Good morning, and welcome to United Community Banks' first quarter 2022 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Harrelson, President and Chief Banking Officer Richard Bradshaw, and Chief Risk Officer Robert 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 first 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 statements should be considered in light of risks and uncertainties described on pages five and six of the company's 2021 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.
Good morning, and thank you all for joining our call today. The first quarter was a great one for United and certainly an interesting one from a more macro perspective. Our results this quarter include the acquisition of Reliant. As a reminder, Reliant provides us with $3 billion in exposure to Middle Tennessee, primarily the Nashville MSA. Reliant has been recognized as the best performing small bank in Tennessee for several consecutive years, and we're excited and fortunate to have them as part of our team and our ongoing performance story. The normal double-dip acquisition loan loss provision for Reliant impacted our reported results, as noted in the release in the presentation deck. Absent this provision and other merger charges, our operating return on assets would have been 1.1%, and our return on tangible common equity would have been 13.9%.
Both solid numbers we're proud to present. We continue to see strong loan and deposit growth. Deposit growth, despite flat deposit cost, was almost 7% annualized on an organic basis, excluding the impact of Reliant. We experienced one of our best organic loan growth quarters at over 9% annualized, again, excluding the impact of Reliant and PPP. We expect to continue to take advantage of the strength of our markets and ongoing large bank merger disruption for the foreseeable future. Beyond the quarter, I continue to be very optimistic. Yes, inflation is a concern, but I'm also reminded that real GDP growth has been very strong and is now back up above pre-pandemic levels. Our markets in the Southeast are outperforming the country as a whole. Increasing interest rates bring both opportunities and challenges depending upon the pace and scale of increases.
I believe the economy is strong enough to withstand the type of rate increases the market is currently predicting, and actually rate increases in those amounts should be healthy for the economy long term. While we are continuously scanning for the first signs of credit stress, we have not seen any weakness to date and are confident in our underwriting and approach to concentration management regardless of how the environment develops. Finally, we continue to be excited about our culture and mission. Last week, we completed our annual spring leadership conference, bringing together about 200 of our leaders across the company for a two-day event focusing on the future of the industry and our own future. I can tell you that group is as excited and as connected as I have ever seen them. Jefferson, now why don't you give us more detail on the quarter?
There are more moving parts this quarter than normal, and I know our audience will appreciate your view on our performance and outlook.
Thank you, Lynn. I am going to start my comments on page 8 and talk about what we believe is one of the core strengths of the company, and that's the deposit franchise. The mix is attractive with 38% of the deposits being DDA, and it is also 92% non-time. Plus, we grew core transaction deposits by $478 million in the quarter. We're at a 13% annualized pace while keeping the cost at 6 basis points of total deposits. Another key piece of our strategy and culture can be seen on page 9 with a look at our loan portfolio. The portfolio is C&I heavy, very diversified, and very granular. Adjusted for the Reliant deal and the Reliant-related loan sale, we had our strongest loan growth in some time at 9.4% annualized.
The strong loan growth was driven by C&I and commercial construction, and we are optimistic about the growth prospects for the rest of the year. On page 10, we saw some nice margin expansion this quarter, which we will talk about in the next pages, but we really have a nice medium to long-term opportunity to remix our assets, and some of this came to pass in Q1 with some help from Reliant. Our loan to deposit ratio moved to 68% from 64%, and our loans to asset ratio moved to 59% from 56% as our cash to assets ratio moved to 8% from 11%. At the beginning of a trend that should help our profitability over time. On page 11, our capital ratios came in as expected with the Reliant deal closed, and we are now right in line with our peer group.
Our TCE and tangible book per share were down with a sharply higher rate environment and the corresponding decrease in OCI. Given our balance sheet flexibility with the low loan to deposit ratio, we moved about $1 billion of our securities to the held to maturity classification this quarter, and specifically the held to maturity to total securities moved to 38% of the portfolio from 20%. There were no buybacks in the quarter, but we do have a $50 million authorization in place. Moving to page 12, we have a good story in our spread income and net interest margin this quarter. Our net interest margin was up 16 basis points, but excluding PPP fees and loan accretion, the core net interest margin was up 24 basis points.
