Regions Financial Corp (RF) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Q4 Regions Financial Corp. earnings conference call.

My name is Jean;

I will be your conference coordinator today.

At this time all lines are in a listen-only mode.

After our presentation will open the call to questions. (OPERATOR INSTRUCTIONS) I would like to advise you this conference is being recorded for replay purposes.

Now I'd like to turn the call over to your host, Jenifer Goforth, Director of Investor Relations.

Ma'am, you may proceed.

Thank you, everyone, for joining us today.

Carl Jones, Regions' CEO, and Bryan Jordan, Regions' Chief Financial Officer, will be commenting on our fourth-quarter and annual earnings and our achievements during 2003.

Our earnings release and supplement has been filed on form 8-K and is also located at Regions.com in the investor relations earnings release section of the website.

I will remind you that we do not provide specific earnings guidance; however we will be happy to answer questions after the presentation as thoroughly as possible.

As always, I should remind you that certain statements made in this call may be forward-looking statements.

To the extent that these are made, these forward-looking statements reflect Regions' current views.

Actually results could differ substantially and materially from what we have projected.

Such statements are made in good faith pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Please refer to our press release filed on form 8-K dated today, January 16, 2004, for factors that could affect the accuracy of our expectations or cause our future results to differ materially from our expectations.

With that, I will turn it over to Mr. Jones.

Thank you, Jenifer; and good morning, everyone.

It is warm and toasty here.

I hope you are where you are.

Our friends in New England, I have been sympathizing and emphasizing with you.

Let me begin by giving you a few financial highlights, and by saying that we enjoyed a very good quarter as we executed according to plan in the last three months of '03.

For the full year, the financial results were also good.

Regions continues to be a positive growth story.

This is evidenced by our first financial highlight.

We grew fourth-quarter 2003 earnings 5 percent over fourth-quarter 2002, to $163.8 million or 73 cents per diluted share.

As a result, we were able to generate record net income for the full-year 2003 of $2.90 per diluted share.

That is an increase of 6.6 percent as compared to the $2.72 that we earned in 2002.

A sub-headline is that much of our positive growth in the fourth quarter came from our net interest income, which increased to $379.5 million; as well as our net interest margin, which expanded into 3.54 percent, up 10 basis points over the third quarter.

In addition, both of our mortgage companies and Morgan Keegan continued to perform strongly.

We also grew low-cost deposits by 11 percent annualized in the quarter.

The second big financial headline concerns the extension of our streak of paying quarterly cash dividends to 130 consecutive quarters going back to our formation in 1971.

Last year was the 32nd consecutive year Regions has increased its dividend.

In fact, in '03 we increased our quarterly dividend rate twice, or a total of 3 cents per share per quarter, a 10 percent increase.

One more financial headline has to do with asset quality.

Basically it's good, and it's been getting better.

Non-performers, net charge-offs, and past dues, all were down for the second year in a row.

Bryan Jordan, our CFO, will discuss our financial results in more detail in a moment, but first I would like to move away from the financials and talk about how these results reflect the success we have had in the fourth quarter, and really for all of '03.

It's important that we back up a little and take a look at the bigger picture; and hopefully you will see that we believe that our success is a result of sound strategies and our ability to execute effectively throughout the organization.

As we commented in some past conference calls, one of our primary objectives has been to diversify our revenue stream, to produce a balanced, healthy mix of interest income and non-interest income.

We made great progress in 2003 towards this end.

Our shareholders benefited from the results.

While falling interest rates created margin pressure and reduced net interest income in '03, our fee-based revenue stream became stronger, helping to balance our overall performance.

We also made considerable progress in cross selling our complementary services and deepening customer relationships, all among our different business lines, but especially leveraging the opportunities between Morgan Keegan and our banks and vice versa.

In this process, we created further integration opportunities for 2004.

In 2003, we enhanced our senior management team.

We bought banking veteran Doyle Rippee over from Morgan Keegan to lead our corporate banking division.

Doyle in turn brought in Sandy Wright as director of treasury services to provide increased support to our branch network with enhanced services involving cash management and other treasury products.

In the fourth quarter we named Burton McDonald to the newly created position of Executive Vice President for private banking to build a solid base of high net worth customers by bringing together well-designed and well-delivered products and services from across our business units.

