Q4 2021 United Community Banks Inc Earnings Call

Good morning, and welcome to United Community Bank's fourth quarter 2021 earnings call hosting the call today are chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harralson, President and Chief Banking Officer, Rich Bradshaw, and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings pretax pre credit earnings and other non-GAAP financial information for these non-GAAP financial measures United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the Investor presentation.

Both are included on the website at U C. B I dot com copies of the fourth 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 U C. B I Dot 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 Twenty-twenty your Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website and now with this.

I'll turn the call over to Lynn Harton.

Good morning, and thank you all for joining our call today I'm very proud of what the United team has accomplished during the fourth quarter.

And really all of 2020 one.

First our financial performance continues to be strong with 110 basis point return on assets and a 13, 9% return on tangible common equity both on an operating basis for the quarter.

During the fourth quarter, our teams delivered strong annualized organic loan growth of 7%.

17% annualized organic deposit growth.

Our cost of deposits dropped by one basis point during the quarter and now stands at only six basis points.

Credit results continued to be excellent with net charge offs of only one basis point for the quarter allow.

Allowing for a small reserve release during the quarter.

Our operating efficiency was 56, 5%, even with a somewhat higher expense base, both from organic and acquired growth and strategically we completed the acquisition of a quest of in August .

And we completed the systems conversion in mid November .

Our wealth management line of business strengthened by the addition of Fin Trust. This past summer is performing well and our assets under advisement now stand at $4 $7 billion.

And finally, our reliant acquisition closed on January 1st and we're now on track for systems conversion in April .

Like to extend a special welcome to the reliant team the van John Mark All the leaders of reliant have built a great team that will make United better not just bigger reliance it's been a multiple year winter of best places to work.

And has been recognized as the best performing small bank in Tennessee for several consecutive years.

We're very excited to have them join United So once again welcome to the entire reliant team.

I'm proud of what our people have been able to accomplish this year.

And I'm also grateful for the quality of the teams that have joined us and.

And the opportunities that are new markets and lines of business had brought this year.

We're entering 2022 with great momentum thanks to the hard work of the entire United family.

And now I'd like to turn it over to Jefferson for more details on the quarter.

Thank you Lynn.

I'm going to start my comments on page eight and discuss the loan portfolio.

The loan portfolio was positively impacted by the addition of the Acosta on book as well as the ongoing forgiveness a P. P P loans.

Excluding these offsetting factors, we grew loans by $190 million in the fourth quarter.

Which was at a 7% annualized pace.

This is our strongest growth of the year and encouraging for 2022.

Our strategy for the portfolio.

As for it to be diversified.

C&I heavy and granular and you can see the statistics on the bottom of the page.

Moving to page nine it shows our deposit growth, which was also impacted by a cluster.

We've had strong growth all year with $2 $4 billion of increases which is 15% annual growth.

That growth momentum continued in the fourth quarter with $718 million of organic deposit growth or 17% annualized.

Moving to page 10, our strong deposit growth from both 2020 and 2021 creates a nice opportunity for us in the medium term.

Our loan to deposit ratio has moved down to just 64% from 81% at the end of 2019, and our average cash balances in Q4 were $2 $3 billion up $557 million.

We think we have a big opportunity to improve our margin and ROA as we grow back into our balance sheet in 2020 two and beyond.

Moving on to page 11, we talk about capital.

We've been intentional in how we manage capital.

In May of 2020, we raised $100 million of preferred equity to steepen, our capital stack.

And in 2020 , one as we understood Covid more we started putting capital to work.

In 2020 one.

Paid down $66 million in debt and tier two capital.

We raised our dividend by 11% year over year.

We repurchased $15 million of our own shares in.

And included $40 million of cash and the request a deal that closed this quarter.

Also with reliant closing in Q1, we still believe we will be in line with peers with our capital ratios.

Page 12 highlights our net interest income and margin trends.

Our net interest income is impacted by P. P P fees and loan accretion if.

If you adjust for these Andy request a deal we were pleased that our core spread income grew at approximately 8% annualized in the fourth quarter.

