Apr 20, 2016
Executives
Bill Cimino - Director of Communications G. William Beale – President and CEO, President of Union Bank & Trust Robert M.
Gorman – EVP and CFO D. Anthony Peay - EVP and Chief Banking Officer Elizabeth M.
Bentley - EVP and Director of Retail Banking David G. Bilko - EVP and Chief Risk Officer Jeffrey W.
Farrar – EVP and Director of Mortgage and Wealth Management
Analysts
Casey Orr - Sandler O'Neill & Partners Catherine Mealor - KBW William Wallace - Raymond James Laurie Hunsicker - Compass Point Austin Nicholas - Stephens Inc. Blair Brantley - BB&T Capital Markets David West - Davenport & Company
Operator
Good morning. My name is Kyle and I'll be your conference operator today.
At this time, I’d like to welcome everyone to the Union Bankshares' First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions].
Thank you, Mr. Cimino, you may begin your conference.
Bill Cimino
Thank you Kyle and good morning everyone. I have Union President and CEO, Billy Beale and Executive Vice President and CFO, Rob Gorman, with me today.
Also joining us for the question-and-answer period are Tony Peay, EVP and Chief Banking Officer; Elizabeth Bentley, EVP and Chief Retail Officer; Dave Bilko, EVP and Chief Risk Officer; and Jeff Farrar, EVP of Wealth Management, Insurance and Mortgage. Please note that today’s earnings release is available for download on our investor website, investors.bankatunion.com.
Before I turn the call over to Billy, 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'll take questions from the research analyst community. Now I’ll turn the call over to Billy Deale.
G. William Beale
Thank you Bill, good morning everyone. Thank you for taking time out of your day on probably what is a very busy earnings season to join us for this call.
As I have mentioned on previous calls, we have been making steady progress towards delivering on our strategic growth objectives that will enable Union to deliver top tier financial performance for our shareholders. The first quarter results reflect that effort as our team delivered earnings of $17 million or $0.38 a share which represents an 8% increase over the prior year’s first quarter net income level.
During the first three months of the year we continued to capitalize on the organic growth opportunities that we see in our markets which is reflective of the improving Virginia economy and particularly strong job growth at Richmond which has seen year-over-year growth in loans of more than 12%. We remained focused on building people relationships with our existing retail, commercial, wealth management, and mortgage clients to better team work within and across our business or lines of business as well as by enhancing our digital services and product offerings to our customers.
During the quarter we saw a 2% annualized growth in core deposit households to more than a 176,000 customers which shows the continued strengths of our value propositions. Loan growth improved this quarter as total loans for the first three months of the year grew more than our mid single-digit expectation coming in at 7.7% annualized growth for the quarter.
Production levels remain steady and broad-based across our footprints and our loan pipelines look healthy coming into the second quarter. Asset quality is outstanding is as due where non-performing loans declined 12% from the prior quarter and 20% from the first quarter of 2015.
In addition we were able to reduce our OREO balances by around 7% this quarter due to sales of foreclosed properties and we expect further reductions in OREO balances going forward. As we currently have approximately $2.1 million in properties under contract it should close over the next two quarters.
We also remain motivated on building a more efficient enterprise. To that end in the past week we consolidated three branches in our Winchester markets into a single standalone branch.
We closed another branch in Middleburg, Virginia and in addition we are on track to close an additional branch in May. And upon completion of these branch consolidations and closures we will have 120 branches across our footprint which is down 26 branches or 18% since June of 2013.
While we are growing organically and becoming a more efficient company we are also continuing to evaluate opportunities to improve our financial performance and non interest income through acquisition such as our recently announced acquisition of Old Dominion Capital Management, a registered investment advisor headquartered in Charlottesville with nearly 300 million in assets under management. I am delighted their leadership team is staying in place as it will help Union expand its wealth management capabilities.
And partnering with the team at Old Dominion is a great step toward achieving our wealth management strategic growth objectives and we will continue to look for additional opportunities to expand our non-interest income. From shareholders stewardship and capital management perspective, in mid February the company completed the $25 million stock repurchase authorization that was approved by our Board in October of 2015.
Subsequently the Board authorized a new share repurchase program again for up to $25 million in buybacks and that buybacks expires at year-end 2016. So in total during the first quarter Union repurchased approximately 1 million shares totaling more than 23 million and we have approximately 22.5 million remaining available under our current authorizations.
So let me summarize, I think we are off to a great start to 2016 as our strategy continues to take hold both organically and through opportunistic acquisitions and as we take actions necessary to make us a more efficient company in the future. Our recent operating performance demonstrates that we're well positioned to realize the long-term potential value of our franchise and to generate the earnings growth and top tier financial performance that our shareholders expect.