Last year also saw us expand our traditional community banking businesses in the high-growth markets of Florida, Georgia, the Carolinas, Tennessee, and Texas.

We opened 22 branches in '03 and have more than 30 additional branches already underway and set to open this year.

What's more, our current nine-state footprint offers a great deal of growth potential, evidenced by the fact that the projected population growth by 2007 in these markets is 2.5 percent higher than the U.S. average.

In addition to growth through de novo branching, we made substantial progress this past year toward enhancing our sales culture in our existing community bank franchise.

We designate our very best branch bankers as members of the Chairman's Club.

We're currently finalizing our list of designees for '03.

But right now it appears that over 150 branches achieved the growth targets necessary to be included in this elite sales recognition group.

That's compared to just 95 branches in '02.

Overall last year our associates in the entire branch network reported a 60 percent increase in what we call Chart The Course sales activities.

These include outbound calls, completion of customer profiles, and referrals.

If we look at sales of specific products, our Equity AssetLine campaign was extremely successful, resulting in a 125 percent increase in new lines booked in 2003 over 2002.

In addition, we now have more than 500 financial sales associates selling insurance annuity products in our branches in a program that was designed and supervised by Morgan Keegan.

This effort is a great example of our banks and Morgan Keegan are successfully working together.

We think that we are now getting a little help from the economy.

Our C&I loans actually grew in December, as did our consumer CDs.

The economic tea leaves seem to be mostly positive, and our pipeline seems to be filling.

It's also important to note that we have grown smartly.

As we have expanded, we have maintained strict cost controls.

We've taken advantage of back-office efficiencies like central underwriting of installment loans and implementation of quality of service initiatives.

We have delivered on a balance sheet strategy that is customer driven.

We have reduced our reliance on securities and one-product deposit accounts.

We have remained committed to sound capital management.

All of which has contributed to enhancing shareholder value and to position us well for the future.

Now I would like to turn the call over to Bryan, who will hopefully fill us in on the details around our fourth-quarter financial highlights.

Bryan?

Thanks, Carl.

As Carl mentioned, we are very pleased with the results we generated in the fourth quarter and the full year of 2003.

The big stories for the quarter were our growth in net interest income and expanding net interest margin, steady fee revenues, holding expenses in line, and maintaining solid credit quality.

Our net interest margin increased 10 basis points to 3.54 percent versus 3.44 percent in the third quarter.

This drove an increase in net interest income to $379.5 million for the quarter, which was 11.5 percent higher than the third quarter on an annualized basis.

The major elements of this increase (technical difficulty) reduced Federal Home Loan Bank costs resulting from our prepayment last quarter, lower premium amortization on securities, and a 6 basis point drop in our deposit costs, partially offset by decline in loan yields.

As you know, we had nearly $2 billion in high-priced option CDs that matured in 2003, 300 million in the fourth quarter.

The effect of these maturities was felt in the fourth quarter as the cost of CDs declined 23 basis points.

Our interest rate positioning is still slightly asset sensitive.

At December 31st, our portfolio of investment securities had a duration of 2.86 years with a yield of 4.07 percent.

While maintaining a slightly asset-sensitive position, a shorter duration in a investment portfolio, and allowing securities to decline slightly, has some immediate costs, we believe that over the foreseeable future that positioning should pay off.

Adding to our positive revenue story during the fourth quarter, were upward trends in deposits and loans.

Total deposits grew in the fourth quarter, spurred by low-cost deposits, which grew 11 percent on a linked-quarter basis and 6.4 percent year-over-year.

CD activity gained momentum during the second half of the quarter, though this was somewhat masked by the $300 million of additional option CDs that matured in the quarter.

We continued to reduce our reliance on high-cost single product certificates of deposit.

We also saw total loans grow 8 percent on a lined-quarter annualized basis.

Commercial loans declined in the quarter; but commercial real estate lending remained strong.

Our Equity AssetLines also continued to be a strong offering in the fourth quarter, with total consumer lines of credit increasing 44 percent linked-quarter annualized, and 57 percent year-over-year.

With this loan activity came another quarter of solid credit quality.

For the second year in a row, we reduced our nonperforming assets.

Nonperforming assets were $303 million in the fourth quarter, compared to $327 million in the third quarter, and $318 million at December 31, 2002.

