United Community Banks Inc (UCBIO) 2009 Q3 法說會逐字稿

Good morning and welcome to United Community Banks' third-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 and at the end of the investor presentation, both of which are included on their website at UCBI.com.

Copies of today's earnings release and investor presentation for the third quarter were filed on Form 8-K with the SEC, and a replay of this call will be available on the Company's Investor Relations page at www.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 4 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 Tallent.

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

Despite ongoing challenges in credit, we continue to make solid progress in terms of core earnings, margin improvement, expense reductions and core deposit growth.

I am going to begin this morning but addressing the key financial highlights.

Our net operating loss for the third quarter was $43.7 million or $0.93 per share.

In terms of credit, this quarter's provision for loan losses was $95 million and charge-offs were $90.5 million.

Our loan loss reserve was 2.8% at quarter end, and our nonperforming assets increased slightly to $415 million.

As we had forecast for the first two quarters, our net interest margin continues to improve.

This quarter, our margin increased 11 basis points to 3.39%, which reflects a 69 basis point increase year-to-date.

Total loans for the quarter were $5.4 billion, down $150 million from last quarter.

The decrease was primarily in residential construction loans, which was down $130 million.

Though our total loans continued to decline, driven principally by our desire to reduce our residential construction and A&D, I am pleased with our progress with the restructuring of Atlanta and the growth they have experienced this year.

As small businesses will play a primary role in driving the economic recovery, I am pleased to report that year-to-date we have closed approximately $180 million in small business, commercial and C&I loans in the Atlanta market.

On the retail side, our United Express initiative has continued to succeed in building core deposits.

Our core transaction accounts represent about 40% of total customer deposits, or $2.3 billion, at quarter end.

This quarter, we saw growth in core transaction deposits of $71 million with a $200 million year-to-date increase or 13% on an annualized basis.

During the quarter,

our employees continued to strengthen our customer relationships by adding 17,785 new services.

We have added also 9,776 net new core deposit accounts year-to-date.

Also during the quarter, we successfully converted Southern Community Banks' core application systems.

As these new employees embraced our core deposit initiatives, they added over $3 million in core transaction balances for their first quarter with United.

By far, the most significant event of the quarter was the issuance of $222.5 million of new capital.

As we have discussed for the past three quarters, we have monitored our capital position closely for many months.

The market conditions late in the quarter lead us to decide that it was the opportune time to infuse the organization with additional capital.

This capital will provide us the flexibility to pursue multiple initiatives that we believe will return us earlier to profitability in 2010.

I will discuss this in more detail in my closing remarks.

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

David?

Thank you, Jimmy, and good morning.

This quarter we provided $95 million for loan losses and charged off $90.5 million in loans.

We saw a much slower-paced rise in nonperforming assets this quarter to $415 million compared to $393 million last quarter.

The $22 million increase this quarter was due to continued challenges in the residential construction portfolio and increasing softness in the commercial sector, primarily in commercial construction.

Nonperforming assets included $304 million in nonperforming loans and $111 million in foreclosed properties.

We had no accruing loans that were past due 90 days.

Our 30 to 89-day past due loans were 2.02%, up from 1.61% last quarter.

The rise in past dues was primarily centered in residential construction, although we saw some rise in all parts of our portfolio except home equity.

The ratio of nonperforming assets to total assets was 4.91%.

The market to sell foreclosed properties to investors and retail buyers continued to improve.

In the third quarter, we sold $61 million of nonperforming assets, versus $34 million in the second quarter of 2009.

Overall, the loss content on nonperforming asset sales was similar to last quarter.

Finally, net charge offs were $90.5 million for the quarter, compared to $58.3 million on a link-quarter basis.

This quarter, we continued the trend of aggressively recognizing losses.

Foreclosed properties have been written down to 64% of original loan value at quarter end, while nonperforming loans were also written down 26%, which will help expedite sales in the future.

Let me now provide some detail on our portfolio by segment.

Let me start with commercial loans.

Our commercial loan portfolio of $2.6 billion has remained relatively flat over the past five quarters.

However, we have shifted our concentration from commercial construction, which is down $129 million from a year ago, to commercial real estate as projects have been completed.

Within our total commercial portfolio, we had $81 million of NPLs and $16.7 million in net charge-offs for the third quarter.

