United Community Banks Q1 2009 Earnings Call Transcript

| About: United Community (UCBI)

United Community Banks, Inc. (NASDAQ:UCBI)

Q1 2009 Earnings Call

April 23, 2009 11:00 AM ET


Jimmy Tallent - President and Chief Executive Officer

David Shearrow - Executive Vice President and Chief Risk Officer

Rex Schuette - Executive Vice President and Chief Financial Officer


Kevin Fitzsimmons - Sandler O'Neill

Christopher Marinac - FIG Partners

Michael Rose - Raymond James

Jefferson Harralson - Keefe, Bruyette & Woods, Inc.

Operator: Good morning and welcome to United Community Banks' First Quarter Conference Call. Hosting the call today are President and Chief Executive Officer, Jimmy Tallent; Chief Financial Officer, Rex Schuette; and Chief Risk Officer, David Shearrow.

United's presentation today includes references to operating earnings and other non-GAAP financial information. United has provided a reconciliation of these measures to GAAP in the financial highlight section of the news release included on their website at www.ucbi.com. A copy of today's earnings release was filed on Form 8-K with the SEC and a replay of this call will be available on the company's Investor Relations page at www.ucbi.com.

Please be aware that during this call forward-looking statements may be made about United Community Banks, and these forward-looking statements should be considered in light of risks and uncertainties described on page four of the company's Form 10-K and other information provided by the company in its filings with SEC and included on its website.

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

Jimmy Tallent

Good Morning everyone and thanks for joining us on our call this morning.

Let me begin by discussing the key events and results for the first quarter of 2009. As you know, the economy continued to be challenging during the quarter. Let me get right to the heart of things and summarize the key events.

We provided $65 million for loan losses. We had net charge-offs of $43 million. We strengthened our loan loss reserve by $22 million, bringing it to 2.56% of loans. We saw non-performing assets increase to $334 million, up from $250 million in the prior quarter.

Our net operating loss for the quarter was $32 million or a loss of $0.71 per share. Also after thorough review, we reduced staff levels across the company by 10%. About three-fourth of the reductions were effective at the end of the quarter with the remainder expected by year end. As a result of this reduction, we incurred severance costs of $2.9 million or $0.04 per share. We expect annul savings of approximately $10 million by the end of the year.

At the end of 2008, we completed our annual goodwill impairment test, and the result showed no impairment. However, we felt an update was appropriate in the first quarter in light of the steep decline of our stock price.

This new test resulted in a non-cash goodwill impairment charge of $70 million or $1.45 per share. With the addition of the goodwill impairment charge and the severance cost, both of them non-recurring items, our net loss for the quarter was $2.20 per share.

Our margin increased 38 basis points this quarter to 3.08%, due to improved loan and deposit pricing. Our bankers have done an outstanding job on these two fronts and played a key role in our significant progress during the quarter.

Finally, our tangible common equity to asset ratio at the end of the quarter was 6.1%, and our regulatory capital ratios remain significantly above the well capitalized level. Total loans were $5.6 billion at the end of the first quarter, down $72 million from the fourth quarter. Of that, residential construction is down $49 million and residential mortgage is down $22 million.

At quarter-end, total deposits were $6.6 billion, down $387 million from last quarter. Of that, $250 million was a single municipal cap that we plan to let run off. Additionally, we let $180 million of half-priced CDs and broker deposits run off this quarter, which was a planned part of our effort to lower deposit cost.

We are also pleased with the progress of several initiatives to grow our core customer deposits. Checking, NOW, savings and money market accounts, which increased $63 million in the first quarter.

Now, I would like to turn the call over to David, who will discuss credit and then Rex will share details about our financials. David?

David Shearrow

Thank you, Jimmy and good morning.

The recession continue to negatively impact our credit quality in the first quarter. While the Atlanta residential construction portfolio was again the hardest hit, we also saw a migration of credit issues into other areas of our portfolio.

To-date, most of this migration is centered in residential construction, due to the housing slowdown's more recent impact on our other markets. However, we are seeing some continued softening in other loan types as well.

