United Community Banks, Inc.
Q4 2008 Earnings Call Transcript

Published: 23 Jan 2009

[Operator:]

Welcome to Community Banks’ fourth quarter conference call. Hosting our 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 measures to GAAP in the financial highlights section of the news release included on their website at ucbi.com. A copy of today’s earnings release was filed on Form 8K 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 about 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 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 Tallent:]

Good morning, everyone, and thank you for joining our call today. I’ll begin by discussing the key events and results for the fourth quarter. I’ll then be followed by David, who will provide details about our loan portfolio and an update on our credit. Rex will then share more detail about our financials, margin, liquidity, and our capital. The fourth quarter was difficult and disappointing. Let me get right to the heart of things and summarize the key events. We provided $85 million for loan losses. We had loan charge offs of $74 million. We strengthened our loan loss reserve by $11 million, bringing it to 2.14% of total loans. We saw non-performing assets increased to $250 million, up from $178 million in the prior quarter. Our margin decreased to 47 basis points to 2.7%. All of this of course had a negative impact on fourth quarter earnings. We posted a net loss of $46.7 million for the fourth quarter or $0.99 per diluted share with a full-year loss of $1.35 per diluted share. Total loans decreased $224 million from a year ago and $125 million from the third quarter of 2008 to $5.7 billion. Our residential construction portfolio continued to reduce in size, ending the year at $1.5 billion representing 26% of total loans. This is a decrease of $117 million from the third quarter and $350 million from a year ago. The other areas of our loan portfolio, primarily residential mortgage and commercial, were flat for the quarter, but up $126 million for the year. Customer deposits increased $457 million from a year ago and $266 million from last quarter. Of the $266 million $250 million was from municipalities. Our net interest margin declined by 47 basis points to 270 on a lean quarter basis. Obviously we’re disappointed with the margin, but it came as no surprise as the majority of it was driven by our decisive actions to build liquidity, which Rex will discuss in full detail in his comments. Though we saw short margin compression this quarter we feel we’ve reached the bottom. We’ve taken positive actions and already see an improvement in our spreads. Capital was bolstered by our sale of $180 million in preferred stock to the US Treasury in December and the closing of an internal trust preferred offering of $13 million at the end of October. Capital ratios at year end continued to be solid. Now I’ll turn the call over to David.

[David Shearrow:]

