United Community Banks Inc (UCBIO) 2022 Q1 法說會逐字稿

Good morning, and welcome to United Community Banks' First Quarter 2022 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson 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 ucbi.com.

Copies of the first quarter's earnings release and investor presentation were filed last night on Form 8-K with the SEC, and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on Pages 5 and 6 of the company's 2021 Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website.

At this time, I will turn the call over to Lynn Harton.

Good morning, and thank you all for joining our call today. The first quarter was a great one for United and certainly an interesting one from a more macro perspective. Our results this quarter include the acquisition of Reliant. And as a reminder, Reliant provides us with $3 billion in exposure to Middle Tennessee, primarily the Nashville MSA.

Reliant has been recognized as the best performing small bank in Tennessee for several consecutive years and we're excited and fortunate to have them as part of our team and our ongoing performance story. The normal double dip acquisition loan loss provision for Reliant impacted our reported results, as noted in the release and the presentation deck. Absent this provision and other merger charges, our operating return on assets would have been 1.1%, and our return on tangible common equity would have been 13.9%, both solid numbers we're proud to present.

We continue to see strong loan and deposit growth. Deposit growth, despite flat deposit cost, was almost 7% annualized on an organic basis, excluding the impact of Reliant. We experienced one of our best organic loan growth quarters at over 9% annualized, again, excluding the impact of Reliant and PPP. We expect to continue to take advantage of the strength of our markets and ongoing large bank merger disruption for the foreseeable future.

Beyond the quarter, I continue to be very optimistic. Yes, inflation is a concern, but I'm also reminded that real GDP growth has been very strong and is now back up above pre-pandemic levels. And our markets in the Southeast are outperforming the country as a whole. Increasing interest rates bring both opportunities and challenges depending upon the pace and scale of increases, I believe the economy is strong enough to withstand the type of rate increases the market is currently predicting. And actually rate increases in those amounts should be healthy for the economy long term.

While we are continuously scanning for the first signs of credit stress, we have not seen any weakness to date and are confident in our underwriting and approach to concentration management regardless of how the environment develops.

Finally, we continue to be excited about our culture and mission. Last week, we completed our annual spring leadership conference, bringing together about 200 of our leaders across the company for a 2-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, now, why don't you give us some more detail on the quarter. There are more moving parts this quarter than normal, and I know our audience will appreciate your view on our performance and outlook.

Thank you, Lynn. I'm going to start my comments on Page 8 and talk about what we believe is one of the core strengths of the company, and that's the deposit franchise. The mix is attractive with 38% of the deposits being DDA, and is also 92% nontime. Plus we grew core transaction deposits by $478 million in the quarter or at a 13% annualized pace, while keeping the cost at 6 basis points of total deposits.

Another key piece of our strategy and culture can be seen on Page 9 with a look at our loan portfolio. The portfolio is C&I heavy, very diversified and very granular. Adjusted for the Reliant deal and the Reliant related loan sale, we had our strongest loan growth in some time at 9.4% annualized. The strong loan growth was driven by C&I and commercial construction, and we are optimistic about the growth prospects for the rest of the year.

On Page 10, we saw some nice margin expansion this quarter, which we will talk about in the next pages, but we really have a nice medium- to long-term opportunity to remix our assets and some of this came to pass in Q1 with some help from Reliant. Our loan-to-deposit ratio moved to 68% from 64%, and our loan-to-asset ratio moved to 59% from 56% as our cash-to-assets ratio moved to 8% from 11%. All the beginning of a trend that should help our profitability over time.

On Page 11, our capital ratios came in as expected with the Reliant deal closed, and we are now right in line with our peer group. Our TCE and tangible book per share were down with a sharply higher rate environment and the corresponding decrease in OCI. Given our balance sheet flexibility with the low loan-to-deposit ratio, we moved about $1 billion of our securities to the held-to-maturity classification this quarter and specifically the held-to-maturity to total securities moved to 38% of the portfolio from 20%. There were no buybacks in the quarter but we do have a $50 million authorization in place.

