Truist Financial Corp (TFC) 2003 Q4 法說會逐字稿

Good day. At this time, I'd like to turn the program over to Mr. Ed Milligan. Please go ahead.

Thank you. Good morning and welcome again to our quarterly earnings call for Main Street Bank. The fourth quarter of 2003 was another solid quarter for main street as we exceeded consensus estimates by a penny and continued to invest in new products and banking centers. We look forward to providing you further insight into our performance during our call this morning. This is our cautionary statement that our presentation may contain forward-looking statements. We'll be following our standard agenda for today's call. We'll spend most of our time discussing our quarterly results but leave plenty of time for questions you may have, either by telephone or via the Internet at webcast@mainstreetbank.com. In addition to our quarterly performance, we have a number of important recent developments that we'd like to share with you this morning.

I'm pleased to have Sam Hay and Bob McDermott join me this morning, as usual, to provide their insight on our performance. Bob will present our financial performance followed by Sam's commentary on the factors impacting that performance during the quarter. Now, a very quick overview on Main Street. We continue to be the market leader in community banking in Metro Atlanta. We've doubled our size over the past three years to $2 billion in total assets, all located in the dynamic Atlanta market. We're privileged to serve some of the country's fastest growing communities through our 24 banking centers. We've been able to achieve this strong growth also while maintaining our high operating performance, as you can see. Most of you are familiar with our history and our trading characteristics since we began trading on the NASDAQ in 1997. We've recently reached market capitalization of over $500 million, and average trading volume is now in excess of 25,000 shares per day. We believe our appraising 12-month PE of 1945 represents a relative valuation opportunity. As you know, we enjoyed a 38% appreciation in our share price in 2003, continuing a five-year trend of strong shareholder returns driven by equally strong operating performance and earnings per share growth. But we believe we still represent a valuation opportunity when compared, especially to a group of high performance peers. And Sam Hay will be addressing this a little later in the webcast. These are the six firms that are covering our stock, as you can see.

As far as recent developments are concerned, last week we announced an increase of 12.5% in our quarterly dividend to 13.5 cents per share, with a dividend payable on February 4th to shareholders of record on January 21st. In December, we announced plans to acquire Banks, Monahan, and Hayes insurance industry which is located right in the heart of our strongest banking market. We believe this acquisition will be accretive and is very complementary to our operations. We also announced in December the filing of a $100 million shelf offering, and we are moving forward on our Galleria banking center in Cobb county to open in late 2004. Also, we were cited during the year as one of eight great blue chips you'd never heard of in an article on MSN, and we ranked third in Georgia in SBA loan volume in 2003. And we believe that, of course, this supports our focus on small businesses. Woods launched formal coverage on our company last Friday, and we'd certainly like to welcome KBW analyst Jefferson Harrelson back to Atlanta after a stint in New York City. Also, Sam Hay and I will be presenting at the Raymond James institutional investor conference in March in Orlando, and I presented at the Samuel L. Neil financial services conference in November and Sam presented at the SunTrust Robinson Humphrey Sunbelt banking conference last September.

Now let's move on to our fourth quarter performance. In our earnings release earlier this morning, we announced net income of $7.4 million, up 34.5% from 2002. Which equals diluted cash earnings per share of 38 cents versus 34 cents for 2002. And that's an increase of 12%. And it also exceeds analyst consensus EPS estimates of 37 cents for the quarter.

During the quarter, asset quality remains strong, and Sam Hay will comment on this shortly. We continue to generate very solid loan and transaction deposit growth, and we are today re-entering comfort with our full 2004 consensus estimates and also the current consensus estimates for the first quarter, I might add. And those estimates are, for the first quarter of March '04, 37 cents, a high of 38 cents, and a low of 36. And for the year ended December of '04, a consensus EPS of $1.60 with a high of $1.62 and a low of $1.57. With that, I would like to now ask Bob McDermott, our Chief Financial Officer, to discuss our fourth quarter performance in detail. Bob.

