United Community Banks, Inc.
Q3 2008 Earnings Call Transcript

Published: 24 Oct 2008

[Operator:]

Good morning and welcome to United Community Bank's 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 Schearrow. 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 highlight section of the news release included in its website, at ucbi.com. A copy of today's earnings release was filed on Form 8K with 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 about United Community Banks. Any forward-looking statement should be considered in light of risks and uncertainties described on page 4 of the company's form 10K and other information provided by the Company in its filings with the SEC and included on its website. At this time, we'll begin the conference call with Jimmy Tallent.

[Jimmy C. Tallent:]

Good morning, everyone and thanks for joining our call today. I'll begin by discussing the key events and results of the third quarter. I'll be followed by David, who will provide you with details about our loan portfolio and a credit metrics, and then Rex will provide more detail about the financials, margin, liquidity, and capital. As we announced earlier this month, third quarter results reflect the impact that the volatile economy and housing market are having on us and all banks. However, despite our challenges, we made progress in several important areas, most notably selling some of our most impaired assets, strengthening our allowance for loans losses and raising regulatory capital. While we had a difficult quarter, the company remains financially sound. First, let me summarize the key actions taken in the third quarter. We provided $76 million for loan losses. We charged off $56 million, disposing of some of our largest and most impaired loans, as I mentioned. We strengthened our loan loss reserve by $20 million, bringing it to 1.91% of total loans, and we wrote down our OREO balances by $8 million, and continued to reduce our exposure to residential construction. All of this had a negative impact on third quarter earnings, but we believe firmly that the actions that we took were there right things to do. We dealt with the current challenges and strengthened our position for dealing with those challenges still to come. Now turning to operating results. We posted a net loss of $40 million for the third quarter, or $0.84 per diluted share. Total loans decreased $123 million from a year ago, and $103 million from the second quarter of 2008, to $5.6 million. Our Residential Construction portfolio continued to decrease, ending the quarter at $1.6 billion, representing 27% of total loans. This is a decrease of $343 million from a year ago, and 149 million from the second quarter. The other areas of our loan portfolio, residential mortgage and commercial grew $49 million this quarter. We continued to make progress in rebalancing our loan portfolio and reducing our exposure to residential construction. Customer deposits increased $98 million from a year ago and decreased $217 million from the second quarter of 2008. During the 3rd quarter we saw a decrease in customer deposits, some of which was seasonal, and some of which almost assuredly reflected concerns about the banking industry. In response, we took proactive steps to build liquidity, which Rex will cover in more detail in just a few minutes. Non-performing assets increased to $178 million, from $152 million in the prior quarter. Our net interest margin declined by 15 basis points to 317 on a link quarter basis. This narrowing of our margin was driven primarily by the growth in non-performing assets and by the pricing pressures that ongoing liquidity issues placed on customer deposits. Capital remained strong, well above regulatory guidelines for well-capitalized. We strengthened our regulatory capital by adding $30 million of subordinated debt, and will close an internal trust preferred offering of $12 million by the end of next week. Many of our actions this quarter reflect our belief that the decline in valuations and expected recovery time of this housing cycle may worsen. We believe that it is better to actively pursue sales now as the return of better pricing is still some time away. That said, in some situations, we are evaluating pricing and timing to gauge whether to hold some properties longer in anticipation of better returns. We will continue to pursue our aggressive strategy of disposing of problem credit as quickly as possible. Our strong capital position enables us to absorb the high level of charge-offs while preventing any compromise to our sound financial condition. We remain committed to the goal of being among the first banks to emerge from this down cycle. For the rest of our discussion today our goal is to provide further details about the information that we shared on October the 6th and bring you up to date on our credit, quality metrics, allowance build-up, liquidity and capital stream. Now I will turn the call over to David.

