United Community Banks Inc (UCBIO) 2003 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the United Community Banks fourth quarter 2003 earnings conference call.

At this time I would like to inform you that all participants are in a listen-only mode.

At the request of the company, we will open up the conference for questions and answers after the presentation.

I will now turn the conference over to Jimmy Tallent, President and CEO of United Community Banks.

Please go ahead, Mr. Tallent.

Good morning and thank you for joining United Community Banks fourth quarter 2003 conference call.

I'm Jimmy Tallent, CEO of United Community Banks and with me today is Rex Schuette, our Chief Financial Officer.

During today's conference call, we would like to accomplish several objectives.

First, of course, update you on our financial performance for the fourth quarter and for the year 2003, including the factors driving our performance.

Second, put this performance into the context of the long-term strategy for profitability and growth we have established at United Community Banks.

At first glance, it's a simple strategy, but well conceived and well executed it has delivered and will, I believe, continue to deliver strong financial performance for United Community Banks and its shareholders.

Our long term growth strategy has always been focused on core internal growth.

This has been a key driver that has worked well for many years.

And today I'd like to discuss two supplemental drivers of that strategy- growth through de novo offices and selected mergers.

And finally, offer guidance for 2004, which we feel will be another strong year for United Community Banks.

First, I'd like Rex Schuette to review our forward-looking disclaimer.

Thanks, Jimmy.

The earnings announcement that we released earlier this morning is available on our Web site as well as other financial sites.

This call is being simulcast on the site in the Investor Relations section where it will be archived for 90 days.

During the course of this conference call we may make certain forward-looking statements.

These include all statements that are not statements of historical fact or statements regarding the intent, belief or expectation of United Community Banks and its senior management with respect to trends effecting our operations, our financial economic and market conditions, and our growth and operating strategies.

Specifically, earnings expectations and estimates are forward-looking statements.

During the call, we may refer to non-GAAP financial measures.

Our news release explains the difference between non-GAAP earnings measures and earnings calculated under GAAP.

We provided these non-GAAP measures because we believe they are helpful in analyzing core performance trends at United Community Banks.

We filed our news release on Form 8-K earlier this morning and we urge you to review the sections of our most recent forms 10-K and 10-Q that describe the factors that may effect our future results of operations.

Any forward-looking statements contained in this or other public statements of United Community Banks or made by senior management should be considered in light of these factors.

Thank you, Rex.

The news release we issued this morning described another very strong and year for United Community Banks.

For the quarter we reported a 21% increase in total revenue, a 24% increase in net operating income and a 13% gain in operating earnings per share as compared to the same period last year.

For the year, another record performance.

A 19% increase in total revenue.

A 20% gain in net operating income supported by excellent credit quality and a 14% increase in operating earnings per share as compared to 2002.

That's a very good year.

Another very good year against the backdrop of a national economy that's really just now beginning to get the wind back into its sales.

Looking back we've achieved quite a few very good years.

Years in which we've demonstrated that the strategy United Community Banks has in place is the right strategy for our markets and customers.

We're in some of the best markets in the country with the right community bank model and the most important ingredient, the right bankers.

So, during the next few minutes, rather than simply walking through the year end numbers, let me talk about our strategy for profitability and growth.

At United Community Banks we talk about a balanced plan for growth including three growth drivers and one reality check.

The growth drivers are organic growth.

The de novo growth - that is de novo with a difference, as I'll explain later - and selected mergers.

The reality check is an unrelenting commitment to deliver sustainable double-digit earnings per share growth.

Underlying this commitment is our focus on driving revenue growth while managing expenses without taking our eye off the ball and remembering what got us to where we are today.

That is our golden rule of banking - treating people the way we want to be treated.

That is our trademark for performance as well as our passion for quality service.

We're committed to growth as long as it's controlled and profitable growth.

We may be the third largest bank holding company headquartered in Georgia, but we're really 20 community banks each with its own local bank President and Board providing the level of quality, personal customer service that only a community bank can provide.