Our core margin compressed five basis points.

As our 17% annualized deposit growth pushed our average cash position.

Up by $557 million in Q4.

Excluding this cash build.

Our core margin was relatively flat.

On page 13, when you look at fee income.

Which was down $2 $9 million from last quarter.

Mainly driven by normalizing mortgage income.

Specifically mortgage fees came in at $10 $9 million.

Your line or a little above our expectations.

The volume decline.

Partially offsetting the margin decline was an increase in the gain on sale of other loans.

Specifically the fourth quarter is typically our strongest quarter for SBA sales, which came in at $3 million and we had just under a million dollars and gain on sale of Davita phones as well.

I would like to talk about our service charge outlook and 2022 a little bit.

UCB like a lot of banks made changes to our overdraft program to make it more customer friendly.

Specifically, our customers now I'll get their first overdraft other year automatically forgiven.

And now we don't charge for Overdrafts FTE account stays within $20 underwater.

This is compared to a five dollar threshold before.

And we have put limits in for the number of overdrafts that can occur in a single day.

At three and before this limit had been eight.

All said, we think this could cost us $2 $7 million in 2022 but.

There could be offset in the form of less waivers and hopefully higher customer satisfaction, but we think we are doing the right thing for our customers and our business.

Page 14, when you look at expenses that were higher in the quarter, primarily driven by the addition of a cluster.

We completed the quest conversion in November and got some of our expected cost savings in Q4.

And we believe that we will be on pace for the full cost savings run rate here in Q1.

Moving to page 15.

We are 95% complete on PPP forgiveness.

And we have $1.8 million in fees left to recognize.

It will hopefully be through the forgiveness in Q1, and perhaps this slide will even come out next quarter.

Page 16 quickly credit quality was stable and strong in the fourth quarter as we had negligible net charge offs in the fourth quarter.

Moving on to page 17, I'll, just make a comment that our special mention and substandard loans are stable to improving and we are encouraged about 2022 .

Finally on page 18, you can see our waterfall chart for the change in allowance for credit losses.

We had a $647000 released a provision in Q4.

The release is driven by.

By a $3.3 million a cluster of double dip netted by a $3 9 million dollar core reserve release.

The chart shows the components of the change in our reserve, which includes a $3 $6 million day, one reserve increase from a cluster of P. C. D loans that went straight into the reserve without going through the profession.

And with that I'll pass it back to Lynn.

Thank you Jefferson I mentioned that we were entering 2022 with momentum.

You know we've got four primary measures of success at United and this is a good time to look back at 2021 to see how we did.

The first measure is to be a great place to work for great people.

And this quarter United was once again named one of the best banks to work for in the U S by American banker and best companies Group.

This is the fifth consecutive year. The bank has been selected for this list.

Our second measure of success is to provide class leading customer service.

And our teams delivered that in 2020 , one as well with another year of recognition by J D power of having the top retail banking satisfaction score in the South East and the second highest net promoter score among all of the top 100 publicly traded banks in the country.

Our people truly care and it shows.

Our third measure of success is top quartile financial performance relative to peers and we believe we have delivered that in 2020 one.

As importantly, we are well positioned to continue that performance with strong teams, great markets and incredible deposit base and strong momentum in our lending businesses.

Finally, we want to make a difference in our communities two.

<unk> 2021 was the first full year of operations of the United Community Bank Foundation and already we've made over 110 donations to various community organizations throughout our footprint amplifying the own the ground volunteer work that our employees are already doing for these organizations.

I am honored to be part of such an amazing team and I appreciate all their support and yours during the year and.

And I'd like to now open the floor for questions.

We will now begin the question and answer session.

As a reminder, this conference is being recorded.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question is from Michael Rose with Raymond James. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions Jeff.

Jefferson, maybe we could start on the loan growth front, obviously this quarter.

Very strong ex a quest, though.

P. P. P. Just as we think about this well first of all in the in the quarter can you just talk to originations versus Paydowns, just trying to get a sense of any of those accelerated paydowns slowed and then as we think about 2022 X.