[David P. Shearrow:]

Thank you, Jimmy, and good morning. I want to go into some detail about the third quarter actions that we outlined for you a couple weeks ago on our charge-offs and loan loss provision, as well as our higher-level, non-performing assets. I will also touch on how the economic environment continues to affect our loan portfolio, and on the continuation of our aggressive stance on problem loan disposition and managing through this environment. The down economic cycle continued to impact our credit quality, particularly within the Atlanta residential construction portfolio. As a result, in the third quarter we provided $76 million for loan losses and charged off $56 million in loans. As Jimmy noted, in the third quarter we saw a rise in non-performing assets to $178 million, compared to $152 million last quarter. Non-performing assets included $139 million in non-performing loans and $39 million in OREO. We did not have any loans accruing that were 90 days past due. The ratio of non-performing assets to total assets was 220 basis points. That compares to 184 last quarter and 77 a year ago. At quarter end, we had four non-performing loans greater than $5 million. The largest were $7.9, $6.5, $5.2 and $5.1 million. Each loan was to a separate residential construction customer in Atlanta and the collateral consisted primarily of a mix of houses and finished lots. We had three exposures in OREO greater than $2 million. They were $5 million, $4.2 and $2.4 million and each loan was to a residential construction customer. We wrote down other real estate by $8.3 million, leaving OREO on the books at 57% of original value, which should enable us to expedite sales with minimal additional losses. Also at quarter-end we had less than $5 million of OREO on the books that we have held for more than 90 days. Segmenting our non-performing assets, the largest market concentration at quarter-end was the Atlanta MSA at 61%. The largest loan category concentration was residential construction loans at 76%. Net charge-offs were $56 million for the quarter, compared to $14 million for the second quarter of 2008. Let me remind you of what led to the large amount of charge-offs. In the third quarter, United sold $66 million of non-performing assets. Among these there were sales at the very end of the quarter that resulted in the disposition of 13 of our largest non-performing loans and assets, totaling $42 million. Additionally, we had verbal commitments to sell three non-performing assets totaling $18 million, which we wrote down in the third quarter to expected realizable value. The losses on these 16 sales represented $33 million of the $56 million in charge-offs we took in the third quarter. Substantially all of these properties were dirt; lots and lots under development. Losses on these sales ranged from $0.30 to $0.70 on the dollar. The remaining $23 million of the charge-offs this quarter were across the board, in other non-performing loans and OREO less than 90 days. As we commented in our October 6th preannouncement, charge-offs continue to be driven by deterioration in residential construction and housing markets, primarily concentrated in the Atlanta MSA. Residential construction comprised $50 million, or 90% of our total third quarter charge-offs. 46 of this $50 million were in Atlanta. Now let me provide you with updated information on our residential construction portfolio in Atlanta. Of our $1.6 billion residential construction portfolio, the Atlanta MSA represents $611 million, which is down $117 million from the second quarter and down $256 million from a year ago. We expect this trend to continue. Of the $611 in the Atlanta MSA, we had $276 million in houses under construction. The $276 million consists of $49 million in presold and $227 million in spec. These balances were down $53 million from the second quarter. The balance of the $611 million was dirt loans of $335 million. This includes $185 million in acquisition and development loans, $103 in finished lots, and $47 million in land loans. These balances were down $64 million from last quarter. In the third quarter we saw a rise in our watch and classified loans. Our past due loans at quarter end were 1.39% of total loans, compared to 1.10% last quarter and 1.39% at the end of the first quarter. Residential construction loans were 2.54% past due, up from 1.83% last quarter and accounted for 50% of total past due loans. Also this quarter we increased our allowance for loan losses by $20 million to $111 million. This increased the ratio of our allowance to loans from 1.53% last quarter to 1.91%. Our allowance coverage to non-performing loans also increased from 74% to 80%. In summary, with $139 million in non-performing loans at quarter end, and a specific reserve added for new non-performers, a rise in our watch and classified loans and an increase of $20 million to our allowance to bolster the reserve, we believe our allowance for loan losses is adequate to cover any losses in the portfolio at quarter end. In terms of credit outlook, we expect to see ongoing challenges in the quarters ahead. Charge-offs will continue to be elevated as we work through our problems credits but we certainly don’t see a recurrence in the third quarter charge-off level in the immediate future. Our core earnings in strong capital position will support our ongoing strategy of aggressively moving problem credits off of our books and will enable us to actively pursue options for disposition, while remaining on solid financial footing. The biggest obstacle to this strategy is deterioration and pricing that we foresee, driven by the volume of foreclosed properties coming on the market from other banks. This could lead to additional charge-offs in the coming quarters. In addition, as Jimmy mentioned, given the current pricing environment, we may selectively choose to hold some MPAs that we believe are most likely to return to a more normalized value within a reasonable time period. With regard to MPAs, the market challenges and legal delay as they come from bankruptcy will likely drive continued volatility and upward pressure on the level of MPAs for the remainder of 2008 and into 2009. Nevertheless, our plan will not change. We will continue to recognize our losses and work these problem assets off the books as quickly as possible. With that, I’ll turn the call over to Rex.