With that I’ll turn it over to Rob and I’ll look forward to responding to your questions at the end.
Robert M. Gorman
Well, thank you, Billy and good morning everyone. Thanks for joining us today.
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 Billy noted earnings for the first quarter was $17 million or $0.38 per share.
That’s down slightly from the fourth quarter $17.8 million or $0.40 per share, but up nicely – up 8% from last year’s first quarter's results. The Community Bank segments results were $16.9 million in the first quarter, while the mortgage segment reported a modest profit of $54,000 despite lower origination levels versus the prior quarter.
Return on tangible common equity was 10.1% down slightly from 10.4% in the fourth quarter, but up from 9.7% from the same period of last year. Return on assets of 88 basis points were down 5 basis points on a linked quarter basis, but again up 2 basis points from the first quarter of 2015.
The company’s efficiency ratio improved to 66.1% in the current quarter, down from 66.5% in the fourth quarter and is down nearly 200 basis points from 68% in the prior year’s first quarter. Now turning to the major components of the income statement, tax equivalent net interest income was $66.2 million, that’s up $1.3 million from the fourth quarter, driven by higher earning asset balances and yields.
Of note the current quarter’s reported net interest margin increased by 6 basis points to 3.82% compared to 3.76% in the previous quarter. Accretion of purchase accounting adjustments for loans and borrowings added 6 basis points to the net interest margin in the first quarter, that’s down 1 basis point or about $216,000 from the fourth quarter.
For your reference actual remaining estimated net accretion impact is reflected in the table included in our earnings release. On the core net interest margin front, which does not include the impact of acquisition accounting accretion, it came in at 3.76% in the first quarter which is an increase of 7 basis points from 3.69% in the fourth quarter.
The core margin increase was driven by higher earning asset yields of eight basis points in the quarter offset by a 1 basis point increase in the cost of funds. The core loan portfolio increased by 8 basis points to 4.38% in the quarter while the average invested portfolio yields increased six basis points to 3.25%.
The increase in the loan portfolio yield during the quarter was primarily driven by increased variable rate loan yields. The rates were reset higher during the quarter resulting in some increases in short-term market rates.
Higher cost of funds from the prior quarter was due to higher short-term borrowing rates, also driven by the increase in short-term market rates during the quarter. Going forward our baseline net interest margin projection which assumes one Fed Fund rate increase in late 2016, a continuation of the current flat yield curve positions calls for a relatively stable margin in Q2 followed by a compression of 2 to 4 basis points in the third and fourth quarters of 2016.
If however the Fed were to increase the Fed Fund’s rate earlier in the year, we would expect an improvement in our baseline NIM -- our net interest margin outlook by approximately three to five basis points in the quarters following the increase, given the asset sensitivity of our balance sheet. The provision for credit losses during the quarter was $2.6 million or 18 basis points, up from $2 million or 14 basis points in the fourth quarter and up approximately $850,000 or five basis points from the first quarter of 2015.
During the first quarter net charge-offs were $2.2 million or 15 basis points on an annualized basis that compares to $3.2 million or 24 basis points for the same quarter last year and $1.2 million or nine basis points for the fourth quarter of 2015. Non-interest income of $15.9 million in the first quarter was down $1.1 million from $17 million in the prior quarter, primarily driven by lower security gains of $670,000 and a $937,000 benefit from the sale of the credit card portfolio that we reported in the fourth quarter.
Excluding these items non-interest income increased a little over $500,000 or a 3.3% from the prior quarter. Loan related interest rates swap fees were $662,000 higher and bank owned life insurance was $209,000 higher in the prior quarter.
These increases were partially offset by lower customer related fee income of $339,000 primarily driven by seasonally lower overdraft fees of $320,000 and lower wealth management income of $168,000 which was partially offset by higher seasonal safe deposit box rental income of $160,000. First quarter non-interest expenses were $54.3 million, down modestly from $54.5 million in the fourth quarter.
OREO and credit related cost decreased 3.9 million related to lower valuation adjustments as the company reported $4.2 million in valuation adjustments in the prior quarter related updated appraisals on two large OREO properties we hope. This decrease was offset by an increased salary and benefit expenses of $2.8 million and that’s primarily related to seasonal increases in payroll taxes, the increase related to annual merit adjustments, as well as increased group insurance and incentive compensation expense.
Professional fees also increased $687,000 due to higher audits and project related consulting fees and our marketing expenses increased $563,000 primarily related to the timing of advertising campaigns and higher public relations expenses versus the prior quarter. As a reminder the annual run rate savings from the 2016 branch consolidations and closings be approximately $935,000 which we expect to begin in May and during the quarter I should note we incurred approximately $300,000 in associated non-recurring advance closing expenses in the first quarter.