Reliant should we still be kind of contemplating.

Our mid single digit level or do you have enough confidence in.

And in the footprint and in your customers and the dislocation from some recent deals in your markets that it could get a little bit higher than that thanks.

Good morning, Michael This is rich Bradshaw I'll go ahead and take that if that's okay.

So the kind of the big drivers in Q4, where mortgage owner occupied Cree and our equipment finance team Davita is in terms of geographies where are we seeing that came from did change a little bit.

In terms of Q4, our Metro Atlanta led the way with North Carolina right behind in kind of a big change for us in 2021 in North Carolina, and Raleigh team led the.

Company and so that was that's change taken over from South Carolina in terms of 2022, we see that looking a little bit like Q4. So would expect that 7% is probably a good number going forward, maybe a little conservative, but also say that Q1's, a little sees.

So that's how we're looking right now.

Okay helpful and then.

If we can just you know.

Contemplate reliant coming in obviously at the beginning of the quarter.

You know in the press release, you didn't update any of the accretion targets, but I got to think that if we start to contemplate rates those accretion numbers move higher. So can you maybe just provide any updates on reliant accretion expectations I mean, all in based on the modeling work that you guys have gone, where where does your asset sensitivity stand.

You know I guess Jan one with reliant included just as we think about a plus 100 scenario. Thanks.

Alright, so the U S.

The Hawaii deal numbers, the accretion numbers are unchanged, but the cost savings estimates are are correct and the numbers. We've given you end up past are are still good to use for 'twenty 'twenty. Two we're really excited about rely on the team and the van So that's where I think the.

The financial piece of the deal that's going to work exactly like we thought from a.

Asset sensitivity standpoint, yes, if rates go up that deal will be more.

Accretive, but think about the the whole bank on the asset sensitivity question.

Yeah I think.

That are up.

Current balance sheet up 25 basis point environment.

We're 10 cents accretive and I think that.

That level of asset sensitivity might go down some over the year as he put some of this cash to work.

And become less asset sensitive or over the year, but if it happened right now I think I'd say, it's 10 cents annual to us.

Okay. So roughly 10 basis 10 cents for each 25 basis point hike or does that fade like you just mentioned as we get hopefully more.

Yeah, So I think it pays a little bit with each one because your deposit betas will start to normalize higher for the first one I think that deposit beta is very close to zero I take the second one it starts to move up each one starts to move up a little bit. So I think it starts at 10, and then fades down a little bit from there on each one.

All right fair enough and maybe just one final one for me.

Like the <unk> gain on sale margin down again can you give us just any sort.

The initial expectations for 'twenty two as it relates to how much you might plan to sell I know, it's going to be a function of if you do.

No more deals and things like that and then where that gain on sale margin.

We stabilized on what it would do in a rising rate environment. Thanks.

So I've been seeing lots of compare numbers on that because I'm seeing a relatively stable gain on sale at reliant in that 4% to 5% range four 5% is what I would expect there are not really seeing that.

<unk> come in a little bit I'm, not really seeing that come in I am seeing we're seeing the yields come in maybe.

Two or three basis points a quarter we're.

We're seeing that gain on sale will be relatively stable. It is a very attractive piece of paper.

With a very high yield and the loss the loss experience has been well I would expect us to sell $10 million to $20 million of Nevada's loans at quarter end to be in that 4% to 5% gain on sale range.

We do it.

Great. Thanks for taking my questions.

The next question is from Brad Millsaps with Piper Sandler. Please go ahead.

Hey, good morning, good morning, Brad.

Thanks for taking my question Jackson, just curious how quickly you might put some of the excess liquidity to work in the bond portfolio you guys have talked about.

7% loan growth, probably not enough to Sop up all the excess liquidity you have just kind of curious how to think about growth at the bottom portfolio from here.

Yeah, that's a great question and thanks for the well so you have been seeing in our securities portfolio grow at a pretty strong pace.

We have had rates move higher.

Can expect our securities growth to be increased from where it was because the opportunities are there in a bigger way so.

So that's how I'd think about it on a quarter to quarter basis, So you'd think about it annual.