[Rex S. Schuette:]

Thank you, David. As Jimmy indicated in his opening comments, the key items that we’ll cover this morning are highlights on earnings, margin, liquidity and capital. During the third quarter, we had a net loss of $39.9 million or $.84 per diluted share. The trends in fee revenue and operating expenses were commented on in our earning release and the changes by category are shown in the attached income statement. My comments today are focused on some of the key trends. Fee revenue of $13.1 million was down 2.5 million from last year and down 2 million from last quarter. Most of the increase from last year and last quarter was in mortgage loan fees, consulting fees and other revenue. Mortgage loan fees declined as the demand for mortgage loans continue to taper off with weakness in the housing market. In the third quarter 2008, we closed 492 loans totaling $84 million, compared with 662 loans totaling 116 million in the second quarter and 549 loans totaling 101 million in the third quarter of 2007. Consulting fees were down due to the weakness in the financial services industry that affected sales efforts and delayed consulting contracts. Other revenue of $788,000 was down from last quarter and a year ago. But (inaudible 00

[Jimmy C. Tallent:]

Thanks, Rex. As we move into the last quarter of 2008, let me stress this point one more time. We firmly believe that the actions that we took in the third quarter strengthened our ability to continue managing through this cycle and support the long term success of United Community Banks. We have been tested as how banks everywhere and to this point, I believe we have passed the test. Our solid capital position, solid level of allowances to loans and steady results from our core business franchise, should help us resume growth when the economy improves. As Rex mentioned, we may further bolster our resources by participating in the treasured partner's program. Currently, our capital levels are solid but as we’ve said before, you cannot have too much capital in this operating environment. Given this, we held a meeting with our board of directors earlier this morning and I recommended that we apply for the maximum amount available to us and the board concurred. I base this recommendation on our evaluation of many factors, such as the environment, opportunity, cost and availability and we determined that the treasure’s program is the most cost effective source of capital available. Our capital levels will provide us additional resources for addressing near term challenges and pursuing longer term opportunities that will fuel growth. I’ve said we’re being tested and the test isn’t over. As we look to the quarters ahead, we expect to see ongoing credit challenges, charge-offs and MPAs will continue to be elevated as we work through problem credits. Our core business franchise and strong capital position will support our ongoing strategy of aggressively moving problem credits off of our books and will enable us to actively pursue options for disposition by remaining on solid financial footing. We are firmly committing to two objectives. The first is to emerge from this down cycle as quickly as possible. And the second is to position this organization to take advantage of new and growing business opportunities when they present themselves. As they will in time in the markets in which we serve. With that, I’ll ask the operator to open the call to questions.

[Operator:]

Thank you. (Operator’s Instructions) We’ll go first to Kevin Fitzsimmons with Sandler O'Neill. Kevin Fitzsimmons - Sandler O'Neill & Partners L.P. Good morning, guys. I was wondering if you can give a little color on the loan sales, Jimmy just in terms of– I know the dollar amount you sold but, can you give us roughly what kind of cents on the dollar those went for. And on a related topic, you know whether you are seeing more buyers coming to table; I know Colonial yesterday talked about the phenomenon that earlier in third quarter there was more activity, more buyers interested in loan sales and then it just dried up after all the turmoil in September and that they’re starting to return now. So I was wondering if you’re seeing the same phenomenon.

