United Community Banks - Q4 2022
January 18, 2023
Transcript
Operator (participant)
Good morning. Welcome to the United Community Bank Fourth Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to your hosts. Please go ahead.
Jefferson Harralson (CFO)
Good morning, welcome to United Community Bank's fourth quarter 2022 earnings call. Hosting our call today are our 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, 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. 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 five and six of the company's 2021 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.
Lynn Harton (Chairman and CEO)
Good morning, and thank you for joining our call today. We continue to be pleased with our overall performance. We recorded operating earnings per share of $0.75. While that is flat with last quarter, it's a significant increase over the same period in 2021. Our operating return on assets remains strong at 135 basis points, and our pre-tax, pre-provision return on assets reached a new high of 2.07%. Our net interest margin continued to expand, increasing 19 basis points over the third quarter, and loan growth reached 12.2% annualized for the quarter. Business conditions for us remain strong, and our Southeastern economies continue to perform very well. However, we are seeing the impact of Fed rate increases. Clients are actively searching for higher-yielding investments, and we saw deposit outflows of $445 million, primarily in DDA.
Deposit competition and resulting deposit betas have increased and will continue to increase in the near term. We are assertively defending our deposit and customer base and believe we will continue to relatively outperform in our funding cost. Credit results remain very strong. Economic forecasts continue to weaken, resulting in reserve build during the quarter. While net charge-offs did move up to 17 basis points, these results remain below or better than what we would consider normal. Non-performing assets remain low, as do our special mention in substandard accruing loans. Notwithstanding the continued good results, we are cautious and have tightened underwriting standards several times over the past year. On the operating side, while we did have an uptick in expenses, our net interest income grew substantially, leading to another improvement in our efficiency ratio, reaching a new record low of 47.3% on an operating basis.
Strategically, while not included in the quarterly results, we're very excited to have welcomed Progress Bank into United on January third. Progress has a great franchise in some high-growth markets, including Huntsville and the Florida Panhandle. It's a perfect complement to our existing franchise and will improve our growth prospects for years to come. David Mast, the founder and CEO of Progress, has built a great team, and we look forward to his continued leadership as United in those great markets. Now Jefferson will share more details for the quarter.
Jefferson Harralson (CFO)
Thank you, Lynn. Good morning to everyone. I am going to start my comments on page five, where you see the highlights of the quarter that shows our strong returns, many of which Lynn just went over. I'll focus on the two notable items that we broke out this quarter. The first is that we have a small number of equity investments on our balance sheet. They are not significant in dollars, about $14 million. Usually, we don't need to break out the gains and losses here, but this quarter, our equity investments were up $3.6 million, which is unusual and likely will not repeat. The second item is that we took a $1.8 million tax charge because we have started a process and intend to surrender $34 million of BOLI investments in Q1.
We have had this BOLI investment since before 2007. It is underperforming and actually negative yielding. By surrendering, we receive the $34 million back over five years and can reinvest at higher market rates. Let's go to page nine and talk about deposits. We believe we have one of the strongest core deposit bases in the Southeast. As Lynn mentioned, we are seeing the impact of rapidly rising rates and our deposits shrunk in the quarter. The price competition for deposits is also increasing, and we are seeing our deposit betas increase. Our cumulative deposit beta moved to 12% for this cycle from 6% cumulative last quarter. We expect this to increase in future quarters, both due to higher rates in our various account types and due to a mix change towards CDs.
On page 10, we provide some greater detail on our deposit trends. The biggest overarching trend this quarter was a decline in the average account balance of our commercial customers, specifically in DDA accounts. While our number of accounts increased, we are seeing businesses make purchases, make tax payments, make distributions, sometimes move to institutional money markets or treasury bond funds. We are also seeing some movements to CDs in our business accounts as well. On page 11, we experienced strong loan growth in the quarter, with mortgage being the biggest contributor and fairly diversified growth after that. Moving to page 12, we feel good about where our balance sheet is in terms of liquidity and capital. Our loan to deposit ratio did increase to 77% this quarter from 73% last quarter.