We are working to.

Put this cash to work this year, so I think you're going to see a securities portfolio that.

Absorbs.

Loan growth that rich was talking about that absorbs those cash by year end and that's our that's our plan. So you should see very significant.

Growth in the securities portfolio, especially.

As rates rise.

Okay, and Richard 7% loan growth guidance that includes the.

That would be off the base of the rely on loans is that correct.

That is correct yes.

Okay. Okay, Great and then just one follow up for me, Jeff maybe on the.

The mortgage business I think you mentioned it was maybe about in line with your expectations for the quarter.

Can you talk about you know kind of what you think will play out in 2022 for you guys. Do you have any expense offset and then sort of you know the third how how to think about the reliant.

Mortgage piece as you fold that in as well.

Alright. This is rich I'll I'll talk about mortgage a little bit in terms of you commented on Q4. So I'll move onto 2022, we see that are probably 7% to 10% down year over year in volume and the Nba's forecasting for the next two years really high forecast and purge.

And we've been so strong purchase all along so we've certainly been helped by refi, but we haven't lived on Refis. So we feel good about that and also would like to couple that with the opportunities that we've seen in Florida. So that's been a big growth market for us and we've hired a lot of MLR was down there and we'll continue that and then obviously, we have the new national opportunity as well.

Okay, great. Thank you guys I'll hop back in queue.

Yeah.

The next question is from Kevin Fitzsimmons with D. A Davidson. Please go ahead.

Hey, good morning, everyone.

Morning.

Kevin just to follow up on fee revenues.

The comment that was made about the steps being taken on overdraft charges I noticed service charges.

We're down in fourth quarter. So is some of that effect.

You said you could I believe it was like $2 $2 million.

You've been losing in 2022 was that.

Effectively you're already in the run rate by the by the decline we saw or is that still to come.

So this is so this is Jefferson I'll say, it's really still to come we did put this in place in November the impact was less than we thought it would be for the fourth quarter, but.

Quarter run rate is a good base to use this off.

Because of the piece of this that has the first one.

That is a waived automatically seasonally that makes this a little more front end loaded so I would use the $2 7 million or something close to it.

Frontloaded it a little bit into Q1 off of this base and that's the way to forecast it.

Okay, that's great Thanks, Jefferson and.

Maybe if you could just I know, it's difficult because there's a lot of moving parts and with relying coming in and there'll be a day to double count there.

But when you when we look at the potential for reserve, releasing and where you see that ACL ratio settling over time and we are we kind of would you say were near the end of negative provisions in releases or could there still be more to come over the next two to three quarters.

Kevin It's Rob just on the provision I think two things one is certainly the growth will play a role in provisioning. So if we have a 7% growth rate that will obviously play a role in how we need to provision for that and then on the loss side, you know basically finishing the year with <unk>.

No losses after having built the allowance up because of the pandemic really is what created the need to bring that down but going forward.

We would expect losses to come back to something closer to the 'twenty 'twenty 2019 level in the 12 to 15 basis point range at least we would expect that and so the combination of those events would seem to make a release less likely in 2022 than it was in 2021.

Build on that ratio with the reliant marks just keep that in mind, so you've got to overlay that piece of it.

Right right of course, Okay, alright, thanks, guys.

The next question is from Jennifer demo with Truest. Please go ahead.

Thanks, Good morning.

What do you what do you feel like the best fee income growth opportunities are for.

For the company in 'twenty, two and 'twenty three right now.

With the headwind in overdraft and in mortgage.

Great question and I'm not sure it will we might all jumping on that sort of looking around the table right now but.

The asset management, that's pretty exciting for us it is a.

You noticed probably that our assets under management went from $4 5 billion to $4 $7 billion. This quarter, we have great leadership in the form of a get in haymaker, where.

We had bought the our age.

Entrust reorganizing the branding.

We're gonna overlay it across the footprint. So we're excited there.

You know.

While our mortgage fee income might be down this year I'm really excited about the continued growth of that business, we're going to overlay more onto other Florida risk could talk about what we've done in Florida since we've moved into the state.

