Atlantic Union Bankshares Corp (AUB) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the StellarOne earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Jennifer Knighting. Ma'am, you may begin.

Thank you, Shannon. Today, we have with us O.R., Ed, Barham Jr., President and Chief Executive Officer of StellarOne Corporation; and Jeffrey W. Farrar, Executive Vice President and Chief Financial Officer. Mr. Barham and Mr. Farrar will review results for the second quarter of 2011. After [those] comments from Ed and Jeff, we will take questions from those listening.

Please note StellarOne Corporation does not offer guidance; however, there may be statements made during the course of this call that express management's intentions, beliefs or expectations. Actual results may differ from those contemplated by these forward-looking statements. Now, may I introduce our President and Chief Executive Officer, Ed Barham?

Thank you, Jennifer and good morning and welcome to the second-quarter earnings call for StellarOne Corporation. We will again today follow our standard format for our earnings calls, and I will begin with a brief overview of the Company's second-quarter financial results, followed by comments on asset quality. Jeff Farrar, Executive Vice President and CFO for the Corporation, will follow my remarks with detailed commentary on balance sheet and income statement matters. We will, at the conclusion of our call, take questions from the analysts.

Highlights for the second quarter of 2011 were as follows. StellarOne earned $4 million for the second quarter 2011. Net income available to shareholders net of dividends and discount accretion on preferred stock was $3.3 million or $0.14 per diluted common share. These results compared favorably to the $1.1 million or $0.05 per diluted share earned a year ago for the same period.

Second quarter 2011 also compares favorably to the $2.4 million of net income per shareholders or $0.11 per diluted share earned in the first quarter of 2011. Pretax pre-provision earnings amounted to $8.3 million for the second quarter of 2011, a $347,000 increase over first quarter 2011, but a decrease of $465,000 when compared to the same period a year ago.

In general, all of our lines of business performed well given the difficult economic environment of low loan demand, low interest rates and continued high unemployment. We are continuing to stay focused on new opportunities of revenue enhancement and expense reduction.

To that point, despite a slight loan shrinkage of 1.2% from first quarter 2011, actual period-end loans for the second quarter, months of April, May and June, were flat as opposed to a further decline.

A further positive, our loan pipeline showed some improvement. On the expense side, we continue to right-size our branch franchise. To that end, by the end of this year, we will have closed two additional branch facilities by combining each into a nearby existing StellarOne facility. This will bring our branch count down to 54 facilities versus the 66 facilities we possessed at our peak roughly three years ago. These closings will provide, on an annualized cost save, that is the two additional closings this year, approximately $800,000 on a pretax basis.

Other cost initiatives are also underway in other business lines and support functions. More discussions on these as they are implemented.

The biggest and most immediate improvement in our near-term earnings will obviously come from our reduction in the monthly loan loss provisioning. This was the case for the second quarter 2011. For the second quarter 2011, our loan loss provision was $3.2 million, a decline of $1.3 million from first quarter 2011. Net charge-off for second quarter amounted to $4.9 million resulting in an ending allowance of $35.7 million June 30, 2011. This allowance equated to 1.74% of total loans compared to 1.82% at March 31, 2011. The coverage of nonperforming loans though improved to 94.5% at June 30, 2011 versus 86.9% at March 31, 2011.

Credit quality continued to show improvement for the second quarter, as well as delinquency and matured loans. The highlights were as follows. Nonperforming assets declined by $4.9 million or 9.5% on a sequential basis, reaching a three-year low of $47.6 million, which translated into a ratio of nonperforming assets as a percentage of total assets to 1.61%. This compares to March 30, 2011 of 1.8%.

Included in the nonperforming assets is, of course, OREO balances, which stood at $9.1 million at June 30, 2011, essentially flat to the $9 million at March 30, 2011. While these OREO levels outwardly appear to be stagnant, they are far from it as a number of credits have been resolved, but unfortunately new foreclosed assets have taken its place. The most accurate picture of our OREO activity is to be seeing the consistently low level of OREO we have maintained throughout this economic cycle, which speaks to our active efforts to move to a resolution as soon as possible.

