OceanFirst Financial Corp (OCFC) Q3 2021 Earnings Call Transcript

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OceanFirst Financial Corp (OCFC 1.46%)
Q3 2021 Earnings Call
Oct 29, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome, everyone, to the OceanFirst Corp. Earnings Conference Call. My name is Victoria, and Ill be coordinating your call today. [Operator Instructions] I will now hand over to your host, Jill Hewitt from OceanFirst to begin. Jill, please go ahead.

Jill Apito Hewitt -- Senior Vice President & Investor Relations Officer

Thank you, Victoria. Good morning all, and thank you for joining us. Im Jill Hewitt, Senior Vice President and Investor Relations Officer at OceanFirst Financial Corp. We will begin this mornings call with our forward-looking statement disclosure. Please remember that many of our remarks today contain forward-looking statements based on current expectations. Refer to our press release and other public filings, including the risk factors in our 10-K, where you will find factors that could cause actual results to differ materially from these forward-looking statements. Thank you. And now I will turn the call over to our host, Chairman and Chief Executive Officer, Christopher Maher.

Christopher D. Maher -- Chairman & Chief Executive Officer

Thank you, Jill, and good morning to all that have been able to join our third quarter 2021 earnings conference call today. This morning, Im joined by our President, Joe Lebel; and Chief Financial Officer, Mike Fitzpatrick. As always, we appreciate your interest in our performance and are pleased to be able to discuss our operating results with you. This morning, well cover our financial and operating performance for the quarter and will provide some color regarding the outlook for our business. Please note that our earnings release was accompanied by an investor presentation that is available on the companys website. We may refer to these slides during the call. After our discussion, well look forward to taking your questions. In terms of financial results for the third quarter, GAAP diluted earnings per share were $0.39. earnings reflect the continuing economic recovery with the bank demonstrating material loan growth, a pickup in net interest income and a committed loan pipeline that indicates that our commercial banking expansion continues to gain traction. Credit quality improved again with the company posting exceptional nonperforming asset and delinquency figures, which drove a $3.2 million negative provision for the quarter.

Core earnings were somewhat stronger than GAAP earnings at $0.45 per share as bridge consolidation expenses totaled approximately $4 million on a pre-tax basis. The [Indecipherable] consolidation plan announced as part of our Investor Day in August remains on track with 10 locations scheduled for consolidation in December and the remaining locations scheduled for January of 2022. In addition, the sale of two branches has received regulatory approval and should settle in early December. Regarding capital management, the Board declared a quarterly cash dividend of $0.17 per common share and approximately $0.44 per depository share of preferred stock. The common share dividend is the companys 99th consecutive quarterly cash dividend. The $0.17 common share dividend represents just 38% of core earnings. Given the robust outlook for loan growth, which will be discussed later in the call, were elected to maintain the current dividend level as we evaluate our ability to deploy internally generated capital. Over the past year, maintaining a conservative dividend payout ratio has allowed tangible book value per share to increase by $1.20, an increase of 8.2%. Tangible stockholdersequity to tangible assets decreased slightly to 8.78% as deposit growth of $359 million increased the balance sheet to $11.8 billion.

Our balance sheet remains inflated as we carried approximately $1 billion of cash at quarter end, but the cash is now trending down as loan and securities growth increases. The deployment of cash accelerated through the quarter with the majority of loan growth occurring in September. The fourth quarter will benefit from a full quarter of elevated earning assets. The companys share repurchase activities continued during the third quarter with approximately 460,000 shares repurchased. On a year-to-date basis, the company has repurchased 1,460,000 shares at a weighted average price of $20.98. There are 3,559,000 shares available under the current repurchase program or 6% of the total shares outstanding. Operating expenses were elevated during the quarter as we completed two significant core systems conversions, the conversion of our main core banking platform and the systems integration of the former Country Bank operation in New York. We also had additional work related to the sale of two branches and the ongoing branch consolidation project. These activities and a few other unusual items added approximately $1.5 million of expenses in the third quarter. As we move into the fourth quarter, these expenses should moderate. The sale of two branches and the consolidation of 10 additional locations in December will also provide a tailwind for operating expenses this quarter.

