United Community Banks, Inc.
Q4 2014 Earnings Call Transcript

Published: 21 Jan 2015

[Operator:]

Good morning, and welcome to United Community Banks' Fourth Quarter Conference Call. Hosting the call today are President and Chief Executive Officer, Jimmy Tallent; Chief Operating Officer, Lynn Harton; Chief Financial Officer, Rex Schuette; and Chief Risk Officer, David Shearrow. United's presentation today includes references to core pretax, pre-credit earnings and other non-GAAP financial information. For each of these non-GAAP financial measures, United has provided reconciliation to GAAP in the Financial Highlights section of the news release and at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of today's earnings release and investor presentation for the fourth quarter were filed this morning on Form 8-K with the SEC, and a replay of this call will be available on the company's Investor Relations page at ucbi.com. Please be aware that, during this call, forward-looking statements may be made by United Community Banks. Any forward-looking statements should be considered in light of risks and uncertainties described on Page 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.

[Jimmy Tallent:]

Good morning and thank you for joining our fourth quarter conference call. We ended 2014 with a solid quarter continuing to show steady progress in executing our business plan to grow revenue with positive operating leverage while improving earnings and performance for our shareholders. I'll talk more about the drivers of our fourth quarter results, but let me begin with some highlights. Net income was $18.2 million or $0.30 per share. Earnings per share were up a solid 36% from a year-ago. Our return on assets increased to 96 basis points, up 1 basis point from the third quarter. Our return on common equity was 9.6%. Total revenue excluding the provision was $73.2 million, up $3.8 million or 5.5% from a year ago. Expenses were up less than 1%. Our fourth quarter efficiency ratio improved to 57.5% from 57.9% in the third quarter. Our margin was 3.31%, down 1 basis point from the third quarter. The third quarter margin was up the 11 basis points from the second quarter. We increased loans by $103 million during the fourth quarter or 9% annualized. Our provision for credit losses was $1.8 million, net charge-offs were $2.5 million and the allowance ratio was 1.53%. Non-performing assets declined to $19.6 million or 26 basis points of assets and all of our capital ratios remained strong. Now I'll share some details and our outlook for 2015. As you can see on page 7 of the investor presentation, core pretax, pre-credit earnings were $30.8 million, up $515,000 from the third quarter and up $2.9 million from a year ago. This growth from the third quarter was due to increases in net interest revenue and fee revenue which were partially offset by higher expenses. I mentioned that our net interest margin declined slightly to 3.31% following the 11 basis point increase in the third quarter. As you will recall, the third quarter increase was mostly due to balance sheet restructuring and hedging actions late in the second quarter. Those actions increased the yield on our investment securities portfolio and decreased the average rate pay on our interest bearing liabilities. The combination of solid loan growth and a stable net interest margin allowed us to increase net interest revenue by $1.4 million in the fourth quarter. Although there is much uncertainty about the timing and extent of future rate increases, our balance sheet is well-positioned from an interest rate risk perspective. We remain asset sensitive with a 200 basis point ramp up in the interest rates over the next year. We expect net interest revenue to improve by 2%. We still hold a large balance of floating rate securities to assist us in managing our interest rate risk exposure to rising rates. At the end of the fourth quarter 31% of our investment portfolio was in floating rate securities. In this rate environment, we expect to maintain our margin of 3.3% around its current level through 2015. Strong fourth quarter loan growth was a big contributor to our linked quarter growth in net interest revenue. We grew loans by $103 million or 9% annualized. Our new loan production was $401 million in the fourth quarter as shown on page 14 of the investor presentation. Production was strong nearly in every category end-market. Over the past four quarters, our C&I and CRE production have continued to ramp up as a result of growth in our specialized lending businesses. The addition of key leaders and talent in this area is showing strong results. Healthcare lending grew by $36 million in the fourth quarter following $60 million in growth in the third quarter. Our SBA lending continued to grow with fourth quarter commitment closings of $25 million and $15 million funding. I’m going to take a couple of minutes now to expand on our outlook for SBA. 2014 was a year of building our SBA business. We acquired BCI in June and added both sales teams and staff to support the infrastructure to position ourselves for future growth as we entered 2015. We accomplished this within our legacy footprint and nationwide specialty group. In the fourth quarter, we sold SBA loans for a net gain of $926,000. This gain was included in other fee revenue and was about equal to the $945,000 of net gains in the third quarter. Gains on sales loans have fluctuated somewhat based on the loan mix we are selling and market premiums. Sales of the guaranteed portion of our SBA loans are an integral part of our strategy, while at the same time retaining a portion of production each quarter. In doing so, for the first quarter of 2015, we should have net gains of $1.2 million to $1.4 million