Thanks, Ed. As you can see from this slide of the graph at the top of the page shows the consistent trend of net income for Main Street. On a link quarter basis, you can see from the third to the fourth quarter of 2003, our net income rose from $7,118,000 to $7,447,000, which is an increase of $329,000, or 5%. The chart at the bottom of the page illustrates most of the information that Ed shared with you this morning on his press release.

Our net income rose from the fourth quarter of 2002 at $5.5 million to the fourth quarter of this year at $7.4 million, which is a $1.9 million gain or 35%. On an operating income basis, which is just the reversal out of our goodwill intangibles, the amortization of the intangibles, you can see the operating income grew $2 million, or 36%. Or diluted and operating diluted earnings per share for the fourth quarter of 2002, as Ed mentioned, were 34 cents compared to 38 cents in this quarter. Again, for an increase of 4 cents, or 12%.

The next chart illustrates our loans outstanding. The graph at the top of the page shows the trend of Main Street's period ending loans of net unearned income. Again, on a linked quarter basis you can see our loans have increased from $1.412 billion to $1.443 billion. That's a $41 million increase in period-end loans. We're slightly over 2%. Sam is going to discuss this morning the factors that impacted the moderate growth for this quarter, link quarter basis. However, if you look at the chart at the bottom of the page, you can see on a full year basis Main Street Bank experienced tremendous growth. Loan outstandings in the fourth quarter of 2002 were $982.5 million, and at period end, December 31st of this year, increased to $1,443,000. That's roughly a 47% increase. As we've talked about prior calls, almost $288 million of that increase, however, was because of the acquisition of First Colony -- First Colony. Excluding the First Colony acquisition, you can still see that loans grew $173 million for the year, or roughly 18%. Similar chart on the next page on deposit outstandings, the graph at the top of the page shows a trend of Main Street period end deposits. Again, on a link quarter basis, you can see that in the third quarter of 2003, we finished the quarter with $1,038,000, and that it grew to $1.449, which is a 1.5% increase. The chart at the bottom shows the details of what happened over the last year.

You can see Main Street Banks, including the First Colony acquisition grew from a total deposit base of 1.129 billion to a 1.459 billion in the fourth quarter of this year. That's roughly a $330 million increase, or a 29% increase in our total deposits. Excluding the First Colony acquisition, which was a purchase of $282 million of deposits, you could see Main Street Bank continued to focus on running off our high cost time deposits and growing our low cost core deposits. Again, you could see in the fourth quarter of 2002 our low cost core deposits grew from roughly $562 million to $657 million, again excluding First Colony. That's a $95 million growth, or roughly 17%. The slide on page 15 shows the tax equivalent net interest income for the firm. As you can see from the graph at the top of the page, over the last five quarters main street has seen consistent net interest income increases. Again, on a link quarter basis, net interest income is increased from $19 million in the third quarter of '03 to $19.6 million in the fourth quarter of 2003. That's a $600,000, or a 3.2% increase on a link quarter basis.

The chart at the bottom of the page shows the tremendous growth that we've experienced year over year. Net interest income increased from $14.7 million in the fourth quarter of 2002 to $19.6 million in the fourth quarter of this year. That's a $4.9 million increase or roughly 33%. During this time, as we've mentioned, we were going to see our net interest margin go down somewhat, and you can see, comparing period to appeared, our net interest margin actually went from 488% to 449. The majority of that increase was caused by the First Colony acquisition, which is in the northern arc of Atlanta, which is a lot more competitive. The opening of our Dunwoody and Buckhead branch locations, and the repositioning of our bond Private Security Litigation Reform Act to be less dependent on mortgage backed COMOs. As Ed mentioned, we had a very good credit quality quarter. You can see net annualized charge-offs as a percentage of loans finished the fourth quarter at 24 basis points. For the full year, that's 23 basis points. Again, a very good year for Main Street Bank on the credit side. You can see our non-performing assets ticked up slightly in the fourth quarter. Again, Sam's going to mention in a little more detail about that in a moment. Our reserve for loan losses was kept flat at 147 for the quarter. The next slide is a slide on our non-interest income.

