Prosperity Bancshares Inc (PB) 2003 Q4 法說會逐字稿

Good day. All sites are now on the conference line. At this time, I would like to turn your program over to Mr. Dan Rollins. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Welcome to Prosperity Bancshares year-end 2003 conference call. This call is also being broadcast live over the Internet at www.prosperitybanktx.com and will be available for replay at the same location for the next few weeks.

I am Dan Rollins, Senior Vice President of Prosperity Bancshares, and here with me today is David Zalman, President and Chief Executive Officer; H.E. Tim Timanus, Jr., Executive Vice President and Chief Operating Officer, and David Hollaway, our Chief Financial Officer. This morning David Zalman will lead off with a review of our financial results for 2003. He will also address some of the key factors impacting our performance, along with the significant milestones for the year. He will followed by David Hollaway, who will spend a few minutes reviewing some of our financial statistics. Tim Timanus will discuss our view of the local economy and our lending activity including asset quality. I will provide an update on our progress in the Dallas area with our recently completed acquisitions. Then finally we will open the call up for questions.

During the call, interested party may participate live by following the instructions that will be provided by our call moderator, Genevieve, or you may email questions to contactus@prosperitybanktx.com. I assume you have all received a copy of the earnings announcement we released earlier this morning. If not, please call Kara Smart at 713-693-9308, and she will fax a copy to you.

Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the Federal Securities laws and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements express or implied by such forward-looking statements. Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares filings with the Securities and Exchange Commission, including Forms 10-Q and 10-K. All forward-looking statements are expressively qualified in their entirety by these cautionary statements.

Now let me turn the call over to David.

Thank you, Dan. I would like to welcome and thank everyone that is listening and participating in our fourth-quarter conference call. I am very pleased to report that 2003 was another record year for our company. Some of our successes this year included record earnings. We earned 26 million in 2003 compared to 21 million in 2002, which is an increase of 24.5 percent.

Our diluted earnings per share for 2003 was $1.36 compared to $1.22 for 2002, which represents an increase of 11.2 percent. Our diluted earnings per share for the fourth quarter of 2003 was 35 cents compared to 33 cents for the fourth quarter of 2002, an increase of 6.4 percent.

We completed four successful acquisitions this year -- Abrams Center National Bank in Dallas with two banking offices; BankDallas with one banking office; MainBank in Dallas with four banking offices; First State Bank in North Texas, also in Dallas, with four banking centers for a total of 11 new banking centers in the Dallas market. These acquisitions increased our size in the Dallas area by approximately $450 million within a one-year timeframe. The size and economy of scale that we achieved in this short period should allow us to compete more of actively within the vibrant Dallas economy. The advertising we have just begun will improve our name recognition also in the area.

We have increased our assets, loans and deposits significantly this year. Assets increased in 2003 to 2.4 billion at year-end, representing a 31.6 percent increase over the same level at December 31, 2002. Our loans increased to 770 million at year-end, representing a 13.3 percent increase over the same level at year-end 2002, and deposits increased in 2003 to 2.1 billion at year-end, representing a 31.3 percent increase over the same level at December 31st, 2002.

I would also note that demand deposits or non-interest-bearing deposits increased at year-end 2003 to $467 million from $327 million at December 31st, 2002. This number represents 22.4 percent of our total deposits for the year ending in 2003 compared to 20.6 percent of total deposits for year ending 2002. I think this number reflects the strong core deposit growth we are trying to achieve.

Our asset quality improved. On December 31st, 2003, we reported nonperforming assets of $967,000 compared to $2.6 million as of December 31st, 2002. A continuing decline in nonperforming assets, the majority of which originated from the acquired banks reflects management's commitment to maintaining the pristine asset quality that we are known for.

Our strong cost controls. Our cost control measures allowed us to achieve the earnings per share goals that was given at the beginning of the year despite the unusually large and unexpected mortgage refinancing that occurred during 2003. As most of you are aware, due to the massive amounts of mortgage refinancing activity, most banks were required to accelerate their unamortized bond premium expense on their bond portfolio. This increased amortization expense represented an additional $700,000 in expense per month during the third quarter. Fortunately the paydown subsided during the fourth quarter, and our premium amortization returned to a more normal state.

Our team of professional backers grew by 128. This continual increase in professional customer-focused backers should help propel our internal growth in the future. Improved operational efficiencies in addition to completing the operational integration of four acquired banks this year, we also completed the transition we began late in 2002 to bring our data processing in-house, most of which was previously outsourced. This should allow us to control costs as we expand into the future. It will also provide us the ability to more effectively control the quality of our products going forward as well.