[Jimmy C. Tallent:]

Kevin, the range was from $.30 to $.70 on the products that we sold. These were pretty much across the footprint in Atlanta. Again, the pricing depends on several factors but certainly the location is being critical. As far as buyers, we felt by getting aggressive last quarter and certainly with the people that we were talking with, we were able to bundle this together and the end of the day, I think we probably averaged about $.50 on the dollar. I’m not so sure that we’re seeing additional buyers now. One of our motives to move forward third quarter is two concerns. One is; will there be more buyers or less? And second is; the seasonality. Traditionally, as you go into the winter months, you just see less activity. So we wanted to take advantage of that while we had it. We hope we’ll see more buyers but at this point, I would say that that’s not the case. David, would you like to comment please?

[David P. Shearrow:]

Yes, I was just going to, Kevin maybe give you a little bit more color too on everything that we’ve sold. Jimmy was speaking predominately to the $42 million that we’ve sold. But if you look at the total 66 million that we’ve sold for the quarter, the average loss is about $.41 on the dollar. But if you broke that down, on the housing front, completed housing, we continued to lose roughly $.15 on the dollar on housing that continued; and that’s pretty consistent over the last two quarters. So we really haven’t seen much deterioration there. You know it’s on the landside that continues to be a challenge and depending on whether you’re talking about a contained subdivision in one of the better counties or you’re talking about an outlying lot; you can get to a fairly wide range on what you might realize. Kevin Fitzsimmons - Sandler O'Neill & Partners L.P. Okay.

[David P. Shearrow:]

Hopefully that helps. Kevin Fitzsimmons - Sandler O'Neill & Partners L.P. Yes, that’s helpful thanks. And Jimmy, you guys mentioned TARP and that you’ve met with the board and I’m very interested applying for it. Just interested in what you’re hearing out there, I’m assuming you’ve had conversations with some of your regulators and I know there’s more questions than answers right now but, are you hearing anything in terms of how this selection process goes and based on what you’re hearing how do you feel about your chances of getting approved? Thanks.

[Jimmy C. Tallent:]

Yes, there’s certainly the regulators I think are probably reaching out to banks. I think, from my understanding they’re reaching out to the banks that they feel have the capital strength. It’s my understanding that the kind of the pecking order is those banks that again, I think driven by the CAMEL rating in the one or two probably will get whatever they ask for, which again gives us confidence in our request. I understand three maybe a percentage, four there may not be any and I think also another condition is that it must be a publicly traded company. But we feel confident today that we will be able to obtain that. I know they’re moving fairly aggressive because of the limited amount they have, the $125 billion. Kevin Fitzsimmons - Sandler O'Neill & Partners L.P. Okay, great. That’s helpful, thank you.

[Operator:]

(Operator instructions) and we’ll go next to Jennifer Demba of Suntrust.

[Jennifer Demba:]

Good morning. Hi. Looks like, when you look at your detailed credit quality in your press release you had more of an increase in nonperformers in other markets outside Atlanta, specifically Gainesville, North Georgia, Western North Carolina. Can you just give us some color on what you’re seeing outside of Atlanta? I know your primary stress point is still Atlanta.

[David P. Shearrow:]

Sure, Jennifer. This is David. You’re right; we are seeing more pressure in the outlying markets. Obviously not of the magnitude we had in Atlanta. It is more concentrated in construction in those markets as well. If you looked at some other leading indicators past dues and watch, we’re seeing a little bit of creep there as well. So there is a little more stress in those parts of the portfolio. But in terms of overall magnitude of losses and NPAs, obviously we still are highly concentrated in Atlanta.

[Jennifer Demba:]

And the loan sale that you completed in the third quarter, is that bulk or is that individual sales?