Our challenges in the commercial portfolio have been dispersed across our footprint while the rise in commercial nonperforming loans is mostly tied to land.

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

That said, with 54% of our CRE portfolio being owner-occupied, a modest average loan size of $443,000, average loan to value of 48%, and diversified property types, we are well-positioned to work through any challenges in this portion of our portfolio.

Moving onto residential mortgage, we ended the quarter at $1.5 billion, a decrease of $9 million from last quarter and $67 million from a year ago.

In this portfolio, we had $51 million of NPLs and $5 million in net charge-offs for the third quarter.

Home equity is included within our residential mortgage portfolio.

This portfolio, which totaled $377 million, has continued to perform well with $934,000 in net charge-offs for the third quarter.

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

Overall, residential mortgage charge-offs and past dues were up slightly from last quarter.

We expect rising unemployment to continue to impact this portfolio as the year progresses.

Nevertheless, given the economic environment, residential mortgage has continued to hold up fairly well.

Our total residential construction portfolio of $1.2 billion is down $130 million from the second quarter and down $411 million from a year ago.

Looking at credit quality, our residential construction portfolio had $171 million of NPLs and $68 million of net charge-offs for the third quarter.

Similar to the last several quarters, the Atlanta residential construction market represented the majority of our net charge-offs, totaling $44 million, or 48% of the total.

The Atlanta MSA represents $328 million of this loan category and breaks down into $113 million in houses under construction and $215 million in dirt loans.

The $113 million of houses under construction was down $43 million from the second quarter and consisted of $22 million in presold and $91 million in spec.

The $215 million of dirt loans was down $53 million from last quarter and included $100 million in acquisition and development loans, $54 million and finished lots, and $61 million in land loans.

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

Residential construction continues to be our most challenged portfolio.

Despite some deterioration that we are actively monitoring in the commercial and residential mortgage portfolios, we do not believe that they will be as hard hit as residential construction.

At quarter end, our allowance for loan losses was $150 million, or 2.8%, up $4.5 million from last quarter.

Our allowance coverage to nonperforming loans was 49%.

Excluding the impaired loans with no allocated reserve, our allowance coverage to nonperforming loans was 149%, compared to 82% last quarter.

The rise in coverage was due to our aggressive charge-off of new nonperforming loans and the charge-off of all allocated reserves on previous nonperforming loans which totaled $20 million.

This was also a significant factor in the spike in charge-offs this quarter.

Looking ahead, we expect to see the challenges continue.

However, it does appear that the level of NPAs and charge offs may be peaking.

The majority of our credit challenges over the past two years, but charge-offs and NPAs, have been centered in the Atlanta residential construction portfolio.

Default rates and the loss content have been much higher in this portfolio than our other portfolios.

With the rapid decline in the Atlanta residential construction book and the related problems largely behind us, our future losses and NPAs should decline.

Of course, one unknown is the ultimate impact of the downturn in the commercial real estate market.

While we do expect challenges in our commercial portfolio, we feel well-positioned, given our diversified book, with low average exposures and heavy owner-occupied composition.

With that, I will turn the call over to Rex.

Thank you, David.

As Jimmie stated earlier, we have made significant progress on increasing core earnings each quarter in 2009.

Core earnings, or our pre-tax pre-credit earnings, exclude special items that assist us in analyzing our core run rate.

Foreclosed property costs, security gains and losses and other one-time revenue and expenses are examples of items that are excluded from our core earnings run rate.

These items are included in our net operating loss that totaled $43.7 million for the third quarter.

Also, we have shown separately the $25 million non-cash goodwill impairment charge for the third quarter, which is included in our net loss of $68.7 million.

We have provided a five-quarter summary of core earnings on Page 27 of our investor presentation package that was filed on Form 8-K and is available on our website.

We believe this is a good indicator of our overall performance trends.

We have also provided summary schedules at the end of the investor package that reconcile core earnings to our net operating loss and to reported GAAP net loss.

I will be commenting this morning on the drivers of core earnings from those pages, as well as other areas of the investor presentation package.

Core earnings for the third quarter of 2009 were $31.8 million, up $5 million from the second quarter and up $14.5 million from the fourth quarter of 2008.

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

For the third quarter, our margin was 339, up 11 basis points on a linked quarter and up 69 basis points compared to our margin of 2.70 for the fourth quarter of 2008.

On Page 9 of the investor package, we show our margin trend for the past five quarters and the impact of credit costs.