We received numerous recognition this year. Fortune magazine's annual ranking of America's 100 fastest-growing companies ranked us as Number 82. The American Banking Association Banking Journal ranked us in the best of the big banks, the Top 50. The Houston Chronicle ranked us in the Top 100 publicly traded companies in Houston, and U.S. Banker magazine ranked us in their Top 100 publicly traded mid-tier banks.

Tangible equity. At December 31st, 2003, our intangible assets represented 56.9 percent of total equity. Our management continues to review our overall equity position and the impact it may have on our acquisition strategy. We want to reassure everyone that as significant shareholders ourselves, it is not the intention of management to dilute existing shareholders with a large secondary offering without a specific purpose for those proceeds.

In closing, I would say that we feel very good about 2003, and our outlook for 2004 is very optimistic. We feel comfortable with many of the analyst estimates for 2004 and believe our earnings will fall between $1.48 and $1.52 for 2004. This is based on our belief that we will experience a relatively stable, more moderately higher interest rate and will not experience some tragic event around the world that may cause economic uncertainty.

Thanks again for your support of our company. Let me turn over our discussion to David Hollaway, our CFO, to discuss some of the specific financial results we achieved. David?

Thank you, David.

Just to add a little more color on some of the comments by David Zalman. I also want to note that our average earning assets were up 34 percent year-over-year and 12.2 percent on a linked quarter basis. Net interest income was up 22.5 percent year-over-year and coincidentally on a linked quarter basis also, and what is interesting here is looking at fourth quarter versus the third quarter, the $3.5 million increase that we see comes from improvement in the margins along with the increase in the earning assets.

Noninterest income increased 46 percent year-over-year and 10.7 percent sequentially. These increases reflect the increased growth in our deposit accounts and the income those accounts generated. And just as a note on that, our total number of loan and deposit accounts increased 27,000 over the year or 21 percent up to about 155,000. Noninterest expense increased approximately 10 million or 29.4 percent year-over-year, of which the bulk of that was in salaries and benefits, $6 million, and this was mainly due to the acquisitions over the last two years and the additional staff that they brought.

On a sequential quarter basis, noninterest expense was up 27.6 percent, and this increased reflects bonuses, additional public relations and advertising expense, and the impact of the last two acquisitions that we had here in the quarter. These expenses caused the efficiency ratio to increase to 53.69 percent for the quarter, but what I would tell you is our target for 2004 continues to be 50 percent, unless we have an acquisition that could affect that number. The efficiency ratio for the year was 51.58 percent compared to 50.36 percent in 2002.

The net interest margin tax equivalent for the quarter was 3.84 percent, up from the 3.54 percent in the third quarter, and again the increase was due to a 12.2 percent increase in earning assets and the reduction in the amortization expense in the portfolio of about $1.7 million that had come about from the huge paydowns in the third quarter. Our net interest margin should continue to show improvement based on the current rate environment, and our model actually shows that we should see margin improvement going forward and hit the range of about 3.90 to 4 percent.

With that, I will turn it over to Tim for additional discussion of asset quality.

Thank you, Dave. I am going to begin with talking about the economy and our marketplace. Both Houston and Dallas have experienced job losses for the last two years. The current unemployment rate in Houston is 6.3 percent, and in Dallas, it is 6.9 percent compared to 6.3 percent for the state of Texas as a whole. Job growth in 2004 is predicted to be 1.5 percent for Houston and 2.3 percent for Dallas. These predictions would indicate a gradually improving economy in both cities.

If interest rates remain low, another good year for home sales is expected. For example, in Houston, used home sales hit a record in 2003 with 65,046 properties sold, the majority of which were homes priced at less than $200,000.

Regarding nonperforming assets, those assets at December 31st, 2003 totaled $967,000 or .13 percent of loans, repossessions and other real estate compared to $1,434,000 or .20 percent at September 30th, 2003 and $2,564,000 or .38 percent at December 31st, 2002. This represents a 33 percent decrease in nonperforming assets from September 30th, 2003 and a 62 percent decrease from December 31st, 2002. The December 31st, 2003 nonperforming asset total was comprised of $681,000 in loans, $40,000 in repossessed assets, and $246,000 in other real estate. 89 percent of the nonperforming assets were assets of banks acquired by Prosperity since the beginning of 2002.

