Q3 2021 United Community Banks Inc Earnings Call
Good morning, and welcome to United Community Banks quarterly earnings call hosting the call today are chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harralson, President and Chief Banking Officer, Rich Bradshaw, and Chief Risk Officer, Rob Edwards.
This presentation today includes references to operating earnings pretax.
Tax 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 at <unk> Dot com copies of.
The 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 be aware that during this call forward looking statements may be made by representatives of United any forward looking statements should be considered in.
In light of risks and uncertainties described on pages five and six of the company's 2020 Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website at this time I will turn the call over to Lynn Harton.
Good morning, and thank you all for joining our call. Today. This has been another great quarter for United I don't want to start.
Congratulating our teams throughout the company for their performance.
On an operating basis, our earnings per share for the quarter was 83.
Equating to 148 basis points.
Turn on assets.
And an 18, 2% return on tangible common equity.
Loan.
On growth ex PPP was four 5% annualized and we continue to have strong overall average balance sheet growth driven by strong deposit growth.
Cost of deposits dropped by two basis points and now stands at only seven basis points.
Results were also excellent with net charge offs with only two basis points.
And reserve release of $11 million.
Our operating efficiency ratio improved to 52, 3%, which is among the best we have reported and so once again, thanks and congratulations to the United teams that make these kind of results possible.
Our strategic initiatives also continued to perform well following the completion of our acquisition.
<unk> of Entrust capital partners in July we continue to see solid performance in this line of business as well as opportunities to deepen and expand our customer relationships with a stronger wealth management offering.
Earlier this month, we completed the acquisition of Questar, we expect conversion and rebranding in November and continue to be very.
Excited about the organic growth potential of the Charlotte Wilmington markets that request are brought to us.
Our partnership with reliant Bank also continues to be on track with an anticipated closing of that transaction in early January.
I'm impressed with the quality of the leadership and the teams at reliant and I look forward to them joining United.
You may have seen in fact, I hope you did see reliance earnings release last night, where they reported record results for the quarter.
Demonstrated by our return on assets of 174%.
Our return on tangible common equity of 18, 4%.
And annualized loan growth ex PPP a 14th.
18% as I mentioned in our earnings press release, we're also very glad to welcome Jennifer <unk>, Chief marketing officer of Humana to our board.
Expertise in branding marketing and digital transformation will add tremendously to our board and will be a great complement to our new Chief marketing officer as we continue.
<unk> to invest in these areas and now I'd like to turn it over to Jefferson for more details on the quarter.
Thank you and I'm going to start my comments on page nine.
Chart highlights are relatively consistent and strong loan growth, excluding PPP loans over the last year.
And also shows our strong deposit growth over.
Over the same timeframe.
And in combination we have become a lot more liquid.
And our loan to deposit ratio has moved to 66% from 81% a year ago, making us more liquid, but also providing us an opportunity to invest this overtime on page 10.
Take a closer look at our loan book and our mix of our loans, we had $122 million of loan growth similar to last quarter and dollars and rounds out to four 5% annualized loan growth, which is net of the sale of a number of SBA and the VITAS loans that totaled just over $33 million in the quarter.
Moving to page 11, which details our deposit growth, while we had $122 million of loan growth. We also had $537 million of deposit growth, which annualize at a 13% growth rate deposit costs or near the bottom, but we were able to move the cost down another two basis points this quarter to seven basis points.
On page 12, I will touch briefly on capital our capital ratios were relatively flat in the quarter and our above peer levels, partly because of a $100 million preferred raise we did last year with.
With the cluster and reliant transactions, we're putting that raised to work and we expect that our capital ratios.
We'll be at peer levels on a pro forma basis.
In addition to our dividend this quarter, we did use capital in two ways. One we purchased Pentrust for cash on July six and we bought back $10 million of shares in Q3.
On page 13, we talk about spread income and the margin.
<unk> <unk>.
Excluding PPP fees and loan accretion our spread income grew at a 3% annualized pace in Q3.
Our core margin was down 10 basis points, mainly due to continued increase liquidity driven by the strong deposit growth in combination with a significant cash flow coming.
CPP forgiveness on page 14, it details our fee income, which had a good growth in Q3 up $4 $3 million that said $2 million of the $4 $3 million increase came from the entrust acquisition that closed on July 6th.
Besides pentrust fee income.
<unk>, which was quite strong and was driven by good mortgage results. The mortgage quarter was highlighted by increased rate lock volume and a $1.3 million MSR write down compared to a $3 million write down last quarter.
Like last quarter, we had some davita loan sales and had $861000.
Income gains on $19 $3 million of loan sold we would expect to continue to be the phone sales in Q4. In addition to our normal SBA loan sales page 15 shows our expenses up $800000 from last quarter.
That said, excluding $1 $9 million in new.
Upgrading Ventura expenses comparable quarter expenses were down 1% from last quarter I.
I expect relatively flat to slightly higher expenses in Q4, excluding the impact of a cluster that closed on October one.
Page 16, we talk about PPP loans.
<unk> also recognized $12 $9 million in PPP fees in Q3 and have five $8 million left to recognize.