As a result, in the first quarter, we provided $65 million for loan losses and charged off $43 million in loans. As Jimmy noted, we saw a rise in non-performing assets to $334 million compared to $250 million last quarter. This increase was driven largely by continued deterioration in housing markets and softened demand from buyers.

Non-performing assets included $259 million in non-performing loans and $75 million in OREO. We did not have any loans accruing over 90 days past due. The ratio of non-performing assets to total assets was 411 basis points. That compares to 294 of last quarter and 107 a year ago.

The market to sell foreclose properties to investors remain soft in the first quarter, as bids reflected investor pessimism on the projected timing for a recovery. As a result, we chose to sell OREO until the market demonstrates more stability.

We sold 22.4 million in OREO in the first quarter versus 24 million in the fourth quarter of 2008. The good news is, we continue to have steady activity on the sale of completed houses to end users at acceptable pricing.

Net charge-offs were $43 million for the quarter compared to $74 million on a linked quarter basis. We have continued to aggressively recognize losses, in fact at quarter-end, our 75 million of OREO had been written down to 66% of its own balance. Furthermore, 93 million of our 259 million in NPLs had already been charged down to 60% of their balance at quarter end.

I've referenced the migration and credit quality issues we saw in the quarter, now let me provide some detail.

Until recently the majority of our credit challenges have been in the Atlanta portion of our residential construction portfolio. We're seeing some weakness in other areas, so I'll provide a more comprehensive breakdown of our own portfolio, looking at loan type and geography. In particular, I'll touch on what we see evolving in our commercial and residential mortgage portfolios.

Let me start with commercial loans. Our commercial portfolio totaled $2.5 billion at the end of the first quarter. That is an increase of $6 million from the fourth quarter and a $32 million from a year ago. We completed an extensive first quarter review of our commercial loan portfolio, with particular attention to commercial real estate and construction. We were encouraged by the findings for this review, and the stability of our portfolio at this point in the cycle.

Let me quickly note that during the review, we determined that 79 million in commercial construction loans were completed and therefore transferred to commercial real estate categories. So while our total commercial portfolio did not change significantly in the quarter, there was a notable swing in totals from commercial construction to commercial secured by real estate.

Within our total commercial portfolio, we had 43 million of NPAs and 1.8 million or 28 basis points in net charge-offs in the first quarter. We are paying particular attention to commercial because the recession's impact on this sector is yet to fully play out.

Moving to our residential mortgage portfolio, we ended the quarter at 1.5 billion, a decrease of 22 million from last quarter and an increase of 13 million from a year ago. In this portfolio, we have $43 million of non-performing assets and 3 million or 80 basis points in net charge-offs

Home equity, which is included within our residential mortgage portfolio totaled $383 million at the end of the first quarter. This portfolio continued to perform well at $911,000 or 95 basis points in net charge-offs. Home equity line usage increased by 1% to 62% of the total line capacity in the first quarter compared to the fourth quarter.

Given the economic environment, residential mortgages continue to hold up well, with charge-offs down from the last quarter. However, we are aware that the recession and rising unemployment could cause greater problems for mortgage loans as the year progresses.

Our residential construction portfolio of 1.4 billion is down 49 million from the fourth quarter and down 361 million from year ago. Looking at credit quality, our residential construction portfolio had $246 million of NPAs and 38 million in net charge-offs in the first quarter. Although NPAs were up from last quarter, net charge-offs were down.

The Atlanta MSA represents 495 million of this loan category. It breaks down into 197 million in houses under construction and 298 million in dirt loans. The $197 million in houses under construction represented a $32 million decrease from the fourth quarter and consisted of 33 million in pre-sold and 164 million in spec.

The 298 million in dirt loans was down 11 million from last quarter, and included a 148 million in acquisition and development loans, 98 million in finished lots and 52 million in land loans.

Looking at the portfolio as a whole, we saw a rise in our watch and classified loans in the first quarter. On the other hand, past dues were down to 167 basis points from 233 basis points last quarter.