Now turning to the balance sheet total assets stood at $7.8 billion at March 31st, up from the $7.7 billion on December 31, and an increase of $444 million from March 31, 2015 levels. The increase in assets was mainly driven by net loan growth during those periods.
Loans held for investment was 5.8 billion at quarter end that was up 7.7% on an annualized basis or average loans increased 7% annualized from the fourth quarter of 2015. Adjusted for the sale of the credit card portfolio in the third quarter of 2015 loan balances were up $417 million or 7.8% from March of the previous year.
Going forward we continue to project mid single-digit loan growth for 2016 as we anticipate that will see higher levels of pay downs in the second quarter and beyond versus what we saw in the first quarter. At March 31, deposits were $5.9 billion, a decrease of 18 million or 1.2% annualized from December 31st.
The net increase in deposits from the prior quarter was primarily related to usable declines in non-interest bearing deposit now account and some run off in our current deposit balances to partially offset by some increases in money markets and savings accounts. Importantly deposit balances were up 276 million or just under 5% from our previous year levels.
As noted earlier credit quality continued to improve during the first quarter. Non-performing assets were relatively unchanged at $27 million at quarter-end comprised of 13 million in non-accruing loans and above 14 million in overall balances.
Non-performing assets as a percentage of total outstanding loans was lower by one basis point now stands at 47 basis points, that’s a decline of 32 basis points from the prior year level. Non accrued loan balances increased to 1.2 million in the quarter while OREO balances declined by 1.1 million as Billy mentioned driven by property sales flows from the quarter.
Our allowance for loan losses increased $352,000 to $34.4 million at the end of March. Allowance as a percentage of the total loan portfolio adjusted for purchase accounting was 95 basis points at quarter-end, that’s down three basis points from our year-end levels, down 8 basis points from the prior year levels.
And that’s a result of continuing improvements in our asset quality and the impact of lower historical loss rates on our calculation of the allowance. Non accrued loan coverage ratio was 263% up clearly from the 178% in the first quarter of the prior year.
Our tangible common equity is feasible to assets for each year at quarter end is 8.86% that’s down 34 basis points from the 9.2% level at December 31st, and that’s a result of the share repurchases and loan growth during the quarter. Our excess capital position at quarter end amounts to about $65 million, again with excess being defined as balances above an 8% intangible common equity ratio.
We repurchased approximately 1 million shares during the quarter at an average cost of $22.75 per share. As Billy noted we have approximately 22 million remaining under the current repurchase authorization as of quarter end.
Management and the Board of Directors continued to evaluate all capital management options including dividend payout levels, share repurchases, and acquisitions as the deployment of our capital with enhancement of long-term shareholder value remains one of our highest priorities. So in summary Union’s first quarter results demonstrates a solid progress towards our strategic growth objectives.
We remain steadfastedly focused on leveraging a Union [indiscernible] to generate sustainable profitable growth and remain committed to delivering top tier financial performance building long-term value for our shareholders. With that I’d like to turn it back over to Bill Cimino who will open it up for some questions.
Bill?
Bill Cimino
Thanks Rob and Kyle we are ready for our first questions please.
Operator
[Operator Instructions]. Your first question comes from the line of Casey Orr from Sandler O'Neill.
Your line is open.
Casey Orr
Good morning, great quarter.
G. William Beale
Thank you and good morning.
Casey Orr
Thanks. Can you tell us where you are now on the expense side in preparing for crossing 10 billion mark, how much have you spent in terms of dollars or people and have you or how you have invested there and how much more spending do you think you have to go?
Robert M. Gorman
Yes, that’s a good question. As we talked before we are investing in various areas to get ready for the crossing the $10 billion level.
A lot of that spending is in doing our enterprise risk management area out in. For the most part we have made the investments in the people side of that, just probably added about you know $2 million or so $1.5 million to $2 million on the people side.
We still have some investments to go in terms of some of the systems and software invested that need to be made that will take place over the remainder of this year. We’ve also been investing in our technology infrastructure and that is probably a quarter of the way.
We plan on investing in that technology in infrastructure areas during the balance of this year and probably some into next year. And we had estimated that would be about 2.5 million or so but we do have ways to go and that we have not finished that component.
And then we’ve also got areas of investment that we are making in our DFAS capabilities which we have just started undertaking that project and expect to add another 500,000 to 600,000 will be spent this year to help us get in position for that. But that wouldn’t be all that we would be doing with probably some additional investments in 2017 related to some people skill sets that we’ll need to add as well.
So on the enterprise risk management side we’re pretty long ways towards that investment, technology is probably about a ways to go probably at quarter-end and DFAS is probably less than 10% at the end of this point.
