SouthState - Q4 2023
January 26, 2024
Transcript
Operator (participant)
Hello, and welcome to the SouthState Corporation Q4 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Will Matthews. Please go ahead.
Will Matthews (CFO)
Good morning, and welcome to SouthState's fourth quarter 2023 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. John and I will provide some brief prepared remarks, and then we'll open it up for questions. As always, a copy of our earnings release and presentation slides are on our investor relations website. Before we begin our remarks, I want to remind you that comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. Now I'll turn the call over to John Corbett, our CEO.
John Corbett (CEO)
Thanks, Will. Good morning, everybody. Thank you for joining us. You can see in the earnings release that SouthState delivered a solid quarter that was consistent with our guidance. High level, it was another quarter of steady loan and customer deposit growth with mid-single-digit growth in both. NIM dipped a couple basis points but is leveling off, and capital ratios are growing nicely. The end of the year is always a time for reflection. As we look back on 2023, and specifically the turmoil last spring, it was a period that demonstrated the resilience of SouthState, particularly the resilience of our granular deposit franchise, the resilience of our asset quality, and the resilience of the high-growth markets where we operate.
The new census report was issued last month, and not surprising, Florida, South Carolina, North Carolina, and Georgia were all in the top five fastest-growing states in the country during 2023. Since the pandemic, over a million people have moved to Florida. SouthState is a company that was forged during the Great Recession, during a decade of rapid consolidation. The culmination of that period was a merger of equals, announced four years ago this month. That significant event in our history was an opportunity to catch our breath and spend a couple of years to retool the guts of the bank, specifically in the areas of technology and risk management. Our goal was to strengthen the infrastructure without sacrificing our decentralized and entrepreneurial culture. It was painstaking work that affected every area of the bank.
We upgraded 20 different technology platforms and increased our annual technology spend by 76%. Annual spending on technology in 2024 is estimated to be $68 million more than it was in 2020. On the risk management side, our program has matured to meet the heightened expectations of the OCC. We upgraded with experienced professionals from the big banks and strengthened the three lines of defense. Now, during the first couple of years, those technology and risk management changes took a toll on our employees and impacted the customer experience. But it was short-term pain for long-term gain. So with a larger bank infrastructure in place, our focus pivoted in 2023 to making our employees' and customers' lives better. We needed to refine the new technology so that it was serving us rather than the other way around, and I think we've been largely successful.
Employee engagement is now back to the top quartile of our peers, and we're beginning to leverage the power of the new technology. Now, in 2024, as we approach the end of the COVID era and hopefully a more normal yield curve, we believe we can deliver outsized shareholder returns in the future. It's a future that's possible because of the hard work over the last few years. So I'll close by thanking our team for preparing us for this next chapter. I'll pass it back to Will now to walk you through the details on the quarter.
Will Matthews (CFO)
Thank you, John. As you noted, the fourth quarter was a good finish to a year in which SouthState reported solid performance in soundness, profitability, and growth while facing a relatively volatile environment. I'll touch on a few details before we move to Q&A. On the balance sheet, fourth quarter annualized loan growth of 5% brought our full year growth to 7%. Customer deposit growth, excluding the maturing brokered CDs we didn't replace, of 5% annualized, approximately matched the loan growth rate. For the full year, total deposits grew 2%, with customer deposits essentially flat. DDAs represented 29% of total deposits at quarter end, down another 1% from 30% last quarter, leaving us near the levels we were pre-pandemic for DDA as a percentage of deposits.
Turning to the income statement, our 3.48 NIM was down 2 basis points from the prior quarter and consistent with our 3.45-3.50 guidance. Loan yields in Q4 were up 12 basis points, and deposits were up 16 basis points, in line with our 15-20 basis point guidance. This brings our cycle to date loan beta to 36% and our cycle to date deposit beta to 30%.
Our net interest income of $354 million was essentially flat with the third quarter.... For the full year 2023 margin comparison versus 2022, 2023's NIM of 3.63 was 26 basis points higher than 2022's, while the cost of deposits rose from 10 basis points in 2022 to 120 basis points in 2023, in a period of 500 basis points of Fed rate hikes, not to mention the March crisis. While it's been a challenging period in which to manage a financial institution balance sheet, I think our margin performance during this period of rapid change really highlights the value of our core funding base. Non-interest income of $65 million was down $8 million from Q3, and at 58 basis points of assets, was in line with our 55-60 basis points guidance.