Of the 24 basis points of core margin expansion, 15 basis points came from blending in the higher margin Reliant into our numbers, and another 9 came from putting excess cash to work and other mix change improvements along with higher rates. We could talk about asset sensitivity too in the Q&A, but we do benefit significantly from higher rates. With the speed and size and energy of the expected rate hikes, it's hard to estimate deposit betas. Given our high level of cash, our low loan to deposit ratio, and the quality of our deposit base, we believe we are as well positioned as anyone for higher rates.
On the next page 13, we take a closer look at fee income that was up $1.8 million quarter-to-quarter, and was benefited by a $6.3 million MSR gain and the Reliant numbers coming in, and was offset by $3.7 million in securities losses. Excluding MSR gains in both quarters and Reliant, mortgage was down $1.2 million in the quarter, even as we had increased lock volume. Locks moved up 9% to $757 million in Q1, and this was offset by a decrease in the gain on sale as the gain on sale percentage moved back to pre-pandemic levels. Our purchase to refi mix was 63% purchase, 37% refi.
Excluding Reliant, our service charge income was down about $1 million from fourth quarter, which was in line with our estimate when we put in the new fee schedules in November. Next to expenses on page 14, which is a good story as we improved our operating efficiency in the quarter to 53%. Reliant, of course, came into the numbers for the first time. It's hard to tease out the components exactly, but we benefited from legacy UCBI expenses being down versus Q4 on an absolute basis by about $3 million, partially due to getting the full impact of the Aquesta cost savings. We also got half or a little more of the Reliant cost savings, which leaves us with about $2 million–$2.5 million to go as the conversion is happening later this month.
Page 15, we had another good quarter with regards to credit quality, with net charge-offs of $3 million, which is 8 basis points of loans annualized. While we had $3 million of net charge-offs, we had $23 million of loan loss provision, and along with Reliant PCD marks, this increased our reserves by a good $35 million. Of the $23.1 million provision, $18.3 million came from the Reliant double dip, and the remaining $4.7 million was mostly due to a worse economic forecast going into our CECL model. On page 16, you see we have generally improving trends in special mention and substandard accruing loans with NPAs just slightly higher. We remain optimistic about credit in 2022.
Finally, on the next page 17, you can see the movement in our reserve that moved to 1.02% of loans from 97 basis points with the benefit of Reliant and core provisioning that was in excess of net charge-offs. All said, we are encouraged by the strong loan growth and the margin expansion and the efficiency improvement and look forward to the rest of 2022. With that, I'll pass it back to Lynn.
Thank you, Jefferson. In closing, I'd like to recognize the United Team that is listening in for two outstanding customer satisfaction awards we received this quarter. The first is from J.D. Power. This quarter, we were once again named as the annual winner in the Southeast for overall customer satisfaction in retail banking. This marks eight of the last nine years, which is quite an accomplishment. This year, J.D. Power redesigned their study. It now measures satisfaction across seven factors. Trust, people, account offerings, allowing customers to bank how and when they want, saving time and money, digital channels, and resolving problems or complaints. Our teams continue to set the bar for customer satisfaction across all these measures, and I couldn't be more proud of the team for delivering in this manner. This quarter, we were also ranked in the top 10 of the world's best banks, according to Forbes.
This list, which is based largely on customer satisfaction data compiled by Statista, a market research firm, ranked banks in 27 countries across the globe. Of the banks in the U.S., United ranked third and was the top bank with a regional Southeastern presence. For any business, customer satisfaction is one of the most important long-term drivers of business success and shareholder value. Many thanks to our United Team for living our vision and making a difference for our customers. I'd like to now open the line for questions.
Thank you. We will now begin the question and answer session. At this time, we will pause for one moment to assemble our roster. Our first question today comes from Jennifer Demba from Truist. Please go ahead with your question.
Thank you. Good morning. I have two questions. First, Jefferson, given the markets expecting significant rate hikes this year, I'm wondering where you think the net interest margin could go. A much easier question is, what were the major kind of topics of discussion and focus at the leadership conference? Thank you.
