Good morning, and welcome to United Community Banks Second 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 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 first quarter (sic) [second quarter] were filed on Form 8-K with the SEC, and a replay of this call will be available on the company's Investor Relations page at ucbi.com. Please be aware that during this call, forward-looking statements may be made by United Community Banks. Any forward-looking statements should be considered in light of risks and uncertainties described on Page 4 of the company's Form 10-K and other information provided by the company in its filings with the SEC and included on its website. At this time, we will begin the conference call with Jimmy Tallent.

Good morning, everyone, and thank you for joining us for our earnings call. Our June 30 results marks the fourth profitable quarter since the execution of our capital raise and problem asset disposition plan in March 2011. I'll start this morning with some highlights from the quarter. Core pretax, pre-credit earnings were $28.3 million, down $997,000 from the first quarter and up $3.9 million from the second quarter of 2011. Net income was $6.5 million or $0.06 per share. Severance charges this quarter, which are excluded from core earnings, decreased net income by $1.2 million or $0.02 per share. Core operating expenses continue to decline as a result of our ongoing improvement in operating efficiency. Loans were down slightly after growing $18 million in the first quarter but remained up year-to-date. Overall credit costs were up $1 million from the first quarter. We incurred $18 million in loan loss provision and $1.9 million in OREO expense. Net charge-offs for the second quarter of $18.9 million slightly exceeded the $18 million provision. Our allowance for loan losses remained strong at the 2.74% of loans. Nonperforming assets at quarter end were $146 million, down $16 million from the previous quarter and represented 2.2% of total assets at quarter end. Our core transaction deposits grew by $12 million this quarter after growing $151 million in the first quarter. The annualized growth rate is 11% year-to-date. Our net interest margin was 3.43%, down 10 basis points from the first quarter, primarily due to a lower yield on our securities portfolio, and all of our capital ratios improved this quarter. Now David will provide detail on our credit performance and Rex will follow with details of our financial results. David?

Thank you, Jimmy, and good morning. This quarter, we provided $18 million for loan losses, up from $15 million in the first quarter. Net charge-offs were $18.9 million in the second quarter, up $3 million from last quarter. Our charge-offs were elevated this quarter, primarily due to an increase in residential construction charge-offs. Nonperforming assets declined $16 million from a $161.6 million last quarter to $145.8 million this quarter. The reduction in NPAs was due to a decline in NPL inflow and an increase in ORE resales this quarter. Nonperforming assets included $115.3 million of nonperforming loans and $30.4 million in foreclosed properties. The net inflow of new NPLs was $29.4 million this quarter compared to $32.4 million last quarter. We had no accruing loans that were past due 90 days or more. The ratio of non-performing assets to total assets was 2.16% compared to 2.25% last quarter. Our performing classified loans increased $7 million from $317 million to $324 million on a linked-quarter basis. However, we saw a sizable $41.4 million decline in our performing watch or criticized loans to $170.2 million this quarter due to a slowing of negative migration. Accruing TDRs totaled $141.6 million and increased $15.8 million from last quarter. Most of the increase in TDRs occurred in CRE, commercial construction and residential mortgage categories. 94% of accruing TDRs were classified substandard this quarter, which is flat from last quarter. In addition, 85% of our total TDRs remained on accrual this quarter compared to 79% last quarter. It's worth noting that 78% of our accruing TDRs in the second quarter were accruing at interest rates of 4% or higher. Early delinquency for our entire portfolio improved significantly this quarter. The 30- to 89-day past due loans for the entire portfolio were 65 basis points, down from…

Thank you, David, and good morning. My comments today will refer to slides within our investor presentation and tables included in our earnings release. Core pretax, pre-credit earnings for the second quarter of 2012 as shown on Slide 22 of the investor presentation were $28.3 million, down $997,000 from last quarter, but up $3.9 million from a year ago. The decrease from last quarter was primarily due to lower net interest revenue, which was reflective of the lower yield on our securities portfolio that resulted from accelerated prepayments on our mortgage-backed securities. Net interest revenue of $56.8 million was down $2 million from last quarter and $2.1 million from a year ago. As in the prior 2 quarters, prepayment acceleration lowered the yield on our securities portfolio due to a higher level of premium annualization. Also, the yields on the replacement securities were lower than the yields on the prepaid securities. Due to the significant decline in long-term rates this past quarter, the impact on the second quarter was much greater than the prior 2 quarters. Heavy prepayment volumes and CPR speeds accelerated the amortization of premiums, causing the security portfolio yield to decline 36 basis points from last quarter. Also impacting our margin this quarter is competition for loans and pricing pressures lower the yields on the loan portfolio this quarter by 14 basis points on a linked-quarter as shown on Slide 25. Offsetting this partially, the average rate of interest-bearing deposits declined 7 basis points from last quarter, mostly due to lower CD rates and a more favorable mix of deposits. Late in the quarter, we took steps to improve our net interest margin and stabilize net interest revenue through a series of restructuring transactions in which we sold $175 million of investment securities and prepaid $75 million…