in fee revenue while growing the loan portfolio, and we expect to grow fee revenue progressively each quarter by 20% to 30% during 2015. The pipeline of SBA lending opportunities remains very strong going into 2015. We are very excited about the investments that we made in this business during 2014 and the outlook for growth and profitability. Turning back to loan growth by categories, in the fourth quarter, we generated $224 million in commercial loan production and increased outstanding balances by $79 million. In the consumer loan portfolio, we generated $33 million in new residential mortgage loans and $37 million in home equity lines. We also added $52 in new loans to our indirect auto loan portfolio. The solid production in these retail lending areas resulted in a $32 million increase in balances. Our strong fourth quarter loan production continue to reflect investments we have made over the past year and a half including new business lines and talented people to drive them. You will find the trends on core fee revenue on Page 7 of our investor presentation. Fourth quarter core fee revenue was $14.6 million, up $134,000 from the third quarter. Mortgage fees were up $398,000 from a year ago but down $67,000 from the third quarter reflecting the seasonality of the market. We closed $77 million in mortgage loans in the fourth quarter, down from $84 million in the third quarter but up from $55 million a year ago. The addition of experienced mortgage lenders with strong past to their comminutes is helping drive our mortgage business. The increase in both production volume and revenue from a year ago reflects the success we are having in this area. Core fee revenue was up 10% in the fourth quarter from a year ago, mostly due to success in our mortgage and our SBA businesses. We expect our strategic investments in these areas to drive continued momentum going forward. Core operating expenses are on Page 8 of the investor presentation. Core operating expenses were up $984,000 from the third quarter including a $493,000 increase in salaries and benefits primarily for revenue producing talent to drive our new initiatives. Much of the remainder of the increase in other expenses reflects higher lending related cost due to the increase in lending activity. We had a couple of non-core items during the fourth quarter that we excluded from core earnings. Those items were offsetting and are presented on Page 10 of the investor presentation. As expected, our effective tax rate for the fourth quarter was 37%, same as the first and second quarters. The third quarter rate was lower due to the release of a previously established reserve related to a tax return that is no longer subject to audit. Now I want to make a couple of closing remarks and then we'll open it up for questions. In 2013, we significantly resolved problem asset, allowing us to focus on growing the business in 2014. And in 2014 that’s exactly what we did; it was a year of strategic investments and profitable growth while controlling operating cost at the same time and delivering customer service that’s among the very best in the country. I'm very excited about 2015 as these investments hit their stride and pay even better returns. In the coming year, we expect loan growth to continue in the mid to upper single digit range, a diversified portfolio without any major concentration. We believe our margin will be stable around the 3.3% level. We also expect the combination of loan growth and stable margin to lift net interest revenue even with continued loan pricing pressures. We see continued growth in fee revenue, a good portion of it coming from our expanding SBA lending business and in other sources including mortgage and advisory services. We anticipate positive operating leverage with some expense increase but higher revenue growth. We're optimistic about opportunities to invest in revenue generators while remaining focused on controlling cost and improving efficiency. A good example, which I am pleased to announce, is the addition of Tasia Katopodis to the United team. Tasia, a well-known Atlanta banker will be opening a new region and loan production in the mid-town area. Initially, she will be focused on building a commercial lending team in that area. Strategically, we believe Atlanta holds great opportunities to further build United’s brand of customer-focused advice and service. Tasia will be a strong compliment to our existing Atlanta team of great bankers. Our strategies are working and that is a tribute to the exceptional bankers with whom I’m so very fortunate to be associated with throughout this organization. One of those bankers one many of you know will be retiring at the end of this month. I want to thank David Shearrow for his service to United and express to him just how much he will be missed. David joined United in April, 2007 just prior to the financial crisis and was instrumental in helping us manage through one of the most challenging times in modern banking history. We could not have found a more capable and well-respected person to fill that key role. I’m so truly thankful that he chose to join United not just for his leadership and wisdom but also his friendship. David, I have tremendous respect for you both professionally and personally and I know you will have a tremendous impact in the industry just as you have had at United. Thank you for your outstanding service. A quick update on our new Chief Credit Officer. We have been searching for the successor very diligently and I’m please that we have found him while David is still here. The person is finishing up a two-week transition at his current bank and we plan to make our announcement next week. Now Lynn, Rex, David and I will be pleased to answer any questions.