Looking at only the nonperforming loans of $38.1 million, the breakdown was as follows -- $11.6 million in construction and development; $13.2 million in one to four family real estate; $9 million in commercial real estate; and $4.2 million in commercial and industrial.

A general observation -- it is apparent from these loan categories and our experience that the real estate elephants, which we first struggled with, have abated significantly and the current outlook does not appear to change this assumption. What we now most often see is nonperforming consumer-related debt, much smaller dollars, but more activity and that is also evident from the dollar categories I've just shared. The one-to-four family is now our largest bucket of nonperforming loans. The continued high unemployment and protracted weak economy is obviously taking a toll on the consumer.

I might also add, to date, we are not seeing any alarming increase in the consumer delinquencies, but we are keeping a close watch on this.

Another piece of good news on the asset quality front was the level of past dues on matured loans. Loan levels -- loans between 30 and 89 days were down for the second quarter in a row and totaled $38.5 million at June 30, 2011, down $3.3 million or 7.9% compared to $41.8 million at March 31, 2011.

My last comments on asset quality are those regarding troubled debt restructures or TDRs. Our TDRs showed a slight increase of $2.6 million for the second quarter 2011, ending the second quarter at $48 million.

To provide further clarity regarding these assets, $39.6 million are accruing leaving $8.4 million as non-accrual and these are already captured in the total NPA level of $47 million I quoted earlier. Of the total TDRs, $31.6 million represents residential consumer real estate loans that have been modified by way of rate reduction or extension of term or both, but not principal forgiveness. These modifications came about as a proactive effort, which started in the spring of 2009, to reach out to these homeowners to help rework their loans when we began to see delinquency problems begin to surface.

These loans are legacy loans made in earlier times, not new in-house mortgages. This is not a lending strategy we now promote. We now originate almost all loans now to be sold on the secondary market. Any kept on our books is infrequent and a one-off. Our success with this modification program to date has been extremely good with redefault rates in the 10% to 12% range.

I will add in closing that the flow of consumer mortgage modifications has reduced significantly and starting in April 2012, we will have roughly $15 million in mortgage mods that will be up for rate adjustments providing, in many cases, an opportunity to begin the reduction of some of these TDR outstandings as we bring rates and terms back into market balance. This concludes my portion of the call and I will now ask Jeff Farrar to provide further detail to the quarter results.

Thank you, Ed and good morning, everyone. Thank you for joining us. I would like to start my commentary this morning with a look at our net interest margin performance for the quarter. Net interest margin came in at 3.83% for the quarter, expanding 24 basis points from 3.59% for the same quarter current year and down 2 basis points from 3.85% experienced in the previous quarter.

We continue to experience slightly higher contraction on asset yields than the liability funding costs on a quarter-to-quarter comparison. The cost of interest-bearing liabilities was 4.17% for the second quarter, down from 1.20% in the prior quarter and down from 1.59% for the first quarter of 2010.

The average yield on earning assets came in at 4.80%, which was down 5 basis points from the previous quarter. Investment yields experienced a more significant change, dropping 17 basis points from the first quarter. This was due in large part to a high level of portfolio purchase activity during the quarter at market yield levels less than that of the overall portfolio yield.

Looking forward, we expect the margin to continue to benefit from some continuing improvement in funding costs and lower nonperforming assets. However, loan yields and securities reinvestment could result in some modest margin compression unless we get some additional loan activity or short-term rates show some increase.

So what does that mean for net interest income? Due to a slightly higher earning asset base associated with increased investment security portfolio, net interest income revenues on a tax-equivalent basis rose to $24.8 million for the second quarter, which compares to $24.6 million for the previous quarter and $23.2 million for the same period in the prior year.

