Atlantic Union Bankshares Corp (AUB) 2017 Q1 法說會逐字稿

Good morning, my name is Heidi and I will be your conference operator today. At this time, I would like to welcome everyone to the Union Bankshares Corporation first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). Bill Cimino, you may begin your conference.

Thank you, Heidi and good morning everyone. I have Union Bankshares' President and CEO, John Asbury and Executive Vice President and CFO, Rob Gorman with me today. We also have other members of our senior management team with us and are available for the question-and-answer period. Please note that today's earnings release is available to download on our investor website, investors.bankatunion.com.

Before I turn the call over to John, I would like to remind everyone that we'll make forward-looking statements on today's call, which are subject to risks and uncertainties. A full discussion of the Company's risk factors are included in our SEC filings. At the end of the call, we will take questions from the research analyst community. And now, I'll turn the call over to John.

Thank you, Bill and thanks to everyone for joining us today. Union delivered a fourth consecutive quarter of double-digit loan growth on an annualized basis, nearly matched that with our deposit growth rate and saw significant year-over-year improvements to our profitability metrics. For the first quarter, Union delivered a 13% year-over-year improvement in net income, 16% growth in earnings per share, 3.9% linked quarter growth in loans, which annualizes to 16% and a 3.7% linked quarter growth in deposits, which annualizes to 15%. Union saw strong year-over-year gains in our return on assets, which was up 4 basis points from the prior year. Return on tangible common equity, which was up 107 basis points from 2016 and a year-over-year [improvement of 82 basis points] in the Company's efficiency ratio.

I'll comment on two things before I talk about the bigger picture, our loan growth guidance and the increase in nonaccruals. First, loan growth for the quarter came in well ahead of our annual projections and reviewing the data behind this, we saw broad-based growth and our loan pipelines remain strong going into the second quarter. Nevertheless, I still do not currently expect the first quarter annualized growth rate to sustain through the rest of the year.

Given the first quarter results will increase our current annualized loan growth guidance to the low-double digit range and re-evaluate that at the end of Q2. We did have a $12 million increase in nonaccrual loans with about half of the increase coming from one long-term commercial relationship and about a quarter coming one non-owner occupied commercial real estate client. Both have some unique characteristics surrounding their change in status. They had specific reserves applied against them over the quarter and they are not indicative of any portfolio trend. The Virginia economy is steady. We're not seeing any weakening in the macroeconomic environment here. Other leading indicators of credit quality within Union remain benign and we're on an improving trend over the course of the quarter.

With nonaccruals being so low, any individual issues among commercial borrowers will certainly be noticeable. While I do believe that (technical difficulty) levels at Union and across the industry are below the long-term trend line, we have no early indications of a downturn in portfolio level credit quality at this time. Turning to the bigger picture is, as I stated in the last call, there are four areas sharply in focus for 2017 at Union. One is, diversification; two, core deposit funding; three, efficiency; and four, preparing to cross the $10 billion asset threshold and let me speak to each.

One, diversification, Union has a great opportunity to further diversify our loan portfolio and our income streams. This will build a stronger bank over the long run since we are in a unique market position where we can deliver many products and services better than a big bank. Assets under management grew by $490 million or approximately 25% from the prior year to $2.4 billion as of March 31. The growth was driven by our strategic acquisition of Old Dominion Capital Management in 2016, which added $314 million in assets under management as well as by solid organic growth of $176 million or 11% by the legacy Union Wealth team. I believe the strong year-over-year growth shows that the Wealth team is gaining traction in the market.

Of our loan growth, we saw broad-based growth across virtually all markets and categories and feel comfortable with our loan growth momentum. We were very pleased to see our linked quarter growth rates of C&I loans of 4.5% actually edge out the growth rate of non-owner occupied commercial real estate over the course of the quarter. I think this shows that we are making inroads in building our C&I banking practice. Core deposit funding, we want to broaden our deposit base to manage our loan-to-deposit ratio to our targeted 95% level over time. We are intensely focused on improving our retail banking depository offerings, increasing our deposit intensive small and medium-size business relationships, and enhancing our treasury management capabilities where we believe we can offer a superior treasury solution with better [end-person] support.