We have a continued opportunity to grow that business in Tennessee as well so.

So I'll, I'll say brokerage and mortgage and throw it to the group and see if anybody wants to add pieces to that ingestion I thought you did a good job of summarizing I'd, probably add that are you know.

We bought fin trust last year, and we've been working on behind the scenes or when you have trust powers. It's it's you have to do things the right way in terms of legality and we've kind of done all that work and we're planning to roll that out to a 55000 commercial customers starting to pilot in North Carolina, and it looks like Jacksonville in first quarter.

So it's just you know the one plus one equals three hasn't happened yet because we haven't rolled this out yet, but we're rolling it out in Q1 and so we're excited about that and then I would say you know, it's nice to have different levers and the one we can pull a little bit more as probably SBA. So that's one we'd expect to see a little bit more and I use that term SBA generically because we.

We sometimes do a fair amount of USDA, either business and industry or the re program, which is the energy program. We do through our solar side, So really I'm talking about government guaranteed products and we expect to see more of that this year and we've had some big opportunities that we've already closed on construction loans that are on under the U.

S D. A program. So we expect those to come to fruition later this year.

Okay. Thank you just one more question if I can.

You guys had done a fair amount of transactions over the past.

A year or two just wondering what's your interest level is here in 'twenty two after the conversion of the line.

Hey, Jamie this is Lynn.

You know what you should expect us to continue to stick with our strategy and is kind of a reminder, we like.

Smaller organizations first because they align with us on the customer experience on the employee experience. They are modeled in a they organize themselves in a geographic manner like we do so it's a natural fit for the key leadership, which leads to higher with all those things together lead to higher retention.

So we like the smaller organizations in higher growth markets and that's you know if you look back what we've done we've been pretty consistent with that and you know.

The timing of that is always dependent upon the sellers.

It appears there's a lot of interest at the current time, but who knows it's all a matter of there their timing price expectations et cetera. So.

You know I would hope to see us do.

You know some additional acquisition that fits our strategy.

Well priced in the coming year, but we're also in a great position with the momentum we've got that we're not in a position where we need to do M&A and so.

You know it would be great if it happens, but it's not not necessary for us to hit our goals.

Thank you.

The next question is from Brody Preston with Stephens. Please go ahead.

Hey, good morning, good morning, everyone. Good morning, Hey, Brody.

I've got a number of questions I'm, just going to ask Simon and hop back in the queue and maybe come back at the end.

I wanted to follow up on the Securities question.

It was asked earlier.

So just looking at the Securities book.

The HCM growth is up 175% year.

Year over year, which is quite a bit more than the <unk> portfolio and so I guess I wanted to ask how much of that is being driven by more attractive yields.

Within the held to maturity portfolio versus you know maybe the need to deploy liquidity without seeing tangible book value you get you know negatively impacted from a OCI is as rates are continuing to move higher.

Oh, that's a great question Brody, how we're thinking about it is as our portfolio has gotten bigger it's becoming a bigger piece of our of our assets securities assets is getting bigger and that ratio is going to continue to get higher.

And we're thinking about the sensitivity to tangible book value and TCE at a higher rate environment, what happens to those two ratios. So as our portfolio is getting larger as a percentage of the balance sheet. We made a decision to take H T. M from 10 to 20 per cent of securities and we're basically.

They're now so that is why it has grown faster because of that decision to increase the percentage.

I think it is.

Could be likely that we'd make that change or we look at that 20% again, because if our securities portfolio goes from $5 5 billion to $7 billion by the end of the year, you're going to see that ratio continue to increase.

And you could see us increase the H T M piece of it.

Also as we're getting as our portfolio is getting larger and a more I guess Hardy risk thing to think about is our percentage that is fixed versus floating.

Coming into the cycle, we were 10% are floating in our securities portfolio and now we're 25.

So as we grow the Securities book I think you'll also see the.

The percent floating increase to reduce the risk of a unrealized.

Unrealized bond losses, and higher rates and you'll see a secondary piece of that risk retention or risk of <unk>.