G. William Beale
Casey, let me add that I think Rob has summarized sort of the expense portion of it but I think there are some initiatives that we have eluded to relative to gaining efficiencies in back office operations and other places that once we’ve implemented then we’ll be glad to share what the cost is but we think that will be some offset to that spend.
Robert M. Gorman
That’s right, sorry Casey go ahead.
Casey Orr
That’s very helpful. And sticking with expenses, probably a question for Jeff but it looks like more of your expenses came down this quarter but are you still expecting to add staff there or do you think you are all set with the people you have in place in that group.
Jeffrey W. Farrar
From a standard expense control management perspective I think we have done a lot of heavy lifting and I don’t really foresee significant improvement from that standpoint. I think the strategy for us is a revenue play.
I think that the current leadership in the mortgage group would acknowledge that we are behind there. Hiring has been difficult.
We need to do better I think to the extent we can do better, we should see incremental profitability immediately within the mortgage operations. It feels good about what we have today in terms of this quality, in terms of the back office structure.
So it is all about seeing some leverage time to improve the overall profitability.
Robert M. Gorman
Yeah Casey, just to add on that -- talking about adding mortgage loan originators where the conditions and the expenses go through the non-interest pay offsets the revenue lines. So, you won't see that come through in the expense line.
Casey Orr
Alright great, thanks for taking my questions. I will let somebody else jump on.
Bill Cimino
Thanks Casey. And Kyle we are ready for the next question please.
Operator
Your next question comes from the line of Catherine Mealor from KBW. Your line is open.
Catherine Mealor
Good morning everyone.
G. William Beale
Good morning Catherine.
Catherine Mealor
Rob's mentioned that the higher the margin was largely due to higher variable rate loan yields, was there any impacts from higher loan fees this quarter as well?
Robert M. Gorman
On a quarter-to-quarter basis the loan fees were flat, they are at -- they are about 12 basis points in that loan field. But it is basically flat quarter-to-quarter so we didn’t even pick up from that.
Catherine Mealor
Okay, and any commentary on the security bucket, it grew a little bit this quarter, little more than we thought in terms of growth last year and the yields also increased. There are any commentary on what you are putting on the books now?
Robert M. Gorman
Yes, we are pretty much sticking to our -- the way we have been investing primarily in mortgage backed securities in municipalities. We have added some corporate debt, a little bit of corporate debt, we have got -- I think we added about $20 million or so in terms of subordinating notes and senior notes in the portfolio which carry a higher yield in both communities and mortgage backed.
So, hasn’t really changed anything on a wholesale basis, kind of just rough around the edges. We did do some restructuring of the portfolio in the fourth quarter in terms of trading out some lower yielding investments when we invested at higher levels and that helped a bit in terms of our overall yields in the investor portfolio.
Catherine Mealor
I agree, thank you, great quarter.
Bill Cimino
Thank you. Kyle we are ready for the next caller please.
Operator
Your next question comes from the line of William Wallace from Raymond James. Your line is open.
William Wallace
Good morning guys.
G. William Beale
Hey Wallace.
William Wallace
Most of my questions have been answered but maybe a little bit more color on the expense line, Rob you mentioned the -- I think 945,000 in annual cost saves that will come as a result of some of the branch closures beginning in May and then you mentioned something else right after that and I apologize I missed it, my connection is a little bit bad, but was the next part of that commentary?
Robert M. Gorman
We had in the first quarter we recorded 300,000 of non-recurring costs to close the branches, to consolidate the branches.
William Wallace
Okay, got you.
Robert M. Gorman
But that is kind of one time behind us now and going forward we will get the run rates improvement.
William Wallace
So, you get improvements in run rates there, you talked about some continuing investment that you anticipate over the coming couple of years really so, if we are looking at say $54 million expense in the first quarter net of that 300,000 in branch closure costs, would we anticipate that that level stays flattish to there as any saves are offset by investments or the additional opportunities that you highlighted Billy as potential down the road, could that actually drive a reduction in the expense line net of the investments?
Robert M. Gorman
Yes. Yes, we would expect, I mean remember Wally that the first quarter is kind of the high watermark for expenses with resets on payroll tax and things of that nature.
So you should see some relief downward from – in the second quarter from FICA and unemployment taxes that won’t recur. We also had a couple of other items that were just branch closure causes.
So we’d like to see that number come down, closer to the $53 million range, which I think we had talked about in our last quarter and on an average basis, maybe slightly higher than that given some of the investments that we need to make.
William Wallace
Okay. And then Billy, you mentioned in your prepared remarks that there's some additional OREO under contract.
How – what was the amount that you said?
G. William Beale
$2.3 million
William Wallace
Okay. Do you anticipate that goes in the second quarter or is that something that could be over the next couple of quarters?