Thank you, Jimmy, and good morning. I’ll be sharing some detail about the fourth quarter actions we took regarding charge offs and loan loss provision, as well as our higher level of non-performing assets. I’ll also touch on how the economic environment continues to affect our loan portfolio and on the continuation of our assertive stance on problem loan disposition and management through this environment. The downed economic cycle continued to impact our credit quality, particularly within the Atlanta residential construction portfolio. As a result, in the fourth quarter we provided $85 million for loan losses and charged off $74 million in loans. As Jimmy noted, we saw a rise in non-performing assets this quarter to $250 million compared to $178 million last quarter. This was primarily the result of continued deterioration in the Atlanta housing market and softened demand from buyers given the economic turmoil during the quarter. The economic stress significantly altered investors’ projected timing for a recovery and negatively affected pricing beyond our expectations. As a result we chose to sell less OREO until the market demonstrates more stability. We’ve also begun to see a rise in NPAs outside of Atlanta and in other parts of the portfolio as well. Non-performing assets included $190 million in non-performing loans and $60 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 294 basis points. This compares to 220 last quarter and 56 a year ago. At quarter end our four largest non-performing loans were $30.9 million, $11.2 million, $7.5 million, and $7.0 million. Each loan was to a separate residential construction customer and the collateral consisted primarily of a mix of houses and finished lots. While placed on non-accrual, the largest two exposures are each actively building and selling homes and steadily reducing our exposure. The largest exposures in OREO were $3.6 million, $3.1 million, and $2.2 million. Each loan was to a residential construction customer. They also were written down to net realizable value. Please keep in mind that our $60 million of OREO has been written down to 66% of its original loan value at year end, which will help expedite sales with minimal additional losses. Segmenting our non-performing assets, the largest market concentration at quarter end was the Atlanta MSA at 59%. The largest loan category concentration was residential construction loans at 77%. Net charge offs were $74 million for the quarter compared to $56 million on a linked quarter basis. Class quarter charge offs continue to be driven by deterioration in the residential construction and housing markets primarily concentrated in the Atlanta MSA. Residential construction comprised $58 million or 78% of our total fourth quarter charge offs. Of that amount Atlanta residential construction charge offs were $43 million. Now let me provide you some further details about our residential construction portfolio in Atlanta. Of our total $1.5 billion residential construction portfolio the Atlanta MSA represents $538 million, which is down $73 million from the third quarter and down $246 million from a year ago. We expect this trend to continue. Of the $538 million in the Atlanta MSA we had $229 million in houses under construction and $309 million in dirt loans. The $229 million of houses under construction consists as a $40 million pre-sold and $189 million spec. The $229 million of houses under construction was down $47 million from the third quarter. The $309 million of dirt loans included $167 million of acquisition and development loans, $86 million in finished lots, and $56 million in land loans. Total dirt loans were down $26 million from last quarter. I’d like to mention that while residential construction in the Atlanta MSA continues to be the most troubled segment of our loan portfolio we have seen some migration of credit weakness in the other markets and loan categories. While these problem areas remain much smaller than residential construction in Atlanta, we are keeping an extremely close watch on them and on the portfolio as a whole. In the fourth quarter we saw a rise in our [watching] and classified loans. Our past due loans at quarter end were 2.33% of total loans compared to 1.39% last quarter. Residential construction loans were 3.78% past due, up from 2.54% last quarter, and accounted for 42% of total past due loans. While still heavily weighted to residential construction, past dues were up in the commercial and residential mortgage portfolios. Also this quarter, we increased our allowance for loan losses by $11 million to $122 million. This increased the ratio of allowance to loans from 1.91% last quarter to 2.14%. Our allowance coverage to non-performing loans was 64%, down from 80% last quarter. This quarter $84 million of our total $190 million in NPLs had already been charged down compared to $19 million of $139 million in the third quarter. Excluding these loans charged down to net realizable value, our allowance coverage to non-performing loans increased 114% from 93% last quarter. In terms of credit outlook, we expect to see the challenges continue in the quarters ahead and charge offs to remain elevated as we work through our problem credits. Given the pricing environment, we’re also going to follow through on our plan to selectively hold NPAs that we believe are most likely to return to a more normalized value within a reasonable time period. They will always be up for sale, but these will be assets that we’re willing to hold until we feel we can get the right price for them. Because of this strategy and the market challenges and [inaudible] 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 work these problem assets off the books as quickly as possible. With that I’ll turn the call over to Rex.

[Rex Schuette:]

Thank you, David. During the fourth quarter we had a net loss of $46.7 million or $0.99 per share. Trends in [inaudible] operating expenses were noted in our earnings release and the changes by category are shown in the attached income statement, including additional detail on foreclosed property costs and FDIC premiums which were previously in other expenses. I’ll comment on several key items, but first I want to begin with our margin. For the fourth quarter tax equivalent net interest revenue was $52 million, down $7 million from last quarter and down $18 million from a year ago. Net interest margin for the fourth quarter was 270 million compared to 317 last quarter and 373 a year ago. Our margin declined 47 basis points this quarter primarily due to the following

[Jimmy Tallent:]

Thanks, Rex. Before I provide a look forward to 2009 I want to revisit a statement we made in October about our expected levels of charge offs for the fourth quarter. The statement was that we didn't expect fourth quarter charge offs to be at the third quarter levels. We were wrong. However, the world changed in the fourth quarter. Unemployment, market condition sales volume, and price valuation deteriorated even faster than we expected. Now let’s look ahead to 2009. We have three key areas of which we will be intensely focused throughout the upcoming year

[Operator:]

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). Your first question comes from Kevin Fitzsimmons – Sandler O’Neill.