Looking at noninterest revenues, on an operating basis, total noninterest income amounted to $7.5 million for the quarter, down $153,000 or 2% on a sequential basis compared to $7.7 million for the first quarter and down $854,000 or 10.2% compared to the same period prior year. The sequential quarter decrease on a consolidated basis is largely attributable to a $533,000 contraction in mortgage banking-related fees and a $238,000 increase in losses on foreclosed assets. These two reductions in noninterest income were in part offset by a $284,000 increase in retail banking fees and a decrease of $268,000 on losses associated with mortgage indemnifications.

We continue to enjoy noticeable improvements in mortgage indemnification losses, which have offset much of the earnings impact associated with the decreased production. In fact, we had a net recovery on indemnification losses for the quarter. We did experience some modest revenue growth in Wealth Management associated with higher fee realization for the quarter and retail banking fee income growth, as I mentioned earlier, was associated with higher penetration of debit cardholders and associated interchange fees.

On the operating expense front, noninterest expense for the second quarter amounted to $23.2 million, down $316,000 or 1.3% when compared to $23.5 million for the first quarter and up $429,000 or 1.9% when compared to the second quarter of 2010. The sequential quarter decrease was driven in large part by a decrease of $236,000 in FDIC insurance expense.

As mentioned last quarter, the decrease in FDIC insurance expense is a function of an improved risk-weighting category for StellarOne under insurance assessment guidelines, coupled with a new asset-based formula for such measurements. This insurance expense is expected to be consistent with the second quarter amounts on a go-forward basis and represents an annualized cost reduction for the Company of $1.3 million.

FTE employee numbers have held pretty constant on a quarter-to-quarter comparison, increasing by 5 over the last quarter and only 8 over the same point last year.

With respect to efficiency, StellarOne's efficiency ratio came in at 70% for the second quarter, down from 71.4% for the first quarter of 2011 and up a tad from 69.1% for the same quarter in 2010. We would expect this ratio could show some modest improvement over the remainder of the year as we anticipate a continuance of improved asset quality trends and reduced FDIC insurance costs.

Let's turn to the balance sheet and I'd like to start with capital. Capital levels remain strong with total shareholders' equity of $426 million or over 14.5% of assets. Tier 1 capital came in at 15.91% compared to 14.88% at March 31. Excluding the remaining TARP investment on our books, Tier 1 capital would be a healthy 14.85%.

Tangible common equity was 10.10% for the quarter and tangible book value per common share came in at $12.13. Period-end loans -- as Ed mentioned, period-end loans decreased $6.6 million as compared to the first quarter of 2011 while average loans for the second quarter of 2011 were $2.08 billion or down approximately 1.2% when compared to $2.10 billion for the first quarter of 2011.

We did see growth in C&I loans of almost $11 million or just over 6% compared to the prior quarter, an area of focus for our Company. Average securities were $403.2 million for the second quarter, up $44 million or just over 12% from the $359 million for the first quarter 2011, reflecting increased investment activity driven by excess liquidity during the quarter.

Average deposits for the second quarter were $2.39 billion or up $29.7 million or 1.2% on a sequential quarter comparison. Average interest-bearing deposits increased sequentially by approximately $20 million and average noninterest-bearing deposits decreased by approximately $9.4 million.

At June 30, 2011, total assets were $2.94 billion, up from $2.9 billion at March 31, 2011. Cash and cash equivalents were $134 million at the end of the quarter, a decrease of $44.4 million or almost 25% compared to $178.4 million at March 31 and reflective of the increased investment activity in the securities portfolio. That concludes my prepared remarks and I will turn it back over to Jennifer for our Q&A.

Thank you, gentlemen. Now we will move to the question-and-answer portion of this conference call. At this time, I will ask our operator to open the call for your questions. Shannon?

(Operator Instructions) Jennifer Demba, SunTrust Robinson.

Thank you, good morning. Two questions, and I'm sorry if you've already recovered this; I jumped on a little bit late. Curious about the TDR impact you expect from new guidelines in the third quarter and also can you give us some thoughts about further TARP repayment in future quarters?

