United Community Banks Inc (UCBIO) 2021 Q4 法說會逐字稿

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, precredit 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 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 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 5 and 6 of the company's 2020 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 at this time, 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 2021. First, our financial performance continues to be strong with a 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% and 17% annualized organic deposit growth. Our cost of deposits dropped by 1 basis point during the quarter and now stands at only 6 basis points. Credit results continued to be excellent with net charge-offs of only 1 basis point for the quarter, 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 Aquesta in August, and we completed systems conversion in mid-November. Our wealth management line of business strengthened by the addition of FinTrust 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 1, and we're now on track for systems conversion in April.

I'd like to extend a special welcome to the Reliant team, DeVan, John, Mark. All the leaders of Reliant have built a great team that will make United better, not just bigger. Reliant has been a multiple year winner 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 the opportunities that our new markets and lines of business have 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 8 and discuss the loan portfolio. The loan portfolio was positively impacted by the addition of the Aquesta loan book as well as the ongoing forgiveness of PPP 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 is 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 9. It shows our deposit growth, which was also impacted by Aquesta. 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 2022 and beyond.

Moving on to Page 11. We talk about capital. We have 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 2021, as we understood COVID more, we started putting capital to work. In 2021, we paid down $66 million in debt and Tier 2 capital. We raised our dividend by 11% year-over-year. We repurchased $15 million of our own shares and included $40 million of cash in the Aquesta deal that closed this quarter. Also, with Reliant closing in Q1, we still believe we'll 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 PPP fees and loan accretion. If you adjust for these and the Aquesta deal, we were pleased that our core spread income grew at approximately 8% annualized in the fourth quarter. Our core margin compressed 5 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, we 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, in line or a little above our expectations as volume declined. 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 $1 million in gain on sale of Navitas loans as well.

I would like to talk about our service charge outlook in 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 get their first overdraft of the year automatically forgiven. And now we don't charge for overdrafts if the account stays within $20 underwater. This is compared to a $5 threshold before.

And we have put limit in for the number of overdrafts that can occur in a single day at 3. And before, this limit had been 8. 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. We look at expenses that were higher in the quarter, primarily driven by the addition of Aquesta. We completed the Aquesta 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. We 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 $647,000 release of provision in Q4. The release was driven by a $3.3 million Aquesta double dip, netted by a $3.9 million core reserve release. The chart shows the components of the change in our reserve, which includes a $3.6 million day 1 reserve increase from Aquesta PCD loans, that went straight into the reserve without going through the provision.

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

Thank you, Jefferson. I mentioned that we were entering 2022 with momentum. We've got 4 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 2021 as well with another year of recognition by J.D. Power of having the top retail banking satisfaction score in the Southeast 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 2021. As importantly, we are well positioned to continue that performance with strong teams, great markets, an incredible deposit base and strong momentum in our lending businesses.

Finally, we want to make a difference in our communities. 2021 was the first full year of operations of the United Community Bank Foundation. And already, we have made over 110 donations to various community organizations throughout our footprint, amplifying the on-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 I'd like to now open the floor for questions.

(Operator Instructions) As a reminder, this conference is being recorded. (Operator Instructions) Our first question is from Michael Rose with Raymond James.

Jefferson, maybe we could start on the loan growth front. Obviously, this quarter, pretty strong, ex-Aquesta and PPP. Just as we think about this -- well, first of all, in the quarter, can you just talk to originations versus paydowns? Just trying to get a sense of any of those accelerator paydowns slowed?

And then as we think about 2022, ex-Reliant, should we still be kind of contemplating mid-single-digit level? Or do you have enough confidence in the footprint and in your customers and the dislocation from some recent deals in your markets that it could be a little bit higher than that?

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 were mortgage, owner-occupied CRE and our equipment finance team, Navitas. In terms of geographies, where we're seeing that came from did change a little bit. In terms of Q4, Metro Atlanta led the way with North Carolina right behind. And kind of a big change for us in 2021, North Carolina and the Raleigh team led the company. And so that's a change taken over from South Carolina.

In terms of in 2022, we see that looking a little bit like Q4. So I would expect that 7% is probably a good number going forward, maybe a little conservative, but also say that Q1 is a little seasonal. So that's how we're looking right now.