With regard to the $681,000 in nonperforming loans, since December 31st, 2003, a $410,000 reduction has occurred from that number as a result of loan sales and paydowns. Net charge-offs for the three months ended December 31st, 2003 were $172,000 compared to $287,000 for the three months ended September 30th, 2003 for a 40 percent decline. Net charge-offs for the year ended December 31st, 2003 were $1,619,000 compared to $152,000 for the year ended December 31st, 2002. This increase was directly related to removing inferior assets from acquired banks.

With regard to the generation of new loans, the average monthly production for the year ended December 31st, 2003 was $25,090,000 compared to $16,526,000 for the year ended December 31st, 2002. This represents a 52 percent increase.

I will now turn it over to Dan Rollins to continue our presentation.

Thank you, Tim. I want to spend just a few minutes reviewing our progress in Dallas. As you know, we completed our fourth acquisition in Dallas on November 1st when we closed our MainBancorp deal. On December 9th, we completed the fifth transaction in the Dallas area with the purchase of First State Bank of North Texas.

As you will remember, we entered the Dallas market on October 1st, 2002, just 15 months ago. Within the next few weeks, we will have completed the rebranding process and computer conversion at First State Bank of North Texas and will have 11 full-service banking centers with approximately 450 million in deposits in the Dallas area. Mark Levorne (ph), our Dallas area Chairman and his team, have done a remarkable job of laying a strong foundation in Dallas to support our future growth objectives. We have a great team of customer-focused bankers in Dallas and are looking forward to great things in North Texas.

As you know, in any acquisition that are always some disruptions and some customers that might not fit into our credit standards. This has been true with us this past year as we worked to fully integrate the nine acquisition we have completed over the past two years. With all of our acquisition activity, some of our numbers can appear distorted. However, when you look at our banking centers that were established prior to 2002, we experienced same-store loan growth in excess of 6 percent, and we experienced same-store deposit growth in excess of 10 percent. We look at these numbers as an indication of our true sales potential.

On the product sales front, I am pleased to see that some of our sales efforts are beginning to bear fruit as you can see from our non-interest income. Two of the products you have owed heard us talk about before continue to be good sellers and fee generators for our bank. Our Royal Checking product grew by 14 percent last year, while our debit card product grew over 13 percent. As we look forward to 2004, we are excited about our sales prospects.

At this time, I think we are ready to take questions. Genevieve, if you are there, you can take some questions for us.

(OPERATOR INSTRUCTIONS). Jennifer Demba, SunTrust Robinson.

Good morning. I jumped on late, so I apologize if you have covered this. But can you give us an idea of what the impact was in the fourth quarter from the trust assets sale?

Hi, Jennifer. Glad you're here this morning. Jennifer, the trust business for us was really relatively immaterial, and that did not close until the December 31st. From a fee basis, it is invisible. David, do you want to jump on this?

No. I just think the fee income they were generating, they probably -- when you net it down, it is probably 20,000 on a good month at best, so it is just --

Insignificant.

How much does that save you in annual expenses?

I don't know we have a number. There were four people in there, Jennifer, and three of those four have moved on and have gone other places. One of them has been reassigned somewhere else. So, again, it is a relatively small part -- a very small part of our business. And quite frankly, it was taking management time, and it was not producing the results that we wanted.

Thanks.

Scott Alaniz, SAMCO Capital Markets.

I've got a few questions for you. First question, in the press release and then David Zalman in your prepared comments, we talked about the possibility of raising some additional equity. As I look at your equity to assets ratio, it is 9.15 percent at the end of the quarter, which is the highest it has been in some time. So my question is, what size deal can you do without raising new equity?

You know I don't know necessarily that we actually put a pencil to it. Again, a lot of that would depend on whether or not it is a stock deal or a cash deal. As I mentioned earlier, our intangible compared to our tangible equity is high. You know, I would venture to say whatever we try to do for the most part we will probably try to do stock deals, but in the event we cannot do a stock deal, we will have to have some kind of cash component to it.

We do have some liquidity. We just did a trust preferred, so we do have a little bit of liquidity. But I think if we did anything of significant size -- when I say significant size, you know $500 million or 400 million -- we would definitely have to go to the market.

If you look at the last two transactions we did, both of the transactions that closed in the fourth quarter were mixed consideration -- part stock, part cash -- and the issue is not the total equity number, because I think it is high, it is that tangible equity number and because we have done so many cash transactions, that has driven back down. The MainBank transaction actually a positive to tangible equity when you look back.

So I think the question you are asking is, what can we do? I think that really depends on what is out there and how we can make a deal with the seller. If we can do more stock in the transaction, that is an easier deal for us.