Yes, we have the product.

We have 72 banking locations and that number will continue to grow.

All of this with a level of technology that you wouldn't expect at a community bank.

But the single biggest difference is our commitment to build and maintain the unique relationships that only a community bank can have with its customers.

Let's look at how we implemented that strategy in 2003.

First, organic growth.

Organic growth is a critical growth driver for this company because over 70% of our growth over the last 10 years is from internal growth.

We enjoyed $313 million in core alone growth.

Some 13% for 2003, which in turn created strong growth and net interest revenue where almost half of the fourth quarter increase of $7.2 million came from our core business.

The second growth driver is our expansion through opening de novo offices.

Economic and market analysis can identify location where there is an opportunity to establish a de novo office.

But it's the people that are the key to our community based banking model.

Experienced bankers who know the market and share the same philosophy of providing the highest level of personal service.

It's that type of banking professional that makes the difference and provides that entrepreneurial spirit that will make these new offices successful.

That's why there's something of an opportunistic side to our de novo strategy.

As we find the right bankers in the markets we've identified that we want to be in, this is what creates that opportunity.

For example, following our First Georgia Bank merger in May of 2003 we gained an opportunity to continue our growth momentum on the coast of Georgia.

We found a team of four bankers with over 50 years of experience primarily in the Savannah market.

As I mentioned last quarter, Mike Lee (ph) is now our bank President in Savannah and brings over 30 years of experience and a tremendous following there in Savannah.

In a very short time, he and his team have built a healthy pipeline of business from existing and new relationships, exceeding our expectations.

The same can be said of our expansion in western North Carolina following our purchase of three branches during the fourth quarter.

While we were converting these branches, our name got out quickly into these new markets.

And we had several senior bankers and their staff from local competitors approach us.

One of them was a veteran banker with 30-plus years of experience in that market and joined our team with a significant loan portfolio.

By having these senior bankers, we were able to open two de novo offices.

One in Spruce Pine, located in Mitchell County; and the other in Burnsville, located in Yancey County North Carolina.

These folks were among the most experienced in the market and bring a passion for the same level of customer service that United Community Banks is known for.

It is that passion for customer service that continues to attract great bankers that want to be part of this company.

This type of de novo expansion is not always predictable, because it is based entirely on finding the right people to fit the opportunity.

We will continue to grow and expand our markets using this opportunistic strategy - finding the right people first centered on both the de novo approach and selective mergers and acquisitions.

Our third growth driver is selected mergers and acquisitions.

During 2003, we completed two bank mergers and acquired three branches.

Our merger with First Central Bank in Lenoir City, Tennessee was completed on March the 31st.

The total value was approximately $29.6 million - 70% in stock, 30% in cash.

This bank added $90 million in loans and $160 million in deposits.

And the merger gave us eight banking offices in east Tennessee and five were located in the fast growing Knoxville MSA.

On May the 1st, we merged with First Georgia Bank in Brunswick, Georgia.

The total value was approximately $42.1 million.

Again, 70% in stock and 30% cash.

This bank added $220 million in loans and $250 million in deposits.

And First Georgia Bank brought six banking offices in some of the fastest growing and most affluent coastal Georgia markets.

And during the fourth quarter, we acquired three banking offices located in western North Carolina all for cash.

These offices added $10 million in loans and $70 million in deposits.

This acquisition and the two de novo offices also opened during the quarter help United Community Banks build on its existing western North Carolina franchise, giving us a total of 18 offices in excellent and growing markets.

United Community Banks enjoys a unique geographic and demographic footprint in terms of the growth markets that we serve in the Southeast.

And these additions, we believe, enhance the attractiveness of our footprint and will continue to add to franchise value for shareholders.

Now, when I describe our growth drivers, let me explain our reality check.

That reality check is a disciplined and diligent approach to expense management.

And a commitment to deliver sustained double-digit earnings per share growth.

The two go hand in hand.

To cite an example, our core alone growth this year was $313 million or 13%.

That's internal growth.