And $150 million of loans still on the book of which we expect a significant amount to be forgiven in Q4.
To page 17 I'll talk.
We fully on credit here and Rob Edwards is here for Q&A on the subject net charge offs were very low at just two basis points annualized and with improving special mention and substandard accruing loans, we had our third reserve release in three quarters this quarter releasing of $11 billion.
Page 18 gives you a closer.
Brooke and.
We saw improvements in the businesses that we lend to special mentioned decreased by $92 million and we saw improvements in sub standard and NPA is as well.
Moving to page 19, it shows the walk forward of the reserve, excluding PPP loans, our allowance for credit losses moved to 1% in Q3.
112% in Q2 with that I'll pass it back to Lynn for closing comments.
Once again I want to thank all of our bankers and support staff for continuing to build this company.
Their ability to deliver great service.
Which according to J D power is number one in customer satisfaction.
Number one in trust.
<unk> in the South East.
And also according to J D power.
Second highest net promoter score in the country.
This focus on service continues to set United Apart.
And it attracts both customers and great bankers to join us.
I appreciate your interest in United and I'd like to now.
On the floor for questions.
Thank you.
Yeah.
<unk> please.
And the one key on your telephone keypad.
Remember not to use your speaker phone, while asking a question.
Okay.
And our first question comes from China.
Sure.
Sure.
Yes.
Your line is open.
Right.
Hi, good morning.
Hi, good evening.
Hum.
Yes.
What is.
Uh huh.
Just wondering.
Sure.
For the last several quarters with particularly good quarter wondering.
Wondering how long you think nationally.
Yeah.
Just a second question.
Oh boy.
Liquidity.
How about do you expect to buy securities.
<unk>.
Okay.
So Jenny you were for some reason, we're having a little bit of a problem hearing you. So I'm going to repeat what I think the question is is that really is just because losses are so low.
How long or how long do we think they've been low for a while and this year. We're basically a zero year to date, how long do we think they can continue on at zero and I would just say that.
At the moment, we're fairly optimistic about.
Asset quality, we feel good about where the numbers are we don't see any.
<unk>.
Have any big learning things and so we're positive.
And feel strong about continued strong asset quality and relatively low charge offs.
I will take the next one Jimmy I think what I heard you say was.
Maybe it's the timing and plan to use the excess liquidity.
<unk>.
You saw that our Securities book grew this quarter, we had strong loan growth.
We expect to continue to grow our securities portfolio I don't know if we use all of our excess liquidity next year, and we're still coming up with our budget.
But what I expect to happen is our deposit growth to slow down.
I expect that we will continue to grow the securities book at roughly this pace and then we'll have strong loan growth I believe too and you get to the end of next year, we will have used up.
And that's kind of out of that liquidity that you see on the balance sheet.
Thanks.
Alright.
Okay.
Thank you. Our next question is from Catherine Mealor with television W. Your line is open.
Thanks, Good morning, just one follow up.
On.
Okay.
Hi can you hear me.
Just one follow up on this.
It's necessary for.
Average, earning assets.
Harvey.
Maybe not enough gorilla Jefferson.
Great question and Kathy.
Catherine.
Well I'm thinking there is theres not really a percentage we won't go above.
It really depends on the loan to deposit ratio and if there is excess cash on that we're going to put that to work as the ratio gets larger as it moves from 30% or even higher we will take less risk incrementally.
With the securities, we invest and so we believe we need to put this cash to work, but will just incrementally reduced the risk as the portfolio gets bigger as the size of the balance sheet.
Okay.
It can be aware of as reliant.
Securities Club.
Or are there borrowings or debt.
Hi.
As you restructure the balance sheet with all of them.
Another great question, Catherine what I would say there is there are there are securities book is relatively small.
So all things.
Things equal it helps our our balance sheet mix towards.
It's towards loans.
They have security they have are relatively heavy municipal bonds that we that we like we have a barbell approach right now in our secure.
Securities investing there.
There are some borrowings to to prepay, but theres not significant.
That can be prepaid in the near term so it's not us.
On the liability side, if you saw their quarter they had very significant.
Improvement in their cost of funds on their own and so with liquidity.
That could be an opportunity to over time, but.
So they if they would.
And what we're doing and they put somewhere I put more of our liquidity to work.
I want them together.
Yeah.
Would it be fair to assume that your growth rate should.
Sure.
Here, just given reliant is growing at a double digit pace and then maybe from a core perspective or do you think there is upside to your current kind of mechanism.
Yeah.
Good morning, Catherine This is rich so yes, we are all about.
About next year with reliant Ana Quest.
And feel very good about those markets and layering on our verticals on top of what they're already doing so incrementally we're very excited about that and to address I think your other question just in Q4.
We feel that Q4 will be better than Q3, we're going into it with a really strong October feeling really good about the pipelines and what we've seen in the activity in senior credit Committee. So we feel like we've got a lot of tailwind right now.
Okay.
Thank you so much.
Yeah.
Our next Gen is from Kevin Fitzsimmons with D. A davidson.
I Hope you can hear me I know, it's very early.
With your question.
Yeah.
Okay.
Yes.
Sure.
Okay Metro shortly.
