United Community Bank in Blairsville, Ga., reported a double-digit gain in profits, but there is some question about how long it can sustain that pace.

Second-quarter net income was $28.3 million, up 12% from a year earlier. Diluted net earnings per share were 39 cents, a penny short of the consensus of analyst estimates compiled by FactSet Research Systems. Excluding the effects of merger expenses and other one-time items, the bank's earnings per share were 41 cents.

The latest results include the acquisition of the $466 million-asset Tidelands Bank in Mount Pleasant, S.C., on July 1, 2016.

Total loans increased 12% to $7 billion, with strength across a number of categories, including owner-occupied commercial real estate rising (up 13%) and income-producing commercial real estate (up 22%).

Jimmy Tallent, chairman and CEO of United Community Banks
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United Community is "growing loans and deposits in a disciplined manner that slightly widened our net interest margin and maintained our outstanding credit quality," Chairman and CEO Jimmy Tallent says.

Meanwhile, deposits rose 11% to $8.7 billion.

Net interest margin was 3.47%, up from 3.35% a year earlier.

Compared with a year earlier, total revenue rose 9.4% to $108 million, net interest income rose 13.7% to $85.1 million, and fee revenue rose 1% to $23.4 million.

Expenses rose 9%, to $63.2 million. The higher costs included executive retirement and merger-related charges as well as annual pay increases for staff members.

United Community’s leap in profits was produced “by growing loans and deposits in a disciplined manner that slightly widened our net interest margin and maintained our outstanding credit quality,” Chairman and CEO Jimmy Tallent said in a press release Wednesday.

The company has stopped buying indirect auto loans at the current premium levels and replaced them with securities because indirect auto loans are among the lowest-yielding assets, Chief Financial Officer Jefferson Harralson said in a conference call with analysts.

Though asset quality metrics remain strong, the earnings growth was aided by a low provision for loan losses, Brad Milsaps and Peter Ruiz of Sandler O'Neill & Partners said in a research note.

The provision for credit losses was $800,000, unchanged from a quarter earlier; the bank had recorded a recovery of $300,000 in the second quarter of 2016.

The provision did not cover net chargeoffs and is not sustainable over the long term, the Sandler note said. The firm still listed the stock as a “buy.”

The bank recorded $1.6 million of net chargeoffs in the second quarter, or 9 cents to average loans, compared with $1.7 million, or 10 cents to average loans, the previous quarter.

The $10.8 billion-asset United Community operates in four states — Georgia, North Carolina, South Carolina and Tennessee — and is expanding. It agreed in April to buy the $376 million-asset parent company of Horry County State Bank; that deal is expected to be completed in the third quarter. It agreed in late June to buy the $737 million-asset Four Oaks Fincorp in North Carolina and hopes to close on the deal in the fourth quarter.

United plans to build on Four Oaks’ loan production office and add to its mortgage business, President and Chief Operating Officer Lynn Harton said on the conference call.

United Community shares fell 1% on Wednesday to $28.56.

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