Q1 2022 United Community Banks Inc Earnings Call
Good morning, and welcome to United Community Bank's first quarter 2022 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 include 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 S. Dot 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 U C B I Dot com.
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 there.
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 and as a reminder, reliant provides us with 3 billion in exposure to middle Tennessee.
Primarily the Nashville MSA.
Reliance has been recognized as the best performing small bank in Tennessee for several consecutive years and we were 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 and the presentation deck.
Absent this provision and other merger charges, our operating return on assets with pinpoint, 1% and a return on tangible common equity would've 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 N. P. P. P. We expect to continue to take advantage of the strength of our markets and ongoing large bank merger disruption for the foreseeable future beyond.
Beyond the quarter I continue to be very optimistic yes inflation is a concern but I'm also reminded real GDP growth has been very strong and is now back up above pre pandemic levels in our markets in the south east are outperforming the country as a whole.
Increasing interest rates spring, both opportunities and challenges dependent 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 approached the 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.
And I can tell you that group is as excited and as connected as I have ever seen them.
So Jefferson 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.
Our formats and outlook.
I'm going to start my comments on page eight and talk about what we believe is one of the core strengths of the company and that's the deposit franchise.
Mix is attractive with 38% of the deposits being D D. A.
Also 92% non time, plus we grew core transaction deposits by $478 million in the quarter or at a 13% annualized pace, while keeping our costs at six basis points of total deposits.
Other key piece of our strategy and culture can be seen on page nine with a look at our loan portfolio the.
The portfolio C&I, ketti, very diversified and very granular.
Adjusted for the reliant and the reliant related loan sale, we had our strongest loan growth and some time at 9.4% annualized.
Loan growth was driven by C&I and commercial construction and we were off.
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 attunity to remix our assets and some of those came to pass in Q1 with some help from reliant.
Our loan to deposit ratio moved to 68% from 64% and our loan to asset ratio moved to 59% from 56% as our cash to assets ratio.
Two 8% from 11%.
All of 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 close and we are now riding along with our peer group, our TCE and tangible book per share were down with a sharply higher rate environment and a corresponding decrease in OCI, given our balance sheet flexibility with a 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 P. P P fees and loan accretion our core net interest margin was up 24 basis points.
All of the 24.
Core margin expansion 15 basis points.
Lending in the higher margin rely it into our numbers.
Okay.
Putting cash to work.
These improvements along with higher rates.
Oh asset sensitivity to the Q&A, but we did it benefit significantly from higher rates with the speed and size synergy.
But the rate hikes, it's hard to estimate made posit betas, but given our high level of cash are low hazard ratio.
Quality of our deposit base, we believe we are well positioned as anyone for higher rates.
On the next page page 13, we take a closer look at fee income that was up $1.8 million quarter to quarter.
It was benefited by a $6 3 million MSR game and the reliant numbers coming in.
And it 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 walks moved up 9% to $757 million in Q1, and this was offset by a decrease in the <unk>.
Gain on sale as a gain on sale percentage moved back to pre pandemic levels.
Our purchase to refi mix was 63% purchase 37% refi exco.
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%.
And of course came into the numbers for the first time, it's hard to tease out the components exactly but we benefited from a legacy UCB I expenses being down versus Q4 on an absolute basis by about $3 million, partially due to getting the full impact of the sequester cost savings. We also got half or a little more of the reliant cost savings.
Which leaves us with about two to two and a half million dollars ago. That's a 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 eight basis points of loans annualized well, we had $3 billion of net charge offs, we had $23 million of loan loss provision and along with reliant P. C. D. Marks this increased our reserves by a good $35 million of the 23.1 million provision 18 point, where he came from the road.
It will dip in the remaining $4 $7 million was mostly due to a worse economic forecast going into our system.
You see we have generally improving trends in special mention and substandard accruing loans, but NPA is just like we remain optimistic about credit in 2022.