Also this quarter, we increased our allowance for loan losses by 22 million to 144 million. This increased the ratio of allowance to loans from 2.14% last quarter to 2.56%. Our allowance coverage to non-performing loans was 56%, down from 64% last quarter. However, excluding the impaired loans with no allocated reserve, our allowance coverage to non-performing loans was 117% compared to 125% last quarter.

Now looking ahead, in terms of credit outlook, we expect to see the challenges continue with NPAs and charge-offs elevated over historical levels, as we work through our problem credits. Given the pricing environment, we'll also continue our plan to selectively hold NPAs that we believe are most likely to return to a more normalized value within a reasonable time period.

Because of this strategy and the market challenges and the legal delays that come from bankruptcy, we'll continue to see upward pressure on the level of our NPAs for much, if not all of 2009. While no one can accurately predict how long the current economic conditions will prevail, it's likely that a prolonged recession and rising unemployment will bring more problems. In particular, the longer term effects of rising unemployment remain uncertain. Nevertheless, we'll continue to recognize our losses and focus on moving problem asset off our books quickly and prudently.

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

Rex Schuette

Thank you, David.

As Jimmy stated earlier, it was a challenging quarter. We had a net loss of $103.8 million or $2.20 per share for the first quarter. This reported loss included non-recurring expenses for a goodwill impairment charge and severance costs. Excluding these non-recurring costs, we had a net operating loss of $32 million or $0.71 per share.

In our supporting schedules to the earnings release, we have shown separately operating expenses excluding goodwill and severance costs and have provided separate disclosure for our net operating loss, which we believe are better indicators of our performance trends.

This morning, I will comment on several key items impacting our net operating loss and on actions we have taken to improve core earnings. One of our key 2009 initiatives has been to get our margin back on track and heading in the right direction. We have made significant progress this quarter with a 38 basis point improvement. There were three primary drivers behind this strong expansion.

First, implementing better loan pricings. We have increased our credit spreads and established much higher floors on our prime-based loans. In fact, since December, our average new and renewed loan pricing has been around 6%. Each month, we have approximately 230 million in new and renewed loans that we re-price. So as we continue with this improved pricing, it will have a positive effect on our margin throughout 2009.

Second, lowering deposit rates. The pricing and competitive environment started to change late in the fourth quarter, allowing us to begin reducing rates. Already we have lowered rates on new and renewed CDs five times in the past 120 days, bringing down the pricing on these CDs by 170 basis points since October. We also have let some higher price CDs run off and replaced them with wholesale funding.

We have also lowered rates on our money market accounts by 102 basis points from last quarter as well as other core interest bearing accounts. We will continue to push rates down while maintaining an appropriate balance between customer retention and margin improvement.

And third, letting more expensive broker deposits run off. As we discussed in our January call, we build up liquidity in the third and fourth quarters by adding broker deposits. Liquidity has stabilized and we have $2.5 billion in excess funding capacity at quarter end. So, we are intentionally letting some of these higher priced broker deposits run off.

All these actions had a positive impact on our margin. We executed the plans we outline last quarter and our margin improved by 38 basis points to 308 for the first quarter. We do not expect the same loan improvement next quarter. But if liquidity and pricing remain in check, we could see that level of improvement gradually over the remainder of the year.

Returning to fee revenue on operating expenses, fee revenue totaled $12.8 million for the first quarter. That is an increase of $2.1 million from the fourth quarter and a decrease of 1.4 million from last year. The 2.1 million increase from last quarter was primarily due to the 2.7 million of charges in fee revenue for the prepayment of our federal home loan bank advances last quarter that were partially offset by 838,000 on security gains.

These items resulted in a net debit or reduction to fee revenue of $1.9million as compared to 303,000 of security gains in the first quarter. The difference between these items represent a positive variance of 2.2 million between linked quarters.

The commerce and fee revenue variances to last year are included in our earnings release.

Looking at operating expenses, they totaled 52.6 million for the quarter. This was an increase of $5million from a ago and flat compared to last quarter. Three items accounted for the $5 million variance from last year. Foreclosed property cost of $4.3million, increased by 3.4 million over last year due to the higher level of foreclosed properties and our aggressive position to the source of those properties.