We are still below where we have been running historically and like our positioning from a liquidity standpoint. We talk about capital more on page 13. We are above peers in our TCE ratio and in our risk-based capital ratios. We are using capital in the first quarter with the Progress acquisition, but we still expect to be above peers pro forma for the acquisition. Moving to page 14, we discuss our net interest margin. We had 19 basis points of net interest margin expansion in the quarter, 20 basis points of which came from the impact of higher rates, and 1 basis point came from positive mix change. The impact from positive mix change, this 1 basis point I mentioned, is lower than what it has been in the past few quarters.
In past quarters and in this quarter, we have had the benefit of a shrinking securities portfolio funding higher-yielding loans, and we expect this to continue. Now we also have the negative mix change impact, which is moving us away from low-cost DDA towards CDs and other higher-cost products. Also the deposit pricing lag continues to catch up. While the funding environment is competitive, I do believe our Q1 net interest margin is somewhere between down 5 basis points and up 5 basis points, including the impact of Progress coming into the numbers. It's a bit unclear whether this quarter was the peak in margin or whether it will be in Q1. Moving to page 15. Fees were up $1.5 million compared to last quarter, with the main driver being the $3.6 million in unrealized equity gains I've mentioned earlier.
Excluding those gains, fee income was down in Q4, mainly due to mortgage and the absence of the large MSR gain that occurred last quarter. Another reason for the decrease in fees was our decision to sell less SBA loans. While we had strong originations, we had $47 million of SBA originations, we sold just $17 million because the gain on sale pricing was less favorable than in past periods. We kept more loans on the balance sheet and sold less. We expect to sell this backlog in the first quarter, which will be on top of our normal first quarter sales. Just keep in mind that the first quarter is typically our seasonally weakest quarter for SBA originations. Finally, we had a small amount of realized securities losses in the quarter as well as a small MSR write down. Moving to page 16.
Our expenses increased in Q4 by $4.9 million. We have listed the main drivers of the increase on the slide. I would also say in addition to this, that as I look at the just less than $2 million increase in the communications and equipment line item, that some of the items in there were above what I would call a normal run rate after a lower than normal Q3. Ongoing costs will be closer to the middle of where the Q3 and Q4 results came in. Of course, Progress will come into the expense numbers in Q1, and we expect to start getting the lion's share of the $13.5 million in annual cost savings after our second quarter conversion. On page 17, we talk about credit.
Our net charge-offs remained low but moved higher in the quarter to 17 basis points, with the biggest driver being a C&I relationship, along with some normalization at Navitas that we were expecting. NPAs moved slightly higher and our special mention in substandard accruing categories were fairly stable. There were some inflows and outflows that Rob can talk about in the Q&A. All in, we feel good about our credit quality but acknowledge that we are moving into a period where we expect credit to normalize. On page 18, we talk about the reserve and show that we continue to build our reserve in the fourth quarter as we also built our reserve throughout 2022.
Specifically, we set aside a $19.8 million provision and took the allowance for credit losses to 1.18% of loans from 1.12% last quarter and from 97 basis points a year ago. The driver of the increase is similar to what it has been all year, which is the weakening of the Moody's baseline economic scenario. All said, we feel great about our pre-credit profitability ratios. In the growth of the bank as well as our credit quality and liquidity. We also acknowledge that we could be moving into a tougher economic environment, and we believe we are prepared for 2023, whether it be a soft landing or something more challenging. With that, I'll pass it back to Lynn.
Lynn Harton (Chairman and CEO)
Thank you, Jefferson. Many thanks to the United Team. 2022 has been a great year, thanks to your efforts. Thanks to you, we've expanded into dynamic markets in Tennessee, including Nashville and Clarksville. You earned recognition for being number one in customer service in the Southeast for the 8th time in the past nine years. You gave your time and talent to numerous community organizations across our footprint. You added and updated new systems to allow us to better manage risk and to serve our customers. You continued to develop your teams by recruiting new bankers and leaders through training, like Leadership Academy, and by taking action on our all employee engagement survey. Finally, you were recognized as creating a great place to work by American Banker for the 6th year in a row.
It's an honor to work alongside of you, and I can't wait to see what 2023 will bring. Now I'd like to open the floor for questions.
Operator (participant)
Thank you. We will now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Catherine Mealor from KBW. Katherine, please go ahead.