While growing our core business 13%, we added just five people to a total staff of 1,300 employees.

Additionally, when you exclude the mergers and branch acquisitions I discussed earlier, our total revenue for the fourth quarter increased 7% while our operating expenses rose about 4%.

That's a positive operating leverage of 3%, which contributed to the double-digit operating earnings per share growth for the fourth quarter.

Our operating efficiency ratio for the quarter was 59.81%.

That was about equal to the same percentage a year ago.

The fourth quarter level was within our target of 58 to 60%.

We believe that's appropriate and reasonable given the service oriented community banking model that we've developed.

During 2003, these growth strategies I just discussed produced another good year for United Community Banks.

Our shareholders enjoyed a record year and a 14% growth in operating earnings per share for 2003.

Now, let me turn the call over to our Chief Financial Officer, Rex Schuette, who will discuss the financial performance for the fourth quarter and the year 2003.

Rex.

Thanks, Jimmy.

The first exhibit included in the news release provides a summary of our financial results, key ratios and trend information for the last five quarters and the full year information for 2003 and 2002.

For the fourth quarter, net operating income rose to a record $10.6 million, up from 8.6 million a year ago.

Diluted operating earnings per share was 44 cents, up from 39 cents for the same period last year.

And total revenue on a tax equivalent basis was 44.1 million, up from 36.6 million for the fourth quarter of 2002.

On an operating basis, our return on tangible equity was 19.72% compared to 17.68% a year ago and a return on assets was 1.06% compared to 1.08% a year earlier.

For the year 2003, net operating income was up 20% and totaled 39.5 million compared to 32.8 million for 2002.

Diluted operating earnings per share hit a record $1.68, up 14% from $1.48 a year earlier.

And total revenue of 170.6 million increased 27.2 million or 19% from 2002.

For the year, return on tangible equity was 19.24% compared to 17.88% a year ago.

Return on assets was 1.06 compared to 1.11 in 2002.

As explained in our news release and in the footnotes to the exhibits, net operating income for the fourth quarter and full year excluded merger related charges.

For the fourth quarter, those charges were $580,000 pretax or $383,000 after tax and two cents per share.

For the year, merger related charges totaled 2.1 million pretax or 1.4 million after tax and six cents per share.

The charges in the fourth quarter are related to the acquisition of three branches located in western North Carolina.

In the second quarter related to the merger with First Georgia Bank and in the first quarter related to the merger with First Central Bank.

As you will hear throughout our discussion today, most of our growth rates for the quarter and year were impacted by the bank mergers, which were included in this period's results and not in the prior year.

So, we have added comments in most the areas on core growth rates, excluding mergers.

As with earlier quarters this year, we experienced solid core loan growth both on a consecutive quarter and on a year over year basis.

Our margins held at the 4% level with minimal margin compression versus last quarter and a year ago.

The provision for loan losses was up $300,000 on a consecutive quarter basis due to loan growth and was flat as compared to fourth quarter of last year.

As the news release pointed out, fee revenue during the quarter, specifically mortgage refinancing fees, were adversely effected by the rise in long term interest rates.

For both the fourth quarter and the full year, we again achieved our stated goals of sustained, double-digit growth in operating earnings per share and a return on tangible equity above 16%.

So, as Jimmy put it, it was a very good year and the latest in a string of very good years at United Community Banks.

If you look at our five year compounded annual growth rate in the attachments to the news release, you will see growth in excess of 18%, loans of 20%, deposits of 15% and total revenue of 17%.

All of that, of course, helped to produce a compounded growth and operating earnings per share of 17% over the last five years.

Let's look at the fourth quarter in more detail.

During the fourth quarter, net interest revenue was $36.8 million, a 7.2 million or 24% increase over last year's fourth quarter.

Recent acquisitions contributed approximately 4 million, which resulted in core growth rates for net interest revenue of approximately 12%.

The underlying increase was primarily due to double-digit loan growth combined with a stable net interest margin.

