United Community Banks Inc (UCBIO) 2020 Q3 法說會逐字稿

Good morning, and welcome to United Community Banks Third Quarter 2020 Earnings Call.

Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; Chief Banking Officer, Rich Bradshaw; 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 at the end of the investor presentation.

Both are included on the website at ucbi.com.

Copies of the third quarter's earnings release and investor presentation were filed last night on Form 8-K with the SEC.

And a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com.

Please be aware that during this call, forward-looking statements may be made by representatives of United.

Any forward-looking statement should be considered in the light of risks and uncertainties described on Page 3 of the company's 2019 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.

Well, good morning, and thank all of you for joining our call.

This was certainly a busy quarter for the company.

We closed the acquisition of Seaside National Bank in Florida.

And the combination of their earnings and the continued growth of our business led to a record level of pretax pre-provision income for the quarter at slightly over $81 million.

Our earnings per share for the quarter came in at $0.52 on a GAAP basis, $0.55 on an operating basis, which represents a decline from the same period last year, but a significant improvement from last quarter.

Our return on assets of 1.07% drove a return on common equity that exceeded 10%.

And on an operating basis, our return on assets was 1.14%, and we reached 13.5% in our return on tangible common equity.

Our bankers continue to deliver outstanding service, and we were rewarded with 8% annualized loan growth and 15% annualized deposit growth due to their efforts.

At the same time, given the low rate environment, we continue to work to drive down our overall cost to deposits to partially offset the decline that we and the rest of the industry are experiencing in loan and investment securities yields.

Our net interest margin fell by 15 basis points during the quarter as a result of the low rate environment.

Even with this margin decline, though, our efficiency ratio on an operating basis reached a record for the company at 52%.

Credit continues to perform well as our markets rebound from the effects of the COVID-19 shutdown.

Loan payment deferrals declined from nearly 16% last quarter to just above 3% at September 30.

It continues to be difficult to predict the future path of credit results, but we're certainly encouraged by the performance of our client base during this time.

Both nonperforming loans and net charge-offs declined from last quarter and continue to be consistent with pre-COVID levels.

Our allowance for credit losses now stands at 1.39% of total loans, excluding PPP loans.

So given the environment, this was a strong quarter for the company and reflects great efforts by our team throughout the bank to maintain focus and continue to take care of our customers.

I know you'd like to hear more details on the quarter, specifically credit, and I'd like to turn it over to Rob for that now.

So Rob?

Thank you, Lynn, and thank you for being on the call today.

I'm going to start my comments on Page 7. Our loan portfolio grew by $1.7 billion this quarter, with $1.4 billion coming from Seaside and $227 million coming on a core basis.

Excluding Seaside, our loans grew at an 8% annualized pace.

Our loan growth picked up a bit in the quarter as we've been successful in market share takeaway from our lender hires in '19 and early 2020, and we've also had success in turning many of our new PPP customers into full relationships.

Moving on to the allowance for credit losses on Page 8. On this slide, we provide the initial credit marks and interest rate marks for Seaside.

In total, there are $46 million in loan marks for the quarter.

In addition to the $46 million, we also set aside a $21.8 million provision in the quarter, which included a $10.7 million CECL provision for Seaside's non-PCD loans, commonly called the double dip.

In total, our allowance for credit losses increased by about $30 million, and our allowance for credit losses to loans ratio increased to 1.39%, which we view as healthy.

On Page 9, we look at credit quality, which was stable in the quarter.

Our net charge-offs were improved from last quarter to 9 basis points, which included the benefit of strong recoveries.

On Page 10, we give you a deeper look at our deferrals, which improved significantly from June 30 and now just represent 3% of our total loans.

Through our ongoing review of the top 50 stabilized hotel properties, we have seen an increase in weighted average occupancy to 50% in the third quarter.

While we've seen improvement in our hotel and restaurant deferrals, the deferral rate within these 2 loan books remains higher than other portfolios and amounts to 70% of the total remaining deferrals.

I'm also pleased to note that our Navitas deferrals improved to just 2.4% of total Navitas loans.

There's additional detail on our Navitas portfolio, our restaurant and hotel books as well as retail CRE in the appendix, and we're glad to discuss during Q&A if you have any questions.

With that, I'll pass it over to Jefferson on capital.

Thank you, Rob.