Thank you, Rex. At the end of 2011, I shared with you our plan to improve our core pretax, pre-credit earnings run rate by $10 million annually or $2.5 million per quarter by the fourth quarter of 2012. I want to give you a brief report on our progress to date. As I said earlier, our core pretax, pre-credit earnings for the second quarter were $28.3 million, up $1.7 million from the fourth quarter of 2011. That increase represents almost 70% of our $2.5 million goal. We are confident that we will meet our target. Our most recognizable accomplishments have been in reducing expenses. In the past 2 quarters, we have reduced our core expense run rate by $2.5 million. This savings is spread among all expense categories with the most significant reduction in personnel cost. Headcount is down 140 positions year-to-date to 1,614. Some of these positions were eliminated late in the second quarter and have not yet been reflected in our expense run rate. We are expecting further cost reductions through the remainder of the year. Some of this will come as we move forward with our loan and deposit workflow process improvements and with other operating expense reductions that are currently underway. More initiatives are being developed and some will be implemented by year end. Process improvement is becoming a core part of United culture. We've also made progress on the revenue side. Effective January 1, we added new service fees to deposit accounts and we renegotiated our debit card and ATM network service provider contracts. This renegotiation increased revenue and lowered cost. And as a result, second quarter service charges and fees were up nearly $600,000 from the fourth quarter despite lower overdraft fees. We began offering customer interest rate swaps under a back-to-back program that…

[Operator Instructions] We'll take our first question coming from Jefferson Harralson from KBW.

I want to ask the first question to Rex. On the margin, you guided to 9 basis points up next quarter. From there, should we just think about it as long as rates stay this low, we should see a, I guess, a slowdown from there, or is it can there be kind of offset by improved cost of funds and improved NPAs, that kind of thing?

Thanks, Jefferson. [indiscernible] so that was the balance sheet restructuring, as I indicated, that will improve the margin going into Q3. As we look at it, the impact of our margin this quarter was impacted by lower yields on the loan portfolio that had about 8 basis point impact on the margin. [indiscernible] Can you hear me?

You sounded a little far away.

All right. Jefferson, can you hear me now?

I can hear you, just kind of a little far away.

Okay. I think [indiscernible] here. The impact on the margin -- just to recap, again, the impact on the margin for the quarter, there are 3 key components affecting the margin: Our lower loan yields, lowered our margin by about 8 basis points -- still not hear me? Jefferson, is this better?

It sounds kind of the same. You're just far away, but we can hear you.

On the margin, I was indicating the 3 key components impacting the margin this quarter; loan yields down 14 basis points, had about an 8 basis point impact on the quarter. For securities portfolio dropping down 36 basis points, which I think we'll see a good part of that come back in Q3, had about a 11 basis point negative impact on the quarter. That was offset by positive impact. Again, continued lower interest-bearing funds in the quarter, they were down 9 basis points and they had a 7 basis point positive impact on margin this quarter. And we had a slightly smaller balance sheet with the restructuring that improved margin by about 2 basis points. So net-net, the 9 basis points I mentioned is again being driven by the restructuring when we sold off some of the mortgage-backed portfolio, but additionally, by a smaller balance sheet. I do think in the securities portfolio, which is probably the biggest negative impact this quarter, was driven by again the significant drop we had this quarter in the 10 year rate and that accelerated prepayments during the quarter, and again, CPR speeds. And we are seeing projections of CPR speeds will decline in the second half of the year, and we do expect to see a good part of that come back in Q3, with lower accelerated amortization of our premiums. So I do see net interest revenue, would see that improving on a linked-quarter basis and again, our margin improving both with our smaller balance sheet and again with the securities portfolio.