Strategy to continue to increase the HTM portfolio.

Great I really appreciate that color and so I guess I would ask as a follow up on that is what's the current duration of the securities portfolio Jefferson and what are the current yields that you're putting on the book coming on at.

Four years and one.

75 range.

So.

There's a good news piece of that I guess, there are two pieces of that which I'll say is that the we are currently putting on new securities at a higher rate than the existing securities portfolio is yielding.

And.

I had a second point in that.

I'm not exactly sure where I was going with my second point I'll stick with the first point.

Understood understood and then I wanted to follow up just on the on the service charges. So I get it on the overdraft I guess I would ask it.

It sounded like the this quarter's run rate.

Just want to clarify is that a good run rate to use for us.

You see the I plus Acquest ER, and then I minus out the $2 7 million annually from this or is that inclusive of some of that 2.7, and then it looked like <unk> was running at like one and a half to $1 7 million per quarter in service charges in 2021.

You know do I need to layer that into the thought process here for the first quarter. So I guess, just kind of trying to combine all of those moving pieces. Yes. I think this is a good base for our cluster.

U C D a.

At reliant to it and take off $2 seven for.

For the year.

That's a good guy that art and I started the second piece of arms like your earlier question and I apologize.

For that I'll talk about duration and we do thank you Michelle.

How asset sensitive we are we have 53% of our loans float.

Core deposit base and so we do think we will and we.

We believe and we will continue to add.

Securities of duration until the Securities book, you are seeing a little more steepness in the curve now we think that's an opportunity.

For us it does take some of the asset sensitivity off the table, but that's what it's gonna look like all year, we're going to add to the securities book.

Reduced cash.

Reduce asset sensitivity, but we have a big opportunity to increase earnings at the same time.

Got it Okay, and then I'll just ask two more quick ones before I hop back in the queue. The $1 8 million of PPP is that inclusive of our B N C or do we need to add more to add more to that for our B and C. So.

Just use the $1 8 million for P. P. P fees. The R. R B and C and our cluster, we mark those books to market. There are they come back through via accretion. They don't come back through V. A P. P. P fees. So for that specific category. We just have the $1.8 million left and that doesn't change.

With the deals.

Got it and then on the on the Accretable yield piece I think you know last quarter. You said you were still kind of going through the RV and CE marks and so do you could you give us a sense just given the volatility we saw in the Accretable yield this quarter could you give us a sense for what that run rate is going to look like in 2022 is with army and see in the.

Next.

I can get you most of the way there. So we are we have $17 $5 million of Accretable yield at 12 31, right now we believe that reliant adds 15 million to that so you were at <unk> 32, and a half million dollars left to bring through.

And I can we can talk off line up how much of that 32 and a half we think is going to come through in 2022 but you know think of it as you know three or four year duration.

Coming through in a three or four year durations.

Great. Thank you I'll hop back for now.

The next question is from Christopher Merrimack with Janney Montgomery Scott. Please go ahead.

Hey, Thanks, Good morning, Jefferson I, just wanted to clarify if if the loan growth comes in as planned off the base of a light is there a scenario where the earning assets do not grow or would you imagine that there would be growth just at a slower pace.

It's a great question so the.

E.

Pace of earning asset growth is going to depend on the pace of deposit growth because we are going to if deposit growth comes in at 2%.

Then the earnings assets are going to grow at roughly 2%, because we're mostly going to be in the business of remixing. The asset side of the balance sheet, you're going to take cash move into securities and securities and move it into loans. So if if deposit growth is flat next year, they are earning asset growth will be flat.

You'll see a higher margin higher our away on the same our balance sheet.

Got it thanks for that and just a follow up when you mentioned earlier in the call about less asset sensitivity. As you go along is that partly because of the way that the securities portfolio will be.

Managed as you just alluding to as well as kind of how you balanced fixed versus floating on the loan side.

So it's those two things plus I think what you're going to see what we saw last time was a ramping deposit beta. So I think the deposit beta that starts at zero or very close to it I think it moves to the mid twenties, where we were in the 2015 timeframe. So you'll go zero.