Catherine Mealor (Managing Director of Equity Research)
Thanks. Good morning.
Lynn Harton (Chairman and CEO)
Morning, Catherine.
Jefferson Harralson (CFO)
Morning.
Catherine Mealor (Managing Director of Equity Research)
Jefferson, I wanted to start on expenses. You mentioned that the run rate to start with is kind of somewhere between the third quarter and the fourth quarter. Can you just kinda help us think through what kind of growth rate we should be thinking about from that level? It looks like some of the higher FDIC expenses were in this quarter, but, you know, are we going to see more of that next year? I just wanna kind of think about what kind of expense growth rate is appropriate, next year.
Jefferson Harralson (CFO)
That's great. Thanks for the question, Katherine. When I mentioned the between third and fourth quarter, I was talking specifically about the communications and equipment expense. We had several things come through that line item that is just kinda unusual, write-down of equipment and such that I don't think will recur. I wasn't so much talking about total expenses between Q3 and Q4, mostly that single line item. The FDIC specifically was an increase of the assessment in late Q3. We had our Q4 number and a little bit of a catch-up on the assessment. Does not include the big assessment increase that is happening for all... That's 2 basis points higher on the assessed net assets.
With that, I would expect, because we're a little higher than usual this quarter, instead of being $1 million higher next quarter, maybe it's $800,000 higher next quarter. The FDIC will be a higher semi-permanent run rate by $800,000 is my best estimate right now. The bigger question you're asking probably is the run rate of expenses. Again, off a slightly lower base than Q4, I think it's a, you know, 4%, 4.5% of growth rate given the inflation rates that we're seeing. Again, less the cost savings coming from Progress.
Catherine Mealor (Managing Director of Equity Research)
Great. Okay. Super helpful. You gave some good margin guidance, you know, kind of range that we might peak this quarter or next. How about just kind of the size of the balance sheet and how you're thinking about loan growth into next year? It feels like a lot of your competitors have started to pull back your loan growth expectations just given the economic uncertainty. Just kind of curious how you're thinking about growth this year.
Jefferson Harralson (CFO)
I'll, I might start just with the size of the balance sheet, which I expect to be relatively flat. We had a little growth this quarter, which was surprising a little bit. I thought we'd be flat. With that, I'll pass over to Rich on our forecast for loan growth.
Lynn Harton (Chairman and CEO)
Sure. Good morning, Catherine.
Catherine Mealor (Managing Director of Equity Research)
Morning.
Lynn Harton (Chairman and CEO)
We're still thinking about mid-single digit loan growth for this quarter and really 2023. We probably originally kind of thinking a range of 7%-8% and probably, you know, per last quarter, thinking more in the 8% range, but probably lower into the range now with the economic headwinds that we're looking at.
Jefferson Harralson (CFO)
Which range? Is it kind of that seven-ish or?
Lynn Harton (Chairman and CEO)
Seven is correct. Thank you.
Catherine Mealor (Managing Director of Equity Research)
Great. Any change in the composition with that? I know Navitas has been a relatively larger piece of the, of the loan growth over time. Do you expect that to pare back and be supplemented in other ways? Or kind of even the composition of your loan growth?
Lynn Harton (Chairman and CEO)
Yeah, I'll address that. I think Navitas will continue to be similar in terms of the loan growth. What we do expect to see a little bit go down is mortgage. We've seen Q1 will be down a little bit. Also, we've continued to tighten some of our underwriting criteria, particularly on the construction to permanent product.
Catherine Mealor (Managing Director of Equity Research)
Great. Our guy also has the queue. Thank you so much.
Jefferson Harralson (CFO)
Thanks, Catherine.
Operator (participant)
Our next question is coming from Brad Milsaps from Piper Sandler. Brad, please go ahead.
Brad Milsaps (Managing Director)
Well, thank you. Good morning.
Jefferson Harralson (CFO)
Morning to you.
