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spk23: United's presentation today includes references to operating earnings, pre-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 ucbi.com. Copies of the quarter's earnings release and investor presentation were filed last night on Form 8K with the SEC, and a replay of this call will be available in the investor relations section of the company's website at ucbi.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 light of risks and uncertainties described on pages 5 and 6 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 to Lynn Harten.
spk03: Well, good morning, and thank you all for joining our call today. This has been another great quarter for United. and I 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 cents, equating to a 148 basis point return on assets and an 18.2% return on tangible common equity. Loan growth, XPPP, was 4.5% annualized, and we continue to have strong overall average balance sheet growth driven by strong deposit growth, Our cost of deposits dropped by two basis points, and now stands at only seven basis points. Credit results are also excellent, with net charge-offs of only two basis points, and a 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 continue to perform well, Following the completion of our acquisition of Fintrust 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 Equesta. 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 Equesta 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, Reliant's earnings release last night where they reported record results for the quarter, demonstrated by a return on assets of 1.74%, a return on tangible common equity of 18.4%, and annualized loan growth, XPPP, of 14%. As I mentioned in our earnings press release, we're also very glad to welcome Jennifer Bisante, Chief Marketing Officer of Humana, to our board. Her 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 to invest in these areas. And now I'd like to turn it over to Jefferson for more details on the quarter.
spk27: Thank you, Lynn. I am going to start my comments on page 9. The chart highlights our relatively consistent and strong loan growth, excluding PPP loans over the last year. It also shows our strong deposit growth 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 over time. 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, in dollars. It rounds out to 4.5% annualized loan growth, which is net of the sale of a number of SBA and Navitas 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 annualizes at a 13% growth rate. Deposit costs are 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 are above peer levels. partly because of a $100 million preferred raise we did last year. With the Equesta and Reliant transactions, we are putting that raise to work, and we expect that our capital ratios will 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 Fintrust for cash on July 6th, and we brought back $10 million of shares in Q3. 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 increased liquidity driven by the strong deposit growth in combination with the significant cash flow coming with PPP forgiveness. On page 14, it details our fee income, which had a good growth in Q3 of $4.3 million. That said, $2 million of the $4.3 million increase came from the FinTrust acquisition that closed on July 6th. Besides FinTrust, fee income growth 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 Navitas loan sales and had $861,000 of gains on $19.3 million of loans sold. We would expect to continue Navitas loan sales in Q4 in addition to our normal SBA loan sales. Page 15 shows our expenses up $800,000 from last quarter. That said, excluding $1.9 million in new operating FinTrust expenses, comparable quarter expenses were down 1% from last quarter. I expect relatively flat to slightly higher expenses in Q4, excluding the impact of a cluster that closed on October 1st. Page 16, we talk about PPP loans. We recognize $12.9 million in PPP fees in Q3 and have $5.8 million left to recognize and $150 million of loans still in the book, of 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 mention and substandard accruing loans, we had our third reserve release in three quarters, this quarter releasing $11 million. Page 18 gives you a closer look, and we saw improvements in the businesses that we lend to, special mention decreased by $92 million, and we saw improvements in substandard and NPAs as well. Looking to page 19, it shows the walk forward of the reserve excluding PPP loans, our allowance for credit losses moved to 1% in Q3 from 1.12% in Q2. With that, I'll pass it back to Lynn for closing comments.
spk03: 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, and number one in trust in the southeast, and also, according to J.D. Power, has the 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 open the floor for questions.
spk05: Thank you. To ask a question, please press the star and the one key on your telephone keypad. Remember not to use your speakerphone while asking a question. And our first question comes from Jennifer Truist Security. The line is open.
spk19: Hi, good morning.
spk13: Hi, Jenny. Good morning.
spk19: Two questions. The first one is for Rob. Rob, just wondering, one long-term disability is extraordinarily low for the last several quarters, but particularly this quarter. I'm wondering how long you think that is going to be in the industry. A second question is on avoiding the excess liquidity. Just wondering... How much do you expect to buy in securities from headquarters versus deployments loans?
spk02: So, Jenny, for some reason we're having a little bit of a problem here, and so I'm going to repeat what I think the question is, and that really is just because losses are so low, how long do we think – they've been low for a while, and this year we're basically at 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 asset quality. We feel good about where the numbers are. We don't have any big looming things, and so we're positive and feel strong about continued strong asset quality and relatively low charge-offs.