As a quick follow-up on the upcoming relatively small debt maturity, are you more likely to write a check for that, or you think that will be replaced with another piece of some sort of capital?

Yes, we were probably looking at it here in Q3 replacing that with some senior notes, Jefferson, so I guess, that will be our plan. We have sufficient cash. We have about $58 million, $59 million of excess cash at the parent company at this time, but I think we want to continue to maintain a 2- to 3-year cash flow at the parent company, so we'll look at refinancing that.

And we'll take our next question from Kevin Fitzsimmons from Sandler O'Neill.

If I could just ask a question on credit. In terms of outlook for provisioning and net charge-offs and specifically this quarter, I guess while I wasn't all that surprised to see an increase in net charge-offs, I was surprised to see the increase in provision, I guess I would've thought a lot of that would've been provided for, already identified and do we start getting next quarter into a place where provisions can start coming down and we could start seeing some reserve releasing?

Sure, Kevin. This is David. A couple of things, I guess, to help provide some context. This quarter's charge-offs, net charge-offs number, was impacted -- I mean, this goes to your reserve question. It was impacted to a degree by the classified loan that we had specifically reserved, but we -- it was a residential construction loan. We came up to time the -- do an updated valuation, new appraisals on the relationship, which ultimately drove a pretty significant loss in the quarter, in fact, about $6 million, the loss -- total net charge-offs this quarter were related to this one relationship. So we had it full specifically reserved based on the prior year's appraisals, but we had a significant devaluation on the new appraisal. And of course, we could argue about the validity of the appraisal. Nevertheless, our process would be that we look at that and then write down accordingly, and that loan was placed on non-accrual and charged down accordingly. That's part of why you didn't see the under provisioning as deep as maybe you were expecting this quarter. The other issue, as far as kind of looking out, as far as charge-offs go, still with -- much like I've said in my comments, there is going to be some lumpiness. And I think in terms of range of net charge-offs, I think what you saw this quarter is probably at the high end of what I would expect over the next couple of quarters, and maybe the low end would be on the $13 million, $14 million, $15 million range. So that would have a range of maybe, let's call it, $14 million to $19 million over the next couple of quarter's net charge-offs. I think the provisioning at -- what you saw this quarter, $18 million, would be kind of the high watermark as well. And I would probably expect a range of somewhere between $13 million and $18 million per quarter over the next couple of quarters. Again, of course, these things are heavily driven by circumstances that may occur in that quarter. But I feel like we will -- you will see a little bit larger level of reserve release over the next couple of quarters. But we're going to be cautious, Kevin. We've said that all along in terms of pulling down our reserves. So I don't see an aggressive pull down, at least in the near-term in any case. Hopefully, that's helpful.

That is helpful. David, can you just follow up with -- we saw in the news this past quarter Fletcher declaring bankruptcy, and can you comment on what that means for you all? And was that loan at all -- that loan wasn't the loan you're referring to that had the elevated loss this quarter, but just generally what that event means to you.

Right, right. Well, first of all, no -- the relationship I was just discussing is a totally unrelated situation. Our relationship with our largest borrower and the bankruptcy filing you're talking about really does not affect our borrowers. The structure of the loans that we have in place are to effectuate the bankruptcy remote entities. The only assets in these entities are the assets purchased, then they were capitalized by our loan and their equity contribution. As such, there's really nothing to put any pressure on those entities for bankruptcy, other than, at some point, there was a potential default down the road, at which point we would have to exercise our remedies. And in that case, I guess, they would have that option if they wanted to. But in terms of what you're reading in the press, we see no connection whatsoever between that and the current status of our borrowers.

And how long -- I know there's a deposit account affiliated with that, that was set up when the original transaction was done. How long do you have in that account of payments that should cover?

Yes. Well, right now, there are payments -- again, it's all non-accrual today, so you know. But in terms of technical default, first of all, the borrower has the option to continue to fund it, but we still have roughly $5 million of cash carried on our loan balances today, which depending on draws or things like taxes or whatnot should be sufficient without any asset sales to carry us through the end of this year and probably into the first part of next year.

And we'll take our next question from Jennifer Demba from SunTrust Robinson.