Historically, credit costs have lowered our margin by 8 to 12 basis points, so the 58 basis points of credit costs this quarter, or drag, has significantly lowered our margin and net interest revenue.

Even with this margin drag, we expanded our margin by 11 basis points this quarter, driven by better loan pricing and further lowering of our time deposit pricing.

As we continue to lower deposit pricing, we expect a similar level of margin improvement in the fourth quarter and for 2010, as we move through the credit cycle, we could see further margin expansion as the impact of credit costs lessens.

Another positive factor for margin improvement was the growth in core transaction deposits through our United Express referral and deposit incentive programs.

Year-to-date, those core deposits are up $200 million or 13% on an annualized basis.

This growth excludes the $53 million of core transaction deposits acquired from Southern Community Bank.

Year-to-date, we are well above our targeted goal for core deposit growth, especially in this difficult environment.

Turning to fee revenue and operating expenses, as noted on Pages 27 and 28 of the investor presentation package, fee revenue of $14.5 million for the third quarter was up $1.5 million from last year and $800,000 from last quarter.

The $1.5 million increase from last year related to several areas, as noted in our earnings release.

Consulting fees of $2.3 million were up $555,000 compared to last year.

The increase was due to growth in regulatory consulting services and to the fact that last year's consulting services were reduced by the internal services provided to United, which were eliminated in our consolidated numbers.

Mortgage loan fees of $1.8 million increased $422,000 from last year, due to the higher level of refinancing activities in 2009.

We closed 610 loans in the third quarter of 2009, up from 492 loans last year.

However, we are down about $1 million in fees from a record second quarter of 2009 when we closed 1,008 loans.

Other fee revenue of $1.8 million was up $1 million from last year, due to higher revenue of $245,000 earned on our bank-owned life insurance assets, as well as the positive swing of $634,000 of revenue earned on our deferred compensation plan assets.

The BOLI policies were surrendered in the third quarter of 2008 and then reinstated in the first quarter of 2009.

The pickup in BOLI fee revenue is reflective of our normal run rate in 2009.

The revenue earned under the deferred compensation plan assets had no impact to our bottom line, since the higher earnings were reflected as an increase in other fee revenue for the corresponding increase to our salary costs.

It simply grossed up both fee revenue and expenses.

As I noted earlier, on a linked-quarter basis, we are up $800,000 from last quarter, and most of the increase was in other fee revenue.

The increase was due primarily to the higher revenue on our deferred compensation plan assets.

Also, linked-quarter increases in service charge fees and consulting fees were offset by the $1 million reduction in mortgage fees this quarter that I noted earlier.

Excluded from core fee revenue were securities gains of $1.2 million for the third quarter.

During the quarter, we sold $270 million of securities at a net gain, including securities acquired from Southern Community Bank, in an effort to reduce expansion risk in the investment securities portfolio.

We also reduced the investment securities portfolio to take into account the $200 million run-off of the 15-month time-deposit program due to repricing those deposits at market rates.

The time deposits maturing had an average yield of 4.3% as compared to renewals being priced just below 2%.

Looking at operating expenses, excluding credit-related foreclosed property costs, they totaled $45.7 million for the quarter, down $1.2 million from a year ago.

Salaries and employee benefit costs of $25.9 million were down $2.7 million from last year, due primarily to lower salary and group medical costs of $1.5 million related to the reduction in workforce and lower bonus incentive cost of $1 million due to performance.

Also for the third quarter, communications, advertising and printing costs were down in total about $900,000 from last year, reflecting an ongoing focus to reduce controllable costs.

Offsetting these cost savings were higher FDIC insurance premiums of $1.3 million, due to a rate increase for 2009, and professional fees that increased $659,000 due to higher workout cost for nonperforming loans and foreclosed properties.

Turning to staff levels and reduction in workforce announced in the first quarter of 2009, excluding the Southern Community Bank acquisition, total staff at quarter end was 1,813, down 174 positions from year-end.

We are on target to meet the total reduction of 191 positions, or about 10% of our workforce, that was announced in the first quarter.

Foreclosed property costs for the third quarter, which are excluded from core operating expenses, were $7.9 million as compared to $10.1 million last year.

Foreclosed property costs this quarter include $4.1 million for write-downs of foreclosed properties and $3.8 million for maintenance and other related costs, as compared to $8.3 million and $1.8 million, respectively, for the third quarter of 2008.