And finally on the next page page 17, you can see the movement in our reserve that moves at one point or 2% of loans from 97 basis points with the benefit of reliant and core provisioning that was in excess of net charge offs.
Third we are encouraged by the strong loan growth and the margin expansion and the efficiency improvement and look forward to the rest of 2022 and 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 winter 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 redesign their study and now measure satisfaction across seven factors Trust.
People.
Account offerings allow.
Allowing customers to bank, how and when they won't say.
Saving time and money.
Digital channels and resolving problems or complaints our teams continue to set the bar for customer satisfaction across all of these measures and I couldnt 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 statistics a market research firm.
Ranked banks in 27 countries across the globe other banks in the U S. United ranked third and was the top bank with a regional south eastern presence.
For any business customer satisfaction is one of the most important long term drivers of business success and.
Shareholder value. So 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. You're asking a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the key.
Is your question has been answered and you wish to withdraw your question. Please press Star then two.
At this time, we will pause for one moment to assemble our roster.
And our first question today comes from Jennifer Denver and Troy. Please go ahead with your question.
Thank you good morning, I have two questions first Jefferson.
Given the market's expecting significant rate hikes. This year I'm wondering where you think the net interest margin could go.
And a much easier question is what were the major topics of discussion and focus are at the leadership conference.
Alright, so I will take the.
The first part of that so.
I mean, what we have in here in the deck I showed you for the first time some of our sensitivity analysis.
With a not a deposit maturity beta that from our experience in 2000 and in 15.
It shows for aged twenty-five rate hike that it's four basis points. If you believe in that 22% beta.
The this first of all you really haven't moved rates at all so I think we can get more than four basis points of margin expansion from the from the first one.
And there we also have what a plus 100 and it looks like and that's up $29 million and 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 what up 100 looks like as a helps us by $29 million.
Yeah.
So you'll need to take the leadership team so.
Yes, great question really wanted to make it about it about leadership and so you know I kick it off with how to become a better leader. We also then.
Knowing that our people will be better leaders, if they understand the world better than we 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 a J D power come in to break down the.
The satisfaction studies that they do that.
Things make a difference what moves the needle what do we need to focus on.
We had a chick fil a come in.
Sustain a culture of service.
One of the companies is best in the world at that we.
We had both T V in Q2 come in to talk about Fintech, how those fintech interact with banks, what's the future of Fintech, what should we be thinking about and then we've had.
I had a board we always find our people are interested in what the board thinks about our United and so we had a board panel they finish it up with our economic panel led by Oh, Tom Barker.
Richmond Fed see so it's a great great time, I feel like everybody walked away with a lot to think about and what to think about how to get better.
Everybody is saying very fired up and I'll just throw into my last question those numbers, our annual impacts and to the extent the rate hikes happened in the middle of the year, you get only a partial amount of that this.
This year so those are.
Next 12 months' impacts not quarterly of course.
Alright, thank you.
Our next question comes from Brad Milsap with Piper Sandler. Please proceed with your question.
Hey, good morning, good morning wanted to you.
Jefferson maybe wanted to start with expenses.
You guys had some great expense control in the quarter. It seems a lot of moving parts, if if my math right.
<unk> were down 3 million $3 million at stand alone you see B I means expenses, maybe we're only up.
Two 5% year over year.
Do you think that's a number that is sustainable over the balance of 2022, given inflationary pressure out there. The way that you guys wanted to ask just kind of wanted to get a sense of how youre thinking about.
That's great and then I guess secondly, I know the mortgage segment. It <unk> was it part of your <unk>.
Expense save target I wonder, how those numbers or maybe in the combined numbers now have you sort of netted those together.
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. So I'll start with that then I can maybe go with the more reliant mortgage and rich can chip in on that as well. So the one tenant is not a bad run rate to start with we are we do expect core growth off of that run rate.
There is inflationary pressures out there that we're battling on a case.