I have 2 questions. Jimmy, you said you were going to employ some more cost-reduction efforts in the second half of this year. If you have any more color there, it would be appreciated. And my second question, could you characterize the C&I growth that you had during the quarter? Where it was, kind of average loan size, demand you're seeing, et cetera?

Sure, Jennifer. I'll take this. The first question on regards to the cost. We're looking at everything within the company from -- certainly from headcount to just basic operational cost to the underperforming branches. As you probably will recall, we actually closed a couple last year, we consolidated a couple already this year. Our initiatives in regards to improved efficiency is really beginning to show more and more opportunities from a cost standpoint, and a lot of these just take time. That's the reason I mentioned that a few moments ago. The deposit piece actually was just fully implemented by the end of this month, we start -- should start seeing the benefits throughout this year. The loan process, again, in our overall initiatives, there seems to be significant opportunities with that as well. Everything is on the table. We realized the $2.5 million increase in core earnings by Q4, which we stated 2 quarters ago is very important in achieving that. We will achieve that. It doesn't stop at that point. So we'll continue to see the benefit of cost improvements. But also, a very strong renewed focus on the other earnings capability for our company going forward.

Jennifer, this is David. The second part of your question was a little bit about some color around where the originations are occurring in C&I and the average loan size. When you look at kind of where the production is, there's a breakdown in the investment presentation on Page 14. But you see our primary area growth is Atlanta, followed by North Georgia and then the Coast and Tennessee. Where we've got -- as you know, we've hired some additional lenders over the past year, particularly in some of the more metro areas, and we're getting some good production out of those both in Atlanta and the Coastal markets particularly. I think some of the success we're having in North Georgia market will be driven more by taking advantage of some of the loss share situations in these markets, and some of the bank failures and being able to pick up some good customers out of those banks once they go into a loss share situation. With regard to average loans side and C&I book, I don't have an exact number. But I can tell you, our real focus is on the smaller business side of things, so most of our production on the C&I side is going to be somewhere between $500,000 to $2 million, I would say would be a fairly good proxy for a range on average. I'm sorry, did you have a follow-up?

No, no.

And we'll take our next question from Christopher Marinac from FIG Partners.

I want to drill down on the credits from another angle. Because we saw the increase in the performing, classified and also the accruing TDRs, will that pretend a, perhaps, an improvement on special mention? Or have there been sort of net new problems that have kind of graduated from the past to a different debt risk rate?

Yes, Chris, I may have mentioned that in my remarks, and it was pretty brief. But I'm glad you asked that question, because we saw a sizable drop in our special mention credits, criticized credits. We had a $41 million decline on that pool of loans. So it was a significant reduction there, which I guess have [ph] early announced primarily because of a slowing of negative migration on a path into that bucket. And then on the performing classified, obviously, we still had some continued negative migration out of our criticized to classifieds, so that was still occurring. But at the same time, we also saw -- we started to see a few upgrades from nonperforming loans into performing status based on continued performance. Our normal process is once a loan is in nonperforming, they would have to perform on a current basis for at least 6 months before we would move it back to performing. In that case, we had some of that occur this quarter, which also bumps up the performing classifieds a little bit. Hopefully, that's helpful.

Okay. So David, is there -- what is the risk as you look at the next couple of quarters in the next year of just the path-rated [ph] bucket from the top seeing that negative migration? Is there a big risk from here, do you think you've captured most of it? Simply we're going to see this movement along the risk grades quarter-to-quarter?

Well, I think we have done a very good job of capturing the appropriate risk grading in our portfolio, first of all. And far as continued negative migration, while there will still be some level of that, most all the indicators, we're looking at the early indicators, would indicate a continued improvement in our portfolio. I mean, it's obviously very evident in the past dues and the grade -- and the criticized loans this quarter, particularly, which are early leading indicators. So there's going to continue to be some -- obviously, some level of these performing classified loans that are going to default. That pace of default is slowing as well based on the decline in the MPL inflow. So I think most all these indicators are getting better. It's a question of how much, how fast, and that's a little bit difficult to predict other than to say we do see the trends continuing to improve.

I'm showing no further questions in the queue. I would like to turn the conference back to your host for any concluding remarks.

Oh, thank you, operator. We'd like to thank everyone for being on the call today. We look forward to reporting our results for Q3. I would also like to just recognize our team of employees and thank them for their continued good work and dedication to this company. Thanks again and hope you have a great day.

Okay, ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.