Moving to Page 12. We have a good story in our spread income and net interest margin this quarter. Our net interest margin was up 16 basis points, but excluding PPP fees and loan accretion, the core net interest margin was up 24 basis points. Of the 24 basis points of core margin expansion, 15 basis points came from blending in the higher margin Reliant into our numbers and another 9 came from putting excess cash to work and other mix change improvements along with higher rates.

We could talk about asset sensitivity, too, in the Q&A, but we do benefit significantly from higher rates. With the speed and size and energy of the expected rate hikes, it's hard to estimate deposit betas, but given our high level of cash, our low loan-to-deposit ratio and the quality of our deposit base, we believe we are as well positioned as anyone for higher rates.

On the next page, Page 13, we take a closer look at fee income that was up $1.8 million quarter-to-quarter, and was benefited by a $6.3 million MSR gain and the Reliant numbers coming in and was offset by $3.7 million in securities losses. Excluding MSR gains in both quarters and Reliant, mortgage was down $1.2 million in the quarter, even as we had increased lock volume.

Locks moved up 9% to $757 million in Q1, and this was offset by a decrease in the gain on sale as the gain on sale percentage moved back to pre-pandemic levels. Our purchase-to-refi mix was 63% purchase, 37% refi. Excluding Reliant, our service charge income was down about $1 million from the fourth quarter, which was in line with our estimate when we put in the new fee schedules in November.

Next, to expenses, on Page 14, which is a good story as we improved our operating efficiency in the quarter to 53%. Reliant, of course, came into the numbers for the first time. It's hard to tease out the components exactly but we benefited from legacy UCBI expenses being down versus Q4 on an absolute basis by about $3 million, partially due to getting the full impact of the Aquesta cost savings. We also got half or a little more of the Reliant cost savings, which leaves us with about $2 million to $2.5 million to go as the conversion is happening later this month.

Page 15, we had another good quarter with regard to credit quality, with net charge-offs of $3 million, which is 8 basis points of loans annualized. While we had $3 million of net charge-offs, we had $23 million of loan loss provision and along with Reliant PCD marks, this increased our reserves by a good $35 million. Of the $23.1 million provision, $18.3 million came from the Reliant double dip and the remaining $4.7 million was mostly due to a worse economic forecast going into our CECL model.

On Page 16, you see we have generally improving trends in special mention and substandard accruing loans with NPAs just slightly higher. We remain optimistic about credit in 2022. And finally, on the next page, Page 17, you can see the movement in our reserve that moved to 1.02% of loans from 97 basis points with the benefit of Reliant and core provisioning that was in excess of net charge-offs. All said, we are encouraged by the strong loan growth and the margin expansion and the efficiency improvement and look forward to the rest of 2022.

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 2 outstanding customer satisfaction awards we received this quarter. The first is from J.D. Power. This quarter, we were once again named as the annual winner in the Southeast for overall customer satisfaction in retail banking. This marks 8 of the last 9 years, which is quite an accomplishment. This year, J.D. Power redesigned their study and now measures satisfaction across 7 factors: trust, people, account offerings, allowing customers to bank how and when they want, saving time and money, digital channels and resolving problems or complaints.

Our teams continue to set the bar for customer satisfaction across all these measures, and I couldn't be more proud of the team for delivering in this manner. This quarter, we were also ranked in the top 10 and of the world's best banks according to Forbes. This list, which is based largely on customer satisfaction data compiled by Statista, a market research firm, ranked banks in 27 countries across the globe. Of the banks in the U.S., United ranked third and was the top bank with a regional Southeastern presence. For any business, customer satisfaction is one of the most important long-term drivers of business success and shareholder value. 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.

(Operator Instructions) And our first question today comes from Jennifer Demba from Truist.

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 kind of topics of discussion and focus at the leadership conference?

All right. So I'll take the first part of that. So we have in here in the deck, I showed you, for the first time, some of our sensitivity analysis with a nondeposit maturity beta that from our experience in 2015. And it shows for a 25 rate hike that it's 4 basis points, if you believe in that 22% beta. This first one, we really haven't moved rates at all. So I think we can get more than 4 basis points of margin expansion from the first one. And there, we also have what a plus 100 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 upward 100 looks like, is that it helps us by $29 million.