You can see the graph at the top of the page illustrates our five quarter growth in non-interest income. The chart at the bottom of the page shows our non-interest income from the fourth quarter of 2002 increasing from 5.2 million to 6.9 in the fourth quarter of 2003. That's a $1.7 million variance, or 33%. On an ordinary income basis you can see the biggest contributors of that was our SBA lending organization, our insurance agency commissions as well as our service charges on deposits. Ed alluded to, in the press release, that this quarter we had the sale of four branch facilities that will no longer be occupying. Those facilities were winder, Lawrenceville, midway, and our Gainesville road facilities. The total amount of the game on those properties was roughly $3.5 million, and that increased our non-interest income. On the next slide, you can see our non-interest expense in a very similar slide here. The graph at the top of the page shows our growth in non-interest expense over the period. What I'd like to mention at this time is our non-interest expense for the fourth quarter was slightly overstated for the $512,000 donation associated with the Winder branch sale. Again, what we had was, on our non-interest income, roughly $1,350,000 of one-time gains, and that was offset by a one-time donation of roughly $500,000, which gets back to the $850,000 that Ed mentioned in his earnings release this morning.

The chart at the bottom of the page shows our increase in non-interest expense from the fourth quarter of last year. The majority of this increase was associated with bringing on the First Colony acquisition as well as the Dunwoody, Buckhead, and increased emphasis in our cash management business. With that, I'd like to turn the next part of the presentation over to Sam Hay.

Thanks, Bob. As you are accustomed to in listening to our quarterly calls we would like to reiterate our performance objectives so that you can be clear that we are continuing to set significant standards for ourselves. Most of these numbers -- or all of these numbers have not changed in the last couple of years, but just to reiterate some of them, you will remember that we are setting goals of reaching cash returns on tangible assets, an equity of 160 and 18%. We're giving guidance of 12 to 15% EPS growth, cash EPS earnings growth, as we have in the past. Continuing to target about a third of earnings to be paid out in dividends, and also continuing to work very hard toward our fee income goal of 30% by next year and cash efficiency ratio of 50% by the end of this year.

Of course, we also intend to continue to maintain our superior asset quality and also probably our most sacred goal is the top quartile peer performance.

Our guiding principle, the sort of arching courses of action that guide what we do and guide our planning as well have not changed either. We want to continue to solidify our position as the leader in community banking in the Atlanta area, and we believe that we can solidly lay claim to that title these days. We intend to do that by continuing to focus on internal growth of loans and deposits through our hiring successes and our de novo branching successes as well. As you know, we have targeted about 80% of our growth to come internally, and the rest through a very disciplined and limited acquisition strategy. As in the past, I'd like to update you on each of the functional areas in terms of the day to day operations of our company. First, I'd like to talk with you about our sales and marketing successes during the quarter.

First, I'm very proud to report that we had a record high quarter in terms of loan production. That number -- those numbers did not necessarily translate into record high growth in outstandings, however, due to some turnover in the First Colony unit that we acquired, First Colony bank shares that we acquired last May. While we were conforming the loan mix and underwriting practices to the Main Street Bank credit culture. Proud to tell you that we have backfilled those jobs with high performing folks and have communicated very high expectations to them. And believe that we now have a unit that is very much in conformance with the Main Street Bank culture. The turnover is something that we expected and priced into the deal. It is not atypical for a strong banking market, as all of you know, where start-up banking is very rampant and where business is so good. We have found, though, that it is historically better to be aggressive in communicating our high expectations and sort of get it over with in terms of the cultural transformation that must take place in an acquisition.

We certainly could reconsider our centralized model for the back office, but we believe that efficiency trumps our concerns about turnover and about the changes that we generally have to put in place with an acquisition. The turnover was in the middle management ranks at First Colony and we believe that our unit there is now growing once again and very vibrant.