Before I turn it over to Joe, I will note the companys preparations for an inflationary period and the potential impact of interest rate movements. Our expanded investor presentation, which was filed with our earnings release last night, provides detailed information regarding several important areas, including credit quality and interest rate risk positions. Among the disclosures is a quantitative comparison of the banks asset sensitivity versus national banks with more than $10 billion in assets. As the charge demonstrate in a rising rate environment, our balance sheet is well protected against rising interest rates should they materialize. One key factor is that our deposit beta in the last rising rate cycle was just 50% of our peers. In addition, our emphasis on the origination of floating rate loans for [Indecipherable] short-term income in favor of a better protected balance sheet. Joe will discuss that in more detail. At this point, Ill turn the call over to Joe for a discussion regarding progress this past quarter, including an update on the expansion of our commercial bank.

Joseph J. Lebel -- President & Chief Operating Officer

Thanks, Chris. Loan originations of $772 million were the highest on record for the company and commercial originations of $585 million also set a record. More importantly, we saw loan closings from our new geographic regions of Baltimore and Boston with continued strength in our core markets in New Jersey, Philadelphia and New York. Even after record originations, we entered Q4 with a committed pipeline of $651 million, an all-time high and fully expect momentum to continue as we are just hitting our stride in our new markets, as we build brand awareness through the lending teams. Excluding PPP forgiveness of $31 million, record originations led to loan growth of $392 million, which included $179 million in organic commercial growth and a residential pool purchase of $220 million. The remaining PPP portfolio totals just $53 million as of September 30, so it wont drag against loan growth in the coming quarters. The residential pool purchase occurred on the last day of August and the bulk of the commercial growth in late September, so we will see the benefit of the added interest income in Q4 and beyond. We closed over $100 million in construction projects year-to-date in our newly created construction vertical and initial fundings were less than $13 million or 12% of originations.

As these projects mature, we will see the benefit of stronger interest income from larger outstanding loan balances. We remain bullish on our core residential business, which continues to hum along and is only restricted by limited housing inventory in the market. The liquidity on the balance sheet fueled by continued deposit growth, influenced our decision to buy a residential pool. This pool is comprised of residential loans dispersed throughout the country. We bought pools in the past and will continue to look for supplemental purchases to soak up some of our excess liquidity, diversify credit risk and build interest income. While our preference is to use our liquidity to fund commercial activity as evidenced by the loan originations. Our focus is putting the cash to work in rapid fashion. Our asset sensitivity, which will bode well in a rising rate environment, gives us some flexibility to purchase some fixed rate residential paper, putting our liquidity in play. The pool purchase of $221 million only resets our residential loan portfolio size to where it was back in September 2020. And Ill note that $396 million of our commercial originations in the quarter were floating rate loans, which should carry some upside in mid- to late 22 and beyond. Our deposit increase of $359 million for the quarter is low yielding and had the effect of reducing our cost of deposits.

Core deposits, excluding CDs, grew $460 million, which reflects continuing improving deposit quality. As a result, our cost of deposits sit at 22 basis points, almost a record low for the company. We still see the cost of deposits trending lower as we have over $125 million in CDs maturing in Q4 and another $176 million in the first quarter of 2022. I do expect some deposit runoff in Q4 due to seasonality, but nothing meaningful. Core NIM improved quarter-over-quarter by four basis points, and we see modest continued improvement moving forward. On the expense line, exclusive of the branch consolidation expenses. We had elevated professional and data processing expenses partly related to the core conversion, which should reverse and improve the Q4 run rate as well the branch consolidation savings in 2022. The branch consolidations and the two branch sales remain on track with regulatory notice requirements and approvals, the sale of the branches impacting the timing of the process. The ultimate expense will be seen beginning in Q4 and Q1 2022 as branches sell or close. With that, Ill turn it back to Chris.

Christopher D. Maher -- Chairman & Chief Executive Officer

Thank you, Joe. At this point, well move to the question-and-answer portion of the call.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Frank Schiraldi from Piper Sandler. Frank, please go ahead.