[Operator:]

[Operator Instructions]. Our first question comes from the line of Michael Rose from Raymond James.

[Michael Rose-Raymond James:]

One area that I think you didn’t touch on in the prepared remarks was the capital level. I know you kind of talked about a share buyback in the past but balancing what seems to be a little bit more thought process around potential M&A, how should we think about a potential buyback? Obviously, you guys have a lot of capital and increase in your or improving your -- in your currency would certainly help as you look a target. So how should we kind of think about capital repatriation for the next couple of quarters? Thanks.

[Jimmy Tallent:]

Michael, let me address that, and then, Rex, if you would like to add some additional color. Overall, on our capital management, there is a number of components, Michael, that we look at on a regular basis; obviously, first to support our organic growth. Secondly, would be M&A opportunities that we look out over the horizon. The cash dividend to our shareholders we think is important. We increased that from $0.03 to $0.05 per share this past quarter which gets us back to that 20% of earnings range that we’ve stated in the past we thought would be appropriate. In regards to stock buyback, certainly at an appropriate time consideration there would be reasonable, but I really don’t see that in the near term. What we will be focusing on during 2015 is to reduce our cost particularly of our troughs during the year; and that would take the form of either paying down or paying off certainly the more expensive troughs that we have on our balance sheet.

[Rex Schuette:]

Yes, Jimmy, I think you covered the key points. As Jimmy indicated, we’ve looked at buybacks in the past; we’ve done buybacks previously, but again as Jimmy indicated, it’s an avenue we have to balance and get our return back to shareholders. And as we continue to look at acquisitions as well as loan growth we’ll keep that in mind this year.

[Michael Rose-Raymond James:]

Okay, that’s helpful. And then just as my follow-up because you answered my second question which is around the troughs, as a follow-up, wanted to get a sense for the magnitude of expense growth you might expect from the planned additions? And then should we think about the growth from the core operating expense base or the reported number? Thanks.

[Rex Schuette:]

Sure, Michael. Actually for the quarter, as we tried to highlight in there in Jimmy’s prepared remarks, the core operating expense is fairly close to the reported expense number for the quarter. When you look at the category in particular on staffing, I think that’s where your point is directed how we should look at that; we’re up about $400,000 on a linked quarter related to staff, adding in staff for the year. Additionally that was up about 4 to 500,000 over the previous quarter. So it relates to the focus and revenue producers. As Jimmy noted, we’re up about 27 people year-over-year. We’ve had some reductions in the year over numbers but of that we’re up 34 what I would say in our specialized lending South Carolina area and a good portion of that is related to specialized lending. So I would say that we have most of the areas covered right now with respect to incremental but, as Jimmy noted, we do look for opportunities again just as we announced Tasia are joining us recently and building her team. I think our key focus, Michael, overall is again to keep our expense growth within our revenue growth they have positive operating leverage. Our efficiency ratio is 57.5% for the quarter, and again when you look at a linked quarter basis just under the reported number excluding the provision we have 2.5% revenue growth and 1.2% expense growth. So again I think our focus is key positive leverage as we continue and to keep that in line with our expense.