Professional fees increased $372,000 relating to higher legal fees for workout on our non-performing loans. And the third item related to the doubling of insurance premium by the FDIC beginning in 2009 that resulted in our FDIC premiums increasing by $1.4 million to $2.7 million for the first quarter. This does not include the proposed special assessment by the FDIC. If assessed, this will recorded in the second quarter.

As Jimmy mentioned on our last call with you, for the past eight months, we've undertaken a company-wide revenue enhancement and expense savings project called, We Are United. The project starts with more than 2000 recommendations from staff across the company. With an organized focus groups, action teams and a steering committee with the assistance of Brentech to review and act on these recommendations.

Today, we are more than 90% complete, with many items already implemented and the balance to be completed by the third and fourth quarters. We expect the total annual earnings lift to be in excess of $7 million with $3 million in expense savings and 4 million in revenue enhancements. The expense savings relate primarily to renegotiated contracts and licenses with vendors on equipment, computer services and professional fees as well as reduced expenses for marketing, internet services, postage and supplies.

We are already seeing some of the benefits with many expense categories lower this quarter. We also had success with free revenue initiatives identified by our staff. This initiatives range from renegotiating revenue sharing contracts on ATMs and other products to securing a new debit card provider.

We also revised our policies and procedures for assessing and collecting service charges and fees on loans and deposits, as well as adjusting fees schedules to reflect competitive pricing. Of the $7 million of annualized revenue enhancements and expense savings, we expect to realize more than half of the benefit this year.

Now turning to staff, as of March 31st, our total staff was 1,851, down 143 positions from year end. The reduction in staff is across all of our banks as well as the holding company. Most of the reduction came late in the first quarter. In addition, we have notified 22 employees that their positions will be eliminated by the end of June and another 26 by year-end.

In total by the end of the year, we will have reduced 191 positions or about 10% of our work force. We will begin to see a reduction in salary and benefit cost in the second quarter and should realize more than half of the $10 million in annualized savings through the balance of 2009.

All of our regulatory capital ratios continue to be strong. At March 31st, our tier one ratio was 10.9%. Leverage was 7.9%, and total risk base was 13.6%. The ratios were down slightly from last quarter, due primarily to our net operating loss this quarter. They were not impacted by the goodwill impairment charge, since goodwill is already subtracted from equity for both regulatory and tangible capital ratios.

Our average tangible equity to asset ratio was 8.3%, and the average tangible common equity to asset ratio was 6.1%. With that, I'll turn the call back over to Jimmy.

Jimmy Tallent

Thanks, Rex.

This morning, we've talked about our focus on improving pre-tax, pre-provision earnings. We feel good about the progress that we have made so far.

Our margin has improved 38 basis points, which equals about $28 million annually. We have identified and are implementing $7 million in improvements identified to our We are United initiative. And we will see another $10 million in annual saving with our recent workforce reduction.

Needless to say, the decision to reduce our workforce was a very tough decision, one of the most difficult of my career. But it was also necessary to ensure our long-term viability and strength. We expect that the combination of our margin improvement, our We are United program and the workforce reduction will improve our annualized pre-tax, pre-provision earnings by 45 million.

We are very excited by the results of another initiative, United Express, an incentive-based program that encourages and rewards employees for attracting new core deposits and cross-selling additional products and services to new and existing customers. The results in only one quarter have been just outstanding, with 21,918 net new services generated. Of that, 3,585 net new core deposit accounts were added. This new business drove the $63 million increase in our customer deposits.

A final initiative I want to address was launched in January, and it's focused on improving service forward and growing relationships with our commercial customers in metro-Atlanta. At this stage of our growth in this market, we decided to begin serving commercial customers along the lines of business such as seeing our lending commercial real estate and business banking.

We believe this restructuring has put us in a better position to capitalize on the tremendous opportunities available in the Atlanta market, while preserving our community banking model and serving our retail customer base. Under this model, we may have a team of relationship managers serving commercial customers throughout the metro-Atlanta market. These men and women are accountable not only for deepening our existing customer relationships but also for achieving specific goals for calling out prospects, generating deposits and producing loans.