As a percentage of total loans and other real estate, nonperforming assets were 94 basis points in the fourth quarter, down from 103 basis points at December 31, 2002.

Our allowance for loan losses as a percentage of loans remained steady year-over-year at 1.41 percent, and declined slightly from the third quarter level of 1.44 percent.

We provided $30 million for loan losses in the fourth quarter, versus $32 million in net charge-offs.

Net charge-offs declined at 33 basis points of average loans in 2003, compared to 36 basis points in 2000.

Of the $32 million in net charge-offs in the quarter, $6.5 million represents an additional charge on an agribusiness-related concern we discussed in our third-quarter conference call.

Our remaining exposure is well collateralized and backed by strong capital positions.

As of December 31st, total past due loans were 95 basis points of loans and leases, about the same level as September 30.

Loans greater than 90 days past due were up approximately $4 million from September 30 levels.

As we have commented in the past, our shared national credits total approximately $500 million or only about 1.5 percent of total loans.

Our shared national exposures are generally (technical difficulty) the company's inner footprint with which we have a very good chance of developing a larger non-credit banking relationship.

We incurred a loss of approximately $4 million during the fourth quarter on the securitization of $640 million of indirect auto loans.

The majority of these loans were originated in the second and third quarters.

We did not react quickly as quickly as we should have in adjusting pricing on new originations as interest rates began to rise in the middle part of the year.

Over the past few months, we have been much more aggressive in adjusting pricing to changes in interest rates, as well as implementing a process to hedge a portion of the risk in the indirect auto available for sale portfolio.

As Carl stated earlier, we want to have a balanced mix between net interest income and non-interest income.

To that end, non-interest income for the year totaled $1.4 billion net of security gains, which is an increase of 14 percent compared to 2002 fee income.

You all know that the robust nature of the mortgage banking industry in 2003 was a big driver of those results, with originations at record levels, $9.4 billion.

During the quarter, mortgage revenues declined as expected, but performed respectably given our mix of mortgage operations.

One of the reasons for this is that the production and profitability of EquiFirst, our nonconforming mortgage company, continues to be less sensitive to interest rate environment, which acts to stabilize our overall mortgage banking business.

EquiFirst had a strong quarter in the fourth quarter, as expected.

Originations were down very slightly to $1.1 billion in the fourth quarter, compared to $1.2 billion in the third quarter.

Loans sold and delivered in the fourth quarter were up $222 million.

Gain on sale spreads declined only marginally, by about 10 basis points.

EquiFirst reported a total gain on sale of $37.8 million; that was up $6.2 million in the fourth quarter from the third quarter.

EquiFirst contributed $8.5 million to net income in the fourth quarter.

I reported their contribution at $12 million in the third quarter.

This included a onetime gain from intercompany transactions of $4.4 million that was eliminated in consolidation, that I should have also eliminated.

So, a more comparable number would have been $7.7 million for the third quarter, which means in real terms that EquiFirst's contribution increased in the fourth quarter compared to the third quarter, and compared to $7.9 million in the second quarter.

EquiFirst opened a West Coast branch during the fourth quarter, which expands our origination and underwriting platform to the western United States and increases our ability to leverage the business.

Associated with this opening were about $1.5 million of marginal costs in the fourth quarter.

We expect our new Phoenix site to break even by midyear.

Regions Mortgage, our conforming mortgage company, contributed $6.5 million in net income in the fourth quarter, compared to $12.8 million in the third quarter.

Originations totaled $801 million in the fourth quarter, about half of the origination volume in the third quarter, following the pipeline reduction we reported at that time.

Refinance volume at Regions Mortgage represented about 55 percent of total mortgage originations in the fourth quarter, down slightly from the third quarter.

Servicing was up very slightly during the quarter; but we expect to see that portfolio increase as 2004 progresses.

The unclosed loan pipeline at the end of 2003 stood at $537 million, compared to $821 million in the third quarter.

All in all the contribution to total net income of mortgage operations in the quarter was about $15 million or 9 percent.

Turning now to our brokerage business, Morgan Keegan, once again they provided stability to our earnings stream in the fourth quarter as we continued to show progress in our efforts to cross sell our brokerage offerings among other business lines.

