UCB - NYSE

Good morning, and welcome to the United Community Banks First Quarter 2023 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 2022 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 for joining our call today. This has certainly been a busy and an interesting quarter. Despite the turmoil in the U.S. banking markets, we continue to perform well. While our reported operating earnings per share was $0.58. If you exclude the progress double dip credit provision, which I think is a better way of looking at it. Our operating EPS was $0.65 for the quarter, and our operating return on assets was 119 basis points. Given the focus on liquidity and funding cost, we were pleased with our customer deposits growing at a 10% annualized rate in the quarter. The cost of deposits did increase, and our mix of deposits moved toward more interest bearing as would be expected in a higher rate environment. Our bankers work proactively with our customers after the news of Silicon Valley and Signature Bank. And we also saw mixed changes resulting in growth in our insured products. We ended the quarter with essentially no short-term borrowings or advances. However, we did incur extra costs during the quarter as we decided to hold higher levels of liquidity given the environment. We expect to be able to hold more normal levels of operating cash going forward. We've included additional information in our investor deck regarding our deposit composition, granularity and insurance coverage and we're glad to take additional questions on these topics on the call. Our deposit franchise continues to be a key strength for us. With mixed changes and increases in rates paid on interest bearing deposits, our overall cost of deposits increased by 61 basis points. Our loan yields increased by 46 basis points for the quarter. Taking together these changes combined to decrease our margin by 15 basis points from 3.76 to 3.61. While down it's still significantly better 64 basis points better than the same period a year ago. Our loan growth for the quarter was 8% on an annualized basis, credit quality continues to be strong with net charge offs of 17 basis points flat with last quarter. We did have an increase in non-performing assets and past dues from 29 basis points to 43. But these numbers continue to be consistent with normal performance. Our senior care portfolio, which is 410 million or 2.4% of total loans, continues to be our most stressed sub portfolio and was responsible for the increases in non-performing assets and past dues. Our office portfolio 710 million or 4.2% of total loans continues to perform well, with very low levels of loans identified as high risk. This is a very granular portfolio. Our largest office loan is $23 million on a single property, and our 10 largest office loans combined total 132 million are only 80 basis points of total loans. Rob will be glad to provide additional color on the portfolio during the question period. This was the first quarter we officially had Progress Bank as part of United. While the deposit and loan growth numbers I've previously mentioned exclude Progress and Progress activity, they of course did add to our balance sheet and income for the quarter. We are thrilled to have them as part of the team. I'm also pleased to report that we completed the conversion of Progress over this past weekend. And so now, not only are they part of United financially, they are also operating under the United brand and systems. David has built a great team and fantastic markets and we're a better company together with them. During the quarter, we were also very pleased to announce a merger agreement with First National Bank of South Miami. This is a great bank, which has been in the market since 1952. We spent a lot of time with the management leadership team and are excited to bring their talent and energy to United in the latter part of this year. So, as I said, a busy and interesting quarter. And now I'd love for Jefferson to provide more detail on our performance.