Yes. So you may take the leadership thing -- so yes, it's a great question. I really wanted to make it about leadership. And so I kicked 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. 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 J.D. Power come in to break down the satisfaction studies that they do that -- what things make a difference, what moves the needle, what do we need to focus on. We had Chick-fil-A come in and talk about how to sustain the culture of service. Obviously, one of the companies that's best in the world at that. We had both TTV and Q2 come in to talk about FinTech. How does FinTech interact with banks? What's the future of FinTech? What should we be thinking about?

And then we've had a board, we always find what people are interested in what the Board thinks about United. So we had a board panel and finished it up with an economic panel led by Tom Barkin of the Fed -- Richmond Fed, CEO. So it's a great, great time. I felt like everybody walked away with a lot to think about and a lot to think about how to get better.

Yes, everybody seemed very fired up. And I just want to throw into my -- the last question. Those numbers are annual impacts. And to the extent that rate hikes happen in the middle of the year, you get only a partial amount of that this year. So those are next 12-month impacts, not quarterly, of course.

Our next question comes from Brad Milsaps of Piper Sandler.

Jefferson, maybe I want to start with expenses. Obviously, you guys had some great expense control in the quarter. It seems a lot of moving parts. If my math is right, if expenses were down at $3 million at stand-alone UCBI, means expenses maybe were only up 2.5% year-over-year. Do you think that's a number that's sustainable over the balance of 2022, given inflationary pressure out there, the way that you guys want to invest? Just kind of wanted to get a sense of how you're thinking about the expense run rate?

And then, I guess, secondly, I know the mortgage segment at RBNC, was it part of your expense save target. I wonder how those numbers are maybe in the combined numbers now? Have you sort of netted those together? I just didn't quite see how they showed up, but hopefully, maybe you can help me out there a little bit.

That is a great question. So I'll start with that, and I can maybe go with the Reliant mortgage and Rich can chip in on that as well. So the $110 million is not a bad run rate to start with. We do expect core growth off of that run rate. There is inflationary pressures out there that we're battling on a case-by-case basis. So that is -- we'll be growing off of that number. Again, as I mentioned in the prepared remarks, we do have $2 million to $2.5 million of quarterly cost savings that 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 piece of that. So I think if you put some core growth on the $110 million, maybe you're at $111 million, $112 million for the second quarter and a low growth rate off of that because we have -- in the near term, because we have some nice cost savings that upsets the growth rate. So it's -- that's how I would talk about the expenses.

But I'll start with the JV. The JV, we are now, as of February 17, a 0% owner of the JV, and it's in wind-down mode now. The numbers are still in our numbers, but they are not significant and they net to 0 on the net income. And I don't know if Richard, you'd have more to add on that or what the opportunity that gives us.

Sure. Well, we are excited about the mortgage opportunity -- the retail mortgage opportunity in Nashville. We're adding -- we added 10 MLOs. And that's right now about $10 million a month in production and we're expecting that to grow as they understand and our program is a little bit better and we offer a little bit more than they do. So that -- we're very excited about that, and we'll continue to look to add to that.

Okay. Great. That's very helpful. And then just final question for me. Jefferson, 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 2022, maybe between loans and bonds?

That was a great question too. We have -- with rates higher, we accelerated our securities purchases in the first quarter. I would expect to see that continue in the second quarter. I do think now with rates higher, you are going to see the slowdown in deposit 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 we've been waiting for happen and push the margin higher throughout the year.

Our next question comes from Catherine Mealor of KBW.

A follow-up on the margin conversation. Jefferson, is the 4 basis points per 25, that's hike, does that include remix? Or is that more just kind of looking at the balance sheet, as in how rates new numbers as in the balance sheet?

Right. That is rates only. So if you put remix in there, I would expect some improvement from remix. I'd also expect -- we had unusually low, in my mind, anyway, loan accretion this quarter, while it's not particularly core, the amount of our -- the accretion rolling through at the end of last quarter was $18 million. Reliant added $14 million to that. We had $3 million of accretion, but now we're coming off a $29 million base, which is higher than where we've been. So I think that probably adds a little bit to the GAAP margin as well. So the -- to answer your question more simply, the 4 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 $2 million to $2.5 million a quarter, is that still the case? Or maybe that was just Reliant as well?

