United Community Banks, Inc. (NASDAQ:UCBI)
Q2 2016 Earnings Conference Call
July 27, 2016 11:00 AM ET
Jimmy Tallent – Chairman and Chief Executive Officer
Lynn Harton – President and Chief Operating Officer
Rex Schuette – Executive Vice President and Chief Financial Officer
Brad Milsaps – Sandler O’Neill & Partners
Kevin Fitzsimmons – Hovde Group
Jefferson Harralson – Keefe, Bruyette & Woods, Inc.
Christopher Marinac – FIG Partners
Tyler Stafford – Stephens Inc
Nancy Bush – NAB Research LLC
Good morning, and welcome to United Community Banks’ Second Quarter Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Jimmy Tallent; President and Chief Operating Officer, Lynn Harton; Chief Financial Officer, Rex Schuette; and Chief Credit 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 second quarter’s earnings release and investor presentation were filed this morning 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 light of the risks and uncertainties described on page four of the company’s 2015 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 Jimmy Tallent.
Good morning, everyone, and thank you for joining us for our second quarter earnings call. We had a very strong second quarter with outstanding results across our company. This performance is perhaps the best demonstration to-date of the success of our investments in new businesses and markets as well as the success of our acquisition strategy. Our bankers excelled by every measure. Their major achievement included our highest linked quarter fee revenue growth, strong loan growth and excluding merger related charges, 1.07% operating return on assets and operating net earnings per share of $0.36.
Our SBA and mortgage lending business performed exceptionally well due to the closed working relationship with our community banks. This is proven to be a winning combination for meeting the borrowing needs of our customers and providing a strong and sustainable fee revenue stream. We were able to achieve expected cost savings in full from the Palmetto acquisition. This success allowed us to invest in additional lenders and markets while still improving our operating efficiency ratios to 57.8%. – scrap those investments and adding 20 revenue producers during our first quarter call. In the second quarter as I would describe in today’s call, we began to see the results. Earlier this month, we completed our acquisition of Tidelands Bank on the South Carolina coast. Since this occurred in the third quarter, the Tidelands balance end results are not included in our second quarter results.
I’ll talk more in a moment about the Tidelands transaction and our second quarter, but first let me mention some additional highlights from the quarter. Net income was $25.3 million or $0.35 per diluted share. Includes in those results were pre-tax merger related charges of $1.18 million or a penny per share. Excluding merger related charges net operating income was $26 million or $0.36 per diluted share for the quarter. This is up 13% from a year ago on a per share basis. Our GAAP return on assets 1.04%, it was 1.07% excluding merger related charges. This is up from 100 basis points both last quarter and a year ago and is approaching our 1.10% goal by the end of the year. Excluding merger related charges, our operating return on tangible common equity was 11.6%, up 65 basis points from the first quarter and up 136 basis points from a year ago. Our margin was 3.35% down six basis points from the first quarter but up five basis points from the second quarter of 2015.
Net loan growth was $181 million from the first quarter which is 12% annualized. Second quarter loan production was $662 million. Our provision for credit losses was a negative $300,000 down from a negative $200,000 in the first quarter and $900,000 charge a year ago. Net loan charge-offs for the quarter were $1.7 million that compares to $2.1 million in the first quarter, and $1 million for the second quarter of 2015. Our allowance to loan ratio was 1.02% compared with 1.09% at the end of the first quarter. Our nonperforming assets to total assets ratio held steady at 28 basis points. Fee revenue was up $4.9 million from the first quarter with significant increases in mortgage fee and gains from sales of SBA loans and customer derivatives and our capital ratios remained very strong.