Case by case basis. So that is it will be growing off of that number Oh again as I mentioned in the prepared remarks, we do have two to two and a half million quarterly cost savings.
We expect to get fully in Q3, we have this weekend coming up is the conversion so partially through this quarter, we will get a big a big piece of that.
So.
So I think if you put some core growth on the one time and maybe you're at 111 112 for the second quarter in a.
Low growth rate off of that because we have in the near term because we have some nice cost savings that offsets.
The growth rate. So it's a that that's how it talk about the.
Are the expenses that Oh, I'll start with I'll start with the JV. The JV. We are now as of February 17th of zero percent owner of the JV and its in wind down mode now.
<unk> are still in our numbers, but they are not significant and they net to zero on the on the net income and I don't know if Richard you'd have more to add on that or what would the opportunity that gives us sure well. We are excited about the mortgage opportunity the retail mortgage opportunity in Nashville, we are adding we added 10 ml.
And that's right now about 10 million a month in production and were expecting that to grow as they understand in our programs a little bit better and we offer a little bit more than they do so they were very excited about that and we'll continue to look to add to that.
Okay, Great. That's very helpful. Thank you and then just final question for me Jefferson can you can you talk about any changes in the pace of maybe how you plan to deploy the remainder of your excess liquidity as you move through 2020, do maybe between loans and bonds.
Thank you that is a great question too we have.
With rates higher we have 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 the slowdown in deposit.
The growth that we've been seeing and you're going to see an acceleration in this remix. So I think you're going to see securities purchases at a at this pace or a little bit higher and you're going to see I think this asset remix that.
That we've been waiting for happening and push the margin higher throughout the year.
Great. Thank you guys.
Our.
Next question comes from Catherine Mealor <unk>. Please go ahead with your question.
Thanks, Good morning, a follow up on the margin conversation Jefferson It that's one basis point or two.
25.
Hi does that include remix or is that more just kind of looking at the.
The balance sheet and how rate right.
Right. That's that is rates only so if you put remix in there I would expect some improvement from remix.
I would also expect we had unusually low in my mind anyway loan accretion this quarter, while it's not particularly core.
The amount of or the accretion rolling through the end of last quarter was $18 million.
Reliant added $14 million of that we had $3 million of accretion, but now we're coming off a $29 million base, which has a higher than where we've been so I think that probably has a little bit to the GAAP margin as well so the to answer a question more so simply the four is simply the rate change and we expect more.
For mix change as well.
I think you said last quarter that accretable yield should be about.
A half million dollars a quarter is that.
Is that still the case I wasn't reliant as well.
That I believe that that forecast would be excluding reliant with reliant I expect that to be higher in the upcoming.
A couple of quarters at least.
Got it okay got it.
Okay and then on.
On loan yields obviously.
Increase in loan yield was mostly from the reliant acquisition and so as we think about how quickly that is moving.
Forward.
I guess, maybe a question one is on average where are new where new loan production coming on relative.
To that level or do you still have some kind of downward pressure in fixed rate loans are repricing and 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 any extra California and Nevada.
And so how much of your growth in higher yielding portfolios you think plays into the upside of ammonia in the back half of the year as well.
Alright, Great question I'm looking at Richard I don't know, how we're going to share. This question I'm a little bit do you want to start with what you're seeing in maybe in committee as far as our new loan yields coming on I don't know if they've moved up.
Sure I would say I would say they wouldn't they haven't moved up but they are flattening that would be that'd be the way I'd answer that and certainly we expect our clients to be looking for more fixed rate and you know that that's that's what we're starting to hear and feel.
So on the existing portfolio, we have 40% of our loans that are floating now you'll see that benefit and then with a 50 basis point rate hike that moves up 46% and then we'll get to the 449% variable.
And three to four rate hikes, three or 425 basis point rate hikes, if if if if we get those.
No.
You will see loan yields increase just by rates, increasing but you've seen I think what I would say is the banks in general Havent moved up their loan pricing a lot yet given where the curve has moved but I would expect that to happen over time.
