SouthState Corporation

Hello and welcome to the South State 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 1 on your telephone keypad. I will now turn the conference over to Will Matthews. Please go ahead.

Good morning, and welcome to South State'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.

Thanks, Will. Good morning, everybody. Thank you for joining us. You can see in the earnings release that South State 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 South State, 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. And since the pandemic, Over a million people have moved to Florida. Sal State 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 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. During the first couple 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.

Thank you, John. As you noted, the fourth quarter was a good finish to a year in which South State 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 percent 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 348 NEM was down two basis points from the prior quarter and consistent with our 345 to 350 guidance. Loan yields in Q4 were up 12 basis points and deposits were up 16 basis points in line with our 15 to 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, 23's NIM of 363 was 26 basis points higher than 22'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 to 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 strong quarter and 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 tracked 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, We're 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 recognize $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. And over the last two years, We've provisioned $196 million against only $29 million in net charge-offs, so we've 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 non-accruals, which are 75% or more government-guaranteed. Special mention loans declined and substandard loans increased. The increase in over 90s 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. T&I line utilization was up 1% in the quarter, and home equity lot of credit utilization was down slightly. We continue to have very strong capital ratios with a CE Tier 1 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.

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 Katherine Mealer with KBW. Your line is open. Thanks. Good morning.

Good morning, Katherine.

I just wanted 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

margin to this year you know maybe and and how you're thinking about how rate cuts impact your margin outlook thanks sure catherine it's steve um thanks for asking the question you know we have a page uh that we show every quarter on page 11 is the nim trend um and as you mentioned it went down from 350 to 348 so two basis points but within our guidance between 345 and 350 Our deposit cost increased 16 basis points, which was within our guidance of 15 to 20. So, as we think about 2024, you know, it's interest earning assets, it's rate forecast, and then our deposit data assumption. So, you know, for interest earning assets for the full year 24, We're sort of just reiterating the $41 billion. That's sort of what we thought about 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. 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 350 by the end of 2025. On our deposit data, Page 17, which is our cycle-to-date data, is 30%. And we would continue to expect deposit costs to increase similarly in the fourth quarter before we get rate cuts sometime in the second quarter. That's how we see it. So deposit costs between 170, 180 in the first quarter. So I guess based on all those assumptions, we would expect the full year NEM to average somewhere between 345 and 355 for the full year in 2024. And we would sort of expect the first half to be in that 340 to 350 range and the exiting the back half in that 350 to 360 range. So that's kind of how we're thinking about 24 with the, you know, those assumptions. You know, as we think about 25 and you think about, you know, another four rate cuts in 25, you know, we're thinking as we model it somewhere in that 355 to 365 NEM 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 25, you know, we sort of have a three to three and a half percent set funds rate and sort of a flatter upward slipping curve. You know, 2026, would look a lot like 2018-2019 when our NIMs were in the 375, you know, maybe 390 range. So, 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.

That's really helpful. I think it's the first time I've gotten 26 guidance this earnings season.

If you want 28, we can go there, too. I love it. I love it.

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 see how you are thinking about how deposit costs play into that. I mean, you've got such an opportunity to reprice assets 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 really what's driving the higher margin is just upward momentum on the asset side?

Yeah, no, it's a good question. So maybe start with the asset side. I think we talked about it last quarter, but just to reiterate, 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 and 2026 at $3 billion. So, you know, it's a healthy amount every year. And so, you know, those are somewhere in the $460 to $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, our money market accounts, you've seen a big increase in that over the last 12 months. I think if you looked in their 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. And so in our total portfolio of deposits, we have about a little over $10 billion of negotiated rates that we've given to our team that they've managed to exception price. 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, 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 will 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 for how we think about it.

Yep. Yeah, that's very, very helpful.

All right, great. Thank you. Your next question comes from the line of Steven Skouten with Piper Sandler. Your line is open.

Hey, good morning, everyone. I'm kind of curious. You mentioned the DDA percentage, Will, was kind of back down to the pre-pandemic level. Do we think this can kind of stabilize here at this level, or do you expect a little bit more mixed shift as we move on, maybe prior to potential rate cuts?

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. The pace of that change has 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.