Jennifer, this is Jeff. Good morning. I'll touch on the TDRs. We have been following and assessing the impact of the new pronouncement on our financial statement. So I will tell you that the level of activity that we have experienced over the course of this year is down significantly from what we already had on the books. And so we are looking at that, we do not feel that we are going to have a significant increase in TDRs over the levels that we've disclosed today as a result of the new pronouncement.

Jennifer, on the question of TARP, we continue to examine it as to an appropriate exit strategy at which time that presents itself to us. We really don't have a lot more to say about it at this time.

Thank you.

Catherine Mealor, Keefe, Bruyette & Woods.

Good morning, guys. Nice improvement in your credit quality this past quarter. Did your classified or substandard loans also see the same sort of linked-quarter improvement?

Yes, we had some improvement in the aggregate level of classified assets quarter-to-quarter. I don't have the exact number handy with us, Catherine, but we did see a decline on a sequential comparison.

Okay, great. And do you have the number of net new NPL inflows? I am assuming that number is down from the $12 million level last quarter just given that your NPLs came down, but do you have the number of new NPL additions this quarter?

We do, but not on the tip of our tongue. If we can get back to you with that, we will be happy to do that.

Okay. That's great. And then one final question. You've been talking a lot about your M&A strategy. Richmond keeps coming up as a target market. Can you give us some updated thoughts on how acquisition conversations are going and your view of any changes in sellers' expectations? Thanks.

We are actively involved in discussions and have gone as far as to have done due diligence on one top target over the last 60 days, which, once we completed the due diligence, we just didn't feel comfortable proceeding any further with it. So again, on an ongoing basis, our interest is high to find the right partner, but again our interest is sort of at this point confined to finding a partner that gives me additional balance sheet strength, not additional inflow of more problem assets above what I already have on a percentage basis, one that is in a high-growth market and a target that would provide accretive EPS to us on a first-year basis. So those criteria are pretty high hurdles, but we are sticking to those criteria and trying to find someone that fits that criteria.

Catherine, this is Jeff. Additions to non-accrual assets for the quarter are $11.3 million.

Great, thank you.

[David Pepper], [Janney].

Hey, guys. How are you? My first question has to do with overall loan demand. I'm just wondering if you could let us know what you are seeing out there and if there are any maybe new lines of business that you guys are examining going forward. Not new lines -- like new types of loans, loan categories going forward?

In general, it is a tough market, it is a very competitive market. As I indicated in my comments though, on a period-end basis -- April, May, June -- it was flattish as opposed to decline. I guess that is an odd victory, but it isn't a decline, which is something that is, in our view, a positive, which says we are, at least over the last quarter, we were filling the hole on the amortization and the deleveraging and the run-off that we have been experiencing pretty heavily over the last few quarters.

No new products, loan products. I would just say re-emphasis of looking at particularly small business lending. We see that as an opportunity that's not being addressed by a lot of the market. That is typically a small or other community bank market. It's something that a lot of the community banks aren't servicing as well given their balance sheet issues. So we are trying to service that and we also see it as a very crucial feeder to our Wealth Management area. We're trying to build some real synergies around small business owners and their created wealth and their need to have personal financial advisory services for their personal wealth accumulation, as well as us taking care of their corporate needs.

Right, you touched upon small business. Could you update us on your thoughts on the small business lending front?

Well, as to whether we are interested in it or not? The answer to that would be no. My personal opinion is TARP was a wolf in sheep's clothing. I'm not so sure that small business fund isn't as well, and I think I am not the only banker that might view it in such terms.

Right. And speaking of loans, what are you seeing in terms of pricing with regard to loans?

In terms of what?

Has there been tightening? Like last quarter, we talked about it tightening. Has it been tightening further? Because I am looking at the margin, the margin is holding up okay and I was just kind of wondering how I could --.