[David P. Shearrow:]

That was really a couple transactions that I would call bulk-type transactions. They were obviously separate pieces. On that, we did an internal auction, so to speak with investors. We put together a package of what we thought were our largest and most severely impaired credits and we shopped it to a wide range of investors that we’d been working with and looked at the best bid. And that’s how we ultimately made the sale.

[Jennifer Demba:]

Is there any inclination to go through a broker in the future and outsource that a bit, or do you think that it’s still would be likely to do it yourselves for a while?

[David P. Shearrow:]

We have a toe in the water with a couple different groups on the brokerage side to perhaps widen the investor base, what we’ve got and so we’re looking to explore that. We’re looking, Jennifer, for really any avenue that we can move this stuff out quickly. And so we’ve had good success handling it ourselves, but we think it makes sense to broaden the spectrum of investors.

[Jennifer Demba:]

Thanks so much

[Operator:]

And our next question comes from Christopher Marinac from Fig Partners.

[Christopher Marinac:]

Yes, hi. Jimmy, as you know, the opportunity competitively for you has changed a lot over the last 90 days. And I’m curious if you could sort of talk about it beyond the credit issues in front of you. What are some opportunities or maybe ways to organically seize the moment in Atlanta and other markets from a deposit and new loan perspective?

[Jimmy C. Tallent:]

That’s a great question, Chris, and I think currently we have plans, we have actions in place to try and take advantage of the opportunity that exists. Really it’s in the heart of our footprint in Western Carolina as well as the Atlanta and North Georgia. But what we have to do I feel at this point, we’ve got to really look at where we are as a company. We clearly understand our challenges. We’ve got a balance sheet that is shrinking because of our construction lending coming down, expense base remaining flat, which is exaggerated because of the credit collection efforts along with the margin compression. But when we look beyond that certainly with the pricing opportunities that we see in the near future on the loan side hopefully the liquidity will get better. We want to be in the position to truly take advantage–number one, let’s take care of our own business today. Our own challenges today. But certainly we don’t need to lose sight of what I feel is the second best opportunity that we’ll ever see within this company.

[Christopher Marinac:]

Great. That’s helpful. Thank you very much.

[Operator:]

We’ll go next to Brian Roman of Robeco Investment.

[Brian Roman:]

Hi; good morning. Thanks for taking my question. Well, questions. Though I just want to challenge you for a second. You characterize yourselves as having “passed the test.” There are a lot of bank stocks that aren’t down 60 % from their highs, that are down minimally. So I’m not sure what passing means. But you said, “actions taken should aggressively deal with the problems of the past.” I believe you said something similar in the fourth quarter. Will you just discuss that?

[Jimmy C. Tallent:]

Brian, as far as the words “passed the test,” really that was in context of our actions to go ahead and dispose of what we felt was the most impaired problems. Again, that’s semantics, not that we’re declaring victory by any—

[Brian Roman:]

Okay. Because it sounded that way.

[Jimmy C. Tallent:]

Well, that’s not the intent. And I apologize if that was interpreted. What was the second part of your question?

[Brian Roman:]

Well, it was several questions, but actions taken to aggressively deal with problems. Or should aggressively deal with your problems. Didn’t you make a similar statement in the fourth quarter? Didn’t you take what you felt was a true up, a reserve, then?

[Jimmy C. Tallent:]

Well, I’m not so sure. I think since the fourth quarter of ’07 versus where we are today, quite honestly I think the world’s changed significantly since then.

[Brian Roman:]

Okay. And none of this was apparent at the time?

[Jimmy C. Tallent:]

Not the rapid decline. No.

[Brian Roman:]

Okay. Fair enough. A couple of other questions. In North Georgia, I think Jennifer Demba raised the issue. Is real estate deteriorating in those markets as well?

[Jimmy C. Tallent:]

We have seen some creep into those markets, yes.

[Brian Roman:]

Okay.

[Jimmy C. Tallent:]

But not anything to the degree that we have been experiencing in the metro Atlanta market.