spk27: I'll take the next one, Jenny. 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 bulk 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 will slow down. I expect that we'll continue to grow the securities bulk at roughly this pace, and then we'll have strong loan growth, I believe, too. and you get to the end of next year, and we will have used a pretty significant amount of that liquidity that you see on the balance sheet.
spk01: Thanks so much.
spk05: Thank you. Our next question is from Catherine Miller with KBW. Your line is open.
spk07: Thanks. Good morning. Just one follow-up on – oh, feedback is really hard. I hope you can hear me. Just one follow-up on the side of the securities book. Is there a percentage of average earning assets that you are targeting for that to maybe not even grow above, Jefferson?
spk27: Great question. And, Catherine, what 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 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 securities we invest in. So we believe we need to put this cash to work, but we'll just incrementally reduce the risk as the portfolio gets bigger as the size of the balance sheet.
spk07: And is there anything to be aware of as reliable than, you know, their securities book or their borrowings or deposits that you plan to do as you restructure the balance sheet with all your accessibility?
spk27: Another great question. Thanks, Catherine. I would say their securities book is relatively small, so all things equal. It helps our balance sheet mix towards loans. The securities they have are relatively heavy in municipal bonds that we like. We have a barbell approach right now in our securities investing. There are some borrowings to prepay, but there's not significant debt that can be prepaid in the near term. So there's not a ton 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, too, over time. So they enhance what we're doing, and they put more of our liquidity to work when you blend them together.
spk07: And would it be fair to assume that your growth rate on loans should improve as we look to next year, just given Reliant is growing at a double-digit pace? And then maybe from a core UCBI perspective, do you think there's an upside to your current kind of double-digit growth rate?
spk26: Yeah, good morning, Catherine. This is Rich. So, yes, we are about next year with Reliant and Equesta 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, what we've seen in the activity in Senior Credit Committee. So we feel like we've got a lot of tailwinds right now.
spk06: Thank you so much.
spk05: Our next question is from Kevin Fitzsimmons with DA Davis.
spk10: Please go ahead. I hope you can hear me. I know it's very early with the Equestria deal having closed, but I'm curious about any opportunities you're seeing in Metro Charlotte to bolt on new teams or new hires onto that Equestria platform, whether you're getting inbounds from teams or officers in the region, for instance.
spk26: So, hi, this is Rich again. Yes, we're very excited 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've approved two very large existing Equesta customers for loans that will either close in Q4 or Q1 next year. And so I think we've started off on the right foot, and victories always help. And so you're starting off with two large approvals. That feels very good, and we're working. The other part of this is two years ago we hired a leader for us from Equesta, and he managed about 40% of that existing portfolio. And so we feel good about the possibility. We always worry on an acquisition 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 as I said, these two first big wins are going to help a lot.
spk08: Great. Thanks, Rich.
spk10: And one quick follow-up. There's been a lot of attention to supply chains, disruption, worker shortages. Just wondering, is that, in your view, purely a constraint on growth, or is it emerging more as a potential credit issue?
spk26: I think I'll take a stab at this. This is Rich, and maybe Rob can answer as well. Certainly, as we talk to our customers, the two things that we do here are concerns about the supply chain and labor issues. 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.
spk02: On the asset quality side, we're not seeing, as you can tell, really an impact from those issues. And so the way I am looking at it is kind of as you proposed, which is people are hesitant to do the next expansion because they're concerned about the issues that you raise. So I see it more as a loan growth issue. limiter than really an asset quality element at this point.
spk11: Okay. Great. Thanks, everyone.
spk05: Our next question is from Brody Preston with Stevens Incorporated. Go ahead. Your line is open.
spk13: Hey, good morning. Good morning, everyone. Good morning, Brody.
spk17: Hey, Brody. I wanted to start maybe on the loan growth discussion. You know, 4C and I, you know, leg down about 2%. And so I wanted to ask, was there anything specific that drove that?
spk26: 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 other thing I wanted to just talk about, the loan growth. In Q3, we hired five commercial lenders throughout the footprint. We hired an 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'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 haven't happened. They're not finalized, but they're way down the road, and so we feel very excited about that.
