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United Community Banks Inc (NASDAQ:UCBI)
Q4 2020 Earnings Call
Jan 20, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to United Community Banks Fourth Quarter 2020 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards.

United's presentation today includes references to operating earnings, pre-tax pre-credit earnings, and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the Financial Highlights section of the earnings release, as well as at the end of the Investor Presentation. Both are included on the website at ucbi.com. Copies of the 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 statement should be considered in light of risks and uncertainties described on Page 3 of the Company's 2019 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.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Good morning, and thank you all for joining our call. Results this quarter were driven both by strong underlying business performance and a very successful start to PPP forgiveness. EPS came in at $0.66 on a GAAP basis and $0.68 on an operating basis, both representing solid improvements over both last quarter and last year.

Our return on assets of 1.3% drove a return on common equity of 12.4%. On an operating basis, our return on assets was 1.34% and we reached 16.3% in our our return on tangible common equity. These numbers include a discretionary $8.5 million contribution to the United Community Bank Foundation. Excluding this, our operating ROA was 1.49% and our earnings per share was $0.75.

For some time, I wanted to take a more strategic approach to our charitable giving and in doing so make an even greater positive impact in our communities. Having the one-time gain from PPP fees, it seemed like the perfect opportunity to launch that initiative. I believe this will be a win-win for all of our constituents. It certainly will be good for our communities as we focus on improving the vitality of our markets. Our employees are excited about having support from the Foundation for the local charitable events and boards that they have served on for many years. It will also enhance our brand as the bank that service built and continue to differentiate us in our markets from the banks we compete with.

Our teams continued to deliver strong loan and deposit growth with 8% core loan growth and 13% annualized core transaction deposit growth. We are continuing to drive down deposit cost, which fell to 17 basis points this quarter, down 8 basis points from last quarter. The low rate environment has pressured the margin, which without PPP fees would have declined about 10 basis points.

Credit continues to perform well. Net charge-offs were 5 basis points for the quarter and non-performing assets were 55 basis points of total loans. We are seeing increases in criticized and classified loan levels, as you would expect, driven by COVID impacted segments. Our allowance was essentially flat for the quarter as improving economic forecast offset the provisions needed for loan growth. This was a strong quarter for the Company and reflects great efforts by our teams throughout the bank to maintain focus and continue to take care of our customers.

For more details, I'll turn it over to the team here, and I'll start with Rob.

Robert A. Edwards -- Chief Risk Officer

Thank you, Lynn. I will start my comments on Page 7. We were pleased with our loan growth in the quarter. Excluding PPP loans, we had $243 million in loan growth, which translates into 8% annualized growth in the quarter. Growth was well distributed across different portfolios from residential to equipment finance to commercial to real estate. We were also pleased with the progress we made in helping our PPP borrowers achieve forgiveness, with just over half of our PPP loans being forgiven in Q4.

On Page 8, we also feel good about our credit quality given the stress in the economy and the high degree of uncertainty. Our net charge-offs were very low in the quarter at just 5 basis points, with the benefit of strong recoveries again this quarter. Navitas net charge-offs were also relatively low in the fourth quarter at 75 basis points, which is the best number that unit has reported since the third quarter of 2019. Our loan loss provision was $2.9 million this quarter and totaled $80.4 million for the full year, as we significantly built the reserve as the economic forecast deteriorated with the pandemic.

On Page 9, we give you some more detail on credit. Loan deferrals were $1.85 billion at June 30, as we took care of our customers at the start of the pandemic. But as the pandemic continued, the impact of the stress became more clearly identified in specific sub-portfolios. So deferrals have come all the way down to $71 million at year-end. But as you would expect, we did downgrade some loans which drove increases in our criticized and classified loans, about $207 million that mostly came from our hotel and senior care portfolios.

I will remind you that, both our hotel and senior care books have significant equity. The average occupancy of the hotel portfolio is 51% and is being pulled down by the urban, limited service sub-category, which carries a 42% occupancy. We provide greater detail on both portfolios in the appendix.

Our NPAs increased to [Phonetic] $12 million and stand at 55 basis points of total loans. All said, we feel good about where we are on credit and where our reserve is.