Well, that -- I believe that, that forecast would be excluding Reliant, with Reliant expect that to be higher in the upcoming couple of quarters at least.

Got it. Okay. Got it. Okay. And then on loan yields, obviously, the increase in loan yield was mostly from the Reliant acquisition. And so as we think about how quickly that moves moving forward, is -- I guess, maybe question one is, on average, where are new -- where new loan production is coming on relative to that level? And so you still have some kind of downward pressure as kind of 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 with some higher-yielding portfolios like the manufactured housing and Navitas. And so how much of growth and higher-yielding portfolios do you think plays into the upside in loan yields through the back half of the year as well?

All right. It's a great question. I'm looking at Rich here. I don't know if -- how we're going to share this question a little bit. Do you want to start with what you're seeing maybe in committee as far as new loan yields coming on. I don't know if they've moved up.

Sure. I would say they wouldn't -- they haven't moved up, but they are flattening. That would be the way I'd answer that. And certainly, we expect our clients to be looking for more fixed rate and 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. So you'll see that benefit and then with a 50 basis point rate hike that moves to 46%, and then we'll get to the full 49% variable in 3 to 4 rate hikes, 3 to 4 25 basis point rate hikes if we get those. So you will see loan yields increase just by rates increasing. While you're seeing, I think what I would say is, the banks, in general, haven't moved up their loan pricing a lot yet, given where the curve has moved, I would expect that to happen over time just to have good spreads over treasury curves. Would you agree with that?

Yes. I agree with that, Jefferson.

And then remix into higher yielding loans is that a thesis, or do you think I'm overthinking that?

So, Rob, might step in here.

Well, I would just say we've had great loan growth from Navitas and there's no expected change in that loan growth. And then also manufactured housing, of course, is new to us. But 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 Catherine, this is Rich. And one of the things we're going to do or we are in the midst of already doing is teaming some of our Navitas professionals with the manufactured housing to see how we can scale up and do it in a risk conservative manner. But we do see that opportunity, and that's what we're putting together right now.

And just to add one more key stat to this. We just looked into our ALCO deck here, and we saw that the March new and renewed yield was up 12 basis points from February.

Our next question comes from Michael Rose of Raymond James.

I just wanted to circle back to loan growth. So I think last quarter, ex Reliant, you guys had said, expectations for about 7% growth this year. And if I exclude Reliant and PPP this quarter, it looks like it annualizes still about 9.5%. So it looks like you're tracking above that. What are kind of the puts and takes of that? And should we expect kind of a higher rate of growth versus that outlook at the beginning of the year?

Michael, this is Rich. Yes, I'm really expecting Q2 to look like Q1. So very, very similar growth. The strong pipelines going into the quarter. This past quarter, we saw our geographies be a little bit more balanced, sometimes it's lumpy, and we actually had 3 geographies competing head-to-head for top position until the last 2 weeks of the quarter. So -- and 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 that's where we've seen significant pickup in the last 15 months. In addition, we've just hired a conventional franchise team leader to build out. And this would be -- the loan size is greater than we do at Navitas and on the SBA side. So that C&I as well. So we're excited about what we see and we continue to be in great markets.

Great. And then last quarter, you guys talked about selling Navitas loans, about $10 million to $20 million a quarter. It looks like it was a little over $23 million this quarter. As we move through the bulk of the year, how should we think about that? Is that $10 million to $20 million range still good? Or should we think about a little bit of a higher range?

Thanks for the question. I think $20 million plus or minus $5 million is the -- is our target. So it could be as low as $15 million. I think most likely it's right there, around $20 million.

Our next question comes from Brody Preston of Stephens Inc.

I've got a few questions for you. I guess maybe I just wanted to piggyback on the Navitas. I think the gain on sale margin for Navitas came in a little bit this quarter, while the SBA used the margin held up pretty nicely. And so maybe could you help us think about what we should expect for margins on each of those papers going forward?