Each relationship manager has direct access to a team of United bankers, who are experts in specific lines of business. Together, they provide well informed and well made solution for unique customer requirements. In fact this new strategy meets a specific need expressed as by our commercial customers in metro-Atlanta. It is also consistent with our goal of deepening and expanding customer relationships.

In addition and most importantly, this new model should contribute to greater diversification of our loan portfolio as well as enhance our risk management in this market. Needless to say, this new approach will cause all of our bankers to burn up a lot of shoe leather as they continue demand for new business opportunities, and that's a good thing.

In summary, it was a disappointing quarter and we expect 2009 to continue to be difficult. At the same time, we made notable progress in margin improvement, expense reduction and problem asset disposition while maintaining a solid capital position. We engaged our employees and attracted new business and identifying ways to be more efficient, and they are making huge contributions. And we are restructured to serve business customers better and grow relationship with them in metro-Atlanta.

We intend to be one of the first banks to emerge successfully from this recession and we spend everyday actively and aggressively positioning our sales to achieve that goal.

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

Question-and-Answer Session


(Operator Instructions). First we will go to Kevin Fitzsimmons with Sandler O'Neill.

Kevin Fitzsimmons - Sandler O'Neill

Good morning, everyone.

Jimmy Tallent

Hi Kevin,

Kevin Fitzsimmons - Sandler O'Neill

Just wondering if you can give a little more color on the whole disposal of NPA effort. It seem like I heard kind of a mixed message. It seemed like you are... I heard David say the market to sell the foreclosed properties remains pretty soft but yet you feel you made good progress on the front of disposal. And we just heard last night, Synovus talk about that has been soft this past quarter, but they were either encouraged that it's getting better or they've just embraced the fact that they just have to get out there and take whatever hits are coming in and sell much more aggressively. Where are you on that front? Are you... is it wait for the market to get better or just really surge ahead and try to take that, get that non-performing number down?

And then separately, if you could just talk about the government programs that are out there and whether they represent any kind of potential benefit from you all based on what you know now? Thanks.

David Shearrow

Kevin, this is David. Let me address the front part of that first. In terms of the first quarter activity, our overall sales activity, we had little over $22 million of OREO that we sold in the quarter, which is down a little bit from 24 last quarter. We, in the first quarter and then continuing on, on the housing front, completed houses; we have really had consistently pretty good activity. Of course, the winner is always a little bit slower seasonally. So what we are seeing now on particularly on the housing side is pretty good activity in all of our markets, North Georgia as well as Atlanta in moving that. So I'm encouraged and hopeful that the pace will continue to pick up as we are here in the second quarter.

On the larger pieces of land, in that, we did move some of that albeit, in time, in my comments I may have mentioned the fact that really beginning in the fourth quarter of last year and then it just continued in the first, some of the pricing that we are seeing from investors remain real soft. And I think it's a function of few things. Lot of things we've heard more recently as some of our accounts had little bit of a chill because they're kind of wait and see with these government programs may bring, and so that I think delayed some of the bidding.

So, really given that, and as we've said, while historically we have also been very aggressive in moving this out and we want a keep doing that. We have also identified there are... some of these land tracks closer in particularly in the Atlanta area and then in some isolated cases in North Georgia, where we think that the current pricing from investors is just well below what a fairly short term turnaround price would be, and we are being more patient on some of those. That's what will continue to put upward pressure on our NPAs really for the rest of the year. Is that helpful?

Kevin Fitzsimmons - Sandler O'Neill

Yeah. That is helpful. And then just in terms of the government proposed like legacy loan programs, is that something you just have to wait and see or if there is any indications on that?

David Shearrow

Yeah. From what we've gathered, it's really too early at this point. Most of what we've seen come out of these programs, we haven't found to be really all that helpful. Having said that, there is a lot of investors that are looking into those, in how that would play out in terms of the government guarantee and their potential returns, I am hopeful if they do it right, that create more buyers and hopefully that will push up pricing. But it's really too early to tell at this point.

Kevin Fitzsimmons - Sandler O'Neill

Okay thank you


We will take our next telephone question from Christopher Marinac with FIG Partners.