Page 10 shows a walk up on the reserve in Q4. We put $3.3 million into the reserve in Q4 due to loan growth, but our economic forecast improved a bit, which resulted in $2.2 million coming out of the reserve. You also see a $3.1 million increase from specific reserves, which corresponds with the C&I increase of NPAs in the quarter that you saw on the previous page. Net-net, excluding PPP loans, our reserve percentage was basically flat at 1.38%.

With that, I'll pass it over to Jefferson.

Jefferson Harralson -- Chief Financial Officer

Thank you, Rob. I'm going to start my comments on Page 11 and talk about capital. Our capital ratios were relatively flat in the quarter and remained significantly above peer levels. We expect to use capital in 2021 and are starting with two relatively small redemptions of a sub debt and a trust preferred in the first quarter. We are optimistic we can put some capital to work via M&A. And if that does not happen, you should expect to see some more redemptions of this type and for us to consider using our $50 million repurchase authorization this year.

On Page 13 [Phonetic], you can see our net interest income and net interest margin. Our margin was impacted by significant PPP forgiveness in the quarter and the impact of loan accretion was stable. Excluding these two items, our core margin was down 10 basis points. About 6 basis points of the 10 basis points of core margin pressure came from increased liquidity in the quarter. This increased liquidity was driven by the $671 million of PPP forgiveness, and our 17% annualized or $629 million in deposit growth in the quarter. More importantly, we were able to grow core net interest income by 8% annualized in a quarter despite the environmental headwinds due to our strong underlying loan growth and strong underlying deposit growth.

Moving to page 13, it shows the details of the strong deposit growth I mentioned in the quarter. Deposit growth was strong all year with the total deposits up 23% year-over-year, excluding the Seaside deal. This quarter's growth was benefited by our usual and expected increases in public funds. But excluding public funds, core transaction accounts were still up 13% annualized. We were also pleased that we made good progress on our cost of deposits moving down to 17 basis points from 25 basis points last quarter.

Page 14, we had a very strong quarter in non-interest income, albeit down from last quarter's record result. The main driver of the decrease from last quarter was mortgage, down $6.1 million. We record mortgage revenue at the time of rate lock and rate locks were down 11% in Q4 versus Q3. Also, the gain on sale percentage declined in the quarter, requiring a writedown in the pipeline.

Our mortgage production in January has started off as strong as ever. But with the gain on sale normalizing downward, we're expecting 1Q mortgage fee income in the $14 million to $16 million range. We did sell some $17 million of SBA loans in the quarter, driving a $1.5 million gain on sale and we expect to be selling a greater amount of both SBA and Navitas loans in 2021 versus 2020.

On Page 15, we talk on expenses. Excluding merger related and other cost, and our discretionary contribution to the Foundation, our expenses came in at $95.5 million. This $95.5 million result included a $1.8 million accrual for paid time off, or PTO, as this year we allowed our employees to carry over 80 hours of PTO into 2021. Assuming people mostly stay with United in 2021 and we return to normal operations in 2022, we would expect to get back the lion's share of this $1.8 million in 2021. All said, I anticipate that our Q1 run rate of operating expenses is plus or minus $92 million with a low-single-digit growth rate from there.

Moving to Page 16. We were very pleased that we were able to work with and help our customers achieve forgiveness on their PPP loans. And at 12/31, we had over 50% of our customers loans forgiven. PPP has been and continues to be a major tool that we are using to attract new customers from other banks and we think we will make great progress with more forgiveness in the first quarter.

I'll finish there and pass it back to Lynn for closing comments.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Thank you, Jefferson. I know all of our United team is proud to have ended the year with a strong quarter. As we know, it's been a year filled with challenges that never would have been expected 12 months ago. In spite of those challenges, we produced record levels of pre-tax pre-provision income and grew pre-tax pre-provision income by 15% in 2020.

We had record organic loan growth in dollar terms. We had record organic deposit growth in 2020 with $2.5 billion in growth, up 23%. We also had record mortgage production, which nearly doubled in 2020 to $2.1billion. Our teams created United's own portal and processing system for PPP origination and forgiveness. And our bankers literally worked around the clock to deliver that much needed product to our customers.