spk17: Okay. Thank you. I guess while we're on the topic of growth, you know, I was just looking at the quarterly non-production. And this quarter is, you know, up 20% year over year, but it's down, you know, into the last two quarters. And so I wanted to ask, is there anything over the last, you know, six months that's to be slower? Is it typical of what other banks have been seeing, labor shortages and borrowers holding higher levels of liquidity?
spk26: I think you really kind of summed it up at the end there. We're all kind of facing that 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, providing those things don't increase going forward, we're very optimistic.
spk17: Okay, got it. And then on the loan yields, I thought that the core loan yields held up fairly well this quarter, and so I was hoping that maybe you could give me a sense for what new production yields look like currently and what the yield that's kind of rolling off the back book looks like.
spk27: Great question, Brody. Thank you. So if you look at the incremental loan yields coming in, if you look at the bank only and leave Navitas out, they're probably coming in 15 to 20 basis points lower than what the existing loan yield is. And so I think if you look at loan yield by itself, you would say, well, that loan yield is going to continue to come down a little bit. Now, if you look at any given month, if you have a higher mix of Navitas, then some of these months are coming in at higher than our existing yield. So it depends a little bit on our mix. But I think you're going to see the loan yield drop. come down a little bit. Now, at the same time, we have a mixed change that's going to help us on the asset side. It did not help this quarter, but with the significant amount of cash moving into the securities portfolio and some strong loan growth that we think, I think the mixed change can go a long way in offsetting the loan yield compression that I think is going to happen. Net-net, I think you're going to see a relatively flat margin plus or minus three basis points, I'd say.
spk17: Okay, understood. And, Jefferson, what are the new yields that you're putting on in the securities portfolio? $140-ish. Okay. Okay. And then maybe just on the fee income, you know, the SBA and the Navitas sales, I think last quarter you guys had, you know, intimated that, you know, they'd slow down from the second quarter, which they did. But if the outlook for the fourth quarter is for the growth to be stronger than the third quarter, would you consider selling more of those SBA loans than you did in the fourth quarter?
spk27: Rich may step in here in a minute, too. Quarter four is our seasonally strongest one for SBA loans, so naturally it could be a little higher. We think about it also in combination with Navitas loan sales. I would expect a small amount of Navitas loan sales again. We're trying to balance because we have a lot of cash. We want to put some of this 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 also the gain-on-sale market is strong, too, and it's our seasonally strongest quarter. Okay. I would expect similar to this quarter, but it is a seasonally stronger quarter, and we would have the opportunity to sell more if we want to.
spk26: Yeah, I would say we probably have to weave 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.
spk17: Got it. Okay, and I just have two last ones. Jefferson, maybe you could speak to – significant increase in the gain on sale margin?
spk27: I might pass this to Rich. What I heard on the question was, what drove this significant increase on the gain on sale margin this quarter versus last?
spk26: We did have two one-time events. One had to do with the 50 basis points that Fannie and Freddie allowed for 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 $800,000 last quarter. And then the preferred stock purchase agreement, when that strategy – happened, we were able to, when they discontinued that strategy, we were able to not sell in the private market but sell on Fannie and Freddie and get a bigger gain. And so that was the other one-time gain.
spk17: And then my last one was on the wealth front, you know, now between Seaside and FedTrust. You've bolstered the wealth offering at UCBI significantly. I wanted to ask maybe a couple of questions. How long until those businesses are kind of operating under one brand, if they're going to be operating under one brand, and then the markets that you've identified early here that you think you can target more effectively than others, and again, at AUM, even higher than others?
spk26: Sure. Hi, this is Ridge again. So, yes, the FinTrust team and the Seaside team, led by Gideon Haymaker, have been working on this, and the thought is that we'll be really operating as one team at the start of the year, and we're looking at, you know, we've gone through all the strategy stuff. Now we're identifying some new hires, and part of that will identify where we go first. It's kind of where the talent is first, but It looks like we're going to 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 FAs to bring their portfolios in, and also there's other companies like FinTrust that are available out there that we're looking at. So we're looking at all those things, and it will be a continuum, but we're we're really thinking about starting next year when you see all that kind of kick off.
spk17: Great. Thank you very much for taking my question and for suffering through the feedback on the line.
spk27: It worked. Thanks.
