Q3 2020 United Community Banks Inc Earnings Call
Good morning, and welcome to United Community Banks third quarter 2020 earnings call hosting the call today are chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harrelson, Chief Banking Officer, Rich Bradshaw, and Chief Risk Officer, Rob Edwards United's presentation today includes references to operating or.
Earnings pretax pre credit earnings and other non-GAAP financial information for these non-GAAP financial measures United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the Investor presentation. Both are included on the website and you see <unk> dot com copies of that.
Third quarter's earnings release, and Investor presentation were filed last night on form 8-K, with the SEC and a replay of this call will be available in the Investor Relations section of the company's website at <unk> Dot com. Please.
Please be aware that during this call forward looking statements may be made by representatives of United any forward looking statement should be considered in the light of risks and uncertainties are described on page three of the company's 2019 form 10-K as well as other information provided by the company in its filings with the FCC and included on its website at this time I will turn.
On the call over to Lynn Harton, well good morning, and thank all of you for joining our call. This was certainly a busy quarter for the company. We closed the acquisition of seaside National Bank in Florida.
The combination of their earnings and the continued growth of our business led to a record level of pre tax pre provision income for the quarter and slightly over $81 million.
Our earnings per share for the quarter came in at 52 cents on a GAAP basis 55 cents on an operating basis, which represents a decline from the same period last year, but a significant improvement from last quarter.
Our return on assets of 1.07% drove a return on common equity that exceeded 10% and on the operating basis, a return on assets was 1.14% and we.
We reached 13.5% in a return on tangible common equity.
Bankers continue to deliver outstanding service, and we were rewarded with 8% annualized loan growth and 50.
And 15% annualized deposit growth due to their efforts at the same time, given the low rate environment. We continue to work to drive down our overall cost of deposits.
Partially offset the decline that we and the rest of the industry are experiencing in loan and investment securities yields.
Our net interest margin fell by 15 basis points during the quarter as a result of the low rate environment.
Even with this margin decline, though our efficiency ratio on an operating basis reached a record for the company at 52%.
Credit continues to perform well as our markets rebound from the effects of the COVID-19 shutdown.
Loan payment deferrals decline from nearly 16% last quarter to just above 3% at September thirtyth.
It continues to be difficult to predict the future path of credit results, but we're certainly encouraged by the performance of our client base. During this time both.
Both nonperforming loans and net charge offs declined from last quarter and contain.
And continue to be consistent with pre covert levels, our allowance for credit losses now stands at 1.39% of total loans, excluding PPP lines. So given the environment. This was a strong quarter for the company and reflects great efforts by our team throughout the bank to maintain focus and continue to take care of our customers.
You'd like to hear more details on the quarter, specifically credit and I'd like to turn it over to Rob for that now to Rob.
Like you land and thank you for being on the call today I'm going to start my comments on page seven our loan portfolio grew by $1.7 billion. This quarter with 1.4 billion coming from sea side and $227 million coming on a core basis, excluding seaside our loans grew at an.
8% annualized pace, our loan growth picked up a bit in the quarter as we've been successful in market share take away from our lender hires in 19 and early 2020.
We've also had success in turning many of our new PPP customers into full relationships moving.
Moving onto the allowance for credit losses on page eight on this slide we provide the initial credit marks and interest rate marks for seaside in total there are $46 million in loan marks for the quarter.
In addition to the $46 million, we also set aside a $21.8 million provision in the quarter, which included a $10.7 million Cecil provision foresee sides non P.C.D. loans, commonly called the double dip.
In total our allowance for credit losses increased by about $30 million and our allowance for credit losses to loans ratio increased to 1.39%, which we view as healthy.
On page nine we look at credit quality, which was stable in the quarter. Our net charge offs were improved from last quarter to nine basis points, which included the benefit of strong recoveries on page 10, we give you a deeper look at our deferrals, which improved significantly from June thirtyth.
And now just represent 3% of our total loans.
Through our ongoing review of the top 50 stabilized hotel properties, we have seen an increase in weighted average occupancy to 50% in the third quarter.
Well, we've seen improvement in our hotel and restaurant deferrals, the deferral rate within these two loan books remains higher than other portfolios and amounts to 70% of the total remaining deferrals.
I'm also pleased to note that on a fetus deferrals improved to just 2.4% of total Davita sloan's there.
Theres additional detail on our Interveners portfolio, our restaurant and hotel books as well as retail CRT in the appendix and we're glad to discuss during Q in a if you have any questions.