I'm going to start my comments on Page 11.

I'll talk briefly on capital.

Our capital ratios came in as we expected in the quarter with the closing of the Seaside deal, and our ratios still remain above peers.

You will remember that we raised $100 million in preferred equity and $100 million in senior debt last quarter.

And given that, we do have $63 million in senior debt and TruPS that we could call this year depending on the environment, but for now, we are planning to hold the capital as we keep an eye on the economy.

The net interest income and margin is on Page 12.

Our net interest income was up $19.2 million from last quarter, primarily with the help of Seaside.

Our net interest margin was down 15 basis points from last quarter as the core NIM was down 23 basis points and increased loan accretion offset this by 8 basis points.

The core margin compression came as we got the full mix impact of the surge in liquidity at the end of Q2, and Seaside came in with a lower core NIM as well.

The initial Seaside marks are what drove the increase in loan accretion.

Excluding PPP forgiveness and loan accretion, we expect relative stability in our core margin in Q4.

Page 13 shows our deposit mix and our cost of funds.

We had success in the quarter again and growing deposits with core deposits of 15% annualized, excluding the acquisition.

Our cost of deposits improved to 25 basis points in Q3 from 38 basis points last quarter, and we were encouraged by that progress.

Fees are on Page 14.

We are, once again, very pleased with the result with our fee income, up $8.5 million from last quarter.

The main driver of the increase is just under $2.5 million that Navitas added, and from our mortgage business, that was up $1.5 million from our previous record last quarter.

With the environment, our mortgage volumes actually increased from last quarter, and the gain on sale percentage also increased, which we were not expecting.

There were other notable items in the fee income result.

We were encouraged that our service charges started to normalize higher in Q3, and our higher loan volume drove a $1 million increase in our customer slot fees.

You saw in the release and in the investor deck that we had about $750,000 in securities gains and a $1 million positive swing in our SBA servicing asset valuation that may not well repeat.

On Page 15, we give you an update on our PPP loans.

Our customers are thinking about and doing the work on forgiveness, and 56% of our PPP customers have input completed forgiveness documentation into our portal.

We have just started to turn in that documentation to the SBA for the loan forgiveness.

Rich is here in the Q&A to answer PPP questions.

On Page 16, our expenses included $0.5 million contribution to our foundation and were relatively flat when you layer in the Seaside run rate of about $9 million.

With the revenue increases we had and the flattish expenses, our efficiency ratio moved to 52%.

While we did not get much in the way of Seaside cost savings in Q3, we expect to convert their systems in the first quarter, and we feel confident on the $9 million of annual cost savings that we have targeted.

With that, I will pass it back to Lynn for closing comments.

Thank you, Jefferson.

Another exciting event this quarter for United was the addition of Jim Clements, President of Clemson University, to our Board of Directors.

Under Jim's leadership, Clemson has set records in admissions, enrollment, graduation and retention rates, research funding, and as we all know, athletics.

Clemson has been ranked as 1 of the top 25 public universities by U.S. News & World Report for 11 straight years.

I look forward to having Jim encourage and push us to perform at the highest possible level.

So Jim, welcome to United.

And speaking of performance, I'd like to point out that while the economic outlook remains hard to predict, we are well positioned with solid pre-provision income, strong capital levels and ample liquidity to outperform during this cycle.

And that is all due to an outstanding team throughout the company, some of which are in the room here with me now.

So I'd like to open it up now for questions and give them an opportunity to provide more color for you on the quarter and the environment.

(Operator Instructions) Our first question comes from the line of Brad Milsaps with Piper Sandler.

Maybe just wanted to start on asset quality, and you guys have seen some nice improvement in deferrals.

I know a lot of moving parts with the reserve this quarter.

But it looks like if I add back the marks -- the existing marks you have like the reserve gets around [1 40, 1 5 -- 1 45] of loans ex PPP.

Maybe still a touch lower than peers, but just kind of curious how you guys are thinking about the reserve and provisioning going forward based on the improvement you've seen on the deferral side of the equation.

Brad, it's Rob.

As far as the provision goes, it would really be made up of 3 things as we go forward, 3 primary components.

Of course, loan growth would continue to play a role in the provisioning and then also charge-offs, future charge-offs.

And then also, I think, personally, that we'll see -- we've not had a lot in specific reserves, and you could see an increase in the specific reserves on some problem loans in the future, and that could also, of course, drive the need for additional provision.