All right. I'll take the first part of that. I mean, we have in here in the deck. I showed you for the first time some of our sensitivity analysis with a non-deposit maturity beta that from our experience in 2015. It shows for each 25 rate hike that it's 4 basis points if you believe in that 22% beta. This first one, we really haven't moved rates at all, so I think we can get more than 4 basis points of margin expansion from the first one. In there, we also have what a +100 looks like, and that's up $29 million.
Again, it's as I mentioned in the prepared remarks. It's not easy to forecast deposit betas, but I think that's a pretty good forecast there of what up 100 looks like it helps us by $29 million.
Yes. You want me to take the,
Yeah.
Leadership thing? Yeah, it's a great question. We really wanted to make it about leadership. You know, I kicked it off with how to become a better leader. We also, knowing that our people will be better leaders if they understand the world better, had Tom Brown come talk about what's going on in the banking industry, his views on the industry and United, and what we needed to do. We had J.D. Power come in to break down the satisfaction studies that they do, what things make a difference, what moves the needle, what we need to focus on. We had Chick-fil-A come in and talk about how to sustain a culture of service. Obviously, one of the companies that's best in the world at that.
We had both TTV and Q2 come in to talk about fintech, how does fintech interact with banks? What's the future of fintech? What should we be thinking about? We always find our people are interested in what the board thinks about United. We had a board panel, then finished it up with an economic panel led by Tom Barkin, the Richmond Fed CEO. It's a great time. I feel like everybody walked away with a lot to think about and a lot to think about how to get better.
Yeah, everybody seemed very fired up. I just want to throw into my last question, those numbers are annual impacts, and to the extent the rate hikes happen in the middle of the year, you get only partial amount of that, this year. Those are next 12-month impacts, not quarterly, of course.
Right. Thank you.
Our next question comes from Brad Milsaps of Piper Sandler. Please proceed with your question.
Hey, good morning.
Morning.
Good morning to you.
Jefferson, maybe wanted to start with expenses. Obviously, you guys had some great expense control in the quarter. It seems a lot of moving parts. If my math's right, if expenses were down $3 million at standalone UCBI, that means expenses maybe were only up 2.5% year-over-year. Do you think that's a number that's sustainable over the balance of 2022, given, you know, inflationary pressure out there, the way that you guys want to invest? Just kind of wanted to get a sense of how you're thinking about, you know, the expense run rate. Then I guess secondly, I know the mortgage segment at RBNC wasn't part of your expense save target. I wonder how those numbers are maybe in the combined numbers now.
Have you sort of netted those together? I just didn't quite see how they showed up, but hopefully maybe you can help me out there a little bit.
That is a great question. I'll start with that, then I can maybe go with the Reliant Mortgage, and Rich can chip in on that as well. The 110 is not a bad run rate to start with. We do expect core growth off of that run rate. There is inflationary pressures out there that we're battling on a case-by-case basis. That is. We'll be growing off of that number. Again, as I mentioned in prepared remarks, we do have $2 million–$2.5 million of quarterly cost savings that we expect to get fully in Q3. We have this weekend coming up is the conversion. Partially through this quarter, we will get a big piece of that.
I think if you know, put some core growth on the $110, maybe you're at a $111–$112 for the second quarter and a low growth rate off of that in the near term because we have some nice cost savings that offsets the growth rate. It's that. That's how I would talk about the expenses. I'll start with the JV. The JV, we are now as of February 17, a 0% owner of the JV, and it's in wind down mode now. The numbers are still in our numbers, but they are not significant, and they net to zero on the net income.
I don't know if, Rich, you'd have more to add on that or what the opportunity that gives us.
Sure. Well, we are excited about the retail mortgage opportunity in Nashville. We added 10 MLOs, and that's right now about $10 million a month in production, and we're expecting that to grow as they understand and our program's a little bit better, and we offer a little bit more than they do. We're very excited about that and we'll continue to look to add to that.
Okay, great. That's very helpful. Thank you. Just final question for me, Jefferson, can you talk about any changes in the pace of maybe how you plan to deploy, you know, the remainder of your excess liquidity as you move through 2022, maybe between loans and bonds?