Thank you, Lynn, and good morning to everyone. I am going to start my comments on Page 8 and go into some details on deposits. As Lynn mentioned, we had a strong customer deposit growth quarter of $525 million, and we elected also to raise some brokered CDs in February, which gave us $790 million of new funding in Q1. The growth came in RCDs and our money market accounts as our DDA shrunk in the quarter. Our cost of total deposits moved to 1.1% in the first quarter from 49 basis points in the fourth and we now have a beta of 23% through the cycle. We have added some more detail on Page 9 on our deposit base. We have a granular deposit base with $32,000 average account size. Also, our business deposits were up 6%, not annualized this quarter, with stable DDA and the growth coming on the interest-bearing side. In addition, our consumer deposits were up 1% not annualized, with a more noticeable mixed change from DDA to interest-bearing. On Page 10 is yet another look at our deposits this time with regard to FDIC insurance, we estimate that 64% of our deposits have FDIC insurance. And we also calculate that another 12% are public funds that are collateralized with securities, making them somewhat stickier, we believe. So in total, we have 76% of our customer deposits that are either guaranteed or collateralized. We also have a note on this slide that we are seeing growth in our insured cash sweep deposit or ICS deposits that was $319 million in the first quarter. Moving on to Page 11 and the topic of loan growth, adjusting for the acquisition, our loans grew $335 million or 8.2% annualized. Again, adjusting for the progress book, the biggest growth categories were residential mortgage owner-occupied CRE and Navitas. Our portfolio is very granular with relatively small project limits and is very diversified. On Page 12, we look at some balance sheet highlights. Our loan-to-deposit ratio increased slightly but remained low at 78%, with a strong deposit growth in the quarter, offsetting the addition of progress. We also show that we had an increase in our TCE ratio to 8.2%. And our CET1 ratio remains above peers but came down 20 basis points with the Progress acquisition as we put some capital to work. On Page 13, we take a deeper look at capital and show how we achieved tangible book value growth in the quarter. Our regulatory ratios remain above peers but did fall slightly and moved towards peers a bit with the Progress acquisition. Moving on to the margin on Page 14. The margin increased 64 basis points year-over-year but fell 15 basis points from last quarter and excluding loan accretion came in 21 basis points lower on a core basis. Our loan yield increased 46 basis points in the higher rate environment, but our cost of total deposit was up 61 basis points to 1.10%. The main driver of the cost of total deposits increase was higher deposit rates, but a mixed change away from DDA towards money market and CDs also contributed another 5 basis points of margin pressure. Many of these trends are continuing. I mentioned that our average cost of total deposits was 1.10% in the first quarter. But on 3/31, on a spot basis, the cost of total deposits was 1.27%, and we have seen that move up 5 basis points as of Friday. So we had the benefits of loan yields moving higher and a positive mix change on the asset side being offset by higher deposit costs and a negative mix change in deposits. On Page 15, we look at fee income, which was down $3.2 million compared to last quarter. The decline is mainly due to the absence of $3.5 million in equity gains that came in Q4 along with $1.6 million of securities losses that occurred in Q1. Mortgage came in stronger as mixed change towards fixed product means that we sold more loans and put less loans on the balance sheet. Moving to expenses on Page 16, that came in at $131.2 million. Progress was the main driver of the increase. In particular, we added $2 million in higher core deposit intangible amortization, we also had $900,000 in higher FDIC costs from the rate increase. Finally, the first quarter is seasonally higher with the restart of FICA taxes that came in $2.2 million ahead of the fourth quarter. On Page 17, we talk about credit. Net charge-offs were flat at 17 basis points. Of the net charge-offs, Navitas’ losses came in at 93 basis points, which we believe is now back in the normal range. NPAs increased to 43 basis points of loans and past dues also increased, while special mention loans improved. Rob is on the call and can discuss credit more in the Q&A. Our last page is Page 18, where we talk about the reserve. We set aside $21.8 million in a loan loss provision which more than covered our $7.1 million in net charge-offs, a $21.8 million provision also included a $10.4 million double dip provision to set up a reserve for progress. And with that, I'll pass it back to Lynn.

Thank you, Jefferson. And many thanks to the United team. You continue to drive great performance regardless of the environment and continue to exhibit your passion for taking care of our customers. And now I'd like to open the floor for questions.

We will now begin the question-and-answer session. [Operator Instructions]. And the first question will come from Brad Milsaps with Piper Sandler. Please go ahead.

Jefferson, I appreciate the color around kind of spot deposit rates at the end of the quarter. And then as of last week, I was just kind of curious if you could update us kind of on your view of maybe what you're through the cycle total deposit beta might be and maybe interest-bearing deposit beta as well? And just kind of what that means for how you're thinking about the margin going forward.

Yes. So talk about the margin a little bit. We were up 84 basis points year-over-year up to last quarter, were down 15 in Q1. Some of the changes that are happening here is we have continued good news on the asset side. We have new loans we're putting on the high 7s. We have a mix changing towards more loans and away from securities, a rate hike that may come in May would help some. On the funding side, we're really happy with the growth this quarter, the $525 million of deposit growth that was actually more than double what we had budgeted for the year. So we feel really good about where our funding is. As far as specifically to betas, I think you'll see it move towards the high 20s on the total deposit beta. That's how I think about it. I don't have the -- we can talk after on the interest-bearing liability beta, but I think it's going to the high 20s. I think you're going to see some of these effects moderate during the year, especially some of this mixed change that you're seeing is going to begin to moderate. And we're also going to have some ability I think to reprice some of the funding that we're putting on. So I think the margin will be down next quarter, but I think it will stabilize from there.