Generally, write-downs this year have been significantly lower than the third quarter of 2008.

For 2009, write-downs have been in the range of $2 million to $4 million, depending on the volume of property sold.

This quarter, we are at the upper end of the range, due to the higher volume of properties sold.

Maintenance and other related costs for managing foreclosed properties have risen over the past four quarters, due to the increase in the number of foreclosed properties being handled by our workout groups.

Turning to capital, all of our capital resources were strengthened significantly by the $222.5 million common offering that closed on September 30, 2009.

At September 30, our estimated tier one ratio was 12.7%, leverage was 9.5%, and total risk base was 15.3%.

Because the capital offering closed on the last day of the quarter, the quarter-end ratios for tangible equity-to-assets of 9.6% and tangible common equity-to-assets of 7.4% are more reflective of the strength of our balance sheet.

Also, our tangible common equity to risk-weighted assets was 10.3%.

Before I close, I want to comment on the projected credit losses and capital ratios that are included in the SCAF analysis on Pages 24 and 25 of the investor presentation package.

Page 24 shows United's current base and more adverse estimates of credit losses through 2010, as well as two other SCAF models.

Also keep in mind that we charged off $151 million in 2008, as well as built our allowance by $29 million.

This is another reason why I feel that our stress models are reasonable in light of our estimated cumulative losses that exclude 2008 losses.

The other SCAF stress models represent a more severe depression look at projected losses based on the FDIC's SCAF model and our peer banks.

This provides a range of more extreme stress models to compare to our base case losses and the impact that these stress losses have on our capital ratios through the end of 2010.

On Page 25 are the projected capital ratios for our stress models and the other SCAF models.

It is important to note that, in all of the stress models, even the SCAF more adverse model, we have more than adequate capital.

In fact, we remain significantly above the regulatory well-capitalized levels for all of those stress models, and even in the more adverse SCAF model, our tangible common equity to assets exceeds 5.4%.

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

Thanks, Rex.

I want to make just a few closing comments before we take your questions.

First, the common stock offering -- we have been weighing the benefits of adding additional capital for some time.

The capital raise affords us a number of things.

It strengthens our balance sheet, bringing tangible common equity to 7.4% at quarter end; it allows us the ongoing ability to continue aggressively disposing of nonperforming assets.

And the additional capital positions us to maximize what we believe will be once-in-a-lifetime opportunities in terms of organic growth, of competitor dislocation and of potential FDIC assisted transactions.

The successful systems conversion of the Southern Community Bank in the third quarter demonstrates our ability to timely execute FDIC transactions as well as our capacity to integrate banks with minimal operational risks.

We believe we have placed ourselves in a position to competitively pursue other appropriate transactions as they arise in this target-rich region in the Southeast.

Now I'd like to address credit.

Let me share with you my views of where we are on credit.

Atlanta residential continues to decline quarter-by-quarter, and we believe that we will be under $300 million by the end of the year.

But we still have some losses to absorb, and there will be losses outside of the Atlanta market.

As David stated earlier, we believe we have seen the peak of the problems in the Atlanta residential construction and A&D.

We are constantly reviewing our $2.5 billion commercial loan portfolio.

Even though we have seen some negative migration in these categories, the dollars still remain within reasonable levels.

We could see more negative migration, but when we look at the diversity of this portfolio, the cash flow sources and the type of loans, the various asset classes, the lack of concentrations and the fact that a large percentage of this portfolio is owner occupied, we remain cautiously optimistic about the credit quality of our commercial loan portfolio.

Now, having said that, if our commercial real estate continues to perform as we believe it will, I agree with David that we are either at or very near the peak of our credit challenges.

In addition to the defensive strategies required to manage credit, we continue with our offensive strategies that will drive shareholder value long-term.

That is increasing core earnings, which we have accomplished every quarter this year, core earnings growth from $17 million at Q4 of '08 to $32 million to Q3 of '09.

Net interest margin expanded 69 basis points this year.

We've reduced 174 staff positions this year, and other controllable costs are down as well.

We've had solid growth in our core transaction deposits, up $200 million this year.

In closing, our goals and strategies remain unchanged.

We will continue our progress to regain profitability as early as possible in 2010.

