Earnings Call Transcript - SSB Q4 2023

Operator, Operator

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. I will now turn the conference over to Will Matthews. Please go ahead.

Will Matthews, Executive

Good morning, and welcome to SouthState's fourth quarter 2023 earnings call. This is Will Matthews, 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 did decrease a couple of 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 surprisingly, Florida, South Carolina, North Carolina, and Georgia were all on the top five fastest-growing states in the country during 2023. Since the pandemic, over one 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 retooling the guts of the bank, specifically in the areas of technology and risk management. Our goal is 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. 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. 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, Executive

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, was approximately 5% annualized, which 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 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 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, 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's 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. 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 complement 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 were 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 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 9 basis points for the quarter and 8 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 6 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. So 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 non-accruals, which are 75% or more government guaranteed. Specialty 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 two 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 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 $46.3, 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, Operator

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

Catherine Mealor, Analyst

Hey, good morning.

John Corbett, CEO

Good morning, Catherine.

Catherine Mealor, Analyst

Just to start with your margin outlook. The margin came right in line with your guidance for this quarter. I'm just curious how you're thinking about the margin this year, maybe and how you're thinking about how rate cuts impact your margin outlook? Thanks.

Steven Young, CFO

Sure, Catherine. It's Steve. Thanks for asking the question. We have a page that we show every quarter on Page 11 is the NIM trend. And as you mentioned, it went down from 350 to 348, so 2 basis points, that's within our guidance between $345 million and $350 million. Our deposit cost increased by 16 basis points, which was within our guidance of 15% to 20%. So as we think about 2024, it's interest-earning assets, it's rate forecast and then our deposit beta assumption. So for interest-earning assets for the full year 2024, we're sort of just reiterating the $41 billion; that's sort of what we thought about in the last several quarters. So we're thinking 2024, $41 billion. We start out like fourth quarter was in the 40.4% range. So I wouldn't expect that to be much different coming out of the first quarter 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 3.50% by the end of 2025. On our deposit beta, Page 17, which is our cycle-to-date beta, 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 is how we see it. So 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. We would expect the first half to be in that 3.40% to 3.50% range, and exiting the back half in that 3.50% to 3.60% range. That's kind of how we're thinking about 2024 with those assumptions. As we think about 2025 and you think about another four rate cuts in 2025, we're thinking as we model it somewhere in that 3.55% to 3.65% NIM range in 2025 depending on how we exit. Just kind of the last point I'll make is if we kind of play this out and the forward curve is sort of showing that at the end of 2025, we sort of have a 3% to 3.5% Fed funds rate in sort of a flat or upward sloping curve. 2026 would look a lot like 2018, 2019 when our NIMs were in the 3.75% maybe 3.90% 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.

Catherine Mealor, Analyst

That's really helpful. I think the first one I've gotten 2026 guidance in this earnings season. That's helpful.

Steven Young, CFO

You want 2028 guidance, we can accommodate that.

Catherine Mealor, Analyst

I love it. I love it. Yes, this is really helpful. And it's interesting. It feels like you just got upward momentum in your margin. And I'm curious how you're thinking about how deposit costs play into that. I mean, you've got such an opportunity to reprice assets all 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?

Steven Young, CFO

Yes. 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 repricing that are going to happen in 2024. I think in 2025, it's like $3.3 billion, and 2026 is about $3 billion. It's a healthy amount every year. Those are somewhere in the 4.60% to 4.80% range for all three of those years; they're kind of fixed in there. 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. If you think about the deposit rates, our money market accounts, you've seen a big increase in that over the last 12 months. I think if you look 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. A lot of that was negotiated rates. In our total portfolio of deposits, we have about a little over $10 billion of negotiated rates that we've given to our team to manage to exception pricing. On the flip side of that, we have about $10 billion of floating-rate loans. About 30% of our loans is floating. You kind of look at both of those, and they sort of may not perfectly offset each other but help. CDs are another $4 billion that eventually will re-price to the front end of the curve over time. 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.

Catherine Mealor, Analyst

Yep. Yeah, that's very, very helpful. All right, great. Thank you.

Operator, Operator

Your next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open.