spk05: And our next question comes from Christopher Maranek with Janie Montgomery. Please go ahead.
spk15: Thanks. Good morning. Question either for Lynn or for Rob or even for Rich, just about sort of the space race to put new cash to work in the loans. I mean, how are you balancing the kind of need to put the money out but also kind of managing risk? You know, are you seeing anything more unusual than normal on the competitive front?
spk02: You want to take that, Rob? Okay. Yeah, I'd be glad to. So we are, you know, we have a I guess the good fortune of having a very strong credit culture, and I think our people are disciplined and consistent in how they underwrite and 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 see competitors do some one-offs, and it's not ruling the market as of today, and so we're able to stay true to who we've been over time.
spk03: What you're still seeing at this point is more pressure on the lending margin, the credit spread, than on structure. Certainly we don't have appetite to compete on structure. We're blessed with great markets. But you are seeing it on the credit spread side primarily.
spk14: Great, thanks for the additional color and all the background today.
spk05: And our next question will come from Michael Rose with Raymond James. Please go ahead.
spk16: Hey, good morning. Thanks for taking my question. Just wanted to get a sense, Jeff, a sense of the margin as we layer in AQUESTA and Reliant, and maybe if you can talk about what you would expect with all 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 AQUESTA and Reliant. Thanks.
spk27: Yep, that's a great question. Let me start with AQUESTA on there. I expect about... $6 million to $7 million of new accretion to come in. We're at $19 million total from past deals now. Acuesta has a higher margin than us. They're only 3% of our average earning assets, so I think nominally better with Acuesta by itself. Reliant is a harder question right now. They just did a 440 margin, so if you add those two together and blend it, It's a higher margin for us, but there are also some complications in there because we're taking 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 around it, and so I can't give you a number there because I've seen wide ranges of estimates there. But I would expect there, I think it's at least 10 basis points higher from Alliant, maybe more depending on the mark, but I'll have to come back at a later time to give you our estimate on accretion because the last two estimates I've seen have been pretty different. Okay, helpful.
spk16: That's all I had. Thanks.
spk04: And we have no more questions.
spk03: 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. Thank you. Thank you. Thank you. THE END Thank you.
spk20: Thank you. Thank you. Thank you. THE END Thank you. Bye. music music
spk23: Good morning and welcome to United Community Bank's quarterly earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harten, Chief Financial Officer Jefferson Harrelson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. United's presentation today includes references to operating earnings, pre-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 ucbi.com. Copies of the quarter's earnings release and investor presentation were filed last night on Form 8K with the SEC, and a replay of this call will be available in the investor relations section of the company's website at ucbi.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 light of risks and uncertainties described on pages 5 and 6 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 to Lynn Harten.
spk03: Well, good morning, and thank you all for joining our call today. This has been another great quarter for United. and I 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 cents, equating to a 148 basis point return on assets and an 18.2% return on tangible common equity. Loan growth, XPPP, was 4.5% annualized, and we continue to have strong overall average balance sheet growth driven by strong deposit growth. Our cost of deposits dropped by two basis points and now stands at only seven basis points. Credit results are also excellent, with net charge-offs of only two basis points and a 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 continue to perform well, Following the completion of our acquisition of Fintrust 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 Equesta. 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 Equesta 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, Reliant's earnings release last night where they reported record results for the quarter, demonstrated by a return on assets of 1.74%, a return on tangible common equity of 18.4%, and annualized loan growth, XPPP, of 14%. As I mentioned in our earnings press release, we're also very glad to welcome Jennifer Bisante, Chief Marketing Officer of Humana, to our board. Her 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 to invest in these areas. And now I'd like to turn it over to Jefferson for more details on the quarter.
