United Community Banks Inc (UCBIO) 2009 Q2 法說會逐字稿

Good morning and welcome to United Community Banks' second quarter conference call.

Hosting the call today are President and Chief Executive Officer Jimmy Tallent, Chief Financial Officer, Rex Schuette, and Chief Risk Officer, David Shearrow.

United's presentation today includes references to operating earnings and other non-GAAP financial information.

United has provided a reconciliation of these measures to GAAP in the financial highlights section of the news release at www.UCBI.

com .

A copy of today's earning release was filed on Form 8-K with the SEC, and a replay of this call will be available in the company's Investor Relations page at UCBI.com.

Please be aware that during this call, forward-looking statements may be made by United Community Banks.

Any forward-looking statements should be considered in light of risks and uncertainties described on page four of the company's Form 10-K and other information provided by the company in its filings with the SEC and included on its website.

At this time, we will begin the conference call with Jimmy

Good morning, everyone, and thank you for joining us today as we discuss the key events and results for the United Community Banks for the second quarter of 2009.

We continue to manage through the challenging credit cycle while making solid gains in terms of core earnings, margin improvement, core deposit growth and the key acquisition.

First, I want to address the key highlights for the quarter.

This quarter our net operating loss was $23 million or $0.53 per share.

In terms of credit, the quarter's provision for loan losses was $60 million and charge-offs were $58.3 million.

Our loan loss reserve was 2.64% at quarter end, and our non-performing assets were $393 million, of which $105 million was OREO.

As we have forecasted, our net interest margin has continued to improve.

This quarter we saw the margin increase 20 basis points to reach 3.28%.

Our tangible common equity to assets for the quarter end was 5.8% and tier one risk based capital was 10.6%.

Total loans for the quarter were $5.5 billion.

Both residential construction and mortgage loans decreased for the quarter.

$115 million in residential construction, and $34 million in residential mortgage.

Total commercial loans increased by $32 million to $2.6 billion.

Our United Express initiative has continued to succeed in building core deposits.

Total deposits at quarter end were $6.8 billion.

During the quarter, our employees continued to strengthen customer relationships by adding 13,884 new services, and we have added 6,575 net new core deposit accounts year-to-date.

On June 19th, we acquired Southern Community Bank in an FDIC-assisted transaction.

Southern Community Bank occupies a niche in the south metro Atlanta market that complements our existing geographical footprint, and also brings $200 million in customer deposits.

Through our discounted bid and the loss/share agreement, we have eliminated all credit exposures associated with the transaction.

I will now turn the call over to David who will provide more depth on credit and then Rex will share details on our financials.

David?

Thank you, Jimmy, and good morning.

The negative credit cycle persisted in the second quarter.

Residential construction continued to be the greatest source of credit challenges.

However, we saw a rise in commercial NPAs and charge-offs which were somewhat lumpy and spread across most of our markets.

As a result, in the first quarter we provided $60 million for loan losses and charged off $58.3 million in loans.

As Jimmy noted, we saw a rise in non-performing assets this quarter to $393 million compared to $335 million last quarter.

This continued to be driven largely by ongoing deterioration in the housing market and increasing softness in the commercial sector.

Non-performing assets included $288 million in nonperforming loans, $105 million in OREO.

It should be noted that $64 million or 22% of our $288 million in NPLs were less than 30 days past due at the end of the quarter.

We did not have any loans accruing that were 90 days past due.

The ratio of non-performing assets to total assets were 6.74%.

the market to sell foreclosed properties to investors and retail buyers improved in the second quarter.

In the second quarter, we sold $34 million in OREO versus $22 million in the first quarter of 2009.

We continue to have steady activity on the sale of completed houses and recently we have begun to see multiple bids on certain property, particularly in Atlanta.

Finally, net charge-offs were 58 million for the quarter compared to 43 million on a linked quarter basis.

We have continued to aggressively recognize losses.

In fact, our $105 million of OREO has been written down to 64% of its original loan value at quarter end, which will help expedite sales with minimal additional losses.

Furthermore, our $288 million in NPLs had already been charged down to 80% of pre-non-performing loan balances.

I've referenced the migration and credit quality issues we saw this quarter.

Now let me provide some detail.

As you know, up until recently, we've seen the majority of our credit challenges concentrated in the Atlanta portion of our residential construction portfolio.