[Kevin Fitzsimmons:]

Good morning, everyone. Just a couple questions first on credit. Can you give us a little colour on the type of properties, specifically the type of NPAs that you’re, it seems like you’re more intent on holding now, either by market or by loan segment? What types of those and what kind of marks you’ve taken on those already, if there’s a way to generalize that? Then secondly, I was surprised to see what, you guys have made good progress in taking resi construction down over the last several quarters. I was surprised to see that land loans directionally actually went up this quarter and I was curious why that happened and if there’s any reason there. Thanks.

[Jimmy Tallent:]

David, do you want to answer that?

[David Shearrow:]

Yeah. Let me answer that, Kevin. First of all, on the question what types of products or OREO would be holding. Kevin, we’ve been going through an ongoing process of evaluating credits that may be going non-performing and then on into non-performing status and effectively kind of grading those assets, [inaudible] and collateral. And for the most part where the most emphasis has been has been really on the A and D side because we’re continuing to sell houses at a fairly good pace. So in terms of what we might hold, and I think right now if I pulled out the schedule today probably we’d get about $42 million that’s kind of earmarked as what we would call potential hold properties. These would be typically close in counties around the Atlanta area. If you think about Atlanta, it’s going to probably be something in Cob or maybe Gwinnett County, close in, that we think has, there’s activity nearby or it would be attractive to a buyer. Price points are right. So then we would hold that. Then as far as right down, we would get a current appraisal and then we would mark down based on that current appraisal, typically at about 85% of the appraised value. The second question you asked was about the increase in construction land loans. That changed. We did not make any land loans. That was a recoating issue as we’ve continued to work through this. We had some excess land on a couple of A and D loans that really would more appropriately be coded as raw land at this point in time and we just reclassified those. But it was not that we made any new land loans.

[Kevin Fitzsimmons:]

One follow up, David. If you’re putting, if you’re doing appraisals on the things in OREO but basically letting these sit there until the prices get better is anything going to trigger? Because I would think that the prices are still going down. Is anything going to trigger you guys to get another appraisal and to write them down further if they’re really sitting in there for a while? I guess I’m trying to get a feel for it. There’s some kind of time limit for this plan, this game plan to kind of hold them open for a better a price point.

[David Shearrow:]

Well, certainly we’d continue to look at those. There are some regulatory guidelines about how often you have to kind of revisit that. Off the top of my head I can’t remember the frequency of it. It’s certainly in excess of a year. I know that. If we thought there was significant decline in value on one of these in the meantime we might get an updated appraisal and write it down further. Of course, we’re hedging it by typically writing them down below appraisal anyway at 85%. So I think, and keep in mind, Kevin, this is a little different than what we have done. We’ve been very aggressive at moving these things off the books. It’s just that the bids have gotten so low we think that maybe a little bit of a pause here and being a little more patient is going to work in our favour, which is driving our strategy. Every one of these properties is still for sale. If we can get our price we’re going to move it off the books.

[Jimmy Tallent:]

This is Jimmy. We want to make sure that we communicate that these are what we truly determine as class A properties. That is so much driven by the location and what we think is the marketability. Certainly the time of the year that we’re in probably certainly, you know, properties continue to come down in value, but with our conservative marks on these we just don’t think that we absolutely have to take a rock bottom price at this point. you’re not going to see a tremendous build in this category, but we’re still going to do what we feel is economically best for the company.

[Kevin Fitzsimmons:]

And these are still going to remain in OREO, right? They’re not going to be pushed over a held for sale category or?

[David Shearrow:]

That’s correct. And when I use that $42 million number, Kevin, that includes some that are still, were non-performing at year end that may have been going into foreclosure. But yes, these properties will be held in OREO and will be mark to market based on the appraisal process that it’s got.

[Kevin Fitzsimmons:]

Okay. All right. Great. Thanks, guys.

[Operator:]

Your next question comes from Christopher Marinac – FIG Partners.

[Christopher Marinac:]

Thanks. Good morning. You had mentioned about the residential construction loans going from 784 down to 538 in the last year. How much of that has been sales and how much of that has been charge offs? Can you give us a little colour on how that’s migrated downward?