Correspondent revenue was $3.4 million, after $12.7 million in interest expense on swap collateral for $16 million in gross revenue, down approximately $9 million from Q3. Wealth had a record quarter with revenue exceeding $10 million, and we had a strong quarter in deposit fees similar to Q3 and last year's fourth quarter. Mortgage revenue continued to be weak, though I'll compliment our leadership on their performance in this challenged environment. We track various metrics versus the Mortgage Bankers Association quarterly performance report, and our team consistently outperforms the industry in several key metrics. Operating expenses of $246 million, which excludes the $25.7 million for the FDIC special assessment, were in line with our expectations, and we're above Q3 levels due to some of the items we mentioned in our third quarter call.
Looking ahead, we expect NIE for Q1 in the mid- to high 240s, subject to the normal variations in expense categories impacted by non-interest income and performance. With respect to credit, we recognized $7.7 million in net charge-offs in the quarter, bringing our year-to-date total to $25 million, or nine basis points for the quarter and eight basis points for the full year. Of the year's net charge-offs, $7 million came from deposit accounts and $18 million from loans, for approximately six basis points in loan net charge-offs. Our provision expense was $9.9 million for the quarter and $114 million for the year, leaving our ending total reserve to remain approximately flat at 158 basis points of loans. Over the last two years, we've provisioned $196 million against only $29 million in net charge-offs.
We built our reserves appropriately under CECL in advance of potential credit deterioration. For overall asset quality trends, NPAs were up $8 million, driven by an increase in SBA loan nonaccruals, which are 75% or more government guaranteed. Special mention loans declined and substandard loans increased. The increase in over nineties is due to utility company storm repair receivables in our factoring business. These typically turn slowly, and the majority of these have been collected since quarter-end. Loan past dues were down quarter-over-quarter. 60% of our NPAs are current on payments, and the past due NPAs are centered in the SBA, consumer, and residential portfolios. I'll reiterate that we do not see significant loss content in our portfolio. C&I line utilization was up 1% in the quarter, and home equity line of credit utilization was down slightly.
We continue to have very strong capital ratios with a CET1 of 11.8% or 10.2% if AOCI were included in the calculation. The move down in interest rates caused our AOCI to shrink, helping our ending TCE to grow to 8.2%. Our ending TBV per share grew to $46.32, up $6.23 for the year. During the fourth quarter, we purchased 100,000 shares at a volume-weighted average price of $67.45. We continue to believe risk-weighted asset growth and capital formation rate should be in a range that allows us to continue to grow our regulatory capital ratios and provide us with great flexibility. Operator, we'll now take questions.
Operator (participant)
Thank you. If you have a question, please press star one on your telephone keypad. One moment, please, for your first question. Your first question comes from the line of Catherine Mealor with KBW. Your line is open.
Catherine Mealor (Managing Director, Equity Research)
Thanks. Good morning.
Will Matthews (CFO)
Good morning, Kathryn.
Catherine Mealor (Managing Director, Equity Research)
I just want to start with your margin outlook. The margin came right in line with your guidance for this quarter, and just curious how you're thinking about the margin into this year, you know, maybe and how you're thinking about how rate cuts impact your margin outlook. Thanks.
Will Matthews (CFO)
Sure, Kathryn, it's Steve. Thanks for asking the question. You know, we have a page that we show every quarter. On Page 11, it's the NIM trend, and as you mentioned, it went down from 3.50 to 3.48, so two basis points, but within our guidance, between 3.45 and 3.50. Our deposit cost increased 16 basis points, which was within our guidance of 15-20. So as we think about 2024, you know, it's interest-earning assets, it's rate forecast, and then our deposit beta assumption. So, you know, for the interest-earning assets for the full year 2024, we're sort of just reiterating the $41 billion. That's sort of, you know, what we've thought about for the last several quarters. So we're thinking 2024, $41 billion.