G. William Beale
I –- being that some of what we still haven’t closed we were projecting might close in the first quarter. I would count it as into the second, because things have a tendency to slip sometimes.
William Wallace
Sure, real distracting so.
G. William Beale
While we're in the second we -– it could go in the – sorry, second and the second and the third. It’s my fault.
William Wallace
Okay.
Jeffrey W. Farrar
I would say the majority of those properties under contract will close in the 2Q and there is maybe a couple that might slip, would be my comment on that.
Robert M. Gorman
Yes.
William Wallace
Okay. And then also on the credit line I noticed that the addition to non-accruals kind of jumped up some this quarter.
Is there any specific color to that? Were there any larger credits or is it just deterioration of a handful of credits that were due – was paid in?
G. William Beale
Yes, it’s somewhat a small, Rob.
Robert M. Gorman
Yes. And a lot of it's in the consumer mortgage books.
That’s the lion’s share.
G. William Beale
Yes, I would say that the consumer book was more than half of the bulk there.
William Wallace
Was that across all markets?
G. William Beale
Let me -– I want this example.
Robert M. Gorman
Yes, Mike, hold on. I’ll see if I can decipher that.
I don’t have residential real estate broken out by market Wally but, if I just look at the non-performing -- increase in non-performing assets herein to that I’d be better off not answering the question since I don’t have that level of detail.
William Wallace
Okay.
G. William Beale
We could take you offline on that Wallace.
William Wallace
Is there -– is that something that you guys have marked to something to pay attention to just as a monitor of any deterioration of credit quality?
Robert M. Gorman
Well, sure.
William Wallace
In particular is there anything that you're worried about?
Robert M. Gorman
No, it’s not anything we're worried about. It -– we are not an aggressive foreclosure on houses.
And as you know now with the new FCFPB rules we can’t even start the foreclosure until they are a 120 days past due. And we’ve got a very detailed loan mitigation or loss mitigation, a mitigation process to try to salvage that credit.
So you have a tendency for things to build up in the first quarter if you will, because we do have a heart and we're not going to drop a foreclosure notice on somebody’s doorsteps the first part of December and those kinds of things. So we…
William Wallace
Okay.
Robert M. Gorman
You tend to see some of this but we've had these in here before and you just haven’t noticed them because there have been some other things.
William Wallace
Alright, okay.
Robert M. Gorman
That was the biggest category.
William Wallace
Okay. Thanks for that color.
My last question just for clarity, in the press release you mentioned unrealized gains on mortgage banking derivatives, is that hedging activity?
Robert M. Gorman
Yes, that relates to recording the fair value of our interest rate WAP commitments and we had an increase in our WAP pipeline that suggest that fair value would go up but just…
G. William Beale
It’s not hedged.
William Wallace
It’s the pipeline mark?
G. William Beale
Yes.
Robert M. Gorman
Yes.
William Wallace
Yes, okay, thank you very much guys. I appreciate it.
Robert M. Gorman
Alright, thanks Wallace.
Bill Cimino
Kyle, we're ready for our next question please.
Operator
Your next question comes from the line of Laurie Hunsicker from Compass Point. Your line is open.
Q - Laurie Hunsicker
Yes, hi, good morning. Can we go back to the OREO for a minute?
I know it came in at $14.2 million but do you have the split between what is the shutter branches piece and what is OREO and then just remind us that this $2.3 million under contract what is – which bucket is that going to be?
G. William Beale
Yes, no change in the former branch sites year-end to 1Q. It’s about three…
Laurie Hunsicker
Okay, so the…
Robert M. Gorman
I think that is $3.3 million.
Laurie Hunsicker
$3.3 million, perfect.
Robert M. Gorman
Foreclosed is 10.9.
G. William Beale
And there are no former branch sites under contract.
Laurie Hunsicker
Okay. Any thoughts in terms of movement there or…?
G. William Beale
Well, we're working on those as we speak. We did have one piece of property that was under contract in the court – that terminated the contract.
So we continue to work that but it’s a relatively slow process on the bank’s side.
Robert M. Gorman
Yes, we're down to the more, shall we say, role branches where they would be less interest. So we're still getting some nibbles but nothing under contract sales.
Laurie Hunsicker
Okay, great. And then the $2.2 million in net charge offs, was any of that related to King Carter?
Robert M. Gorman
No, no.
Laurie Hunsicker
Okay, was any of that related to -– I mean because it’s a little bit larger than you’ve been running. Was any of that -– was a chunk of that related to any one loan?
Robert M. Gorman
Well, King Carter wouldn’t have been a charge off, because that’s our OREO, it would’ve just been -– that would have been gone straight through that.
Laurie Hunsicker
Right, right.