There is a lot of work yet to be done, and I can assure you that we are employing the strongest sense of urgency to return this company to where it has been for decades -- a highly profitable company with a very bright future.

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

Thank you.

The question-and-answer session will be conducted electronically.

(Operator Instructions).

Kevin Fitzsimmons, Sandler O'Neill.

Good morning, everyone.

Jimmy and Rex, can you comment on the deferred tax asset question?

I mean obviously, with what's happening with Synovus, I think your stock is getting hit in sympathy of that?

If you could just give a sense -- it looks like based on June 30, you had a net deferred tax asset of a little over $20 million, and just what you think of that issue, if you've had any conversations, because it seems like a little bit of Catch 22 where you guys, on one hand, you're trying to be very aggressive in terms of addressing your credit issues and trying to front-load the credit costs and accelerate that.

That seems like it would be in the interest of shareholders and bank regulators.

But I think what has happened with a few banks, it has kind of gotten turned around from the accountant's point of view and it hurts, in their eyes, the predictability of earnings.

It has turned, you know, it has resulted in a couple of surprises in terms of these DTA charges which, while non-cash, eat into some of the TCE that has just been raised.

So I know that's a long question but just if you could kind of address that, how we should be looking at that.

Thanks.

Kevin, this is Rex.

The deferred tax assets, we talked about this at length last quarter and also, which was again about $13 million in disallowed interest, about a $20 million total number.

This quarter end, it is about $34 million in total, which is disallowed, that whole portion since we are in a three-year loss carry forward position.

We spent a lot of time on this, Kevin, looking at it.

Again, I know you've seen other banks out there that have had some other positions on it, but I think the fact patterns do vary by back as you look at this issue.

We have a strong pattern of core earnings growth, in fact exceeding forecasts and exceeding linked quarters this year in particular, as well as looking at it going out into 2010.

So it is one that our core base I think is very solid.

Again, forecasts can be use-limited when you get into an NOL positioned.

You have to look at that in particular and weigh the pluses and minuses as you go through the analysis.

We've done that.

We've looked at it, as well as what Jimmy and David indicated looking at our NPA levels and expectations with respect to losses going forward, and again using the SCAF model base case, even in our forecast models, we weigh that in at the same time.

So I think it is one, as we look at it and the fact patterns, we feel very comfortable with respect to we are going to realize those deferred tax assets and start to realize them in a fairly short period of time out there.

Again, you have 20 years basically to realize those deferred tax assets, but again, it is based on a lot on the back pattern of the bank and where their losses are and what the outlook looks for it, and where the auditors are with that.

We've reviewed this last quarter, this quarter, all through the year with our auditors.

They are in agreement with our position that we have -- and again looking at our projections -- as well as we've talked with the SEC as we went through the comment letter period just recently looking at our second-quarter 10-Q and, again, reviewed the disclosures with them with respect to the deferred tax assets, what our basis was and, again, position on that.

They didn't have any disagreement with that at that time.

So we feel very comfortable with our position, looking at it and they outlook on deferred taxes in that we don't need a valuation reserve.

Okay, thank you.

Could you also just if you guys could comment on the latest with the bank regulators.

I know, back when you raised capital, you made the comment that there could be some agreement coming and if you could just update on that.

Kevin, yes I will.

Of course, our exam has now been concluded.

We have yet to get the final report, probably another 30 days when we will actually receive it.

As we have stated in the prospectus that we felt additional (inaudible) would resolve any open issues.

Today, we are not aware of any recommendations or any formal actions.

Okay, thank you.

Jennifer Demba, SunTrust.

Thank you.

Just going to the commercial real estate portfolio for a minute, thanks for the information on the slides.

I'm wondering if you could give us some detail about the maturity schedule of that portfolio and give us also some color about what weakness you may be seeing in that portfolio right now by category or by geography.

Sure, Jennifer.

This is David.

In general, the maturity schedule in that portfolio probably has about an average life of around three years.

Most of the credits in there are going to be between two and five-year maturities at origination.

But I would think in terms of kind of a three-year average life I suppose.

So I guess I would think in terms of we are probably looking at about a third of that portfolio every year is kind of how that is rolling over right now.

In terms of the credit challenges that we are having in that portfolio today, the biggest challenge -- and we've been talking about this for a while -- our concern has been on the commercial land piece, which is about $300 million for the Company.

That's where we have seen probably more pressure than anywhere else.