We are now seeing some weakness in other areas, so I'll provide a more comprehensive break down of our loan portfolio looking at loan type and geography.

In particular, I'll touch on what we see evolving in our commercial and residential mortgage portfolios.

Let me start with commercial loans.

Our total commercial portfolio of $2.5 billion increased $32 million from last quarter and $52 million from last year.

Within our total commercial portfolio, we had $65 million of NPLs and $9.8 million or 154 basis points of net charge-offs in the second quarter.

Overall, we are paying particular attention to commercial because the economy's impact on this sector has yet to fully play out.

That said, given a modest average loan size of $450,000, average loan to value of 48%, and diversified CRE property types, we are well positioned to work through any challenges in this portion of our portfolio.

Moving on to our residential mortgage portfolio, we ended the quarter at $1.5 billion, a decrease of $34 million from last quarter and $24 million from a year ago.

In this portfolio, we had $44 million of NPLs and $3 million or 96 basis points in net charge-offs in the second quarter.

Home equity is included within our residential mortgage portfolio.

This portfolio, which totaled $378 million has continued to perform well with $605,000 or 64 basis points and net charge-offs in the second quarter.

Home equity line usage remained flat at 62% in the second quarter.

Given the economic environment, residential mortgages continue to hold up fairly well, with charge-offs and past dues down from last quarter.

However, we are acutely aware that the potential rising unemployment could impact mortgage loans as the year progresses.

Our total residential construction portfolio of $1.3 billion is down $115 million from the first quarter and down $430 million from a year ago.

Looking at credit quality, our residential construction portfolio had $176 million of NPLs and $44 million of net charge-offs in the second quarter.

Similar to the last several quarters, the Atlanta residential construction market represented the majority of our net charge-offs, totaling $34 million or 59% of the total.

The Atlanta MSA represents $424 million of this loan category and breaks down into $156 million in houses under construction and $268 million in dirt loans.

The $156 million of houses under construction was down $41 million from the first quarter and consisted of $29 million in presold and $127 million in spec.

The $268 million of dirt loans was down $30 million from last quarter and included $124 million in acquisition and development loans, $81 million in finished lots and $63 million in land loans.

Looking at the portfolio as a whole, we saw a rise in our watch and classified loans in the second quarter.

However, the pace of increase did slow significantly.

In addition, past dues were down to 161 basis points from 167 basis points last quarter.

Also this quarter, our allowance for loan losses is $146 million or 2.64% of loans.

Our allowance coverage to non-performing loans was 51%.

Excluding impaired loans with no allocated reserve, our allowance coverage to non-performing loans was 82%.

Looking ahead, we expect to see the challenges continue.

With NPAs and charges elevated as we work through our problem credits.

Given the ongoing market challenges and legal delays that come from bankruptcy, we'll continue to see upward pressure on the level of our NPAs for much if not all of 2009.

Nevertheless, we'll continue to recognize our losses and focus on moving problem assets off our books quickly and prudently.

With that, I'll turn the call over to Rex.

Thank you, David.

As Jimmy stated earlier, we have made significant progress on increasing core earnings in the first half of 2009.

Core earnings, or pretax pre credit earnings, also exclude special items this quarter such as the FDIC special assessment in May, Foley expense recoveries and securities, gains or losses.

These items are included in net operating loss or income.

We provided summary schedules on pages 17 through 19 of our investor presentation package, which is on our website, that reconciles core earnings to net operating earnings and to our reported GAAP net income or loss.

Quarter earnings for the second quarter 2009 were $26.8 million, up $5.1 million from the first quarter and up $9.5 million from the fourth quarter of 2008.

The primary driver of the core earnings growth has been our margin expansion in 2009, supported by expense controls and reductions.

For the second quarter, we had a net reported loss of $16 million or $0.38 per share.

The reported loss included a $7.1 million non-recurring after tax gain on the acquisition of Southern Community Bank.

Excluding this non-recurring gain, we had a net operating loss of $23.1 million or $0.53 per share.

In our supporting schedules to the earnings release, we have shown separately fee revenue and operating expenses for the past five quarters, excluding non-recurring items.

We have also provided a separate line for our net operating loss or earnings, which we believe is a better indicator of our overall performance trends.