[Jimmy Tallent:]

I’m going to have to look at that. Go ahead, Rex.

[Rex Schuette:]

I don’t think we have the number right handy, but again, if you look at our charge offs for the year it was about $150 million in charge offs that would have come out of, a good portion of that would have come out of that category. And then the balance of it would be primarily pay downs coming out as it was out of that category.

[Christopher Marinac:]

Okay. So the sales you’ve done would not necessarily be of those loans, per se. The lot loans would have been more of the sales that were done this quarter last quarter.

[Rex Schuette:]

Yeah. I mean, we have some last quarter that actually we sold loans last quarter, but for the most part it’s been OREO that we’ve been selling. In the OREO category. So it’s already come through the pay down or pay down process or moved to foreclosure.

[Christopher Marinac:]

Okay. And then, Rex, just, is it, I know that disclosure has evolved this year and you’ve given us Atlanta specific and Gainesville separate, but if you look at Atlanta specifically were there any major charge offs during the course of 2007? I mean, this $100 million this year, or $113 million, is really the number you’ve written off so far.

[Rex Schuette:]

Is the question again what are the major charge offs this year that we took?

[Christopher Marinac:]

Actually, I was talking about last year.

[Rex Schuette:]

Oh, last year, ’07?

[Christopher Marinac:]

Yeah. Were there any charge offs to speak of if you’re trying to do a cumulative loss view of just Atlanta?

[Rex Schuette:]

In ’07 they were actually liquidated in ’08. Is that?

[Christopher Marinac:]

Correct.

[Rex Schuette:]

I don’t think so. I think most of what we had charge offs in ’07 would have been liquidated then. For the most part, Chris, our approach had been really up to, even through the first half of ’08 is pretty much we took charge offs when we went to foreclosure and then went into liquidation. Really, until this past quarter, well, I’d say the last two quarters, most of what we took in to OREO we were able to get rolled out within 90 days or just over 90 days. So it was a very quick realization of actual losses. Until we’ve seen this build up here in the last couple of quarters. I think I mentioned in my earlier comments that, particularly in the fourth quarter, is our $190 million of non-performing loans $83 million of those loans, you know, fourth quarter, received some level of charge down. Typically to net realizable value. That compares to really, going back in the first half of the year, really there probably would have been virtually no loans charged down. And in the third quarter, I’ve misplaced the number here, but I think it was $19 million at 139. So you can see that we’ve taken a much harder hit on the non-performing loan piece here at the end of the year than we had previously. So if you went back, again getting back to your original question, at the end of ’07 most of what we would have charged off would have related to OREO, which would have been liquidated within that quarter.

[Christopher Marinac:]

Okay. It just seems to me that you’ve written off about 5% of the peak if you look at Atlanta specifically. Trying to again factor out Gainesville separate from that. I’m just curious how that number builds up as this year goes on. If the pace of losses is connected to the same number. I don’t expect you to comment on that, but just sort of what I’m getting at. So that’s great. Thank you very much.

[Operator:]

Your next question comes from Jennifer Demba – SunTrust Robinson Humphrey.

[Jennifer Demba:]

Thank you. Good morning. David, what causes you guys to think differently about your problem loan disposition strategy? You said the difference between the bid and ask is just too wide right now. what causes you to change your tact and perhaps take a little bit lower price?

[David Shearrow:]

Well, it’s a couple things. Ultimately, you know, we’re trying to maximize the economic return to the company. While we want to get through this as quickly as possible some of the, the seasonality of the winter, the fact that many investors have pulled back, pulled back particularly we saw in the fourth quarter with all the turmoil going on in the market. We just think that, and obviously each day goes by that we’re a little closer to an eventual turn around, I think that some, a little more patience right now probably makes sense in that we think we’re at a low point and then we’ll begin to see some upward improvement in pricing, hopefully in the near term. Again, what we’re talking about is only those properties that we think are going to be the first to recover when the market turns. In general our strategy is not changed. We’ve just specifically identified those close-in projects in the metro-Atlanta area really at this point. It may be other markets as well that we think have a closer turnaround time attached to them.