As it relates to the allowance rate itself, the economic assumptions are the primary driver there.

And if the -- while the environment is very difficult to predict, a high degree of uncertainty, if, though, it does play out like our current assumptions are modeled, we would expect the rate itself to remain pretty close to where it is.

Were there any big changes in the criticized or classified list from the second quarter?

So we did add in about $15 million of hotel exposures.

And we did add in some -- about $20 million of senior care exposure.

Overall, the criticized and classified increased by $15 million.

So we've been successful, continue to experience success in moving credits out of criticized and classified through refinance and payoffs, and so I was actually really pleased with how much movement we had out of the criticized and classified bucket to make room for some of the stuff coming in.

Great.

And then just maybe one follow-up for Jefferson away from credit.

Appreciate you including Slide 23 on mortgage.

I know last quarter, you benefited from -- I think it was a $5 million or $6 million mark on the pipeline at the end of the quarter.

Was there also a mark this quarter?

And I guess if I look at the table, it's sort of the difference between the number -- the gain on loan sale multiplied by the number of loans sold sort of is the plug number, kind of what the market would be.

Just kind of curious kind of how to think about kind of that mortgage line going forward.

So I'll start briefly.

It is a good way to think about it.

There was a much more slight write-up of the mortgage pipeline this quarter.

I'll pass over to Rich, who manages that business for us to talk about the future and what he's seeing there.

Sure.

In terms of production in Q4, we do see production coming down probably about 10%.

We are seeing refis increase while purchases decrease.

In terms of the margin as well, it was a healthy 5.4% in Q3.

And right now, we're seeing something 4.25% to 4.50% is what we're currently experiencing.

Kind of think that will hold through the end of the quarter and probably go down in first quarter next year.

And in terms of fee income, what we're kind of projecting is mid- to high teens for Q4.

Great.

And just a follow-up to that, Jeff, I think in the deck, you mentioned more commissions were up about $0.5 million.

Do you -- is that -- as those mortgage revenues subside, is that kind of how to think about -- do you get some expense relief as that comes down?

Yes, definitely.

If you think about mortgage commissions, they're up about $2 million from Q1.

We also have some overtime that's in there as well.

So I think depending on how far mortgage comes in, you would get a portion of that $2 million back.

Our next question comes from the line of Jennifer Demba with Truist Securities.

Rob, just wondering if you could talk about what you think you could see in potential loss content in the hotel book.

It seems to be the area where most banks are experiencing the greatest amount of stress.

And I also would be curious as to what you think loss content will be in senior living.

We hadn't heard a mention of that very much this quarter.

So I'm curious to what your thoughts there on UCBI's book.

Yes.

So interestingly, I'll maybe start with this.

The -- on the senior care book, we did have a senior care credit that was in our classified portfolio that we were able to exit through a sale, did not take any loss on that sale this quarter.

So we continue to be optimistic about the senior care portfolio.

But as I mentioned, there's a couple that have -- we've put in criticized and really, it's more about pace of stabilization.

It's not -- we're not seeing anything in the senior care space where the occupancy was one level.

Now it's dropped way down.

What we're seeing is as properties come online, it's taking them longer than we would have anticipated or they would have anticipated reaching stabilization, which, of course, is really just because of the environment more so than the actual core business.

Now -- so we feel -- I feel good about that business.

We may have some credits that just take longer to get there than would have otherwise been thought.

On the hotel side, it's an interesting situation.

We have -- as an example, we've got a couple of limited service properties on the side of Interstate 95 in the Carolinas, and those properties are running 85% to 90% occupied and so doing very well.

As you're probably aware and hearing from others, the -- some of the concern is on the business travel side in more urban type environments.

I feel optimistic about the hotel portfolio that we have.

We have made it a focus to limit our hotel exposure to 3 to 4 of the top hotel folks in our markets.

So it's not like we've just been random with our hotel origination.

Those people have a longer horizon.

They've been at it a long time.

They don't get scared by a difficult environment.

They're true operators, and they have resources to resolve their own situation.

So I continue to feel good, but I think we'll have some -- with a weighted average occupancy of 50%, we do have a couple of properties that are below 45% occupied, and we're working with them, but we feel good about them.

And the quality of the operator is what I think is going to drive the success in that space.