We are anticipating increased productivity of our 2003 sales hires and very excited that those sunk costs are behind us and that we'll be able to leverage that investment significantly during 2004. We also are finalizing banking center locations in midtown Atlanta and also in the Suanee-ph area in the northeastern suburban quarter. We do not have final locations yet, but are anticipating finalizing those decisions in the next few months. As Ed mentioned previously, we will be opening our Galleria banking center in the fourth quarter of this year. Now, turning to fee income, I would like to update you in general on where we stand with each of our fee income units. As Bob mentioned, our non-interest income was up 33% over the fourth quarter of 2002. We're very excited about our fee income growth and about the possibilities of meeting our 30% fee ratio goal by the end of next year.

The components of that are very exciting. SBA was up 300% over the fourth quarter of 2002, and we're also glad to report that our mortgage operation has stabilized. I'm sure that all of you have heard a recurring refrain in the last couple weeks about mortgage business being off due to rate increases. We are proud to tell you that our mortgage operation is only 3% of our net revenue and that it is now stabilized, and we believe healthy. We also are transforming our brokerage unit to more of a wealth management focus. In the past, our emphasis has been on consumer banking clients given that we are a small business bank, we are beginning to transform our brokerage emphasis to more of a private banking and wealth management focus as well as to getting to the liquidity of the liquid assets of many of our small business and professional clients. We're excited about the possibilities that this unit will bring for 2004.

The acquisition of banks Monahan Hayes insurance is also really exciting to us. It is a tremendous fit with our organization and nearly doubles our revenues and footprint in insurance. As you will see our insurance revenues were up 24% on a year to year basis in 2003. And probably our most exciting news for this quarter is that we launched our payroll processing service back in November. Moving on to the next slide, we'd like to use the payroll solutions product as an example of the significant investment that we are making in the future of our business. As Ed mentioned at the beginning of the call, we are investing in new people, new products, and new banking centers. And we have never been so gratified before as we are by the launching of Main Street Bank payroll solutions. After just one full month in business, we now have 29 clients with 717 payees. We're averaging revenue of about $1,800 per client, and that doesn't include any quantification of new deposits that come either through cross-selling of deposit accounts or through the payroll tax deposits that come into the bank in anticipation of being paid to different government entities. We are projecting that we'll be at an annual run rate, annual revenue run rate of $300,000 by the end of this year with this business and are excited to tell you that our pipeline is very strong. We are anticipating about 34 prospects coming in the next couple of months and 600 new payees on that business. We are adding about 12 new clients per month conservatively. Feel good about that number. And as you can see, as is typical with many fee businesses the start-up costs of this business were very nominal. We have injected about $100,000 in hard capital into the business and are anticipating about $350,000 in annual overhead to support the business.

Putting all that math together -- and you can certainly do that math too -- gives us a break even in about 20 months, if you include the value of new deposits that we do anticipate from this business. We are excited about this business and believe that it is an example of the kinds of manageable risks and opportunities that we need to be taking and seizing in our business to invest in the future of our business.

Turning on to merger and acquisition activity, as I mentioned, we believe that our First Colony unit is now stabilized and is growing. As I mentioned, the Banks, Monahan, Hayes insurance acquisition is a great fit with our previous insurance agency lines and culture. Very excited about some of the new lines this organization is bringing to the table and will be able to serve our clients with. At this time, we're not seeking any banking deals, not considering any at present, and are still under the somewhat of a moratorium that we announced back when we announced the First Colony acquisition and intend to stick to our word on that as we continue to build on our internal growth success. We are still interested in further insurance deals only within our banking footprint and are actively looking for those.

Profit improvement is a function that is always ongoing at Main Street Banks. In fact, many of you who have known our story for several years know that one of Bob McDermott's real expertise areas was in performance enhancement. In fact, his title at South Trust was head of performance enhancement for their organization.