Bolt on new teams or new hires onto that.
Profitable and whether youre getting inbounds.
Sure.
From the teams the offices.
Thanks.
So hi, this is rich again, yes, we're very excited.
So first of all just to clarify we have a large existing commercial team in Charlotte, including a core commercial banking team, but we also have a number of our verticals are located there as well and what I'm really pleased to tell you is already we have approved two very large existing of questar.
Customer.
About the support loans that will either close in Q4 Q1 next year and so I think we started off on the right foot and.
Victory has always help and so you're starting off with two large approvals that feels very good in our.
We're working the other part of this is.
Two years ago, we hired a leader for.
<unk> from Questar, and he managed about 40% of that existing portfolio and so we feel good about the possibility of you always worry on our acquisition and how much you're going to hold we feel very good about our inside we have some inside baseball on this one and just everything is aligning really well from a credit culture.
And I said these two two first big wins are going to help a lot.
Great. Thanks rich.
And then one quick one quick follow up there's been a lot of our attention that can supply chain disruption worker shortages.
Just wondering is that in your view purely constraints.
For our growth or is it.
Emerging more as potential credit issues.
Okay.
I think I'll take a stab at this this is rich and maybe Rob can add to answer as well.
It was we talked to our customers. The two things that we do here are.
So in terms about the supply chain and labor.
So as we think about next year, providing those do not get worse, we still feel real optimistic and so we haven't seen a lot of impact, but I'll, let rob talk about that on the asset quality side, we're not seeing.
As you can tell it really an impact from.
Construction issues and so the way I am looking at it as kind of as you proposed which is people are hesitant to do the next expansion because they are concerned about the issues that you raised so I see I see it more as a loan growth.
Limiter than really an asset quality element at this point.
Okay, great. Thanks, Thanks, everyone.
Okay.
Our next question is from Brody Preston with Stephens, Inc.
Go ahead your line.
<unk>.
Yeah.
Okay.
Thanks, everyone.
Good morning, Brian.
Got it.
I wanted to.
On the loan growth discussion session.
No.
Florida.
No.
Now how about by about 7%.
And so I wanted to ask was there anything specific.
That.
Good morning, Brody. This is rich the answer is yes.
We did have a Florida C&I.
We wanted to exit it was $20 million that also happened to be special mention credit. So we feel very good about exiting that.
The thing I wanted to just talk about the loan growth in.
In Q3, we hired five commercial lenders throughout the footprint, we hired a additional SBA business development officer, and an asset base loan officer, and a private banker what really we feel great about in addition to that is we had we're having serious discussions.
With a couple of lift out teams that I think would be very prolific in our future and we've had a lot of success with lift outs and I can tell you that those havent happened or not finalized, but there are way down the road and so we feel very excited about that.
Okay.
So rich I.
I guess, while we're on the topic.
Looking at the quarterly amount of production.
And this quarter is up 20.
<unk> year over year, but it's down.
And the last two quarters and so I wanted to ask is there anything over the last.
<unk> six months, what's been driving your production.
Maybe that slows or is it you know a typical of what other banks have been seeing.
Languages, and borrowers holding higher levels of liquidity.
I think I think you really kind of summed it up at the end there with the we're all we're all kind of lived facing.
It's a little bit there's certainly a lot of liquidity in the market and.
Certainly the supply chain and labor has played into that but again provide.
Providing those things don't increase going forward, we're very optimistic.
Okay.
And then all of a loan yields I thought the core loan yields held up fairly.
No.
Corridor, and so I was hoping that maybe you could give me a sense for what the what new production yields look like currently and what the yield that's kind of rolling off the back book looks like.
Great question, Brian. Thank you. So if you look at the incremental loan yields coming in if you look at the bank.
Only in leading to beat us out Theyre, probably coming in 15 to 20 basis points lower than the existing loan yield is and so I think if you look at loan yields by itself you would say well that ammonia is going to continue to.
Come down a little bit now if you look at any given month, if you have a higher.
Mix Nevadas, then suddenly the months are coming in at higher than our existing yield. So it depends a little bit on are mixed but not now I think it's youre going to see that loan yield.
<unk> come down a little bit now at the same time, we have a mix change that's going to help us on the asset side to help it it did not.
That helped this quarter, but with the significant amount of cash moved into the securities portfolio portfolio and some strong loan growth that we think I think the mix change can go a long way in offsetting the.
The loan yield compression that I think is going to happen.
Net net I think.
See a relatively flat.
Flat margin plus or minus three basis points I'd say.
Okay, understood and and Jefferson what are the what are the new yields that you're putting on in the securities portfolio.
One.
Fortyish.
Okay.
Okay. Okay, and then maybe just on the on the fee income you know the SBA and then Davita sales I think last quarter, you guys had intimated that.
That slowdown from the second quarter, we added.
Good morning.
But if the outlook for the fourth quarter order growth strong.
Right.
Or would you consider selling more of those SBA loans.
Sure.
Rich maybe just step in here in a minute to see quarter four is our seasonally strongest one for SBA Lana so naturally it could be a little higher.
We are think about it also in combination with.
Starting with Davita phone sales I would expect a small amount of and the beautiful island sales again.