Thank you. That is a great question, too. We have, with rates higher, we accelerated our securities purchases in the first quarter. I would expect to see that continue in the second quarter. I do think now with rates higher, you are going to see this slowdown in deposit growth that we've been seeing, and you're going to see an acceleration in this remix. I think you're going to see securities purchases at this pace or a little bit higher, and you're going to see this asset remix that we've been waiting for happen and push the margin higher throughout the year.
Great. Thank you, guys.
Our next question comes from Catherine Mealor of KBW. Please go ahead with your question.
Thanks. Good morning. A follow-up on the margin conversation. Jefferson, is the 4 basis points per 25 bps hike, does that include remix, or is that more just kind of looking at, you know, the balance sheet and how rates move on both sides of the balance sheet?
Right. That is rates only. If you put remix in there, I would expect some improvement from remix. I'd also expect we had unusually low, in my mind anyway, loan accretions this quarter, while it's not particularly core. The amount of our accretion rolling through at the end of last quarter was $18 million. Reliant added $14 million to that. We had $3 million of accretion, but now we're coming off a $29 million base, which is higher than where we've been. I think that probably adds a little bit to the gap margin as well. To answer your question more succinctly, the 4 is simply the rate change, and we expect more for mix change as well.
Great. I think you said last quarter that accretable yields should be about $2 million–$2.5 million a quarter. Is that still the case?
I would say-
Maybe that was just Reliant as well.
Well, I believe that forecast would be excluding Reliant. With Reliant, I expect that to be higher in the upcoming couple quarters at least.
Got it. Okay. Got it. Then on loan yields, obviously the increase in loan yields was mostly from the Reliant acquisition. As we think about how quickly that is moving forward, is that I guess maybe question one is, on average, where's new loan production coming on relative to that level? Do you still have some kind of downward pressure as kind of fixed-rate loans are repricing? Then question two is one thing that I've always thought about in your loan growth is that you've got the opportunity to grow in some higher yielding portfolios like the manufactured housing and Navitas. How much of, you know, growth in higher yielding portfolios do you think plays into the upside in loan yields through the back half of the year as well?
All right. Great question. I'm looking at Rich here. I don't know if we're going to share this question a little bit. Do you want to start with what you're seeing maybe in committee as far as new loan yields coming on? I don't know if they've moved up.
Sure. I would say they haven't moved up, but they are flattening. That would be the way I'd answer that. Certainly, we expect our clients to be looking for more fixed- rate and, you know, that's what we're starting to hear and feel.
On the existing portfolio, we have 40% of our loans that are floating now. You'll see that benefit. With the 50 basis point rate hike, that moves to 46%. We'll get to the full 49% variable in 3-4 rate hikes, 3-4 25 basis point rate hikes if we get those. You will see loan yields increase just by rates increasing. I think what I would say is, the banks in general haven't moved up their loan pricing a lot yet, given where the curve has moved. I would expect that to happen over time, just to have good spreads over Treasury curves. Would you agree with that?
Yeah, I agree with that, Jefferson.
remix into higher- yielding loans. Is that the thesis?
Oh.
Do you think I'm overthinking it?
Rob might step in here.
Well, I'll just say we've had great loan growth from Navitas, and there's no expected change in that loan growth. Then, also, manufactured housing, of course, is new to us, but in this first quarter, they did also grow. So both of those portfolios, just as you expect, would help. They have higher loan yields, and so we would benefit from that.
Catherine, this is Rich. One of the things we're going to do or we are in the midst of already doing is teaming some of our Navitas professionals with the manufactured housing to see how we can scale up and do it in a risk conservative manner. We do see that opportunity, and that's what we're putting together right now.
Catherine, just to add one more key stat to this. We just looked into our ALCO deck here, and we saw that the March new and renewed yield was up 12 basis points from February.
Oh, great. Okay. Awesome. Thanks for all the color. Appreciate it.
Our next question comes from Michael Rose of Raymond James. Please go ahead with your question.