I think it also includes, Dan, just to jump in a little bit, it also includes the timing of the transaction. As you know, our earnings have always been extremely good. I think you guys have $30-something million this year. So even after a dividend, we probably have another $30 million to throw back into capital, plus our recent issue trust, and we have made $30 or $40 or $50 million to do something with. But, again, a significant or a bigger size deal, if it's over 200 million or so, is going to probably require -- and if it is a cash component to, all cash component -- there would probably have to be some kind of issue.

Terrific. David and Dan, I know that you all look at lots of acquisitions in the Dallas area and the Houston area and so forth. Given the market environment in the last couple of years with a lot of the smaller banks struggling with margins and trying to generate revenue, if you look at the universe out there in general terms, do you see the same type of cost savings? Do you see that those cost savings are available today versus three or four or five years ago?

What I do see is that the cost savings are out there. One of the challenges that we are facing right now with some of the smaller banks -- when I say smaller banks, $100 million or so in size -- is that when we go into them and look at them, in the past, we can really go and say most of the banks we looked at, with the exception of First State Bank in North Texas, would always have a higher efficiency ratio, maybe anywhere from 60 to 70 or 80 percent. That was always a way for us to pay a bigger price, but we could still get the cost savings, bringing it down back to our 50 percent efficiency ratio.

One of the dilemmas that I see right now in negotiating for some of the smaller banks is that it is more than an efficiency ratio issue. There is a net interest margin compression, and the earnings are just not there and probably won't be there until interest rates turn around or go higher. That becomes an issue because the sellers still want the multiples of where, based on the earnings a year ago or two years ago, and it is hard to pay that kind of multiple based on where they are at right now.

Of course, in the seller's mind, they are always viewing things that it is going to get better tomorrow (multiple speakers) rates are going up and the deal is going to turn. That is probably one of our biggest challenges really right there today.

They want credit for peak margins. Okay. Lastly, on BankOne and J.P. Morgan, have you all looked at what the possible impact could be if you looked at your branch network relative to that combined network and may be talk a little bit about what the impact could be on Prosperity and what opportunities you may have?

Anytime there is disruption in the market, it presents opportunity for us. Yes, the answer to your question is we have looked at an overlap for them versus us, for them against each other -- BankOne and Chase -- both of those banks against our locations. So we certainly are looking at the overlap and where the opportunity is great.

At this point, I think we are only in the game, and I think what our position would be is that kind of disruption at that size is a positive for us. At two or three days out, I don't know exactly where the best positives are, but we are looking for opportunities out of that.

Terrific. Thanks.

(OPERATOR INSTRUCTIONS). Bain Slack, KBW.

Good quarter. Some of my questions were already asked. Actually one thing I missed, could you give me the increase on the Royal fee checking, Dan?

Yes,I can. What I was quoting was the number of products, not necessarily the fee, and Dave may have the dollar numbers to go with it. I was quoting you a growth number and a number products from the beginning of the year obviously on same-store numbers, and that is a 14 percent growth on the Royal checking number and a little over 13 percent on our debit card product.

On the dollar side of the debit card, I can answer that one while Dave is looking up the Royal checking. On the debit card side, as you know, there was a big lawsuit and settlement between Visa and Mastercard that, in effect, cut the fees and the revenue that we take off of that by about 30 percent. It is interesting to see that on our side the total dollars coming into the bottom line is actually up because we have been able to grow the product and number of cards that are out there.

As a point of reference, what is interesting on that club account is for the calendar year '03, it spit out gross income of $1.5 million compared to 1.2 million the prior year, so 300,000.

That is the Royal checking product he is talking about.

I am sorry. Say that again?

Royal checking from 1.2 in '02 to 1.5 in '03.

Okay.

I knew we would have those numbers for you. Did you know it?

I knew it. I guess the only other thing, obviously the monthly loan generation numbers, obviously year-over-year they are very positive. I guess the job growth numbers that were quoted about Houston and Dallas, is that what you all are seeing as well, your guys on the ground?

Yes. I think we are seeing -- Tim can jump in here too -- but we are seeing that are some areas of the local economy, different locations are doing better or worse than others from a job growth. I think it was actually flat or negative, and both markets are basically zero. On our loan production, fourth quarter, when you look at December, unfortunately everybody does not want to work in December. Kind of like your business. So December is not a great month for production, but overall I think our production machine is still clipping along pretty well.

That is correct.

Great. Good quarter. Thanks.

Joe Stieven, Stifel Nicolaus.