Again.
We're trying to balance because we have a lot of cash we have a we wanted to put someone has to work we've been having strong fundamental momentum already and so we really want to keep some of these assets. If we can but the but also the gain on sale market.
If you go to and it's our seasonally strongest quarter.
So.
You know I would expect similar to this quarter, but it's a it is a seasonally stronger quarter than we would have the opportunity to sell more if we want to you know I would say, we probably have to leave in mortgage in this and because mortgage we expect to be a little bit down I would expect that we'll sell a little bit more of SBA.
And its shareholders versus last quarter.
Got it got it okay, and I have decided two last ones.
[noise].
Yeah.
Okay.
Throughout the second.
Significant metric in like for like.
Uh huh.
Yeah. So.
This bypasses to rich.
The question was what drove the significant increase on the gain on sale margin.
This quarter versus last.
So we did a we did have two one time events.
One had to do with the 50 basis points that Fannie and Freddie allowed for.
And second home and investment properties also known as the adverse market fee and so that allowed us to take a one time gain of approximately $800000 last quarter and then the preferred stock purchase agreement.
When that strategy.
Happened we were able.
Who when they when they district excuse me they discontinued that strategy, we were able to not sell in the private market, but sell in Fannie and Freddie and get a bigger game and so that was the other one time game.
Understood.
And then my last one was on the wealth front Brian.
Yeah.
We're able to increase.
You have both the wealth offering.
Yeah.
Yeah.
I wanted to ask maybe a couple of questions.
How long until those businesses are kind of operating under one brand if there.
Operating under one brand.
Alright.
Yes.
Around here that you think you can do.
Morris.
And other than that.
Even higher than that.
Sure.
Sure Hi, this is rich again, so yes the fintech.
Entrust team and the seaside team led by getting Haymaker I've been.
Working on this and the thought is that we will be really operating as one team and the start of the year and we're looking at you know we've gotten who've gone through all the strategy stuffed our identifying some new hires and and part of that will identify where we go first is kind of where the talent is first but.
Ben where it looks like we're gonna be bringing those to market first in South Carolina and second probably in North Carolina, just based on the talent, but we're very excited about this and we're also seeing a lot of opportunities to take one offs on a F <unk> to bring their portfolios in and also there's.
Other companies like thin trusts that are available out there that we're looking at so we're looking at all of those things and it'll be a continuum, but.
We're really thinking about starting next year when you see all that kind of kick off.
Great.
Thank you for taking my question.
Suffering through the line.
It works.
Alright.
Yes.
And our next question comes from Christopher Merrimack with Janney Montgomery. Please go ahead.
Thanks, Good morning.
Either for Lynn or for Rob or even for just about sort of a space race to put new cash.
Cash to work into loans, how are you balancing that.
Kind of need to put the money out, but also kind of managing risk and are you seeing any.
And.
More unusual than normal on the competitive front.
Okay Yep.
Be glad to so.
We are you know we have.
I guess the good fortunate.
Fortunately of having a very strong credit culture, and our I think our people are disciplined and consistent in how they underwrite an approach credit.
And so far we've been successful at staying true to our culture and how we approach credit.
That's not to say that there are some isolated situations where we.
Petters do some one offs and.
It's not ruling to market at the day and so as of today and so we're able to stay stay true to who we have been over time.
What's your.
Still seeing at this point is more pressure on the lending margin.
The credit spread.
And then on structure.
We don't have appetite to compete on structure.
We are blessed with great markets.
So.
You are seeing it on the on the <unk>.
Credit spread side, primarily.
We see some additional color on all the ball properly.
Yeah.
Yeah.
Yeah.
Yeah.
And our next question will come with it.
From Michael Rose with Raymond James Please go ahead.
Hey.
Good morning, Thanks for taking my question.
Just wanted to get a sense Josh.
On the margin.
As we layer in our quest to and reliant and maybe if you can talk about what you would expect with all the pro forma adjustments.
Great and if you have a sense for what the total amount of accretion to be recognize both whats youre recognizing what we know and then what youll add with questar and reliant.
Yeah.
It's a great question.
Let's start with a with a cluster on there I expect about $6 million to $7 million of Nu.
Accretion to come in.
We're at $19 million total from past deals now are our cluster has a higher margin than us there are only 3% of our average earning assets I think nominally better with a cluster.
By itself reliant is harder.
New I mean, right now and they just had a $4 40.
Margin. So if you add those two together and blend it.
It's a higher margin for us, but you also have some complications in there because were taken out their accretion we're putting in our new accretion.
The last two estimates I've seen on the new accretion had a pretty wide range.
And so I can't give you a number there because it could be a cause it's I've seen wide ranges of estimates there.
I would expect there I mean, I think it's at least 10 basis points higher from reliant maybe more depending on the mark but the.
I want to come back at a later time to give you or that's been all.
Around that because the last two estimates I've seen have been.
Pretty different.
Okay helpful. That's all I had thanks.
And we have no more.
Uh huh.
Accretion Ivo great well once again, thank you for your interest in United Our apologies for the audio quality here and.
Sorry that happened, but anyway, we will talk to you next quarter if not before so thank you so much.