We welcome the new bank, Seaside, to the United team and we're now established in great markets in Florida, thanks to them. We enhanced our executive team with the addition of our new General Counsel, Melinda Davis Lux. We enhanced our Board with the addition of Jim Clements, President of Clemson University. And we made investments that will give returns for years to come with the establishment of our Foundation and a new department focused on community development and engagement. I'm excited about 2021 and I believe we will continue to see opportunities to improve and grow, thanks to an outstanding team throughout the Company.

I'd like to now open it up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Brad Milsaps with Piper Sandler. Your line is now open.

Brad Milsaps -- Piper Sandler -- Analyst

Hey, good morning, guys.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Good morning, Brad.

Brad Milsaps -- Piper Sandler -- Analyst

Jefferson, maybe I wanted to start with the balance sheet. Obviously, you guys have had tremendous deposit growth this year, trying to figure out ways to put all liquidity to work, it continued to be a challenge in the past. I think you've talked about mid-single-digit type loan growth in '21. Wanted to see if that number kind of still held true? And just kind of what your plans were kind of in the face of all liquidity, whether it'd be additional bonds? Obviously, you've got some small amount of debt out there, but probably not enough to absorb kind of everything you're looking at, at this point. Just any additional color there, [Indecipherable] loan growth and kind of how that impacts the NIM?

Jefferson Harralson -- Chief Financial Officer

Yes. I'm going to pitch it to Rich to start on the loan growth and I'll take that and we would enter the story for the balance sheet.

Richard W. Bradshaw -- Chief Banking Officer

Thank you, and good morning, Brad. Yes, we're expecting mid-single-digit growth in Q1 in 2021. The pipeline and activity are just very strong right now and we don't see that changing. And, again, with our new hires, we're feeling very good. And I think there's a great opportunity ahead for us.

Jefferson Harralson -- Chief Financial Officer

And with that base of loan growth, you're going to see some of the same things you've been seeing already. First of all, we expect another $600 million in from PPP forgiveness, so more cash in, so we probably become slightly more liquid again for one more quarter. We are expecting the balance sheet to stay relatively flat to higher. We expect these deposits have come in to stay. Now there is a standard deviation of outcomes around that. You may see deposits come in a little bit as you get forgiveness, but we think that deposits are most likely going to be sticky or grow a little bit.

We've about $1.1 billion of cash. Again with more cash coming in, we're going to first use it for loan growth, then you kind of see securities growth from here. We had about $600 million of securities growth this quarter. I would expect something relatively similar next quarter. And then from there, I would expect a relatively stable sized balance sheet with a mix change from cash to securities and securities to loans.

Brad Milsaps -- Piper Sandler -- Analyst

Great. That's helpful. And maybe just kind of one follow-up, maybe for Rich. We've got Round 2 of PPP coming or it's here, I suppose. I mean, would you guys expect to sort of participate kind of at the same level you did in Round 1, obviously adjusted for the size of the program, or do you expect that you could further increase share there given all the success you had during the first round?

Richard W. Bradshaw -- Chief Banking Officer

Sure. And you are correct. We're living the PPP dream again. It officially opened up for banks our size yesterday and our portal was open. To give you a feel, we had almost 1,900 applications come through for about $230 million. It gives you an average loan size about $120,000, which is similar to we experienced in the first time.

I would say the demand is a little smaller than the last time around. Part of that's driven by the requirements of the program and that they have to have a 25% reduction quarter-over-quarter. Remember the max loan size this time is $2 million versus $10 million. So there are some changes. So we're anticipating, I'm going to call it, $400 million to $450 million to be the total demand. And right now it's -- it feels like we're in the right position. Remember, it's called the second draw program on purpose, so that it's primarily geared at existing PPP customers and so the ones that come through our portal are -- it's quite easily -- very easy for us to process. And this time around, there is very little to do on loans less than $150,000.

Brad Milsaps -- Piper Sandler -- Analyst

Great. Thanks for all the color.