Well, I would say I don't see it tightening anymore. I would just say we are exercising some pretty heavy duty discipline in terms of new credit that we are booking and we are getting the rates that we want to get and we are going for the terms that we want. We are just being very I guess disciplined about how we are doing it. That's how I would answer the question.

I would add that we are continuing to see the portfolio price down the curve and so we are going to continue to see some contraction in overall yield on the portfolio as long as the rate environment continues to be what it is unless we can get some additional lift from loan activity, which then kind of impacts the mix of assets and the overall yield on the mix of those assets.

All right, sure. Is there more improvement to be had on the cost of funds side?

Yes. I would tell you that we continue to see some modest improvement. You saw 3 basis points on a quarter-to-quarter comparison. If I look at our CD portfolio, we are still picking up 20 to 30 bps on average with what's repricing. And so I do think there is still a little more lift there. Obviously, not anywhere near the level that we experienced this time last year, but certainly it can help, if you will, support that margin.

All right, thanks for taking my questions, guys.

William Wallace, Raymond James.

Good morning, gentlemen. Three quick questions. First, on the reserve release, I calculated about a $1.8 million release. Can you tell me how much of that was related to any specific reserves?

Yes, $950,000 roughly in reduced specific reserves quarter-to-quarter.

And would you expect then that you could continue to release say $800,000 or so in the general bucket heading forward assuming your credit trends?

I would be hesitant to give you that number at this point. I mean we certainly feel good about all the trends. And I guess if that continues, you would expect to see some (inaudible) release continue as we see charge-off, average charge-off historical experience come in, but I would be resistant to try to estimate that amount right now.

Okay. And then on the two additional branch closures in the back half of this year, can you talk about the timing of those?

They are underway right now. We actually hope to have them completed pretty much by third quarter.

So we should see the full impact of the $800,000 in cost saves in the fourth quarter?

I would say in 2012, starting the first part of the year.

Yes, I think we will have some expenses associated with the combination and so we will have limited lift for this year, but we should begin to see the full impact of that in early 2012.

Okay. And then, Ed, I believe in your prepared comments just talking about the TDR portfolio, you said that you had a certain amount of the residential modifications that I guess the rates will reset back up in April of 2012. Can you repeat that number?

It was roughly $15 million starting in April that will begin to -- we did the mods on a three-year adjustable rate, so having started that group when we did those, they were done back in the early part of 2009, so there is roughly $15 million there that will be coming due in 2012.

And so those would reset back to market rates and would you immediately be able to move them out of TDR status or would you then have to wait six months?

We would likely have to wait and again, maybe if, in some cases, it was rate and term, that may have been extended. So it is a case-by-case basis. It's not sort of just a blank check to be able to move them back to performing status. But we do feel confident that there will be some amount of that we will be able to move back to performing status.

We also think that will generate some refinance activity when those rates reset. And so we expect to see some of that just kind of run off in the normal course.

Yes, taking that $15 million, it's hard to give you a percentage of how much of that $15 million in 2012 we might be able to move over. Clearly, some of it will be moved back to performing, but you won't know until you actually get in on an individual basis, look at the credit, underlying credit, see what the borrower looks like at that time and whether they are able to get a rate adjustment back to market and to move the term back -- if we have extended the term -- back to a normal market term.

Okay. And then kind of as an add-on to the prior caller's question on pricing, I see that you had it looks like pretty good strength in your C&I bucket, I have it up, about 6% sequentially. Are you -- can you talk a little bit about the pricing terms that you are able to get on new C&I loans and are you putting one at floors and if so, what are the floors?

The floor is around 4.5% generally and we are looking at any LIBOR pricing and fixed rate, but generally staying within a five-year term balloon. On real estate, we are staying with a 20 year [AM] kind of thing.

What about the non-real estate?

Again, depends if it's equipment seven or eight year kind of equipment pricing. In the commercial owner occupied real estate, anything there from 10 to 15 years kind of term on that.

Okay. And then are you seeing -- do you feel like you are seeing irrational pricing from competitors? I mean that's pretty good growth given commentary about the lack of demand.