This morning I will comment on the actions we have taken to improve core earnings and several key items impacting our net operating loss this quarter.

As I noted, we made significant progress in growing core earnings this quarter, up $5.1 million from the first quarter.

The principal driver of this growth was the 20-basis point margin improvement which resulted in a $3.5 million increase in net interest revenue.

The three primary actions that drove this margin expansion and growth in net interest revenue continues to be better loan and credit spread pricing, including loan floors.

Further lowering of deposit pricing, especially our CDs.

And reducing the level of our higher priced broker deposits.

We do not expect the same level of margin improvement next quarter, but if liquidity and pricing remain in check, we could see a similar level of improvement over the remainder of the year.

Another positive factor for margin improvement was growing core deposits through our United Express referral and deposit incentive programs.

We have a quarterly trend schedule on page 41 of our investor package that shows the growth in our core transaction accounts.

Year-to-date, these core deposits are up $129 million or 12% on an annualized basis.

This excludes the $53 million of core deposits from the acquisition of Southern Community Bank.

Excellent progress in 2009 to grow core deposits in this difficult environment.

Turning to fee revenue and operating expenses, operating fee revenue totaled $13.1 million for the first quarter, excluding the $11.4 million gain on the acquisition of Southern Community Bank.

Fee revenue was up $204,000 from last quarter, but down$ 2.1 million from last year.

The $2.1 million decrease from last year related to several areas.

Service charges and fees of $7.6 million were down $400,000 due to fewer transaction charges.

Consulting fees of $1.7 million was lower by $507,000 due to weakness in the market and we had a swing in securities gains and losses of $1.1 million with a securities loss of $711,000 this quarter versus a net gain of $357,000 last year.

On the positive side, mortgage loan fees of $2.8 million continued at a higher pace due to strong refinancing activities.

Fees increased $623,000 compared to last year and were up $174,000 from last quarter.

Also, consulting fees increased $724,000 compared to the First Quarter as the consulting group focused on non-United projects.

Looking at operating expenses, they totaled $55.3 million for the quarter.

This was an increase of $5.6 million from a year ago.

Three items drove the $5.6 million increase from last year.

For close property cost of $5.7 million increased $2.9 million over last year, due to the higher level of foreclosed properties as well as the increase in properties that were sold this quarter as David noted earlier.

Included in those costs were foreclosed property write downs of $2.7 million compared to $864,000 last year.

Professional fees of $2.8 million increased $1.1 million due to higher legal fees related to workouts for non-performing loans and foreclosed properties and other special projects.

The third and largest item was the FDIC insurance premiums that totaled $6.8 million for the quarter, and up $5.5 million over last year.

The significant increase was due to a special assessment of $3.7 million in May of this year.

Other expenses of $1.2 million were lower due to to a $2 million expense recovery this quarter.

Expense recovery related to our decision to reverse a prior surrender of our bank-owned life insurance policies this quarter.

The unsurrender of the policies allowed us to reverse a liquidation shortfall penalty that was accrued last year, as well as reversing a related $2.9 million income tax charge.

Turning to staff costs and the reduction in work force announced last quarter, total staff costs of $28.1 million were down $700,000 from last year.

Excluding the acquisition, total staff at quarter end was 1,809, and down 165 positions from year end and down 22 positions from last quarter, related to the reduction in work force.

We are on target to meet the total reduction of 191 positions or about 10% of our total work force that was announced last quarter.

As we look at our expense run rate for staff costs, total direct salaries and benefit costs were down $1.1 million from the first quarter due to the reduction in work force.

These savings were partially offset by higher staff costs for mortgage commissions and deposit incentives, as well as the 60 additional staff for Southern Community Bank added in June.

Also, last quarter we had a special charge for severance cost of $2.9 million.

We are already beginning to realize a good portion of the work force savings and salary and benefit costs, and we are well on track to realize the significant portion of the $2.5 million quarterly savings or $10 million annually by the end of 2009.

Keep in mind that some of this work force savings will be offset by the 60 additional staff added in June for the acquisition of Southern Community Bank.

All of our regulatory capital ratios continue to be strong.

At June 30th, our tier one ratio was 10.6%, leverage was 7.8% and total risk base was 13.3%.

The ratios were down slightly from last quarter due primarily to our net loss for the quarter.