Okay. Helpful. And then if we can just contemplate Reliant coming in, obviously, at the beginning of the quarter, 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 -- maybe just provide any updates on Reliant accretion expectations?

And then all in, based on the modeling work that you guys have done, where does your asset sensitivity stand, I guess, Jan 1 with Reliant included just as we think about a plus 100 scenario?

All right. So the Reliant deal numbers, the accretion numbers are unchanged. We think the cost savings estimates are correct. And the -- what numbers we've given you in the past are still good to use for 2022. We're really excited about Reliant and the team and demand. So it's -- we're -- I think the financial piece of the deal is going to work exactly like we thought.

From an asset sensitivity standpoint, yes, if rates go up, that deal will be more accretive, but think about the whole bank on the asset sensitivity question. I think that our -- in the current balance sheet, up 25 basis point environment, we're $0.10 accretive. And I think that level of asset sensitivity might go down some over the year, as we put some of this cash to work, and become less asset sensitive over the year. But if it happened right now, I think it's $0.10 annual to us.

Okay. So roughly 10 -- or $0.10 for each 25 basis point hike? Or does that fade like you just mentioned as we get, hopefully, more?

Yes. So I think it fades a little bit with each one, because your deposit betas will start to normalize higher. For the first one, I think the deposit beta is very close to 0. I think 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 1 final one for me. Looks like the Navitas gain on sale margin down again. Can you give us just any sort of initial expectations for '22 as it relates to how much you might plan to sell? I know it's going to be a function of it if you do more deals or things like that and then where that gain on sale margin should hopefully stabilize and what it would do in a rising rate environment?

Yes. So I've been seeing a lot of compare numbers on this because I'm seeing a relatively stable gain on sale at Reliant in that 4% to 5% range, 4.5% is what I would expect there. I'm not really seeing that come in a little bit -- I'm not really seeing that come in -- I'm seeing -- we're seeing the yields come in maybe 2 or 3 basis points a quarter. We're seeing the gain on sale be relatively stable. It is a very attractive piece of paper with a very high yield and the loss experience has been low. I would expect us to sell $10 million to $20 million of Navitas loans a quarter. And to be in that 4% to 5% gain on sale range as we do it.

The next question is from Brad Milsaps with Piper Sandler.

Jefferson, 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 in the bond portfolio from here.

Yes, that's a great question. Thanks for it. The -- so you have been seeing our securities portfolio grow at a pretty strong pace. We have had rates move higher. So you can expect our securities growth to be increased from where it was because the opportunities are there in a bigger way. So that's how I think about it on a quarter-to-quarter basis.

If you think about it annual, I mean we are working to put this cash to work this year. So I think you're going to see a securities portfolio that absorbs and loan growth that Rich was talking about that absorbs as cash by year-end. That's our plan. So you should see very significant growth in the securities portfolio, especially as rates rise.

Okay. And Rich, is 7% loan growth guidance, that includes the -- that would be off the base of the Reliant loans, is that correct?

Yes, that is correct. Yes.

Okay. Okay. Great. And then just 1 follow-up for me, Jefferson, maybe on the mortgage business. I think that you mentioned it was maybe about in line with your expectations for the quarter. Can you talk about kind of what you think will play out in 2022 for you guys? Do you have any expense offset? And then sort of third, how to think about the Reliant mortgage pieces as you pull that in as well?

All right. This is Rich. I'll talk about mortgage a little bit in terms of -- you commented on Q4. So I'll move on to 2022. We see that probably 7% to 10% down year-over-year in volume and the MBA is forecasting for the next 2 years, really high forecast on purchase. And we've been strong purchase all along. So we've certainly been helped by refi, but we haven't lived on refi.

So we feel good about that. And also I'd 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 MLOs down there, and we'll continue that. And then obviously, we have the new Nashville opportunity as well.

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

Just a follow-up on fee revenues. The comment that was made about the steps being taken on overdraft charges. I noticed service charges were down in fourth quarter. So is some of that effect that you said you could -- I believe it was like $2.2 million, you could lose in 2022. Is that effectively already in the run rate by the decline we saw? Or is that still to come?