Brad Milsaps (Managing Director)
maybe, just to follow up on Catherine's question, if Rich is right and you guys grow your loan book, you know, maybe $1 billion or so, Jefferson, sorry to call. Is it still about $200 million per quarter, coming out of the bond portfolio? Is that the right number? I guess, what would be the plan, you know, just sort of maybe bridge the rest of the loan growth? Would you kind of lean into the FHLB a little bit more? Or in your mind, do you think it's an environment where you can kind of stop some of the deposit runoff and, you know, maybe stabilize those or even grow deposits a bit?
Jefferson Harralson (CFO)
Right. I'll start with that. Rich can jump in, especially on our deposit thoughts. Yes, maybe it's a little less than $200 million a quarter, but we do plan on funding a lot of our loan growth with the securities shrinkage. I think this quarter you'll actually see the FHLB come in a little bit. We've done a lot to try to stoke our deposit growth. We've been doing it all year, but we're given the environment, we're also doing a lot of energizing of the footprint and the geography as well. We have some higher rates out there to help spur deposit growth. I might pass it to Rich on some of the things that we're doing on the deposit side. I can also step in there too.
Rob Edwards (Chief Risk Officer)
Yeah, I'll just give you some specifics. Like, you know, we generally pick a certain time period for a CD. In this case, happens to be 11 months that are special in the $4.15 range. Then we have empowered the field, so that's going to be the state presidents, the presidents, and the retail management in terms of a product, a special index based off Fed funds. We pushed that authorities out in the market so they can make those decisions real time. That's in the mid-3s, and that's been really geared towards our best relationships.
Jefferson Harralson (CFO)
That's our main lever that we want to pull is the really press on the deposit growth engine that we have some confidence in at the bank. The, you know, if it's not there, what do we do to fund? You know, our FHLB is there. We wanna, we don't wanna lean on it too hard. We have, you know, a broker CD lever we can pull. We also could sell some available-for-sale securities at small offices that create some liquidity if we wanted to. We're looking at really all things, but the main. We're, we're happy where we are because of the securities funding most of the loan growth, and we have a lot of options beyond that if the deposit growth isn't there.
Brad Milsaps (Managing Director)
Got it. Thank you. Maybe just switching gears to Rob, I was curious if you could, you know, maybe give us a little color maybe on the movement within the non-performing list. Maybe some of the key drivers, you know, underlying your provision this quarter. Obviously, we're in a, you know, dynamic environment where the assumptions can change rather quickly. As best as your crystal ball can tell us, you know, do you think, you've sort of built the reserve to a level where maybe you feel more comfortable now, all else equal?
Do you think, as we think about next year, there's more of a build to come as, you know, maybe you guys close the gap to peers a little bit, know that you hold a little bit more capital. Just any additional color around credit would be helpful.
Rob Edwards (Chief Risk Officer)
Yep. Glad to. Hey, Brad. Just on the NPA side, I would say, the drivers for NPA that we saw, Navitas was up $2 million and our manufactured housing was up $1 million. Really it was the C&I credit that we took a charge on that drove the rest of that. Those were the three elements in the NPA that drove the dollars up. On the provision, the economic forecast really caught up with the Fed's strategy around increasing rates. When rates are rising, the investment in equipment and investment in real estate is expected to decline. We saw increases in our C&I and equipment finance and commercial construction categories driven by the expected increase in rates. That was really the driver this time.
Of course, we had the loan growth is also a driver and the charge-offs play a role as well as they begin to normalize. In terms of expectations, you just have to remember that the way CECL works, it's pro-cyclical. You end up building before you get into a recession. If Moody's expectation of the scenario is accurate, then I think absent changes in loan growth and asset mix and charge-offs that, you know, it would feel like I would expect the scenarios to be stable. This quarter they were catching up a little bit and it's not entirely as you know. It's uncertain economic times, they're trying to predict something as well that's fairly uncertain.
Brad Milsaps (Managing Director)
Got it. Thank you. Jefferson, just a housekeeping question. That BOLI surrender charge that you noted in the deck, is that buried in other expense, or is it housed elsewhere?
Jefferson Harralson (CFO)
It's in the tax line.
Brad Milsaps (Managing Director)
It's in the tax line. Okay, great. Sorry, I missed that. Thank you.
Operator (participant)
Our next question comes from Michael Rose from Raymond James. Michael, please go ahead.