Frank Schiraldi -- Piper Sandler -- Analyst

Good morning. I wanted to ask on specifically on some of the expansion markets like Boston and Baltimore, if you could provide where you are in footings in those areas and what the pipeline looks like?

Christopher D. Maher -- Chairman & Chief Executive Officer

So were happy. Boston and Baltimore footings are in the $50 million range each, year-to-date. And pipelines for those are pretty substantial or changing every day, Frank, I can get back to you with the numbers specifically. But were just really touching the fringes here. I think the momentum has been significant, especially for the new markets. So were pretty bullish.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. And then just given where youre seeing paydowns, obviously pretty elevated. It sounds like you anticipate some of the excess cash could get topped up by additional resi loan purchases. Is that somewhat more likely than billed in the securities book? Or how should we look at that from a modeling standpoint?

Christopher D. Maher -- Chairman & Chief Executive Officer

I think thats right, Frank. The residential portfolio has not typically been a growth portfolio for us, but we do like the way that it moderates our risk position across the balance sheet. So the purchases we made in the third quarter, kind of, as Joe mentioned, brought us back to where we were about a year ago. I think we might try and engineer some modest growth in the residential book, but it wont be growing anywhere near as quickly as the commercial loan book. The other thing is, as you point out, although we did deploy some liquidity into securities in the third quarter, we may do a little more in the fourth quarter. Ultimately, wed like most of the liquidity to go into the loan book.

Frank Schiraldi -- Piper Sandler -- Analyst

Got you. Okay. And then just finally, if I could, just on expenses. You talked a bit about the elevated levels and the tailwinds going forward. Is there -- I just wondered if you could remind us of thoughts on expense base on a quarterly run rate as we get into, say, 2Q 22 after branch consolidation or at least this round is completed.

Christopher D. Maher -- Chairman & Chief Executive Officer

Youre absolutely right, Frank. We had -- at the Investor Day in August, we talked about the fact that expenses were coming up in the third and fourth quarter but then they would moderate and decrease on an absolute level going into 2022. Its not a significant decrease, but I dont know, Mike, if you can give a better sense of that for the full year?

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Yes. So we have a few things going on. First of all, we did the country conversion, core conversion in September, we finished that. So we took out some data processing costs from country and some we reduced headcount as of the end of the quarter. So those will flow into the fourth quarter. Chris already talked about our core conversion for the bank overall. There were elevated costs related to that data processing, professional fees, some others. We had the sale of the two branches coming in December. We have the branch consolidation, 10 branches in December and another 10 branches in January. And those cost savings were identified in our Investor Day last month. So all of those are -- will reduce expenses going forward.

Christopher D. Maher -- Chairman & Chief Executive Officer

And were not producing a quarter-by-quarter projections on expenses that well be releasing. But I think we gave you some full year guidance, which were still comfortable with.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Got it. Thanks very much.

Christopher D. Maher -- Chairman & Chief Executive Officer

Thanks, Frank.

Operator

Thanks, Frank. Our next question comes from Michael Perito from KBW.

Michael Perito -- KBW -- Analyst

Hey, guys. Good morning. Thanks for taking my questions. I wanted to stick on the expense theme for a second. I mean it sounds like based on your last comment there, Chris, that this is the case. But obviously, theres been a lot of wage pressure out there and competition for talent and -- it seems like you guys actually kind of timed it really well, right, when most of your hires havent taken place already before this is kind of manifested. But I guess I just wanted to confirm that, thats the case, and thats not really a threat to maybe knock you off your expense outlook for next year. It doesnt sound like it is, but just confirm that if possible.

Christopher D. Maher -- Chairman & Chief Executive Officer

I can confirm that for you, Mike. So the way were looking at it is that the wages that are under the most pressure that weve seen are obviously the more entry-level wages and branches and things like that. So the transition to digital will really help there. There will be some wage pressure. So I think the average salary increase will be a little higher than in years past. But the total number of headcount will be coming down to offset that. So we still feel pretty comfortable. And the items that were a little bit elevated in the third quarter were noncompensation related. So these were professional fees and technology fees, so they were not driven by compensation issues. Although there is a lot of compensation pressure in the market. were still comfortable with the guidance we gave for the full year expenses for 2022.