One the -- when you look at the NPAs and you see the rise there, that's what that is; it is mostly land.

As far as CRE itself goes and in fact for that matter the commercial in general, it has really been kind of spread across our footprint.

There haven't been any concentrated areas.

We have seen issues pop up in virtually every region, although just given the size of our loan books in those regions, Atlanta, North Georgia and the coast have had the highest percentage of issues.

When you get down to type of credit, we've had a couple of retail centers, we've had a couple of hotels we've dealt with, and then there has been one or two commercial-oriented owner occupied things that were really commercial businesses that got into trouble that were probably more closely tied, their business, to residential construction.

For example, we had one in Atlanta that was an architectural firm that was doing a lot of residential construction work.

They got in trouble and we took a building back on that.

But I can't point to any one clear trend in the portfolio, but hopefully that gives you a little bit of a flavor.

Are you able to restructure some of those credits on the (multiple speakers)?

Yes, and just as an example, we have.

We haven't had a lot of restructuring.

I would expect to see more as the cycle plays out.

You know, we had one larger commercial land development that we were able to successfully restructure and it will be reported as a [TDR] this quarter.

We got significant additional assets pledged to the project and whatnot, but the appraisal, when we got it back, it was coming up short.

We shored it up with additional collateral.

It is on interest-only.

We've extended out the maturity and we think that time will help heal that situation.

But anyway, the point is yes, we've had some, not a lot yet.

I would expect to see more as we play through this cycle.

Okay.

One more question back to the DTA issue for a second -- I just want to make sure I understand, Rex.

So you feel like your DTA is protected because you've got -- you've established a fairly strong pattern of core earnings growth throughout '09, and you feel like your projections going forward are for a return to profitability in a reasonable time frame?

Yes, Jennifer.

I think, again, keep in mind that we were in a strong earnings pattern up really until the third quarter of last year, so we have accelerated through this process.

I think we can substantiate that, that we've accelerated through the loss part of this that we've had over the past five quarters and again expectations, again, of trying to move through that fairly quickly where there is earnings on the other side of this from what we see out there fairly quickly.

Thank you so much.

Adam Barkstrom, Sterne Agee.

Christopher Marinac, FIG Partners.

Thanks, good morning.

Jimmy and Rex, I wanted to ask you about, from a strategic standpoint, is this quarter or next quarter -- I guess, you know, near-term thinking -- an appropriate time to do another external transaction of a failed bank or something like that, or would you be more apt to wait to get through some of these other credit quality issues and sort of confirm what you're thinking on the credit metrics improving?

Chris, our number one focus is on our own shop.

We want to make sure we can get to the end of this, the loan challenges.

We would like to see a decline in the NPA area, certainly our charge-offs start to come down.

There is no reason to be in a hurry.

Unfortunately, there will be probably a number of opportunities over the next 15 months.

It makes all sense for us, business sense, to be patient, be selective.

It has got to be core deposit driven.

It needs to be within our footprint to continue to deepen and strengthen that.

But you know, our number one focus is to get our credit issues fully under control, get it back in line where we believe it ought to be.

At the same time, it is easy to think and often sometimes I think that every employee in the Company is focused on this, but that's not the case.

We have, out of 1,850 people, 1,750 are building the future of this company every day.

I think that is demonstrated with the success of this core deposit transaction account because we are picking up new customers every single day.

I am pleased with our progress that we've made in the realignment of Atlanta, because we continue still very good business there and $180 million of loan growth, net loan growth closings in Atlanta for the first nine months, though that is not so robust, but given the environment I am very pleased with where we are.

Great, Jimmy, that's helpful.

I guess one follow-up back on the deferred tax questions earlier.

Rex, when you revisit this in the fourth quarter or in February before you file the 10-K, do you have to have an expectation of profitability within a couple of quarters looking forward, or is there any sort of rule that you have to buy-buy when you re-examine this in future quarters?

It appears the rules -- I wouldn't say that they are changing, Chris, but again, more clarity is being provided out there, I think in particular by the SEC looking at this.

Actually, you have this in fact for each quarter, not necessarily waiting for the K.

So it is really with our 10-Q filings, we have to be confident that we do not need a deferred tax asset reserve, valuation reserve, at each quarter end.

So it isn't just waiting for the 10-K at the annual process; it really is each quarter.