We were pleased to nearly match our deposit growth rate to our loan growth rate during the quarter with a 15% annualized increase in deposits. Deposit growth was broad-based led by increases in personal account balances, the highest percentage growth rate by a deposit product type came from noninterest bearing deposits, which is our most important product type. We grew core households by 2% annualized rate of increase in the quarter building upon our already strong retail deposit base. I still think we have a great deal of room to run in building out our deposit base with small and mid-size businesses.

Deposit and household growth was aided by our new Head of Marketing and his team as we launched a new branding campaign designed to highlight the better customer experience that Union can provide relative to some of our larger competitors. We are hard at work on refining our brand proposition, which we believe can be a point of differentiation between Union and our competition and give consumers a compelling reason to bank with us.

Efficiency, while ROA and return on tangible common equity improved meaningfully over the past year, improvement in our efficiency ratio is taking more time. In the first quarter, the efficiency ratio declined 82 basis points from the prior year on a consolidated FTE basis, but is not directly comparable on a linked quarter basis due to the shorter day count in Q1 and a number of seasonally higher expenses. Efficiency improvement remains a significant opportunity for Union and I am keenly focused on moving the needle here. With this in mind, during the quarter, I did eliminate a layer of management between the Wealth and Mortgage businesses and now those teams report directly to me. This gives me greater visibility into those organizations and better positions their leaders with a seat at the same table as the other members of the executive team.

We are also nearing the end of a peer group benchmarking, an end-to-end process and procedure review that we launched late last year. After that evaluation is complete, we'll see what opportunities exist to improve and streamline procedures while better leveraging technology to improve the scalability of our operating platform as well as the overall efficiency of the organization.

And last, preparing to cross $10 billion. We made steady progress on this important objective and remain on track to be operationally ready to cross by the end of the year. We ran our first DFAS test run in the first quarter and the process went very smoothly. We expect to refine the model and process over the summer. We have also finished building out the information technology infrastructure and are nearly complete with the enterprise risk management build out. The work undertaken to cross $10 billion has been a multi-year process at Union and the team feels good about the position we're in as we get into the final phase of the work.

So to summarize, Union had its first quarter with double-digit growth in loans, deposits, EPS, and net income and we made progress on our four focus areas, seeing meaningful improvement in each one. I'll now turn the call over to Rob to cover the financial results for the quarter.

So, thank you John and good morning everyone. Thanks for joining us this morning. I'd now like to take a few minutes to walk you through some of the details of our financial results for the quarter. As John noted, consolidated earnings for the first quarter were $19.1 million or $0.44 per share, which is 16% higher than last year's first quarter earnings per share of $0.38. The community bank segment's earnings were $19.1 million, which was up $2.2 million from the first quarter of last year while the mortgage segment reported breakeven results for the quarter. We continue to make progress on our path to top tier financial performance with sustained improvements in our profitability metrics this quarter over the prior year.

The return on tangible common equity ratio was 11.2%, which as John mentioned was up 107 basis points from 10.13% in the same period of last year while the return on assets for the quarter was 92 basis points, up from 88 basis points in the first quarter of 2016. Now turning to the major components of the income statement. Tax-equivalent net interest income was $69.1 million, that's down $2.4 million from the fourth quarter primarily resulting from the lower day count in the first quarter, but up $2.9 million from the prior year's first quarter, which was driven by higher earning asset balances. The current quarter's reported net interest margin was 3.66%, which is a decline of 12 basis points from the previous quarter and down 16 basis points from the prior year. Accretion of purchase accounting adjustments for loans and borrowings added 8 basis points to the net interest margin in the first quarter and that's consistent with the prior quarter.