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Okay.
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Yeah.
Yes.
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Sure.
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Yeah.
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Good morning, and welcome to United Community Banks quarterly earnings call hosting the call today are chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harralson, President and Chief Banking Officer Rich Bradshaw.
<unk> and Chief Risk Officer, Rob Edwards United's presentation. Today includes references to operating 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.
Into the Investor presentation. Both are included on our website at U C. B I dot com copies of the 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.
During this call forward looking statements may be made by representatives of United any forward looking statements should be considered in light of risks and uncertainties described on pages five and six of the company's 2020 Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website at this time I'll turn the call over.
Be aware and Houghton.
Good morning, and thank you all for joining our call. Today. This has been another great quarter for United I don't want to start by congratulating our teams throughout the company for their performance.
On an operating basis, our earnings per share for the quarter was 83 <unk>.
Equating to 148 basis point return on assets.
And.
213, 2% return on tangible common equity.
Loan growth ex PPP was four 5% annualized and we continue to have strong overall average balance sheet growth driven by strong deposit growth.
Cost of deposits dropped by two basis points and now stands at only seven basis points credit.
Credit results were also excellent with net charge offs with only two basis points and reserve release of $11 million.
Our operating efficiency ratio improved to 52, 3%, which is among the best we have reported and so once again, thanks and congratulations to the United teams that make these kind of results possible.
Strategically.
<unk> initiatives also continue to perform well following the completion of our acquisition of Entrust capital partners. In July we continue to see solid performance in this line of business as well as opportunities to deepen and expand our customer relationships with a stronger wealth management offering.
Earlier this month, we completed the acquisition of Questar.
We expect conversion and rebranding in November and continue to be very excited about the organic growth potential of the Charlotte and Wilmington markets that request are brought to us.
Our partnership with reliant Bank also continues to be on track with an anticipated closing of that transaction in early January.
I'm impressed with the quality.
We have the leadership and the teams at reliant and I look forward to them joining United you May have seen in fact, I Hope you did see reliance earnings release last night, where they reported record results for the quarter.
Demonstrated by our return on assets of 174%.
Our return on tangible common equity of 18.
4%.
And annualized loan growth ex PPP or 14% as I mentioned in our earnings press release. We're also very glad to welcome Jennifer <unk>, Chief marketing officer of Humana to our board.
Her expertise in branding marketing and digital transformation will add tremendously to our.
Our board and will be a great complement to our new Chief marketing officer as we continue to invest in these areas.
Now I'd like to turn it over to Jefferson for more details on the quarter.
Thank you and I am going to start my comments on page nine the chart highlights are relatively consistent and strong loan growth excluding PPP loans.
Over the last year.
And also shows our strong deposit growth over the same timeframe.
In combination we have become a lot more liquid and our loan to deposit ratio has moved to 66% from 81% a year ago.
Making us more liquid but also providing.
US an opportunity to invest this overtime on page 10, we take a closer look at our loan book and our mix of our loans, we had $122 million of loan growth similar to last quarter and dollars and rounds out to four 5% annualized loan growth, which is net of the sale of a number of SBA and <unk> loans.
That totaled just over $33 million in the quarter.
Moving to page 11, which details our deposit growth.
While we had $122 million of loan growth. We also had $537 million of deposit growth, which annualize at a 13% growth rate deposit cost or near the bottom.
But we were able to move the cost down another two basis points this quarter to seven basis points on page 12, I will touch briefly on capital our capital ratios were relatively flat in the quarter and our above peer levels, partly because of a $100 million preferred raise we did last year with.
With the cluster and rely.
Transactions were putting that raised to work and we expect that our capital ratios will be a peer levels on a pro forma basis.
In addition to our dividend this quarter, we did use capital in two ways one.
Purchase interests for cash.
<unk> six and we bought back $10 million of shares in Q3.
Yeah.
On page 13, we talk about spread income and the margin, excluding PPP fees and loan accretion our spread income grew at a 3% annualized pace in Q3.
Our core margin was down 10 basis points, mainly due to continued increase liquidity driven by the strong.
Deposit growth in combination with a significant cash flow coming with PPP forgiveness on page 14. It details our fee income, which had a good growth in Q3 up $4 $3 million that said $2 million of the $4 $3 million increase came from the <unk> acquisition.
<unk> that closed on July 6th.
Besides pentrust fee income growth was quite strong and it was driven by good mortgage results. The mortgage quarter was highlighted by increased rate lock volume and a $1 $3 million MSR write down compared to a $3 million write down last quarter.
Mike last quarter.
We had some davita loans sales and had $861000 of gains on $19 3 million of loans sold we would expect to continue into the this loan sales in Q4. In addition to our normal SBA loan sales page 15 shows our expenses up $800000 from last quarter.
<unk>.
That said, excluding $1 $9 million and new operating Ventura expenses comparable quarter expenses were down 1% from last quarter.
Spec relatively flat to slightly higher expenses in Q4, excluding the impact of a cluster that closed on October.
One page.
Page 16, we talk about PPP loans, we recognized $12 $9 million in PPP fees in Q3, and have five $8 million left to recognize and $150 million of loans still on the book.