Hey, good morning, guys. Just wanted to circle back to loan growth. I think last quarter. Yeah, ex Reliant, you guys had said expectations for about 7% growth this year. If I exclude Reliant and PPP this quarter, it looks like it annualizes to about 9.5%. It looks like you're tracking above that. What are kind of the puts and takes to that? Should we expect kind of a higher rate of growth versus that outlook at the beginning of the year? Thanks.
Hi, Michael, this is Rich. Yeah, I'm really expecting Q2 to look like Q1. Very similar growth. You know, the strong pipelines going into the quarter. This past quarter, we saw our geographies be a little bit more balanced. Sometimes it's lumpy, and we actually had three geographies competing head-to-head for a top position until the last two weeks of the quarter. As it was mentioned earlier too, we saw some solid C&I performance this quarter. We are on the hiring side. We are having some really good discussions on the middle market area, and that's where we've seen significant pickup in the last 15 months.
In addition, we've just hired a conventional franchise team leader to build out, and this would be the loan sizes greater than we do at Navitas and on the SBA side. You know, that's C&I as well. We're excited about what we see, and we continue to be in great markets.
Great. Last quarter, you guys talked about selling Navitas loans, you know, about $10 million–$20 million a quarter. It looks like it was a little over $23 million, you know, this quarter. As we move through the bulk of the year, how should we think about that? Is that $10 million–$20 million range still good, or should we think about a little bit of a higher range?
Thanks for the question. I think $20 million ± $5 million is our target, so it could be as low as $15 million. I think most likely it's right there around $20 million.
Okay, great. Thanks for taking my questions.
Thank you.
Our next question comes from Brody Preston of Stephens Inc. Please proceed with your question.
Hey, good morning, everyone.
Hey, Brody.
Hey, I've got a few questions for you. I guess maybe I just wanted to piggyback on the Navitas. You know, I think the gain on sale margin for Navitas came in a little bit this quarter, while the SBA U.S. margin held up pretty nicely. You know, maybe could you help us think about what we should expect for margins on each of those papers going forward?
Yeah, great question. I'll start with the Navitas part, and Rich will comment on the SBA part. Think of the Navitas loans, they are fixed- rate loans, and with rates moving higher, you saw a decline in the gain on sale of those Navitas loans to 3.1% from 3.8% last quarter. We are pushing through some increased rates. We'll see how successful we are as we go through the rest of the year. If we're successful, I think we can move back up towards that 3.8%. If we're not, it'll stick around this 3.1%. I would expect it to move slowly higher in the next quarter or two, but somewhere between the 3.1% and the 3.8%.
I'll pass to Rich for the SBA comment.
Sure. On the SBA, you could see we had good results from Q1. Based on our inventory, we feel actually good about the remainder of the year. I will say that the gain on sale in the secondary market has come down just a little bit, 118-115 on a typical mortgage. Remember, you split anything above 110 with the SBA. You know, not material change, it's still coming off historical highs, so we still feel pretty good about the 115, and we feel good about our pipeline. I think we'll be fine on SBA and USDA for the rest of the year. We do some USDA on the solar products, and so we feel good about that.
Typically, we sell just with seasonality a little bit more, every quarter throughout the year. This is our slowest seasonal SBA loan sale quarter, generally.
Got it. Thank you for that. Maybe just switching. I did have a question on the $45.6 million of Reliant loans you sold. Wanted to understand why you did that and what they were. Also, was the uptick in the C&I net charge-offs that you saw related to that sale at all?
Okay. Hey, Brody, it's Rob. Just on the loan sale, these were loans out-of-market loans, which is kind of not typical for what we see at Navitas that we identified.
Reliant.
For Reliant, sorry, that we identified in the due diligence process. After further study early in the quarter, we decided it was the right time to go ahead and exit those credits. That was that. On the other que-
C&I
On the C&I side, on the net charge-offs, it was basically one credit out of our Seaside acquisition. The principal of the business passed away and created a challenge for us in the unwinding of that business.
Got it. Understood. Jefferson, you mentioned earlier that the Reliant mortgage joint venture is in the process of winding down. I'm sorry if I missed it, but did you give a timeline for when you expect that to be done with? I can go ahead.