With that I'll pass it over to Jefferson on capital.
Thank you Rob I'm going to start my comments on page 11, I'll talk briefly on capital our capital ratios came in as we expected in the quarter with the closing of the seaside deal and our ratios still remain above peers. You will remember that we raised $100 million in preferred equity and $100 million in senior debt last call.
Sure and giving that we do have $63 million in senior debt and true ups that we could call. This year, depending on the environment, but for now we are planning to hold the capital as we keep an eye on the economy.
The net interest income and margin is on page 12.
Our net interest income was up $19.2 million from last quarter, primarily with the help of seaside are.
Our net interest margin was down 15 basis points from last quarter as the core NIM was down 23 basis points and increased loan accretion offset this by eight basis points.
The core margin compression came as we got the full mix impact of the surge and liquidity at the end of Q2 and seaside came in with a lower coordinate them as well the initial seaside barks or what drove the increase in loan accretion excuse.
Excluding PPP forgiveness and loan accretion, we expect relative stability in our core margin in Q4 page 13 shows our deposit mix and our cost of funds. We had success in the quarter again and growing deposits with core deposits up 15% annualized excluding the acquisition.
Cost of deposits improved to 25 basis points in Q3 from 38 basis points last quarter and we were encouraged by that progress fees are on page 14. We are once again very pleased with the result, with our fee income up eight and a half million dollars from last quarter. The main driver of the increase is just under two and a half million.
Dollars that in a fetus added and from our mortgage business that was up $1.5 million from our previous record last quarter with the environment, our mortgage volumes actually increased from last quarter and the gain on sale percentage also increased which we were not expecting.
There were other notable items in the fee income result.
We're encouraged that our service charges started to normalize higher in Q3, and our higher loan volume drove a million dollar increase in our customer swap fees.
You saw in the release and the Investor deck that we had about $750000 and securities gains and a $1 million positive swing in our SP, a servicing asset valuation that may not well repeat.
On page 15, we give you an update on our PPP loans, our customers are thinking about and doing the work on forgiveness and 56% of ARCP customers have input completed forgiveness documentation into our portal. We have just started to turn in that documentation to the FDA for the loan forgiveness.
Riches here in the Q and eight to answer PBP questions on page 16, our expenses included a half a million dollars contribution to our foundation and were relatively flat when you layer in the seaside run rate of about $9 million with.
With the revenue increases, we had and the flattish expenses, our efficiency ratio moved to 52% while.
While we did not get much in the way of seaside cost savings in Q3, we expect to convert their systems in the first quarter and we feel confident on the $9 million of annual cost savings that we have targeted with that I will pass it back to Lynn for closing comments.
Thank you Jefferson.
Another exciting event this quarter for United was the addition of Jim Clements President of Clemson University to our board of directors under Jim's leadership, Clemson has set records in admissions enrollment graduation, and retention rates research funding and as we all know athletics Clemson has been ranked as one of the top 25.
Public universities by US News and World report for 11 straight years.
I look forward to having Jim encourage and push us to perform at the highest possible level, So Jim welcome to United and.
Speaking of performance I'd like to point out that while the economic outlook remains hard to predict.
We were well positioned with solid pre provision income.
Strong capital levels and ample liquidity to outperform during this cycle.
And that is all due to an outstanding team throughout the company.
Some of which are in the room here with me now.
So I'd like to open it up now for questions and give them an opportunity to provide more color for you on the quarter and the environment.
Thank you before we begin we ask that you. Please pick up your handset. If you are using a speaker phone. This will help eliminate any background noise.
Ask the question you and me depressed I'm wondering your telephone to withdraw your question. Please press the pound.
Our first question comes from the line of Brad Milsaps with Piper Sandler Your line is now open.
Hey, good morning.
Hi, Brad.
Maybe just wanted to start on.
Asset quality and.
You guys have seen some nice improvement and deferrals I know a lot of moving parts with.
The reserve this quarter.
But it looks like if I add back the marks.
The existing market out like the reserve gets around 141, five up 45 alone.
TPP, maybe still a touch lower than peers, but just kind of Q.
Just kind of curious how you guys are thinking about the reserve.
And provisioning going forward based on the improvement you've seen.
The deferral side of the equation.
Hey, Brad its Rob.
As far as the provision goes it would really be made up of three things as we go forward or three primary components of course loan growth.