Well, I would tell you that our people are working harder. That's really the cause for the growth and some focus on C&I, which we have been talking about, trying to do more C&I lending. We have been hiring C&I lenders that are beginning to show up and make a difference. At some level, there is some international pricing there. I would say BB&T in particular shows up from time to time quite honestly as an irrational pricer on some things that we just can't touch and don't try to.

On the smaller end of the spectrum, some of the smaller community banks from time to time do some things that are a little bit out of the ordinary. So it's not a walk in the park. We have some irrational players on both ends of the extreme.

So it's not wholesale and you guys have been able to maintain pricing disciplines on your new loans that you are putting on your balance sheet?

We absolutely have. We are putting a lot of emphasis around that and driving that down and sticking to it.

Okay, great. Well, it was good sequential growth in C&I and hopefully we can see demand pick up and see that take off. Thanks, guys.

David West, Davenport & Co.

Hey, good morning. Wondered, first, if you could touch on a little bit about the activity in foreclosed property, both just talk about what kind of challenges there are on disposition, what are the kind of properties going in and out of that category.

We have been using auctions quite a bit on the bigger properties at the Smith Mountain Lake area. We just had one back this month, I believe it was the 19th of the month, 16th of the month, which we had a very successful auction, about $1.3 million in loans moved off, no further loss. So we actually came out covering all expenses, all costs. So that will show up in next quarter numbers, further reduction in that exposure in that market.

As I had alluded to earlier, I think what is really probably more active at this point in time on the foreclosure front is some of the smaller consumer one to four family type credits and we are moving through those fairly rapidly. Obviously, if there are home equities attached to that, you've got issues there just from loan to value. So while the losses aren't significant, though there aren't large dollars, there's a lot of activity as I alluded to. But nothing I think anywhere near the magnitude of the things that we've had to deal with over the last two years.

Most of the large construction A&D type real estate foreclosure issues for now it appears have abated somewhat. We will hold our breath and hope that that would be the case. We do keep an eye on that and pretty much have a list of credits we look at on a frequent basis that have elevated risk profiles so we hopefully don't get blindsided. So we feel pretty good where we are with that.

But we have a very active resolution division within the Company, very effective people who have been very good at moving the credits out. We don't sit around and look for the market to turn, to get better. We write them down and do so effectively when we move into OREO. Hence, I think our success in moving them out and taking a little additional hit to our income statement has been evident.

Yes, I would add, Dave, the holding period on the single-family OREO paper has been pretty short. The guys are doing a good job of moving that stuff out as it comes in and that is the preponderance of the $9 million that we currently have in OREO. I can think of about $2.3 million that represents A&D type paper, but outside of that, everything else was pretty much single-family residence.

Thanks for that color. I know a difficult line item to predict quarter-to-quarter is the mortgage banking side of things, but any comment on activity levels, what kind of spread you are seeing on the gain on sale activity on the mortgage banking side?

Yes, I would I guess offer the following. In terms of spread, we are not really seeing any significant move in spreads. The preponderance of production that we are doing is FHA, which has good spread on it. We obviously have seen some contraction in overall volume. But as I look at the pipeline, feel pretty good about things picking up a little bit right now.

We have also, even in the last two days, been able to add some pretty attractive talent on the originator front, which we think will give us some lift for the remainder of the year. As is pretty typical in this type of market, we tend to see some churn with originators and we have experienced that. We have lost a couple originators and so we've had to react to that and I think what we have been able to replace those originators with will pay us dividends as we move through the course of the next 6 to 12 months.

I know with the earnings at the levels they are, the quarterly tax rate is another thing that jumps around a good bit. Any comments or estimates on what you think the effective tax rate may be in the second half of the year?