The core net interest margin, which excludes the impact of acquisition accounting accretion was 3.58% in the first quarter, also down 12 basis points from the fourth quarter due to lower earning asset yields of 2 basis points and a 10 basis point increase in our cost of funds. The decline in earning asset yields was primarily driven by lower core loan portfolio yields, which decreased by 8 basis points to 4.26% in the quarter. The decline in the loan portfolio yield from the prior quarter was primarily driven by the 4 basis point yield impact from commercial loan level swap related interest income reported in the prior quarter as a result of the spike in market interest rates during the prior quarter. In addition, loan fees came in lower in the first quarter versus the prior quarter, which impacted the quarter-to-quarter loan yield comparison. The quarterly 10 basis point increase in the core cost of funds to 54 basis points was primarily driven by the full quarter impact of the $150 million subordinated debt issued in December and higher short-term borrowing rates driven by the increase in short-term market rates during the quarter.

The cost of deposits was 32 basis points for the quarter, up 2 basis points from the fourth quarter primarily due to changes in deposit mix and increases in money market and time deposit rates. Looking forward, our baseline net interest margin projection cost for core margin stabilization in the second quarter followed by core margin expansion in the second half of 2017. Our outlook assumes that the Fed raises the fed funds rate by 25 basis points one more time in 2017 in the third quarter. The provision for loan losses in the first quarter was $2 million or 13 basis points, an increase of $536,000 from the prior quarter. The increase in the current quarter was driven by higher loan balances and increases in specific reserves related to nonaccrual loans.

Additionally, we recorded a $112,000 provision during the quarter for off-balance sheet credit exposures resulting in a total of $2.1 million in provision for credit losses for the quarter. For the first quarter, net charge-offs were $788,000 or 5 basis points on an annualized basis, which compares to $2.2 million or 15 basis points for the same quarter last year and $824,000 or 5 basis points for the fourth quarter of 2016.

Noninterest income increased $2.9 million or 18% to $18.8 million in the first quarter, up from $15.9 million for the first quarter of 2016. The year-over-year increases were across all noninterest income line items with the exception of mortgage banking revenues which declined modestly. Of note, wealth management fees were up $656,000 or 30% year-over-year primarily as a result of the acquisition of Old Dominion Capital Management in the second quarter of 2016.

Noninterest expense increased $1.1 million or 2% to $57.4 million in the first quarter from $56.3 million in the fourth quarter of 2016. Salaries and benefits expenses increased $2.1 million and that was primarily driven by seasonal increases in payroll taxes, one month of annual merit adjustments in the quarter, increased medical insurance claims that came in during the quarter, and non-recurring costs, which include severance expense, some succession planning expenses, and branch-related retention expenses of [approximately $650,000 in total from a non-recurrent perspective]. These increases were partially offset by declines in our FDIC insurance expense of $697,000 and marketing expenses came in lower in the amount of $206,000.

Turning to the balance sheet, total assets now stand at $8.7 billion at March 31, an increase of $837 million from our prior year balances. The increase in assets was driven primarily by loan growth both during the quarter and the year-over-year quarters. At quarter-end, loans held for investment were $6.6 billion, that's an increase of $247 million or 15.7% on an annualized basis from the prior quarter. Loans held for investment increased $774 million or 13% from March 31, 2016 while quarterly average loans increased $674 million or approximately 12% from the prior year. Quarterly loan growth was strong across all commercial and consumer loan categories. As John noted, given our first quarter performance, we expect low-double digit loan growth for the full-year and we'll provide updated full-year guidance during our second quarter conference call.

At March 31, total deposits were $6.6 billion, that's an increase of $235 million or 14.7% annualized from December 31. Our deposit balances were up $670 million or 11% from March 31, 2016 levels. All deposit categories experienced good balanced growth during the quarter and year-over-year.