For the most part, our margin has leveled off and we have maintained our margin near the 4% level for the last five quarters.

I will comment further on net interest margin and asset sensitivity later.

Average loan balances for the fourth quarter increased 602 million or 26% from the last year's fourth quarter.

This is driven primarily by core loan growth across all of our markets of 285 million or 12% and with the balance of loan growth of 317 million related to the two bank mergers and the three branch acquisitions completed earlier this year.

At year end, the increase in year over year loan balances was 634 million, up 27%.

As Jimmy pointed out, we enjoyed 13% internal growth in core loan balances and an additional 14% growth due to the bank mergers.

This exceptional growth is itself a good indicator of the economic strength in our markets and drove our total assets to 4.1 billion at year end.

The year over year growth by geographic markets was as follows: 123 million increase in our north Georgia markets; 125 million in metropolitan Atlanta market; 59 million in western North Carolina; 222 million in coastal Georgia due to the merger with First Georgia Bank and opening a new de novo bank in Savannah; and 105 million in east Tennessee related to the First Central Bank merger.

Looking at consecutive quarters, total loans increased by 98 million and the breakdown of growth was as follows: 28 million in north Georgia; 28 million in metro Atlanta; 28 million in western North Carolina, which is partially due to the three branches acquired in the fourth quarter; and 11 million in east Tennessee.

Looking at our growth by loan categories, the year over year growth was as follows: residential mortgages grew 189 million to 982 million; commercial loans rose 213 million to 967 million; and construction loans increased 227 million to 927 million.

On a consecutive quarter basis, loan growth by categories was as follows: residential mortgages grew 21 million; commercial loans rose 33 million; and construction loans increased 48 million.

As mentioned earlier, our net interest margin was 3.96% for the fourth quarter, down amount of seven basis from a year ago and one basis point from last quarter.

We have maintained our margin at the 4% level over the last five quarters and we anticipate - assuming no increases by the Fed and a 4% prime rate next year - that our margin will remain near the 4% level throughout 2004.

This stable margin, coupled with our ongoing focus on expense controls positions us well to maintain our earnings momentum through strong growth in our core business.

To update you on our interest sensitivity of our balance sheet at year end, we are asset sensitive by approximately 1.5% on net interest revenue, which is about the same level as last year end, based on a ramp up in interest rates of 200 basis points over the next 12 months.

We continue to add prime daily floating rate loans which totaled approximately 1.4 billion at year end as compared to 1 billion a year ago.

As part of our fourth quarter balance sheet management activities, we incurred net charges that reduce fee revenue by approximately 150,000.00.

This included charges of 787,000 for the early prepayment of 55 million of fixed rate federal home loan bank advances.

This source of funds was replaced with lower rate wholesale fundings such as broker deposits and floating rate advances that more closely match the rate characteristics of the prime based floating rate loans we put on during the fourth quarter.

Offsetting a portion of that charge were security gains of $622,000 related to the sale of 6 million of investment securities that were part of the same overall balance sheet management strategy.

Because of the majority of our fourth quarter loan growth was prime based floating rate, these transactions allowed us to maintain our overall interest sensitivity position.

Moving to fee revenue, total fee revenue was 9.1 million for the fourth quarter.

Up 300,000 from 8.8 million a year ago.

Looking at fee revenue in more detail, service charges and fees on deposit accounts were 5 million, up $1.4 million.

Brokerage fees of 600,000 were up almost 200,000 due to strong growth in the fourth quarter.

Consulting fees of a million were down 200,000 due to the timing of engagements in the fourth quarter and will be back on track next quarter.

And as I mentioned earlier, mortgage fees of 1.8 million were down $900,000 from a year ago.

The increase in service charges and fees this quarter was due primarily to the mergers completed earlier this year and the increasing popularity of new products and services and new accounts and higher transaction volumes.

Mortgage loan and related fees of 1.8 million were down 34% from a year ago, reflecting the impact of rising long term interest rates on mortgage refinancing activities.