Would continue to play a role in the provisioning.
And then also charge offs future charge offs and then also I think personally that we'll see we've not had a lot in specific reserves and you could see an increase in the specific reserves on some probably.
Problem loans in the future and that could also of course drive the need for additional provision.
As it relates to the allowance rate itself.
The economic assumptions are.
What is the primary driver there and if the while the environment is very difficult to predict a high degree of uncertainty if though it does play out like our current assumptions are modeled we.
We would expect the rate itself to remain pretty close to where it is.
Were there any big changes in the criticized or classified list from the second quarter.
So we did add in.
Add in about a $15 million of hotel exposures.
And we did add in some are about $20 million of senior care exposure overall, the criticized and classified increased by $15 million. So we've we've been successful continue to experience success in moving credits out of criticized.
Classified through refinance and pay offs and so I I was actually really pleased with how much movement. We had out of the criticized and classified bucket to make room for some of the stuff coming in.
Great and then just maybe one follow up for Jefferson away from credit.
I appreciate you, including slide 23 on on mortgage I know last quarter you benefited from I think it was a five or $6 million Mark on the pipeline at the end of the quarter.
We're also mark this quarter and I guess, if I look at the table is sort of the difference between you know the number that the gain on loan sale multiplied by the number of loans sold sort of is the plug number kind of what the market would be.
Just kind of curious kind of how to think about kind of that mortgage line going forward.
So I'll I'll start briefly it is a good way to think about it there was a much more slide right.
Write up of the more.
Mortgage pipeline this quarter I'll pass over to rich, who manages that business for us to talk about the future.
The future and what are you seeing there.
Sure Hi, good morning, Brad.
In terms of production in Q4, we do see production coming down probably about 10%. We are seen refineries increase why purchases decrease.
Well you know in terms of the margin as well.
He was a healthy 5.4 in Q3 and right now were seeing something for two.
For 25% to 450 is where we're currently experiencing kind of think that will hold through the end of the quarter and probably go down in first quarter next year.
And then in terms of fee income well were kind of projecting is mid to high teens for Q.
For Q4.
Great and just a follow up to that Jefferson I think in the deck you mentioned more submissions are up about a half million view.
As those mortgage revenues subside is that kind of how to think about you know the.
You get some expense relief as that comes down.
Oh, yes, definitely if you think about mortgage commissions are up about $2 million from Q1, we.
We also have some overtime that's in there as well so I think depending on how far mortgage comes and you would get a portion of that $2 million back.
Great. Thank you I really appreciate all back in the queue.
Thank you. Our next question comes from the line of Jennifer Demba with Jewish Security. Your line is now open.
Thank you good morning, good morning.
Oh.
Rob.
To talk about what you think you could see in potential loss content.
In the hotel Buck it seems to be the area, where most bang art.
All right you're seeing the greatest.
Greatest amount of stress and I also just curious what you think loss content being senior living.
We had heard I mention of that were very much this quarter. So I'm curious what your thoughts here on.
Uh huh.
Yes, so interestingly Oh, maybe start with this the.
On the senior care book, we did have a senior care credit that was a in our classified portfolio that we were able to exit a through a sale did not take any loss on that on that sale. This quarter. So we continue to be optimistic about the senior care portfolio.
But as I mentioned there is a couple that have we put in.
We put in criticized and really it's more about pace of stabilization. It's not we're not seeing anything in the senior care space, where a the occupancy was one level now its dropped way down what we're seeing is as properties come online its taking them longer than we would have and.
Dissipated there where they would have anticipated reaching stabilization which of course is a.
Really just because of the environment more so than the actual core business now. So so we feel I feel good about that business. We may have some credits it just take longer to get there than would have otherwise been thought on the hotel side. It's an interesting situation we have as an issue.
Sample, we've got a couple of limited service properties err on the side of Interstate 95, and the Carolinas and those properties are running 85% to 90% occupied and so doing very well.
As you're probably aware and hearing from others the some of that.
Some of the concern is on the business travel side.
In a more urban type environments.
The I feel optimistic about the hotel portfolio that we have we have made it a focus to to limit our hotel exposure to three to four of the top hotel folks in our markets. So it's not like we've just been random.
With our hotel origination those people have a longer.
A longer horizon, they've been in a long time they don't.
Don't get scared by a difficult environment their true operators and they have resources to to resolve their own situation. So I continue to feel good but I think we'll have some you know with a weighted average occupancy of 50%. We do have a couple of properties that are below.