Bob spends a great deal of his time looking for opportunities to improve the bottom line of our company and also has a couple of folks on his staff that spend 100% of their time looking for these opportunities. We have not spoken to you about specifics in these areas in several quarters, and I'd like to update you on some of the things that we're doing in this area of our business now.

During the first quarter, we are eliminating 30 non-production or non-productive jobs in the organization. We have implemented a process of conducting semiannual reviews of service charges, of all waived accounts and all waived fees. We are implementing new controls over discretionary spending. And while these controls are not necessarily new to the organization, we are increasing these controls and the oversight of discretionary accounts because we believe that there is opportunity in our business to continue to squeeze the nickel, despite our interest in internal growth and driving revenue.

Obviously, looking at any organization that has had 47% growth in non-interest expenses over the last year should tell you that there is some opportunity, and we certainly intend to seize those opportunities. We are continuing to reengineer the management of our NSF and overdraft income. We will be acquiring about $5 million in additional banking and life insurance during the quarter, and in the last year, we're proud to tell you we made our back office even more efficient by placing all paperwork, all forms, manuals, and reports on our new intranet that all of our employees are now using very actively. I'd like to also update you on our staffing and support functions during the quarter.

As many of you probably saw, we did issue a release about the hiring of Gary Austin as head of our risk management group. We're very excited about Gary's addition to our team and believe that he has tremendous expertise in helping us manage and balance risk and seek opportunity from the risks that we take. As we grow our business significantly.

We also have established service quality as the primary initiative for 2004 from a sales and a support standpoint. Both the quality of the service we give to our external clients and the quality of service that our teammates give to each other internally. We've made very good progress on service quality standards and also on the coaching training that is required to develop leadership on service within our organization. We continue our training and planning for the conversion to the Jack Henry Silver Lake system in May of 2004 and believe that this is a significant example of the investment in the future of our business.

As we told you last quarter, we were finishing the expansion of our operational service center. We did do that during the quarter and occupied that space in December and now believe that we have plenty of space to support the growth of our business with our support functions. We hired a new operations head for our payroll business and will be making continued investment in that business because we believe the prospects for it are very strong. And we also installed the TLC software, the construction lender -- TCL, it should be -- from London bridge for managing our construction loan portfolio. The addition of this software will give us significant detailed information about managing our construction loan portfolio and also gives us great comfort about continuing the concentration, somewhat of a concentration that we have in that business.

Bob mentioned our asset quality for the quarter. We believe that it continues to be very good. Charge-offs of 24 basis points during the quarter. We did see a little up tick in our non-performers at the end of the quarter. As you may remember, at the end of the third quarter, we gave you guidance that our non-performance would be back down. We are proud to tell you that as of yesterday our non-performers were down to 57 basis points of the assets and also are pleased to tell you that 8 basis points of that 57 are government guaranteed portions of SBA loans. So we feel very comfortable about our asset quality. Our outlook is very positive for the rest of this year on losses and non-performers. Our delinquency trends are very stable. In the last few items on this slide, you're very familiar with in terms of our emphasis on collateral, on principal guarantees, and also on avoiding shared national credits.

The future of our business moving onto the business pipeline, we believe has never been better. We expect double digit loan in deposit growth in 2004 as we have for the last couple of years. We are maintaining the mix of owner-occupied credits which we believe are a very strong forte for our business. We're proud to tell you, if you didn't know it, that Atlanta job growth is again leading the country and Atlanta demographics in general are at the top of the list for major MSAs throughout the country as well.

During the year, we're going to be focusing very heavily on deposit incentives and particularly on checking balances, and are excited about the possibilities of continuing our record of improving the mix of deposits toward core deposits and toward mainly low cost core deposits. We're also excited about our fee income potential with our insurance acquisition, with the transformation of our brokerage unit to more of a wealth management focus and also with the payroll service that we mentioned. It probably goes without saying, but our margin outlook continues to be flat as long as we're in a stable interest rate environment.