Robert M. Gorman
So I think like…
Laurie Hunsicker
Okay. And….
G. William Beale
And it wasn’t any –- it was about 50-50 on commercial versus consumer lending. Somewhat had to do with -– did take some recourse, some credit card loans back that we had couple of hundred thousand's in that.
Auto was…
Robert M. Gorman
Yes, we had entire law suits.
G. William Beale
Yes.
Robert M. Gorman
And direct auto with this, again not atypical for the second quarter things kind of -- the first quarter things tend to get say sort of backed up on selling autos.
Laurie Hunsicker
Okay, and then the auto –- yes, you changed your loan breakout slightly. So the last data point I had on auto was around $225 million.
Is that about…?
Robert M. Gorman
Yes, it’s up -– I think it’s up over $230 million now. Other than rewriting past dues or still running at the store levels or low levels.
Laurie Hunsicker
Okay. And do you have an approximate FICO on your auto book?
D. Anthony Peay
This is Tony. The -– our credits are going on at about 790 FICO score so which is about -– a year ago it was about 70 – sorry, 700, it was 709 a year ago.
So it’s down slightly but not materially, pretty high credit fall.
Laurie Hunsicker
I'm sorry. You know what you’re breaking up a lot.
I'm having trouble with the connection. You said your average FICO is going on at what level?
D. Anthony Peay
700.
Laurie Hunsicker
700, okay. And then just can we go back to King Carter for a minute.
Was there any adjustment in the quarter or does that still sit at about $2.7 million?
Robert M. Gorman
Yes, well, there was -– I won’t call it an adjustment. There was a sale of almost $200,000 that we closed in the second quarter at basically breakeven.
So there was some….
Laurie Hunsicker
Okay, so that’s down to about 2.5?
Robert M. Gorman
Yes, sounds right.
D. Anthony Peay
Yes, that’s right.
Laurie Hunsicker
Okay. I mean you’ve got that ripped down at such immaterial amount at the moment.
Okay, and then just if we could go back to loan loss provisioning. You mentioned you had a strong pipeline.
How should we be thinking about, I mean with respect to your credit costs obviously the OREO expense can weigh down that -- and I know that you’ve got the tax payments that roll into 2Q and 4Q. But as we think about your overall credit costs going forward, do you -– can you give us any guidance with respect to loan loss provisioning and OREO combined or however you break this out?
G. William Beale
Yes, this definitely would be OREO balances or OREO cost, we're still sticking with between 500 and 750 a quarter.
Laurie Hunsicker
Okay.
G. William Beale
It is getting to be up or down some of it has to do with some of the property taxes being a little lumpy in Q2 and Q4. In terms of the loan loss provisioning, we had about 15 basis points swept when we think about it is to cover our charge offs and then any loan growths and work with that from a provisioning point of view.
So charge offs have been fluctuating between 8 -– this quarter was 15 basis points, and then putting on 90 to 95 basis points on any additional loan growth beyond that. So the provisioning will be three to five basis points higher than the charge-off ratio in any particular quarter assuming loan growth comes in at levels we've been seeing.
Laurie Hunsicker
Perfect. Okay, and then tax rate, can you help us there, you were a little bit lower this quarter?
How should we be thinking about that?
G. William Beale
Yes, I think last quarter I had mentioned running -– we would be running around a 26% tax rate. We came in at 25.5% this quarter.
Basically it’s – it probably should bring -- my view point is that we should bring that down going forward. I would see it closer to 25.5% this by seven or eight versus the 26%.
So we have taken our yield that down.
Laurie Hunsicker
Okay. And then just going back to branch closures here, do you expect any one-time hits in the second quarter from the branch you're closing in May?
G. William Beale
No, we've already taken the hit for the second quarter closures and consolidations and that’s part of the $300,000.
Laurie Hunsicker
That’s 300, okay. Okay, and then the annual savings you mentioned of the $945,000, how much of that was in this quarter?
Robert M. Gorman
There was zero in this quarter. We just closed the branches Friday -– this past Friday so none of the savings came through yet.
But the three that we closed, of the net three we closed in April, you’ll start to see that in May that run rate come through and then the one in May, you start to see that in June. So, nothing in the first quarter.
D. Anthony Peay
Laurie, just as a reminder on that, it’s a little different than in the past as we reopen up a new one in the elevation in Winchester so, it’s a little bit different than what you’ve seen in the past, since you have that new branch open, which opened on Monday.
Laurie Hunsicker
Got it. And then obviously this quarter -– last quarter reflected some of your branch closure savings.
So this quarter was the full reflect on the ones you closed at the end of last year, is that right?
Robert M. Gorman
That’s correct, yes.