Which we expect a significant amount to be forgiven.
In Q4, moving to page 17, I will talk briefly on credit here and Rob Edwards is here for Q&A on the subject net charge offs were very low at just two basis points annualized and with improving special mentioned substandard accruing loans, we had our third reserve release in three quarters this quarter.
<unk> releasing of $11 billion.
Page 18 gives you a closer look.
And we saw improvements in the businesses that we lend to special mentioned decreased by $92 million and we saw improvements in substandard and NPA as well.
Moving to page 19, it shows the walk forward of the reserve excluding PPP.
<unk> loans, our allowance for credit losses moved to 1% in Q3 from 112% in Q2 with that I'll pass it back to land for closing comments.
Once again I want to thank all of our bankers and support staff for continuing to build this company.
Their ability to deliver great service.
Which according to J D.
Power is number one in customer satisfaction.
Number one in trust in the southeast.
And also according to J D power.
Second highest net promoter score in the country.
This focus on service continues to set United Apart.
And it attracts both customers and great bankers.
Joining us.
I appreciate your interest in United and I'd like to now open the floor for questions.
Thank you.
Your question please.
And the one key on your telephone keypad.
Matt.
Or not to use the speaker phone, while asking a question.
Okay.
And our first question comes from.
Sure.
Jewish Kieran.
Your line is now open.
Okay.
Hi, good morning.
Good evening.
Hum.
Great.
Rob.
Rob with Wunderlich.
No.
Okay.
Sure.
Uh huh.
For the last several quarters, particularly this quarter.
I'm wondering how long you think nationally.
Just curious.
The second question please.
Oh boy.
Liquidity just wondering.
How about do you expect here.
For the.
Quarter.
It's fluid.
Okay.
So Jenny you were for some reason, we're having a little bit of a problem hearing you. So I'm going to repeat what I think the question.
Is that really is just because losses are so low.
How long or how long do we think they've been low for a while.
This year, we're basically a zero year to date, how long do we think they can continue on at zero and I would just say at the moment, we're fairly optimistic about.
How does.
That quality, we feel good about where the numbers are we don't see any.
Have any big learning things and so we're positive.
And feel strong about continued strong asset quality and relatively low charge offs.
I'll take the National Jimmy I think what I heard you say was.
Maybe it's the timing and plan to use the excess liquidity.
You saw that our Securities book grew this quarter, we had strong loan growth. We expect to continue to grow our securities portfolio I don't know if we use all of our excess liquidity next year, and we're still coming up with our budget.
But what I expect to happen is our deposit growth to slow down.
Spec that we will continue to grow the securities book at roughly this pace and then we'll have strong loan growth I believe too and you get to the end of next year, we will have used.
And that's kind of out of that liquidity that you see on the balance sheet.
Okay perfect.
Okay.
Thank you. Our next question is from Catherine Mealor with <unk>.
Your line is now open.
Thanks, Good morning.
Following up on.
Kelly can you hear me.
Just one follow up on this.
This necessary shrunk.
Average, earning assets.
Harvey.
For that.
Maybe not enough gorilla Jefferson.
Great question.
Okay.
Well I'm thinking there is there's not really a percentage we won't go above it really depends on the loan to deposit ratio and if there is excess cash on that we're going to to put that to work.
As the ratio gets larger as it moves from 30% or even higher.
We'll take less risk.
Incrementally with the with the Securities we invest in so we believe we need to put this cash to work, but will just incrementally reduced the risk as the portfolio gets bigger as the size of the balance sheet.
Okay.
You'd be aware of.
Securities.
Where are their borrowings.
Hi.
Yeah.
Balance sheet.
Okay.
Another great question, Catherine what I would say there is there are the securities book is relatively small.
So it all all things equal it helps our our balance sheet.
Towards the towards loans.
Have the security they have are relatively heavy in municipal bonds that we that we like we have a barbell approach right now in our.
Securities investing there.
There are some borrowings to to prepay, but theres not significant.
That can be prepaid in the near term.
Mixer a ton on.
On the liability side, if you saw their quarter they had very significant.
Improvement in their cost of funds on their own and so with liquidity.
That could be an opportunity to over time, but.
So they.
They enhance what we're doing and they put some of it.
More of our liquidity.
So its network when you blend them together.
Would it be fair to assume that Youre shooting.
Sure.
Here, just given reliant is growing at a double digit pace and then maybe from a core perspective, where do you think there is upside to your current kind of mix.
Liquidity is yeah. Good morning, Catherine this is rich so yes, we are.
About next year with reliant and a quest to.
Feel very good about those markets and layering on our verticals on top of what they're already doing so incrementally we're very excited about that and to address I think your other question just in Q4.
We feel that Q4 will be better than Q3, we're going into it with a really strong October feeling really good about the pipeline as what we've seen in the activity in senior credit Committee. So we feel like we've got a lot of tailwind right now.
Thank you so much.
Sure.
Our next Gen is from Kevin Fitzsimmons with D. A davidson.
Please go ahead.
I Hope you can hear me I know, it's very early.
With your question.
Right.
Okay.
Yeah.