Richard W. Bradshaw -- Chief Banking Officer

Yes, sir.

Operator

Thank you. Our next question comes from the line of Michael Rose with Raymond James. Your line is now open.

Michael Rose -- Raymond James -- Analyst

Hey. Good morning, guys. Sorry, if I missed this. But I understand the core margin was down about 10 basis points. Looks like there is some puts and takes, you'll be redeeming some debt, mix shift, it's a loan growth, maybe some net securities purchases. Are we near a bottom in the core margin? And could we actually see it expand as we move through the year just based on some of the stuff that you laid out?

Jefferson Harralson -- Chief Financial Officer

Yeah. That's -- yeah, thanks for the question. So yes, I think we are. In the first quarter, I'll call it flat to down 5 basis points in the core margin, then I would expect it higher throughout the year. Now this is because of the mix change. This is not including really anything with PPP too, so think of this as a sort of a forecast or my thoughts ex-PPP.

Michael Rose -- Raymond James -- Analyst

Correct. And then can you just give us an update on the lending hires. I think you've hired 40 revenue producers over the past two years or so. What are your -- what's your appetite as we move into this year? It does seem like there is some opportunities and some dislocations in some of your markets. And then how much of that kind of mid-single-digit loan growth is actually coming from new originations versus kind of migration of books of business from some of those lenders you brought on? Thanks.

Richard W. Bradshaw -- Chief Banking Officer

Sure. Michael, this is Rich again. Great question. So, in January, we have hired 10 commercial people, one private banker in there. To give you a feel of those 10, six are in Florida. So we're taking advantage of our new platform in Florida and the metro markets that we're in. I will tell you, there are a lot of good conversations going on, some team lift out opportunities. I'll also tell you, you know that bonuses have to be paid right now. So I would expect a very strong February in terms of our hiring and I feel very good about those conversations. Particularly in Florida, right now, it feels like Atlanta a year ago, particularly with Truist, JPMorgan, BMO Harris, there is just a lot of good opportunities for us and we're moving forward with that.

The last question you put in there, to give you a feel, in March of last year we hired a team from Truist in Central Atlanta. They started a week before effectively COVID hit. So for the first three months, they were doing PPP and -- but what I'm really proud to tell you is that team did $65 million in commercial commitments last year, most of which were full funders. So we feel really good and we're feeling good about the teams we're talking to as far as the opportunity.

Michael Rose -- Raymond James -- Analyst

That's very helpful. Maybe just one more from me, but just more of a strategic question. You guys did the Seaside deal, you have a presence in Florida now. What do you need to do there to really get scale? I know the footprint there is relatively small. Is it just hiring teams? Is it M&A as well? And then has there been any change in sort of the types of deals that you guys would look at? I think you've historically done and talked about kind of down to $500 million, but up to kind of $2 billion or $3 billion in size. Thanks.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Yeah. So, great question. First, relative to Florida, there is nothing we need to do per se. I mean, keep in mind, it's a private bank, commercial bank, so bringing these teams on is very consistent with what we've done. We're going to be able to continue to do that. We are adding two retail locations to the Florida franchise that we're excited about. With that said, we would be very interested in doing additional M&A in Florida as well as our other markets. We've got conversations going on around our footprint and we feel good about the opportunity that we'll see there.

So in terms of the sizes, your range is correct. Given kind of what we see as the opportunity, we're probably more focused on the larger end of that range today than the smaller end. But we're looking at anything in that size range in our markets with good teams and a culture that fits, and we think we'll be able to do some -- have some good things to happen this year.

Michael Rose -- Raymond James -- Analyst

Great. I appreciate all the color. Thanks.

Operator

Thank you. Our next question comes from the line of Jennifer Demba with Truist Securities. Your line is now open.

Jennifer Demba -- Truist Securities -- Analyst

Thanks. Good morning. Lynn, could you just talk about what you're seeing in terms of incoming interest and deal activity right now. You seem pretty optimistic maybe something to happen this year?