spk27: Thank you, Lynn. I am going to start my comments on page 9. The chart highlights our relatively consistent and strong loan growth, excluding PPP loans, over the last year. It also shows our strong deposit growth 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 over time. 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, in dollars. It rounds out to 4.5% annualized loan growth, which is net of the sale of a number of SBA and Navitas 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 annualizes at a 13% growth rate. Deposit costs are 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 are above peer levels. partly because of a $100 million preferred raise we did last year. With the Equesta and Reliant transactions, we are putting that raise to work, and we expect that our capital ratios will 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 Fintrust for cash on July 6th, and we brought back $10 million of shares in Q3. 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 increased liquidity driven by the strong deposit growth in combination with the significant cash flow coming with PPP forgiveness. On page 14, it details our fee income, which had a good growth in Q3 of $4.3 million. That said, $2 million of the $4.3 million increase came from the FinTrust acquisition that closed on July 6th. Besides FinTrust, fee income growth 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 Navitas loan sales and had $861,000 of gains on $19.3 million of loans sold. We would expect to continue Navitas loan sales in Q4 in addition to our normal SBA loan sales. Page 15 shows our expenses. of $800,000 from last quarter. That said, excluding $1.9 million in new operating FinTrust expenses, comparable quarter expenses were down 1% from last quarter. I expect relatively flat to slightly higher expenses in Q4, excluding the impact of a cluster that closed on October 1st. Page 16, we talk about PPP loans. We recognize $12.9 million in PPP fees in Q3 and have $5.8 million left to recognize and $150 million of loans still in the book, of 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 mention and substandard accruing loans, we had our third reserve release in three quarters, this quarter releasing $11 million. Page 18 gives you a closer look, and we saw improvements in the businesses that we lend to, special mention decreased by $92 million, and we saw improvements in substandard and NPAs 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 from 1.12% in Q2. With that, I'll pass it back to Lynn for closing comments.
spk03: 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, and number one in trust in the southeast, and also, according to J.D. Power, has the 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 open the floor for questions.
spk05: Thank you. To ask a question, please press the star and the one key on your telephone keypad. Remember not to use your speakerphone while asking a question. And our first question comes from Jennifer Truist Security. Line is open.
spk19: Hi, good morning.
spk05: Hi, Jenny.
spk13: Good morning.
spk19: Two questions. The first one is for Rob. Rob, just wondering, you know, one law is that the bill is extraordinarily low for the last several quarters, but particularly this quarter. I'm wondering how long you think that is in the industry. A second question is on avoiding the excess liquidity. Just wondering... How much do you expect to buy in securities from the quarters versus deployments loans?
spk02: So, Jenny, for some reason we're having a little bit of a problem here, and so I'm going to repeat what I think the question is, and that really is just because losses are so low, how long do we think – they've been low for a while, and this year we're basically at 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 asset quality. We feel good about where the numbers are. We don't have any big looming things, and so we're positive and feel strong about continued strong asset quality and relatively low charge-offs.
spk27: I'll take the next one, Jenny. 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 will slow down. I expect that we'll 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, and we will have used a pretty significant amount of that liquidity that you see on the balance sheet.
spk01: Thanks so much.
spk05: Thank you. Our next question is from Catherine Miller with KBW. Your line is open.
spk07: Thanks. Good morning. Just one follow-up on – oh, feedback is really hard. I hope you can hear me. Just one follow-up on the status of the securities book. Is there a percentage of average earning assets that you are targeting for that to maybe not even grow above, Jefferson?
spk27: Great question. And, Catherine, what 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's 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'll take less risk incrementally with the securities we invest in. So we believe we need to put this cash to work, but we'll just incrementally reduce the risk as the portfolio gets bigger as the size of the balance sheet.
spk07: And is there anything to be aware of as reliable than, you know, their securities book or their borrowings or deposits that you plan to do as you restructure the balance sheet with all your accessibility?
spk27: Another great question. Thanks, Catherine. I would say their securities book is relatively small, so all things equal. It helps our balance sheet mix towards loans. The securities they have are relatively heavy in municipal bonds that we like. We have a barbell approach right now in our securities investing. There are some borrowings to prepay, but there's not significant debt that can be prepaid in the near term. So there's not a ton 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, too, over time. So they enhance what we're doing, and they put more of our liquidity to work when you blend them together.
spk07: And would it be fair to assume that your growth rate on loans should improve? Because we look at next year, just given Reliant is growing at a double-digit pace. And then maybe from a core UCBI perspective, do you think there's an upside to your current kind of double-digit growth rate?
spk26: Yeah, good morning, Catherine. This is Rich. So, yes, we are about next year with Reliant and Equesta 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, what we've seen in the activity in Senior Credit Committee. So we feel like we've got a lot of tailwinds right now.
spk06: Thank you so much.