Great. That's helpful. And just a follow-up to that. The accretion that you had this quarter, would you expect that to remain fairly consistent as you move through the year, just kind of want to think about what that number could be.

Yes. I think that's a fairly normal number there. We added $34 million of accretion from Progress that took us to $54 million total. So we're right around $50 million left. So it's a pretty big chunk of accretion yet to come through with the Progress deal coming in.

Got it. And then just finally, on expenses, you called out a couple of things there that are seasonally heavy. Just kind of wanted to get a sense of if you still felt comfortable with the amount of cost savings from progress that should drop after the conversion. I think that Lynn mentioned that you just completed, I think last quarter, you guided to sort of 4% to 4.5% growth on top of the 4Q run rate plus progress? Just wanted to see if you still feel good about that as you think about expenses in '23.

Yes. So I think the first quarter expenses were a little heavier with the seasonal items. So we're not going to have the growth rate on top of where we are now. I think that the second quarter number is flat to down from where we are now. And if you think about this quarter, we did have the seasonal items, the $2.2 million of FICA, we had unusually low deferred costs. So I think that was down $900,000 versus the last quarter, that should come back to us. There are some investment dollars in here too. We incrementally added 10 lenders this quarter. We're investing in 7 new branches. So you've got our normal source of investment in these numbers. Then for this quarter, you had the big stuff, which we laid out there, which was the intangible expense from the Progress deal and the higher FDIC cost. But I think what you're going to see from here is you're going to see flat to down next quarter, then you're going to see the cost savings coming in, start next quarter as well, and you're going to be kind of flat to slightly higher for the rest of the year. So a lot of that growth rate came seasonally high this quarter that we were talking about before.

The next question will come from Brandon King with Truist. Please go ahead.

Yes. So I had a question on credit, and I appreciate the kind of guidance on the Navitas net charge-offs, but I wanted to get a sense of how confident you are that loss close to peaking based on your guided range for the year in 2023?

Brandon, it's Rob Edwards. In terms of peaking, I think what we said last quarter and what I would hold to is a more normalized loss level on a sort of a standard book would be in the 25 to 35 basis point range. And so I feel like the -- sorry, so if you're talking specifically about Navitas, I feel good that when we put it in the slide in the back of the deck, that we would be in the 85 to 95 basis point range throughout the year.

I would say we feel pretty confident about that range from what we're seeing it in past dues and the normal course of business there.

Okay. Yes, I just want to confirm that kind of look like there. Okay. And I know it's a small piece of your own portfolio, but I did notice that manufactured housing, both net charge-offs more than double. Just wanted to get a sense of what's going on there, what kind of trends you're seeing in that book?

Yes. So we saw $628,000 of losses, up from $300,000. We did liquidate some of the chattel from -- out of the non-accruals through auction versus in the past, we've sort of taken ownership and done some repairs. So it's a little bit of acceleration there.

Okay. And kind of going back to your previous point, as far as normalized net charge-offs for the company overall, how do you see that trending as we progress throughout this year based off what you're seeing in your current graded loans?

Yes. So like I said earlier, in terms of quarter-to-quarter, I don't see any big shifts coming but other than I would just say normalization. And that was kind of the comment I made a minute ago about the 25 to 35 basis points is what I would think about as being a normal operating environment, and I could see us getting to that range later this year, but I don't have anything specifically at the moment that says it's going to happen next quarter, but it could, things change. It's a dynamic portfolio. But again -- and we're not seeing, if you look at the chart on the bottom right of 17, you'd see that our criticized and classified has really been pretty stable over the last 2 years.

The next question will come from Mark Shuttle with KBW. Please go ahead.

This is Catherine Mealor Great. Okay. I wanted to follow up on Brad's question about the brokered CDs that you added this quarter. Can you tell us on the average rate that those came on and what the maturity is. Just trying to think about perhaps how long that may be on your balance sheet and it's fair to model that some of that rolls off towards the back half of the year and is replaced with perhaps lower cost funding.

Yes, thank you. That's a great question. So mid-February, we put these on. The average rate was in the 460 range, and they have 6 months maturities. I would expect to continue to grow core deposits and replace it with core deposits.

