO of your bank and not just a glorified branch manager.

When you can make decisions and truly drive success in an entrepreneurial way, when you can do these things, then you feel ownership.

And you act as an owner and a leader of a significant bank in your community.

There is a friendly and healthy competitive spirit among our 24 CEO's of who is going to come up with the next idea, or who is going to raise the bar to the next level of service and performance.

The CEO's meet many times throughout the year and share ideas and learn from each other.

They represent 24 banks that are separate, but united in working together to be better.

At the holding company, it is our role to treat the banks and the CEO's as our customers and give them the resources and the support they need and that is what we do, all day every day.

We are very pleased with our 2005 performance, but continue to take nothing for granted.

Let me thank you for your continued interest in United Community Banks and now we will open the call to your questions.

Thank you, sir. [Operator Instructions]

And your first question comes from the line of Christopher Marinac of Fig Partners.

Please proceed.

Thank you, good morning guys.

Hi, Chris.

I wanted to ask about the interest rate environment and if the scenario developed where there were actually interest rate cuts later this year.

How much of a hassle was that for you, is that just a minor issue or would that be something larger that we should be thinking of?

Chris, let me make a stab at that and then let Rex, maybe provide a little more detail.

Certainly, if there is a minor reduction in rates, I think our company is prepared to absorb that.

But we as I think most banks in our industry have been able to drag on the demand deposit account rates and if we saw a significant reduction, I think we would all be challenged.

But there are some mechanisms that we have looked at and we will continue to.

Rex, do you want to - - ?

Yes, Jimmy, I would just add if you are looking at our sensitivity, Chris, the first 50 to 100 basis points - - us like most banks probably can help the sensitivity with a downward rate environment.

When you get 100 to 200 or if you have a shock on 200 that is where you will probably see a more significant impact.

Okay, great that is helpful.

And then Jimmy, I was curious on the M&A environment is it conceivable that this year is one that United does not do much if nothing on the M&A front?

Chris, we honestly don't set out with an X number in mind.

The year of 2005 I think was a great example with no acquisitions; we looked at a number of potential prospects that were within our defined foot print that we want to ultimately expand within.

For various reasons, we were not able to do any type of a partnership, whether it was pricing, whether it was the - - what we feel is the quality of the balance sheet composition.

I wouldn't say in 2006 that we would not do an acquisition, but again, the stars have to align, it has to be within the market with a quality balance sheet, with a price that we feel very comfortable with, that we also have a culture that can blend within ours.

And also too, we can leverage the strength of the resources of the holding company that will allow that bank to grow at a faster rate.

So, again, given the fact that the stars align, and then we possibly would do a deal.

Again, I think 2005 is very indicative to the strength of our markets and also the performance of our people.

Because when you can grow your balance sheet at the length and to the degree that we have; again, validates that we are in the right markets at the right time, with the right people.

Great, thanks guys, very much.

And your next question comes from the line of Sam Caldwell of KBW.

Please proceed.

Good morning, Jimmy and Rex.

Thanks for taking my call.

Hello, Sam.

Hey, Sam.

I want to kind of feedback on the question Chris was asking.

You guys had over the past several quarters been guiding the net interest margin down from this level of 410 and I think you have been saying you thought it would continue to climb.

What has caused the margin to stay so high?

And then did I hear you right that you think that there maybe at least stabilization in the margin here in the first half of the year?

Sam, let me ask Rex to address that and I may add a comment at the end.

Sam, I think that what we are saying before with respect to our guidance is that in our model we expected our core deposit rates to go up much faster.

And as it turned out in the market we were able to lag those rates quite a bit, as well as, we priced and brought in CD's that funded our loan growth.

We brought that in under market also, 50 to 60 basis points.

So that is really what helped us in the expansion of the last two quarters in particular, where we thought it would be relatively flat with the rate environment.

And as far as the outlook in 2006, as Jimmy and I both noted, we are currently at the 420 level.

We think with the current rate environment through the first half of the year with expectations of one more increase, possibly two, that will maintain or that may slightly increase our expectation the first half of the year and level off and could come down a little bit in the second.

Okay, very good, thank you.

And you next question comes from the line of Scott Alaniz from Sandler O'Neill.

Please proceed.

Good morning.

Hello, Scott.

Good morning, Scott.