Michael Perito -- KBW -- Analyst

Great. Helpful. Thank you and then just on the margin. So it sounds like you guys have a couple of chunks of higher cost funding that will run off the resi loan purchase was later in the quarter. I mean that would seem -- I guess, putting all those pieces together, I mean, does it -- is the margin kind of continue to -- the core margin rather is to kind of continue to inflect upward from here. I mean, do you guys have any line of sight on kind of how you expect the liquidity position to act near term? And I guess, are there any other kind of inputs that we should be mindful of as we kind of think of the core NIM trajectory? Because it seems like theres more tailwinds than headwinds coming off the low figure that were at in the last couple of quarters.

Christopher D. Maher -- Chairman & Chief Executive Officer

I think thats definitely the case. So were coming kind of bouncing off the bottom here. Youre correct that in the third quarter, although NIM expanded, we really didnt get the full benefit of the loans that were brought on in September or even the pool purchase that was in late August, nor we did deploy about $50 million into securities as well. So I think in the fourth quarter, when you have the full quarter impact of that growth, youre going to see expanded margins. The other outlook item is were feeling very bullish about the teams weve brought on board. Theyre doing great building pipelines. Its too early to be able to really fine-tune how productive they may be. But its possible we may be able to deploy all of our excess liquidity as early as midyear next year, which would be one or two quarters earlier than we thought. And that bodes well for margin as well as net interest income.

Michael Perito -- KBW -- Analyst

And just lastly, and then Ill step back just on that point. Can you remind us how you think about -- I realize its kind of a hard question in the current environment, but how we should think about the normalized liquidity, cash and the bond book for you guys moving forward? I mean is this level of securities probably fairly steady state? Or do you think it could move down? Or is it really just when you say kind of deploy liquidity, you mean just getting this cash kind of back down to $100 million or plus or minus a more normalized level and not necessarily any kind of compression on the securities portfolio?

Christopher D. Maher -- Chairman & Chief Executive Officer

The primary thing I was referring to is deploying the cash, getting that down to -- historically, weve got a very strong liquidity position, core deposit funded, no wholesale advances at the Federal Home Loan Bank. So we have the ability to run that liquidity down is plus or minus $100 million. And thats where wed like to operate. So that would be the primary thing. But I would share that weve got a healthy cash flow coming off the securities portfolio. And once we deploy the cash, we would probably redirect the redemption cash flows coming off of the securities book into loans as well. So traditionally, weve had a pretty high percentage of loans in the balance sheet, and wed like to build ourselves back to that position. We think that kind of drives our core profitability. So if you think in the next, say, by mid second, third quarter of 2022, it may be possible to deploy the cash. After that, well begin a mix shift of letting the securities, cash flows come off. But as early as 2023, we might be looking at true balance sheet growth as well, which would be -- if were in that position, that would be a terrific thing.

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Just to add a couple of things to that, Michael. So loans at quarter end balance was $274 million above the average and securities at quarter end were $52 million above the average for the quarter. So both of those -- so just if you roll that into the into the fourth quarter, its going to be probably an extra four or five basis points in terms of margin. So thats the biggest tailwind. In the securities book, actually, if you look year-over-year, its up $600 million in the last year, thats about a 60% increase, and thats soaken up the liquidity. So weve built that book in light of liquidity, but theres a lot of cash flow coming off of it because a lot of it is an MBS with monthly cash flow and then you have maturities. So that will be redirected to the loan book eventually, maybe not in the near term, but eventually, it will rotate into loans.

Michael Perito -- KBW -- Analyst

Got it. Awesome. Thank you guys for taking my questions. Very helpful.

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Thanks Mike.

Operator

Thank you, Michael. The next question comes from Dave Bishop from Seaport Research Partners.

Dave Bishop -- Seaport Research Partners -- Analyst

Yeah. Good morning gentlemen.

Christopher D. Maher -- Chairman & Chief Executive Officer

Morning, Dave.