We start out, I think the fourth quarter was in the 40.4 range, and so I wouldn't expect that to be much different coming out of the first quarter. There's some seasonality. As it relates to the second assumption, which is the rate forecast, the Moody's consensus, which is what we use, shows four rate cuts in 2024. They start in April, and then we have four rate cuts in 2025. So you would end the year at 4.5% Fed funds in 2024, and our assumption, you would hit Fed funds rate at 3.35 by the end of 2025.
On our deposit beta, Page 17, which is our cycle-to-date data, is 30%. And we would, you know, continue to expect deposit costs to increase similarly in the fourth quarter before we get rate cuts, you know, sometime in the second quarter is how we see it. So deposit costs between 170 and 180 in the first quarter. So I guess based on all those assumptions, we would expect the full year NIM to average somewhere between 3.45% and 3.55% for the full year in 2024. And we would sort of expect the first half to be in that 3.40%-3.50% range and the exiting the back half in that 3.50%-3.60% range. So that's kind of how we're thinking about 2024 with the, you know, those assumptions.
You know, as we think about 2025 and we think about, you know, another four rate cuts in 2025, you know, you know, we're thinking as we model it, somewhere in that 3.55-3.65-NIM range in 2025, depending on how we exit. And then just kind of the last point I'll make is, you know, if we kind of play this out and, you know, the forward curve is sort of showing that, you know, at the end of 2025, you know, we sort of have a 3-3.5% Fed Funds Rate and sort of a flatter upward-sloping curve. You know, 2026 would look a lot like 2018, 2019, when our NIMs were in the 3.75, you know, maybe 3.90 range.
Anyway, as we kind of think about the short, medium, and long, that's sort of how we're thinking about it related to the forecast.
Catherine Mealor (Managing Director, Equity Research)
That's really helpful. I think it's the first time I've gotten 26 guidance this earnings season, so that is really helpful.
Steve Young (Chief Strategy Officer)
If you want 28, we can go there, too.
Catherine Mealor (Managing Director, Equity Research)
I love it. I love it. Yeah, but this is really helpful. And it's interesting, it feels like you've just got upward momentum in your margin. And I think I'm curious to think how you are thinking about how deposit costs play into that. I mean, you've got such an opportunity to reprice assets, you know, on the way up. Even if we get rate cuts, I feel like your loan yields are still going to be moving up, just given the way you're structured there. And so are there significant declines in deposit costs throughout all these assumptions, or is it more kind of a stabilization in deposit costs and then really, what's driving the higher margin is just upward momentum on the asset side?
Will Matthews (CFO)
Yeah, no, it's a, it's a good, good question. So maybe start with the asset side. I think we talked about it last quarter, but just to reiterate, you know, we in 2024, we have a little over $4 billion of fixed rate and adjustable rate repricings that are going to happen in 2024. I think in 2025, it's like $3.3 billion, in 2026, it's $3 billion. So, you know, it's a healthy amount every year. And so, you know, those are somewhere in the 460-480 range, you know, for all three of those years. So they're kind of fixed in there. You know, as we think about—so that's going to be a tailwind, assuming that the five-year treasury doesn't move much lower than three.
There'll be a spread over that. If you think about the deposit rates, you know, you know, our money market accounts, you've seen a big increase in that over the last 12 months. I think if you looked in the earnings release, I think our money market accounts went up maybe $3 billion or so, and our CDs went up about $2 billion, and a lot of that was negotiated rates. So in our total portfolio of deposits, we have about a little over $10 billion of negotiated rates that, you know, we've given to our team, that they've managed to exception price. You know, on the flip side of that, we have about $10 billion of floating rate loans. About 30% of our loans is floating.
So you kind of look at both of those, and they sort of, you know, maybe not perfectly offset each other, but help. You know, CDs are, you know, there's another $4 billion that eventually will reprice to the front end of the curve over time. And then, you know, we have securities that'll reprice. So anyway, you know, I guess the big tailwind, to your point, is really trying to manage the floating rate assets versus the negotiated deposits and CDs, and then the fixed rate loans over time are sort of your help to margin. I don't know if that's helpful, but for how we think about it.
Catherine Mealor (Managing Director, Equity Research)
Yep. Yeah, that's very, very helpful. All right, great. Thank you.
Operator (participant)
Your next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open.