spk05: Our next question is from Kevin Fitzsimmons with DA Davis.
spk10: Please go ahead. I hope you can hear me. I know it's very early with the Equestria deal having closed, but I'm curious about any opportunities you're seeing in Metro Charlotte to bulk on new teams or new hires onto that Equestria platform, whether you're getting inbounds from teams or officers in the region.
spk09: Thank you.
spk26: Hi, this is Rich again. Yes, we're very excited 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've approved two very large existing Equesta customers for loans that will either close in Q4 or Q1 next year. And so I think we've started off on the right foot, and victories always help. And so you're starting off with two large approvals. That feels very good, and we're working. The other part of this is two years ago we hired a leader for us from Equesta, and he managed about 40% of that existing portfolio. And so we feel good about the possibility. We always worry on an acquisition 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 as I said, these two first big wins are going to help a lot.
spk08: Great. Thanks, Rich.
spk10: And one quick follow-up. There's been a lot of attention to supply chain disruption, worker shortages. Just wondering, is that, in your view, purely a constraint on growth, or is it emerging more as a potential credit issue?
spk26: I think I'll take a stab at this. This is Rich, and maybe Rob can answer as well. Certainly, as we talk to our customers, the two things that we do here are concerns about the supply chain and labor issues. 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.
spk02: On the asset quality side, we're not seeing, as you can tell, really an impact from those issues. And so the way I am looking at it is kind of as you proposed, which is people are hesitant to do the next expansion because they're concerned about the issues that you raise. So I see it more as a loan growth issue. limiter than really an asset quality element at this point.
spk11: Okay. Great. Thanks, everyone.
spk05: Our next question is from Brody Preston with Stevens Incorporated. Go ahead. Your line is open.
spk13: Hey, good morning. Good morning, everyone. Good morning, Brody.
spk17: Hey, Brody. I wanted to start maybe on the loan growth discussion. You know, 4C9, this quarter, you know, leg down about 2%. And so I wanted to ask, was there anything specific that drove that?
spk26: 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 other thing I wanted to just talk about, the loan growth. In Q3, we hired five commercial lenders throughout the footprint. We hired an 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'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 haven't happened. They're not finalized, but they're way down the road, and so we feel very excited about that.
spk18: Okay.
spk17: Thank you so much. I guess while we're on the topic of growth, you know, I was just looking at the quarterly production. And this quarter is, you know, up 20% year over year, but it's down, you know, into the last two quarters. And so I wanted to ask, is there anything over the last, you know, six months that's been driving the production? To be slower, is it typical of what other banks have been seeing, labor shortages and borrowers holding higher levels of liquidity?
spk26: I think you really kind of summed it up at the end there. We're all kind of facing that 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, providing those things don't increase going forward, we're very optimistic.
spk17: Okay, got it. And then on the loan yields, I thought that the core loan yields held up fairly well this quarter, and so I was hoping that maybe you could give me a sense for what new production yields look like currently and what the yield that's kind of rolling off the back book looks like.
spk27: Great question, Brody. Thank you. So if you look at the incremental loan yields coming in, if you look at the bank only and leave Navitas out, they're probably coming in 15 to 20 basis points lower than what the existing loan yield is. And so I think if you look at loan yield by itself, you would say, well, that loan yield is going to continue to come down a little bit. Now, if you look at any given month, if you have a higher mix of Navitas, then some of these months are coming in at higher than our existing yield. So it depends a little bit on our mix. But I think you're going to see the loan yield drop. come down a little bit. Now, at the same time, we have a mixed change that's going to help us on the asset side. It did not help this quarter, but with the significant amount of cash moving into the securities portfolio and some strong loan growth that we think, I think the mixed change can go a long way in offsetting the loan yield compression that I think is going to happen. Net-net, I think you're going to see a relatively flat margin plus or minus three basis points, I'd say.
spk17: Okay, understood. And, Jefferson, what are the new yields that you're putting on in the securities portfolio? $140-ish. Okay. Okay. And then maybe just on the fee income, you know, the SBA and the Navitas sales, I think last quarter you guys had, you know, intimated that, you know, They'd slow down from the second quarter. But if the outlook for the fourth quarter is for the growth to be stronger than the third quarter, would you consider selling more of those SBA loans than you did in the fourth quarter?