Metro Charlotte.
Bolt on new teams or new hires onto that are profitable and whether youre getting inbounds.
From from teens officers.
Okay.
So hi, this is rich again, yes, we're very excited.
Sighted.
About this first of all just to clarify we have a large existing commercial team in Charlotte, including a core commercial banking team, but we also have a number of our verticals are located there as well and what I'm really pleased to tell you is already we have approved two very large existing sequester.
Customers.
<unk> four loans that will either close in Q4 Q1 next year and so I think we started off on the right foot and victory is always help and so you're starting off with two large approvals that feels very good and work. We're working the other part of this is a.
Two years ago, we hired a leader for.
For us from a cuesta and he managed about 40% of that existing portfolio and so we feel good about the possibility of you always worry on our acquisition how much youre going to hold we feel very good about our inside we have some inside baseball on this one and just everything is aligning really well from a credit culture.
And I said these two two first big wins are going to help a lot.
Great. Thanks, Thanks rich.
And one quick one quick follow up there's been a lot of attention to maintain supply chain disruption worker shortages.
Just wondering is that in your view purely constraints.
Or is the amount.
Im hoping more as a potential credit issues.
Okay.
Hi.
Well I'll take a stab at this this is rich and maybe Rob can add to answer as well.
We talk to our customers the two things that we do here are concern.
It was about the supply chain and labor.
So as we think about next year, providing those do not get worse, we still feel real optimistic and so we haven't seen a lot of impact, but I'll, let rob talk about that on the asset quality side, we're not seeing as.
As you can tell it really an impact from.
Concern issues and so the way I am looking at it as kind of as you proposed which is people are hesitant to do the next expansion because they are concerned about the issues that you raised so I see I see it more as a loan growth.
Limiter than really on asset quality element at this point.
Okay, great. Thanks, Thanks, everyone.
Okay.
Our next question is from Brody Preston with Stephens, Inc.
Go ahead your line.
<unk>.
Yes.
Okay.
Hello.
Good morning, Brian.
Got it.
I wanted to know.
On the loan growth discussion.
Oh of course.
Quarter to quarter.
No.
Now how about by about 7%.
And so I wanted to ask was there anything specific.
Matt.
Good morning Brody. This is rich the answer is yes, we did have a Florida C&I credit that we wanted to exit it was $20 million. It also happened to be special mention credit. So we feel very good about exiting that.
One thing I wanted to just talk about the loan growth.
In Q3, we hired five commercial lenders throughout the footprint, we hired additional SBA business development officer, and an asset base loan officer in the private bank or what really we feel great about in addition to that as we had we're having serious discussions.
And one of them with a couple of lift out teams that I think would be very prolific in our future and we've had a lot of success with lift outs and I can tell you that those havent happened or not finalized, but there are way down the road and so we feel very excited about that.
Okay.
So rich I.
<unk>.
On the topic.
I was just looking at the quarterly production.
The earnings release and in this quarter is up 20% year over year, but it's down.
The last two quarters and so I wanted to ask is there anything over the last.
I guess the next months, what's been driving our production.
The slower is it typical of what other banks have been laying out.
Manages and borrowers holding higher levels of liquidity.
I think I think you really kind of summed it up at the end there with the we're all we're all kind of let it fail.
You know, it's a little bit there's certainly a lot of liquidity in the market and certainly.
Certainly the supply chain and labor has played into that but again.
Providing those things don't increase going forward, we're very optimistic.
Okay.
And then all of the loan yields I thought the core loan yields held up fairly.
No.
Quarter, and so I was hoping that maybe you could give me a sense for what the what new production yields look like currently and what the yield that's kind of rolling off the back book looks like.
Great question, Brian. Thank you. So if you look at the incremental loan yields coming in if you look at the bank.
Well, leading to beat us out Theyre, probably coming in 15 to 20 basis points lower than the existing loan yield is and so I think if you look at loan yields by itself you would say well that loan yield is going to continue to come.
Come down a little bit now if you look at any given month, if you have a higher.
Mix nevadas than some of these months are coming in at higher than our existing El Toro it depends a little bit our mix, but nothing that I think it's youre going to see that loan yield.
<unk> come down a little bit now at the same time, we have a mix change that's going to help us on the asset side to help that it did not.
This quarter, but with the significant amount of cash moved into the securities portfolio portfolio and some.
Strong loan growth that we think I think the mix change can go a long way in offsetting the.
The loan yield compression that I think is going to happen.
Net net I think.
That helped to see a relatively flat.
Flat margin plus or minus three basis points I'd say.
Okay, understood and and Jefferson what are the what are the new yields that you're putting on in the securities portfolio.
One.
Fortyish.
Okay.
Okay. Okay, and then maybe just on the on the fee income you know the SBA and then Davita sales I think last quarter, you guys had intimated that.
That slowdown from the second quarter we.
Having more and more.
But if the outlook for the fourth quarter order growth strong.
Right.
Would you consider selling more of those SBA loans.
Sure.
Rich maybe just step in here in a minute to see quarter four is our seasonally strongest one for SBA Lana so naturally it could be a little higher.
Think about it also in combination with.