And last but not least, we'd like to close by summarizing with why invest in Main Street? We think that Main Street Bank is a unique combination of high performance, not just high performance, but top quartisle performance combined with strong earnings growth. We believe we've got one of the best franchises in the country in one of the best markets in the country. We're in one of the wealthiest and fastest growing segments of the dynamic Atlanta market. We continue to fill a competitive void with small businesses and professionals in the market and believe that with continued disruption in that market, that void will continue to exist. Our internal growth is significant. We believe it's due to our entrepreneurial and service-oriented culture and the informal culture and collegial culture we have and the way we treat each other as teammates within our organization.

We have an experienced management team that comes from large banking organizations, a very limited acquisition strategy, and we also believe, last but not least, that we continue to be a valuation opportunity relative to some national peers. And turning to those peers, you will see that in the last few months we believe there's been a good bit of creep in our peer group relative to our performance and to our valuation. Looking at this list, you'll see that our performance ranks number one on this list, yet our PE is eighth and our PEG ratio is seventh on the group. If you buy this group of peers, and our logic here, you see that comparing us even to the average of the group for performance, there are several dollars in our stock, but if you compare us to the top group, the top third of this group, there are many dollars opportunity in our stock as well.

That does it for the factors impacting our business for the quarter. Now I'll turn it back over to Ed.

Thank you, Sam and Bob for your commentary on our fourth quarter performance. For those participants who would like to E-mail us a question, please do so now at webcast@mainstreetbank.com. Otherwise, I'll turn it back over to our moderator for further instructions.

At this time, if you would like to ask a question please press the star and 1 on your touchtone phone. You may withdraw that question at any time by pressing the pound key. Again, to register your line for a question, please press star and 1 at this time. We will go to the line of Jennifer Demba with SunTrust Robinson Humphrey. Go ahead, please.

Good morning. I was just wondering if you could give us color behind the sequential decline in your net interest margin, and then I have a follow-up question.

Yeah, Jennifer. This is Bob. The majority of that, as I mentioned, was because of the First Colony acquisition. Prior to First Colony, Main Street was running in the extremely high 480, 490 range. We knew through our due diligence that the First Colony acquisition was more about a 450 margin. So that was going to bring us down slightly. And then with the opening of our Dunwoody and the growth of our Buckhead location combined with our new commercial real estate division, which obviously doesn't get as high a yield on its loans, the combination of those factors has squeezed our margin to the level we're at now. We see no further erosion, maybe slightly, but 450 is really the level that we're comfortable with and see us staying at for the foreseeable future.

Okay. Thanks. My follow-up question is regarding asset quality. Sam, you gave us the stats that MBAs have improved in the first quarter. Your statistics over the last couple of quarters in terms of non-performing assets has kind of run counter to the industry. Is that mainly coming from the acquisitions, or is it some kind of different lending you're doing now? Can you kind of give us some color behind that?

No. You've got it, Jennifer. The bulk of the increase in our non-performers in the third quarter were related to the First Colony acquisition, and we feel very good about those assets. We are well secured in those assets. And we'll tell you that the bulk of them did come from that acquisition. So no change in lending, no change in structure. We continue to give very diligent oversight to our internal criticize and classified process, our loan review process and actually have found that the increase in some of those assets is due to that increased oversight. So we feel very good about where we are and believe that the trend already that we reported to you in the first quarter shows -- or really is evidence of our comfort there.

What is the size of your largest non-performing asset?

2 million. We have two assets that are over a million, two that are over 500,000, or between 500,000 and a million. Everything else is very small. So you see that our insistence on not using our legal lending limits pays off, obviously, when non-performers do occur.

Thanks, Sam.

We will next to the line of Jeff Davis with STM Securities. Go ahead, please.

Good morning. A couple questions. First, Ed, you may have -- I think you referenced it, but it didn't fully register with me on your comments. With regards to the shelf offering, 100 million, and, Sam, I know you've had a few conversations on it looks like your capital formation is enough to gradually build capital ratios over time. What's your current thinking with regards to doing anything off the shelf offering?