Dave Bishop -- Seaport Research Partners -- Analyst

Chris, just curious, some headwinds out there in the market, we hear a lot of banks talking about supply chain issues, inventory issues. Just curious if that force you are driving you to -- so maybe reset your expectations in terms of longer-term growth outlook as a numerator at the Analyst Day. Just maybe any update in terms of how youre thinking about loan growth into 2022 relative to what we spoke about up in New Jersey.

Christopher D. Maher -- Chairman & Chief Executive Officer

Theres no question that supply chain issues are being felt throughout our client base, and Im sure the whole economy. And what its doing is its taking the opportunity for even better earnings or expansion to take place. So at the end of the day, if you cant deliver product, whatever your product is, whether thats a car or a building or whatever, you cant record the revenue and youre not showing that kind of progress. Fortunately, we havent seen a change in core demand. So although were not seeing. Some of these projects complete or customers ramping up as quickly as theyd like. Their order backlogs remain strong, if anything, theyre growing. I also think that because of the supply chain issues, were seeing a continued very strong demand in the logistics world around warehousing. So to a certain degree, people are going to be keeping a little higher inventories when theyre able to get their hands on things. So that higher level of inventories we look toward probably more line draws. Our line draws are very low right now. So we think theres opportunity there. So as we go into next year, I think were still very comfortable with the projections as we talked about in August. So Im pretty comfortable. That said, if the supply chain doesnt start coming, say back online in Q1 or Q2 of next year, more persistent it is, its possible it could destroy demand, meaning that people that just cant get stuff stopped trying. And were not at that point yet, but were watching it closely.

Dave Bishop -- Seaport Research Partners -- Analyst

Got it. And then in terms of the newer markets, the Boston and Baltimore markets, and I apologize if you have [Indecipherable] this before. But as you look out into maybe the end of 2022. I dont know if the right way to think about it, dollar of loans and deposits outstanding or percent of loans. Just curious maybe where you foresee those potentially getting to...

Christopher D. Maher -- Chairman & Chief Executive Officer

I think it starts with what we expect before we hire anyone. It doesnt matter whether its a new market or an existing market. And if youre bringing on teams or producers, youre expecting several hundred million dollars worth of growth over time. And I will say that we will not enter a market if we dont think it has the potential to get to $1 billion or more in outstanding over several years, right? It could take a number of years to get there. So were not interested in being in a market that might top out at, say, $200 million or $400 million. So I think in terms of expectations, were seeing a lot of good progress, and Joe can talk more to that. But we feel we have the right people in the right place. Were being well received in the market. The fact that transactions are happening already, I think its a little poof of that. And based on the pipeline, I think were right on track. But to reiterate, were not launching a team in West, we think we can produce several hundred million dollars of outstandings. And were not getting into a market unless we think that market has the potential to grow to $1 billion. Joe, anything youd add on that?

Joseph J. Lebel -- President & Chief Operating Officer

As I mentioned earlier, Dave, weve closed over $100 million in totality in both of the regions so far. And the pipelines are strong. And I think were really just starting to hit stride just the activity in the last week and what Ive seen from both teams is really bullish. So -- and I get back to Chris comment about the supply chain. Interestingly, we do have a variety of our larger C&I clients that have -- starting with the pandemic, been pretty well prepared in inventory management. And I have the opposite problem, Chris mentioned earlier, I have $870 million in unused lines because a lot of these folks have actually done fairly well and have paid us down or paid us off. So Id actually like them to work through some of that inventory. Thats a good problem for some of them half and maybe borrow some money.

Dave Bishop -- Seaport Research Partners -- Analyst

Got it. Appreciate the color.

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Thanks, Dave.

Operator

Thank you, Dave. [Operator Instructions] And our next question comes from Russell Gunther from D.A. Davidson.

Russell Gunther -- D.A. Davidson -- Analyst

Hey, good morning guys.

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Good morning, Russel.

Russell Gunther -- D.A. Davidson -- Analyst

I just wanted to ask if youre able to share what the level of paydowns were this quarter versus last? And just any line of sight into that headwind near term.