Now turning to credit quality, nonperforming assets increased $12 million to $31.9 million during the quarter and that's comprised of $22 million in nonaccruing loans and $9.6 million in OREO balances, which includes approximately $2.7 million of former bank locations. As John mentioned, the increase in nonaccruals was primarily driven by two large credit relationships with unique circumstances and it's not indicative of credit quality issues in our markets. The allowance for loan losses increased by $1.2 million to $38.4 million at March 31 primarily due to loan growth during the quarter and increases in specific reserves related to the nonaccrual loans mentioned. The allowance as a percentage of the total loan portfolio adjusted for purchase accounting was 84 basis points at quarter-end, down slightly from December 31 levels as a result of the benign asset quality environment and lower historical loss rates.

So in summary, Union's first quarter financial results demonstrated continued solid progress toward our strategic growth objectives. We continue to be steadfastly focused on leveraging the Union franchise to generate sustainable, profitable growth and remain committed to achieving top tier financial performance and building long-term value for our shareholders. And with that, let me turn it back over to Bill Cimino to open it up for questions from our analyst community.

Thanks, Rob and Heidi, we're ready for our first question please.

(Operator Instructions) Catherine Mealor.

One thing on the loan yields and you mentioned earlier that part of the decline in the core loan yields this quarter came from lower swap income and lower loan fees, just kind of taking a step back, big picture, Rob, can you just give us any insight into where you're seeing new and renewed loans trending, are you feeling that, that is stabilizing or is there still some downward pressure there especially given the big growth we've seen, is that coming at any kind of cost? And then also separately, what's the impact on the loan portfolio that you've seen so far from the two recent rate hikes?

Yes, sure Catherine. We put on loans on average in the portfolio at [above 4%] this quarter. We have seen that come down a little bit in the quarter primarily because we've seen a kind of a mix shift in fixed and variable rate loans and also, we've seen some pretty good increase in loan swaps that we put on this quarter as well. So you're seeing a bit of portfolio yield downdraft just from the variable rate perspective on those loans that are coming on in the loan swaps, but obviously that puts us in a good position as rates start to rise and we expect to see that expand going forward. So I would say, we're probably stabilizing at this level right now, around the 4% average fixed and variable rates loan production.

In terms of the rate increases we recently saw, we did see some pick up on that, maybe 1 to 2 basis points during the quarter from the December move. We do expect to see additional pick-up in the current quarter and the out quarters due to the most recent that fed funds move. So that's why we're guiding towards stabilization of the margin and expansion going into the second half.

Thank you so much, Rob. And then, on mortgage, any update on your outlook for mortgage? Just getting this -- obviously this quarter was seasonally slower, are you seeing a pick-up in the pipeline as you are getting into the second quarter or you still see that pull back?

As you know, we expected that it would be a seasonally down quarter for production and breakeven was pretty much what we had expected for the quarter. We are seeing the pipelines have built up. We look forward to seasonally increase production in the second quarter and expect that return to profitability in a meaningful way will take place in the second and third quarters, based on what we've seen to date.

William Wallace, Raymond James.

Hey, Rob, I'd like to maybe just dig a little bit deeper on the margin. Last quarter, I believe your guidance was for maybe 4 basis points to 6 basis points of pressure in the first quarter. So I'm wondering maybe if you could just talk a little bit about where margin came in different than your expectations, what drove the additional compression that you were not anticipating?

Yes, I think we saw [1 bps or so] just related due to the mix in loan portfolio that I just talked about, but the other driver was the cost of our short-term borrowings or Federal Home Loan Bank borrowings, which move very quickly in as market rates move and we saw about a 22 basis points, 23 basis points move in one month LIBOR, which drove that up more quickly than we had expected during the quarter. So, that was about 2 basis points of the difference as well. And then you saw that our cost of deposits increased about 2 basis points, that's a little higher than we expected. We did, as you know, with the loan growth in the double-digits, we're striving to increase our deposit base. We did see growth in money markets and CDs. Those are a bit higher cost. That added cost to the quarter that was a bit higher than we had originally projected.