[Brian Roman:]

Okay. Deposits

[Jimmy C. Tallent:]

Not currently. You know, with the liquidity issues, Brian, we feel that it’s very important that we retain this customer base. And with the liquidity markets as we’ve experienced over the last several quarters from the very large based to the small community bank, the only access they have has been primarily to the retail deposit side. We can’t lost this core customer base. As a result of that, it certainly continues to put pressure on the funding. Now, the action that we took in the third quarter is to try and put ourselves in a position for liquidity current as well as what we see in the near term. There is an expense associated with it. We felt that was a good solid business decision, though we do hope that we see the liquidity markets thaw, our pricing can come down. It certainly would make a significant impact quickly on our margin.

[Brian Roman:]

So right now— I’m just looking at the release. The margin analysis. You were just saying on the time agreement 100,000 and broker where you’re paying over 4 % in the quarter, you’re not seeing relief at this point?

[Jimmy C. Tallent:]

No. No. I would say this. I do believe that we may be seeing high tide. But when you have banks such as Wachovia that has been advertising 4.5 % plus, all over our footprint, as well as community banks, it is a challenge. But hopefully we’ll see that subside.

[Brian Roman of Robeco Investment:]

Okay. A couple other questions. You said, you hope this is a peak in net charge-off. You said you sold some properties for anywhere between .30 and $.70 on the dollar. We’ll be generous, we’ll average it at $.50. In your provisioning, what sort of charge-off expectation are you putting in as it relates to the disposition values for properties?

[David P. Shearrow:]

I’ll address that question for you. This is David Shearrow. On the provisioning, the way we build that provision, if a loan goes to non-accrual, and it’s over 500,000, yes, we’re doing a specific reserve against that particular loan based on current liquidation value of that particular credit. So, it’s going to be very much reflect real time what we’re seeing in the market.

[Brian Roman:]

So it’s that 30 to 70% range that you’ve had on actual dispositions?

[David P. Shearrow:]

It would depend on—

[Brian Roman of Robeco Investment:]

Of course it does. Sure.

[David P. Shearrow:]

Yes. So it could be reserved 90% if we thought it was an absolute disaster. But on the other hand we might have collateral that covers the loan 100 %. So it truly is–when we get to that level, it’s case by case. What collateral do we have, where is it, what’s the current liquidation value, plus liquidation expenses is kind of the process. The balance of the portfolio is reserved against based on historical loss experience. And so that’s a running average loss experience. And so that’s how it gets billed out. And it’s based on credit grade, all the way from the past credits all the way down to our watch and classified loans.

[Brian Roman:]

Okay. Last question, though I could keep you here for hours. I know I’ve asked you this in the past

[Rex S. Schuette:]

Brian, this is Rex. It’s done primarily annually, but we do look at it quarterly and back with our accountants, also. We don’t believe at this time we have impairment. That is again, the volatility we still feel is temporary when we look at it franchise and look at our deposit base and look at our core earnings as we look going forward. So we do look at that. We keep it under monitor every quarter, we look at it from that standpoint. And again, we do a very formal annual review that’s coming up in the fourth quarter looking at it also.

[Brian Roman:]

All right. Thank you very much for taking my questions.

[Operator:]

We’ll go next to Bill Waite of SMC Capital.

[Bill Waite:]

Hi guys. Thanks for the call. I was wondering if you could comment both on your participation in and your thoughts about the FDIC’s program for demand deposit insurance? It’s up to— well, unlimited on that one. And then guarantee on a new short-term debt? Either one of those things are going to take advantage of or utilize? Or also just some general thought s about them.

[Jimmy C. Tallent:]

Let me take a part of that question, Bill. As far as the deposits, what we have seen with the actions of the Fed in increasing the insurance and certainly lifting on the–in essence the business accounts to a total insured has certainly created a calmness that we did not see two weeks ago. So we feel very fortunate, we’re very appreciative of those particular actions. We’ve reviewed some of the other alternatives and programs. The principle one right now has been the TARP, the preferred stock. The other programs, as far as asset purchases and so forth I know They’re still really developing that, I think, as they go along. Probably we’ll have something on that some time next week. But I certainly want to communicate, and that’s what we’re trying to do throughout our footprint, to our customer base about the insurance.