We closed 58 million of mortgage loans in the fourth quarter as compared to 107 million last year.

For the year, total loans closed was 373 million for 2003 versus 310 million for 2002.

Fee revenue on a link quarter basis was down 1.3 million, primarily due to lower mortgage refinancing fees related to the rise in long term interest rates.

We expected the decease in fee revenue this quarter and budgeted next year's level of mortgage fees assuming a 30% decline in revenue for 2004.

We expect a run rate closer to this quarter's level and tapering off later in 2004.

Now I'd like to turn to operating expenses.

For the fourth quarter, total operating expenses was 27.6 million, an increase of 4.6 million or 20% from the fourth quarter of 2002 and down 1.1 million from the prior quarter, mostly due to lower incentives related to the decline in mortgage fees and controlling discretionary spending.

The underlying core expense growth rate year over year was 4%, since approximately 3.7 million of that total increase was related to operating expenses of the two merged banks that were completed in the first half of 2003.

The total for salaries and employee benefits shows a similar pattern.

Total compensation costs for the fourth quarter was 17.4 million.

An increase of 2.4 million or 16%, but approximately 2 million of that increase related to the bank mergers this year.

The balance of the increase was due to normal merit increases partially offset by lower incentive compensation associated with the slowdown in mortgage refinancing revenue.

At year end we had total staff of 1,296 - up just five persons from a year ago, excluding mergers.

Communications and equipment expense totaled 2.3 million for the quarter and increased $400,000 or 24%, primarily as a result of the bank mergers.

Excluding the mergers, the increase was 9% due to depreciation and amortization expense for software, telecommunications and technology equipment.

Other (ph) operating expenses of 7.9 million for the quarter were up 1.7 million from last, again, due primarily to bank mergers earlier this year.

Turning to credit quality factors, the provision for loan losses was 1.8 million for the quarter, unchanged from last year's fourth quarter and up $300,000.00 from last quarter due to loan growth.

The allowance to loan ratio was 1.28%, down from 1.30 last year and 1.29 last quarter.

Again, the ratio was slightly lower due mainly to our strong growth and not credit quality.

Net charge-offs for the quarter were $900,000.00, lower than the 1.2 million last year and the 1.1 million for the last quarter.

Net charge offs average for average loans were 12 basis points, down from 20 basis points last year and 15 basis points last quarter and well below our peer banks.

Non-performing assets are 7.6 million, decreased $400,000.00 from both a year earlier and the third quarter.

Non-performing assets include 6.6 million of non-performing loans and 1 million of oreol (ph) and there were no 90 day past due and occurring loans in those totals.

The ratio of non-performing assets to total assets was 19 basis points compared with 25 basis points last year and 20 basis points last quarter.

Both the net charge offs and non-performing ratios are about one-third of our peer bank ratios from last quarter end.

Our loss (ph) to non-performing loan coverage was approximately 580% at year end versus 460 a year ago.

All of our credit and asset quality numbers continue to be strong.

Now I'd like to take a few minutes to comment on performance for the year.

For the full year 2003, net operating income was a record 39.5 million, up 20% from last year's 32.8 million.

Earnings per share of $1.68 rose 14% from $1.48 in 2002.

Our financial performance for 2003 was highlighted by strong growth in core loans of 13% across all of our markets that were partially offset by margin compression of 34 basis points.

This resulted in core net interest revenue growth excluding mergers of 8% for the year.

We enjoyed equally strong fee revenue growth for the year in service charges and mortgage fee revenue.

Combined, our total revenue growth was 9% on a core basis.

Total operating expenses for 2003, excluding mergers, were up 7% resulting in positive operating leverage for the year of 2%.

Our positive operating leverage drove our net operating income growth to 13% and our operating earnings per share growth to 14%.

Turning to capital- for the year, our return on tangible equity was 19.24%, up from 17.88% last year.

Our average equity to assets for the quarter was 7.41%, up almost 50 basis points due to the mergers and the internal capital generation from 6.92 % last year.