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 the fourth quarter run rate is a good base to use this off of. Because of the piece of this that has the first one that is 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, front-loaded a little bit into Q1 off of this base, and that's the way to forecast it.

Okay. That's great. And maybe if you could just -- I know it's difficult because there's a lot of moving parts. And with Reliant coming in, 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, we kind of -- would you say we're near the ends of negative provisions and releases? Or could there still be more to come over the next 2 to 3 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, basically finishing the year with 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 2020-2019 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 of that ratio with the Reliant marks. Just keep that in mind, too, you've got to overlay that piece of it.

The next question is from Jennifer Demba with Truist.

What do you feel like the best fee income growth opportunities are for the company in '22 and '23 right now with the headwind in overdraft and in mortgage?

Jennifer, a great question. And I'm not sure we might all jump in on this. We're looking around the table right now. But the asset management is 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 Gideon Haymaker.

We had bought the RIA FinTrust. We're reorganizing the branding of this. We're going to overlay it across the footprint. So we're excited there. 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 on to Florida. Rich 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 I'll say brokerage and mortgage and throw it to the group and see if anybody wants to add a [thesis] to that.

Jefferson, I thought you did a good job of summarizing that. I'd probably add that we bought FinTrust last year, and we've been working on behind the scenes or when you have trust powers, you've to do the 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 our 55,000 commercial customers, starting to pilot in North Carolina, looks like Jacksonville, in first quarter. So it's just the 1 plus 1 equals 3 hasn't happened yet because we haven't rolled this out yet, but rolling it out in Q1, and so we're excited about that.

And then I would say it's nice to have different levers and the one we can pull a little bit more is probably SBA. So that's one we'd expect to see a little bit more. And I use that term SBA generically because we sometimes do a fair amount of USBA, either business and industry or the REIT 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 under the USBA program. So we expect those to come to fruition later this year.

Okay. Just 1 more question, if I can. You guys have done a fair amount of transactions over the past year or 2. Just wondering what your interest level is here in '22 after the conversion of Reliant.

Jenny, this is Lynn. Yes, I would say -- you should expect us to continue to stick with our strategy. And as kind of a reminder, we like smaller organizations first because they align with us on the customer experience, on the employee experience. They're modeled in. They organize themselves in a geographic manner like we do. So it's a natural fit for the key leadership, which leads to higher -- all those things together lead to higher retention.

So we like the smaller organizations in higher growth markets. And that's -- if you look back what we've done, we've been pretty consistent with that. And 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 their timing, price expectations, et cetera.

So I would hope to see us do 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, but we're not in a position where we need to do M&A. And so it'd be great if it happens, but it's not necessary for us to hit our goals.

The next question is from Brody Preston with Stephens.

I've got a number of questions. I'm just going to ask some and hop back in the queue and maybe come back at the end. I wanted to follow up on the securities question that was asked earlier. So just looking at the securities book, the HTM growth is up 175% year-over-year, which is quite a bit more than the AFS 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 maybe the need to deploy liquidity without seeing tangible book value get negatively impacted from AOCI as rates continue to move higher?

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 assets. Securities assets are 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 in a higher rate environment, what happens to those 2 ratios. So as our portfolio is getting larger as a percentage of the balance sheet, we made a decision to take HTM from 10% to 20% of securities, and we're basically there now. So that is why it's grown faster, because of that decision to increase the percentage.

I think it could be likely that we 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 HTM piece of it. Also, as we're getting -- as our portfolio is getting larger and a more, I guess, hearty risk, thing to think about is our percentage that is fixed versus floating.

Coming into the cycle, we were 10% floating in our securities portfolio, and now we're 25%. And so as we grow the securities book, I think you'll also see the percent floating increase to reduce the risk of unrealized bond losses and higher rates, and you'll see a secondary piece of that risk retention or risk 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 current yields that you're putting on the book coming on it?

So 4 years and 1.75% range. So the good news piece of that -- I guess the 2 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 service charges. So I get it on the overdraft. I guess I would ask -- it sounded like the -- this quarter's run rate, I just want to clarify, is that a good run rate to use for UCBI plus Aquesta and then I minus out the $2.7 million annually from this? Or is that inclusive of some of that $2.7 million?