Christopher Marinac - FIG Partners

Thanks, good morning. Jimmy, wanted to ask you about capital and sort of how you see that shaping up now for the rest of this year, but sort of as the rest of the cycle unfolds in the future?

Jimmy Tallent

Well Chris, obviously we are monitoring that very closely. I think the appropriate start would be to back and look at our stress test that we have shared with you. The 200 million in '08, I'm sorry, the 200 million in '09, 200 million in '010 and if you look at the 150 million that we did in '08, that will give you I guess a prime of reference. That's over 10% of the portfolio. Assuming all that does occur, our capital ratios still are we feel reasonably solid. All regulatory ratios are above well capitalized, all the way through that scenario, tangible common equity would still be in the 4% range.

Now as we get deeper into the recession and certainly the unknowns and uncertainties, we look at alternatives, you know you have the TARP 2 that has now been proposed, still there is a lot of things about that or be unclear. We initially had said that we possibly would apply and then make the decision in November. I'm not so sure if that's where we are today as again we continue to drill in and find out all the details. Now, I would say this as well. Certainly, the investor market were contacted on a regular basis, as recently as yesterday, so I think access to capital is there, but at the same time, it would be dilutive. Based on our stress test, based on where we are today, and we what we view today, we still are comfortable with our capital position.

Christopher Marinac - FIG Partners

Jimmy, if you were able to write off or if you do write off the 400 quarter million this year and next year combined, would that have the commensurate drop in risk weighted assets?

Jimmy Tallent


Christopher Marinac - FIG Partners

Okay. So that would then affect you there as well.

Jimmy Tallent

Yes, it would.

Christopher Marinac - FIG Partners

And then do you have any thoughts about repaying TARP, not necessarily immediately but as time evolves, for next two years?

Jimmy Tallent

I have thought every day. But the practicality of that, Chris, is first, we are pleased that we've got the TARP funds. Those have certainly strengthened our balance sheet in these times of uncertainty. We will continue to move forward and find the exit strategy at the appropriate time. Again, we feel we do or that we will have choices at the appropriate time. But quite honestly, that's not the priority with our company today, is to continue to move through our credit challenges, improve pre-tax, pre-provision, get our earnings back to a respectful level, and I think repaying the TARP at that time will be a fairly easy decision.

Christopher Marinac - FIG Partners

Got you, great. Just one more follow-up on... if I would on for David. To what extend do are restructuring of loans and problems used as a work out strategy? Was there anything meaningful done on that this last quarter that would have impacted NPAs one way or the other?

David Shearrow

We obviously work... we try to work with any of our customers, if they have some challenges and trying to find an acceptable solution. If it's in terms of did it affect NPAs this past quarter, there are a couple that we continue to work with, requested on NPA and are continuing to work through the challenges with them. Usually, if we do that, it would be because it's a... well, for example, give you an example, if a builder who is still active, there are still keeping all the leans off of their product, they've still got a marketing organization that's able to move the product and we think they can realize a better return in kind of like an orderly liquidation first that we were to foreclose. I wish I had... we had more of those, unfortunately there aren't a lot of those. But we do have a few that we've been working with. If we had more challenges came up and we have those kinds of folks, we would continue to work with them.

But that kind of thing does not huge bearing on our NPAs this quarter.

Christopher Marinac - FIG Partners

Okay. And under that scenario, David, that still stays as an NPA when you do and work out like that?

David Shearrow


Christopher Marinac - FIG Partners

Great, thank you very much.

David Shearrow

Thank you.

Operator: From Raymond James, we will take a question from Michael Rose.

Michael Rose - Raymond James

Hi, good morning. I'm Michael. Sorry, if I missed this, but how sustainable is the nice increase you had in mortgage loans fees like the rest of the industry? How sustainable is that going into the back half of the year?

Jimmy Tallent

Well, we are very much encouraged, when we look at our, what we call our locks and applications, certainly looks strong going into the second quarter. I think as long as the rates are in the range where we are seeing those today at the mid fours, I think the refi will continue. Hopefully, we will see some new purchases that will be taking advantage of that. So on the short term view, I think it will continue to be very strong.