A couple of questions, I think Jimmy, earlier in your prepared comments, you mentioned - - or maybe it was Rex - - you mentioned that you expected tighter credit spreads.

Could you talk a little bit about that?

What degree of compression if you will, are you expecting in '06?

For '06 and I did mention that - - I think in our model, in our sensitivity model, (Sam), we probably expect that we are not going to get the full 25 basis points increase when it comes to the next time.

And might get 20 of that in our new loan pricing and we have seen that through the balance of the year that the spreads have narrowed throughout this past year with respect to re-pricing of loans coming on.

Okay and secondly as it relates to credit quality.

Was there much movement in credits among categories on your watch list?

Scott, our credit quality we continue to be very pleased with where we are.

Our watch list is actually kind of reduced in the last quarter.

Our (NPA's) again around $13 million, our past dues continue to be well under 1%.

Fourth quarter I think was .71.

We have an excellent team, once a credit is identified as having a material weakness, we either put - - doctor it as I put it, or we get it removed and we have some very strong professionals that can - - that is managing this.

But our overall credit quality at our company today in my opinion is as strong as we have ever seen it.

Excellent.

Last question on the deposit side.

Growth in CD's was very strong this quarter.

I think you mentioned that there was a focus by the bank CEOs to grow time deposits.

Can you talk a little bit about that program?

What are you expectations for that type of program for 2006, please?

Scott, I wouldn't say that it was actually a program, I think it was more of a renewed focus on CDs.

And first let me say that the CDs that we were able to grow within - - throughout all of our markets were basically 50 to 60 basis points under the wholesale funding rates.

So, we felt that there was an opportunity there to grow the CD.

What we really want to do as we stated last year, we want to be able to fund our loan growth.

And as long as we can obtain CDs at a fair rate, then that will work just as well as certainly, as the wholesale funding fees.

In fact, I think it create tremendous more value.

We are just as diligent as ever on the core deposit funds growth.

We have some other projects in the hopper that we will implement during the year of 2006 to put an even more renewed focus on core deposits.

But we are not going to shy away from the CDs as long as those can be acquired at a reasonable price.

Roughly what maturity-- months?

Yes, 11 to 12 months on average.

Terrific, thank you.

Thank you, Scott.

And your next question comes from the line of John Pandtle from Raymond James.

Please proceed.

Thank you and good morning.

Hello, John.

I had a couple of questions.

The first one, if you would try to tackle please, is looking at Gainesville.

Could you just review your original guidance in terms of the level of loans and deposits, you felt like you needed for that operation to break even?

If the timing has changed there and if that your expectations have changed, to what extent is that reflected in your '06 earnings guidance?

John, what we said from the outset that our de novo expansions, we wanted to be profitable within 18 to 24 months.

We also stated that we felt by the end of 2006, we wanted our Gainesville operation to have $300 million in loans and hopefully would have the same amount in deposits.

Now, the results of Gainesville have been very promising.

They are really ahead of the growth rates that we thought at this point and time, which also has created we feel, the opportunity to accelerate the expansion-- in other words, the locations.

We will have five locations-- we have five locations today.

The fifth one was opened last week and kind of a soft open.

We will do a formal press release next week.

But, we have these folks that have the business relationships.

We want to delve into the consumer piece of that, that they have been very successful for many years.

So now where we are with $250 million in loans, $150 in deposits, 5 locations, 3 are in modular units, what we want to do is get the physical plants built, opened, a very strong focus on continued to grow.

But also reaching that profitability level.

And what we are looking at now is third quarter of '06.

Again, when you look at the loan growth, when you look at the deposit growth and also the composition of the deposits, whereas, over half of those are really checking and savings accounts, we are very excited and very appreciative to what these people have brought to the company.

Okay, that profitability expectation in the third quarter of '06, how much sooner is that?

Were you expecting to break even at the end of '06 or '07?

Well, we were hoping by the end of '06.

But we have basically said all along that we thought by third quarter of '06, that we would at least be at a break even.

And we still feel that, even though we have accelerated the physical plant expansion a little ahead of what we had originally scheduled.

Okay, thanks for that clarification.

And then my final question, I would be interested, Jimmy, in your thoughts on employee talent and customer opportunities in Northern Atlanta with two of the community banks in the process of being acquired.