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Yeah. Well, I mean I think everybody is looking at the same things we are. And in terms of margin, I think what we're seeing is a lot of banks that don't have a diversified business mix are going to struggle more. I mean, we've benefited from having Navitas, having mortgage operation, having having multiple levers to pull, SBA, etc. And I think if you're a smaller institution, might -- you're a great company, but you may not have those levers, I think they're thinking more seriously about who they're going to partner with. And I think culture and business model is playing more into that than raw price, I think, is what we're seeing. So I do think there's going to be some good opportunities this year.

Jennifer Demba -- Truist Securities -- Analyst

Thanks so much.

Operator

Thank you. Our next question comes from the line of Kevin Fitzsimmons with D.A. Davidson. Your line is now open.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Good morning, everyone.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Good morning.

Richard W. Bradshaw -- Chief Banking Officer

Good morning.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Just on the subject of the increase we saw in criticized/classifieds, we kind of known at some point we were going to see this where deferrals have come down meaningfully, but now we're seeing loans getting downgraded. How would -- should we expect in the next few quarters? Do you view this quarter as more of a one-time, like, pent up, catch up in downgrading those credits or would you expect a similar kind of pace of downgrades and increases to criticized and classifieds? Thanks.

Robert A. Edwards -- Chief Risk Officer

Hey, Kevin. This is Rob. Thanks for the question. Really two comments on how I'm thinking about it. Obviously, the biggest driver in the space that we have here is the pandemic, right. So the downgrades were almost entirely hotel and lease up or fill up, infill senior care properties. So if the pandemic sort of subsides dramatically by the end of the second quarter and things begin to return to something closer to what they were pre-pandemic, I think this reverse -- this trend reverses pretty quickly. If the pandemic persists, I think you -- there may be more.

I can also tell you sort of leading into the second point, maybe, as we have a -- our lowest pass risk grade increased by about $180 million in Q3. And obviously a lot of that went into criticized and classified during Q4. That lowest pass grade in Q4 declined by $50 million. So if the pandemic persists, I don't see a continued increase at the same rate, but I could see us have some additional credits move into criticized and classified.

I will mention though -- and maybe it just goes back to how you feel about the pandemic, but typically when you're building criticized and classified loans, you have maybe a flawed product or a flawed management team or a flawed business model. And in this case, I don't feel like we have any of that. We've got strong management teams, strong borrowers, strong products appropriately structured. It really is an impact of -- or a result of the impact of the pandemic.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

And, Rob, maybe talk about the primary driver or criteria, what puts something in the criticized category, which is really -- it's really -- the increase is really more in the criticized category versus the classifieds.

Robert A. Edwards -- Chief Risk Officer

That's right. Yeah. That's right. So if we have a credit that can't make amortizing P&I payments based on current operations, then it gets downgraded to either criticized or classified. So they've got to be able to make both the principal and interest payments on the amortizing debt.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Okay. Great, Rob. I appreciate that. And Jefferson, just one quick follow-on on expenses. Appreciate the outlook. Just curious if there are any specific initiatives that are better embedded within that outlook beyond deal-related cost saves that you expect to continue, I would think?

Jefferson Harralson -- Chief Financial Officer

Well, I mentioned the biggest one that you'll see is the $2 million a quarter as we start getting Seaside cost savings as that conversion is happening later this quarter. We had -- you will see the follow through on the six branch closures that we had in December will translate into some cost savings. That PTO piece of it, we don't think is going to recur. So some of that most likely comes back. And then from the other -- kind of the other pieces of cost savings, or just a lot of little things, we're trying to automate pieces of consumer lending, but it's -- there's nothing that's named, there's nothing that we're -- that's a big -- one big major project that's going to cut a bunch of dollars, but there is a lot of little ones that we think -- or that are ongoing that we think can help.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

All right. That's great. Thank you.

Operator

Thank you. Our next question comes from the line of Catherine Mealor with KBW. Your line is now open.

Catherine Mealor -- KBW -- Analyst

Hey, just wanted to follow up on some of the commentary, Jefferson, you made on the margin and I'm thinking about those loan yields and deposit costs. And my first question is, can you give us a sense as to where new loan yields are coming on for your new production versus where the portfolio sits today? And then also on the deposit side, I mean your deposit costs are still low at 17 basis points. How much further room do you think you have there? Thanks.