[Jennifer Demba:]

Okay. Second question is on FDIC premiums. How much will those rise for you guys in 2009?

[Rex Schuette:]

Jennifer, right now, unless they change the funding of it, it’s going to double for most banks going from the seven basis points up to 14 basis points. So our costs in ’09 are about $5 million and it’s going to go up to about a $10 million run rate starting out in January. And that is pretty much the same for most of the commercial banks.

[Jennifer Demba:]

Thank you, Rex.

[Operator:]

Your next question comes from Jeff Davis – [Halbarn].

[Jeff Davis:]

Good morning. Jimmy and Rex, I joined the call or got back on not quite as you were wrapping up Chris’s question. I might be asking essentially what he was asking, so just cut me off if you’ve already covered it. You’ve had heavy losses the last two quarters. As you think about your capital position, and I’m talking about common capital, not common equity, not TARP and Trust Preferred. As we look into ’09, maybe not thinking about the earnings per se, is there not going to be a point maybe where the provisioning and maybe not so much on the loss recognition side but the provisioning that’s going to back off some so that the losses for the company taper off some if you all are truly in front of this?

[Jimmy Tallent:]

Well, Jeff, we certainly hope so and that’s our plan. You know, our game plan, our strategy has been to be as aggressive – I know that word is certainly overused – in recognition and disposition of the assets. Certainly we keep a very, very close eye on our capital as one of the reasons I had mentioned earlier in my prepared remarks some of the pre-tax pre-provision and improving that throughout ’09. But if you just do a burn down, and these are just examples, you know, $200 million in ’09. For example, that would, our tier one would still be 2.5%, total well above 13% and our common would be about 5.5%. If you add another $100 million, let’s say $300 million, tier one 9.5%, total still well above 12%, and then the common would still be under 5%. And we’re just continuing to watch that baby carefully. If we can get some relief with stability within the real estate, and certainly the housing piece because that has today the least amount of loss to us, where by the lots become marketable again at a reasonable price, certainly that would help to lessen any potential and continued pressure on our capital.

[Jeff Davis:]

Maybe if I said it a little bit different. Does the delta between pre-tax pre-provision and your provisioning level, does that tighten up if not maybe for the full year then for the second half of the year?

[Jimmy Tallent:]

We think so.

[Jeff Davis:]

Okay.

[Jimmy Tallent:]

From what we see today, Jeff, that’s our hope.

[Jeff Davis:]

Okay. Thank you.

[Operator:]

Your next question comes from Michael Shermer – Raymond James.

[Michael Shermer:]

Thank you. Could you talk a little bit about the lot inventory and housing inventory numbers in Atlanta?

[David Shearrow:]

Sure. This is David. The latest numbers that we saw that came out here at the end of the year showed a total number of lots on the ground at 150,000 lots. That’s up a little bit from 148,000 last quarter and 147,000 prior year. Most of that increase really I think is just the completion of what was already started because there really hasn’t been any significant new projects started in quite some time now in Atlanta. So the lot inventories, I’d say it’s fairly stable. But with starts being as anaemic as they are at this point in time, the month’s supply is very excessive. If you look at just closings and starts on housing year over year, in the fourth quarter on an annualized basis you had 21.6 thousand closings run rates and starts, 11.9 thousand in the fourth quarter of ’08? That compares to 37.8 thousand in ’07 in closings and 31.8 in starts. What has happened now for going on nearly two years, frankly, is closings have exceeded starts on the housing piece, but the pace of closings has continued to deteriorate and decline over that time period. So closings, just to give you a perspective, closings that are just on an annualized pace of under 22,000 units in Atlanta is extremely low relative to a historical average in the range of about 40,000 and a peak in the market of about 60,000.

[Michael Shermer:]

All right. Thank you. And separately, I was wondering if you could, Rex, talk a little bit about the decline in employee expense in the fourth quarter. Was that the main head count reduction or is something else happening there?

[Rex Schuette:]

No. As I indicated earlier, it’s primarily due to the reduction of incentive compensation primarily related to bonuses, but that was reduced in the fourth quarter. That’s the biggest variance in the fourth quarter compared to third.