Now I’ll share some details from the quarter. As you can see on page 12 of the investor presentation, pre-tax pre-credit earnings were $41.5 million, up $3.2 million from the first quarter and up $8.5 million from a year ago. Our net interest margin was down six basis points from the first quarter and up five basis points from a year ago. The six basis points decrease was mostly due to the lower yield on the loan portfolio. Last quarter I mentioned that our margin was up in the fourth quarter due to the impact of the fourth quarter rate increase and accelerated discount accretion on purchase loans. The decline in purchase loan discount accretion this quarter accounted for approximately half of the six basis points decrease in our margins from last quarter leaving the true linked quarter margin compression at three basis points. The three basis points decrease was due to competitive pressure on loan profits. For the second quarter, purchased loan accretion was about $500,000 compared with $1.2 million in the first quarter.
Turning to loan growth and production, we grew loans by $181 million during the second quarter, representing an annualized growth rate of 12%. As shown on page 15 of the investor presentation, loan production remained strong at $662 million. Approximately $433 million was produced by our community bank and $188 million from our specialized lending areas. Looking at first quarter loan production by categories, 58% was in our C&I and CRE portfolios. Commercial loans accounted for $393 million of total production and increased outstanding loan balances by approximately $155 million.
At our first quarter call, I described investors[ph] and new lenders in our specialized lending areas and throughout the bank. We continue to add lenders through the second quarter, additionally, in early July we added a new group of season lenders who specialize in senior lending. They have been integrated into our specialized lending group and primarily cover the Southeast market. Our footprint includes some of the most desirable - areas in the country so this expertise is a valuable resource to our community banks. I’m excited about this team and I’m thrilled they chose to join United.
For the $300,000 recovery, our provision for credit losses remains low by historical standards and reflects the favorable credit trends that we expect to continue through the remainder of 2016. Our allowance for loan losses was 1.02% at quarter end, down slightly from the last quarter but still considerably above our peer banks’ median of 81 basis points last quarter. You’ll find the trends in fee revenue on page 12 of the presentation. Our fee revenue generating businesses performed very well in the second quarter including record performance for mortgage and SBA. Second quarter fee revenue was $23.5 million, up $0.9 million from the first quarter following some seasonal decline in a number of categories. Total service charges and fees on the positive accounts were up $389,000 from the first quarter with increases in both interchange fees and other service charges and fees. Mortgage fees were up $1.2 million from the first quarter. We closed $182 million in mortgage loans in the second quarter, up from $146 million in the first quarter.
Turning to our SBA business, gains from sales of SBA loans totaled $2.8 million in the second quarter compared with $1.2 million in the first quarter and $1.5 million a year ago. We closed $41 million in SBA loan commitments in the second quarter, funded $32 million in loan balances and sold $33 million in guaranteed loans. Perhaps most notable is that $17 million or half of the production came from our community banks. This is a testament to the synergistic relationship between our community banks and our specialized lending teams. That comparison, in the first quarter we closed $36 million in loan commitments, funded $22 million in balances and sold $13 million of the guaranteed portion.
Improvement in our customer derivative business provided $1.1 million of fee revenue in the second quarter. This was up $327,000 from the first quarter and up $549,000 from a year ago. All in, and across all the products we had a strong quarter from a fee revenue growth perspective. Expenses are on page 12 of the investor presentation. They include merger related charges of $1.2 million in the second quarter, $2.7 million in the first quarter and $3.2 million a year ago. Excluding merger related charges, operating expenses were $56.9 million in the second quarter, $55.2 million in the first quarter and $45.2 million a year ago. The acquisitions of First National Bank and Palmetto accounted for significant portion of the $11.7 million increase in operating increases from a year ago.
On page 39 of the investor presentation, we have included a reconciliation of operating expenses to GAAP expenses. The linked quarter increase of $1.65 million in operating expenses excluding merger related charges was mostly in salaries and employee benefits, advertising and public relations and professional fees. Salaries and employee benefits were up $510,000 from the first quarter. This increase was mostly due to higher commissions and incentives related to strong loan production, growth in fee revenue and overall earnings performance. In addition, on April 1st, our annual merit increases were effective and we increased our 401(k) matching contributions. Combined, these added approximately $900,000 to second quarter salaries and benefit expense. We also saw the full quarter impact of the additional 26 lenders, most in our mortgage and specialized lending areas that I mentioned in our first quarter call.