Just to have a good spreads over treasury curves.
Would you agree with that I agree with you that Jefferson.
Okay.
And then and then remix into higher yielding loans is that.
You think of everything.
Rob I can step in here.
We've had great loan growth.
From Novartis and there's no expected change in that loan growth and then also manufactured housing of course is new to us but are in this first quarter. They did also grow and so both of those portfolios. Just as you expect would help they have higher loan yields and so we would benefit from that and Kathryn.
This is rich in one of the things we're going to do or we are in the midst of already doing as a team in some of our and in VITAS professionals with the manufactured housing to see how we can scale up and do it in a risk conservative manner, but we do see that opportunity and that's where we're putting together right now and I'll just add one more key stats.
But as we just looked into our Alco Jack here and we saw that the March new and renewed yield was up 12 basis points from February .
Oh, great Okay.
Thanks for all the color I appreciate it.
Yeah.
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, So I think last quarter.
Extra lines you guys had said expectations for about 7% growth. This year, if I exclude rely on P. B P. This quarter it looks like an annualize to about 95.
So it looks like you're tracking above that.
What are kind of the puts and takes to that and should we expect kind of a higher rate of growth versus that outlook at the end of the year.
Hi, Michael This is rich yeah, I made it really expecting Q2 to look like Q1, so a very very similar growth you know the strong pipelines going into the quarter.
This past quarter, we saw our geographies a be a little bit more balance sometimes its lumpy and we actually had three geographies competing.
Head to head for the top position until the last two weeks of the quarter, So and as it was mentioned earlier too we saw some solid C&I performance this quarter and we are on the hiring side, we are having some really good discussions on the middle market area and we've.
That's where we've seen significant pick up in the last 15 months. In addition, we've just hired a conventional franchise a team leader to build out and this would be the loan size is greater than we do at Davita sent on the SBA side. So that's C&I as well so we're excited.
At about what we see we continue to be in great markets.
Great and then last quarter, you guys talked about.
Selling the veto loans, you know about $10 million to $20 million a quarter. It looks like it was a little over 23.
This quarter.
As we move through the bulk of the year how should we.
Think about that is that 10 to 20 range. So good or should we think about a little bit by rich.
Thanks for the question I think $20 million plus or minus five is the oh.
This is our target so that.
It could be as low as 15, and I think most likely it's right there around 20.
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.
On the VTS.
Yes, I think the gain on sale margin for Novartis came in.
Little bit this quarter.
While the SBA use the margin held up pretty nicely and so you.
Maybe could you help us think about what we should expect for margins on.
On each of those.
So those papers going forward.
Yeah, Great question I'll start with the.
That's part originally come in on the SBA part so think of the Nevada salons, they are fixed rate loans and with rates moving higher you saw a decline in the gain on sale of those davita salons to three 1% from three 8%.
Last quarter, you are saying we are pushing through some increased.
Rates, we'll see how successful we are as we go through the rest of the year, but if we're successful I think we can move back up towards that three 8% and if we're not it will stick around this 3.1, so I would expect it to move slowly higher and the <unk> in the next quarter or two but.
Somewhere between the three one and the three eight and I'll pass to rich for the Oh, the SBA comment.
Sure on the on the <unk>.
S. P. A you can see we had good results from Q1 are we 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 to $1 15 on a typical mortgage and remember you split.
Anything above 110 with the SBA. So as you know not material changed it's still those are that's coming off historical high. So we still feel pretty good about the $1 15, and we feel good about our pipeline. So 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 what the seasonality a little bit more every quarter throughout the year. So this will be our this is our slowest seasonal SBA loan sale quarter generally.
Got it thank you for that.
And then maybe just switching I didn't have a question on the $45 $6 million of reliant loans you sold.
Wanted to understand.
Why you did that and what they were and also was the uptick in the <unk>.