And I guess maybe we'll see this when you file the Q but have you adjusted your betas on the deposit side? Are you going to screen now a little bit less asset sensitive than you have in the prior models?

I don't think we're going to screen less. I think we'll be in the same ballpark. We're actually a little better just due to the loans swaps we put on in the variable rate loan product that we've been putting on.

And I'm curious, you mentioned that the loan fees were down, but you didn't mention that as to where you missed your expectations. So were they down to a level that was more what you would expect?

Actually they were a bit down, I should have mentioned that, they were down about 1 bps, little lower than we had expected because we -- the way we project the loan fees is we project that they'll be flat quarter-to-quarter and they came in a bit lower than we had -- than the prior quarter.

So you've got a move in December and you've got a move in March, but you don't think that those moves are going to drive margin expansion in the second quarter on a core basis?

No, I think it's going to kind of even out again depending on where market rates move. We saw those increase a bit more at the end of March and going into April due to that move in March. So our short-term borrowings are increasing as well. So kind of offsets that in the second quarter, but then we should start to see that stabilization in the second quarter and some margin expansion. Call it 2 basis points to 3 basis points in the out quarters after the second quarter.

Okay and that assumes 2 basis points to 3 basis points if we get another move from the Fed, is that what you're saying? You would expect --

Yes, we're assuming another Fed move, that's correct.

But only one.

Yes one.

So, John, you've mentioned just kind of bigger picture strategically a focus on treasury management and driving stronger DDA deposit growth and we saw that to a degree in the quarter. Is that something that -- this quarter, is that reflective of a change in strategy or is it too early yet to see any benefit from just treasury management and other strategic things that you're doing to drive more core deposits to the bank?

I would say in terms of a structural change in the overall mix, it's too early. I can say this, the team is very focused. So I think that we have complete clarity within the Company about the need to pace our loan growth with deposit growth and I think it is eminently clear that the bankers have never been more focused on that.

We have made some changes in the incentive plans on the commercial side to better drive and reward deposit growth performance. So some of this is just a focus effort. There are a lot of things, lot of moving pieces in the retail bank right now, they've sharpened their focus, re-looked at the overall product offering. We've got a new branding effort underway, advertising.

So it's a little bit of everything Wally, but I would not say that we are at a point where we've had some sort of fundamental change and are now getting significantly better results on the commercial side. Tony, would you agree?

I'd agree with that. Just a little bit longer sales cycle (multiple speakers).

Other thing, but that's good news in the sense that we are getting improvement just by better focus and so there are things that will follow behind, for example, we are upgrading later this year to the state-of-the-art version of bottom line, our treasury management platform from an older version. That will make us extremely competitive and frankly, we should be able to compete with the best of them like Wells Fargo head-to-head on treasury management platform in terms of our focus on small to mid-size businesses and so with that is going to come, better results over time, I'm quite convinced.

Okay, bear with me, I just have two more questions. So on the loan growth side, I'm curious if the commentary that you provided would suggest that the closings have remained strong so far, three weeks into April, but you don't want to jump the gun and you just want to see how May and June play out before you take your guidance higher?

That's right, we try to be pretty conservative whenever we provide guidance, it just makes me nervous. I do not think that it's reasonable to expect that we're going to have a 15% annualized growth rate for the full-year. Clearly, our results from a funding standpoint were skewed toward the end of the first quarter. We had a bang-up March. Pipelines look really good compared to where we were this time last year for example. So I see nothing that is reducing the optimism, but at the same time, I just don't feel comfortable saying anything other than what we've said and we'll revisit one guidance quarterly.

Okay, but maybe just reading the tea leaves, it sounds like this quarter is off to a good start and you are maintaining that same rate of growth that you saw in the first quarter?

I would say I would reiterate (multiple speakers). I will tell you that -- nice try. Based on what we see right now, I'm feeling comfortable with annual guidance and the very low-double digit rate, Wally, and then lastly, you know how it works, we'll continue to recalibrate at the end of each quarter.