In the second quarter, we added another nine revenue producers, most of them again in the mortgage and specialized lending areas. The increase in cost for the merit 401(k) and additional revenue producers, offset the impact of the cost savings from the elimination of staff positions late in the first quarter, following the Palmetto systems conversion. Professional fees were up $489,000 from the first quarter due to ongoing projects or process in compliance improvements and increased scalability as we continue to grow both organically and through acquisitions. Overall, we were able to grow revenue which outpaced expenses to provide for solid performance towards our fourth quarter goal of a 1.10 return on assets. This resulted in a positive operating leverage of 2.3% in the second quarter and our operating efficiency ratio improved to 57.8% in the second quarter down 130 basis points from the first quarter.
Before I conclude my prepared remarks and open the call to questions, I want to mention a few things that are very important. Certainly the second quarter results show that investments in organic growth are achieving solid results. They almost always do and that is why they continue to be our primary focus. At the same time, acquisitions have been and will be an important part of our growth strategy. To appeal to us, an acquisition opportunity must meet four criteria; must be accretive to earnings per share; it must have a reasonable earn back of tangible book value dilution; it must be strategically compelling; and it must have low execution risk. To meet our financial objectives from each acquisition, we must also achieve the expected cost saving and I’m pleased to report that we did just that with First National Bank and Palmetto.
With First National Bank we said, the cost savings would be $400 million, we achieved closer to $500 million. And with Palmetto we achieved the full $14 million in savings that we anticipated. The balance of Palmetto expense savings came in the second quarter and that allowed us to add a significant number, new revenue producers in the first half of the year. As a result, in the second quarter, we were able to absorb those costs and produce strong financial performance with an ROA of 107%, a pre-tax pre-provision ROA of 170% and an operating efficiency ratio of 57.8%. And all of this I might add was very little purchase loan discount accretion. As well as meeting the strategic and financial goals we set for them, these acquisitions will continue to play key roles in the growth and profitability of our company.
I want to take a moment and talk about the unique strategic opportunity that we have in the very attractive Coastal South Carolina market and have Tidelands fit into that vision. Tidelands is our third acquisition since last year. The first two have been fully integrated now operate under the United Community Bank branch. We have talked about the outstanding success of our loan production office in Charleston. In only nine months of operation, Dixon Woodward and his team have generated an impressive $150 million in loan commitments, including $84 million in loan balances. That is an extraordinary achievement and it speaks volumes about the capability of our team. It also speaks to the opportunities in the market.
Add to these skills in market the Tidelands bankers, their capabilities and their seven full service offices then I believe the growth opportunities are significant and Tidelands has even more strategic value. It is immediately accretive to earnings because we didn’t issue any shares in the merger. As we turn to capital, our deferred tax asset gives us a distinct capital advantage by allowing us to be a regulatory capital based on pre-tax dollars. Keep in mind that we still have $116 million in disallowed deferred tax assets that will be added back to regulatory capital each quarter over the next two years as we use our net operating losses. We are generating regulatory capital faster than we can deploy it through organic growth, allowing us greater flexibility and our capital management programs.
Repurchasing shares when it makes sense is a great example. In March, we announced 50 million shares repurchase program to allow flexibility to repurchase outstanding shares. Beginning in mid-June, we repurchased 764,000 shares at an average price of $17.88 totaling $13.7 million. This included 460,000 shares purchased during the second quarter. We will continue to be opportunistic with repurchases. There is one other thing that I would like to mention before I update you on our outlook and open the call for your questions. If we don’t periodically take a look back, it’s easy to miss the tremendous changes that have occurred in our loan portfolio, lending businesses, underwriting support and senior credit management.