Stephen Scouten (Managing Director, Senior Research Analyst)
Hey, good morning, everyone. I'm kind of curious, you mentioned the DDA percentage will kind of back down to the pre-pandemic level. Do we think this can kind of stabilize here at this level, or you expect a little bit more mix shift as we move on, maybe prior to potential rate cuts?
Will Matthews (CFO)
You know, Stephen, it's hard to say. I think a few quarters ago, we probably would have thought this would be where we end up. It's you know, given that we've seen, you know, continued decline in that percentage, I don't think it's unreasonable to assume it might go down further from here. I don't know how much further. You know, the pace of that change has you know, mitigated quite a bit the last few quarters, but it's hard to say that we're at the end necessarily, but it's hard to know.
Steve Young (Chief Strategy Officer)
Yeah, and to Will's point, I mean, it's sort of been a situation where it's gone down 1.2 percentage points, you know, it's just when does the Fed pivot? And you know, probably at that point is when all that changes, but that's the $64,000 question.
Stephen Scouten (Managing Director, Senior Research Analyst)
For sure. Okay, and how should we think about kind of the provision and reserves moving forward? I mean, obviously, you guys have talked about how much you've built relative to net charge-off. I think Will said you don't really see material or significant loss content in the book. So it kind of felt like a big directional reversal this quarter. Maybe what's kind of normalized net charge-off for you as you think about your portfolio and, you know, do you think we could see this reserve start to trend down, given no significant worsening in the portfolio?
Will Matthews (CFO)
Yes, yes, Stephen. I think the way I think about it, you know, our charge-offs last year were eight basis points, and that's, you know, they've been very low for the last several years. But I think it's reasonable to expect they normalize a bit from such a low level, and to the extent they do, that would impact provision expense. So we did, as we highlighted, you know, build our reserve the last couple of years in advance of potential deterioration in the economy. But, you know, depending on our charge-off levels from here, that could lead to provision expense to cover those charge-offs, and depending on whatever else the model tells us. As far as normalized charge-offs, well, I don't have a good number to estimate.
I mean, you look back at peer group, it's going to be higher than what we've experienced. But I think it's hard to say for certain that we could hang in there below 10 basis points every year in net charge-offs, but, but it'd be great if we could.
Stephen Scouten (Managing Director, Senior Research Analyst)
Okay, good. And then just last thing for me, maybe to John, this is maybe more your side of the coin here: wondering about you know, M&A in this environment. Obviously, I know 2023 was a tough year, but you guys fared phenomenally well. So a relatively advantaged currency rates presumably coming down, making the math a little bit better. I'm just kind of wondering how you think about M&A this year and the potential for executing a deal.
John Corbett (CEO)
Yeah, sure. As I've said previously, I mean, we're open for business, and to your point, I suspect that the math is becoming easier with the lower interest rate marks. But, Stephen, really no change from our prior guidance. I mean, our ideal partner, if we were to do something, would be, you know, 10% to a third of our pro forma company. You know, we're in great markets in the Southeast, and we'd prefer to double down on our existing high-growth markets, but the regulatory environment is a little tough for that right now. So, we've updated our population map on page six, and if we were to do a market extension type of deal, it'd need to be in a similar high-growth market like Tennessee or Texas.
But from a capital management standpoint, I think we're in a good spot, with excess capital, and we've got flexibility to use that capital. We can deploy it in share repurchases. We bought a little bit of shares back in the fourth quarter. We could do a bond restructure, or we could deploy it in M&A.
Stephen Scouten (Managing Director, Senior Research Analyst)
Yeah. Helpful commentary, John. Thanks a lot, guys. Appreciate the time.
John Corbett (CEO)
You bet.
Operator (participant)
Your next question comes from the line of Michael Rose with Raymond James. Your line is open.
Michael Rose (Managing Director of Equity Research)
Hey, good morning, everyone. Thanks for taking my questions. Hey, I just wanted to get some comments on slide 12, which is the loan production chart. You know, obviously, it's come down since a very strong, you know, 2022. I know some of that is just your kind of conservative nature and maybe not wanting to take on other people's, you know, credits as they move out of the banks. But just given your footprint, just wanted to get, you know, some thoughts on, you know, loan growth expectations as we think about the year. Where are areas that, you know, you can maybe, you know, push the gas pedal a little bit, and I would assume that some of the CRE portfolios are some areas where you'd be a little bit more cautious.