Stephen Scouten, 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 stabilize here at this level? Or do you expect a little bit more mix shift as we move on maybe prior to potential rate cut?

Will Matthews, Executive

It's difficult to determine. A few quarters ago, we might have anticipated this would be the outcome. However, as we've observed a consistent decline in that percentage, it seems reasonable to consider that it could decrease further. I'm unsure by how much, but the rate of change has slowed significantly in recent quarters. Still, it's challenging to assert that we've reached a definitive endpoint.

John Corbett, CEO

Yeah. And to Will's point, I mean, it's sort of been a situation where it's gone down 1%, 1.2%. Just when does the Fed pivot, and probably at that point is when all that changes, but that's the $64,000 question.

Stephen Scouten, 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-offs, and 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 a normalized net charge-offs for you as you think about your portfolio and do you think we could see this reserve start to trend down given no significant worsening in the portfolio?

Will Matthews, Executive

Yes. Yes, Stephen. I think the way I think about it, our charge-offs last year were 8 basis points, and they've been very low for the last several years. I think it's reasonable to expect to normalize a bit from such a low level. To the extent they do, that would impact provision expense. We did, as we highlighted, build our reserve over 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 provision expense to cover those charge-offs and depending on whatever else the model tells us. As far as normalized charge-offs, I don't have a good number to estimate. If you look back at the peer group, it would certainly 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'd be great if we could.

Stephen Scouten, Analyst

Okay. Good. And then just last thing for me. Maybe to John, this is maybe more your side of the coin here. I'm wondering about M&A in this environment. Obviously, I know '23 was a tough year, but you guys turned out phenomenally well. So a relatively advantaged currency rate 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

Yes, sure. As I've said previously, we are open for business. I suspect that the math is becoming easier with the lower interest rate marks. But Stephen, really no change from our prior guidance. Our ideal partner, if we were to do something, would be 10% to one-third of our pro forma company. We're in great markets in the Southeast, and we prefer to double down in 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 6. If we were to do a market extension type of deal, we need to be in a similar high-growth market like Tennessee or Texas. 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.

Stephen Scouten, Analyst

Yes. Helpful commentary, John. Thanks a lot, guys. Appreciate the time.

John Corbett, CEO

You bet.

Operator, Operator

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

Michael Rose, Analyst

Good morning, everyone. Thanks for taking my questions. 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 given your footprint, just wanted to get some thoughts on loan growth expectations as we think about the year, where are areas that you can maybe push the gas pedal a little bit? 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 mid-single-digit loan growth rates for next year. So just wanted to get some context there. Thanks.

John Corbett, CEO

Yes, 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. 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. 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. 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, others are going to be slowing prepayments and there's continuing to be funding of loans that are unfunded that we made in 2021 and '22. Our guidance really hasn't changed. We think mid-single-digit growth is reasonable until rates decline. Where do we see that growth for us? We've seen a considerable amount of residential real estate growth in 2023. We're getting a nice coupon for that growth, and there are just more people moving into our markets than there are homes available. I feel good about those credits from an asset quality standpoint. CRE activity has been very low in 2023 with the rise in rates, and you might see a little pickup there in 2024 with the five-year treasury down as much as it is. We've just got a continuous push on the C&I middle market space. That's an area that we're leaning into. So I hope that's helpful, Michael.

Michael Rose, Analyst

Certainly. I think you stepped down and corresponded that this quarter was a bit better than some of us expected. I know there's usually a seasonal rebound in the first quarter. Can you walk us through the dynamics there? You mentioned previously that the fee to average assets was in the 55 to 65 basis point range. Is there any reason to believe that might change as we move through 2024? Thank you.