Well, Jeff, we're moving slowly and giving it strong consideration. We're getting, as you would imagine, a lot of advice from a lot of different quarters in the investment community.

I'm sure.

In that regard. But we are moving cautiously and feel like our current level of capital certainly is adequate and look forward to talking to the regulators as well and getting their thoughts on it as well. We don't have any specific plans to announce, but I think you would probably say that we're moving cautiously and would react probably in a matter of months as opposed to something in the very near future.

Right. And then, Ed, from running the bank, though, longer term, your tangible equity is down around 550, and that should creep up unless loans grow super, super fast. What's your longer term comfort level with tangible equity?

Well, I think long term -- and especially if we're going to re-enter the acquisition arena and needing some dry powder in that regard -- that we probably, you know, 7, 7.5% would be a good long term number. We think we can grow somewhat into that. But probably would also argue it for -- and that's the reason we filed this -- that we may need additional capital at some point.

And then on an unrelated matter, the FTE reductions for the coming year, the 30, in effect, that's incorporated in our confirmation of the comfort with existing consensus for '04, is it not?

Yes. Yes, Jeff.

Sam, what's the -- roughly, what's the dollar impact from that?

Well, we said 30 FTEs. What we really mean by that is the equivalent of 30 FTEs, and I don't recall our average total investment in our people, you know, per person. But we are targeting, including benefits, about $900,000 on a pre-tax basis with that number. Now, you should keep in mind, though, that during the year we are likely to open one or two de novo facilities as we have given guidance on in the past. So those savings early in the year, we believe, will prepare us to be more efficient in opening those facilities later in the year.

Okay. Would it be fair to say that some of the staff reductions are just -- I hate to use the word clean-up, but I'm going to -- is clean-up from your two acquisitions in the last 12 months of revisiting cost structures in the back office and the like.

Well, I think we should say it's really across the board in our organization. As you know, we have continued to tweak our incentive structure and process. We have been building the support side of our organization very rapidly to support the growth on the front end of the organization as well. We are always mindful of opportunities to staff more efficiently and to manage all of our costs. But, obviously, since people investment is about 60% of our overall cost, that's something we have to stay very mindful of. So I'm not going to say that that's not a fair assessment, your wording, but I think it is probably more appropriate to say that it's an ongoing effort, but in fact, Bob's performance enhancment area is staffed by a former consultant who uses very quantified models on the transaction side of our business and we've always used those. But we continue to tweak our incentives, and also on generally an annual basis look at the performance of our production or sale personnel relative to those incentives. If we find some folks just simply aren't able to cut the mustard, then we try to move them into other kinds of jobs, particularly support jobs. Or if they choose not to do that then move them out of the bank, obviously. But it's a continual tweaking and evolutionary process, not revolutionary.

Okay. Very good. Thank you.

We'll go next to the line of David Parr, with FIG Partners. Go ahead, please.

Hey, guys. I don't know if you saw the AJC article on Monday, where it talks talked about the northern suburbs kind of getting full and congested and expensive and leading to real strong growth on the south side and was curious about your thoughts of branching or expansions in the southern suburbs.

Well, we have -- I didn't see that article, by the way, but I know that some of our markets like Cobb County, for instance, are filling up and won't offer the growth potential that maybe they have in the past. But we do feel like that we're in some other exceptionally strong markets, such as Forsyth county and Newton county. I think that both rank in the top ten in the nation in terms of projected growth rate for the next ten years. And we've said in the past that we have looked at the south side from time to time, and certainly quality growth is projected there. We'll not rule that out. Our current focus is on building out our critical mass and our synergy in the northern market, though, and feel like that that's a current best opportunity, but we wouldn't rule that out at some point.

Okay, great. Thanks.

Our next question comes from the line of John Pennel with Raymond James.