Michael Rose (Managing Director of Equity Research)
Hey, good morning. Thanks for taking my questions. Just wanted to circle back into Navitas. Obviously things are normalizing. Can you just remind us if you've changed kind of the mix of what they've done since you've acquired them both in kind of what you sell and what you keep on balance sheet, and then also kind of what we should expect for kind of a normalized through the cycle level of charge-offs for that business. Thanks.
Jefferson Harralson (CFO)
I can maybe start on that. I think that, you know, when we bought Navitas, they were a standalone company. They had a higher cost of funds, and as they came onto UCBI over the years, they have moved upstream in terms of credit quality. All in, they have a stronger credit quality than they had in 2018, where we bought them. Rob, do you wanna take the credit piece of it?
Lynn Harton (Chairman and CEO)
Yeah. In term, you know, if you look at slide 21 in the deck, Michael, we've kinda have included the 2019 and 2020 loss rates. I could see us getting into the 70 to 80 basis point range as things normalize.
Michael Rose (Managing Director of Equity Research)
Okay, helpful. Then I wanted to circle back to the kind of the expense, you know, some of the commentary there. Obviously, understanding there's a lot of moving parts, but it seems like there's potentially a lot of variability from kind of a starting point. Would you be able to just kind of, 'cause I think their expense run rate was somewhere around $13.5 million a quarter. I just wanna see if you could verify that. Then, you know, kind of what, you know, would be kind of a core number without that, you know, base just to kind of begin to forecast off of. Again, I know it's hard because there's a lot of moving pieces and systems conversions coming up in the second quarter, et cetera.
Just wanted to see if you could provide a little bit, you know, more finer point on the starting point for expenses this quarter. Thanks.
Jefferson Harralson (CFO)
Yeah. I think it's $1 million to $1.5 million lower than what our operating number was this quarter. I think you have the Progress number about right. I think you add those together for Q1. Now you have some, you have FICA coming back in in Q1. You have some seasonal Q1 things that happen. You have cost savings of the $13.5 million that we expect to get, probably starting some in Q2, with a pretty close to the full realization in Q3, full run rate realization in Q3.
Michael Rose (Managing Director of Equity Research)
Okay, thank you for that. Then just finally, just more broadly speaking, obviously the Progress deal just closed. There's a lot of dislocation out in the market. I know you guys have, you have been pretty active on the acquisition front. The economic backdrop at least is deteriorating. Does that kind of put additional acquisitions for the time being, on hold? Or will you just be, you know, continue to be opportunistic like you've said in the past? You know, obviously, I think you identified, you know, some in-market opportunities within your footprint. Whoever knows when they can come. Any reason that you wouldn't continue down the M&A path just in light of the backdrop? Thanks.
Lynn Harton (Chairman and CEO)
Yeah. Thanks. This is Lynn. You know, I would look at it a little bit like lending money. We're gonna always lend money, but in a different environment, we're gonna be more selective. I think, you know, we have always liked smaller transactions, always liked transactions in great markets. You know, we always like conservative lenders, but I would say, you know, we'd probably put a little extra look at that. We'd probably a little extra look at liquidity. Because at the end of the day, the sellers are the one that take, you know, that determine the timing. All that to say is, we would potentially still be in the M&A game, but you know, you would want it to hit all those...
You know, anything we announce, you'd expect it to hit all those triggers in terms of small size, great market, high liquidity, conservative underwriting. It'd be one that you'd want us to do.
Michael Rose (Managing Director of Equity Research)
Great. Thanks for taking my questions.
Operator (participant)
Now we have a question from Kevin Fitzsimmons from D.A. Davidson. Please, Kevin, go ahead.
Kevin Fitzsimmons (Managing Director)
Hey, good morning, everyone. Most of my questions have been asked and answered. One question about I think when you were talking about the loans and the type of loans that might be dialed back a little. I believe it was residential mortgage was mentioned. If that's true, is that simply that it's getting to a size contribution to the loan mix where you're less comfortable taking that up, or is it something changing in the market? Just curious.