So 45% occupied and we're working with them, but we feel good about them and the quality of the operator as high as what I think is going to drive the success in that space.
Thank you so much.
Thank you. Our next question comes from the line of Michael lows with Raymond James Your line is now open.
Hey, good morning, guys. Thanks for taking my questions Jefferson, Hey, I'm, just wondering sort of the margin obviously, a couple of moving pieces this quarter, especially with the with the.
With the deal coming in we'll get some PPP fees coming over the next couple of quarters can you just kind of walk us through some of your high level thoughts on on how we should be thinking about the other moving pieces. Thanks, yeah. So I'm going forward I'll I'll talk ECP, but we have we have a lot of things that are now.
Now turning into Tailwinds for us that had been headwinds before.
One is the CD book has always been a tailwind, but we have $367 million coming due next.
Next quarter at 1.28%.
Oh, the whole CD bought because of $1.9 billion at 85 basis points. So.
A lot of opportunity there.
We have been putting a cap.
Cash works. So this cash build that you've been seeing I think is going to again X P. P. P C.
Start to reverse we can talk about ERP in a second.
So end of period, you'll notice that the securities portfolio was higher so you're getting a positive mix change there we had some good loan growth this quarter and that's that's helping out but we.
I think that pipeline looks good next quarter, so the but on the other hand of it we have a.
The LIBOR continues to trickle down just a little bit and so so that's a a headwind netting that as you look into the fourth quarter our deposit rates.
So far have fallen faster than our loan yields so I feel like that the core margin.
Can be flat this quarter and and then maybe on accretion and you know maybe that comes in a couple of basis points, that's what I'm thinking now.
Thank you now know what that with a PPP, we do start expect.
Expect to start seeing some forgiveness and some cash coming in from that and we'll have to go to work to put that off to put that to work to to help keep that.
To help keep that margin flat, but.
Our best forecast now as a a flat core margin.
That's very helpful and we heard from sort of the banks. This morning that operate in some of your markets that.
They spent a little bit more optimistic on the loan growth outlook.
Appreciate the color on the Securities book, but are you guys seeing the same thing is there a point where the loan.
You know once we get through some of the PPP run off in the middle of the back half of next year.
No actually starts to more than offset the yes.
The which added Securities book can you actually get some positive mix shifts.
And I expansion. Thanks, <unk> I'll start pass it over to rest of Andy So putting in securities is already a nice positive mix shift from cash into securities and then if we could take that and move it into loans that could be a better thing for us and with that I'll pass to rich on the pipeline. What are you seeing there sure. Good morning, Michael I'll add a little more color to Rob's earlier.
Earlier comments on growth first of all we're seeing a return on our investment on the 40 commercial lenders and leaders that we've hired since January 2019, and probably about half of those are replacement half are incremental and those are really paying off for us.
Another piece of this is the large banks are moving away from the $5 million loan size and that's a really great loan for United Matt.
Matter of fact, those banks are going in terms of portfolio management is a one 800 number if you're a $5 million loan customer and so that's been a real opportunity for.
Opportunity for us and I'm sure for some of our peer banks as well and then lastly, I think we continue to enjoy some tailwinds from PPP both from a reputation standpoint in the effect and the fact that over the 11000 that we did 3000 were new customers to United and you can obviously figure out what is our biggest target.
But in terms of who we've been going after for the last quarter and Thats been very successful for us. So we do feel optimistic.
Going forward in Q4, our pipelines are strong and feel that we'll have a similar Q4, then likewise that we had for Q3.
I'll just add that that loan yields that we're seeing coming in are very similar to our current loan yields were not on this growth were not seeing a degradation in the o'neil.
Got it that's helpful. And then maybe just one final question from me you guys disclose the seaside deal.
It does seem like M&A chatter is picking up a little bit you did see a larger transaction here recently.
Hi, within some of your markets.
Any updated thoughts I know you guys referred some of the smaller deals and singles, maybe some doubles or close to home runs, but how should we think about kind of the capital deployment and M&A strategy as we move forward. Thanks.
Thanks, Michael This is Lynn I mean clearly.
Clearly as soon as the environment clears whatever we believe that is I do think there is going to be tremendous opportunities for for acquisitions and as you mentioned, we tend to like the singles and doubles or we will look at a few maybe triples here and there but.
All the drivers that were in place you know before.
Before Cove and margin pressure tech investments competition for loan growth all those things have really accelerated so.