Our average tangible equity to asset ratio was 8.0%, the average tangible common equity to assets ratio was 5.8% and our tangible common equity to risk-weighted assets was 7.5%.

Before I close, I want to comment on the Southern Community Bank transaction with the FDIC.

This was a whole bank acquisition with a loss share agreement.

The agreement provided United with an 80% guarantee by the FDIC on the first $109 million of losses and a 95% guarantee above that loss threshold, up to $258 million.

The $258 million represents the total book values of loans and foreclosed properties that were purchased.

If all of these loans and the foreclosed properties were sold for zero, United's maximum potential loss would have been 20% of the $109 million loss threshold or approximately $22 million plus 5% of the remaining $140 million of assets or $7 million for a total potential exposure of $29 million.

As part of the bid process, we discounted the purchase price to cover all of the potential loss exposure, plus further discounts to cover carrying costs of non-performing assets and to adjust the CDs and the Federal Home Loan Bank borrowings to market interest rates.

The excess discount of $11.4 million was recorded as a gain on the acquisitions.

Further, since we have no credit exposure for the loans and foreclosed properties purchased, we have marked these assets to fair market value and recorded a receivable from the FDIC.

All of these assets which total $230 million, are classified as a separate line on the balance sheet called covered assets.

These covered assets are excluded from all loan and credit quality disclosures and ratios.

With that, I'll turn the call back over to Jimmy.

Thanks, Rex.

As I summarize today, I would like to reinforce four key topics.

First, the recent acquisition.

For some time, we have had a strong interest in increasing our customer base and improving our locations in Coweta and Fayette counties.

The acquisition of Southern Community Bank allowed us to add key offices in Peachtree City, Lunen, Fayetteville and Locust Grove.

In addition to the strategic market location, the Southern Community Bank bid was structured in such a way that we will encounter no credit related risk.

We added 13,000 accounts, 8,000 new customers and $200 million in customer deposits.

In Fayette and Coweta counties, we will move from 19th to 6th in terms of deposit market share.

We also acquired excellent locations with the exception of one small office that we'll close in the near term.

And we will also merge our Peachtree City office with their Peachtree City office.

Financially, the acquisition will be slightly accretive to earnings in 2009 and we added $7 million of capital with a gain on the transaction.

The second item I would like to address is credit.

We continue to work through a difficult credit cycle.

Non-performing assets increase for the quarter.

But we also saw OREO sales increase significantly from the previous quarter.

And that continues in the third quarter as well.

More importantly, during the quarter, the pace of deterioration in credit migration slowed.

At the same time, we are actively monitoring credit that could develop into classified assets.

We feel confident in the strategies and the processes that our team uses to watch for potential problem credits.

To anticipate those situations before they develop and to manage through problems when they do develop.

We continue to make good progress on building core earnings.

As Rex stated, our core earnings for the quarter increased $9.5 million from the fourth quarter, which on an annualized basis is $38 million.

Net interest margin has expanded 58 basis points year to date, and we will see some improvement in the third quarter.

As I said last quarter, our actions in the first quarter improved our annual core earnings run rate by $45 million.

The increase in the margin this quarter will add another $14 million annually to core earnings.

I'm particularly pleased with our core deposit growth.

Our year-to-date core, that is our checking, savings and money market accounts, have increased $129 million.

Finally, I would like to comment on our capital.

We have responded to several calls and questions regarding mid quarter filing of our shelf registration statement.

To clarify, that filing was simply a refiling of an existing shelf that has been in place for more than six years.

We refiled due to a change in the filing status as of our last 10-K statement.

So the registration was essentially a formality to keep our registration effective.

Now, having explained the shelf, I want to be very clear on our view of capital.

During the last conference call, we stated that our internal stress test of the loan portfolio showed potential losses of $400 million in 2009 and 2010.

During the second quarter, we also stressed our loan portfolio under the scout guidelines.

The scout stress model showed potential losses of just over $500 million during the same time period.

As a reminder, we charged off $150 million in 2008 while building our allowance from 1.5% to 2.1%.

Assuming that we incur these extreme losses, our models still indicate all regulatory ratios remain above well capitalized levels.

Our tier one risk base ratio would be 9.7% and our tangible common equity to asset ratio would still be above 4%.