[Michael Rose-Raymond James:]

Okay. That’s all from me. And maybe one quick follow-up if I can so it relates to our margin outlook what is that assume in terms the yield curve and maybe the 10-year as it relates that 3.30% number? Thanks.

[Rex Schuette:]

Yes. I think for the margin again when you look at it, as Jimmy talked about, we picked up with the activity and balance sheet restructuring in the second quarter; we’re down slightly one basis point on a linked quarter. The key part of that again is around loan pricing; it did impact us in the quarter. As you might note, our loan deal is down 8 basis points on a linked quarter. Our security portfolio still benefitting from some of the activities, up 2 basis points. We continue in our repricing to get our lower deposit cost; they were done about 3 basis points on borrowing cost. And a worthier note even though year-end numbers were slightly down on core transaction but our average demand deposit is up $90 million on an average basis on a linked quarter. So we’re still benefitting again on generating deposits. We do look to continue in the 3.30% range Michael for next year and again that in the context of loan pricing and the growth that we have built into the plan.

[Operator:]

Thank you. Our next question comes from the line of Brad Milsaps from Sandler O'Neill.

[Brad Milsaps-Sandler O’Neill:]

Rex, just a follow-up on the margin and the balance sheet. You guys I think reduced the securities portfolio about 5% this year and increased the loan deposit ratio, loan book grew fast than the overall balance sheet. Would that be your anticipation for ’15? And I guess with that dynamic you might think you might get some expansion but may it's because you are seeing some pressure in other places that that would mitigate those factors, just kind of curious of thoughts on mix and kind of how that affects your margin guidance?

[Rex Schuette:]

I think on the mix we did bring down, as part of the restructuring in the second quarter, the security portfolio by $100 million. Right now, we're probably planning on retaining that even though, again we still have a lot of excess liquidity but again we have a lot of loan growth coming onto in the second, third -- in the third and fourth quarter of this past year and anticipating that continuing into 2015. So we'll reassess that as we continue through the year. Obviously, it's an avenue of liquidity of letting the security portfolio come down to fund the loan growth. Again, we would have what you would probably call a higher percent of securities to the total assets, and as we continue to grow the company that will self balance longer term and begin to look for opportunities to improve the returns within the security portfolios when we have that opportunity. So it still continues in the mix and then looking at adding on the loan growth as we look at 2015.

[Brad Milsaps-Sandler O’Neill:]

Okay. And just wanted to get a little clarity on, Jim, your comments regarding, the SBA piece. Did you say that you expected that to grow, I think it was 20% to 30% sort of quarterly as you move through '15? I was driving quickly, so I may have misheard that but just wanted to confirm?

[Jimmy Tallent:]

Yes, the guidance there was what we believed, Q1 will produce would be $1.2 million to $1.4 million for the quarter, following each quarter thereafter 20% to 30% growth in that line throughout 2015.

[Brad Milsaps-Sandler O’Neill:]

And you feel like you pretty much have a lot of the expenses and the run rate, so that would create a lot of positive operating leverage there?

[Jimmy Tallent:]

That’s correct.

[Brad Milsaps-Sandler O’Neill:]

Okay, great. Thank you.

[Jimmy Tallent:]

There, Brad, let me just add on to that. As we have built out the SBA and certainly with BCI coming on and with Rich Bradshaw’s leadership, that has presented a numbers of opportunities to add to our verticals maybe even faster than what we had anticipated. So we feel very, very good about where we are with our SBA today.

[Brad Milsaps-Sandler O’Neill:]

That’s great, very helpful. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Jennifer Demba from SunTrust Robinson Humphrey.

[Jennifer Demba-SunTrust Robinson Humphrey:]

Good morning. Brad actually just covered my question with the SBA gain guidance. Just, Jimmy, one more question. Can you just talk about what you guys are seeing from an economic standpoint, whether you're seeing strength versus relative weakness across the footprint?