Morgan Keegan continued to perform at a high level, earning $20 million during the fourth quarter and contributed (technical difficulty) percent to the bottom-line.

Total revenues for Morgan Keegan were $172 million for the quarter, compared to $175 million in the third quarter.

The fixed income business was softer than in previous quarters, representing 31 percent of Morgan Keegan's total revenues, compared to 33 percent in the third quarter.

The private client business accounted for 29 percent of total revenues, compared to 30 percent in the third quarter, a result of the decline in the fixed-income products sold by private client financial associates.

Other equity based business lines like equity capital markets and investment advisory increased their contribution to total revenues as expected.

We continued to grow and integrate Morgan Keegan with our banking franchise in 2003.

At year-end, Morgan Keegan had almost 900 financial advisers, including FAs located in approximately 90 Regions Bank branches.

Assets held in Morgan Keegan customer accounts and average assets per financial adviser continued to increase during the fourth quarter, totaling $40.4 billion and $58.8 million respectively at December 31.

As I mentioned earlier, we were also able to maintain good expense control during the fourth quarter.

Non-interest expenses, net of third quarter MSR recapture and the loss on early extinguishment of debt, declined $3.7 million.

We continued to buy back our stock in the fourth quarter.

Regions repurchased about 600,000 shares in the fourth quarter, leaving approximately 11 million shares available to be repurchased under the current authorization.

We will continue our focus on employing capital for building shareholder value.

In closing, we currently expect to see our net interest margin continue to expand a few basis points.

Our banking business, Morgan Keegan, and our mortgage operations are well positioned; and our sales efforts are producing tangible results.

Coupled with our cost containment, capital management, and balanced sheet management efforts, we believe we are well positioned for the future.

With that, operator, we will open up the call for questions.

(OPERATOR INSTRUCTIONS) Todd Hagerman, Fox-Pitt Kelton.

Bryan, I was wondering if you could just help me out a little bit more with the mortgage operations, particularly the EquiFirst.

I was a little surprised just how well -- you mentioned the gain on sale numbers in the quarter held up pretty well.

Production also held up pretty well.

Is really the driver behind, in terms of the EquiFirst, just with the new office opening?

Because I guess I am just trying to reconcile the trends between what we're seeing in the industry, as it that relates to kind of the nonconforming business, and kind of the secondary production channel, if you will.

No, the Phoenix office Todd, had very minimal impact on the fourth quarter.

That really did not get open until the December.

And that is in the startup phases right now, so that had no impact.

This is really just continued growth in the number of loan executives that EquiFirst has in place, as well as continued expansion into the marketplaces that they serve; some 40-plus states.

Just as we think in those terms, and you mentioned the West Coast office opening, how should we think about it in terms of a baseline?

Particularly as we focus on the EquiFirst business, as opposed to Regions Mortgage and the conforming for '04?

I think as a baseline, you can think about that business as one that we expect to see growing over the next few years.

We think this Phoenix office will take a while to get to the breakeven point, but we think it will give us a stable base for growth for a while.

Great.

If I could have a quick follow-up in terms of the securitization that you did in the quarter.

Can you just give us some guidance in terms of -- I know you have been taking down the auto over the last couple of years; and a lot of this was the recent production.

What are the expectations in terms of '04, the ongoing securitization activity in that portfolio?

I mentioned adjusting our pricing and being rather aggressive in doing that; and we have.

And it has had substantial impact on the origination volume we see, probably 50 percent of the volume at the higher prices.

I expect that the securitization volume, if anything, will probably slow down in 2004.

Great.

Thank you.

Andrea Jao, Lehman Brothers.

I would like to start by asking about your outlook in terms of loan growth.

The different categories, in fact.

So far, consumer and commercial real estate have continued to be strong.

You have let some portfolios run off.

But commercial still dipped period-end to period-end.

You mentioned earlier that perhaps pipelines are getting stronger.

Do you think this trend continues into 2004?

Or do you think that commercial will start to stabilize and consumer start to slow?

Let me try to answer that, because we are fairly optimistic about loan growth for the next year; or this year, I guess, now.

We started seeing that in December.

And I know one month doesn't a trend make.

But if you look at our pipeline, if you listen to our loan officers, there is more activity out there now.

There is more conversation.

There is more loan packages to be looking at.