Okay. And then interesting, it seems like you sold down your FHLB and really chose to put in brokered CDs instead. So how do you think about weighing the 2 options between brokered CDs and FHLB and when you choose to pull one funding versus the other.

That's a great question. So as we came into the year, this year, we made a decision, want to sell a small amount of securities to $270 million and the idea there was that we could now fund our expected loan growth for the year. Remembering back to Q4, we had $540 million of FHLBs, so the plan again, this is all before Silicon Valley is that we take down a little broker deposits and free up liquidity at the FHLB if we ever came to possibly need that. And so the pricing is relatively similar, but we just wanted to tap that market to make sure that the broker CD market was open to us. And at the same time, you get the benefit of saving your kind of button push liquidity at the FHLB if you ever needed it turned out that we didn't really need that this quarter, so we went ahead and paid the FHLB down.

Okay. Great. Super helpful. And then a follow-up on the credit conversation. There's a lot of anxiety about all the CRE maturities that we're going to see over the next couple of years. Can you give just any kind of clarity, Rob, what you're seeing with your clients, when you've got a CRE loan that's maturing and it's moving to a higher rate, generally, what are you seeing in your clients' behavior? What kind of new underwriting is taking place? So the occupancy rates or your underwriting still appropriate to where they can handle the higher rate?

Yes. It does. I mean the short answer is yes. We are seeing rental rates are increasing occupancies are stable. So we're not seeing a lot of problems pop out of maturities. I did go in the portfolio to try and examine are there properties that currently have low debt service coverage that are maturing this year. I came back with a number of about $30 million. So we're just not -- it doesn't feel like there's a ton of exposure out there in terms of sort of looming troubles on the maturity side at the moment.

Okay. Great. And then any color on the loans that moved to nonperforming this quarter?

Yes. So one of them is a senior care credit that struggled to stabilize. And so it went non-accrual. Another one was a C&I credit that actually it was a long-term customer, sold the business to private equity group and the private equity group wanted to expand into some additional lines of business, and they didn't have the financial controls in place to be able to do that and had some -- ended up filing bankruptcy during the quarter. I feel good about the business. We've known it a long time. The core business is very strong. And so I don't see it as being a big problem in the future, but we're working through it right now. But those were the 2 credits that drove the increase in NPAs.

The next question will come from Michael Rose with Raymond James. Please go ahead.

Just wanted to go to this quarter's core loan growth of kind of 8% annualized. I think you guys have kind of talked about 5% as we moved through the year, excluding acquisition. Just wanted to get a sense for kind of borrower demand versus where current rates are and just how we should think about that push-pull dynamic as we move forward. Thanks.

Good morning, Michael, this is Rich Bradshaw. With regards to how we're thinking in the near term, it's probably still mid-single-digit demand surprisingly still strong, stronger than I would have guessed. So we're working through that. I would say, and I said near term mid-single digit. Jefferson mentioned the hiring for first quarter. We hired 10 on the incremental side. Half of that was a lift out and that lift out was in North Georgia in the Greater Rome area with 5 commercial professionals. I will tell you that we are currently down the road and across the footprint, but there are 3 other lift outs that we are in deep discussions with and very, very close. And also comment, this is the best hiring market I believe I've ever seen. The volatility in the banking industry just has really created great opportunities. We're going to be opportunistic. We're going to be very selective but we are going to take the opportunity if it exists, and we're very, very close. So I think that mid-single-digit moves to high single digit if we're able to execute on some of these lift-outs.

And I'll just say I think to be able to support this, given the funding that you saw this quarter and the loan-to-deposit ratio that we have. So I think we're in a really good strategic position to be able to hire people and set them loose.

And that the strong core deposits plus the lower loan to deposit ratio is affecting our lenders.

Very helpful. Maybe just as a follow-on to that, how much of this quarter's organic growth acquisition was kind of fund up of existing commitments versus just of that kind of came in through the quarter. Just trying to get a sense for how much of a tailwind versus headwind kind of dynamic we're kind of thinking about here. It seems like growth obviously is going to slow through the industry, but you obviously have some offsets with some of the people that you're hiring and planning to hire.

Sure. And I'd say it was kind of fair, the round number is 50-50 on organic growth. And then, of course, we do a fair amount of construction lending, and you have the draws always catching up.