[Jimmy Tallent:]

Yes, from the overall foot print, we continue to see strength in the metro areas. We're beginning to see significant strength I believe, building in the Atlanta MSA. Certainly, we see opportunities in the Knoxville; Greenville has presented a numbers of those opportunities. So I think, economically I would say personally I'm the most optimistic today than I have been in a long, long time about just the general economy. It's still a grind; we're seeing opportunities now in particular people relocating in some of the legacy markets retirees and so forth. So, from an overall business climate, I wouldn’t say it's great but it is much improved versus what we've seen over the last two or three years.

[Jennifer Demba-SunTrust Robinson Humphrey:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Kevin Fitzsimmons from Hovde Group.

[Kevin Fitzsimmons-Hovde Group:]

Hi, it's Kevin Fitzsimmons, Hovde Group. Guys just a quick question on loan growth. I noticed that in the period loan growth came in weaker than average loan growth and it seems like some other banks we tend to see the opposite just because of the -- you tend to have more of an incentive to close things before year end, and just wondering if there is anything, any observations you would make on that? And secondly, on the subject of loan growth, your outlook is for mid to upper single digit, and I'm just really wondering why it wouldn’t even be a little stronger than that given your outlook on the market that you're talking about, and it seems like a generally more positive outlook and its less headwind from running off loan. So I would think -- I'm trying to gauge whether you're being conservative or that’s really the outlook at this point? Thanks.

[Lynn Harton:]

Sure, Kevin, this is Lynn. We did have several large pay-offs that hit in particularly in Atlanta and Savannah right at quarter-end that impacted those quarter-end numbers versus the average that we have known about for some time, in fact we had budget occur earlier in the year but they came in right at year-end. So we don’t think -- again there was no surprises there. And we would certainly be happy to see loan growth come above our guidance but we want to make sure we can deliver kind of what we say so.

[Jimmy Tallent:]

Well, deliver.

[Lynn Harton:]

That would be a good thing.

[Rex Schuette:]

And Kevin, just another point on the average, you might recall from our last call, September was a very strong month. So we had very significant pickup actually in the month of September which move that average balance up higher than what you normally would see for the fourth quarter. So we had a lot of growth late in third quarter which again didn’t -- wasn’t reflected in average just for third quarter.

[Kevin Fitzsimmons-Hovde Group:]

That’s a good point. Thanks, Rex. Just a quick follow-up on -- when we’re talking about specific markets, Greenville seems to be a market that you all are very positive on, and you've talked quite a bit about it in terms of getting more active there. But I noticed in one of the slides or the back of the slide that you guys are still a relatively small player there. I think you rank numbers 25 in the market. So if you can just, what's your -- what are your intentions for that market? Do you want -- do you intend to be a top five player and how do you think you'll get there and over what kind of timeframe? Thanks.

[Jimmy Tallent:]

Sure, Kevin. And remember when we say Greenville we've got several businesses house there. So you've got the local bank in Greenville that was up $9 million. We've got the middle market group that really focuses regionally was up $21 million. Our income property group that focuses regionally is based there and they were up $10 million; ABL Group was up, that’s actually in Nashville but it is led out of Greenville was at $5 million -- I mean ABL was at $5 million and then Nashville was up $36 million. So when we say Greenville we probably ought to be more specific in that -- that encompasses a lot of those businesses beyond just the Greenville market. So with that said, we are getting ready to open our first branch in Greenville, it should be up in the middle of February. We do intend to build that market out. We would certainly be very open to acquisitions in that market as well. And longer term, we strive to be in the top five in every market. I mean it's going to take, it take a long stride to get there organically, but it’s a very good market, it's going to be a very profitable market for us and continue to be excited about it.

[Kevin Fitzsimmons-Hovde Group:]

Okay, great. Thanks guys.

[Operator:]

Thank you. Our next question comes from the line of Nancy Bush from NAB Research, LLC.