Jefferson Harralson -- Chief Financial Officer

All right. Thanks on that. And the -- I guess, the loan yield piece is my biggest worry for next year. Right now, you're seeing the loan yields come in at relatively similar to where they're going off. But we're sitting on a lot of cash, a lot of banks are sitting on a lot of cash, loan growth is necessary to eat into that cash. And so, I'm concerned that you're going to see increased price competition as we get into next year.

And I don't know if, Rich, you have comments on pricing.

Richard W. Bradshaw -- Chief Banking Officer

I would say we've seen a little of that, but not a great amount. And so, we're -- I'm not concerned about it at this point.

Jefferson Harralson -- Chief Financial Officer

So that's great. So you have that there. On the deposit pricing, we were down at 12 basis points in the -- at the Q3 of 2015, that was our low mark, and that is our target -- our interim target now. So if rates stay here, that's my target and try to get that down to 12 basis points.

Catherine Mealor -- KBW -- Analyst

Okay. That's great. On the securities yields, where are new securities yields coming on that $600 million you're investing per quarter?

Jefferson Harralson -- Chief Financial Officer

Right. So, this quarter they came on at about 110 basis points. Now the 110 basis points might be a little lower than you're expecting, because some of the investing we're doing, I would call it, alternative liquidity investing. So we're buying some pieces of bonds in the 50 basis point to 80 basis point range. This is AAA portions of asset-backed securities like credit cards and autos. This is two-year and less paper. This is the only -- only the AAA portion. So as we are kind of moving -- we're moving some of this just to be outside of cash before it goes into security. So if you think about the core securities portfolio, which is also growing, you're closer to kind of 150 basis points to 175 basis points.

Catherine Mealor -- KBW -- Analyst

Okay. That's helpful. Thank you.

Jefferson Harralson -- Chief Financial Officer

Okay.

Operator

Thank you. Our next question comes from the line of Brody Preston with Stephens, Inc. Your line is now open.

Brody Preston -- Stephens, Inc. -- Analyst

Good morning, everyone.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Good morning, Brody.

Richard W. Bradshaw -- Chief Banking Officer

Hey, Brody.

Brody Preston -- Stephens, Inc. -- Analyst

I just got a question. Jefferson, I want to circle back to mortgage real quick. So, I appreciate the guidance. The -- I guess the mix of the production you're seeing in 1Q, I think you're at 54%/46% purchase/refi. Is that a similar mix as what you were seeing on 1Q or has anything changed?

Richard W. Bradshaw -- Chief Banking Officer

This is Rich. Similar mix.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And what was the gain on sale margin for the fourth quarter?

Richard W. Bradshaw -- Chief Banking Officer

I have it at 4%.

Jefferson Harralson -- Chief Financial Officer

That's right.

Richard W. Bradshaw -- Chief Banking Officer

Yeah. 4%, we're expecting that to roll forward into Q1. And then it will -- we do forecast it to taper down as the year goes on.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. Thank you for that. What were average PPP loan balances for the quarter?

Jefferson Harralson -- Chief Financial Officer

$1 billion, almost even.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And will you expect -- I think you had a little, like, $640 million, $650 million, somewhere in that left. Would you expect to, like -- I guess, where are we in the pipeline of forgiveness? Is a big chunk of that going to be forgiven in 1Q or how should I be thinking about that?

Richard W. Bradshaw -- Chief Banking Officer

Jefferson, can I answer that one?

Jefferson Harralson -- Chief Financial Officer

Please do.

Richard W. Bradshaw -- Chief Banking Officer

So let me tell you on -- this is Rich, on second draw, one of the important things that we did was we told our customers that in order for them to submit for a second draw, they had to at least have their forgiveness submitted, and it was amazing how much came in in the last two weeks. So we have just -- we did essentially $1.1 billion in fundings in -- at United. And then we also at Seaside -- because that was -- they were under the different model at that time. But anyways, we just crossed the $1 billion mark in forgiveness that has been submitted to the SBA. And so we feel really good about that. So we're near the end of this one. EOP will be close to zero and average will be, I would think, a little less than $500 million.