But I think you had previously kind of talked about, you know, a mid-single-digit loan growth rate for next year. So just wanted to get some context there. Thanks.
John Corbett (CEO)
Yeah, Michael, it's John. That graph is very interesting to me on Page 12, and we kind of had peak record production in the second quarter of 2022. And if you think back, well, what happened in the second quarter of 2022? That's when the Fed started raising short-term interest rates, and precipitously after that, you've seen a steady trend downward of production. So the Fed is getting what it wants. For 2023, we guided to mid-single-digit growth for the year, and we ended at 7% growth. So given the uncertainty in the economies, I feel like that's a very appropriate level of growth with where we are in the cycle. Pipelines for the end of the year are down considerably from where they were at the beginning of 2023, down about 25%.
But even though the pipelines are slowing down, Michael, there's kind of an embedded tailwind of loan growth because, with rates where they are, there's going to be slowing prepayments, and there's continuing to be funding of, of loans that are unfunded, that we made in 2021, 2022. So our guidance really hadn't changed. We think mid-single-digit growth's reasonable, and until rates decline. But where do we see that growth? For us, we've seen a considerable amount of residential real estate growth in 2023, and we're getting a nice coupon for that growth, and there's just more people moving into our markets than there are homes available. So I feel good about those credits, from an asset quality standpoint. You know, CRE activity's been very low in 2023 with the rise in rates.
You know, you might see a little pick-up there in 2024 with the five-year Treasury down as much as it is, and then we've just got a continuous push on the C&I, middle market space. So that's an area that we're leaning into. So hope that's helpful, Michael.
Michael Rose (Managing Director of Equity Research)
... Very much so. And then maybe just one for, for Steve. I think the step down in, in correspondent this quarter was a little bit greater than what some of us were kind of expecting. I know there's typically kind of a seasonal rebound in the, in the first quarter. Can you just kind of walk us through the, the dynamics there? And, you know, I think you had previously kind of talked about a, a fee to average assets kind of in the, you know, 55-65 basis point range. Any reason to think that that might be different as we progress through the 2024? Thanks.
Steve Young (Chief Strategy Officer)
Sure. You know, thanks, Mike, for the question. Yeah, you know, we on Page 31 is our fee income percentage, and you can see that it was $65 million this quarter, 58 basis points of average assets. And of course, that was within our guide of... We said it was the low end of the 55-65 range in the fourth quarter, just with what we saw. You know, our, you know, we're just kind of reiterating the same guidance for 2024. We would, you know, sort of expect a non-interest income to average assets to be in the 55-65 basis points for the full year.
It's gonna start on the lower end of the range, like we had in the fourth quarter, for the first half of the year, and probably the upper end of the range in the back half of the year. The reasoning for that is just sort of the yield curve normalizing and sort of our interest rate-sensitive businesses like mortgage and correspondent. They just perform better when things are a little bit more normal from that perspective. So, you know, as you kind of, you know, take that into 2025, you know, we would expect our non-interest income to average assets to return to that 60-70 basis points, which was approximately the 2022 level.
So the way I kind of think about the variability and margin and our kind of our interest-sensitive businesses is we need a little bit more yield curve normalization for those things to sort of get back to, I'll call it, more normal levels. So that's kind of how we're thinking about it. And like you like you mentioned, you know, correspondent with the and mortgage, although mortgage is probably less volatile at this point. But correspondent, I don't think that probably... You know, if you think about the fixed income business, until they start cutting rates, that's probably not gonna improve a lot.
Our interest rate swap business, because of the lack of loan volume in the industry in the fourth quarter, probably in the first quarter, you know, it's probably not gonna ramp toward the back half of the year as rates stabilize.
Michael Rose (Managing Director of Equity Research)
Very helpful. Maybe if I can just squeeze one more in for-
Steve Young (Chief Strategy Officer)
Sure
Michael Rose (Managing Director of Equity Research)
For John. Just reflecting on your comments at the beginning of the call around technology costs, I think I was struck by how much the spend had increased in, you know, three years' time or four years' time, up $68 million. As you think about going forward, you know, just conceptually, any larger technology products or rehauls that you need to do, or is it just more around the edges? Because that's a pretty big lift in cost in a couple of years. Thanks.