Should our losses go a above our stress model to the scout level, all of our regulatory ratios still remain well above, well capitalized levels.

Our tier I risk based ratio would be 9.1% and our tangible common to assets ratio would be just under 4%.

Today, based on our stress models and ranges of losses, we believe our capital position is sound.

But if the credit cycle lengthens, if the economy worsens beyond what our financial models have assumed that we can withstand or if there would be compelling reasons to offensively add additional capital, we clearly will do what is best for the long-term success of the company.

Therefore, all options remain on the table.

Our absolute goal is financial soundness, balance with creating and retaining shareholder value by whatever means we can most effectively achieve that end.

With that, I'll ask the operator to open the call to your questions.

Thank you.

(Operator Instructions).

And take our first question from Jennifer Demba from SunTrust Robinson Humphrey.

Good morning.

Good morning.

I want to get some more color behind your increase in non-performing loans in commercial real estate during the quarter.

And generally outside residential construction.

David, do you want.

Yes, Jennifer, this is David.

I'll give you a comment on that.

Jennifer, if you look at what we have experienced there, it's really not concentrated in any particular market, nor is it concentrated in any particular type of credit.

It's really a mix.

It's a mixed bag.

I mean, it's everything from a little bit of office on the -- for example, on the CRE side to some pieces of commercial land and the commercial construction portion of it, so it's really -- I don't have a good trend line at this point in time.

All I can tell you is it's really kind of mixed and across all of our markets.

And when you sold your OREO in the second quarter, what kind of losses were you taking on the original loan value on average.

On houses -- of course most of this is what I'm going to give you is predominately on the residential construction and residential side because we don't have a lot of data points yet on the commercial side.

But, again, on the housing front, we're losing about $0.25 on the original dollar there.

On the land component it ranged -- we're losing anywhere from $0.50 to $0.60 on what we liquidated in the quarter.

Okay.

One last question.

Jimmy, you said that you still think all options are on the table with regard to capital.

What would compel you to do something from an offensive standpoint right now?

Just looking at it from an offensive standpoint.

Well, Jennifer, it would have to be a very unique situation.

The Southern Community Bank, for example, when I speak of offensively, would be probably FDIC assisted transactions.

And it would have to be designed where from the long-term value of growing earnings and strengthening the franchise would have to just be clearly compelling.

We realized that any additional acquisitions, just like Southern Community, does add some level of stress on the capital.

Though we balanced that off with the fact that our loan book continues to run down.

And at the end of the day, we'll be at a pretty much a net/net number.

But it would have to be something along the lines of an FDIC assisted transaction that had huge core deposits, huge customer base, a situation that we felt totally comfortable that it would be growing value short and long-term for the company.

Thank you.

I'll let others come on.

And we'll take our next question from Christopher Marinac of FIG Partners.

Thanks.

Good morning.

Good morning.

Rex, I wanted to ask you about the OREO costs this quarter.

Is there a proportion of that that would be true write downs versus just normal expense to maintain properties, et cetera.

Yes, Chris.

As I mentioned briefly on the call, there's $2.7 million that is included in that $5.7 million, relating to writeoffs this quarter.

Right.

So those are additional writeoffs that were taken on the OREO, on the foreclosed properties.

But the other $3 million is just expense?

Right.

Okay.

And that is the proportion of a third gone back to history in 2007 and 2008, probably a good rule of thumb on OREO write downs?

Can you restate the question again, Chris?

When you look at the OREO expense that you incurred in 2007, 2008 and first quarter, would using one-third of that as a write down be a good rule of thumb?

Yes.

One-third to one-half would be a good rule in that range, Chris.

Okay.

And then related to the accounting on the gain from Southern Community, is there a potential that you could have some pay downs of loans that could actually cause that gain to be greater in the future?

That would probably be a year or two off before we get to that point with what we discounted.

But, yes, there could be when all of this is done and cleared through, we have further discounts that haven't been taken by the end of the five-year period especially that would then have to get recorded or taken out based on the value of the property at that time.

Okay.

Fair enough.

Then I guess last question for Jimmy or for David, would you consider doing any type of joint ventures or other types of outside structures to just accelerate the workout process?

Chris, I'll give you my view and then let David comment.

We're looking at every option.

Everything is on the table.

Our success of liquidating and getting the best value thus far has kind of been a one-on-one transaction.