Yeah, and to Will's point, I mean, it's sort of been a situation where it's gone down a percent, percent point two. When does the Fed pivot? And probably at that point is when all that changes, but that's the $64,000 question.

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, and, Do you think we could see this reserve start to trend down given no significant worsening in the portfolio?

Yes, Stephen. I think the way I think about it, our charge-offs last year were eight basis points. 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, build our reserve the last couple of years in advance of potential deterioration in the economy. But depending on our charge-off levels from here, that could lead to preventing expense to cover those charge-offs, and depending on whatever else the model tells us. As far as normalized charge-off levels, 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 it would be great if we could.

Okay, good. And then just the last thing for me, maybe, John, this is maybe more your side of the coin here, wondering around M&A in this environment. Obviously, I know 23 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.

Yeah, sure. As I've said previously, 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 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's 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 at M&A. Yeah, helpful commentary, John. Thanks a lot, guys. Appreciate the time. You bet.

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

Hey, good morning, everyone. Thanks for taking my questions. I just wanted to get some comments on slide 12, which is the loan production chart. Obviously, it's come down since a very strong 2022. I know some of that is just your kind of conservative nature and maybe not wanting to take on other people's credits as they move out of the banks. But just giving your footprint, just wanted to get some thoughts on you know, loan growth expectations as we think about the year, where 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.

Yeah, Michael, 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 uncertain 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 23, 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 loans that are unfunded. that we made in 2021-22. So our guidance really hadn't changed. We think mid single digit growth is reasonable until rates decline. But where do we see that growth? For us, we've seen a considerable amount of residential real estate growth in 23, 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 has been very low in 23 with the rise in rates. You know, you might see a little pickup there in 24 with the five-year treasury down as much as it is. And then we've just got a continuous push on the CNI middle market space. So that's an area that we're leaning into. So hope that's helpful, Michael.

Very much so. And then maybe just one for Steve. I think the step down in correspondence 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 first quarter. Can you just kind of walk us through the dynamics there? And, you know, I think you had previously kind of talked about a fee to average assets kind of in the, you know, 55 to 65 basis point range. Any reason to think that that might be different as we progress through the quarter?

Thanks, Mike, for the question. Yeah, you know, 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. We said it was the low end of the 55 to 65 range in the fourth quarter, just what we saw. You know, we're just kind of reiterating the same guidance for 2024. We would sort of expect a non-interest income to average assets to be in the 55 to 65 basis points for the full year. It's going to 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. 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 uh from a from that perspective so you know as you kind of you know take that into 2025 you know we would expect our knowledge to income to average assets to return to that 60 to 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 mentioned, you know, correspondent with the end mortgage, although mortgage is probably less volatile at this point, but correspondent, I don't think that probably If you think about the fixed income business, until they start cutting rates, that's probably not going to 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, it's probably not going to ramp toward the back half of the year as rates stabilize.

Very helpful. And then maybe if I can just squeeze one more in for John, just reflecting on your comments at the beginning of the call around technology costs. struck by how much the spend has increased in three years' time or four years' time, up $68 million. As you think about going forward, just conceptually, any larger technology products or re-hauls 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.

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 going to be growth in that category, but nowhere near the level we've seen the last few years. Yeah, Michael, 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 costs out of certain areas and reallocate it as a technology, and so that's sort of been the story the last several years.

Makes sense. Thanks for all the color.

Your next question comes from the line of Brandon King with Truist Securities. Your line is open.

Hey, good morning. Hi, Brandon. Hey, so I appreciate the near-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 do you think is a good base case assumption?

Yeah, Brandon, thanks. 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 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 a billion dollars, and that feels like a pretty good spot based on what we see today.

Okay. And on the 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?

Yeah, Brandon, this is Steve. We made some changes maybe 15 to 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, it the earliest that would be approved is in October 25. So I think it's probably just too early. And of course, we're thinking about it. 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.

Okay. And then lastly, on deposit pricing, I know CDs continue to be ahead with near-term. But could you potentially quantify or give some context around near-term CDB pricing And then as you're looking and doing the numbers, when could that potentially turn into a tailwind? Maybe either in 2024 or 2025?