Yes, great question. I'll start with the Navitas part and Rich will comment on the SBA part. So think of the Navitas loans, they are fixed rate loans and with the rates moving higher, you saw a decline in the gain on sale of those Navitas loans to 3.1% from 3.8% last quarter. You are seeing -- 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 3.8%, and if we're not, it will stick around on this 3.1%. So I would expect it to move slightly higher in the next quarter or 2. But somewhere between the 3.1% and the 3.8%. And I'll pass to Rich for the SBA comment.

Sure. On the SBA, you can see we had good results from Q1. 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 115% on a typical mortgage. And remember, you split anything above 110% with the SBA. So not a material change. It's still -- those are that's coming off historical high. So we still feel pretty good about the 115%, and we feel good about our pipeline. So we 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 saw, just with seasonality, a little bit more every quarter throughout the year. So this will be -- this is our slowest seasonal SBA loan sale quarter generally.

Got it. Then maybe just switching -- I did have a question on the $45.6 million of Reliant loans you sold. I wanted to understand why you did that and what they were? And also, with the uptick in the C&I net charges that you saw related to that sale at all?

Okay. Brody, it's Rob. Just on the loan sale. These were loans out of market loans, which is kind of not typical for what we see at Navitas that we identified...

Reliant.

For Reliant, sorry, that we identified in the due diligence process. And so after a 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 other -- what was your...

C&I.

On the C&I side, on the net charge-offs, it was basically one credit out of our Seaside acquisition, the principal of the business passed away and created a challenge for us in the unwinding of that business.

Got it. Understood. Jefferson, you mentioned earlier that the Reliant mortgage joint venture is in the process of winding down. I'm sorry if I missed it, but did you give a timeline for when you expect that to be done with?

I can -- yes, go ahead, go ahead.

Yes. So we signed the agreement in February that -- so they are operating on their own. And we are continuing to fund them for 6 months past that. So should be done -- our part should be done by August. As part of that, we picked up the retail piece of the joint venture. That's where the 10 MLOs that Rich mentioned came in. And so -- because that's really -- that was really our interest is, both, establishing and then expanding the 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, phase of 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 during the up 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. 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 weekly with Mike Davis, our Head of mortgage.

Got it. And then I just had 2 last ones for you real quick. Just on the securities. You all have grown HTM quite a bit, and you moved some of the AFS book into held-to-maturity this quarter. But I guess like longer term, how is your thinking around what you want to do with the bond book? I mean, obviously, just as credit guys, you don't get paid to run a bond book. So 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 and driving further improvements in the ROA going forward?

Definitely. So I think about it like this. So we have about $1.7 billion of cash right now as of quarter end, and you're going to see that cash move into securities. And I would think our securities book would be $7.5 billion or so by year-end. From there, it little bit depends on deposit growth and if deposit growth is in that kind of 0 to 5% range, you're going to see the securities portfolio start to shrink and you're going to see loans replace securities.

You're going to see not a lot of balance sheet growth, but a lot of asset mix change, which should be helpful to the margin and the ROA. So I think of it as a -- the securities portfolio as a 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 the loans replace securities.

Got it. And then for Lynn, 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, has there -- I want to ask it differently, has there been any thought given to kind of letting the flywheel spin for 18 months or so going forward and let investors and analysts see the operating profitability that you'll have under the hood translate into GAAP profitability, so you can drive sort of the outsized tangible book value growth, that I think the franchise is capable of.

Yes. So we certainly think about that, Brody. The kind of the offset to that, and this is the fulcrum that we're trying to balance is, as I mentioned in my annual letter to shareholders, there's really only a handful of banks that are of the quality that we are interested in and in the markets that we want to be in. And so once those are gone, I mean -- I'm not interested in M&A for the sake of M&A, for example.

I mean we're thinking about it this morning and just since November, we've been invited to look at 3 companies that are -- they are fine companies, but just in terms of the markets that they're in and what they would add to the franchise just don't -- I'll borrow Rich's term, they don't move the needle the way we'd like to do it.

And so, when though, one of those that are in the market we want, the quality that we want, my choice is to go ahead and execute on them because they're not going to be there otherwise. And so I would love for the sellers to pace out their sales processes, as I absolutely would. But I'm really slaved to what these high-quality sellers in the right markets decide to do.