Laurie Hunsicker
Okay. And then just going back to your total expenses, you were -– again, if we start with 54.3 we're backing out the 300 at one time, the higher payroll taxes, that’s another 200 that comes out.
Your marketing run rate was elevated. Is that unusually elevated or is that…?
Robert M. Gorman
No, that would that -– I would not take marketing down that -- we had a….
G. William Beale
Well, we don’t typically advertise a lot in the fourth quarter because you get lost in the Thanksgiving and Christmas clutter.
Robert M. Gorman
Yes, so fourth quarter was a low point and I wouldn’t expect that that’s going –- first quarter run rate will hold for a few quarters.
Laurie Hunsicker
Okay. And then with technology also elevated but that will continue to stay elevated?
Robert M. Gorman
Yes, that will continue at the levels that you see as well.
Laurie Hunsicker
Okay. I mean I guess as we're thinking about and certainly you mentioned the $53 million range, could we potentially see it below that for this next one to two quarters, I'm just adjusting some of that for…
Robert M. Gorman
I would -– we're not projecting that because we do -– we are doing some more hiring and building our technology, infrastructure. We've also -- we will get the -– we only had one month of annual merit increases during the first quarter, we’ll see another two more months in the second quarter and that’s the $300,000 a month incremental.
So I wouldn’t want to go below $53 million.
Laurie Hunsicker
Okay. Okay and then just two more questions, your assets under management, where did you finish the quarter?
D. Anthony Peay
$1.9 billion.
Laurie Hunsicker
Okay, so then plus the 300, you’ll be up to $2.2 billion? The 300 with Old Dominion, is that…?
Robert M. Gorman
That’s quite correct, yes.
Laurie Hunsicker
Okay, and then just Billy one last sort of more macro question, just circling back to our case, you have started with the $10 billion mark, can you talk a little bit about your thoughts on going there, I mean obviously you went through the expense portion but just how you are approaching that, how you approach breakeven, how you think about going over that, what would be the timing in terms of when we could see you make that leap?
G. William Beale
We are thinking about it methodically. We are preparing ourselves for it.
Organic growth wise we would likely pierce 10 billion just based on organic growth in calendar 2019. We will then have 18 months or so after that before it would actually financially impact us.
And so I would think that the leap these sort of reached the financial breakeven would be an acquisition somewhere in the $3 billion to $4 billion to $5 billion range. $3 billion would get you to breakeven but something larger than that would hopefully be accretive.
To offset the expense and I would think it would be something that we would announce in 2018.
Laurie Hunsicker
Okay, so likely this year next year we don’t see you do any meaningful acquisitions?
G. William Beale
I didn’t say that. You asked me when I will leave the cost of 10 billion.
Laurie Hunsicker
Okay, well in terms of acquisitions…
G. William Beale
I mean I think we have been very consistent that if there is an opportunistic acquisition that would allow us to maximize earnings per share, maximize cost saves, give us a superior return on investments and pretty quick payback of an intangible book value dilution and it was somewhere in the 800 million or billions range we would look at it.
Laurie Hunsicker
Okay, so right, so a small -- but in terms of a meaningful acquisition is it fair to assume that you would back burner that for the moment.
G. William Beale
Yes.
Laurie Hunsicker
Okay, perfect, thank you very much.
G. William Beale
Although those of us sitting around this would call it big and too meaningful. [Multiple Speaker]
D. Anthony Peay
Laurie, this is Tony, one clarification. The credit scores you asked about, the beacon scores are averaging about 720 not 700 so, if that matters to you.
Laurie Hunsicker
Yes, perfect. Thank you.
Bill Cimino
Thanks Laurie. Alright, Kyle we are ready for the next question please.
Operator
Your next question comes from the line of Austin Nicholas from Stephens Inc. Your line is open.
Austin Nicholas
Hey, guys good morning. Great quarter.
G. William Beale
Good morning. Thank you.
Austin Nicholas
Quick question just on your wealth management business, how should we think about the profitability of the business that you recently acquired and how does that fit into your kind of the acquisition I guess trajectory there and maybe should we see those sort of acquisitions be it a full firm or a team over the next year or so?
Jeffrey W. Farrar
Hey Austin this is Jeff. So, I guess about a year ago now we started down a path of trying to identify registered investment advisory terms that would compliment what we are doing.
And this is the culmination of that process. The idea is that having a registered investment advisory firm would help us in terms of focus on the high network phase, mass influence phase, provide some additional investment suite, some additional talent that would complement the talent that we have better than our wealth managements group.
The private banking services, trust services, or brokerage would complement their client base and conversely what they have would complement with our client base. So, we are excited to get one on board.
It is -- the firm itself from a profitability standpoint was attractive to us because it had operating margins in the mid 40% range. So that is pretty strong and that will certainly complement the profitability of that group.