John Corbett (CEO)
Yeah, sure. I think our motto for 2023 was "Building a Better Bank," and really was focused on the customer experience, the employee experience, and getting feedback from our team, how to take friction out of the technology. For 2024, it's kind of "Finish the Drill," is the theme, and it's really the technology and process improvements that were already put in place the last couple of years. We just want to complete those projects. So there's really not, Michael, new significant technology platforms that we've got in the queue to update. So I think the bulk of our technology spending increases is in the rearview mirror. I mean, there's always gonna be growth in that category, but nowhere near the level we've seen the last few years.
Steve Young (Chief Strategy Officer)
Yeah, Michael, this is Steve. The only other comment I would make is, remember when we did the MOE back four years ago? That was one of the main reasons we did it. There was an investment in technology that we needed to make, and so we used that period as an opportunity to take cost out of certain areas and reallocate it to technology. And so that's sort of been the story the last several years.
Michael Rose (Managing Director of Equity Research)
Makes sense. Thanks for all the color.
Operator (participant)
Your next question comes from the line of Brandon King with Truist Securities. Your line is open.
Brandon King (Managing Director, Senior Equity Research Analyst)
Hey, good morning.
John Corbett (CEO)
Hi, Brandon.
Brandon King (Managing Director, Senior Equity Research Analyst)
Hey. So I appreciate the new term guidance on expenses, but are you expecting expenses to kind of stay in that similar range throughout the year? Or what kind of growth rate you think is a good base case assumption?
John Corbett (CEO)
Yeah, Brandon, thanks. Brandon, thanks. The... I'd say for the full year, I think around that billion-dollar number is about what we would expect at this point. There are, of course, some—there's some components of compensation, et cetera, that fluctuate with revenue volumes and some of the fee businesses in particular, that if that turns out differently than we expect, those could move up or down. But, for the full year, I think consensus has us right around $1 billion, and that feels like a pretty good spot, based on what we see today.
Brandon King (Managing Director, Senior Equity Research Analyst)
Okay. And on fees, with the CFPB overdraft proposal, are you considering any potential changes to your overdraft policies? And I guess if not, what could be the potential impact if that does go into effect?
Steve Young (Chief Strategy Officer)
Yeah, Brandon, it's Steve. You know, we made some changes maybe 15-18 months ago. We aren't contemplating any new changes. I know there was a new paper that came out a few days ago, but as I understand it, the earliest that would be approved is in October of 2025. So I think it's probably just too early, and of course, we're thinking about it, but—but, yeah, we haven't run the math on any effect that would have on us for sure. But anyway, that's kind of how we're thinking about it.
Brandon King (Managing Director, Senior Equity Research Analyst)
Okay. And then lastly, on deposit pricing, I know CDs continue to be a headwind near term, but could you potentially quantify or give some context around, you know, near-term CD repricing? And then as you're looking and doing the numbers, when could that potentially turn into a tailwind, maybe either in 2024 or 2025?
Steve Young (Chief Strategy Officer)
Sure, and this is, this is Steve. You know, I think we have about $4 billion of CDs. I think 90% of that roughly come due in 2024. We have a fair amount coming due in the first quarter. I want to say it's not quite half, but it's, it's a fair amount. So, you know, as we think about repricing, we're just, you know, CDs by nature, retail CDs are generally pretty short in nature, and we, retooled a couple of our retail products, to, you know, continue to shorten those up. But, you know, at the end of the day, CDs only make up 12% of our total deposits, so it'll, it'll be a little bit of a tailwind.
I think the exception price or negotiated rates on the money market is probably the place we put more liability sensitivity as we've thought about it.
Brandon King (Managing Director, Senior Equity Research Analyst)
Okay. Thanks for taking my questions.
Steve Young (Chief Strategy Officer)
Thank you.
Operator (participant)
Your next question comes from the line of Samuel Varga with UBS. Your line is open.
Samuel Varga (Associate Analyst)
Good morning, everyone.
Steve Young (Chief Strategy Officer)
Good morning.
Samuel Varga (Associate Analyst)
I wanted to go back to the, the margin discussion just for a little bit. Just to clarify on the, obviously, I'm not digging too far into the 2025 and 2026 guides, but just to clarify, you're assuming that the, the mid to longer end of the curve is staying flattish from current levels, so there's a steepness to the curve?