There is a lot of conversations going on and you know and people are looking forward to.
Once you can feel comfortable looking at each other's loan books and knowing what you got I think yeah. We're we're looking forward to getting back into the M&A game.
I appreciate all the color guys. Thank you thanks Michael.
Thank you. Our next question comes from the line of Catherine Mealor with KBW. Your line is now open.
Thanks, Good morning, maybe just one follow up on the capital deployment.
Question on buyback.
You've got a lot of capital.
It it feels stable PPNR looks really good how are you thinking about how soon you will be comfortable reengaging on the buyback.
That's a great question and we're talking about that a lot internally, we don't have plans to reengage the buyback.
Currently, but we do have cash at the holding company that will last us to the beginning of a 2020.
2024, we do have an upstream this kinda comment enhance that.
We do think you'll start seeing us.
Before we get to buyback start to look at our trust preferred this out there a 6.25% we have some senior debt that's out there at a 5% that matures in 2022 that we could do early.
So we're looking at using that cash to benefit 2021, but we want to see some.
We want to see some more time in some more statistics pass before we enter back into the buyback.
Great and then I saw.
On credit as well are there any.
Loans that have come off of deferral, but where you have entered into a loan modification anything to speak out there.
So I'm going to say no to that that's not that's not really something that we're doing a if its modified then that's likely if it would be modified because of a change in performance, we would either downgraded or TDR, it or put it and it would call it a deferral.
Deferrals are modifications effectively right.
Yes, yeah, we've just seen some other companies.
That kinda talk about coming off deferral, but entered into a modification restructuring situations just wanted to make sure. There wasn't another group of loans that no we're not doing that.
Great great.
And then maybe just.
I guess, one last question on just kind.
Just kind of your.
I guess thoughts on on expense growth.
Any any kind of outlook Jefferson near term on what you're thinking about expense growth going into next year.
Yeah. So we have a we're thinking a lot about expenses. It's a budget season in a couple of things I think about one is we have a six branches that we are closing in December.
All things equal that should save us $2.3 million.
Next year.
And before you get excited about that we also have new locations coming on we have two new locations and Colombia that were.
We're excited about that are that are coming on we have a team a L.P.O. chain that have brought in so.
Sometime ago that has a.
On their own, but really really well and rich may want to step up on this.
So we were purchasing the two brands or have purchased sorry, we have we purchased the two branches in Colombia to support the new L.P.O., we started that Lps, though in July last year, and we're really pleased with their growth and they've done a $120 million of commitments since since the start of that LPL and so we feel very good about that.
We're also looking at a location or two and Florida, but net net we should I guess an expense savings from a branch closures next year.
We have $9 million from a seaside that we're excited about getting that into the run rate starting next year.
You have some other streamlining type of idea that or not.
We're not really talking a lot about today, but we are starting to kind of lay out and try to get some cost savings from some other projects.
As well and at the same time, we're growing our business, where we're making selective hires were making some of these investments that we're talking about so and.
And again, we're in budget season for next year, but.
Flat to slightly higher as where I would kind of start.
Great helpful. Thanks for that thanks to the color and great quarter.
Thank you. Our next question comes from the line of Kevin Fitzsimmons with D.A. Davidson. Your line is now open.
[laughter].
Hey, everyone. Good morning, just a quick follow up on the the loan growth the organic loan growth and wondering if there's specific markets.
That are contributing more to that and I know rich you talked about the.
The small to mid sized loans are getting kind of ignored by the larger banks I'm, assuming that's part of it and also you referred to that.
The PPP customers that are not.
Currently or are worried previously customers have used to be I was just wondering if any of that is contributing some of those customers are already moving over other loan business. Thanks.
Good morning, Kevin the short answer to your PPP question is yes, absolutely about a third of that.
Loan growth came from the new ppb customers in terms of where we're seeing some of the loan growth medical office buildings I'm going to say near owner occupied because definition are occupied is 50% we have some large deals that.
We had the the owner has 35, 40% occupancy. So we feel good about those who've done a fair amount of grocery store anchored deals I was also trailing that would be warehouses and then in terms of geography, I want to point out that our South Carolina, and coastal Georgia team as well as ER.
North Carolina team really had just huge quarters and they they really drove the volume.
That's great. Thanks rich.
Just one quick follow up I know, we Jefferson you mentioned a few times the timing.