And then it looked like RBNC was running at like $1.5 million to $1.7 million per quarter in service charges in 2021. 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 those moving pieces.

Yes, I think this is a good base for Aquesta plus UCB. Add Reliant to it and take off 2.7% for the year. It's a good start.

And I thought about the second piece of your earlier question, I apologize for that. I'll talk about duration. And we do think -- I mentioned how asset sensitive we are. We have 53% of our loans flowed. We have a very core deposit base. And so we do think we will and we -- we believe and we will continue to add securities of duration into the securities book.

We are seeing a little more steepness in the curve now. We think that's an opportunity for us. And it does take some of the asset sensitivity off the table, but that's what it's going to look like all year. We're going to add to the securities book, reduce 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 2 more quick ones before I hop back in the queue. The $1.8 million of PPP, is that inclusive of RBNC or do we need to add more to that for RBNC?

So just use the $1.8 million for PPP fees. The RBNC and Aquesta, we marked those books to market. They come back through via accretion. They don't come back through via PPP 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 accretable yield piece, I think last quarter, you said you were still kind of going through the RBNC marks. And so do you -- could you give us a sense, just given the volatility we saw in accretable yield this quarter, could you give us a sense for what that run rate is going to look like in 2022 with RBNC in the mix?

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 we're at $32.5 million left to bring through. And we can talk offline of how much of that $32.5 million we think is going to come through in 2022. But think of it as a 3-, 4-year duration -- coming through in a 3- or 4-year duration.

The next question is from Christopher Marinac with Janney Montgomery Scott.

Jefferson, I just want to clarify if the loan growth comes in as planned off the base of Reliant, 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 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 earning 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 and move it into securities, and securities would move it into loans. So if deposit growth is flat next year, then our earning asset growth will be flat and you'll just see a higher margin, higher ROA on the same balance sheet.

Got it. 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 are just alluding to as well as kind of how you balance fixed versus floating on the loan side?

So those 2 things plus I think you're going to see what we saw last time was a ramping deposit beta. So I think deposit beta starts at 0 or very close to it. I think it moves to the mid-20s where we were in the 2015 time frame. So you'll go 0, 5 to 10, 10 to 15, and then maybe after 4, closer to a historical 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 weren't at a 64% loan-to-deposit ratio.

So I think that points to the fact that our deposit betas should be lower this cycle than they were last cycle. And so maybe we keep some of that asset sensitivity. So 1 -- 2 things really. I think that we'll 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 -- something close to a 0% at the beginning.

The next question is from Stuart Lotz with KBW.

Jefferson, I appreciate all the detail kind of on your, I guess, the margin outlook and asset sensitivity. But as we look at the first quarter and kind of a blended core loan yield. I think RBNC's kind of last disclosure, they were bringing over loans at around 5.25% versus, if I calculate your core loans today at just under 4%, where do you see kind of a blended rate shaking out in the first quarter? And is that dependent upon -- or sorry, that's kind of executable yield.

So yes, it's a great question, Stuart. Thank you for it. So I do think we have seen the bottom of our core margin, partially, because of adding Reliant. Adding Reliant 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, are -- I had mentioned a couple of times that our average cash is $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 nice loan growth that Rich was talking about.

So I think -- and we have also a higher rates that it's attractive to put some of this work to -- some of this cash to work in securities. So the combination of that 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 $300 million? And then how quickly -- how much expansion do you think is possible in 2022 if we do get a few hikes plus continued redeployment of your liquidity?

It's a great question. So we have -- we were at $281 million this quarter and the $10 million to $12 million gets you to the $290 million. So I think below $300 million, but up $10 million to $12 million, then you've got some very hard to project the accretable yield that's going to come in the first quarter. But then you have -- if you have -- that's not including any rate hikes, so not to $300 million, but significantly higher than the $281 million.

Great. And I just had 1 follow-up regarding Navitas. I think the credit there continues to impress, but just given all the Fed stimulus and with that paring back now, I mean how quickly do you think credit will normalize there? And how should we think about kind of net charge-offs from that portfolio in a normalized credit environment?