Michael Rose - Raymond James

Okay. And secondarily Jimmy, can you give an update on the lot inventory in Atlanta?

Jimmy Tallent

I can. The lot inventory Michael is basically been, it's been flat. It's been flat now for well over a year. I think there is 149,000 lots available. Again, the closings certainly far exceed the starts; that has been the results now over two years. So we are beginning to continue to see the housing inventory of sort. There is still way, way, way too many lots. But we have actually heard from a couple of our builders that basically said, if the sales continues as they are seeing that they likely will be out of inventory toward the end of the year. Again, you know now that's encouraging, but we'll have to wait and see.

Michael Rose - Raymond James

Okay. And finally, if I may, back to your stress test that you've laid out, what unemployment rate is that based on both and how sensitive it is to changes in the unemployment rate?

Jimmy Tallent

Well, the unemployment rate, we often ask where do we see that going particularly in Georgia. If I had to choose a number, I'd say probably 10% that I think it was flat in March to February. But I think we have adequately included our expectation of unemployment in our stress test.

Michael Rose - Raymond James

Thank you.


And a question now from Jefferson Harralson at KBW.

Jefferson Harralson - Keefe, Bruyette & Woods, Inc.


Jimmy Tallent

Hi Jefferson, good morning.

Jefferson Harralson - Keefe, Bruyette & Woods, Inc.

Jimmy, you mentioned that in going through... it seem like you are saying that going through the details like cap program made you less interested on other things. What did you see in terms of that or you just talking from that you think you have other access to capital that will be a better deal if you went down that road in the cap program?

Jimmy Tallent

I think probably Jefferson, the details as far as the cap and the what seems to be the ever changing requirements, certainly if we had to access additional capital, I don't think it would be any secret. We would prefer from the investor world just because we just say that we'll be the more appropriate thing. The other thing quite honestly is, the TARP initially was provided with banks, I mean as I've said many times, or treasury called us, we do not call them. What was initially perceived as banks with strength, the public perception today is just the opposite, and so certainly we prefer to if assuming we had to access additional capital, would be to go with the investor world.

Jefferson Harralson - Keefe, Bruyette & Woods, Inc.

And is there anything else there besides the warrants that would and the government ownership that was in addition to those two remains the torrents that you found out more recently?

Jimmy Tallent

I can't think of anything in particular. I guess I'm speaking more from just a general standpoint. Assuming we had to go forward with additional capital, the first thing would be is what would be the very best for the company and what is the least dilutive impact on our shareholders and that's kind of the way that we would approach it.

Jefferson Harralson - Keefe, Bruyette & Woods, Inc.

That makes sense. Thank you.

Operator: We will next go to Bill Wait (ph) at SMT Capital.

Unidentified Analyst

Oh, yes, thanks. Almost all of mine have been answered. I wondered if you guys could go back to the 7 million in savings from We are United and talk about where you see that going forward. I mean, the similar savings when you combine savings and revenue generation over the next couple of years, do you expect it to diminish, do you expect it to grow hugely, thinks like that?

Jimmy Tallent

Well, I think Bill we will certainly see that the 7 million, I think we will continue to see improvement over time. One of the things, I'm extremely proud of with our people is the focus and just the consciousness of both of those, by involving all of our people and getting 2000 ideas, this is not a flash of the pan, a one shot kind of a process. We have plans to make this a continuing part of this company. We have people today that certainly are first of all, I think we have made it clear and provided a platform for our people to stand up, step forward and say, let's consider this, let's consider that.

So, I think, we will find that more in our everyday D&A going forward, it certainly not a start and stop process, it's something that we'll build on hopefully forever.

Unidentified Analyst

Okay, thanks.


At this time, I would like to tell the conference back over to the company for any additional or closing remarks.

Jimmy Tallent

We would just like to say thank you for being on the call this morning. Thank you for interest in the company. We certainly look forward to talking with you again in July and giving you our second quarter results. Again, we hope you have a great day. Thanks.


Once again, ladies and gentlemen, this concludes today's teleconference. We do thank you for your participation.

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