The PPP process as far as when the remaining fees get recognized through the margin is is your best bet that the bulk of that comes through in first quarter, maybe maybe one fourth and fourth quarter.
Three quarters first quarter, just wondering your thoughts on that.
Yeah. So we're thinking that it's going to be a little sooner than that we have enriched.
And rich may want to step in here, but in our portal, we have a significant number of our customers have put the full documentation and so we're starting to apply.
Apply these to the SP a at a much faster way down and so we think actually we're going to get and there is a not there's a possible at a 90 day waiting period once we get the forget this application and when we get the cash.
We're currently thinking that could be up to 50% of the fees come in the fourth quarter.
Now I'll pass the rest to see what he has to add to that yeah I have the benefit of having some numbers in front of me I'm of the 11000 that we that we did we have a we we call 100% of the expenses entered we have about 6057, and that's about $718 million and so we have to do some.
Perfect location, and we have to get some certifications from our borrowers, but remember we build a portal for this day, one and we built it throughout the process, including updating it for the forgiveness portion and so we expect to get a majority of our forgiveness kind of split between fourth quarter and first quarter.
No trickle from there and it'll be there'll be some trickle.
All right that's great. Thanks, guys.
Thank you. Our next question comes from the line of Christopher Marinac with Janney Montgomery Scott. Your line is now open.
Thanks, Good morning wanted to talk about in the Vitesse and just get a sense of whether the charge off rate would the same or higher as you get into year end in early next year and also kind of what type of new growth in TV. This has on the horizon.
So this is Rob I can if you we did put some slides or on slide 22 in the deck. There's some stuff about in the fetus in charge offs and you can see there that the charge offs in the third quarter went to 93 bips.
So that's right at $2 million or when.
When we started sort of when the whole pandemic kit and we met with them to be disguised they.
We're projecting something a little bit higher than this so we're we're I'm cautiously optimistic that Ah things there are going a little bit better than maybe we they could have been going and maybe even better than we anticipated and that was it came in around a 2 million dollar number.
For the third quarter. So we are we feel good about it we do think that there will be some I don't know when we bought those when we bought the portfolio back in early 2018, we budgeted a 1% loss rate.
And that was sort of where we set our expectation so they're continuing to outperform the expectations even during the pandemic than we had set back in 18. So we we feel good about it feels like it's happening right, where it should be a little bit up from where it was but quite honestly. They were outperforming what we had expected a previously so.
So that's that's where we are on the charge offs I would expect it to stay close to 1% for the next couple of quarters that would be my guess, maybe I'll pass it to talk about so I'll start with the if you look at their other pipelines are encouraging they have picked up from the summer when they had fallen off and I would expect the sort of loan growth that you saw this quarter too.
I continue.
Into next year.
Okay, great. Thank you for that background. That's that's great and then just a follow up for rich I mean, as you have gone through the PPP forgiveness process. You know is the fraud already known that by what's out there or could there be any surprises that come up I'm just kind of curious how that's going to play itself out that both for you as well as for that.
Some in general well I think are the answer for us and for the system in general would be kind of the same if you. So first of all if we've done everything right and there is fraud, we do have the full faith and guarantee of the U.S. government on Ur honor deals so and so from that standpoint.
We have we've seen no very little in ours, but we have seen a one case in ours so that.
So that's that's 111 out of 11000, I am guessing there maybe more but I feel like we've done all the right things and I know the industry is looking at this hard and I know that when we put the deals in for forgiveness. They SP a treasury as announced at the bar will be higher for forgiveness or said they'll look at the files different.
Only for loans.
2 million and above you know my I have long experience with the S.P.A. and they've always been fair and reasonable so I don't have a concern.
Great Rich thanks again appreciate it.
You're welcome.
Thank you. Our next question comes from a line of Brody Preston with Stephens. Your line is now open.
Good morning, everyone.
Good.
Hey, So just wanted to circle back on loan growth real quick. So obviously, a really great quarter I think it was 8% organic loan growth as what you called out in the release and so I guess to put up sort of high single digit loan growth in this type of environment is impressive and so as we think about the pipeline moving forward, maybe short term, but also.
Longer term.
I guess, 8% is what you're going to put up in this environment. What do you think you could put up maybe back half at 21.
Okay.
So great question. There's also there's also an election here in the short term so lot of things could impact that but certainly mid single digit is kind of how we're thinking about it and having said that we're still optimistic about the entering Q4 and hopefully some of these things can change.