Five to 10 10 to 15 that maybe after four closer to historical.

Our deposit beta.

That said for us the last time rates rose, we didn't have $2 billion of cash on the balance sheet and the last time rates rose, we werent out of 64%.

Well I want to deposit ratio so.

I think that points to the fact that our deposit beta should be lower this cycle than they were last cycle and so maybe we keep some of that asset sensitivity. So one so two things really I think that will put some of this cash to work in securities which will lower.

The.

Deposit betas, but the other piece of it is I think that the deposit betas will ramp off of close to something close to a zero percent at the beginning.

Great. Thanks for all that background I appreciate it.

The next question is from Stuart Lotz with K BW. Please go ahead.

Hey, guys. Good morning morning Stuart.

Jefferson I appreciate all the detail kind of on your I guess the margin outlook in asset sensitivity.

But you know as we look at the first quarter and kind of a blended core loan yield.

I think <unk> kind of last disclosure they were bringing over loans at around 5.25% Bruce.

I calculate your core loans today at just under four where do you see a kind of a blended rate shaking out in the first quarter.

Ed.

Dependent upon alright, alright.

Ex accretable yield thanks.

So yeah. That's a great question Stuart. Thank you for it the so I do think we have seen the bottom of our core margin partially.

Because of adding reliant are adding relying by itself takes our margin up by 10 or 12 basis points on its own with that mix with their higher margin being blended in.

Also our I had mentioned a couple of times, our average cash is a $2 $3 billion for last quarter.

That cash is now down below.

$2 billion, so you've got some margin benefit.

Coming on there and we have a nice we have nice loan growth that rich was talking about so I think we have also a higher rates that it's attractive to put some of this work some of this cash to work in securities.

So the combination of that makes.

Makes me confident enough anyway to call the bottom of margin and.

I think we'll be up.

At least double digits next quarter.

And do you think from a reported standpoint, just given kind of the pieces there you'll be back above three and then how quickly.

Or how much expansion do you think is possible in 2022 until you get a few hikes plus.

Plus you know continued redeployment of your liquidity.

That's a great question. So we have.

We are for 281 this quarter in the 10 to 12 gets you to the two ninety's.

I think below three but.

Up 10 to 12.

Then you've got some of it's very hard to project the.

Uh huh.

The accretable yield that's going to come in in the first quarter. But then you have you know if you have.

That's not including any rate hikes, so not to three but not significantly.

Significantly higher than the 281.

Okay.

Right.

I just had one follow ups regarding the Venus and.

I think the credit there continues to impress but just given all the stimulus and pouring back now I mean, how quickly do you think credit will normalize there and how should we think about you know kind of net charge offs from that portfolio in a normalized credit environment.

Hey, Stuart it's Rob Edwards, we do expect that.

Hesitant to use the word normalize, but you know for the longest time, we bought them in 2018, and really up until probably mid way through last year. They charged off between a million three and a million eight a and then every quarter and in that process grew the portfolio from four one.

Wondered.

A million to almost a 1 billion or over $1 billion. So I would expect it to go back to a range something like that this year I'm not sure about Q1, but as the year goes on I would expect that level of of loss and really probably somewhat higher than that given the size of the poor.

Folio has over doubled.

And do you anticipate just given kind of normalizing.

Charge offs further reserve release from that the one 5% on that portfolio today.

Or do you see the bottom growing I'm.

I'm not really tracking the reserve release at that segment level like that but.

I think I would just say that the if the portfolio is going to continue to grow that wood and charge offs would come back to previous levels that would be make it unlikely that there'd be a lot of relief in that specific portfolio.

Okay, great. Thanks for taking my questions guys.

The next question is a follow up from Brody Preston with Stephens. Please go ahead.

Mr. President is your line on mute perhaps.

Sorry about that yeah, guys I just have a few more I appreciate you being on with us to take the follow ups Jefferson.

You know or maybe rich would should add color here as well, but just on SBA I'm you know this level of SBA.