I was talking with the president of our Atlanta bank just last week, and he had had a detached retina operation at the end of the fall and was totally fine; his eyesight is great.

And he says, boy, I need it now because we got a lot of loan packages to be looking at.

I feel fairly optimistic about our loan growth, both on the commercial side and the consumer side.

Great.

Given that outlook, you mentioned earlier, or I interpreted your comments earlier on the securities portfolio, that perhaps you would not be growing your securities portfolio.

To balance your growth would essentially -- overall balance your growth would essentially be dependent on loan growth?

Or if loan growth doesn't materialize, would you be inclined to compensate by growing your securities book?

All of those are potential outcomes.

I lot of it is going to depend on what is going on the interest rate environment, in addition to what is happening with loan and deposit trends.

As we sit here today, though, we expect our securities portfolio would remain flattish.

But if the interest rate environment changes, our thinking will change with it.

Okay.

One follow-up question on credit quality.

And pace has been trending down.

Is there a core level that you anticipate for 2004?

Or a range wherein NPAs would stabilize?

I'm sorry;

I didn't understand exactly.

Let me ask it this way.

How much further do you think NPAs can improve?

I understand.

I would suppose just marginally.

Because 36 basis points of charge-offs is pretty low and 0.94 of non-performers is probably in the middle of the pack.

We would like to move a little bit lower on NPAs, and if the economy does pick up like we think it is, we think there's a good chance that will happen.

Great.

Are you giving an outlook with regard to charge-offs this year?

No, we're not giving any outlook.

Okay.

Thank you very much.

Jefferson Harrelson of KBW.

My question revolves around Morgan Keegan.

I think it was the last quarter you guys were saying you felt like you could keep Morgan Keegan flat in '04 versus '03.

I was wondering if anything has changed since then?

Whether rate environments or anything you're seeing in the businesses would change your outlook for Morgan Keegan?

No, we think what happened in the fourth quarter is exactly what we thought would happened.

The equity side of their business began to pick up a little bit.

The fixed income side (technical difficulty) off a little bit.

But overall the results were about what we expected.

Since that time, interest rates have fallen again, so we could very easily get another little boost in the fixed income side.

But it really all depends on, I think, what happens with interest rates.

But we feel very comfortable about how we are positioned to take advantage of either side of the ledger there.

If rates do go up, do you think that the equity businesses can offset the fixed income businesses to create a flat top-line?

Yes, we do.

All right.

Thanks a lot.

Amy Eisner, Friedman, Billings, Ramsey.

My question has been answered.

Thank you.

Great question, Amy.

(OPERATOR INSTRUCTIONS) Jeff Davis, FTN Securities.

Could you give us just a little bit more color regarding the C&I that dropped linked quarter between 3Q and 4Q?

Was there any industry or region concentration?

And then same thing with the pick-up in volume in December.

Or was it spread around?

I don't think we can give you any specific color, Jeff.

We don't have any real big loans in our company.

We are in 250 communities across the Southeast, and it was just spread out all across there.

So, no; there is no specific color I can give you about any one geographic location or any industry.

I just have a couple follow-ups if I may.

Bryan, on the EquiFirst business, did you all retain any of that in your portfolio?

Or was it the to production sold?

No, it was all sold, whole loan servicing released (ph); nothing retained at all.

How much was sold this quarter?

A little less than 1.1 billion.

Around 1.1 billion.

Your rate assumption for the coming year, Bryan?

Who knows.

We ought to run a survey on that.

Right now, we're sort of assuming that things are going to be steady as she goes for a while.

Rates ticking up sometime in the later part of the year.

Every time we start to get to feeling a little bit better around a rate assumption, rates go up; and then they fall off precipitously.

So we can't get real comfortable with any assumptions, but that's what we're thinking today.

Thoughts on the reserve levels?

Asset qualities getting better etc. etc.

Do you intend to fully cover net charge-offs?

Or let the reserve ease down by not covering net charge-offs?

The answer to that question is so situational, depending on the facts and circumstances at the time; but I would say we are very comfortable with the level of reserves that we have today at 1.41 percent.

We will make that call quarter by quarter as we evaluate what is going on in the portfolio and the various trends around losses.

But today we are very comfortable with that level.

You bought back stock.

Carl the M&A environment is picking up again.