Got it. And I guess I'll, I do have one more question for Rich. Rich, you mentioned the loan growth, you expect it to be -- I guess right now based on the activity you're seeing similar to -- in 2Q similar to 1Q, is that on a dollar basis or a percentage basis?

It would be on a percentage basis, I expect it still to be around that 9% range.

Our next question comes from Kevin Fitzsimmons of D.A. Davidson.

Most of my questions have been asked already. I just had one follow-up on credit. So I know it was a lumpy quarter with the double dip -- CECL double up hitting this quarter, and you guys are choosing to take the reserve up. So just kind of 2 questions on that. Number one, the choice to build the reserves, and I think, Jefferson, you might have mentioned, a worse economic forecast. Was that like really more just taking that forecast and inputting into the model? Or was that more a subjective, let's be prudent given the uncertainty on -- in the environment right now. And then secondly, how should we look at that 102% ACL ratio going forward? Is that something that can grind down a little bit more? Or would you expect it to stay here or even expand?

Yes. 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 that's what Jefferson, I think, was referencing in his comments was kind of the switch to that model. It did sort of have a bigger impact of inflation on consumer spending, combined with sort of consumer -- the expectation of consumer fears in the future.

So I think there was a shift in the model. In terms of the 102%, going forward, we don't have that as a target per se. But we do have -- we have had low charge-offs, basically 0, last year. We're at 8 basis points this year. So we expect continued low charge-off environment this year which would play a role. So the other 2 items in the model would be the, another change in the forecast and loan growth.

Okay. That's helpful. And just a quick follow-up. Given the inflationary environment, the other concerns out there potentially down the road of potential recession, are there any segments of your loan portfolio you're looking at much closer. Navitas, I know, tends to have a higher loss rate over time, but that's doing very well from everything we've heard. So I'm just curious, any parts of the portfolio you're really keeping a closer eye on.

So 2 things just in terms of -- I'll just identify it as changing parts of the portfolio. So I think you're right, Navitas came in at 9 basis points of losses for the first quarter. That's unusual and unexpected. So in our first year, 2019, 1st full year of Navitas, they had in the 60 basis points charge-off rate. And in 2020, they had in the high 70s on the basis point rate. So we would expect that to begin -- we don't expect -- I don't expect it to stay at 9 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, we -- $200 million is the senior care portion of it. We've seen that the special mention and classified piece of that portfolio begin to come down and it feels like there's some positive momentum. The first quarter is typically not a great quarter for them, but we did see some improvement overall across the industry and also in our numbers there, had a payoff, had an upgrade. And so we're expecting continued positive news on that portfolio.

Our next question comes from David Bishop of Hovde Group.

A quick question, Jeff. So turning back to -- not to beat a dead horse, but in terms of the excess liquidity and the cash, if I'm doing my numbers right, making sure that I've got this. It sounded like you expected securities to trend up to maybe $7.5 billion. Does that imply that you see that end of period cash and short-term liquidity ended the year closer to maybe like that $800 million level and that would imply about double where you entered the pandemic and that just sort of keeping some of that excess cash just given what's happened with the rate environment. Just keeping a little bit of a cushion depending on that deposit outlook.

That's exactly how I'm thinking about it. It could end up higher than the $7.5 billion, and some of that also depends on what deposit growth -- so if the deposit growth comes in heavier, you might see that deposit growth or the securities growth be a little higher. But the $7.5 billion target does imply that we're not all the way where we want to be in the cash reinvestment by the end of the year. So you're thinking about it exactly right.

Got it. And then I don't know if I heard this or if you can give a thought just in terms of the commercial pipeline relative to last quarter? And maybe any update in terms of what you saw into the quarter in terms of commercial line usage trends.

This is Rich. Yes, the expecting commercial volume to be the same percentage as last quarter, in the 9% range. In terms of usage on the line side, really didn't see a change, no material change.

This concludes our question-and-answer session. I would now like to turn the conference back over to Lynn Harton for any closing remarks.

Well, great. Well, once again, thank you all for joining the call. We appreciate your interest in the company. Feel free to call us with any additional follow-up questions, and we'll look forward to talking to you soon. Thank you.

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