Brody Preston -- Stephens, Inc. -- Analyst

Okay, great. Thank you for that.

Richard W. Bradshaw -- Chief Banking Officer

Q1.

Brody Preston -- Stephens, Inc. -- Analyst

The sub debt and TruPs redemption, that margin impact is just about like 1 basis point. Is that right, Jefferson?

Jefferson Harralson -- Chief Financial Officer

That's right. That's not a huge impact. Those are pretty small transactions.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And the loan growth guide for mid-single-digit, is that ex-PPP or inclusive of the PPP runoff?

Jefferson Harralson -- Chief Financial Officer

It's ex-PPP.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. I guess I'm having a hard time squaring mid-single-digit with there's [Phonetic] something closer to mid to high, I guess, just because you guys have been knocking the ball off the cover in terms of growth and it doesn't sound like you expect that to slow down in the first quarter at all.

Jefferson Harralson -- Chief Financial Officer

I'm being conservative. I'm looking across my partners here, because I can be a little bit over optimistic, but it's a little hard to figure out what happens with stimulus. I'm always a little weary of payoff, companies get bought, but we do feel good about the opportunity and the activity. So, right now, I see the machine keep going and I'm really feel good about our hires, but that's what I'm saying right now.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. Fair enough. Jefferson, on the expense outlook, so $92 million for the first quarter, could you just remind us -- I think the convergence slated for this quarter sometime in February, is that correct?

Jefferson Harralson -- Chief Financial Officer

It's correct.

Brody Preston -- Stephens, Inc. -- Analyst

So, are the bulk of those cost saves going to come post 1Q? Is that how should we be thinking about the run rate as we head into the second quarter?

Jefferson Harralson -- Chief Financial Officer

Yes. So, you'll start seeing some here in the first quarter. So maybe -- anyway we're not getting a one -- we're getting some cost savings starting 12/31, but full run rate in second quarter. And -- so, yes. So -- but we'll also have merit and some other things that will offset some of that merit increases.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And then I just got -- I just have two more. Rob, I just wanted to ask specifically on the senior care credits. It's the second quarter in a row I think you've called out some deterioration. And just looking at it, it looks like 30% of the portfolio is criticized at this point. Is that all still related just to the lease ups taken longer to reach stabilization or have you seen any change in occupancy levels at all?

Robert A. Edwards -- Chief Risk Officer

That's a great question. The short answer is, yes, it's related to the lease up properties. Our stabilized properties are running around 80% occupancy. So we see -- it's more of a one-off kind of thing. If you have a property that develops -- COVID sort of comes in and you have some change in occupancy, we have seen that in one or two properties. But we've got 20 properties in the book. And when we have seen it, we've seen them come back actually quicker than I would have expected in occupancy. So the stabilized properties for the most part are doing well, all of them, with the exception of two above 70% occupied. So I feel good about that and it's really just the lease up staging that is creating the challenge.

Brody Preston -- Stephens, Inc. -- Analyst

Okay, great. And then just on Navitas, you guys have had really strong growth there. And I know it's -- there is a bit of a pullback maybe in the number of participants earlier in the year just given the pandemic. So, I wanted to get a sense for -- just broadly, what the outlook kind of looks like? Have you seen competition increase? And then as we think about the growth in the business model moving forward, is there anything kind of unique about what you all do here that, I guess, maybe a focus on a certain niche that will continue to allow you to take market share at an above average rate?

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

So, I'll start with that and see what other people have to throw in there. So during the summer, we saw competition decrease a little bit when there was fears of liquidity, especially from non-bank competitors. We have seen the competition, I would say, normalized coming into now, but we've -- this momentum that we've had from a business perspective is continuing. I think it's really due to the strong team, we have great hires. So, it's -- so I think the competition has normalized, but I think we should expect strong growth there. We are making -- we are continuing to make strong hires, we think we have some market share takeaway, thesis happening as well there, and we have some budget there for them to hire people and grow that business in -- this year.