Over the past five years, we have made significant and meaningful changes in our lending businesses. We have expanded our commercial lending areas, while adding top lenders and experienced credit underwriters. This has led to greater diversification in our loan portfolio, both in product tax and geography and a stronger credit underwriting team, both at the top and throughout all levels of underwriting support. Also, we have built our specialized lending areas from the ground up, for some of the top talent in the southeast. These are season lenders with strong track records. They have join United along with their experienced credit underwriting teams. Together they are driving us toward a solid future in these lines of business. From a lending perspective, we’re not the same bank we were five years ago. We’re focused on organic growth within our community banks and specialized lending areas, supplemented from time to time with targeted acquisitions. We have a relentless focus on quality, diversity, geography and building lasting customer relationships.
Now for a brief update on our outlook for the rest of 2016. We remain optimistic about our earnings growth. Certainly our second quarter results add to that optimism. We expect growth in loans and deposits to continue the mid-to-high single digit range, although perhaps at the high end. Assuming no further rate increases by the fed, we anticipate that competitive loan pricing pressure will continue to lower our margin a few basis points through the remainder of the year. Our interest sensitivity position remains close to neutral, so we’re in a good position to manage and serve to end this interest rate environment.
Our expectation is that the favorable trends in credit quality will continue and will result in more low provisions for credit losses in the near-term. We expect continued growth in our mortgage business as we had new originators and we expect our SBA business to drive further growth in fee revenue. We expect to hold the growth rate and expenses below the growth rate in revenue, thereby continuing to achieve positive operating leverage. We expect to see our operating efficiency remain in the 58% range and we believe we are still on target to achieve the 1.10 return on assets by year-end. Our second quarter results have strengthened our optimism and have led the board to increase our dividend to $0.08 per share beginning in the third quarter, that’s a 14% increase over our current dividend and a 33% increase from a year ago.
And now, we will be glad to answer any questions.
[Operator Instructions]. Our first question comes from Brad Milsaps from Sandler O’Neill. Your line is now open.
Hey good morning.
May be I’ll start with fee income I know last quarter some of the SBA gains were lower because of higher number of construction projects that encompassed the mix. I’m curious did lot of those fund – sell those or was this just additional production and you still got that SBA construction piece kind of coming down the pike?
Yes, so Brad, this is Lynn. Really both of that, so we did have number one, very strong production in the second quarter but we also did have some construction loans mature during this time which increased our ability to sell. Our expectation is for another strong production quarter in the third quarter so we would expect to be about this level again in the third quarter. And then up a little bit in the fourth quarter again, because our next block of expected construction loan maturities will be coming in the fourth quarter.
Okay, great. And then just a follow up on expenses, I appreciate all the color kind of around the numbers and getting the cost saves out. May be expenses, we’re still little heavier than may be I thought I know you guys are reinvesting, but just kind of curious any additional color there on may be being able to accelerate the operating leverage. I know you gave guidance to that, but just kind of curious any other, those line items that would be little heavier than, would start to reverse out.
Yeah, Brad this is Rex, I’ll make some few comments on it. As Jimmy noted on the salary line in particular, it did include merit and 401(k) increases and additionally it had commissions up because of our mortgage revenue was up considerably as well as performance incentives, now that we are back on track for the 1.10 ROE than 1.07 ROEs. So I think you see those probably consistent in the third and fourth quarter, I don’t see it increasing. When you look at professional fees, we had some additional work on our socks, compliance, [indiscernible] in mortgage area. I think those will come down by a few hundred thousand on a linked quarter going into third and fourth quarter.
Advertising, as Jimmy noted, again was up due to campaigns we had our customer appreciation day, which we have 20 some more almost 30 more officers now that are in that. If you looked at that a year ago, we were up 200,000. So I see that probably coming down by 200,000 on a linked quarter also that run rate will come down for the balance of the year. We continue to focus on looking at expenses. As Jimmy noted, our operating efficiency ratio is again sub 58%, you take that in context of looking at it a year ago. We required to and fully converted to acquisitions plus all the growth that we’ve had and still now back around to the efficiency ratio, even running pre-acquisitions.