Rich Bradshaw (President and Chief Banking Officer)
Good morning, Kevin. This is Rich. I think we've been very disciplined about concentration risk, and that's really the biggest part of the CPE portfolio that we're doing. Other areas, probably two years ago, we started slowing way down on senior care. The underwriting criteria for multifamily has certainly become tighter. Also just the mere fact that you're stress testing interest rates has made that a little bit more of a challenging product. You know, we continue to look at different aspects. We're talking about office deals. We haven't seen an office deal in senior credit committee, I can't tell you how long. Those are just some thoughts.
Jefferson Harralson (CFO)
I'll just add in there, and Rich did mention it, but some of it is just interest rate risk management. You're putting on, you know, five-year, seven-year, ten-year paper in a, what might be a rising rate environment, and we'd rather just have a little bit less of that coming on.
Kevin Fitzsimmons (Managing Director)
Okay. Makes sense. You know, appreciate the You know, the range on the margin is certainly going to be noisy in the first quarter with the deal coming on. If we're, say, getting beyond first quarter, and now we've got the full Progress in, you know, fully in, and now let's say we're done with Fed hikes, but not yet to a point where the Fed's cutting. In that kind of environment, do you think you can hold the margin steady? Would you expect to hold it steady, or would it be more likely that we see some modest grind down to the margin given the lag in deposit costs increasing?
Jefferson Harralson (CFO)
I think it's more likely the latter. That's what we're modeling as a slight grind down. Again, we have some defenses in that you'll be seeing the loan-to-deposit ratio, I think, increasing a little bit. You'll see the mix change between securities to loans that we've been talking about for a few quarters now. I think the lag effect of funding and the price competition that we're seeing out there combines to a grind slightly down for the rest of the year.
Kevin Fitzsimmons (Managing Director)
Jefferson, just on that point about the loan-to-deposit ratio. With it up to slightly above 77%, so it's still very liquid balance sheet relative to pre-pandemic. How would you think about that ratio in terms of, you know, when you're assessing what, when, and whether to get more aggressive on deposit pricing? How comfortable are you taking, or to what level are you comfortable taking that ratio up to?
Jefferson Harralson (CFO)
That's a great question. We have been running in the low 80s for a very long time pre-COVID, where we felt comfortable. We feel comfortable moving that higher into the mid-80s. You're going to see some movement of the loan-to-deposit ratio next quarter. Progress coming in takes you to 79 on its own, I wouldn't be surprised to see it tick a little higher from there. Again, we like where we are. We're comfortable in the mid-80s, the balance sheet management and how we're thinking about liquidity and deposits, it really starts now. We're not waiting for it to get to 85. We're managing and energizing the deposit franchise now to try to protect the loan-to-deposit ratio best we can now.
Kevin Fitzsimmons (Managing Director)
Okay, great. Thanks very much.
Operator (participant)
Our next question is coming from David Bishop from Hovde Group. David, please go ahead.
David Bishop (Director and Senior Equity Research Analyst)
Yeah, good morning.
Jefferson Harralson (CFO)
Morning, David.
David Bishop (Director and Senior Equity Research Analyst)
Morning. Question may be more for Rob. I know you mentioned, I think it was maybe the senior component in terms of office, but just hopped off a call where there was another bank, maybe not in your footprint, but maybe of the size. Was seeing some deterioration or some concerns around the office segment. Just remind us maybe what your exposure is there and maybe what you're seeing in terms of the health of your portfolio?
Rob Edwards (Chief Risk Officer)
Yeah. Hey, David, this is Rob. It's around a $660 million portfolio. Criticized and classified in that portfolio at the moment is about 1%, just over 1%. We're really not seeing a whole lot of degradation there. It is a fairly granular portfolio. Not a lot of large dollar projects. Traditionally, we have focused on medical office buildings. Rich's favorite phrase around this is that the office building needs to be able to fall down on the hotel if it falls down. That's kind of the, that's kind of been our emphasis. It's a very granular portfolio, and we're really not seeing a lot of change in its performance.
David Bishop (Director and Senior Equity Research Analyst)
Got it. Final question on the from Kevin. Just curious, securities bookie, that's the bond portfolio we're on, is what are the quarterly cash flows? Thanks. I'll hop off.
Jefferson Harralson (CFO)
Yeah, roughly $200 million this quarter, maybe a smidge less. I can get you the exact number.