Steve Young (Chief Strategy Officer)
Yeah. If you look at the Moody's consensus forecast, I believe that, you know, today, the five-year part, which is where we put a lot of our assets, is somewhere in the 4% range. I'm going to say by the end of 2025, it's in that 3.5% range, give or take, so sort of a flat curve by the time they cut eight rates and so on. So that's sort of our assumption for rates. We don't see if, you know, if the five-year part of the curve went up to 5%, of course, our repricing would be stronger, but, you know, we might have other issues. And if the five-year goes down to 3%, you know, the next year, then there's probably other rate issues.
But anyway, that's how.
John Corbett (CEO)
But you were saying that for the end of 2025, Steve, so there's at the end of 2024 is-
Steve Young (Chief Strategy Officer)
Yes.
John Corbett (CEO)
the Moody's consensus a little higher than that?
Steve Young (Chief Strategy Officer)
It's a little higher. Then it's somewhere between 3.50% and 3.75%, I think, and then by the end of 2025, it's around 3.5%. So yeah, that's... As you know, at the end of October, I think, when we had our earnings call, I think the five-year Treasury Moody's consensus was for, like, 4.5%. So you know, it does move around for sure. So we'll find out for sure.
Samuel Varga (Associate Analyst)
Got it. Thank you. That's very helpful. And then, in terms of the down betas, for 2024, what sort of assumptions do you have there for deposit down betas?
Steve Young (Chief Strategy Officer)
Yeah, let me, let me take a bit of a longer-term view because there's always a lag in all of this. But, you know, from our experience and from our modeling, as I think about, our betas, I would say on the down betas, it's about 20% total. So for instance, if, you know, if, if, if I kind of run the math on we're a 5.5% Fed Funds Rate, and over the next couple of years, they cut it to 3.5 or 200 basis points, you know, you would expect from our peak, maybe 40 basis points of, of pressure, you know, to be relieved, coming back, by 2026.
And I know I'm not supposed to talk about 2026, but it is a linear ramp, and it takes time to do it. But that would be really consistent if you kind of look back at our history. It's a 20% beta, but there's always a little bit of a lag in that first couple of rate cuts.
Samuel Varga (Associate Analyst)
That makes sense. And then just a quick one: do you happen to have the spot interest rate and deposit costs for December or year-end?
Steve Young (Chief Strategy Officer)
No, we don't. Not here in front of me, unfortunately.
Samuel Varga (Associate Analyst)
All right. No problem. Thanks for answering my questions. I appreciate it.
Steve Young (Chief Strategy Officer)
See you out.
Operator (participant)
Your next question comes from the line of Russell Gunther with Stephens. Your line is open.
Russell Gunther (Managing Director, Senior Research Analyst)
Hey, good morning, guys. Just a couple of quick clarifiers at this point. The 20% down beta, you're contemplating that through the cycle, and that would compare to the up beta of roughly 30%. Did I hear that right?
Steve Young (Chief Strategy Officer)
Yeah, that's right. Mm-hmm.
Russell Gunther (Managing Director, Senior Research Analyst)
Okay. Very good.
Steve Young (Chief Strategy Officer)
That would be total-
Russell Gunther (Managing Director, Senior Research Analyst)
And then-
Steve Young (Chief Strategy Officer)
Total. It would be total deposit beta.
Russell Gunther (Managing Director, Senior Research Analyst)
Total, yep.
Steve Young (Chief Strategy Officer)
Yeah. Mm-hmm.
Russell Gunther (Managing Director, Senior Research Analyst)
Yeah. Okay. Excellent. Understood. Thank you. And then, just lastly, as you guys kind of balance, you mentioned the potential for a bond restructure versus buying back stock. Just kind of walk us through the thought process there, and then if you could confirm, any potential bond restructure that would get done would be, likely accretive to that named guidance for 2024.
Steve Young (Chief Strategy Officer)
Sure, Russell. It's Steve. Yeah, we, we've talked about that on the call. I think it was last quarter we talked about it, and I think it's the same, same kind of calculus. It's really just trying to think about our uses of capital. I think we talked up to maybe a 10, maybe, you know, more rather than a 15% of our portfolio restructure, and, you know, obviously, we'd be thinking about it in terms of, earn back period, less than three years. That's how we would think about it. It's, it's a lever. You know, we're thinking about what we're, you know, kind of just back to positioning the balance sheet, thinking about the future. So-...