Christopher D. Maher -- Chairman & Chief Executive Officer

We really didnt have -- we had the ordinary course paydowns, Russell. It wasnt -- did an increase or decrease what the advantages of having sold off the majority of our PPP loans last year is that PPP wasnt that much of a headwind. It was $30 million. And as Joe said, theres not a lot left on the balance sheet. So I dont think thats kind of a barrier for us growing the loan book. It was a little elevated. Payoffs were $440 million and then paydowns and prepayment were $170 million. So we had -- the originations were heavy, but partly offset by sales and payoffs, not sales, pay off and other paydowns.

Russell Gunther -- D.A. Davidson -- Analyst

Great. Thanks Chris and then I appreciate the disclosure you called out spoke about in the prepared remarks with regard to positioning for higher rates. You guys have put out in the past, I think, a $3.20 to $3.40 margin guide, does that guidance contemplate any of that benefit from rate fees for NOV?

Christopher D. Maher -- Chairman & Chief Executive Officer

So I think that, thats within that range that youre talking about. So lets say we get fully deployed and we took -- remember, there are two things here. We want to deploy the cash. And as Mike pointed out, we have $600 million in securities more than we were holding just about 1.5 years ago. So between the cash being deployed in the first several quarters of next year, the securities mix going on, maybe another two or three quarters after that, that should normalize our balance sheet so that weve got kind of the earning asset mix that we think is optimal for us. At that point, I think youre probably in the historical margin range of 3.25 to could be as high as 3.50. To get to 3.50 though, I think youre going to have to have movement in the yield curve. But even without moving the yield curve, we can make a lot of progress toward that 3.25 in todays kind of flattish yield curve.

Russell Gunther -- D.A. Davidson -- Analyst

Thats very helpful. Thank you and then just last one for me. Seas are not a big part of the story here, but I did just want to ask you then service charges were a bit lower than expected gain on sale as well. So any color on the fee dynamic this quarter and going forward?

Christopher D. Maher -- Chairman & Chief Executive Officer

Ill take them in the two separate topics there. In terms of gain on sale, as long as we have this protracted cash position, and we have a very strong asset sensitivity position, were going to take advantage of whatever residential origination we can and put that on the balance sheet. So I wouldnt be looking for much in gain on sale for a while. In terms of deposit fees, those are cyclical. So its nice to see some of the interchange fees came up. But with this level of liquidity out there in the market, things like overdraft fees are going to be down, even minimum balance fees, youre really -- youre not collecting them when people have so much cash in their accounts. So...

Joseph J. Lebel -- President & Chief Operating Officer

So we also took advantage of really supporting clients during the conversion process. I think there are times there in conversion. You just want to make sure you rebate the appropriate fees to get people through the new systems.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. Great. Thanks, Chris. Thanks, Joe. Thats it for me guys.

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Thanks, Russel

Operator

Thank you, Russel. Our next question comes from Matthew Breese from Stephens Inc. Matthew, please go ahead.

Matthew Breese -- Stephens Inc. -- Analyst

Good morning. Real quick on the share repurchases. Its been pretty consistent year-to-date about 500,000 shares a quarter. Should we expect that pace to continue for at least the near term?

Christopher D. Maher -- Chairman & Chief Executive Officer

That pace may pick up, Matt. Some of the challenges weve had is more logistical about kind of the rules about when you can buy and how much you can buy in blackout periods. And we may try and be a little more proactive on that. So I think given the authorization thats out and our level of earnings, we have the capacity to do between 0.5 million and one million shares a quarter. And at the current values, we think its a good move for our shareholders.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. And then going to the portfolio purchase, so given the expansion to new markets and hires, the read last quarter was that there was going to be a swell of organic originations sufficient to achieve that $250 million in net growth per quarter that weve discussed. And the first solid indication was the 2Q pipeline, it was $628 million. I guess my question is, should we look at the portfolio purchase as an indication that your confidence in achieving the $250 million organic growth has changed. I mean maybe Im reading too much into it, but curious your thoughts on the matter.