We would anticipate that this is the platform from which we will grow funds so your question relative to would we have groups if we had other firms I think we would look at those. We would use this as the base platform, a robust compliance program in place that was appealing to us as well.
So we certainly anticipate growing this ROI [ph] space as we expect to grow our wealth management phase within the bank. So excited about it and I think it makes a lot of sense from a strategy standpoint.
Austin Nicholas
Okay. Great, no, that’s really helpful.
I think that’s all my questions for now. Thanks guys.
G. William Beale
Thanks, Austin. Kyle, we're ready for the next caller please.
Operator
Your next question comes from the line of Blair Brantley from BB&T Capital Markets. Your line is open.
Blair Brantley
Good morning, guys.
G. William Beale
Hello, Blair.
Blair Brantley
Just had a question on your loan growth drivers for the quarter, if you can just give us some more detail there by category and by geographic location?
Robert M. Gorman
Geography, as you might expect, Richmond was our biggest growth market. They were -– they’re tracking through the first quarter at the same pace they were tracking last year at about a 12% growth rate.
We also saw a significant growth in our other two larger markets Fredericksburg and Charlottesville which was nice, because Fredericksburg was actually down net last year as a result of some pretty significant pay down. So Richmond, Fredericksburg, Charlottesville were the three drivers.
And as far as loan growth goes and the different categories, its -– we're continuing to see, hold on, I flipped to the wrong page. The whole construction loan, land development, and other land piece was a big driver for loan growth.
The bulk of that was coming out of builder lines of credit. We've got some -– we're seeing our builders start to have better opportunities and we're also seeing some commercial construction.
As you know we're very active in historic rehab and other sorts of things and so that piece is continuing to bat for us. The other large area of growth is C&I lending.
Commercial real estate, we had some stuff move out of construction. Commercial construction move into commercial real estate and then we had the growth in the personal lines as we're continuing to work with and partner with some of the alternate -– alternative lenders out in that -- in the personal loan space.
It’s something we've been doing for years.
Blair Brantley
Okay. That’s very helpful.
Can you kind of give us a sense of pricing today versus last quarter and what you're kind of seeing there in terms of pricing competition and who’s kind of giving you the bigger -- right now?
D. Anthony Peay
I would say this quarter has not been as bad it was in the fourth quarter in terms of -– this is Tony by the way, in terms of the competitive environment. Still a lot of fishing rods in the pond and a lot of folks trying to go back to the same game.
So it’s -– it is still competitive. I think the pricing’s probably got a little more rational and our loans are getting booked in the higher threes up to mid-fours, so it’s getting a little bit better there.
Blair Brantley
Okay.
D. Anthony Peay
It’s pretty consistent across all markets.
Blair Brantley
Okay, great. And then just one follow-up on the margin.
Rob, how much of the rate increase impacted margins in the quarter? How much was the benefit there?
Robert M. Gorman
The rate increase in terms of the short-term rates moving is about five basis points.
Blair Brantley
Yes, okay. Alright, great, thank you very much.
G. William Beale
Thank you, Blair.
Bill Cimino
Kyle, we have time for one more call please.
Operator
Your last question comes from the line of David West from Davenport & Company. Your line is open.
David West
Hi, good morning.
G. William Beale
Good morning, David.
David West
Just one question left. I wondered if you could give a little color on your new credit card relationship.
How that’s working for you and customer acceptance of that?
Elizabeth M. Bentley
Okay, this is Elizabeth Bentley, how are you this morning?
David West
Great, thanks.
Elizabeth M. Bentley
Well, we're still somewhat early in the process of transition. So we've got teams working on reissuing cards to existent customers.
They are going out in waves. We've had good feedbacks around that.
We’ve pulled in the old portfolios from StellarOne and First Market Bank that had gone through along and all of those customers have been reissued our branded cards. And so now we are turning our attention to selling to the rest of our base and improving penetration.
That is in the very early stages. So, feeling good about the relationship, still sort of operationalizing some things but excited about the ability -- about our product suite through rest of our clients.
David West
Thanks.
Robert M. Gorman
David, one of the things Elizabeth didn’t mention is -- well she mentioned it but I guess didn’t quantify, the former First Market, former StellarOne customers both those banks hold credit cards -- and post acquisition -- kept the cards and just branded them along. Getting those back should -- we should see a boost in the transaction fee income, we are guessing about $300,000 but we don’t real good visibility into those customers because they have been away for a while.
But we are thinking that's going to be a nice addition to the non-interest income as well.
David West
Very good, thanks for that color.
Bill Cimino
Thanks Dave and thanks everyone who have taken the time out and call in today and we will talk to you the second quarter.
Operator
This concludes today's conference call. You may now disconnect.