What's your thoughts are on perhaps moving a little more deeply into those Northern Atlanta markets?

Well, we certainly see some opportunities now, John.

We have certainly interviewed some perspective people to come on our team.

Being in that Northern quadrant is very important as you look at Atlanta and circle Atlanta.

It is very clear that we are not in Gwinnett County.

It is an area that we desire to be in.

We basically, our game plan has never changed.

When we find those people, then what we will try to do at that point in time is put the brick and mortar around them, create that atmosphere and opportunity for them to contribute to our company.

And that has worked very well.

A great example is that in our expansion in de novo's in 2006, really 65 to 70 days ago, we had an opportunity to open a second location in Savannah.

This is an existing bank facility that was sold.

We were able to actually hire what turned out to be an entire staff of a large regional bank that is within what I call, rock throwing distance of the location.

Now our intentions were to expand in Savannah all along.

But all of the sudden, all of the right metrics come together.

We moved to take advantage of that; but never at the expense of our ultimate earning performance of that 12% to 15% on EPS growth.

Okay, thank you.

And your next question comes from the line of Bill McCrystal of McConnell Budd and Romano.

Please proceed.

Good morning, Jimmy and Rex.

Hello, Bill.

Good morning, Bill.

Jimmy, I wonder if you could talk a little bit about the Western North Carolina market.

What the growth is there?

And also what your thoughts are on the Carolina's in general as far as additional expansion?

Our North Carolina bank continues to be very solid.

All across the markets.

Our loan growth last year was on a year-over-year basis, netted $35 million which is not what we actually wanted.

But, please keep in mind that we intentionally pushed a few loans out of the bank that we felt was really not within our credit criteria.

We also had some sizable payoffs.

Having said that though, our North Carolina market has been very consistent, very dependable for a long period of time.

We are looking at continuing to expand that location.

We have 18 offices now in North Carolina, certainly, there is an area as you move all the way up into that Boone North Carolina market is very, very strong.

We continue to look at that Ashville location and again, that is an area that we like.

But there are opportunities I think, coming about, hopefully this year that we will be able to continue to expand in North Carolina.

South Carolina, I think, might be the other part of your question.

That is a stated area that we would like to ultimately be in.

That Greenville, Spartanburg, the Seneca, Clemson and that I-85 corridor.

It is a matter of finding the right partnerships.

So, our North Carolina operation we are very, very pleased with, the loan growth, as I have talked about, our deposit growth continues to be very strong there.

I think last year we had actual 16% growth year-over-year.

So we are very, very pleased with it.

Good, thank very much then.

And your last question comes from the line of Peyton Green of FTN Midwest Securities.

Please proceed.

Good morning, Jimmy.

You all have certainly had a great history at hiring people.

But how do you view hiring people in - - I guess from a quality perspective and also just from a cost perspective today versus a year or two years ago?

Do you find that you are getting more opportunity to lift out teams than before or is about the same?

Well, first of all the quality question.

Certainly we think the quality is there or quite honestly we would not bring them on.

But, and again we are not out to just set out on a mission to go and acquire a banking team.

Fortunately, and I mean this as humbly as I know how, these people in most cases come to us.

A great example is our Trion location that we opened in Catawba County in conjunction with the Summerville bank.

We had 50 bankers that came and made application to go to work there within the surrounding area.

That is 50 experienced bankers.

So, I say that to make clarification in most cases, these people are coming to us.

We are not out on a predatory basis.

So, the quality we feel is very, very good.

We also are seeing as much opportunity with bankers wanting to come and work within the United Community Bank model, as many as we have ever seen.

So, we still feel very, very strong.

There is absolutely no question, that this is a people business and we hen you bring in the right bankers, that like to operate in this type of culture, they in turn bring that customer base with them.

Okay, great, thank you.

And I would now like to turn the presentation back to Mr. Tallent for any closing remarks.

Thank you, Cindy.

And thank you for spending your time with us this morning and certainly your interest in United Community Banks.

We are very pleased to report a successful quarter as well as the year of 2005.

Again, I want to congratulate our 1,703 members of this wonderful family for a very, very strong performance.

We look forward to speaking with you again next quarter.

And hope you have a nice day.

Thank you for your participation in today's conference.

This concludes the presentation and you may now disconnect your lines.

Please have a great day.