Christopher D. Maher -- Chairman & Chief Executive Officer

No, were still very comfortable with that $250 million target. I think as Joe pointed out, some of the loans we put on, especially in the new construction vertical, they would draw over time, so you get a little tailwind from that, where youre booking the loans, but youre not getting the dollars out in the portfolio quite as fast. But based on the pipelines we have now, the pipeline is even a little larger than it was in Q2 and continues to grow. We dont do intra-quarter updates, but I will generally say that October has had a nice level of closing. Its nice to see that early in the fourth quarter. So the pipelines look good. If anything, theyre larger than they were at quarter end. Teams are productive. The residential play was really as the housing inventory dried up, our residential side is really a purchase business, right? Were not doing a lot of refinances. So is the residential inventory dried up, unit sales dropped and we started to see attrition in the residential book. And we said, you know what, lets try and bring that residential book back up. But commercial has been strong. I think it will remain strong. And if, from time to time, residential is not as strong, we may supplement it with asset purchases. But were very pleased to see the primary earning asset business for us. Commercial Banking is growing nicely.

Joseph J. Lebel -- President & Chief Operating Officer

Matt, deposits continue to grow for us. So we want to just put the -- we want to put stuff to work with the asset sensitivity we have. Residential pool purchases do provide us with a little bit of a credit diversity play and its fully funded dollars, and were looking to buy season pools typically. So we just want to put cash to work.

Christopher D. Maher -- Chairman & Chief Executive Officer

There may be periods where net loan growth is more than $250 million because were opting to do things like that in a quarter.

Matthew Breese -- Stephens Inc. -- Analyst

Got it. So we stick with the $250 million per quarter with upside depending on portfolio purchases. Is that the right read?

Christopher D. Maher -- Chairman & Chief Executive Officer

Yes.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. I guess where I come off of skeptical if I take the $625 million or $630 million pipeline last quarter, which resulted in like $140 million, $145 million of organic net growth this quarter. Were looking at a $650 million pipeline this quarter, but a materially higher amount of organic growth. Maybe Im looking at those ratios a wrong way. But maybe -- help me connect the dots.

Christopher D. Maher -- Chairman & Chief Executive Officer

I would point -- look, at any given quarter, what you originated and what actually goes into growth in the balance sheet are always a little bit off. But net of the PPP, which would be less of a drag going forward, its about $170 million of growth. So theres not a big delta between $170 million and $250 million. That could be five or 10 extra deals in a quarter. So we feel pretty good that the $250 million. And I think the way we guided in August that, that would be a pretty consistent thing in 2022 when these -- especially the new teams have gotten maturity. Were very happy with what theyve done. But until you establish a reputation in a market like Baltimore or Boston, you got to do a few deals to be credible to do a few more and then it kind of starts to build more strongly. So we think Q4 is going to be good, and we continue to expect in 2022 that kind of consistent $250 million a quarter should be achievable with the teams we have put on so far.

Joseph J. Lebel -- President & Chief Operating Officer

And we have, Matt, in the quarter, in the commercial bank, we had over $160 million of undrawn whether its construction runs or on the commercial lines and the closings. So you put $585 million on, but youve got outstandings of $400 million and change. So you do -- youre going to see some of that, and thats OK. were going to have that activity and that money will be drawn over time.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. Thats all I had. Thanks for taking them.

Joseph J. Lebel -- President & Chief Operating Officer

Thanks, Matt.

Operator

[Operator Instructions] We currently have no further questions. I will now pass over to Chris for final remarks.

Christopher D. Maher -- Chairman & Chief Executive Officer

Thank you. With that, Id like to thank everyone for participating on the call this morning. We remain focused on building the business, deploying cash and improving earnings. We look forward to speaking with you following our year-end results in January. Until then, we hope you have the opportunity to enjoy a slightly more normal holiday season this year. Thank you.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Jill Apito Hewitt -- Senior Vice President & Investor Relations Officer

Christopher D. Maher -- Chairman & Chief Executive Officer

Joseph J. Lebel -- President & Chief Operating Officer

Michael J. Fitzpatrick -- Executive Vice President & Chief Financial Officer

Frank Schiraldi -- Piper Sandler -- Analyst

Michael Perito -- KBW -- Analyst

Dave Bishop -- Seaport Research Partners -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Matthew Breese -- Stephens Inc. -- Analyst

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