Our next question comes from the line of Michael Rose with Raymond James.

Jefferson, hey, just wanted to start on the margin.

Obviously, a couple of moving pieces this quarter, especially with the deal coming in.

We'll get some PPP fees coming over the next couple of quarters.

Can you just kind of walk us through some of your high-level thoughts on how we should be thinking about the moving pieces?

Yes.

So going forward, I'll talk ex PPP.

But we have a lot of things that are now turning into tailwinds for us that have been headwinds before.

One is the CD book, has always been a tailwind, but we have $367 million coming due next quarter at 1.28%.

The whole CD book is $1.9 billion at 85 basis points.

So a lot of opportunity there.

We have been putting cash to work.

So this cash build that you've been seeing, I think, is going to, again, ex PPP, start to reverse.

We can talk about PPP in a second.

So in the period, you'll notice that the securities portfolio was higher.

So you're getting a positive mix change there.

We had some good loan growth this quarter that's helping.

I would -- we think that pipeline looks good next quarter.

So the -- but on the other hand of it, we have -- the LIBOR continues to trickle down just a little bit.

And so that's a headwind.

Now net-net, as you look into the fourth quarter, our deposit rates so far have fallen faster than our loan yields.

So I feel like that the core margin can be flat this quarter and then maybe on accretion, and maybe that comes in a couple of basis points.

That's what I'm thinking now.

Now with PPP, we do start to expect -- we expect to start seeing some forgiveness and some cash coming in from that.

And we'll have to go to work to put that to work to help keep that margin flat.

But our best forecast now is a flat core margin.

That's very helpful.

And we heard from 2 other banks this morning that operate in some of your markets that they sound a little bit more optimistic on the loan growth outlook.

So I appreciate the color on the securities book.

But are you guys seeing the same thing?

And is there a point where the loan growth, once we get through some of the PPP runoff into the middle of the back half of next year, actually starts to more than offset the -- what you added the securities book and you actually get some positive mix shifts and NII expansion?

I'll start and pass it over to Rich.

I mean the -- so putting in securities is already a nice positive mix shift from cash into securities.

And then if we could take that and move it into loans, it could be a better thing for us and then I want to pass it to Rich on the pipeline and what he's seeing there.

Sure.

I want to add a little more color to Rob's earlier comments on growth.

First of all, we're seeing a return on our investment on the 40 commercial lenders and leaders that we've hired since January 2019.

And probably about half of those are replacement.

Half are incremental, and those are really paying off for us.

Another piece of this is the large banks are moving away from the $5 million loan size.

And that's a really great loan for United.

A matter of fact, those banks are going -- in terms of portfolio management, it's a 1 800 number if you're a $5 million loan customer.

And so that's been a real opportunity for us, and I'm sure for some of our peer banks as well.

And then lastly, I think we continue to enjoy some tailwinds from PPP, both from a reputation standpoint.

In the fact that of the 11,000 that we did, 3,000 were new customers to United, and you can, obviously, figure out what's our biggest target in terms of who we've been going after for the last quarter, and that's been very successful for us.

So we do feel optimistic going forward in Q4.

Our pipelines are strong and feel that we'll have a similar Q4 than likewise that we had with Q3.

I'll just add in that the loan yields that we're seeing coming in are very similar to our current loan yields.

So we're not -- on this growth, we're not seeing degradation in the loan yield.

Got it.

That's helpful.

And then maybe just one final question for me.

You guys just closed the Seaside deal.

It does seem like M&A chatter is picking up a little bit.

We did see a larger transaction here recently and within some of your markets.

Any updated thoughts?

I know you guys have preferred some of the smaller deals, hitting singles, maybe some doubles as opposed to home runs.

But how should we think about kind of the capital deployment and M&A strategies as we move forward?

Yes.

Thanks, Michael.

This is Lynn.

I mean, clearly, as soon as the environment clears, whatever we believe that is, I do think there's going to be tremendous opportunities for acquisitions.

And as you mentioned, we tend to like the singles and doubles.

We will look at a few maybe triples here and there.

But all the drivers that were in place before COVID, margin pressure, tech investments, competition for loan growth, all those things have really accelerated.

So there's a lot of conversations going on.

And people are looking forward to -- once you can feel comfortable looking at each other's loan books and knowing what you got, I think, we're looking forward to getting back into the M&A game.