Thank you, and then my last question just real quick, Rob, the BOLI was up about $700,000. Did you guys invest in more or was there a death benefit?

No, there was a payout on a policy, so a death benefit that came through about $700,000 or so. So without (multiple speakers).

And then you highlighted about a similar amount in nonrecurring expenses around severance and some other stuff that kind of -- that would be almost one time, so net those out, there is no reason (multiple speakers).

Yes.

Austin Nicholas, Stephens.

On the nonaccrual loans, were there any specific industries that those credits were attributed to?

I would describe this is an unusual situation and an unusual industry, nothing that would be reflective of any sort of portfolio issue. So it's just a one-off and I'll leave it at that.

And then I guess outside of those two broader picture, are there any areas where -- or industries that you are staying away from or more cautious on, a number of banks over the past couple of days have seen some issues with healthcare related credits and maybe some hotels. Just wondering, if you had any commentary on that?

It's a good question. We just did our monthly sort of problem asset review and so we certainly are feeling pretty clear. I would say there is nothing I would specifically point to Austin, as we have been for a while, we are generally cautious about multi-family. We don't do the sort of high-rise luxury large urban market types of projects that would be most of concern. We don't see anything specific to healthcare, I would be worried about things like exposure to small rural hospitals for example, but we don't have that. So the areas that may be of concern are not anything that's particularly well-represented in our portfolio. Our hospitality portfolio is performing fine and overall as we look around, it feels pretty steady.

Got you. That's very helpful, thank you. And then maybe could you just remind me what the kind of message is on M&A and if it's changed at all?

Sure, it really hasn't changed. I would say that having now been here six months, I certainly feel well-informed and would reaffirm what we said before publicly, which is one, the most important and first objective for the Company is the organic performance of Union, grow our bank one customer at a time, make the most of what we have right here right now, that is job number one.

A secondary strategy and it is secondary is the use of M&A to create shareholder value, to expand strategically into markets where we would like to have more density. Clearly, we're mindful of the opportunity to use M&A in an appropriate manner as a lever to deal with a crossing of the $10 billion asset threshold.

So nothing's really changed there and to anticipate the types of questions that usually follow those comments, we would love to continue to increase density in Virginia particularly in some of the larger markets where we have a presence, but are not as dense as we would like to be. A good example would be the Greater Hampton Roads, second most populous area of Virginia. So that would make a lot of sense. We can always do infill in existing markets where we are today. Northern Virginia is the most populous area of the state. It's the most wealthy area. We like that as it relates to commercial business opportunities. We are not interested in building or acquiring any sort of outsized commercial real estate exposure there because it does have a tendency to cycle. It has a history of that more so than the rest of Virginia.

And then, our future could carry us out of state. Would we look out of state? Yes, we would. The most logical out of state extension of the franchise we believe is North Carolina. We continue to have a good experience with our LPO in Charlotte. It's a market that I know well, having lived there many times and done business there for a great deal of my career, that would make sense. We would look into Maryland as well. And anything we would do, I cannot imagine we would do something that's not contiguous. So that's sort of our view, but I would go back to our most important objective which is organic performance of the bank.

Got you, thanks, that's very helpful and then maybe just on the tax rate, it was a little bit low this quarter, was that just related to the BOLI income and should that kind of pop back up to the maybe 26.5% run rate?

Yes, that's [right off]. It's going to fall within the 26% to 26.5%, probably on the higher-end going forward.

Heidi, we're ready for our next caller please.

Bryce Rowe, Baird.

I was curious, Rob, if maybe you could talk through kind of a run rate for operating expenses. John mentioned the enterprise risk management build out being nearly complete and some of the upgrades from a treasury management technology perspective that you have this year. So wanted to get a feel for the type of operating leverage we might be able to see as you progress through 2017 and into 2018. Thanks.