Our average tangible equity to assets for the quarter was 5.82% and was down from 6.53% last year due to the bank mergers and the branch acquisitions.

At year end, all of our capital ratios were above the low capitalized level.

We actively monitor our capital ratios and our models show that over the next 24 months we'll continue to operate above these low capitalized levels.

Additionally, we plan to maintain our tangible equity to asset ratio above the 5% level.

Tangible equity will continue to grow from the current level of 5.82% as we generate internal capital through our core growth and earnings.

We feel comfortable with our capital ratios at the current levels.

And at the same time, we see ourselves as a growth company.

In an effort to always be prepared and to provide flexibility for our growth strategy that Jimmy discussed earlier, we plan to file 150 million equity shelf later this quarter.

Under our plans today, we would not expect to use the equity shelf until next year at the earliest, and likely in only $25 to $35 million increments.

Reviewing our cash dividends for the year, we recently increased our quarterly cash dividends by 20% to nine cents for the first quarter of 2004 or 36 cents on an annualized basis.

Our five year compounded growth rate in cash dividends is approximately 30% and reflects our strong performance and our commitment to deliver value to our shareholders.

Our dividend payout ratio for 2003 was 17%, which compares to 9.5% just six years ago.

And we would expect that the payout ratio for 2004 to be slightly higher than 2003.

Under our stock purchase program, we are authorized to purchase up to a total of 1.5 million shares through December 31st, 2004.

During the fourth quarter, no shares were purchased and as of December 31st, 2003 a total of 874,000 shares had been purchased over the past three years with an average cost per share of $22.17.

Jimmy, I'll now turn the call back over to you for closing comments.

Again, I would like to say we are pleased with the fourth quarter's performance and the record year for 2003.

These performances were direct result, I believe, of our talented team of professional bankers implementing an effective strategy for profitability, growth and customer service.

Before we open the call for questions, let me look ahead to 2004 and share some thoughts on our outlook.

Simply put, United Community Banks is positioned for yet another good year for 2004.

We are committed to our community banking model.

It's the key to performance, particularly in an era when so many community banks are becoming branches of some distant financial institution.

At the end of the day, we still believe that we are in the people business that sustains and expands customer relationships.

This superior customer service continues to drive core loan growth.

Our disciplined approach to lending helps maintain our strong credit quality.

We lend to people that we know and we secure those loans with hard assets.

We continue to be committed to expanding our franchise through organic growth and through selective mergers and de novo offices in communities that enhance our unique footprint.

For those people who know our markets in north and coastal Georgia, western North Carolina and east Tennessee, they are strong vibrant communities where economic and population growth gives us an excellent opportunity to profitably implement our community banking model.

We plan to continue to take advantage of this opportunity in 2004.

During the first quarter, we plan to open a de novo banking office in Cartersville, Georgia, which is located in Bartow County, part of our north Georgia market.

Additionally, we will open a de novo office in Athens, Tennessee, which is located in McMinn County, an expansion of our east Tennessee bank we merged with in March of last year.

One would ask, why these locations?

These are both high growth markets.

We found the right people to expand in these communities.

For example, in Athens, Tennessee we were able to attract a banker with over 30 years of experience in that market.

He was formerly the President of a community bank that was acquired by Super Regional Bank in Athens.

He then moved out of the area to head up another community bank, but always wanted to get back to his family and roots right there in Athens.

We were able to bring him back to be the city President of Athens and we will open a full service banking office toward the end of the first quarter.

We continue to consider de novo expansion and will be opportunistic in opening additional offices in 2004.

When we find the right people to further expand our markets.

We will enter 2004 with strong credit quality.

That's the foundation of our community banking model and our culture at United Community Banks.

And we will enjoy a full year's performance from our mergers and de novo openings completed in 2003.

So, what are our targets for 2004?

We anticipate core loan growth in the range of 10% to 14%.

We expect our net interest margin to remain near that 4% level.

And we expect operating earnings per share growth within our long term goal of 12 to 15%.