Good morning, guys. Nice quarter. This is actually John Rose. I was looking at the yield on the securities portfolio, it looks like it was up about 50 basis points during the quarter. Is that primarily the result of the decrease in amortization, or is there something else in there?

A very simple answer, yes.

Maybe as far as the securities portfolio goes, can you kind of expand a little bit and talk what is the current duration at the end of the year?

Dave can start am looking up my numbers, but from the top of my head, our effective duration we try to keep around three years. Basically you know that we have a $1,300,000,000 securities portfolio. Our model shows that if our interest rates -- you know, we look at two things, we have a stock GAAP model, and our GAAP model says we are almost neutral or plus 0.5.

We do another model where we actually go a little bit beyond the GAAP model. The GAAP model is good, but it does not take into consideration all the embedded options that it has in a lot of the securities. So when you look at the other model, the earnings per share that we had given out probably takes into consideration that interest rates, if they stay where they are at or, quite frankly, even if they go up 100 and maybe even 200 basis points from that timeframe, we still should be able to hit those numbers.

One of the things that is interesting on the portfolio and that occurred on the last couple of conference calls, you know when rates drop so significantly, the cash flow, the annual cash flow of that thing, was 400 to 450 million. Now with the (multiple speakers) -- per year -- and now with rates reversing themselves, we project that now to about 285 million on an annual basis in cash flow going forward. So that obviously will play in on whether rates go up, stay the same or go down going forward. But yes, in answer to your question and what David says was absolutely correct.

It is about a three-year effective duration on the portfolio. And yes, when you look at our press release, we show that the amortization on that portfolio dropped off about $1.7 million quarter-over-quarter. It is huge.

Yes, it is a big number. Another item just regarding the margin, you talked about you could potentially see that expanding to the 394 percent range. Are you assuming basically a flat rate environment?

That is exactly right. Assuming that rates are pretty much going to drift in the range they are now or even go up 50 basis points (multiple speakers). So as you look out over the next twelve months, one of the things I should have mentioned is we are pretty -- and this has been consistent from quarter to quarter -- we are pretty much neutrally GAAPed is what it comes down to.

I would say our model indicates, John, that interest rates going up 100 or even basis in a twelve-month timeframe is not going to hurt us dramatically. If it goes 300 basis points in a twelve-month timeframe, we may feel it a little bit impact it a little bit more. But then looking back on a 24 month time horizon, even if interest rates go up 300 basis points, we are still positive for us.

It is positive as far as an income position obviously, but I always caution everybody and everybody should remember is that if interest rates go up dramatically, we have such a big bond portfolio that the book value and the market value per se a two or three-year period of time is going to be impacted. It won't impact earnings because the majority of our securities are in held to maturity, but that would definitely be an impact, the difference between the book value and what the market value would be, until that $300 million a year rolls off and we have time to reinvest.

Does that help you, John?

It does actually. One final question, too, if I may is during the quarter, I guess you had loan growth of about 70 million. Can you break that out, and I am not sure if you talked about this yet, just between how much was related to the acquisition and how much was internal?

It was virtually all acquisition-driven. That what I was talking about on the call. When you look at the way we track, there is always some disruption when we come in with asset quality. When you look back at Dallas as a whole, we acquired a little over 70 million in loans in the quarter and we grew 70 million. So, in effect, all of our growth came from acquisitions.

When you cut through that a little further, you can see that existing locations are having positive loan growth, same-store sales. Where the runoff is coming from is the new locations as we rebalance the portfolio and outsource the credits that don't fit.

That is really not uncharacteristic of banks that join us. Just like it takes us sometimes a year or a little bit longer to take a bank's efficiency ratio from say, 70 or 80 percent down to 50 percent, we still go through the same thing on the asset side. There is a credit culture that we have to get in place, and that credit culture causes us to have to let some loans go or sell some loans, and it easily takes I would say a year to two years, maybe it probably even takes a little bit longer on the loan side from our experience and the way we are monitoring it before those loans actually start increasing in our new system.

I was watching a movie the other night, John, and I was watching airplanes take off of an aircraft carrier, and I think this is these new locations for us. We shoot them off the front of the aircraft carrier and the plane is going to go down before it comes back up, and that is what is happening with these portfolios.

It is probably not a lot different, too, then I think Scott mentioned awhile ago when you have a J.P. Morgan and BankOne. No matter how hard you try, and I am sure they are going to try also, there is a certain amount of dislocation and there is a certain amount of just change, and that change causes opportunities. You do the best you can, but it does create opportunities for other people at the same time. It creates opportunities for us going forward, but there is an initial startup for that.