Net charge offs that you saw.
Related to that sale at all.
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 novartis that we identified for reliance sorry.
That we identified in the due diligence process and so after further study early in the quarter. We decided it was the right time to go ahead and exit those credits.
So that was that on the.
On the other quote was you're right on the C&I side on the net charge offs. It was basically one credit.
Out of our seaside acquisition the principle of the business passed away and created a challenge for us and 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 but done with.
I can.
Yeah go ahead go ahead, yeah. So we as we signed the agreement in February .
So they are operating on their own and we are continuing to fund them for six months past that so should be done our part should be done by August ER as part of that we picked up the retail piece of the joint venture that's where the 10 ml lows that rich mentioned came in and so because that's really that was real.
Our interest is it both establishing and then expanding our retail mortgage presence in Nashville.
Got it okay, and maybe just on the mortgage banking real quick so the.
We're in the down cycle I guess.
Mortgage banking and so I guess I wanted to ask you did you fluctuate the number of producers that you had in house at all sort of Darren Darren.
The phase of the cycle from 2020 through 2021, and if you did could you give us a sense for how the employment levels change on a percentage basis.
I can tell you that the answer is yes, we did uptick as the market changed our 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 and I have those conversations are weekly with Mike Davies, our head of mortgage.
Got it and then I just had two last ones for you real quick just on the securities.
Yeah, I'll have grown HTM quite a bit and you know you move some of the iaff's broken into held to maturity this quarter.
But I guess longer term how is your thinking around what you want to do with the bond book I mean, obviously, you just said.
It was nice credit guys, you don't get paid to run run a bond book So alright.
Alright, do you look at the bond book once the cash once the excess liquidity on the cash side has dried up and look at that as a potential source of funding loan growth.
Diving further improvements in the ROA going forward.
Definitely that's so think about it like this so we have about 1 billion seven of cash right now as of quarter end and you're going to see that cash move into securities and I would think our securities book would be seven and a half billion dollar or so by by year end.
From there and a little bit depends on deposit growth and deposit growth is in that kind of zero to 5% range.
You're going to see that securities portfolio start to shrink and you're going to see C launch replace securities you're not you're going to see not a lot of balance sheet growth, but a lot of asset mix change, but should be helpful to the margin and the <unk> and they are away. So I think of it as a the securities portfolio as our filler in a way so 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 loans replace securities.
Got it and then for Glenn maybe just on the M&A front.
I think we all understand the philosophy that you operate in terms of the type of institution, you're looking for but I guess.
Sir I wanted to ask differently is there has there been any thought given to kind of letting the flywheel spin you now for 18 months or so going forward and in light of investors and analysts to see the operating profitability that you all have under the hood translate into GAAP profitability. So you can you can drive sort of the outside tangible book value growth, but I think the franchise.
It's capable of.
Yeah. So we certainly think about that Brody the kind of the offset to that and this is the bulk of them 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 are.
First it in <unk>.
And in the markets that we want to be in and.
So once.
Once those are gone I mean, I'm not interested in M&A for the sake of M&A for example, I mean, where we're thinking about it. This morning and just since November you know we've been invited into 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.
Don I'll borrow.
Laura riches [laughter] term, they don't move the needle the way, we'd like to do it and.
And so when though one of those that are in the market, we want the quality that we want.
My choices to go ahead and execute on them, because theyre not going to be there otherwise and so I would love for the sellers to pace out there [laughter] their sales processes, I, absolutely would but but I'm I'm really slave to to what these high quality.
Sellers in the right markets decide to do.
Got it thank you for that and I guess I lied I do have one more question for rich Rich you mentioned.
The loan growth do you expect it to be I guess right now based on the activity you're seeing similar though.
<unk> similar to <unk> is that on a dollar basis or a percentage basis.
It'd 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.
Yeah.
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 debt Cecil bubbled up hitting this quarter and you guys choose them to take the reserve up so just kind of two questions on that number one.