Our next question comes from the line of Catherine Mealor with KBW.

Maybe just one follow-up on the capital deployment question on buybacks.

You've got a lot of capital.

Credit feels stable.

PPNR looks really good.

How are you thinking about how soon you'll be comfortable reengaging on the buyback?

That's a great question, and we're talking about that a lot internally.

We don't have plans to reengage the buyback currently, but we do have cash at the holding company that will last us to the beginning of 2024.

We do have an upstream that's going to come and enhance that.

We do think you'll start seeing us, before we get to buyback, start to look at our trust preferred that's out there at 6.25%.

We have some senior debt that's out there at 5% that matures in 2022 that we could do early.

So we're looking at using that cash to benefit 2021, but we want to see some more time and some more statistics passed before we enter back into the buyback.

Great.

And then a follow-up on credit as well.

Are there any loans that have come off of deferral but where you've kind of entered into loan modification?

And anything to speak of there?

So I'm going to say no to that.

That's not really something that we're doing.

If it's modified, then that's likely -- if it would be modified because of a change in performance, we would either downgrade it or TDR it or put it in -- it would -- call it a deferral.

Deferrals are modifications effectively, right?

Yes.

We've just seen some other companies that kind of talk about coming off deferral but entered into a modification or structured solution.

Just wanted to make sure that there wasn't another group of loans that...

No.

We're not doing that, no.

Okay.

Great.

Great.

And then maybe just, I guess, one last question on just kind of your, I guess, thoughts on expense growth.

Any kind of outlook, Jefferson, near term on what you're thinking about the expense growth going into next year?

Yes.

So we have -- we're thinking a lot about expenses.

It's a budget season and a couple of things to think about.

One is we have 6 branches that we are closing in December.

All things equal, that should save us $2.3 million next year.

And before you get excited about that, we also have new locations coming on.

We have 2 new locations in Columbia that we're excited about that are coming on.

We have a team, LPO team that has -- we brought in some time ago that has a -- growing their loan book really, really well.

And Rich may want to step up on this.

Yes.

So it's -- we're purchasing the 2 -- or have purchased, sorry, we purchased the 2 branches in Columbia to support the new LPO.

We started that LPO in July last year.

And we're really pleased with their growth, and they've done $120 million of commitments since the start of that LPO.

And so we feel very good about that.

So we're also looking at a location or 2 in Florida, but net-net, we should get some expense savings from branch closures next year.

We have the $9 million from Seaside that we're excited about, getting that into the run rate starting next year.

We have some other streamlining type of ideas that we're not really talking a lot about today, but we're starting to kind of lay out and try to get some cost savings from some other projects as well.

And at the same time, we're growing our business.

We're making selective hires.

We're making some of these investments that we're talking about.

So -- and again, we're in budget season for next year, but flat to slightly higher is where I would kind of start.

Our next question comes from the line of Kevin Fitzsimmons with D.A. Davidson.

Just a quick follow-up on the loan growth, the organic loan growth and wondering if there's specific markets that are contributing more to that.

And I know, Richard, you talked about the small to midsized loans that are getting kind of ignored by the larger banks.

I'm assuming that's part of it.

And also, you referred to the PPP customers that are not currently -- or weren't previously customers of UCBI.

Just wondering if any of that is contributing, if some of those customers are already moving over other loan business?

Kevin, the short answer to your PPP question is, yes, absolutely.

About 1/3 of that loan growth came from the new PPP customers.

In terms of where we're seeing some of the loan growth, medical office buildings, I'm going to say near owner-occupied because definition of owner-occupied is 50%.

We have some large deals that we had the -- the owner has 35%, 40% occupancy.

So we feel good about those.

We've done a fair amount of grocery store anchored deals.

We're also -- trailing that would be warehouses.

And then in terms of geography, I want to point out that our South Carolina and Coastal Georgia team as well as our North Carolina team really had just huge quarters, and they really drove the volume.

That's great.

Just one quick follow-up.

I know we -- Jefferson, you mentioned a few times the timing of the PPP process.

As far as when the remaining fees get recognized through the margin, is your best bet that the bulk of that comes through in the first quarter, maybe 1/4 in the fourth quarter, 3/4 in first quarter?

Just wondering your thoughts on that.

Yes.

So we're thinking it's going to be a little sooner than that.