[Nancy Bush-NAB Research:]

Two questions for you. Could you just give us a little bit more color on the SBA build-out in 2015, the market, the staffing, where you're finding people, because that is sort of specialized lending and it's better to get them already knowledgeable, and what kind of competitive environment there is out there in SBA?

[Jimmy Tallent:]

Lynn?

[Lynn Harton:]

Sure, Nancy. If you just look at the ramp up that we'd experienced, so over the last three quarters, our closings were $4 million, $12 million and then $25 million. We additionally, actually in this past quarter we had another $7 million in tag on conventional deals. So it's actually a more relationship business than maybe we expected so in addition to the $25 million. Our fundings have been a little less, particularly this last quarter because actually for I think a good reason more of a deals that we're doing are construction deals and so they have to fund up before we sell them, particularly in our first two specialties which was debt and franchise. Those two are fully staffed, they are off to a great start; they just went to -- we just went to a large debt conference and came back with a great pipeline. And we picked those teams all from existing SBA specialty lenders. So they all have long experience both in SBA and in their markets or their specialty. We just started late in the fourth quarter a dental specialty in the SBA world again with somebody that’s been in that business for many, many years, off to a great start there. So that will be one that’s coming on and we'll be adding to and additionally we're recruiting for a couple of other verticals and business service type areas like the vet and dental. And again, they're all people that have been in the SBA business a long time, all been in their specialty a long time and that’s really what's driving the growth. It is competitive but it's really a small community if you will. We feel like we've got a great team that people want to work with, a great organization to bring them into and we've been very successful with our recruiting efforts for those two reasons.

[Nancy Bush-NAB Research:]

Second question is this, in sort of driving through North Georgia, it looks like some developers are trying to breathe life into some of these projects north of Atlanta that have got abandoned after the meltdown. Are you seeing that and are you guys willing to play in any of these sort of pipe farm revivals I guess you'd call them?

[Jimmy Tallent:]

Lynn?

[Lynn Harton:]

David?

[David Shearrow:]

Yeah, this is David. Let me answer that, Nancy. What we've done, as far as on the revival of residential construction, if you will, our focus really has been in more metro markets specifically, Atlanta. We’re doing some things now in the Charlotte area. And to the degree most of what we’re doing really is in vertical construction with people that we know, survivors who came through the tough times and have been able to continue on. To the degree we’ve gotten involved in any kind of ABC type of lending it has been very niche oriented with heavy equity down and really, at this point in time, it’s probably two or three that we’ve looked at and done anything with. So while we do some for our very best customers in the right market at the right time I think it’s a very limited appetite on our part, going forward. So I think I guess back to the premise of your question I don’t think you will see us being very active in some of the revival of some of these pipe farms, if you will, and particularly in the North Georgia markets.

[Operator:]

Thank you. And our next question comes from the line of Christopher Marinac from FIG Partners.

[Christopher Marinac-FIG Partners:]

Thanks. Good morning, Jimmy and team, I was curious if you could give us a color on how customer attitudes are particularly of our commercial borrowers? And Jimmy, the positive remarks you made earlier in the call would you sort of dovetail those into how the commercial demand is shaping up I guess talking about the pipeline as this year develops?

[Jimmy Tallent:]

Sure. Lynn, do you want address on that?

[Lynn Harton:]

Yes. So what we hear is exactly what Jimmy said. They feel certainly better than they have in the last couple of years; there is still a little bit of a grind, but it is marginally better. So again, we expect the same kind of gradual improvement that we have seen. Our pipelines look very good but they’re not blooming, if you will. So its exactly, as Jimmy said, it’s an improving environment; its still not a high growth market but its certainly better than it has been and we feel very good about how we’re positioned really.

[Christopher Marinac-FIG Partners:]

Okay, great. And then, Lynn, just real quick on the SBA front. With interest rates having dipped down here recently, has that influenced the premiums higher since you were able to sell in the secondary market?