And again if you look back even a couple years further, we were well into the low 60% operating efficiency. So we continue to focus on managing expenses. I would add and probably would come up as a question but Tidelands is coming in July 1st so that will come into our run rate. We talked about that previously and again, that will add probably about $2.9 million a quarter in expenses. We expect expenses to be flattish going into next quarter, but we’ll have additional, the run rates for Tidelands coming in, we convert that in November and again, the full benefit of the $5 million will come in the first part of next year.
Great. Thank you guys.
Thank you. And our next question comes from Kevin Fitzsimmons of Hovde Group. Your line is now open.
Hey good morning everyone.
Appreciate the outlook on the margin and loan growth, can you just putting those two together, can you talk about how you view NII, the prospect for growing NII? Because that’s the one – the quarter, that’s the one thing that really wasn’t there this quarter NII basically being flat to down. And I know there was a little bit of margin hit from accretion income coming down but might not happen each quarter. But just putting loan growth and margin together, how do you feel – how confident are you in your ability to drive NII higher or especially in this difficult rate and curve environment?
This is Rex again. Jimmy had commented that, we do expect some further margin compression which really that is driven around again competitive loan pricing. We have seen our loan yield as we have noted and talked about that you see in the deck are flattened in the second quarter. So we don’t – we haven’t seen it continually drop in April, May and June. So it’s holding in pretty well. So again, we’ll probably pick up a little accretion through our acquisitions again I think as Jimmy noted, one important point is that there’s only $0.5 million of accretion income coming in compared to other banks. So it’s minimal impact on our margin overall and our loan yield, but again I think we expect the margin to come down a little bit, but now I think we’ll see traction back to your point in net interest revenue. I think we’ll see traction in Q3 Q4 that we’ll see net interest revenue increasing on a linked quarter basis going into the balance of the year.
Great. Great, that’s helpful. Thanks, Rex. One follow up, Jimmy, you mentioned M&A and just if you can give us a little more color on that in terms of how the conversations are going and how seller pricing expectations are and what you’re all [indiscernible] geography may be looking forward? Thanks.
Sure. Thank you, Kevin for the question. Really nothing has changed relative to our overall strategy, yes conversations continued to occur. Certainly there are a number of incoming calls, there is a handful of institutions that under the right financial circumstances, we would have a very strong interest in. The geography is the same within the four states that we have talked about, could be in new markets, could be in markets that would create overlap and obviously significant cost saves. The criteria is the same as I mentioned few moments ago.
Size wise, just to kind of pick a number, we would feel comfortable probably between 500 or may be couple billion dollars what we would call our sweet spot. There would be a case possibly of being under the $500 million again a lot of that is, in fact all of that is strategic in our view. But also I still it’s important even with the M&A that our focus is the organic growth route. We’ve been able to transform our company now geography wise but 90% of our footprint is in a MFA[ph]. So that in addition to the increase and addition of lenders and new product lines within our specialized lending I believe provides great opportunity as we move forward.
Great. Thanks, Jimmy.
Thank you. Our next question comes from the line of Jefferson Harralson of KBW. Your line is now open.
Thanks. I want to start with SBA pricing this quarter, can you talk about the change quarter-to-quarter on – sale SBA loans?
It was very steady. We’re not seeing any compressions so really minimal change in the gain on sale margins.
Okay. And what are you seeing in your pipelines or in your loan demand that push you to raise your guidance? I realized your loan growth guidance I know you guys have beaten it few quarters in a row, what do you see in that, that gives you confidence that you can move to a higher end of your loan growth guidance.
So Jefferson there’s really four things that make me confident there, one is the new hires. So we brought on a new, for example, we brought on a new middle market team, led by Tommy in South Carolina, have been recruiting Tommy for three years. I know how strong he was, he surprised me with how strong his team is. So another two people came on with him, they are doing extraordinarily well. Our new senior living group Jennifer Lawley again outstanding group, only been with us few weeks and they’ve already kind of shown that they are going to exceed expectations. We’ve talked about Charleston, what’s going on there. So we continue to be able to attract great people, number one.