Thanks, guys. Nice quarter again.

This is Joe Stieven. I can't have John asking all the questions. (multiple speakers). But, David, you just brought up the BankOne/J.P. Morgan and because I did not get to listen to all your call, have you guys at all started to think about what type of shakeout and positive impact that can have on you either from the lending side or the human resource side?

Both. This is Dan. The answer is both. We talked about that a second ago. We have already modeled out, we have looked at specific overlaps of our locations versus both BankOne and Chase locations, and when you start, it is so early in the game, we don't have any clear plans as you can imagine. But I think we certainly see opportunity from those disruptions, both on the people side and the customer side.

I would also say, Joe, that being -- I guess you could call our models an acquiring bank. The real push for us would be the excess deposits that don't have to sell-off in Dallas, in Houston and maybe Austin may be an opportunity. And for sure we will be one of the bidders on those deposits if they have to sell off, and that may be one of the biggest opportunities for us.

If they will allow us.

Well, in Houston and Dallas, I don't think we will have a problem or Austin.

(OPERATOR INSTRUCTIONS). Jeff Alan (ph), Silvercrest Asset Management.

Good morning, guys. I just had a question about the trust preferred dividend. I was a little confused because in the third quarter you started including that in net interest income calculation, and it looks like in this quarter you took it back out again.

Let me jump in. We are doing this per our accountants advising us back in the third quarter. At the last-minute, they said the rules have changed. It is a done deal. You have to reclass your trust preferred expense as interest expense. So on the press release, they made us do that. Well, two weeks later they came back and said well, FASB and everybody else has put that on hold. They are going to issue a final opinion later in the year, and that all came to be.

In fact, I think it was the last week in December the clarity came down, and it really says that that FASB I think is 150, has to be effectively adopted in 2004. So we won't have to restate our numbers in the way that you saw them in September until effective January 1st of this year. So what you will see is when we do our 10-Q in the first quarter, we will have to move that expense out of operating expense and include it as an interest expense line item.

Okay.

It was really squirrelly because the way that they have issued the rules for 2003, as you know, half of it is in operating expense and half of it is interest expense, and as it was just very convoluted. So I am guessing that is one of the reasons why they allowed it to be delayed a quarter.

Jeff, when we filed the third quarter 10-Q, it reflects the same numbers as you see in this press released. They came out and they said the effective date of that FASB 150 was midyear, and then after we issued our press release, not a few days later, they came out and said we are going to defer that date. So that is really -- there is actually a footnote on page 12 of our press release, a lengthy footnote, that explains the question.

Of the Q4 press release?

Of the press release. Today's press release has a footnote on page 12.

One other thing. Dan, you were referring to same-store sales growth of 6 percent and 10 percent in loans and deposits. I did not catch -- were you talking about sequential growth, or were you talking about over --?

Over a year. I am looking at 2002 versus 2003 in locations that were inexistent prior to '02. So the acquisitions that we have done over the last year and half or so are not in that number, and like we were just talking about, we expect d those to kind of have some contraction as we takeoff and get flying.

Okay. As far as sequential growth from Q3 to Q4, you said same-store the locations are growing, but that is all you said, right?

And I don't have a percent number off of that because I did not track the third quarter to fourth quarter on same-store numbers. But what the question was when you look at the big picture on the loan side where it is 770 million and we were at 700 million at the end of the third quarter, that is a $70 million gain, and we actually acquired a little over 70 million in deposits.

So you can see that the total in loans -- excuse me, you can see that the total should be higher than it is. What that tells you is that we've had some runoff, and we have identified that is all coming out of the recent acquisitions in our growth, and the other location has not been able to keep pace with that runoff.

Okay. Great.

You have no further questions at this time. Chris Kelley, Comesen (ph).

Sorry to be so late. Most of my questions got answered. I just had one quick one. As I recall, you guys did file a shelf offering this summer giving you the flexibility for opportunistic acquisitions. Between the trust preferred this quarter and then the two things on which you closed, how much of that shelf is remaining?

I can answer that. We filed an 8 million share shelf that is available for acquisition purposes only, and we have used a little less than 2 million shares out of that shelf.

Okay. That is all I needed. Thank you.

We will be happy to take other questions.

(OPERATOR INSTRUCTIONS).

If there are no other questions, I just want to thank everybody for supporting us in 2003. We are really excited about our prospects for 2004 and forward. Thank you all very much for participating.

We have no further questions at this time. Thank you.