So volume is more consistent with what you all did in in 2017, and 2018 and so I guess I wanted to ask do you expect that this will be what you do going forward I know, there's some seasonality in there.

And then separately do you expect to be more active in our in the seven a program just given the broader geographic footprint y'all have now and the success you had in PPP.

So I'll just start with the sales and your expectation there and if you could talk about the.

The business there.

2020 in 2021, when mortgage was having these unusually high gain on sales we held back and we were growing in cash and deposits. We held back on our SBA sells them let those.

Let those balances growth now we plan to go back to our more normal.

Selling of SBA loans, with our mortgage normalizing and with that said I would I would target maybe again, there was but there was a lot of seasonality there too so the weakest seasonal seasonal quarter as the first and it ramps up towards the fourth and I would expect about $2 million in the first.

Quarter, plus or minus.

And.

And then for that to ramp up during the year and they have that would be a growth rate over what you're seeing in.

In 2021 and total gain on sale now with that.

Okay.

Comment with that regard that we do have an inventory there because we don't sell everything each quarter. So they already have in inventory. So we're managing how much we want to sell currently then in terms of the seven eight program going forward I think you're aware that we were very active in P. P. P. We did not outsource anything and so our SBA team has been.

Center stage on P. P. P. So they you know you're doing two things at the same time and without winding down we're ramping up for the first time, we're full on SBA sales people and then of course, we just we just acquired reliant. So we're actively looking at Nashville, and our new people in Florida really just started again.

<unk>. So we're really excited about the opportunity and the team is excited to get back into the seven day business.

Got it and then maybe just sticking with SBA.

You know the the gain on sale margin looked like it came in a little bit kind of just doing the simple math from the simple math from the deck and so I know that the guarantees a percentage you know it came down you know with the cares Act rolling off but was there anything besides that that drove tighter SBA margins and set.

Currently you know going forward as we're thinking about rising rates.

Should we be thinking also about you know lower gain on sale margins.

You know as rates rise.

So we did see.

The more secondary market come down a little bit remember the sale is driven by duration and interest rate. So it depends on your mix a little bit for the quarter.

But it still was very high as you know historically as interest rates go up I would expect it could be a little compression, but theres still right now a big desire if there's still a lot of liquidity out there the big desire for that guaranteed money.

The inventory that you spoke up too so it gives us a little more flexibility.

It would take to hit our budget, even if rates.

Rates rise in the south.

Creates a really nice lever for us to be able to we have some optionality.

Got it okay.

And shifting away from SBA Jefferson you guys have an estimate of what the day one reserve level looks like you know where the quest and reliant folded into the mix I know, it's a it's a little challenging.

Yeah, let's see here.

And to that I know, we have a double dip that we're expecting.

Six of 16 and I believe the original Mark was I'm looking at.

One person here. It was 15, so I think we have we're expecting roughly $30 million that go into the reserve via doubled up and day one.

P C D Mark.

And so but I haven't done it on a percentage term, but we can talk offline to get you what you're talking about but that's and Rob may have well I was going to say you just had a question and rely on their quest of stuff is in the deck on page 18, what we did on day, one and so your numbers were just reliance that's correct yes.

Okay got it and then just two more quick ones for me if I could do you have the variable rate loan percentage pro forma with reliant Jefferson.

Not with me, but we're 53 it'll be down fractionally from there there are about 15% of our loan book, So it'll come down a little bit but not a lot.

Okay, and then could you guys provide some color on the reliance.

Core loan growth was X P. P P for the fourth quarter.

It was a relatively flat maybe a little bit under so they they had a great Q3, but they didn't have they need enjoy the same thing in Q4, which is not unusual in an acquisition period before you.

For the deal closes we've seen that historically.

Understood. Thank you all very much for taking my questions and Rob Thanks for putting the senior care slide back in the deck this quarter.

Yeah.

Yeah.

This concludes our question and answer session I would like to turn the conference back over to Mr. Hartman for any closing remarks.

Well, great and I just would like to thank all of you for your time and attention and if you do have any follow up questions don't hesitate to reach out at any time and we will look forward to talking to you next quarter. Thank you so much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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