spk27: Rich may step in here in a minute, too. Quarter four is our seasonally strongest one for SBA loans, so naturally it could be a little higher. We think about it also in combination with Navitas loan sales. I would expect a small amount of Navitas loan sales again. We're trying to balance because we have a lot of cash. We want to put some of this 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 also the gain-on-sale market is strong, too, and it's our seasonally strongest quarter. Okay. You know, I would expect similar to this quarter, but it is a seasonally stronger quarter, and we would have the opportunity to sell more if we want to.
spk26: Yeah, I would say we probably have to weave 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.
spk17: Okay, and I just have two last ones. Jefferson, maybe you could speak to – significant increase in the gain-on-sale margin?
spk27: I might pass this to Rich. What I heard on the question was what drove this significant increase on the gain-on-sale margin this quarter versus last?
spk26: We did have two one-time events. One had to do with the 50 basis points that Fannie and Freddie allowed for 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 $800,000 last quarter. And then the preferred stock purchase agreement, when that strategy – happened, we were able to, when they discontinued that strategy, we were able to not sell in the private market but sell in Fannie and Freddie and get a bigger gain. And so that was the other one-time gain.
spk17: Understood. And then my last one was on the wealth front, you know, now between Seaside and Fentress. You've bolstered the wealth offering at UCBI significantly. I wanted to ask maybe a couple of questions. How long until those businesses are kind of operating under one brand, if they're going to be operating under one brand, and then the markets that you've identified early here that you think you can target more effectively than others and get the AUM even higher than it is?
spk26: Sure. Hi, this is Ridge again. So, yes, the FinTrust team and the Seaside team, led by Gideon Haymaker, have been working on this. And the thought is that we'll be really operating as one team at the start of the year. And we're looking at, you know, we've gone through all the strategy stuff. Now we're identifying some new hires. And part of that will identify where we go first is kind of where the talent is first. But, It looks like we're going to 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 FAs to bring their portfolios in, and also there's other companies like FinTrust that are available out there that we're looking at. So we're looking at all those things, and it will be a continuum, but, we're really thinking about starting next year when you see all that kind of kick off.
spk17: Great. Thank you very much for taking my question and for suffering through the feedback on the line.
spk27: It worked. Thanks.
spk05: And our next question comes from Christopher Maranick with Janie Montgomery. Please go ahead.
spk15: Thanks. Good morning. Question either for Lynn or for Rob or even for Rich, just about sort of the space race to put new cash to work into loans. I mean, how are you balancing the kind of need to put the money out but also kind of managing risk? You know, are you seeing anything more unusual than normal on the competitive front?
spk02: Okay. Yeah, I'd be glad to. So we are, you know, we have a I guess the good fortune of having a very strong credit culture, and I think our people are disciplined and consistent in how they underwrite and 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 see competitors do some one-offs, and it's not ruling the market as of today, and so we're able to stay true to who we've been over time.
spk03: What you're still seeing at this point is more pressure on the lending margin, the credit spread, than on structure. Certainly we don't have appetite to compete on structure. We're blessed with great markets. But you are seeing it on the credit spread side primarily.
spk14: Great, thanks for the additional color and all the background today.
spk05: And our next question will come from Michael Rose with Raymond James. Please go ahead.
spk16: Hey, good morning. Thanks for taking my question. Just wanted to get a sense, Jefferson, for the margin as we layer in AQUESTA and Reliant, and maybe if you can talk to what you would expect with all 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 AQUESTA and Reliant.
spk27: Thanks. That's a great question. Let me start with AQUESTA on there. I expect about $6 million to $7 million of new accretion to come in. We're at $19 million total from past deals now. Acuesta has a higher margin than us. They're only 3% of our average earning assets, so I think nominally better with Acuesta by itself. Reliant is a harder question right now. They just did a 440 margin, so if you add those two together and blend it, It's a higher margin for us, but there are also some complications in there because we're taking 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 around it, and so I can't give you a number there because I've seen wide ranges of estimates there. But I would expect there, I think it's at least 10 basis points higher from Alliant, maybe more depending on the mark, but I'll have to come back at a later time to give you our estimate on accretion because the last two estimates I've seen have been pretty different. Okay, helpful. That's all I had. Thanks.
spk04: And we have no more questions.
spk03: 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.
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