Well, yeah. We signed the agreement in February. They are operating on their own, and we are continuing to fund them for six months past that. Our part should be done by August. As part of that, we picked up the retail piece of the joint venture. That's where the 10 MLOs that Rich mentioned came in. Because that was really our interest in both establishing and then expanding the retail mortgage presence in Nashville.
Got it. Okay. Maybe just on the mortgage banking real quick. You know, we're in the down cycle, I guess, phase of mortgage banking. I guess I wanted to ask you, did you fluctuate the number of producers that you had in-house at all, you know, sort of during the up phase of the cycle from 2020 through 2021? If you did, could you give us a sense for how the employment levels changed on a percentage basis?
I can tell you that the answer is yes, we did uptick as the market changed. Right now we are flexing down, and we're doing that currently through attrition. Our application volume still remains strong, so we're balancing that and managing it on a monthly or sometimes weekly basis. I have those conversations weekly with Mike Davies, our head of mortgage.
Got it. I just have two last ones for you real quick. Just on the securities. Y'all have grown HTM quite a bit and, you know, you moved some of the AFS book into held to maturity this quarter. You know, but I guess, like, longer term, how is your thinking around what you want to do with the bond book? I mean, obviously, just as, you know, as credit guys, you don't get paid to run a bond book. You know, do you look at the bond book once the excess liquidity on the cash side is dried up and look at that as a potential source of funding loan growth and, you know, driving further improvements in the ROA going forward?
Definitely. I think about it like this. We have about $1.7 billion of cash right now as of quarter end, and you're going to see that cash move into securities. I think our securities book would be $7.5 billion or so by year-end. From there, a little bit depends on deposit growth. If deposit growth is in that kind of 0%-5% range, you're going to see the securities portfolio start to shrink and you're going to see loans replace securities. You're going to see not a lot of balance sheet growth, but a lot of asset mix change, which should be helpful to the margin and the ROA. I think of it as the securities portfolio as a filler in a way.
It depends on deposit growth, but you should see continued rapid growth for a period of time until the cash is invested and then stable to down after that as the loans replace securities.
Got it. For Lynn, maybe just on the M&A front. You know, I think we all understand the philosophy that you operate in terms of the type of institution you're looking for. I guess I want to ask differently. Has there been any thought given to kind of letting the flywheel spin, you know, for 18 months or so going forward and let investors and analysts see the operating profitability that y'all have under the hood translate into GAAP profitability so you can drive sort of the outside tangible book value growth that I think the franchise is capable of?
Yeah. We certainly think about that, Brody. The kind of offset to that, and this is the fulcrum that we're trying to balance is, as I mentioned in my annual letter to shareholders, there's really only a handful of banks that are of the quality that we're interested in and in the markets that we want to be in. Once those are gone, I mean, I'm not interested in M&A for the sake of M&A, for example. I mean, we're thinking about it this morning and just since November, you know, we've been invited to look at three companies that are they're fine companies, but just they in terms of the markets that they're in and what they would add to the franchise just don't. I'll borrow Rich's term.
They don't move the needle the way we'd like to do it. When one of those that are in the market we want, the quality that we want, my choice is to go ahead and execute on them because they're not going to be there otherwise. I would love for the sellers to pace out their sales processes. I absolutely would. But I'm really a slave to what these high-quality sellers in the right markets decide to do.
Got it. Thank you for that. I guess I lied. I did have one more question for Rich. Rich, you mentioned the loan growth you expect it to be, I guess right now based on the activity you're seeing similar to in 2Q, similar to 1Q. Is that on a dollar basis or a percentage basis?
It would be on a percentage basis. I expect it still to be around that 9% range.
Awesome. Thank you very much for taking my questions, everyone. I really appreciate it.
Thanks, Brody.
Our next question comes from Kevin Fitzsimmons of D.A. Davidson. Please go ahead with your question.
Hey, everyone. Most of my questions have been asked already. I just had one follow-up on credit, so I know it was a lumpy quarter with the double dip CECL double dip hitting this quarter and you guys choosing to take the reserve up. So just kind of two questions on that. Number one, the choice to build the reserves and I think Jefferson, you might have mentioned a worse economic forecast. Was that, like, really more just taking that forecast and inputting into the model? Or was that more subjective, let's be prudent given the uncertainty in the environment right now? And then secondly, how should we look at that 1.02% ACL ratio going forward?