Will Matthews, Executive

Thanks, Mike, for the question. Our fee income percentage on Page 31 is $65 million this quarter, which is 58 basis points of average assets. This is within our guidance. We previously indicated a low-end range of 55% to 65% for the fourth quarter based on what we observed. We are reiterating the same guidance for 2024, expecting non-interest income to average assets to be between 55 and 65 basis points for the full year. We anticipate starting at the lower end of this range for the first half of the year, similar to what we experienced in the fourth quarter, and moving toward the upper end in the latter half. This is due to the yield curve normalizing, which benefits our interest rate-sensitive businesses like mortgage and correspondent, as they perform better under more normal conditions. Looking ahead to 2025, we expect our non-interest income to return to 60 to 70 basis points, close to the level seen in 2022. The variability in margin and interest-sensitive businesses relies on further yield curve normalization to return to what I would consider more normal levels. Regarding correspondent and mortgage, mortgage is likely less volatile at this stage. However, without rate cuts, the fixed income business and our interest rate swap business will struggle to improve significantly due to low loan volumes in the industry during the fourth quarter, which is likely to continue into the first quarter, with potential improvement only in the second half of the year as rates stabilize.

Michael Rose, Analyst

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, I think I was 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 rehauls that you need to do? Or is it just more around the edges because that's a pretty big lift in costs in a couple of years? Thanks.

John Corbett, CEO

Yeah, sure. I think our motto for 2023 was building a better bank, which really was focused on the customer experience, the employee experience, and getting feedback from our team on how to take friction out of the technology. For 2024, it's kind of 'finish the drill' is the theme. 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. There's really not, Michael, new significant technology platforms that we've got in the queue to update. I think the bulk of our technology spending increases is in the rearview mirror. There's always going to be growth in that category, but nowhere near the level we've seen in the last few years.

Steven Young, CFO

Michael, this is Steve. The only other comment I would make is, remember, when we did the merger of equals 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. That's sort of been the story in the last several years.

Michael Rose, Analyst

Makes sense. Thanks for all the color.

Operator, Operator

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

Brandon King, Analyst

Hey, good morning.

John Corbett, CEO

Hi, Brandon.

Brandon King, Analyst

So I appreciate the near-term guidance on expenses, but are you expecting expenses to stay in that similar range throughout the year? Or what kind of growth rate do you think is a good base case assumption?

Will Matthews, Executive

Yes, Brandon, thanks. For the full year, I think around that $1 billion number is what we would expect at this point. There are, of course, some components of compensation, et cetera, that fluctuate with revenue volumes in some of the fee businesses in particular, if that turns out differently, then we expect those could move up or down. 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, Analyst

Okay. And on fees, with the CFPB overdraft proposal, are you considering any potential changes to your overdraft policies? If not, what could be the potential impact if that does go into effect?

Steven Young, CFO

Yes, Brandon, it's 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, the earliest that would be approved is in October 2025. So I think it's probably just too early, and of course, we're thinking about it. We haven't run the math on any effect that would have on us for sure. But anyway, that's how we're thinking about it.

Brandon King, 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 near-term CDP pricing, and then as you're looking at doing the numbers, when could that potentially turn into a tailwind maybe in 2024 through 2025?

Steven Young, CFO

Sure, Brandon. This is Steve. I think we have about $4 billion in certificates of deposit. Approximately 90% of that is set to mature in 2024, with a significant portion coming due in the first quarter. While it’s not quite half, it is a notable amount. As we consider repricing, we acknowledge that retail CDs are typically short-term, and we've adjusted some of our retail products to further shorten their durations. However, CDs only account for 12% of our total deposits, so they will provide a modest benefit. I believe the highest exposure for negotiated rates in the money markets is where we're focusing our liability sensitivity as we assess the situation.

Brandon King, Analyst

Okay. Thanks for taking my questions.

John Corbett, CEO

Thank you.

Operator, Operator

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

Samuel Varga, Analyst

Hi, good morning, everyone.

John Corbett, CEO

Good morning.

Samuel Varga, Analyst

I wanted to return to the margin discussion briefly. Just to clarify, you are assuming that the mid- to longer end of the curve remains relatively flat at other levels. So there's a flat curve?

Steven Young, CFO

Yes. If you look at the Moody's consensus forecast today, all that five-year part, which is where we put a lot of our assets, is somewhere in the 4% range. By the end of 2025, it's in that 3.5% range, give or take a sort of a flat curve by the time they cut rates and so on. 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. If the five-year goes down to 3% the next year, then there are probably other rate issues. But anyway, that's helpful.

Samuel Varga, Analyst

But you were saying that for the end of 2025, Steve, so there is at the end of 2024 is Moody's consensus is a little higher than that.