We've looked at bulk sales.

We've looked at options.

We've looked at everything that's conceivable.

We still believe that the sale of one property at a time returns the greatest value back to the company.

We got a really good pipeline in the third quarter.

But we would be open to anything to expedite the liquidation of OREO that still has the best financial return back to the company.

I would just agree with all of those comments.

And just ultimately it comes down to when the customer is closer to where the property is located, you tend to get a better price.

And a lot of these JVs are backed by money out of the area just because they don't know it as well.

They're going to have to build it into the pricing discount so it's usually not as attractive.

Great.

That's helpful.

Thank you very much.

We'll take our next question from Michael Rose of Raymond James.

Hi.

Good morning.

Good morning.

Good morning, Michael.

Good morning.

Do you guys get the sense that the peak level of residential non-performing loans was in the first quarter?

I saw they declined from the first quarter.

Do you get the sense that that was the peak?

I've been -- I'm really hesitant to call it peak in this environment.

But I do think, Michael, that particularly since Atlanta has been the center of our challenges, we've gotten through so much of Atlanta at this point that I think we are going to see continued declines in that market, which hopefully will accrue to a decline overall.

But I'm pretty hesitant to call a peak.

It's just been too difficult of a market.

Okay.

And I guess secondarily following up on that, are you starting to see some of your slower growth, more insulated geographies sort of play catchup in migration of credits into non-performers?

Yes.

It's clearly spread into these other markets.

North Georgia has seen has seen an increase in non-performers.

Really most all of our markets have.

Unfortunately the pace is nothing like we experienced in Atlanta.

But, yes, it has clearly followed the trend that Atlanta had.

Okay.

That's helpful.

Thank you.

And we'll go now to Al Savastano of Fox-Pitt Kelton.

Good morning, guys.

How are you.

Hi, Al.

I don't think I heard you clearly.

Could you repeat what you said on the migration if its slow to pick up or not?

Yes.

I'm sorry.

My comment at the beginning was that the inflow of new watch and classified loans while we still had increases there, the pace of increase slowed substantially in the second quarter from the first quarter.

Got it.

Thank you.

And then just a follow-up on a different topic, can you explain to us what options you have to workout commercial real estate, income producing real estate and maybe the preference you would like to go through.

Are you talking about in terms of what we would do in terms of from a liquidation standpoint?

Yes.

So how would you work with a borrower?

If you have an income-producing commercial real estate project or let's call it a strip mall, and the borrower was having difficulty paying, what options would you go to try to cure the loan before you would go to foreclosure?

Well, with all of our borrowers, we're going to try to work with them.

In that case, hop flee and I think in most cases it would be the case that there is some level of cash flow coming off the project.

If it were an amortizing project, we would look at trying to restructure the amortization to a more -- a lower level of amortization if need be.

We might go back to an interest only for a period of time to allow them a time to release the projects if they lost some tenants.

So we would work -- as long as there's cash flow, as long as interest can be paid, we're going to try to work with that borrower and keep things moving forward.

Obviously, if they're unable to go down one of those paths or bring other collateral to bear, then you might be faced with a foreclosure at that point in time.

Okay.

Thank you.

And we'll take our next question from Kevin Fitzsimmons of Sandler O'Neill.

Good morning, guys.

Hello, Kevin.

Good morning, Kevin.

Good morning.

Just a quick question on the stress test that you referred to, Jimmy, about it being $400 million and I believe it was originally you guys said 200 this year, 200 last year.

Is that something that you're continuing to like basically update periodically?

Because I know it was a while ago that you gave that and I'm just wondering whether it incorporates the deterioration that you see in this quarter in commercial and what you can still see happen in producing real estate if your views on that have changed.

And then separately if you could just give us a little view on what you expect for disposal activity over the next couple of quarters.

Is it something that you hope to be at the same level of this quarter?

Is it you hope it to be higher just based on, maybe there's a targeted number of dollar amount of loans that you have kind of targeted for disposal.

Thanks.

Kevin, in regards to our internal stress test, and I think we have probably stated 200 and 200 for 2009 and 2010 and I think that's been more than anything just a figure of speech.

When we do our models, we've been looking quite honestly at 250 in 2009, 150 in 2010.

That's where all of our numbers actually are derived from presently.