Well, I would expect it to, assuming that we continue to see a little bit of lift, if you will, on the earnings front, I would expect it to continue to pick up, but no, I wouldn't be comfortable in throwing out any guidance relative to what I think that rate is going to be. But obviously as you get back to more of a normalized earnings level, the relationship with your permanent differences and your gravitation, if you will, to your normalized effective run rate, if you will, begins to occur. And so I think you could look back to our Company, our legacy Company, before this downturn, our effective rate was in the upper 20%s type level and that's where I see it slowly migrating to as we see earnings normalize.

Very good. Any rough number off the top of your head as far as your level of tax-exempt income you have from municipals or tax-exempt loans?

Happy to provide it; I don't have it handy, Dave.

Very good. And lastly, with all the legislative changes now on the debit interchange, I know you are not directly impacted by of the fee reduction, but from a competitive standpoint, does that cause some concerns? Are you considering any kind of product changes or product bundling in reaction to the new environmental and debit interchange?

At this time, Dave, no. I will tell you, we have got a little bit of a silver lining in that our debit card penetration, quite honestly, was the low peer and not a high penetration level. And we've spent a good part of this year and last year increasing that penetration level. So we think a good part of whatever may get offset, if it does that all, we are under $10 billion of course, and we don't see any -- really we think it's pretty much status quo for the remaining part of the year and actually may see some ability to pick it up a bit through higher penetration level. So that has been the case so far.

Thanks so much for your responses.

Carter Bundy, Stifel Nicolaus.

Hey, gentlemen. This is Derek Ferber filling in for Carter. Good morning. Just had a quick question. In the press release, you all mentioned that the compensation benefits expenses being closely managed through some companywide initiatives that could potentially result in future cost savings. I was wondering if you could give us some more color on that.

We'd rather not get into a lot of detail now because, as I said, there are things to be implemented yet and those really need to be implemented and then I'd rather talk about than -- talk about them now before they are actually a matter of experience within the Company. But among the executive management team, there are a lot of things we are examining right now along the process line and just efficiencies all the way around. It's a constant thing we continue to look at.

Obviously, I've mentioned earlier, we continue to examine our footprint relative to our existing franchise footprint. And we have given that a continued, for the last three years, look as to where we see future growth, where the demographics are favorable to us or things are going to provide us a new type of ongoing profitability on a branch by branch basis. So we are very committed to that and where there are opportunities, we will reallocate resources on that front into markets where it makes sense for us to open facilities even.

So there's just a lot of initiatives here. That one though again is out and among the troops, but the others are yet to be really fully disclosed, so I'd rather hold off on those for future discussion.

Okay, great. Thank you so much.

(Operator Instructions). [Richard Breen], Darden School of Business.

Hello. I understand that one of the growth areas is fiduciary activities and brokerage. You mentioned earlier there was a focus on small business owners. I was wondering if you could expand on the strategy or any goals that you have in terms of assets under management or the percentages of earnings contributed by what management?

Well, just at the top of the house, we sort of strive for at least a -- for fee income. Our non-interest income would be about 25% of our revenue to come out of non-interest fee sources. Obviously, Wealth Management is a big piece of that. We would love to try that number closer to 30% over some period of time. It is generally running around 25% historically. And we believe, with the new leadership we have in the Wealth Management area, that we have a good opportunity to see that area grow through better pricing.

We have looked at some new pricing disciplines within those areas, which quite honestly has caused things to be in some state of flux relative to new business being brought on at better pricing and some business we have sort of jettisoned, if you would, or that has left us. So I think the benefit of that is yet to be seen, though the numbers are pretty stable at this point, but the earnings per asset bases per employee are increasing and improving.

If I could comment on the small business piece. We are spending a lot of time now talking about partnering with the other line of businesses and trying to correlate, if you will, the opportunity within the small business clientele that we have, understanding that there are a lot of assets out there that we don't currently have with our customer base in the small business arena. And we are creating, if you will, pod teams that will work together to drive additional business with that small business space.

Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over for any closing remarks.

Everyone, thank you for joining us and for your questions today. We appreciate your participation. This concludes today's teleconference.

Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and have a wonderful day.