[Bill Waite:]

And potential for short term debt? Any short term debt?

[Jimmy C. Tallent:]

That’s yours.

[David P. Shearrow:]

It probably is a little bit there, with respect to short term debt. But again, we’re still working, and we’ll need to go back to the FDIC on that as to what qualifies again with the maturity having to be by June of next year, it limits a lot of companies that didn’t have maturities hitting in that time period. And again, it also impacts potentially fed loans purchased and some other pieces of the balance sheet that we’re looking at, also.

[Bill Waite:]

Okay. Great. Thanks.

[Operator:]

We’ll go next to Jefferson Harralson of KBW.

[Jefferson Harralson:]

Thanks, guys.

[Jimmy C. Tallent:]

Good morning, Jefferson.

[Jefferson Harralson:]

I wanted to ask you a question about your tangible equity ratio. It’s very strong, clearly. The addition of the max of the TARP program does elaborate a little bit, and the losses obviously– as you take losses it comes out of that first. So does the addition of TARP money allow you to accelerate losses? Or is the tangible equity ratio still or somewhat of a constraint in that? And would you look, even though you’re, with TARP money, from a regulatory standpoint way more than enough capital. But would you ever look to bolster that common tangible equity too, or does it just not matter as much if you are so overcapitalized on the regulatory front?

[Jimmy C. Tallent:]

I think we’re assuming the TARP money is awarded to us. We feel very comfortable as to where we would be. As far as our strategy relative to disposing of the assets, Jefferson, you’ll see a contingent strategy as we have been doing over the last several quarters. We did mention, as David and I both said in our prepared remarks that we will look at select properties that we would feel have excellent locations, would be one of the very first to rebound and possibly make a business decision to hold on to those for a relatively short period of time, hopefully. But as far as that strategy of disposing of the assets, it will continue as it is. And I think our capital should be plenty sufficient.

[Jefferson Harralson:]

Thanks, everybody.

[David P. Shearrow:]

I think Jefferson when you look at the ratios, in particular on our risk-based assets, that’s going to bump those by about 300, if we did the 180 as you were commenting, I think you’ve done the math also. So since it’s 3% on risk-weighted assets, it moves those up about 300 basis points. And then on the leverage end, a tangible equity asset, it moves it up probably about 240 to 250. In that range.

[Jefferson Harralson:]

Okay. Thanks a lot.

[Operator:]

We will go next to Jeff Davis of Wolf River Capital.

[Jeff Davis:]

Good morning. A question for the group. And Jimmy I think you just touched on it. But in terms of TARP and asset purchases, what are you all–beyond non-agency mortgage-backed securities, and home mortgages, what do you expect to be included in the TARP? And where I’m headed is, do you believe it may ultimately include construction loans. If so, would you be a seller into it under those terms? Or parameters?

[Jimmy C. Tallent:]

Jeff, thank you for the question. We’re anxiously awaiting clarification. Certainly we’re going to look across the broad spectrum of what that will include. The securities, those type of things, obviously we don’t have enough on our books. Selfishly, I would like for them to have a strong interest in dirt or construction loans, and if there was a fair price, absolutely we would look at it. But I think we’re going to have to wait, probably until the end of next week to find out the details.

[Jeff Davis:]

You’re not hearing either way whether it will or will not include construction loans dirt loans?

[Jimmy C. Tallent:]

That is correct. I have not heard either way.

[Jeff Davis:]

Thank you.

[Operator:]

And with that we have no further questions in queue at this time.

[Jimmy C. Tallent:]

Let me say thank you for being with us this morning. We sincerely appreciate your interest in United Community Banks. If there are other questions, we certainly encourage you to give us a call. Again, thanks so much. Hope you have a great day.

[Operator:]

This concludes today’s conference. Ladies and gentlemen we do appreciate your participation and you may disconnect at any time.