Is that something that can grind down a little bit more, or would you expect it to stay here or even expand? Thanks.
Yeah. Hey, Kevin, it's Rob. Just on the first question around the forecast. We do use the Moody's model for the economic forecast. If you remember, the Russian war did start in late February, so we ended up using the March economic forecast model, which did play a role and was different from the February model. That's what Jefferson, I think, was referencing in his comments, was kind of the switch to that model. It did sort of have a bigger impact of inflation on consumer spending, combined with sort of the expectation of consumer fears in the future. I think there was a shift in the model. In terms of the 102, going forward, we don't have that as a target per se. We do have...
You know, we have had low charge-offs, basically zero last year. We're at 8 basis points this year. We expect continued low charge-off environment this year, which would play a role. The other two items in the model would be another change in the forecast and loan growth.
Okay. Thanks, Rob. That's helpful. Just a quick follow-up. You know, given the inflationary environment, you know, other concerns out there potentially down the road of potential recession, are there any segments of your loan portfolio you're looking at much closer? You know, Navitas, I know, tends to have a higher loss rate over time, but that's doing very well from everything we've heard. I'm just curious, any parts of the portfolio you're really keeping a closer eye on?
Two things. Just in terms of, I'll just identify it as changing parts of the portfolio. I think you're right. Navitas came in at 9 basis points of losses for the first quarter. That's unusual and unexpected, you know. In our first year, 2019, first full year of Navitas, they had in the 60- basis- points charge-off rate. In 2020 they had in the high- 70s basis- point rate. We would expect that to begin. We don't expect it. I don't expect it to stay at 9 basis points. Something in the 50-60 basis point range would be much more normal, and we do expect that portfolio to normalize this year.
The other portfolio segment that we're watching closely and actually feeling more positive about now is the senior care book. You know, out of our $500 million in special mention and classified loans, $200 million is the senior care portion of it. We've seen that the special mention and classified piece of that portfolio begin to come down and feels like there's some positive momentum. The first quarter is typically not a great quarter for them. We did see some improvement overall across the industry and also in our numbers there, had a payoff, had an upgrade, and so we're expecting continued positive news on that portfolio.
Okay, great. Thanks very much.
Yep.
Our next question comes from David Bishop of Hovde Group. Please proceed with your question.
Hello, David.
Good morning, gentlemen.
Hey, how are you?
Good. Hey, a quick question, Jefferson. Turning back to, not to beat a dead horse, but in terms of the excess liquidity and the cash, if I'm doing my numbers right, make sure I've got this. It sounded like you expected securities to trend up to maybe $7.5 billion. Does that imply that you see that end of period cash and short-term liquidity end of the year closer to maybe like that $800 million level, and that would imply about double where you entered the pandemic? If that's just sort of, you know, keeping some of that excess cash, just given what's happened with the rate environment, just give me a little bit of a cushion depending on the deposit outflow.
Yeah, that's exactly how I'm thinking about it. It, you know, could end up higher than the $7.5 billion, and some of that also depends on what deposit growth comes. So if the deposit growth comes in heavier, you might see that deposit growth or the securities growth be a little higher. But the $7.5 billion dollar target does imply that we're not all the way where we want to be in cash reinvestment by the end of the year. So you're thinking about it exactly right.
Got it. I don't know if I heard this or if you gave this out just in terms of the commercial pipeline relative to last quarter and maybe any update in terms of what you saw interquarter in terms of commercial line usage trends?
Yeah. This is Rich. How are you? Yes, expecting commercial volume to be the same percentage as last quarter, 9% in the 9% range. In terms of usage on the line side, really didn't see a change, no material change.
Got it. That's all I had.
This concludes our question and answer session. I would now like to turn the conference back over to Lynn Harton for any closing remarks.
Well, great. Well, once again, thank you all for joining the call. We appreciate your interest in the company. Feel free to call us with any additional follow-up questions, and we'll look forward to talking to you soon. Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.