Okay. Perfect. Maybe just going back to Navitas and obviously, uptick here in charge-offs and things are normalizing not surprisingly notice that the reserve allocation went up about 11 basis points to a little over 1.8%. But I think in a normalized credit cycle, I mean, I think that number historically been much higher. Can you just give us some historical dynamics on loss rates through the cycle loss rates and kind of where that reserve level could go? Thanks.

Yes. So this is Rob, Michael, just in terms of -- we purchased the portfolio in 2018. And when we did that, we looked all the way back to when the company started. Now they started post 2010, but their loss rates have been up until we bought them and 1% was kind of what we budgeted and expectations that we set when we bought it. So coming in at 93 is kind of where we have thought it would be. We haven't seen a lot, in fact, we think the portfolio has gotten better since we bought it. They've moved upstream a little bit on the credit range. So I feel like this is a reasonable expectation for the portfolio going forward.

I just want to add. It's a very profitable company at this level of charge-offs.

Certainly understand the yields obviously are very sticky. Just maybe one final one from me. So the gain on sale of Navitas loans and the SBA loans. Can you just give some color there and kind of what we might expect going forward? Thanks.

Yes. So maybe Rich can jump in on the SBA possible here. I'll give a shot as well. This is our seasonally weakest quarter for both SBA and Navitas originations. I expect they have a little bit of a different seasonality, but in both cases, they both tend to increase throughout the year. So I would expect those gains to -- this is typically the first quarter is the lowest gains we see in both. For Navitas specifically, I think you would see this level or slightly higher as they go through the year, but there might be a bigger ramp in SBA. I will pass to Rich on that.

Two things. One is the gain on sale for SBA right now looks like it will be flat from Q1 to Q2 in terms of what you get in the secondary market. In terms of volume, our volume is up, and our pipelines are as big as they've ever been in SBA. And you know that's a great counter financial environment products. So if the economy struggling a little bit, SBA is going to do better. And we are full up in all positions and really strong pipelines.

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

Appreciate the spot levels, Jefferson, on cost of deposits. I was wondering and I apologize if you've given this and I missed it. I was wondering if you could fill us in also on the same basis for loan yields. And for the actual margin, what maybe the margin was for the month of March or at the end of the quarter? Thanks.

Yes. So the loan yields on a spot basis and kind of moving up are actually almost up as high as the deposit yield, but it's part of a phenomenon that I don't think is going to continue through the whole quarter because what you have is a possible rate hike coming, do you get so far in LIBOR start to move up before that to anticipate that rate hike. And so we're getting a little bump in our loan yields early in the quarter because of that expectation. So it's not a great look through for the whole quarter, but so far, the loan yields have almost matched the deposit costs and moving higher. Would you say your second question again or somebody help me out with your second one?

Just on the overall margin, but if you can kind of combine and say what your margin was at the end of the quarter.

Annualizing a month quarter is really, really hard, and we do it, but it sometimes comes out with these numbers that are just not helpful. So I felt like the spot in the -- as of next, last Friday's number was the best I could give you because taking some of these numbers with the fees coming through there and multiplying times 12, just gives you crazy numbers from.

Okay. One question on the mix shift that's happening within deposits. And I think you mentioned how you expect it to moderate. But specifically with the percentage of DDA to total deposits where do you see that settling? And where and when do you expect, you have to say? Thanks.

That's a great question. I might pass that. We're looking around each because it's hard to say because I do believe that once you see rates peak, you're going to see that transition slow down a little bit because once you have this rate that's presented out there to you, we have a 3.5% money market out there, and we presented that to our clients now for a handful of months and we've seen some people take us up on it. And I've taken myself up on it actually, too. And so I think what you're going to see is sort of a peaking of rates here and a slowdown of people taking up on the offer because they've had opportunity now for a handful of months. So I think, again, you're going to see a continued mixed change. I think we're going to see a mixed change on the asset side, too. But I believe you're going to see a shrinkage in that DDA number, but I think that's just going to slow down as we go through the year.

Yes. Great. One last one for me. So on the pending South Miami deal, any better sense, I know you said in the back half of the year for that to close, but any tighter frame on third quarter, early late? And then just generally, that whole regulatory merger approval process, have you guys noticed any changes or expect any lengthening of that process post the bank failures. Thanks.