Steven Young, CFO

It's a little higher than somewhere between 350 and 375, I think. As you know, at the end of October, I think when we had our earnings call, the five-year treasury Moody's consensus was 4% like 4.5%. So it does move, count for sure. So we'll find out for sure.

Samuel Varga, 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?

Steven Young, CFO

Yes. 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. If I run the map on where a 5.5% Fed funds rate. 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. That would be consistent if you 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, Analyst

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

Steven Young, CFO

No, we don't have that in front of me or John.

Samuel Varga, Analyst

All right. No problem. Thanks for answering my questions. I appreciate it.

Steven Young, CFO

You bet.

Operator, Operator

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

Russell Gunther, Analyst

Hey, good morning, guys. Just a couple of quick clarifiers at this point. The 20% down beta you're contemplating, is that through the cycle, and that would compare to the update of roughly 30%. Did I hear that right?

Steven Young, CFO

Yes, that's right.

Russell Gunther, Analyst

Okay. Very good.

Steven Young, CFO

That would be a total with total deposit beta.

Russell Gunther, Analyst

Yeah. Okay. Excellent. Understood. Thank you. And then just lastly, as you guys kind of balance, you mentioned the potential for a bond structure versus buying back stock. Just kind of walk us through the thought process there. If you could confirm any potential bond structure that would get done would be likely accretive to that NIM guidance for 2024?

Steven Young, CFO

Russell, it's Steve. We've talked about that on the call. I think it was last quarter, we talked about it. It's really just trying to think about our uses of capital. I think we talked up to maybe a 10% more than 15% of our portfolio restructure. We'd be thinking about it in terms of earn-back period less than three years. It's a lever. We're thinking about positioning the balance sheet, thinking about the future if rates come down. We want to think about how to position if rates do fall how to best position all the balance sheet. 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 4 or 5. From a perspective of the bond restructure, it's certainly something on the table. If they continue to have higher rates, our NIM has some pressure; that's a way that we can level set it.

Will Matthews, Executive

Yes. And as you noted, with the 11.8% CET1 that does give us the luxury of considering more than one option. Certainly, share repurchases are users of capital that we think about as well. Where we sit today, based on our forecasted risk-weighted asset growth and capital formation rate, if we don't do any of those things, we're going to see that CET1 continue to climb from there. We like the flexibility we've got with our capital position today and will continue to think about all of those options we mentioned.

Russell Gunther, Analyst

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

Operator, Operator

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

Gary Tenner, Analyst

Thanks. Good morning.

Will Matthews, Executive

Good morning.

Gary Tenner, Analyst

I wanted to ask about kind of the earning asset mix for 2024. You talked about, I think, flattish earning assets from the fourth quarter level 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 about the securities portfolio for the year? And how lean would you run cash as you're thinking about kind of remixing the asset side of the balance sheet a little bit?

Steven Young, CFO

Sure. If we have mid-single-digit loan growth, that's $1.5 billion or $1.6 billion of that. Our securities portfolio is running off somewhere depending on rates, $700 million or $800 million a year. 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, they end up bringing that back, I would imagine that liquidity in the system would get better in the back half. 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, end up a little higher than that based on this assumption.

Gary Tenner, Analyst

Okay. I appreciate that. And then just with the commentary in the press release with the reduction in brokered deposits, can you tell us what the brokered balances are at year-end?

Will Matthews, Executive

I don't have the exact figures with me, but I believe it's around $700 million to $720 million. We have significantly reduced that amount. During the banking situation in March, we increased it to $1.2 billion to ensure we had ample liquidity and a strong balance sheet, but it has reduced quite a bit over the year. Looking ahead to 2024, at least in the first half, I believe we will replenish that and possibly increase it slightly, but I expect it will remain in that range. Typically, we maintain about 3% of average deposits, which would put it around $1 billion, in a range of $500 million to $1.5 billion. I'm not certain of the exact figure, but that’s generally how we operate depending on interest rates.

Gary Tenner, Analyst

Great. Thank you.

Operator, Operator

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. Thank you for joining us. If we can provide any other clarity on your models, don't hesitate to give us a ring. I hope you have a great day.

Operator, Operator

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