Your thoughts there on willingness of regions to look at properties?

Boy, it really has picked up.

The speculation and rumors are rampant right now.

It is really interesting.

I wish I could stop at the water cooler and talk with you about it, Jeff, or even our water cooler right here in our building.

Front page story today in our newspaper here is all about what happened Wednesday and implications or maybe implications.

But I really just can't comment on rumor and speculation.

While it would be fun, the lawyers say I just can't do that.

Okay.

Let me ask just generally then, as it relates to smaller properties.

I would assume you're seeing a few more packages of community banks from investment bankers circulating them through.

I can't remember when you all bought your last depository, but it's been a while now.

We really only acquired one small depository in '03; and that was three small branches down in Central Florida.

Okay.

Any interest in being a little more active on the fill-in side around the footprint?

Right now, we're doing that with the de novo branching strategy.

But certainly we would be open to looking at any opportunities that come along.

Very good.

Thank you.

Kevin Reevey, Ryan Beck.

Earlier you talked about your integration with Morgan Keegan, with the rest of the Regions Bank, and cross sell, and trying to get additional products out of your existing client base.

Can you track any specific statistics as far as what the average number of products your customers have today, versus last quarter, versus last year?

We do.

We do that that with what we call our main sale customers, which are I guess the 30 percent of our customers we think are the most profitable.

And we do have a campaign underway trying to build those relationships.

We don't really measure it in the typical cross sell kind of statistic that you might be familiar with.

Our whole measurement is trying to build that relationship, so we are interested in not what happens each time the customer sits at the desk, but what happens over a period of time.

Specifically, do you have some sort of device where you can go online and say, okay, this customer has four product relations versus last year they had a two-product relationship with us; something like that?

We do that more by branch.

The branch of our bank as opposed to per customer.

I can tell you that in '03 we had 574 branches that did what they were supposed to be doing, as building relationships.

That was up from 188 branches the year before.

So we went from 188 to 574 branches that are doing the sort of things, exhibiting the sort of behaviors, that get us to building those relationships with customers.

We do have the customer profitability models.

We do look at profitability at the customer and household level.

We have the ability to analyze the portfolio.

And yes, we do track the number of products and services per household.

To Carl's point, we don't measure per se the cross sell ratio of services per household specifically, because it incents selling the wrong product to the customer at the wrong time.

So we want to make sure, as Carl said, that we build on those relationships by deepening and strengthening those relationships in a win-win fashion for both of us.

My last question is on the brokerage fee line; that is down 3.3 percent on a linked-quarter basis as well as on a year-over-year basis.

You mentioned the decline in the sale of the fixed-income product.

Is the drop entirely related to that?

Or is there something else going on?

And if so, what else is driving those numbers down?

The two major things that you saw in the fourth quarter is fixed-income product sales, both on the retail and the wholesale side, were a little bit slower due to the interest rate environment.

And the second thing that you saw is you saw retail brokerage activity slow in the last couple weeks of the year as the market in that two-week holiday period slowed rather significantly.

But those are the two major trends.

Thank you.

Todd Hagerman, Fox-Pitt Kelton.

If I could ask another question on the Morgan Keegan.

A couple of things.

One, if you could just comment in terms of the fixed-income underwriting this quarter.

Maybe talk in terms of the mix of business; how that compares to third quarter.

If you're seeing anything noticeable there?

And if you could add a little bit more color in terms of the investment banking line, and the pickup that we saw?

And maybe the pipeline and what you're seeing in that business?

The fixed-income investment banking and the equity investment banking businesses did pick up a little bit, and stayed pretty strong this quarter.

The mix of business didn't shift an awful lot on the fixed-income investment banking side.

We did a very good job in the municipal business, and we still feel good about the distribution capability that we have there.

The pipelines are probably a little bit softer at the end of the year on fixed income.

But we think that has much to do with the way the calendar fell as anything.

What about, for example, like on the mortgage-backed segment?

Any noticeable shift there, linked quarter?

The mortgage-backed was flattish in total.

It was down.

It switched a little bit between mortgage-backed securities and government business.

But in total it was a bit flattish.

Just in terms of the investment banking line itself, was there anything in particular that caused the pickup in the fourth quarter?

Any IPOs or anything else to really talk about there?