In regards to the disposal activity, I think currently for the third quarter we have 22, $23 million under contract as of last evening.

Now, there's always something that can fall out.

David mentioned in his remarks where by on houses, particularly in the Atlanta area, that for the first time in a long time we're seeing multiple contracts being offered on the same property.

So we're a little bit encouraged by that.

Rest assured that everything we can physically do to move and expedite these properties we're doing.

We have an excellent team in the Atlanta market that deals specifically with the 28 county MSA.

Outside of Atlanta, here in Blairsville, we have the other special asset division that's dealing with everything else.

And really the activity right now is encouraging.

The question is, is it going to be short lived?

Will it continue?

We just don't know.

Certainly our whole motivation is to move it as quickly as possible for the best price possible.

I think it's also worth noting that of all of the OREO that we have on the book today, the $105 million, 70% of this is four months old or less.

So I think that demonstrates the speed and the velocity of moving the OREO properties.

Jimmy, just a quick add on.

Is there a seasonal aspect to this?

In other words, is there a real push to get as much disposal activity you can in the next quarter because perhaps the activity could slow down in the fourth quarter and the first quarter of next year?

Well, that's the way that we're facing or at least that's our feelings right now that it could very well be seasonal.

We just don't know.

But our sense of urgency is to move as quickly as we can.

Again, watching where the buyers are coming from and getting some sense of where that is, will it continue, for example.

We continue to see properties, people from Florida that relocate here in the mountains.

That continues.

Not at the pace that we've seen over the years.

In Atlanta, the end users for the housing inventory are basically people that's going to live in those homes.

So, again, there's a number of dynamics.

There's a substantial tax credit that can be now monetized towards the downpayment that actually expires at the end of the year.

Hopefully that will be renewed.

But there's a number of components that exist today.

Whether or not they will exist in 2010, we don't know.

So, therefore, it's full steam ahead.

Okay.

Thank you.

And we'll go now to Jefferson Harralson of KBW.

Thanks.

I wanted to ask one more credit question just on the timing of when we should see net new NPAs being charged.

This quarter you had an increase of about $60 million.

Should we expect the charges for the net new to come next quarter or when they -- when the $60 million goes in have we already charged those down.

What is the timing of the chargeoffs to the NPAs when they appear.

This is David, Jefferson.

Going back really to second half of '08, we began to get much more aggressive in taking charge downs on non-performing loans prior to foreclosure.

Before that in 2007, early 2008, typically we took the charge-offs once it was foreclosed.

So we have been on a pattern of trying to stay in front of it from a charge-off perspective since the second half of '08.

Right now just to give you more, I think I mentioned in my opening remarks that out of our total NPLs, the $288 million, we had already charged those down by 20% on average across the board.

And I guess the point of that is, I guess another number and way to think of it is $111 million of that $288 million of NPLs had already received a charge down on it.

In most cases all the way down to net realizable value.

There are some few exceptions where there might be some specific reserve attached, but for the most part $111 million of that has been charged down to net realizable value.

So to your question, for the most part what came in as new has already been hit by a pretty good charge as it came in at this point in time.

Okay.

Thanks.

This might be more of a Rex question.

On the accretion from the FDIC transaction, I suppose we didn't get much this quarter because it was kind of late quarter.

But how do you think about adding these assets and liabilities, suppose we're not going to be providing against them at all.

How should we think about the accretion that this FDIC deal gives you both in the next couple of years?

Jefferson, they're going to be accretive on day one from the standpoint of adding to core earnings.

It will probably be in the $300,000 plus a month range.

We would expect that it's going to add on the net assets and liabilities we're putting on the books.

So that will probably give you a general idea as to how we look at it.

Okay.

Thanks a lot.

And it appears that we have no further questions.

I would like to turn the conference back to our speakers for any additional or closing remarks.

Thank you, operator.

And let me just say thank you for everyone on the call today.

We genuinely appreciate your interest in our company.

We certainly will be available throughout the day if you would like to call and ask any additional questions.

Also, for any of the employees that could possibly be on the call or read the transcript later, I just want to say a huge thank you to every single member of this team that continues to do the heavy lifting every single day.

You are the real rock that makes this company!

With that, again, thank you for tuning in this morning and we hope you have a great day.

Thank you.

That concludes today's conference.

Thank you for your participation.