We have -- and Rich may want to step in here.

But in our portal, we have a significant number of our customers that have put the full documentation in.

So we're starting to apply these to the SBA in a much faster way now.

And so we think actually we're going to get -- and there's a possible up to 90-day waiting period once we get the forgiveness application in to when we get the cash.

But we're currently thinking that it could be up to 50% of the fees come in the fourth quarter.

And now I'll pass to Rich to see what he has to add to that.

Yes.

I have the benefit of having some numbers in front of me.

Of the 11,000 that we that we did, we have -- we call 100% of the expenses entered.

We have about 6,057, and that's about $718 million.

And so we have to do some verification, and we have to get some certifications from our borrowers.

But remember, we build a portal for this Day 1, and we built it throughout the process, including updating it for the forgiveness portion.

And so we expect to get a majority of our forgiveness kind of split between fourth quarter and first quarter.

And a trickle from there.

And there'll be some trickle.

Our next question comes from the line of Christopher Marinac with Janney Montgomery Scott.

Wanted to talk about Navitas and just get a sense of whether the charge-off rate would be same or higher as you get into year-end and early next year and also kind of what type of new growth Navitas has on the horizon.

So this is Rob.

I can -- if you -- we did put some slides -- on Slide 22 in the deck, there's some stuff about Navitas and charge-offs, and you can see there that the charge-offs in the third quarter went to 93 bps.

So that's right at $2 million.

When we started -- sort of when the whole pandemic hit, and we met with the Navitas guys, they we're projecting something a little bit higher than this.

So we're cautiously optimistic that things there are going a little bit better than maybe we -- they could have been going and even better than we anticipated.

That was -- it came in around a $2 million number for the third quarter.

So we feel good about it.

We do think that there will be some -- I don't know, when we bought the portfolio back in early 2018, we budgeted a 1% loss rate, and that was sort of where we set our expectation.

So they're continuing to outperform the expectation even during the pandemic than we had set back in '18.

So we feel good about it.

It feels like it's happening right where it should.

It's a little bit up from where it was, but quite honestly, they were outperforming what we had expected previously.

So that's where we are on the charge-offs.

I would expect it to stay close to 1% for the next couple of quarters.

That would be my guess.

And maybe I'll pass it to -- and talk about...

I'll start.

The -- if you look at -- they're -- the pipelines, they're encouraging.

They have picked up from the summer when they had fallen off.

And I would expect this sort of loan growth that you saw this quarter to continue into next year.

Okay.

Great.

That's great.

And then just a follow-up for Rich.

I mean as you have gone through the PPP forgiveness process, is the fraud already known about what's out there?

Or could there be any surprises that come up?

I'm just kind of curious how that's going to play itself out, both for you as well as for the system in general.

Well, I think the answer for us and for the system in general would be kind of the same.

If you -- so first of all, if we've done everything right and there's fraud, we do have the full faith and guarantee of the U.S. government on our deal.

So -- and so from that standpoint, we have -- we've seen very little in ours, but we have seen one case in ours.

So that's 1 out of 11,000.

I'm guessing there may be more.

But I feel like we've done all the right things, and I know the industry is looking at this hard, and I know that when we put the deals in for forgiveness, the SBA treasuries announced that the bar will be higher for forgiveness or said they'll look at the files differently for loans $2 million and above.

My -- I have a long experience with the SBA, and they've always been fair and reasonable, so I don't have a concern.

Our next question comes from the line of Brody Preston with Stephens.

So I just wanted to circle back on loan growth real quick.

So obviously, a really great quarter.

I think it was 8% organic loan growth as you called out in the release, and so I guess to put up sort of high single-digit loan growth in this type of environment is impressive.

And so as we think about the pipeline moving forward, maybe short term but also longer term, I guess if 8% is what you're going to put up in this environment, what do you think you could put up maybe back half of '21?

So great question.

There's also an election here in the short term.

So a lot of things could impact that.

But certainly, mid-single digit is kind of how we're thinking about it.

And having said that, we're still optimistic about the -- entering Q4.

And hopefully, some of these things continue.

I don't think it's going to change that the large banks now go back and go after the $5 million loan.

So I think that's going to be out there for us.

Also, we're really excited about capitalizing on the talent and metro markets that Seaside's in.