Yes, thanks Bryce. We haven't come off our guidance on that. On a quarterly basis, we're talking about $56.5 million a quarter to $57 million a quarter fluctuating in that band, expecting full-year basis [getting to $228 million to $230 million range]. That's relatively a low growth rate. I think it's 2.5% over last year and a big part of that is we have in our run rate the cost of investing for the $10 billion threshold.

As we've mentioned before, we have about $5 million annual expenses baked into that number and really don't expect that's going to change too much going forward. So I guess that's kind of where we would be guiding you to.

That's helpful and then John, maybe a follow-up to the layer of management you took out between wealth management and mortgage area, have you identified any other lower hanging fruit so to speak now that you've been there for six months?

Well, I think that what I was wanting to do in terms of the position that I was referencing frankly is just to streamline the organization and felt that wealth management and mortgage have good leadership. They are important businesses to the bank and I felt that the span of control that we had with a leader dedicated to those two businesses was just not sufficient, had nothing whatsoever to do with the performance of that individual who is very well regarded.

We're always looking at opportunities to improve efficiency. We do have an effort underway that I did mention briefly to look at our overall processes I should say to do some benchmarking, looking for areas of opportunity. And so as I think about Union, clearly we have a big branch network, which will continue to rationalize where possible. That's a significant issue for us and I think that the issue is not so much that we're over-staffed per se, but it's really more about as we continue to grow the bank and we are growing the bank, how do we do so in a manner where we don't need to keep putting more FTE up against it.

There are still a lot of manual processes within our Company and there are ways we can use automation and technology to improve those processes and to just get more product through our system in a more efficient manner, improve our quality. So we're just kind of going through department by department and we're firming up our view and I'll kind of leave it at that. So I think it's not so much a -- there are some big obvious thing here.

I think what's going to happen is, it's going to take a number of individual action sort of across the board, but beyond making sure that the branch network is optimized, I think that the use of automation, the use of technology to increase productivity is very important.

That's helpful, and maybe one last topic for me, I appreciate some of the discussion around loan pricing here this quarter and a bit of a mix shift to more variable rate pricing and how that can help in the future as rates go up. Any commentary around competitive situation in loan pricing from a competitive perspective and curious are there particular markets that you guys operate in that are more competitive now than others? Thanks.

I'm going to ask Tony Peay, our Chief Banking Officer to render an opinion and then I'll follow behind him.

Hey, Bryce, I would tell you that the competition is probably more sane today than it has been in a while. It's still pretty irrational up in the northern part of the state with a couple of banks in particular who are very aggressive in their pricing, but on most deals we're looking at, Richmond's competitive, it always has been, always will be, but we're seeing a lot more rational pricing, we're not having to stretch to get deals, we're not having to adjust our credit policy guidelines. So, it's a fairly sane market right now.

And that's very consistent with what I hear from the teams and what I see. It's always been competitive, always will be, but it doesn't feel any different as if it's somehow getting worse.

We're not scratching our heads a lot with how did they do that, why did they do that?

And Heidi, we're ready for our last caller, please.

Blair Brantley, Brean Capital.

Most of my questions have been answered. Just kind of bigger picture, with the pull back in kind of spreads and the 10-year and whatnot and then some of the margin compression, how is your view about reaching those targeted operating goals. Is it still [year-end 2017, early 2018] on the ROA, ROE kind of metrics?

Yes, if you look at on a quarterly basis where we continue to look towards those dates probably early in -- call it 2018. The loan growth that you've been seeing, that's going to obviously improve revenue and revenue growth, expenses being tightly managed, we should be able to achieve those goals on the timetable that we've mentioned.

And then just a quick follow-up with the [layout of management being on], is that savings to the bottom line or is that just being reinvested into other areas?

Yes, it's real savings.

We had severance expense related to (multiple speakers). That is a reduction in the run rate.

Thanks, Blair. Thank you everyone for calling in today. As a reminder, we will post a replay of this conference call on our website, investors.bankatunion.com. Thank you and we'll talk to you next quarter.

This concludes today's conference call. You may now disconnect.