Sure. This is Steve. 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 a fair amount. So 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 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.

Okay, thanks for taking my questions.

Thank you. Your next question comes from the line of Samuel Varga with UBS. Your line is open.

Good morning, everyone.

Good morning.

I wanted to go back to the margin discussion just for a little bit. Just to clarify on the, obviously I'm not digging too far into the 25 and 26 guys, but just to clarify, you're assuming that the mid to longer end of the curve is So, there's a steepness to the curve?

Yeah. If you look at the Moody's consensus forecast, I believe that today all that five-year part, which is where we put a lot of our assets, is somewhere in the 4% range. I want 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 the five-year part of the curve went up to 5%, of course, our repricing would be stronger, but we might have other issues. And if the five-year goes down to 3% the next year, then there's probably other rate issues. But anyway, that's how. But you were saying that for the end of 25, Steve. So there's at the end of 24 is Moody's consensus a little higher than that. It's a little higher than somewhere between 350 and 375, I think. And then by the end of 25, it's around three and a half. 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 four and a half. So, you know, it does move around for sure. So we'll find out for sure.

Got it. Thank you. That's very helpful. And then in terms of the down betas for 24, what sort of assumptions do you have there for deposit down betas?

Yeah, let me take a bit of a longer-term view because there's always a lag in all of this. But 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 I kind of run the map on where a 5.5% Fed funds rate, and over the next couple of years, they cut it to 3.5 or 200 basis points, you would expect from our peak maybe 40 basis points of pressure to be relieved coming back by 2026. 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% data, but there's always a little bit of a lag in that first couple of rate cuts.

Does that make sense? And then just a quick one. Do you happen to have the spot interest-bearing deposit costs for December or year-end?

No, we don't. Not here in front of me, unfortunately.

All right, no problem.

Thanks for answering my questions. I appreciate it. You bet.

Your next question comes from the line of Russell Gunther with Stevens. Your line is open.

Hey, good morning, guys. Just a couple 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? Yeah, that's right. Okay, very good.

And that would be total, total, it would be total, the positive beta up.

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 accreted to that name guidance for 24.

Sure, Russell and Steve. Yeah, 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 kind of calculus. It's really just trying to think about our uses of capital. I think we talked up to maybe a 10, you know, more than a 15% of our portfolio restructure. And, you know, obviously we'd be thinking about it in terms of earned back period, less than three years. That's how we would think about it. 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. If rates come down, we are thinking about liability sensitivity a little bit, and we want to think about how to position if rates do fall, how to best position all the balance sheets. 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. That's from a perspective of the bond restructure. It's certainly something on the table. To your point, 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.

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 shareholder purchases are a use of capital that we think about as well. And, you know, where we sit today based on our forecasted risk-related asset growth and capital formation rate. 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 continue to think about all those options we mentioned.

That's great, guys. I appreciate you taking my question. Thank you.

Your next question comes from the line of Gary Tenner with DA Davidson. Your line is open.

Thanks. Good morning. 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 a billion and a half 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? 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, a billion, five billion, six, something like that. You know, we have our securities portfolio that's running off somewhere depending on rates, you know, $700, $800 million a year. So that would imply that you have about 2% to 3% deposit growth assumptions built in there. We think it's slow in the front end. It probably ramps in the back end. If you think about QT and all that stuff, if they end up bringing that back, I would imagine that liquidity in the system would get better in the back half. So, just to make sure I was clear, our expected average for the year of earning assets is $41 billion. It will start out a little lower than that, of course, and end up a little higher than that based on those assumptions.

Okay, I appreciate that.

And then, just with the commentary in the press release of the reduction in broker deposits Tell us what the broker balances are at your end. I don't have that in front of me, but I think it's around $720 million or so. We've really brought that down. During the March banking situation, we took it up a billion, too, just to make sure that we had plenty of liquidity for interest balance sheet. And then, of course, that's run off quite a bit over the year. 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, that'd be about a billion, you know, somewhere in that, you know, $500 billion and a half range. I don't know.

Somewhere in there is typically how we run it, depending on rates. Great. Thanks very much.

There are no further questions at this time. I will turn the call to John Corbett for closing remarks.

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.

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.