Okay. Yes. Great question. Thank you for it. It's a relatively opaque process, but I'll say to you that I think it's most likely third quarter, it could move into the fourth. But I think I would say most likely, third quarter, and we have not seen anything unusual from the regulators from the things we turn into them or what we're hearing from them. It seems like a normal transaction and most likely third quarter.

The next question will come from David Bishop with Hovde Group. Please go ahead.

Jefferson and Rob, maybe just in terms of the new loan yields, I think Jefferson, you said they're approaching 7% or so. Is that having any impact in terms of the quality of the loan pipeline you're seeing out there? Is it becoming more difficult in terms of term sheets you're putting in front of borrowers to find quality credits that meet underwriting with a higher debt service coverage, et cetera, at this higher rate environment?

It's a great question. I'll just start with the yield we're seeing is in the high 7s to 7.85 to 7.90 is what our incremental new yields were coming on at this quarter. And I'll pass to Rich to talk about the color of the pricing and the quality.

Good morning, David. Probably, gosh, for the first time in a very long time, we were actually seeing, particularly on the larger stronger deals, we're seeing pricing increase. So stuff that used to be done at SOFR 2.25 is now being done at SOFR 2.50, SOFR 2.75. And part of that's driven just there's less competition out there, and it's more scarce dollars and we want to stay close to our clients. We're not looking to gouge but it's a limited resource, and we're going to charge for it.

Got it. Appreciate the color. And then, Jefferson, just curious, mortgage banking, obviously, has been trending down here. Just curious, any early read on how the spring summer selling season housing markets looking down there across our southeast markets, if you expect a rebound people got used to mortgage rates totaling in this range?

Like a start with it or just maybe give it right to Rich, if you like.

So obviously, first quarter is seasonally down in mortgage, and we're already seeing a pickup in here already in the start of the second quarter. So we are still in the best markets in the country. You still have 1,000 people moving to Florida a day. So we expect that mortgage isn't going to be where it was, certainly, what 88% purchased now. So the refi business is behind us. But we're going to be very similar picking up in the new markets because we've -- Huntsville has really gone well on the mortgage side. And we expect that Miami will go as well as too. And so pick up a little bit, a little bit higher than Q1 pace. And we think we'll finish the year at a decent clip.

And I'll just add in there. We're returning to a more normal seasonality, which is positive, but I also wanted to point that there was a pretty good change this quarter towards fixed-rate product, which goes right to the secondary market. And so that is a bigger piece for the near-term fee income that you see in the near-term profitability that mix change is a good sign there.

The next question will come from Russell Gunther with Stephens. Please go ahead.

I wanted to follow up on the commercial lender lift-out commentary. You guys just characterize that strategy for me? Is that an evergreen approach at United? Or are you guys seeing more opportunities as perhaps some competition tighten up on a willingness to lend? And maybe any color in terms of asset size of where folks may be coming from if they see potentially a bigger, more liquid balance sheet as a competitive advantage at United?

Sure. And for us, it is opportunistic. We don't have this building our budget. So it's when the opportunity arises and they have the right people, the right market for us, and they have the portfolio that we think that can be brought over, then we're going to do it. They are generally banks of similar size or larger. And recently, it's been primarily on the larger size, but we just continue. And yes, I'll give you quotes. I won't tell you what banks but part of the reason we're getting these looks is some of these banks are telling their commercial lenders, they're going to be deposit gatherers in 2023. Well, we need our people to do deposits, too, but we're still open for loans. And so that's what's driving a lot of the interest.

I appreciate the color. It's really helpful. Jefferson, I had a question for you in terms of just a reminder on securities cash flow the year. And then how do you guys think about a target cash to assets and how that bogey may or may not have changed intra-quarter?

That's a good question. So we're expecting about $750 million, a little bit more in total cash flow principal and interest from the securities portfolio this year. And I mentioned the securities sale we did. We think we have loan growth mostly funded for the whole year. The cash piece is, we are holding more cash than we did just as we've gotten to be a bigger bank. Post Silicon Valley, we held some more cash and help some more cash on the balance sheet for a while for the last two weeks of March. And now we're moving back down towards more normal holdings of overnight cash. So we're in the $200 million to $300 million of what we hold overnight now with the Fed, and that is we're back basically to a normal level post Silicon Valley.

Got it. Okay. Great. Thank you. And then last one for me. I appreciate the slide on office exposure. Any additional color you could share in terms of LTV or the reserve on that portfolio?