Again, at this time, we feel very strongly, as well as our auditors, consistent with that, that we do not need a valuation reserve.

So again, when you revisit this in January or February, you can look out a quarter or two for profitability and that would be kind of the range that you're looking ahead?

Yes, I think looking (inaudible) within the next four quarters, four to five quarters, you would need to see something out there, I would think, in profitability.

Okay, great, Rex.

Thank you very much, guys.

Jefferson Harralson, Keefe Bruyette Woods.

Thank you so much.

I want to ask one more DTA question just because I don't understand a piece of it.

Last quarter, you had a DTA of around 20.

It moves to 34, plus 14, but you had -- it looks like the tax yield this quarter was 26.7%.

So how does the tax shield interplay with the increase of the asset?

That's a very good question.

There's a couple of components of it, Jefferson.

Last question, the disallowed portion was about $13 million, just under 13 million.

And the difference in the $20 million is we had some allowable carry-backs still there.

So that's why the deferred tax asset, you had a differential between the two.

This quarter, what happened is you have the $26 million that you would add normally to the $13 million.

However, there are some offsetting OCI gains that are treated as taxable income for tax income purposes that came into it this quarter.

That offsetted the reported loss since it is not a book items through earnings, and that lowered the deferred tax asset this quarter.

So if there's no OCI gains or losses, should the asset go up by the amount of the shield in the quarter, generally?

Generally, yes.

That's really what we have on our SCAF model that we provided going out through '2010, but it takes that into account.

It would go up by that, go up by the loss division.

Okay, thank you.

Blair Brantley, Sterne Agee.

Good morning.

It's actually Adam.

I'm sorry.

I was in queue to ask a question before and I found something (inaudible) my phone, so I apologize.

I wanted to -- I do not have a question on the DTA, so, good, I got a chuckle out of you.

I wanted to address one point.

In listening to the Synovus call, they were talking about they were fairly aggressive in their problem loan dispositions sales this quarter.

It sounds like you guys are kind of following the same pattern, basically double the amount you sold last quarter.

But in particular, they said with raw land sales primarily in the Atlanta area, they were getting something to the tune of like $0.26 on the dollar.

Is that -- I mean, are you guys having that same kind of experience, or any color you can give on that?

Sure, Adam, this is David.

You know, if you look at what we sold, the losses that we were taking by category this past quarter, down in Atlanta on the land side, I would say let me put it in terms of recovery.

The dollars recovered ranged from probably a low on some scattered lots in the -- as low as $0.15 on the dollar on a random lot.

But in general like an A&D, you're probably looking in the $0.35 to $0.45 on the dollar range, recovery.

On the housing side, the losses were a little bit bigger this quarter than the last.

We saw them creep up a little bit because we were trying to move so much, but on average, we were looking anywhere, say, in the low 20% losses up to about $0.27, $0.28 on the dollar losses on completed houses.

Hopefully that helps.

No, that does help.

Thank you.

Could you --

By the way, Adam, let me make sure I'm clear on this because the way that is communicated I think by different banks is different.

When I give you those numbers, I am giving you back to the original loan balance just as it went non-accrual, okay?

Some banks will speak in terms of losses on the written down balance if you (multiple speakers)

I understand, thank you.

Then TDRs have kind of been a big area of focus, certainly the last couple of quarters.

Do you guys have any TDRs?

If so, do you guys -- what's your level of TDRs and sort of maybe talk about your methodology and give us some color on that?

Yes, we will report the TDRs in the call report, but they will come in in the low $20 million range.

We haven't had a lot of TDRs to date.

Until this quarter, we had some come, I mean mainly because, if you look at the composition of our problems, they've been focused in the residential construction book.

The truth is there is very little you can do to restructure those loans typically because you don't have any cash flow.

If they're not selling the project out, you really don't have much choice but to foreclose.

So what we are seeing now where the TDRs are really coming in is starting on the commercial side, kind of what I was describing earlier to Jennifer.

That's where we started to see a little bit of it.

I would expect, as we go through the remainder of the cycle with the commercial piece, we will see a little bit more of that going forward.

It appears there are no further questions in the queue.

Well, let me just say thank you for being on the call this morning.

We sincerely appreciate your interest in our company.

We look forward to talking with you next quarter.

We hope you have a nice day and a nice weekend.

Again, that does conclude today's presentation.

We thank you for your participation.