Also, we are comfortable with first calls mean estimate of $1.90 per share, which is within our guidance range of 12 to 15%.

Our company has enjoyed a 10 year compounded annual growth rate in assets of 22%, loans of 23% and operating earnings per share of 17%.

But this growth is accomplished year after year by our team of professional bankers with the principle of treating people the way we would like to be treated.

In conclusion, I want to assure you that this company remains intensely committed to continuing to implement the strategy and business model which year after year have proven so successful.

I feel that these basic and fundamental strategies are worthy of repeating.

First, as in the past, we will continue to expand into high growth markets where our style of community banking has and continues to attract and retain a profitable customer base.

However, in order to avoid a drag on expenses and a lag in profitability, we will do so where we can enter a market with experienced in-market banking professionals who embrace our style of service based community banking.

Second, we will continue to diligently monitor our credit quality, which again has proven over time to be among the best of our peers and industry.

Third, disciplined expense controls will remain a fundamental focus point in this company.

Fourth, we will not deviate from or allow to diminish our service oriented culture.

A culture based on our golden rule of banking where the customer deserves and receives what we ourselves would expect from a financial institution.

This commitment has allowed us not only to retain a loyal customer base, but to expand it in every market where we seek to do business.

It is the philosophy and foundation of our company and in my view, it is the ingredient which makes us different and sets us apart from others.

And finally, I want to thank and congratulate our united team of bankers for believing in and implementing our style of banking and our business plans.

For it is because of their unwavering commitment day after day, one customer at a time that this company achieves its business goals that ultimately translate into shareholder value.

Thank you for your interest in this Company and now we would like our moderator to open the lines for questions.

Thank you. [Operator Instructions]

Our first question comes from Arielle Whitman with Sandler O'Neil.

Please state your question.

Jimmy and Rex, great quarter!

I was wondering if you could comment a little further on your assumptions with respect to the net interest margin around the 4% level where, you know, most other banks are sort of guiding their net interest margin expansion or are you just being your conservative natured self?

Arielle, thanks for the question and let me take a stab at it then I'll let Rex add to it.

We feel comfortable today at the 4% level.

Certainly, we're, as usual, trying to be conservative.

We do hope that we do receive some expansion later on this year, but certainly for our purposes internally we're maintaining our models at a 4% range.

Rex, would you like to add to that?

Jimmy, I would agree with your comments.

We're expecting it to stay in the low 4% range, Arielle.

And again, as Jimmy said, we budget fairly conservative from our standpoint also.

OK.

Thank you.

Great quarter.

Thank you, Arielle.

Thank you.

Our next question comes from Jennifer Demba with SunTrust.

Please state your question.

Good morning.

I was just wondering if you could comment - it looks like deposit growth on an average basis has slowed over the last couple of quarters if you look on a quarter to quarter basis.

I was wondering if you could give us some color behind that?

Jennifer, that is a correct assumption.

Though our core deposit growth year over year was a little over 5%.

We have purposely watched our certificate of deposits and certainly over the last two or three quarters have paid particular attention in trying to monitor our deposit cost and certainly supplementing that with wholesale deposits.

Where we are today, I would tell you that our company has just embarked upon the most collective project on deposit growth that we've ever had in our entire history.

Certainly focused at core deposits.

This will include incentive programs, direct mail and a number of other items not only with 1,300 employees, but also a customer referral.

Let me remind you also that where we operate today, we're in a $40 billion deposit market.

We only have $3 billion of that.

And certainly those that are very price sensitive we feel that we could get that back pretty quickly.

OK.

Thanks.

Thank you.

Our next question comes from Sam Cauldwell (ph) with ABW.

Please state your question.

Good morning, gentlemen.

My question is about the loan growth.

You guys talked about the third quarter to fourth quarter loan growth being up $98 million and you broke down the geography.

I noticed that you didn't mention the coastal Georgia market in there.

Are you including those in other numbers, or can you comment any further on that?

Thanks.

Well, Sam, I think I got the question.