[Lynn Harton:]

The premiums have been fairly consistent; they do bump around a little bit. This quarter we sold a little more in fixed rate; the fixed rates have lower premiums on them than the variable rates, but it hasn’t -- the interest rate environment to this point had a major impact on premiums.

[Christopher Marinac-FIG Partners:]

Okay, great. And last question for Jimmy I guess just an update on sort of conversations with other banks, just your general thoughts about any M&A potential for the next year?

[Jimmy Tallent:]

Sure, Chris. There’s been lots of discussions with other banks over the last several quarters; that continues as of today. Nothing really has changed in our view of that I’ve already shared other than the fact that our bias continues to be toward our metro markets; the North Atlanta, Knoxville, Greeneville, coastal, those type of areas we believe will provide greater opportunity today. And certainly once a transaction would be announced the criteria is still EPS accretive is what we would be looking for, tangible book earn back would be reasonable all years or last, we certainly would want it to be what we would define as low risk on integration, and the other very important component is that we have a strong degree of confidence in growing the market that we would be expanding into. So the M&A is certainly discussions continue. I do believe that that has a high probability of occurring in 2015.

[Operator:]

Thank you. Our next question comes from the line of Jefferson Harralson from KBW.

[Jefferson Harralson-KBW:]

Most of mine have been answered but has been answered, but let me walk through the specialty businesses real quick and if you can just walk through the specialty businesses, if you can, give the loan book there and their types of expectations for next year for those businesses?

[Rex Schuette:]

So in terms of the different books we’re at about $160 million in the healthcare business; we expect to see continuing strong growth there. We’re at about $104 million in the commercial real estate income property business; we expect to see strong growth there. ABL is just getting started; its at $12 million, so we expect to see pretty good growth coming out of the there. And in the corporate banking it’s about $50 million, and that will probably not grow as quickly as the others unless we are able to pick up some additional lenders, but again very balanced, very focused. We expect to see the same kind of overall growth in aggregate with those businesses that we saw in 2015 than we saw in 2014.

[Jefferson Harralson:]

Great. And then how much SBA is on the book right now?

[Rex Schuette:]

We’re sitting right about $60 million, $60million, $65 million in SBA.

[Jefferson Harralson:]

And what percentage of that is guaranteed?

[Rex Schuette:]

I don’t have that right in front of me, right now but it would -- I'd have to follow back up with you on that number.

[Jefferson Harralson:]

Yes, that reflects some sold loans in that portfolio that would have no guarantee but overall I think where most of it is 25% guarantee but there is a balance and we can get back to you on that.

[Operator:]

Thank you. And our next question comes from the line of Matt Olney from Stephens.

[Matt Olney-Stephens:]

I hopped on the call a few minutes late; you may have covered this, but want to just go back on the margin outlook. It looks like the compression of loan yields kind of slowed in mid 2014, but reaccelerated in the fourth quarter. Any color on the compression on loan yields in the fourth quarter?

[Rex Schuette:]

Sure, Matt. The fourth quarter probably I would say is impacted by I talked -- I mentioned earlier but we have very strong growth late in the third quarter and a good portion of that growth was in the healthcare and some of the other specialized lending areas that had a slightly thinner spread on them. So that had probably the biggest impact I think when you look at the linked quarter and it coming down. We can -- and again it’s not eight basis points on a linked quarter. But as I commented earlier unless if you were on the call, but the good portion of that was offset in the quarter with our security portfolio yield coming up 2 basis points, continuing to get our borrowing cost down about 3 basis points and again on a linked quarter basis our non-interest bearing deposits were up $90 million on average which really helped to support the loan growth in the quarter.

[Matt Olney-Stephens:]

And do you have with that new and renewed yields in the fourth quarter?

[Rex Schuette:]

It is just north of 4% for the quarter.

[Matt Olney-Stephens:]

So no change, is that right?

[Rex Schuette:]

Yes pretty, it's fairly consistent overall.

[Matt Olney-Stephens:]

Okay. And then I believe Jimmy touched on potential for looking at some, paying down some of the higher cost troughs that are out there. Are you assuming any of that within that margin outlook that you provided?