[Michael Shermer:]

So do you see that number then creeping back up in the first quarter?

[Rex Schuette:]

Uncertain.

[Michael Shermer:]

Okay.

[Rex Schuette:]

Gotta have some to a bit, but again incentives were down because volumes were down in the other businesses too. The mortgage business and refinance. We had some declines across the board.

[Jimmy Tallent:]

Is it a question about dollars?

[Michael Shermer:]

Yes, it was about dollars.

[Rex Schuette:]

Yes, about dollars.

[Michael Shermer:]

All right. Thank you.

[Operator:]

Your next question comes from Jefferson Harralson – KBW.

[Jefferson Harralson:]

Thanks, guys. Can I ask you about some of the non-construction categories and the losses there? I was going to ask you first about the, our residential mortgage. It’s a pretty decent jump as to high rate versus anything we’ve seen historically for the industry. Everybody’s seen a big jump, but can you talk about what’s driving that jump and is there anything specific in this quarter that you’re seeing that’s new?

[Rex Schuette:]

Well, Jefferson, I think what’s really happening is pretty much what others are experiencing as well. This climb in unemployment is having an effect on the consumer out there and we’ve been seeing our past dues pick up here over the last couple quarters and we’re trying to work with folks, but some folks are just stretched and they’ve not been able to work through their challenges. So that’s really driving it and then, of course, coupled with that in terms of the actual loss, the markets have softened out there. Even though we’ve maybe gone in at the time of a decent LTV, the deterioration out there in pricing has had an impact on the overall loss experience there as well. I think our numbers fare, on the residential mortgage continue to fare pretty well relative to some of the industry numbers I’ve seen. Obviously they are climbing and I would expect them to continue to climb in ’09.

[Jefferson Harralson:]

Okay. I’ll ask you about one more category there. The CNI you had at $3.4 million and that charge off you just talked about. The composition of that $3.4 million and what you’re seeing and expecting there.

[Rex Schuette:]

Yeah, well, we had one kind of outlier in that group that really could almost be called residential construction, although it truly is CNI. We had a relationship about a little over $2 million of that number was an Atlanta based relationship. It’s very closely tied to residential construction in Atlanta. Effectively they got in trouble and we’ve charged that one off. That was a total loss. That was an unusual relationship. It was largely driven by guarantor support which we’ve been having some challenges with on that credit. Outside of that it’s been, it was really kind of a mixed bag of reasons and types of credits. Of course that’s over 60% of the charge off was really related to that one account.

[Jefferson Harralson:]

Okay. Thanks a lot.

[Operator:]

Your next question comes from Louis Feldman – [Wells Capital Management].

[Louis Feldman:]

Yes. Good morning, gentlemen. Quick question. David, did I hear you correctly that you said that in terms of four of your larger relationships that were not performing, the builders, they were continuing to build and sell houses. Is that correct?

[David Shearrow:]

Yeah. The comment was, on two, we mentioned the four largest non-performing loans and the point I was making was that two, the two largest of those, are both still builders that are in business. They’re building homes, they’re delivering product, they’re keeping liens off of their products and maintaining the products and selling and reducing our loan balances. The issue, the reason they’re on non-performing is because in some cases they’re having to take short sales on some of these houses to move them out. Or in one case, you know, they’ve run longer than they should on past due and we’ve gone ahead and put them on non-accrual. But in both cases these two individuals are doing all they can to keep them alive. I just wanted to make the point that these aren’t dead, they’re still working diligently to reduce our debt. We’ve gotten good reduction.

[Louis Feldman:]

They still have a pulse.

[David Shearrow:]

Oh, yeah.

[Louis Feldman:]

The basis for that was, I was just wondering what the average time on market for houses around Atlanta has been recently.

[David Shearrow:]

I don’t have a really good number to point to on that because that’s going to be driven by the pricing that the seller’s willing to take. I just don’t have a good answer on that. I’m sure it’s fairly long. Typically the resale on a new product, and there’s builders out there that are price sitting on two-year old inventory and there’s others that have cut their prices and are moving product. So I think it’s kind of a little bit across the board, depending on the pricing.