I had a couple of questions. I was wondering if you would have the revenue and expenses that you expect Banks, Monahan to contribute in 2004. And I'll follow up with my second question.

John, we have not released those numbers, but I can tell you that we are looking for revenues to be close to what our numbers were this past year for our insurance operation, looking for -- or maybe I should just give you historicals anyway. Our historical revenue last year for this unit was about 4 million, so a little bit under what our revenue was for last year. We would expect that we would maintain margins there. I guess we never have published margins on those numbers, and I really don't have those in my head. But we would expect that business to be just as profitable as our existing business. We traditionally have ranked very high in the industry, when you compare the net contribution of this unit to other agencies around the country.

Okay. And then circling back to the intentional turnover with First Colony, Sam, do you have a breakout of loan originations, you know, for core Main Street and then what happened in the quarter at First Colony? Just trying to get a sense of how big the drag was.

I don't have those numbers, but the drag was certainly not large enough, obviously, for it to cause us any grave concern. The turnover, you know, as you may have said, intentional, I would rather call it expected as opposed to intentional. We always suffer when we lose people because we hate to lose one person. We value our teammates so highly and particularly those who are contributing so much to the organization. So I think expected and projected into the deal pricing may be better than intentional. But I don't have that breakout, but certainly those numbers were not large enough to cause us any grave concern. Just a momentary blip, and we'll grow beyond it.

Just maybe to follow up there so you expect -- you believe the 10% sequential will average loan growth that we saw in the quarter, that's below your trend level that you would expect in '04.

Well, certainly, if we're, as we, I guess, have said in the past, if we're giving you stronger earnings guidance numbers, then we certainly need to be doing stronger than 10% loan and deposit growth to achieve those objectives. Otherwise, we're cutting into the efficiency opportunity, and certainly we like to squeeze nickels, but we know that it's a zero sum game. It doesn't continue. So, yeah, we would expect stronger loan growth during the year than the 8 to 10% annualized that you saw on a linked quarter basis during the fourth quarter.

Okay, thank you.

Again, if you'd like to ask a question, please press the star and 1 at this time. We will move to Jefferson Harrelson with KBW. Go ahead, please.

Good morning. Thank you. A question regarding -- kind of following up on John's question on the loan pipeline. We're hearing some banks say in the southeast that the commercial loan demand, particularly CNI, picked up a little bit at the end of the quarter. Can you talk about your pipeline and where it stood versus three months ago? And what your pipeline is telling you about activity in the first quarter.

Jefferson, we've really not seen any change in our pipeline. Our business on the top side, the top line has been very good. As I mentioned, during our presentation, our loan volume for the quarter was at a record level, and, obviously, outstandings did not grow at record levels because, as I mentioned, we did have some turnover in the First Colony unit and also should tell you that we also have been certainly reconforming their portfolio and their underwriting standards to ours, but had also been reducing some of our larger construction exposures, real estate exposures during the quarter too. So some of the outstandings reduction was sort of some self-imposed loan mix or reallocation of our loan mix too. But our pipeline has been very strong throughout the year, or throughout last year. I guess it may have picked up a good bit, say, early last year as Atlanta was beginning to solidly recover from the downturn, but our business was strong throughout the year, and we continue to see it very strong.

In terms of just overall numbers I would say that it has picked up some, but that may be more of a function of our growing team and the number of producers, you know, that we continue to add to our team as opposed to necessarily the increasing health of the local economy. We see the real estate market as very stable, the residential market as very stable. Inventories, particularly in the low to moderate end on the residential side, finished homes in the seven to eight-month range, which we think is very healthy. Certainly, the high end of the commercial real estate market have suffered, has suffered, but we don't have really any exposure to the high end of the commercial market.

Thank you very much.

Thank you.

Again, for any questions, please press the star and 1 at this time. It appears we have no further questions at this time, sir.

Well, okay. Thank you very much. And thank you all for joining us today. And thank you for your continued interest in Main Street. I hope you have a great day.