[Rex Schuette:]

That would be in our outlook, yes, for '15.

[Matt Olney-Stephens:]

Okay. So that with the 3.30% margin seems partial pay down for us?

[Rex Schuette:]

Right.

[Matt Olney-Stephens:]

And how, what is the outstanding balance of the troughs and what portion of that would you consider eligibly a pay down?

[Rex Schuette:]

Yes, I think Matt, on the front end we probably would look at the -- again this is still very good tier-1 capital; when you look at tier-1 capital we have very strong capital, as Jimmy talked about earlier building up capital with our DTA benefits that we have coming in every quarter. But again I think we would look at the top two highest in their first which is about$ 15 million in total and those two average probably about 10.4%, once at 11% once at little 10% and 11% and change. So we'd look at those two first that’s about $15 million and that’s pretty much what we have built in but we will look at it further in '15, there is couple of more tiers in the upper single digit.

[Matt Olney-Stephens:]

And what's the cash at the holdco look like right now that will [indiscernible] this to happen?

[Rex Schuette:]

Sure, the cash at the holding company is roughly about $31.5 million. We have the capability of dividing up from bank to the holding company there is another $37.5 million we had look at dividing up in the first quarter. Our plan has been to maximize the liquidity of the parent company, we can always put capital back down to bank but our plan would be to maximize liquidity at the parent company both for repayment of TruPS, some of the debt servicing as well as for any acquisition activity we could have.

[Operator:]

Thank you. And we have a follow up from the line of Jennifer Demba from SunTrust.

[Jennifer Demba-SunTrust:]

Thanks. Question on expenses, Rex, professional fees came down a lot this year. Do you think they have the potential to come down further in ‘15 or is this a fairly decent run rate for this going forward?

[Rex Schuette:]

Yes, sure. If you add back in the $1.2 million on our core number there we would add back for the release of a litigation reserve it's about $2 million. We would see that in that range in the first two quarters and would look to see that coming down as we finish on some of the special projects and things we're doing but we would look for that’s come down slightly later in the year.

[Operator:]

Thank you. And we also have a question from the line of Bruce Roberts from FinTrust Advisors.

[Bruce Roberts-FinTrust Advisors:]

I have a question about the indirect auto lending business; I wondered what the book looks like at the end of the fourth quarter. And then if you look over the last several quarters since beginning of 2013 it accelerated throughout 2013 and the growth kind of it was there in 2014 but at a lesser pace. So I was just wondering what your thoughts are and appetite-wise for that particular market? Thank you.

[Jimmy Tallent:]

Yes, thank you, I know we’re in [indiscernible]. We continue to look at some growth in the indirect portfolio through '15. I think you could look at same in growth somewhere between $30 million to $40 million a quarter in growth as we go through '15 provided that the yields remain adequate. There is -- we have a good approach to what we're doing on the indirect side, the underwriting guidelines that we're using are very conservative relative to what is being done in much of the industry. So we feel comfortable from a credit perspective that we've got the right process and right metrics in place in underwriting this. And our performance to-date has been very good from a loss perspective. So I think we'll continue to see some growth there as we go through the next year although as a percentage on the portfolio you're right, because the portfolio has gotten a little larger percentage growth will probably begin to drop as we go through '15. One last point, this portfolio it turns over very quickly the amortization on auto paper is very quick and so we expect that to continue to be a factor in the growth as well. So hopefully that helps answer the question.

[Operator:]

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to Jimmy Tallent for any closing comments.

[Jimmy Tallent:]

Thank you, operator and thank all of you for being on the call this morning. Thank you for your interest in United Community Bank. Certainly if there is additional follow-up questions don’t hesitate to call any of us. 2014 was a real transitional year for United Community Banks and so we are proud of all of our folks and their dedication and commitment of continuing to move our company forward day after day. So thank all of you that’s out there listening. And with that, thank you once again and hope all of you have a great day.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.