There is a little more deal flow activity, but nothing of significance to note.

Great.

Thanks a lot.

Jennifer Demba, SunTrust Robinson Humphrey.

I was wondering if you could give us a more color on your branching plans for this year.

You said you were going to open about 30 branches.

I was wondering what markets those new branches will be in?

And could you also give us any stats you may have on how the branches you opened in 2003 are doing now?

The stats are very good.

All that are opened at this point are meeting projections.

Generally, we project that they become totally profitable by the end of the second year.

As to ones to be opened this year, those are mostly in the eastern side of our footprint and the western side of our footprint.

The western side being specifically Texas, and the eastern side being some Georgia, Florida, and Carolina kind of locations.

All places where we need additional critical mass.

Okay.

Thank you.

John Pandtle, Raymond James & Associates.

I actually had two questions, if I could.

The first one, Bryan, can you break out the premium amortization in the fourth quarter and what it was in the third quarter?

And then what is the unamortized premium or remaining on the securities portfolio?

Sure, John.

The premium amortization in the bond portfolio in the third quarter was roughly $22 million.

It was roughly $13 million in the fourth quarter.

So about $9 million of improvement there.

Essentially all of the yield improvements you see on the securities portfolio.

We've got about, call it $140 million of unamortized premium.

Half of that is associated with the $2.5 billion that we have in laddered bullet agencies.

The rest is associated with the mortgage-backed portfolios.

Roughly half of that premium is associated with callable or prepayable assets.

Okay.

Assuming that rates in this quarter, and moving back to the average where we were in the fourth quarter, we have seen the benefit that you would expect in terms of the margin from securities yield?

Because that looked like it most of the improvement in the quarter.

The securities yield is probably about where it stays if you move back to that average of portfolios at about a 407 yield.

So that is not a whole lot different than where we were.

The margin improvement essentially, you can look at it in several big buckets.

You can say the securities portfolio was up, the loan yields were down slightly as fixed-rate loans continued to pay off in this lower rate environment, and you had some continuing resets in the floating-rate loans on a lag basis.

So those sort of mutualized themselves on the asset side of the balance sheet.

Then you had some improvement, a good bit of improvement on the liability side resulting from the runoff of the CDs portfolio, as well as the prepayment of the Federal Home Loan Bank advances we took in the third quarter.

So, we think where we are, we feel pretty good about the 354; and if anything it might expand a little bit.

It expands a little bit because you have a little bit more flexibility on the funding side?

Yes, I think so.

One final question.

What is the balance of the unrealized gain in your securities portfolio at quarter end?

Let me double check that number.

It wasn't very big.

Unrealized gains, a little over $100 million gross at the end of the year, John.

Bryan Schultz, (ph) CSFB.

My questions have already been answered.

Thanks.

William Nabler (ph), Atlanta (indiscernible).

You said you bought 600,000 shares, I believe, in the fourth quarter.

How many shares did you buy for the year?

And what was the share count at year-end?

For the year, how many shares did you buy?

For the year we bought about 1.4 million shares.

The share count?

Average or fully diluted, all that is in the release.

I think it was about $222 million roughly (multiple speakers).

222 shares?

222 million shares outstanding.

That is year-end?

Yes.

Is that fully diluted?

No; that is shares outstanding.

Fully diluted is 225 million shares or so.

You mentioned you're going to open 30 branches this year.

What is the base of branches that you have?

About 680.

Is about a 4 or 5 percent expansion rate possible over the next few years in branches?

I don't know that we need to do that over the next few years.

We need to do it in this year.

The last question; you referred briefly to the rumors on M&A whatever, but with consolidation developing throughout the country, how do you see this impacting your competitive strengths?

Well, I think if we take care of our customer on a day-to-day basis, we can remain competitive.

We've got the size and the scale to be competitive.

We have just got to take care of our customer every day.

Okay.

Thank you.

Andrea Jao, Lehman Brothers.

My follow-up question is actually on expense accruals and your outlook for expense accruals going to '04, factoring in the costs of building your branches.

Do you have a per-share estimate of how much your branch expansion plans will cost?

Or what kind of growth that would tack on to your ordinary growth rates?

We have an answer to that question, but that would fall in the category of giving guidance.

We are not going to do that.

Okay.

Thank you.

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