Can you I don't think its going to change that the large banks now go back and go after the $5 million alone. So I think that's going to be out there for us I'm also really excited about.
Capitalizing on the talent and metro markets that see sides and so we do see that as a potential pick up and really excited about that acquisition merger and our new teammates.
Okay, Great and then you've had obviously a lot of success hiring over the last year and a half.
Just with all the disruption you know up and down your markets from the tourists deal I think you've had some success, maybe making some hires there.
Is that something you expect to continue as we move forward into the new year.
The answer is yes, but we're going to be more opportunistic it's going to have to make sense for US you know were rule and we'll really that the people. We want we want the best and we'll make sure if were hiring that we are getting the best because we feel very good about the team now in terms of our existing United market Although.
We are doing some hiring again to capitalize on our strengths with seaside.
Okay.
And then on the equipment Finance book I think you mentioned, maybe the pipelines are stronger there and I think some others have pulled back from that area and some may be are you getting a better opportunity to sort of have you're picking a letter from a credit perspective, but we did see side sort of maybe mix shifting that portfolio down a little bit further do you expect.
Do you expect to sort of let that none of Itas portfolio run before you maybe look to execute some loan sales moving forward.
Yeah, that's a that's a great question so.
We've talked about keeping it under 10%, it's well under 10%.
Now we are seeing that volumes start to pick back up and it is growing faster than our book as a whole and we do expect to start selling loans in the first quarter and beyond so were not I guess, what I would say to your targets not a 10% we are expecting it to grow faster than the core bank and so.
Yes, you should expect us to engage in loan sales much faster before it gets a 10% because we're not targeting 10% works for BRE, it's growing faster going into smaller number now.
On the just on the asset quality side I think this team has been very disciplined in its originations and they are saying that they are seeing an uptick in the quality of the applications.
So the applications are higher the higher quality and work something much lower percentage of them right.
The other the acceptance rates of what we are getting versus what is being applied for is much lower than pre cycle.
Okay, Great and then just a couple of quick modeling questions for me just on the maybe on the swap fees and the brokerage fees what drove both of those sort of being higher and do you think that it's it's repeatable as we move forward.
So the swap fees or simply they go right along with loan growth. So whatever you have for for loan growth I would think about the swap fees being similar.
So if loan growth comes down I would expect the swap fee to come down on an absolute basis <unk> rich thoughts on that or I would probably add one minor thing and that is a we've changed some it we we want to have more fixed rate on our balance sheet. So we have changed some of the incentives. So I would expect a little drop in swaps yeah. That's a good that's a great point and the wealth.
Management It was simply the growth this quarter was simply adding seaside then so it's relatively flat XC side. It is a growing business. So that is a good run rate to start from this quarter.
Okay and then one last one just what are you guys sort of view I guess as normalized cash balances for you all.
And how quickly do you think.
Maybe those can run down and then tangentially with the FDIC expense move a little bit higher again as that liquidity is deployed [noise].
Yes so.
The year before Kobe, we care about $50 million.
At the fed overnight, so I would call a normalized number $50 million or somewhere near there and so in now and were going between.
800 $900 billion, it's <unk>, it's much higher now our goal is to get it back there I know, it's pretty it's a pretty it's pretty hard to do so don't bring us there a super quickly and we have a lot of cash coming in from the PPP loans that we need to put to work so.
We will get back to that number and that's a that is our goal, but it's a it will take some time.
Okay, great. Thank you very much.
Thank you.
This concludes today's question and answer session I would now like to turn the call back to Lynn Harton for closing remarks.
Well, great well. Thank you all for being on the call and I'd like to just end the call with some congratulations out to our team first dose of this our first quarter, we'll see sat on board and so to the seaside team listening in you can.
You can tell have you impacted the numbers and made a positive difference proven yourself to be exactly what we thought an outstanding team with deep relationships and I haven't gone through the wealth management planning exercise with you myself I'm tell you I'm very excited about how that's going to go throughout the rest of the footprint I'm is going to go very well so.
Congratulations to you and when I think about the other things that have gone on there.
This quarter, our automation initiatives and you can see that in the in the PPP or process and we have other initiatives going on with that same team has been incredible our customer retention has been incredible customer additions have been incredible.
And I saw some early customer service scores that are also made me very proud today. So.
I just want to congratulate all the team at United and Thank you for everything you're doing and.
We look forward to reporting to the rest of you next quarter. Thanks, so much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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