You know, if rates come down, we are thinking about liability sensitivity a little bit, and we want to think about how to position, you know, if rates do fall, how to best position all the balance sheet. And of course, that takes time to do it, but we've been thinking about it for the last couple of quarters. Certainly, we want to think about it for the next four or five. So, that, that's from a perspective of the bond restructure. It's certainly something on the table. And to your point, if, you know, it's a lever, if they continue to have higher rates and, you know, our NIM has some pressure, that's a way that we can level set it. But that's just on the bond restructure on the capital side.
Will Matthews (CFO)
Yeah, and, you know, as you noted, I mean, with the 11.8 CET1, that does give us the luxury of considering more than one option. And certainly, share repurchases are a use of capital that we think about as well. And, you know, where we sit today, based on our forecasted risk-weighted asset growth and capital formation rate, you know, if we don't do any of those things, you're going to see that CET1 continue to climb from there. So we like the flexibility we've got with our capital position today, and, you know, continue to think about all those options we mentioned.
Russell Gunther (Managing Director, Senior Research Analyst)
That's great, guys. I appreciate you taking my questions. Thank you.
Operator (participant)
Your next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open.
Gary Tenner (Managing Director, Senior Research Analyst)
Thanks. Good morning.
Will Matthews (CFO)
Morning.
Gary Tenner (Managing Director, Senior Research Analyst)
I wanted to ask about kind of the earning asset mix for 2024. You talked about, I think, you know, flattish earning assets from the fourth quarter level, you know, with what looks like somewhere in the range of $1.5 billion of net loan growth. So from a funding perspective of that loan growth, what are the cash flows projected off the securities portfolio for the year? And you know, how lean would you run cash as you're thinking about kind of remixing the asset side of the balance sheet a little bit?
Steve Young (Chief Strategy Officer)
Sure. You know, I guess this really, I don't think it's changed a whole lot, as you think about, you know, if we have mid-single-digit loan growth, that's, you know, I don't know, $1.5 billion-$1.6 billion, something like that. You know, we have our securities portfolio that's running off somewhere, depending on rates, you know, $700 million-$800 million a year. So that would imply that you have about, you know, 2%-3% deposit growth, you know, assumptions built in there. You know, we think it's slow in the front end. It probably ramps in the back end. If you think about, you know, QT and all that stuff, if they end up, you know, bringing that back, I would imagine that, you know, liquidity in the system would get better in the back half.
You know, so just to make sure I was clear, you know, our average, our expected average for the year of earning assets is $41 billion. You know, it will start out a little lower than that, of course, end up a little higher than that based on those assumptions.
Gary Tenner (Managing Director, Senior Research Analyst)
Okay, appreciate that. And then, just with the commentary in the press release of the reduction in broker deposits, can you tell us what the broker balances are at your end?
Steve Young (Chief Strategy Officer)
Yeah, I don't have that in front of me, but I think it's around 700, 720, so I think $720 million or so. We've really brought that down over the, you know, during the March banking situation, we took it up $1 billion or $2 billion just to make sure that we had plenty of liquidity, fortress balance sheet, and then, of course, you know, that's run off quite a bit over the year. You know, as I think about 2024, you know, at least in the first half, I certainly think we'll replace those and, you know, potentially grow it a little bit, but it'll be somewhere in that range. You know, historically, we run about 3% of average deposits, so, you know, it'd be about $1 billion.
So, you know, somewhere in that, you know, $500 million-$1.5 billion range, I don't know. Somewhere in there is typically how we run it, depending on rates.
Gary Tenner (Managing Director, Senior Research Analyst)
Great. Thanks very much.
Operator (participant)
There are no further questions at this time. I will turn the call to John Corbett for closing remarks.
John Corbett (CEO)
All right. I know you guys have had a busy morning with a lot of calls, so thank you for joining us. If we can provide any other clarity on your models, don't hesitate to give us a ring, and I hope you have a great day.
Operator (participant)
This concludes today's conference call. We thank you for joining. You may now disconnect your lines.