Charlotte with Davita phone sales I would expect a small amount of loan sales.
Again.
We're trying to balance because we have a lot of cash we have we want to put someone has to work we've been having strong fundamental momentum already and so we really want to keep some of these assets. If we can but the but also the wholesale market.
And if you go to and it's our seasonally strongest quarter.
So you know I would expect similar to this quarter, but it's a it is a seasonally stronger quarter than we would have the opportunity to sell more if we want to and I would say, we probably have to leave in mortgage in this and because mortgage we expect to be a little bit down I would expect that we'll sell a little bit more of SBA.
This quarter versus last quarter.
Got it okay, and I have two last ones.
Okay.
Yeah.
Okay.
What drove the second.
Significantly more.
Uh huh.
Yeah. So.
I'll pass it to rich that what I heard all the question was what drove this significant increase on the gain on sale margin.
This quarter versus last.
Yeah. So we did a we did have two one time events.
One had to do with the 50 basis points that Fannie and Freddie allowed for.
And a second home in investment properties also known as the adverse market fee and so that allowed us to take a one time gain of approximately $800000 last quarter and then the preferred stock purchase agreement.
When that strategy happened we were.
We're able to when they when they districts. Good excuse me they discontinued that strategy, we were able to not sell in the private market, but selling Fannie and Freddie and get a bigger gain and so that was the other one time game.
Understood.
And then my last one was on the wealth front.
No.
Between Green.
And that's around the trial you have both the wealth offering.
Yeah.
I wanted to ask maybe a couple of questions.
How long until those businesses are kind of operating under one brand up there.
Operating under one brand.
But you're right there.
Here that you think.
Yes Morris.
Yeah.
Even harder.
No.
Sure Hi, this is rich again, so yes the finch.
It's interesting in the seaside team led by getting Haymaker I've been.
Been working on this and the thought is that we will be really operating as one team and the start of the year and we're looking at you know we've got and we've gone through all the strategy stuffed our identifying some new hires and and part of that will identify where we go first just kind of where the talent is first but.
It looks like we're gonna be bringing those to market first in South Carolina and second probably in North Carolina, just based on the talent, but we're very excited about this and we're also seeing a lot of opportunities to take one offs on a F <unk> to bring their portfolios in and also there's.
There's other companies like <unk> that are available out there that we're looking at so we're looking at all those things and it'll be a continuum, but we're.
We're really thinking about starting next year when you see all that kind of kick off.
Great.
Thank you Mike.
Suffering through the fear that the line.
[laughter] alright.
And our next question comes from Christopher Meronek with Janney Montgomery. Please go ahead.
Thanks, Good morning.
Question, either for Lynn or for Rob or even for which just about sort of a space race to put new cash.
Cash to work into loans I mean, how are you balancing the kind of need.
We need to put the money out, but also kind of imagine the risk and are you seeing anything more unusual than normal on the competitive front.
Yes.
Okay, Yeah, I'd be glad to so we are you know we have I guess the good for.
Fortunate of having a very strong credit culture, and our I think our people are disciplined and consistent in how they underwrite an approach credit.
And so far we've been successful at staying true to our culture and how we approach credit.
That's not to say that there are some isolated situations where we.
We see competitors do some one offs and.
It's not ruling the market at the day and so as of today and so we're able to stay stay true to who we have been over time.
Let's see.
Still saying at this point is more pressure on the lending margin.
The credit spread.
Then on structure.
We don't have appetite to compete on structure.
We're blessed with great markets.
So.
You are seeing it on the on the <unk>.
<unk> spreads primarily.
Great. Thanks for the additional color on all the ball properly.
Yes.
Yeah.
Yeah.
Yeah.
And our next question will come with it.
From Michael Rose with Raymond James Please go ahead.
Hey, good morning, Thanks for taking my question.
Just wanted to get a sense Josh.
Margin as we layer in our quest and reliant and maybe if you can talk about what you would expect with all of the pro forma adjustments.
And if you have a sense for what the total amount of accretion to be recognized both what you're recognizing what's left now and then what you'll add with a question on reliability.
Yeah.
It's a great question.
They start with a with a cluster on there I expect about $6 million to $7 million of new.
New accretion to come in.
We're at $19 million total from past deals now are our cluster has a higher margin than us are only 3% of our average earning assets I think nominally better with a cluster of.
By itself reliant is a harder.
Question right now and they just had a $4 40.
Margin. So if you add those two together and blend it.
It's a higher margin for us, but you also there are some complications in there because were taken out there accretion we're putting in our new accretion.
The last two estimates I've seen all the new accretion had a pretty wide range.
And so I can't give you a number there because it could be because I've seen wide ranges of estimates there.
But I wouldn't expect there I mean, I think it's at least 10 basis points higher from reliant maybe more depending on the mark but.
I didn't want to come back at a later time to give you our ethanol.
Accretion because the last two elements I've seen have been a.
Pretty different.
Okay helpful. That's all I had thanks Craig.
And we have no more.
Uh huh.
All right well great well once again, just thank you for your interest in United Our apologies for the audio quality here and.
Sorry that happened, but anyway, we will talk to you next quarter if not before so thank you so much.