Stuart, it's Rob Edwards. We do expect a -- I'm hesitant to use the word normalize, but for the longest time, we bought them in 2018 and really up until probably midway through last year, they charged off between $1.3 million and $1.8 million and then -- every quarter. And then that process grew the portfolio from $400 million to almost $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 loss. And really, probably somewhat higher than that given the size of the portfolio has over doubled.

And do you anticipate, just given kind of normalizing charge-offs, further reserve release from that -- the 1.5% on that portfolio today? Or do you -- would reach the bottom growth from that standpoint?

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 would -- and charge-offs would come back to previous levels, that would be -- make it unlikely that there'd be a lot of release in that specific portfolio.

The next question is a follow-up from Brody Preston with Stephens.

Sorry about that. Yes, guys, I just have a few more. I appreciate you being on to take the follow-ups. Jefferson, this -- or maybe Rich would -- should add color here as well. But just on SBA. This level of SBA sale volume is more consistent with what you all did in 2017 and 2018. And so I guess I want 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 the 7(a) program, just given the broader geographic footprint you all have now and the success you had in PPP?

I'll just start with the sales and the expectation there and Rich can talk about the business there. In 2020 and 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 sales and let those balances grow. Now we plan to go back to our more normal selling of SBA loans with mortgage normalizing.

And with that said, I would target maybe -- again, there's -- but there's a lot of seasonality there, too. So the weakest seasonal quarter is the first and it ramps up towards the fourth, and I would expect about $2 million in the first quarter, plus or minus. And then for that to ramp up during the year and have that be a growth rate over what you're seeing in 2021 in total gain on sale. Now with that...

I would comment with that regard that we do have an inventory there because we don't sell everything each quarter. So we already have an inventory. So we're managing how much we want to sell currently. Then in terms of the 7(a) program going forward, I think you're aware that we were very active in PPP. We did not outsource anything. And so our SBA team has been center stage on PPP. So the -- you're doing 2 things at the same time. And without winding down, we're ramping up for the first time, we're full on SBA salespeople.

And then, of course, we just acquired Reliant. So we are actively looking in Nashville and our new people in Florida have really just started to gain traction. So we're really excited about the opportunity and the team is excited to get back into the 7(a) business.

Got it. And then maybe just sticking with SBA. 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 guarantee percentage came down with the CARES Act rolling off. But was there anything besides that, that drove tighter SBA margins?

And separately, going forward, as we're thinking about rising rates, should we be thinking also about lower gain on sale margins as rates rise?

So we did see the secondary market come down a little bit. Remember, the sale is driven by duration and interest rates. It depends on your mix a little bit for the quarter. But (inaudible) still was very high as historically. As interest rates go up, I would expect it could be a little compression. But there's still right now a big desire -- there's still a lot of liquidity out there and a big desire for that guaranteed money.

And we have the inventory that you spoke of to, so it gives us a little more flexibility to hit our budget even if rates rise and the gain on sale comes down a little bit.

It creates a really nice lever for us to be able to have some optionality.

Got it. Okay. And shifting away from SBA, Jefferson. Do you guys have an estimate of what the day 1 reserve level looks like with Aquesta and Reliant folded into the mix? I know it's a little challenging.

Yes. Let's see here. I could do that. I know we have a double dip that we're expecting of 16, and I believe the original mark was -- I'm looking at 1 person here had it, it was 15. So I think we have -- we're expecting roughly $30 million to go into the reserve via double dip and day 1 PCD mark. 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 just going to say you said Aquesta and Reliant. The Aquesta stuff is in the deck on Page 18, what we did on day 1. And so this -- your numbers were just Reliant.

Correct. Yes.

Okay. Got it. And then just 2 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, and it'll be down fractionally from there. They're about 15% of our loan book. So it will come down a little bit, but not a lot.

Okay. And then could you guys provide some color on what Reliant's core loan growth was, ex-PPP, for the fourth quarter?

It was relatively flat, maybe a little bit under. So they had a great Q3, but they didn't have -- they didn't enjoy the same thing in Q4, which is not unusual in an acquisition period before your -- before the deal closes. We've seen that historically.

Understood. Rob, thanks for putting the senior care slide back in the deck this quarter.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Harton 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'll 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.