They increased - there was a net number in that coastal Georgia number.

We opened the Savannah bank during the fourth quarter, as Jimmy indicate.

And we had a couple of loan payoffs on the Georgia coastal, also.

It's up about a net $3 million for the quarter.

OK.

Very good.

Thank you.

Thank you.

Our next question comes from Chris Marinach (ph) with FIG Partners.

Please state your question.

Well, hi, Jimmy and Rex.

I wanted to ask about the movement into Atlanta and how important is it for you to have a greater footprint here this next year?

Any change in thesis there?

Chris, we think that it is important to continue to expand around the fringes of Atlanta.

You know, we're very diligent in our efforts but we also want to be very reasonable, certainly relative to pricing.

We have looked - we've not been fortunate in being to partner up with another bank at this point in time, but certainly will continue to look.

And I think that we're somewhat cautiously optimistic that we'll be able to expand in that market during 2004.

I guess part of my curiosity is, you know, not just in the northern part of the city but are areas of the south interesting to you beyond where you already are?

Very much so, Chris.

There's a lot of difference - well, let me just say it this way.

There is a difference on the north and south side as we have been looking on the south side, really, for the last two years.

There's a lot of de novo's on the south side.

When you look down in that Coweta, Fayette, South Fulton - all through there.

There's still a lot of opportunity for development.

Even Henry County, for example, as robust as it has been when you really veer off of Interstate 75 and drive two or three miles all of a sudden you start seeing cows again in the pasture.

So, we are very hopeful that we can certainly expand our footprint on the southern end of the city.

OK.

Great.

Thanks, Jimmy.

Thank you.

Our next question comes from Peyton Green with FTN Midwest Research.

Please state your question.

Good morning.

Good morning, Peyton.

A couple unrelated questions.

But one, I mean, your credit quality certainly looks quite fine, but can you comment on the watch list movement in or out?

Just has there been any change?

Have you seen improvement or a little weakening?

And also, what - any change in deposit behavior?

I mean, other than that which you forced by your customers.

I mean, are you seeing customers lower their balances to any extent?

Well, first in regards to your loan question.

Our credit quality continues to be very stable.

Our substandard has been a set amount for the last - really the last two quarters.

We're really very diligent in managing if when we have a trouble loan it gets moved into that category and we get it resolved very quickly.

As you can see, our NPA's are roughly $8 million.

And fortunately, some of that has already been washed out.

So, from a credit quality standpoint, we still see consistency.

We see nothing that would indicate otherwise.

Then your question in regards to the deposit behavior.

As of right now we've really not seen any migration, you know, from our core deposit growth.

Certainly the certificates of deposit are very pricey as they are, I think, all over the world.

But we've not seen a migration out of the deposits into the equity markets.

At least if it is, it's not noticeable as of this time.

OK.

And then what's your comfort level on the wholesale CD issue versus your own customer CD issue?

And then is there any - and then also specifically, I mean, if the interest rate environment if the 10 year stays basically where it is over the next six to nine months.

I mean, do you all have a little bit of margin pressure?

Or do you think you have enough things that you can offset any earning asset pressure?

I think we have more than enough in our mix in our earning assets that would offset that right now.

We see we have a lot of opportunities still to continue to grow our broker deposit, which is our non-customer CD's.

And as well as some wholesale funding that we can still have plenty of liquidity available through that means also.

OK.

And then if - did you all have any move up in rates in your margin forecast this year?

Our outlook for 2004 is that the rates would stay flat.

The Fed wouldn't raise rates until at least the end of the year and prime would stay flat.

Four percent for the year right now is in our budget.

OK.

Great.

Thank you very much.

Thank you.

Ladies and gentlemen, as a reminder, should you have a question please press star one at this time.

If there are no more questions, again, we're very pleased with our performance for 2003.

We certainly want to thank you for being with us today.

Thank you for your interest in supporting United Community Banks and we look forward to visiting with you next quarter.

Have a good day.

Ladies and gentlemen, this concludes the conference for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.