The the the the choice to build the reserves and I think Jefferson you Might've mentioned a.
A worst economic forecast what was that.
Really more just.
Taking our forecasting and putting in the model or was that more subjective.
Let's be prudent given the uncertainty on the.
In the environment right now and then secondly.
How should we look at about one O 2% ACL ratio going forward is that something that can.
Can grind down a little bit more or would you expect it to stay here or even expand.
Yeah, So hey, Kevin it's Rob.
Just on the first question around the forecast.
We do use the Moody's model for the economic forecast and 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 and so there.
That's what Jefferson I think was referencing in his comments was kind of switched to that model. It did.
Sort of have a bigger impact of inflation on consumer spending combined with sort of consumer at the expectation of consumer fears in the future. So I think there was a shift in the model in terms of the one O two.
Going forward, we don't have that as a target per se, but we do have we have had a.
Low charge offs.
Basically zero last year, we're at eight basis points. This year. So we expect continued low chartered low charge off environment. This year.
Which which would play a role so the other two items in the model would be the another change in the forecast and loan growth.
Okay. Thanks, Robert that's helpful and just a quick.
A quick follow up.
Hum.
You know given the inflationary environment.
The other.
Are there concerns out there potentially down the road.
Potential recession or are there any.
Segments of of your loan portfolio your.
Portfolio Youre looking at much closer.
You know Davita I know tends to have a higher loss rate.
Time, but that's doing very well from everything we've heard so I'm just curious any any parts of the portfolio you really keeping a closer eye on.
So two two things.
Just in terms of I'll, just identify it as changing parts of the portfolio. So I think youre right Nevadas came in at nine basis points of losses for the first quarter that's a.
Usual and unexpected you know so in our in our first year 2019 first full year of Nevada as they had in the 60 basis points charge off rate and Ah in 2020, they had a in the high seventy's on the basis point right. So.
We would expect that to begin and we don't expect I don't expect it to stay at nine basis points. So something in the 50 to 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.
They've kind of out of our $500 million in special mention and classified loans were $200 million is senior care portion of it we've seen that are the special mention and classified piece of that portfolio begin to come down and it feels like there's some positive momentum in the first quarter is.
Typically not a great quarter for them, but.
But we had we did see some improvement overall across the industry and also in our numbers there had a pay off had an upgrade and so we were.
Expecting continued positive news on that portfolio.
Okay, great. Thanks, very much yeah.
Our next question comes from David Bishop of Hub Group. Please proceed with your question.
Well, David Good morning, gentlemen, Hey, how are you good.
Quick question Jackson turn it back to not to beat a dead horse, but in terms of the excess liquidity the cash if I'm doing my numbers right.
I've got this it sounded like you expect that securities to trend up to maybe <unk>.
Seven 5 billion does that imply that you see that and appear in cash and short term liquidity.
Ended the year closer to maybe like that $800 million level and that would imply about double where you entered the pandemic is that just sort of keeping.
Do you think some of that excess cash just given what's happened with the rate environment, just give me a little bit of a little bit of a cushion depending on that deposit out there.
Yeah, that's exactly how I am thinking about it you know it could end up higher than the seven and a half billion dollars and some of it also depends on what deposit growth deposit growth comes in a heavier he might see that deposit growth.
The securities growth be a little higher, but but the seven $5 billion target does imply that we're not all the way where we want to be in a cash reinvestment by the end of the year, So youre thinking about it exactly right.
Got it and then I don't know if I heard this I think is about just in terms of.
The commercial pipeline relative to last quarter, and maybe any update in terms of what you saw intra quarter in terms of commercial line usage trends.
Right.
Okay.
Rich how are you yes the.
Expecting broad commercial volume to be the same percentage as last quarter and 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.
Yeah.
This concludes our question and answer session I would now like to turn the conference back over to Lynn Harton for any closing remarks.
Oh, 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.
And thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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Hum.
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