So we don't break it out specifically. So it's really just the investment CRE book. It's about a 1% reserve on the entire CRE book so consistent with really the rest of the portfolio. It's the weighted average LTV is 63%. So pretty low LTV. And of course, I think the granularity as mentioned a couple of times in the slides, just a really granular portfolio. Maybe one other point I guess I would make; I did do a scrub of the top 100 and 33 of them are medical office. And of course, that's in that second bullet on that Slide 23, but probably about third of it is medical office buildings.

The next question will come from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

We appreciate all the information you've given this morning and also in the deck. I wanted to follow back up on the last question on office CRE. So given the granularity, Rob, what does that mean as problems happen, even if there are a few during the cycle, does that lower size level give you flexibility on ultimately how you dispose the properties and the loss you take? Can you just kind of walk us through the mechanics?

Yes. Maybe I guess I could talk about one situation we had in the fourth quarter. We did have a small office property I think it was a $2 million -- slightly over $2 million valued property. We had a $1.4 million loan on it. The tenant, they had some occupancy. It went into non-accrual. We took it to foreclosure. The property didn't end up coming into OREO because there were other interested parties because at the lower dollar value, there's lots of people that can afford to get into the space, local parties interested, understand the value. So it does, it just gives you more flexibility. We ended up selling it on the courthouse steps, so we never did come into OREO, and we ended up recovering. We had taken a loss originally, but we ended up recovering, I think, 90% of the loss. So the final charge-off on the whole project is I think it was less than $100,000. So it gives you lots of flexibility that the fact that you've got lower dollar size properties, there's a lot more buyers in the market and local buyers that understand the value. So the disposal process is faster and less painful.

Great for that and I appreciate that. And Jefferson, just a final question for you on expenses. We look at Slide 16, you got a recent history of the operating expense ratio but I know if we went backwards in time, that number was a lot higher as the company was smaller and less successful than today. So as you think about '24, '25 in the big picture, what's the ability to push operating expenses down further just as a percentage of revenue? And can you possibly get closer to that 50 threshold over the long-term?

I mean that is certainly our goal, and we set up our budgeting process and our plans every year to move that ratio down and our budgets will always have more revenue than expense growth. If we can possibly get there. This is an unusual year with the margin, the margin moving in the on direction will contemporarily move it higher, but we'll always be pushing to move it lower. And we believe in all of our targets are to be a top quartile ROA Bank. We think about this all the time. And to be a top quartile ROA Bank you have via top quartile efficiency ratio bank. So we think about that ratio, we manage by that ratio. We push that ratio. And we do think about it relative to other banks, so we don't have an actual number in mind there, but we're always trying to push it down, and we are pretty sales about being in the top quartile of that ratio.

And as you're getting very good at doing acquisitions of the size that you're doing, does that give you a sharper pencil on sort of looking at M&A in the future?

Yes, it does. I mean what you're going to get our old strategy has been built around these smaller deals where they align with us on culture, they align with us on employee experience, and we can be more additive. I mean I was just down in Miami on Monday and Veronica, the CEO there. She was going on and on about the new toys in the toy box because we're already starting our partnership calls, introducing them to the new products. They'll be able to access and how we do things. And it's just a really great group of people and I met with several clients while is there and really strong people, and they're like, you guys have bigger limits now. And yes. So, yes, we certainly understand it on the expense side, but it's really the strategy on just being able to be more additive as well. Operator This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

And I always want to thank all of you for really great questions. I know there's a lot of noise certainly a lot of noise in the environment with Silicon Valley, et cetera. And so we want to be as open and transparent as we can and obviously give us any questions after the call as well. Also, there's always noise anytime we consummate a deal. So there was noise in this quarter from Progress. So great questions. I appreciate that. I do think this quarter demonstrates the strength of our strategy and franchise. If you look at the funding stability, I think that really demonstrates the core deposit base and the core customer relationships we have. What Rich mentioned about hiring, we've never seen it as he mentioned, this kind of environment where really getting the opportunity to get great quality teams that we're excited about, very excited about. I think it shows a focus on our markets and whether from the progress deal in Miami, our newer markets or our existing markets where these teams are coming in. We feel really good about kind of where we are and how we're positioned going forward. So again, thank you for your support and questions and look forward to talking soon.