[Louis Feldman:]

And also I assume location.

[David Shearrow:]

Well, sure.

[Louis Feldman:]

All righty. Thank you.

[Operator:]

Your next question is from Barry Cohen – [Nonpartners].

[Barry Cohen:]

Hi. Can you hear me?

[Jimmy Tallent:]

Yes.

[Barry Cohen:]

Oh, good. Thank you, gentlemen. I have a couple of questions, if I could. One is, did you try to give a range, I may have missed it either on an earlier call or this call, did you give a range for your outlook for ’09 for provision and loss rates as well as net interest margin?

[Jimmy Tallent:]

We didn’t give a range, no. We did comment in regards to our improvement in margin based on the actions on our loan pricing and also our deposit costs coming down with the actions that Rex went through kind of piece by piece. We do feel that we will see margin expansion based on where we are today, where the world is, and what we see. We haven’t given ranges on provisioning.

[Barry Cohen:]

Do you anticipate maybe doing so?

[Jimmy Tallent:]

Well, you know, we’re every single day looking at what’s happening. We’re on top of it. If that became necessary certainly we would, but it’s just so hard to give clarity and certainly we don’t want to give direction and be wrong.

[Barry Cohen:]

Okay. Just a couple more quick questions, if I could. Could you maybe go through what your assumption is for your pay down rates in the major loan categories that you put on your P&L?

[Rex Schuette:]

On the pay down range, if you’re asking are we expecting some compression of our loan portfolio or decrease this year, is that what you’re asking?

[Barry Cohen:]

No, no. I just want to kind of understand what the assumption of pay down rate was.

[Jimmy Tallent:]

Well, you know, on residential construction what we’re anticipating is probably somewhere in the $300 million range this year. and hopefully will be more.

[Barry Cohen:]

Okay. And then I was going through your equity account and it just caught my eye. It looked like your AOCI account sequentially went up a fair amount. Could you maybe help me understand why?

[David Shearrow:]

It’s primarily related to both our security portfolio and our derivative portfolio. And at the end of the third quarter, again with the rates and again the velocity of them moving, our security portfolio was basically flat on a mark-to-market basis. And with the drop in rates of 175 basis points in the fourth quarter that significantly impacted our derivative portfolio to move that up. As well as the long rates came back down again adjusted and moved up again our mark-to-market on the security portfolio. But it’s those two items that are driving it.

[Barry Cohen:]

That’s what I figured, but I just wanted to make sure. Okay. Well, thank you very much, gentlemen.

[Operator:]

Your next question comes from Casey [Embric] – Millenium.

[Casey [Embric]:]

Hi, guys. Thanks very much for taking my question. A couple questions for you, Jimmy. The problem loans, do you guys have a number what you think the total problem loans would be? The MPAs right now are 250 million. Do you have a number on the 90-day and the 30-day buckets?

[Rex Schuette:]

Yeah, we don’t have any accruing loans over 90 days, Casey. We are at 233 basis points on 30 to 90 at the end of the year.

[Casey [Embric]:]

Two-hundred-and-thirty-three basis points on 30 to 90?

[Rex Schuette:]

Right.

[Casey [Embric]:]

Okay. I’ll just calculate that. And then the MPA disposition. You’re talking about how you’re stepping back, the buyers are stepping away from the banks trying to sell assets. It’s my understanding that there’s a bunch of, apparently there’s a whole regulatory squad going down to Atlanta and if there were to be some sort of big action over one weekend where they shut down a bunch of banks and the FDIC liquidates 50 or 60 banks, one, are you hearing that and, two, what do you think that would do towards asset values if the FDIC is then a seller of assets?