I would expect a return to selling. [Indecipherable] pretty far away from our 10% self-imposed limit, but just from -- as you know us, we're a -- we think about risk quite a bit and we think about diversification quite a bit. And with mortgage coming down as well, I would expect to see a greater amount of Navitas loan sales in 2021 versus 2020.

And I feel like there is part of that question I might not have answered [Indecipherable].

Brody Preston -- Stephens, Inc. -- Analyst

Yeah. The other part was just, is there anything kind of unique and niche that you focus on within Navitas that, sort of, will allow you to continue to take market share as some other folks step back into the market?

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

No. What I would say is, there is multiple niches within the business. I think that's one thing that Gary and Mike and team have always focused on, having a diversified approach. I would just say, it's just -- I mean, it's a really extraordinarily well run, well led Company. Gary has got a tremendous reputation in the business. Mike does as well. The technology, which is largely the interfaces, are self-developed. That's the same team that built our PPP portal, has created a product that's easy for employees coming in to manage the process with and sales, that can be more successful at Novitas, I think, with the team than others. So it's no one thing, it's just a lot of little things. There's no particular niche that is necessarily different.

Brody Preston -- Stephens, Inc. -- Analyst

Thank you all for taking my questions. I appreciate the time this morning.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Yeah. Great questions. Thank you.

Jefferson Harralson -- Chief Financial Officer

I see Chris in the queue. He may have come out. No, he is on.

Christopher Marinac -- Janney Montgomery -- Analyst

Hey, Jefferson, can you hear me?

Jefferson Harralson -- Chief Financial Officer

I can. Welcome.

Christopher Marinac -- Janney Montgomery -- Analyst

Great. I wasn't sure what the announcer was waiting for. So my question just was the update disclosure on the fair value marks with the past mergers and what's updated there at 12/31?

Jefferson Harralson -- Chief Financial Officer

I don't understand the question on that one.

Christopher Marinac -- Janney Montgomery -- Analyst

Just, is there an updated fair value mark from Seaside in past acquisitions?

Jefferson Harralson -- Chief Financial Officer

I don't have one. We're creating that currently for the Q. So I'll get back to you [Indecipherable] this time, so we'll get back to you on that shortly.

Christopher Marinac -- Janney Montgomery -- Analyst

No problem. And just a follow-up to Kevin's question earlier. When you look at the criticized ratio. I'm just curious, your capital and reserves are still strong. And if things do change and higher criticized happen, what's the sort of change in reserves based on that? I mean, you solved a buffer, I presume. And I don't know if it's necessarily direct correlation. Just curious if you -- do you have some more criticized kind of how that impacts reserve behavior?

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

So, we would have to look at it. You're right, there is not a direct correlation. But as -- and we believe we're properly reserved for the losses that we're projecting currently. But there is -- the short answer is, there is not a direct correlation there, particularly not on criticized because you are not having specific reserves.

Jefferson Harralson -- Chief Financial Officer

No. Yeah, definitely not on criticized.

Christopher Marinac -- Janney Montgomery -- Analyst

Great. Okay. Just wanted to clarify that and will take it quarter to quarter. Thanks very much for all the information this morning.

Jefferson Harralson -- Chief Financial Officer

Thanks, Chris.

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

All right. Well, it looks like that's the last questioning. So thank you all for being here. I thank this team. I think it's a great quarter. Thanks to the United team listening [Phonetic], great loan growth, great deposit growth, fee revenue. I appreciate everything you all are doing. And have a great day. Thank you so much.

Duration: 43 minutes

Call participants:

H. Lynn Harton -- President, Chief Executive Officer and Chairman of the Board

Robert A. Edwards -- Chief Risk Officer

Jefferson Harralson -- Chief Financial Officer

Richard W. Bradshaw -- Chief Banking Officer

Brad Milsaps -- Piper Sandler -- Analyst

Michael Rose -- Raymond James -- Analyst

Jennifer Demba -- Truist Securities -- Analyst

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Catherine Mealor -- KBW -- Analyst

Brody Preston -- Stephens, Inc. -- Analyst

Christopher Marinac -- Janney Montgomery -- Analyst

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