David Bishop (Director and Senior Equity Research Analyst)
Perfect. Thanks.
Operator (participant)
Our next question comes from Jennifer Demba from Truist. Jennifer, please go ahead.
Kevin Fitzsimmons (Managing Director)
Thank you. Good morning.
Jefferson Harralson (CFO)
Jennifer.
Jennifer Demba (Equity Research Analyst)
Curious, you just closed the Progress deal. Curious how you feel the Reliant transaction has gone after a year. I know you had an unexpected, you know, leadership change. It, you know, it was your largest acquisition. I think your most expensive. Just curious how you think it has gone so far versus your plan.
Jefferson Harralson (CFO)
Yeah. I'll start and then let Rich run with that. I mean, we've been pleased with it. Certainly, you know, DeVan's passing was a blow to all of us, all the team there. They've really banded together. We think it's a long-term great place to be. We think we've got the great right people to be there. Rich is heavily recruiting together with John Wilson there. Look, we're very pleased we're there. We're very pleased that this was the franchise that got us there. Yeah, we hit a few speed bumps along the way. We don't mind saying that, but long term, it's going to be a great spot.
Rich Bradshaw (President and Chief Banking Officer)
Yeah. I would add that I do feel that John Wilson and Mark Ryman have turned the ship around. It, you know, took a little bit, but we're seeing it both. Well, the other comment I would make is there were certain credits in there that weren't our credit appetite, and we believe that we've kind of worked through almost all that during this past year and feel really good about 2023 and the opportunity.
Jennifer Demba (Equity Research Analyst)
Great. Second question is on asset quality. You said, you know, loan losses are coming closer to normal levels. What do you think normal levels are for UCBI with the loan portfolio mix it has today?
Rob Edwards (Chief Risk Officer)
That's an interesting question. I would say, you know, I've always sort of targeted through the cycle losses of 30 basis points. For where we are today in a normal environment, if I go back to 2020, we were at 18 basis points. This quarter, we came in at 17 basis points. I felt really good in 2020 with the 18 basis points, but, you know, somewhere in that, you know, 18-30 basis points range, seems like a sort of through the cycle normalized type range.
Jennifer Demba (Equity Research Analyst)
Thanks so much.
Operator (participant)
We have a question now from Christopher Marinac, from Janney Montgomery Scott. Please, Christopher, go ahead.
Christopher Marinac (Director of Research)
Thanks. Good morning. Jefferson, on the loan yield improvement we saw this quarter, did the SBA have any influence on that, just retaining those? I didn't know if that was meaningful at all.
Jefferson Harralson (CFO)
I don't think it's big enough to affect the whole yield there.
Christopher Marinac (Director of Research)
Okay, fair enough. Rob, just a big picture credit question, kind of continuing Jenny's line of credit, or thought, rather. Do you think that the stress testing that is now done on higher yields and possibly being higher down the road, to what extent does that influence just the way you think about the reserve, the ability for customers to sustain these levels, you know, LTDs, cap rates, et cetera?
Rob Edwards (Chief Risk Officer)
It's interesting when you talked about higher interest rates. You know, what we're seeing is that the higher interest rates and the stress testing is just requiring on the front end, certainly requiring stronger capital. I don't think we've done a deal in the last 90 days that didn't start with a 50% or 45% equity number in it and, you know, 50%-55% loan to cost. In terms of, you know, if you're just talking about the standard portfolio, what impact do higher interest rates have, you know, I'm not sure we're seeing all of that fully yet, but I think overall, interest rates are a component of increasing costs, right? There's wage inflation, there's cost of supplies are up, and interest rates are up.
What we see is some of our C&I borrowers, you know, over the last year and a half, have just needed to raise prices. If they're on top of that and doing that, proactively, it works out fine. We've had a couple of them that haven't been proactive and, they're needing to catch up.
Christopher Marinac (Director of Research)
Great, Rob. That's helpful color. Thank you both. I appreciate all the information this morning.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Lynn Harton, CEO, for any closing remarks.
Lynn Harton (Chairman and CEO)
Great. Well, just in closing, I just would thank you all for joining the call, for your support. Always, if you've got additional questions, please reach out to us, and we'll look forward to talking again soon. Thank you.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.