Number two, our retail strategies which we don’t talk about a lot are going very well at our great e-LOC campaigns and see the results of that. our mortgage business, 20% of our production goes on balance sheet and variable rate products and you don’t see that as clearly because we repositioning that portfolio a little bit and bringing the quality up, but that’s going on very well. The third reason, we’ve got great coordination between our specialized lending group and our community banks. So that partnership is really kind of makes me feel very confident that growth will continue. And finally the performance of the acquisitions is going very well. So you expect to see a little slow down which we did see in First National, but that’s picked back up, obviously good growth there. Palmetto has gone very well out of the gate, Tidelands, we’ve already seen two relationships come into senior credit committee.
So they are off to a stronger start in either one of the other two. So lot of reasons to feel good about it, but the only reason not to take the guidance up further is really maintaining credit standards. We’ve actually seen a couple of deals come in committee – commitments from other lenders where we just basically said well if you’ve got that, somebody else you go get it, because we’re not going to do it. And of course we talked about it for some time, multi-family commitments are down in multi-family about 16% annualized rate. So just maintaining credit quality just who knows about the general economy would be the only reasons we wouldn’t increase the guidance.
Right. Thanks a lot. Lastly Rex, a quick one what -- should we expect on this Tidelands deal the conversion, do you need to make investments here, hire people to build it out or is it just – we should just take over the revenue and expenses and cut the expenses some time after the conversion?
Yeah Jeff, it tends to be the latter, we don’t really need to add to our internal operations and we look at it more as the cost save coming out. But again, we’re transitioning that through November through the conversion and as we’ve indicated in the past, that most of the cost savings come really in the first quarter of next year, late this year into the first quarter.
Got it. Thanks guys.
Thank you. Our next question comes from the line of Christopher Marinac of FIG Partners. Your line is now open.
Thanks. Jimmy just want to extend on your M&A comments earlier. Do you have a particular I guess delineation between privately held banks versus public entities?
Well certainly we’ve had incoming calls from both of those -- the general theme that I continue to hear are those things that particularly in that $300-$400-$500 million or may be even larger than that whether they are private or whether they are public, continue to look at various alternatives. Certainly the operating environment is very challenging but what I see just time and time again that is probably tripping their thinking over to may be selling is a liquidity event. Historically, and almost always within those banks and particularly those that are privately held or sub- there’s typically one, two or may be three four families on a substantial interest, many times just the father or the grandfather and if something happens to them, it goes to the children if they live in the area and therefore all of that creates a liquidity event. And so that kind of what I’m seeing at there.
Great. That’s helpful. And then just to follow up I guess for either you or for Lynn, can you talk about Atlanta, was very strong for you this quarter. Anything unusual there or would you imagine that that pace can continue?
Chris nothing unusual there, again that really is a great example of coordination between specialized lending community banks. So in addition to Atlanta’s normal production, they had about three deals that were handshake deals with specialized lending, one middle market deal, two asset based lending deals. So we’re seeing better traction there and we’d expect that to continue.
Sounds great, Lynn. Thanks very much guys.
Thank you. Our next question comes from the line of Tyler Stafford with Stephens. Your line is now open.
Okay. Nice quarter guys.
Just one more from me on fee income, was there something in particular that drove that other fee income line item up? Is that where the customer derivatives income closed through?
Yeah there were -- this is Rex. There were several things coming through the miscellaneous few revenue category, customer swaps was one of the items, it was about a million this quarter up, well over 300,000 on a linked quarter basis. We had several of our other categories from wire safe deposit banking fees, hedge, all that are probably in the 300-600,000 range, they were all up 100-200,000 credit cost each of those. And we did have one settlement with an outside vendor and trust fees for 600,000 in that line item. We had items occasionally coming through – items coming through but that was the only kind of – coming through.
Would you say this 4.3 is a good run rate for that?
I would say for next quarter, we would expect it to be in that range.
Okay. And then on the securities book, are you guys really purchasing new securities in the portfolio now or should we see those security balances continue to decline?