[Jimmy Tallent:]

Well, Casey, I’ve not heard that at all. Certainly the more inventory that comes on it brings about more challenges. If we go back to third quarter and our actions during that period, we had opportunities to move some loans as well as some inventory on practice that we in our own mind were questioning given the seasonality, given where we were possibly in the cycle, and we were able to go ahead and move those. Certainly with Wachovia now becoming Wells, I think certainly think we’ll probably see more liquidation. The other thing too, I have, I’m only aware of maybe one, possibly two true sales through the FDIC on these closed banks thus far. I’m –

[Casey [Embric]:]

It’s my understanding though they hired a debt [inaudible] and so I just wondered if they’re going to take down a bunch of supply and they’re going to use organizations like that to really kind of distribute these loans.

[Jimmy Tallent:]

Well, it’s my understanding, Casey, that is who they hired. I know they were in charge of the disposition of the first sale and there may have been a second sale. That’s all I’ve heard about to date.

[Casey [Embric]:]

Do you know how that loan pricing came in to where that bank held their loans?

[Jimmy Tallent:]

I heard the $0.40 number.

[Casey [Embric]:]

Oh, my God.

[Jimmy Tallent:]

I heard from the folks that actually made bids that weren’t even in the ball park. I think you’ve got obviously a lot of bottom fishers and most likely these properties may not be what again we call class A. I don’t know what their real definition there may be, but –

[Casey [Embric]:]

But the stuff is clearing at $0.40.

[Jimmy Tallent:]

Yes, but I think that’s across the board. I mean, you can take small pods of lots. I think, from what I have been told they’re not selling one category. They are bundling up commercial, residential, A, and D, and you bid on that whole package.

[Casey [Embric]:]

Do you guys have a sense of who big the buying pool is for assets in the greater metro-Atlanta area?

[Jimmy Tallent:]

I do not.

[Casey [Embric]:]

So just to sum that conversation up then; are you worried that if they take over a bunch of banks and consolidated all these MPAs and start kicking them out at distressed sales, is that a good thing or bad thing for the other banks not taken over?

[Jimmy Tallent:]

Well, I worry about everything. Certainly the more inventory that comes on the market in a short window will have some impact on the prices.

[Casey [Embric]:]

Okay. Okay. And then just one last question and maybe you can just figure out how you want to answer it. Do you think there’s any chance for consolidation in the market? You guys have an enviable franchise and I was just wondering if there could be a larger partner you could maybe link up with.

[Jimmy Tallent:]

Well, Casey, where we are today and where our heads are we’re truly focused on our business. working through this, when you step back and look 12 to 18 months beyond, I can’t help but get excited about the opportunities of this company. Today going out and acquiring a bank, I don’t see how any of that math works. I don’t see how you value assets. Even the closed banks whereby you’re buying a deposit base I have yet to see a quality deposit base. Certainly we would look at that if it was truly a core bank that could deepen our footprint where we already are, not getting outside of this footprint, I think we would certainly want to continue to look and listen.

[Casey [Embric]:]

What about going the other way? What about you linking up with a larger bank?

[Jimmy Tallent:]

Well, you know, we’re always mindful of our responsibilities to the shareholder and we’ll always do what is best for them. Today when you look at the world of banking I think most everybody has got their own internal challenges.

[Casey [Embric]:]

M-hm. And then last question. Do you have any idea where you think tangible books [inaudible] by the end of ’09?

[Jimmy Tallent:]

Well, that’s going to be a function of the credit throughout this year and again, as we continue to work through this cycle, as we said earlier, we will do what is the most economically advantageous for the company. We’ve got our eye on our common equity and we’ll just make the right business decision. I don’t have a number, no.

[Casey [Embric]:]

Okay. Thanks very much. Good luck.

[Operator:]

And with that we’ll conclude the question-and-answer session. Mr. Tallent, I’ll turn the conference back to you.

[Jimmy Tallent:]

Thank you. Let me just first say a huge thank you to our team of United bankers and how they continue to demonstrate every single day of doing all the right things, following our basic golden rule of this company, reaching out and really, as we continue to work through this cycle I could not be more proud of the people that make up this wonderful company. To those of you that are on the line, I want to thank you for your interest in this company. Thank you for your questions. Certainly David, Rex and myself are available if you have other questions. We look forward to talking with you in April and hope you have a great day.

[Operator:]

And with that we’ll conclude today’s conference. Thank you, everyone, for your participation.