So we do see that as a potential pickup, and we're really excited about that acquisition merger and our new teammates.

Okay.

Great.

And then you've had obviously a lot of success hiring over the last 1.5 years.

Just with all the disruption up and down your markets from the Truist deal, I think you've had some success maybe making some hires there.

Is that something you expect to continue as we move forward into the new year?

The answer is yes, but we're going to be more opportunistic.

It's going to have to make sense for us, and we're really -- vet the people.

We want the best.

And we'll make sure if we're hiring that we are getting the best because we feel very good about the team now in terms of our existing United market, although we are doing some hiring, again, to capitalize on our strengths with Seaside.

Okay.

And then on the equipment finance book, I think you mentioned maybe the pipelines are stronger there.

And I think some others have pulled back from that area.

And so maybe you're getting a better opportunity to sort of have your pick of the litter from a credit perspective.

But with Seaside sort of maybe mix shifting that portfolio down a little bit further, do you expect to sort of let that -- the Navitas portfolio run before you maybe look to execute some loan sales moving forward?

Yes, that's a great question.

So we've talked about keeping it under 10%.

It's well under 10% now.

We are seeing that volume start to pick back up, and it is growing faster than our book as a whole.

And we do expect to start selling loans in the first quarter and beyond.

So we're not -- I guess I would say to you, our target is not 10%.

We are expecting to grow faster than the core bank.

And so, yes, you should expect us to engage in loan sales much faster before it gets to 10% because we're not targeting 10%.

We're -- it's growing faster and into a smaller number now.

And just on the asset quality side, I think this team has been very disciplined in its originations.

And they are saying that they're seeing an uptick in the quality of the applications.

So the applications are higher.

They're higher quality, and we're accepting a much lower percentage of them.

So the acceptance rates of what we are getting versus what is being applied for is much lower than the pre-cycle.

Okay.

Great.

And then just a couple of quick modeling questions for me.

Just on the -- maybe on the swap fees and the brokerage fees.

What drove both of those sort of being higher?

And do you think that it's repeatable as we move forward?

So the swap fees are simply they go right along with loan growth.

So whatever you have for loan growth, I would think about the swap fees being similar.

So if loan growth comes down, I would expect the swap fees to come down on an absolute basis.

Rich, thoughts on that or...

Yes.

I would probably add one minor thing, and that is we've changed some -- we want to have more fixed rate on our balance sheet.

So we have changed some of the incentives.

So I would expect a little drop in swaps.

Yes.

That's a great point.

And the wealth management was simply -- the growth this quarter was simply adding Seaside in.

So it's relatively flat ex Seaside.

It is a growing business.

So that is a good run rate to start from this quarter.

Okay.

And then last one, just what do you guys sort of view, I guess, as normalized cash balances for you all?

And how quickly do you think maybe those can run down?

And then tangentially, would the FDIC expense move a little bit higher again as that liquidity is deployed?

Yes.

So the year before COVID, we kept about $50 million at the Fed overnight.

So I would call a normalized number, $50 million or somewhere near there.

And so now when we're going between $800 million, $900 million to $1 billion, it's much higher.

Now our goal is to get it back there.

I know it's pretty hard to do.

So don't bring us there super quickly, and we have a lot of cash coming in from the PPP loans that we need to put to work.

So we will get back to that number, and that is our goal, but it will take some time.

This concludes today's question-and-answer session.

I would now like to turn the call back to Lynn Harton for closing remarks.

Great.

Well, thank you all for being on the call.

And I'd like to just end the call with some congratulations out to our team.

So this is our first quarter with Seaside onboard.

And so to the Seaside team listening in, you can tell how you impacted the numbers and made a positive difference, proven yourself to be exactly what we thought, an outstanding team with deep relationships.

And having gone through the wealth management planning exercise with you myself, I tell you, I'm very excited about how that's going to go throughout the rest of the footprint.

It's going to go very well.

So congratulations to you.

And when I think about the other things that have gone on this quarter, our automation initiatives, and you can see that in the PPP process.

And we have other initiatives going on with that same team.

It's been incredible.

Our customer retention has been incredible.

Customer additions have been incredible.

And I saw some early customer service scores that also made me very proud today.

So I just want to congratulate all the team at United, and thank you for everything you're doing.

And we look forward to reporting to the rest of you next quarter.

Thanks so much.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may now disconnect.