You will see the security balances continue to decline. Currently, we’re not purchasing any security, - and the low rates in the three to 10 year range, we don’t see any real opportunity to continue to replace those securities and would rather see our loan mix increase as we talked about in the past. So we’ll see both cog bonds and run-off through the balance of the year reduce the securities portfolio right now.
Okay thanks Rex. And then Jimmy just one more for me, back on the M&A topic, can you just remind us what your or the numbers around your reasonable PVV earn back are?
Basically, we try to look within a three year period. There could be a case where it could be just beyond that but we would like to stay within that three year period or sooner.
Okay. Thanks guys.
Thank you. [Operator Instructions]. Our next question comes from the line Nancy Bush of NAB Research.
Good morning. Jimmy I have a question for you that may be sort of incorporates everything you’ve said today. I mean I’m looking at your stock and the valuation in the group to $5 billion to $10 billion Southeastern community banks, yours is the lowest valuation and it’s been there for a while. Could you just reflect on that? And do you see one thing or two things may be that investors are waiting for before they afford your higher valuation/
Nancy that’s the first thing I think of when I get up and the last thing I think of when I go to bed. So it’s a great question. I think there’s probably two or three components to that. One is, let me just back up and look at what’s going on within the company because we talk about efficiency ratio and that’s a spot number, that’s important. But if you just go back to the beginning of 2014, our efficiency at that time was over 63%. If you look back just the last 10 quarters, we have built specialized lending division, the SBA, we’ve significantly expanded mortgage, asset base lending, middle market and now senior living.
So that is a significant investment that we’re making within the company along with the underwriting experts within each one of those product lines. In addition to the fact, we’ve established and staffed LPO at midtown Atlanta, the same in Charleston. So I mean that’s just a few of the investments that we make. Today we see our efficiency of course 57.8%. So yes we’ve taken cost out of the company but we’ve also built a significant revenue generating engine underneath. I think that’s something that may be we’ve not done as good a job and continuing to explain this.
Secondly, I think the loan discount accretion when you look in our company, relative to other peers in that peer group we virtually have none, and they have typically a significant amount. That’s not anything negative, that’s just a fact. And then when you look at our pre-tax pre-credit as we continue to go up to that 170 ROA, I think that’s indicative of the continued strength within that. Now, I would go back one other step again, we’ve got to do I think a better job in communicating this but if you look at the peers, if you look at the EPS that they are generating and if you take the amount of accretable yield out of that EPS and look at on an average and look at United, you will see a significant similarity.
And quite honestly, in several cases has even stronger profitability structure. So, I think it’s a combination of those. I think our company where we are today given the investments that we have made, looking at the future, looking at the opportunities within our markets and certainly there will be other M&A opportunities along the way. I think United is a significant value of opportunity for investors.
Do you think it’s necessary to take a hiatus from deals perhaps to recognize this valuation before you go on or can you do both?
No I think we can do both Nancy, in fact, if you go back and look when we did the FNB and the Palmetto, you look at the cost that we’ve taken out of both of those institutions which is almost 20 million, we’ve also, we didn’t stop there, we reinvested that. We got the cost out, we reinvested that in great markets that we believe will provide additional growth. We invest that and other revenue generators. And so we would have not been able to do that – two mergers, I mean it’s just that simple. Same thing with Tidelands, I think Tidelands is one of the best acquisitions our company has really ever made given the existing team there, given now the footprint as these two work together is going to be significant, is going to be accretive to earnings. So, I look at it very simple. We’re going to focus on organic growth and we’re going to build this company that way. There will be an acquisition from time to time that hits those strategic elements that we think are very important to help grow and build shareholder value.
Okay. Thank you.
Thank you. And I’m showing no further questions at this time.
Thank you, operator. Certainly appreciate all on the call today and your interest in United Community Banks. If any additional questions that you might have, don’t hesitate to call us. I do want to congratulate and thank our United Community Bank for just an outstanding quarter and what you continue to do that drives the bottom line but also drives our brand and our reputation. Thank all of you for being on the call and we look forward to talking with you next quarter.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Have a great day everyone.
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