Q1 2022 SouthState Corp Earnings Call

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 private Securities Litigation Reform Act of $19 95.

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 risks and uncertainties, which may affect us.

Now I'll turn the call over to Robert Hill Executive Chairman.

Good morning, and thank you for joining the South state earnings call. Our results for the first quarter showed progress in many areas as you will hear from John and well the.

The area, where I see the most excitement as we start this year is in the energy created by our teams gathering again in person.

We have held events across our company this quarter that brought our people together.

A dense have been a welcome opportunity to spend time face to face with each other.

You can see the power of personal relationships that are being rekindled.

In some cases just beginning.

Our team has been amazing working through unprecedented circumstances and to see them. So excited to be together again is exhilarating.

These relationships are the magic that create a high performing bank and to see this reunion is a welcome sign of the potential of South state.

I'll now turn the call over to John Corbett.

Thank you Robert Good morning, everybody I Hope you and your families are doing well.

The economy in the southeast continues to thrive it's incredibly strong.

We continue to see population migration from all over the country.

And construction activity is very brisk and keep in mind that this follows a decade a slower construction after the housing crisis.

Our shipping ports airports theme.

Theme parks hotels, and restaurants are all near record capacity.

As consumers return to their pre pandemic lifestyles.

And Covid really hasn't been an economic constraint over the last year with a favorable political environment of the south east but.

But our clients are struggling with labor shortages and wage pressure to meet the spike in consumer demand.

We released our earnings last night and reported earnings per share of $1.39.

When you exclude merger related expenses, our adjusted earnings per share land.

Landed at $1 69.

Yielding a return on tangible common equity of approximately 17%.

The operating results were solid across the board with healthy loan and deposit growth.

Excluding accretion we had $9 million of core margin growth this quarter and good expense control.

Asset quality metrics continue to be excellent.

I know the market gets spooked about a recession when the yield curve inverts, but as we get on the street level.

And we meet face to face with our clients.

To review their cash balances and their unfunded lines of credit.

We're pretty bullish on the strength and resilience of our clients over this next year.

We closed on the Atlantic capital acquisition in Atlanta on March 1st.

And we're on track for systems conversion in the third quarter.

The Atlantic capital team has delivered excellent balance sheet growth since the announcement last summer.

And really they haven't missed a beat.

We remain excited about the strategic fit and Atlanta, and also expanding our new fintech and payments verticals.

Our balance sheet remains liquid and we're in a perfect positioned for rising rates.

During my 33 year banking career I was always taught that the most valuable part of the balance sheet.

Is the right side of the balance sheet.

And while that principle has certainly been challenged in a zero rate environment.

That is the mindset to build this company.

Over the last two years, we felt like our deposit franchise was a coiled spring of earnings power. If we could just get the five year treasury back over 2%.

We currently have $1 2 million deposit accounts that are diversified and granular.

And that should lead to a lower deposit beta.

During the last rate increase cycle, our deposit beta was only 5% on the first 100 basis point increase.

We started this year with 16% of the balance sheet and cash.

And then continued growing deposits in the first quarter by seven 5% annualized so that's excluding Atlantic capital.

Also our cost of deposits fell another basis point to an all time low despite basis points.

We held our nose and we're deliberately patient to hang onto our excess cash during the record low rates of 2021.

This quarter. However, we began deploying the cash into the investment portfolio as the yield curve dramatically improved.

The investment portfolio grew $2 billion during the quarter from 7 billion to $9 billion with about half of that growth attributable to Atlanta capital.

We still ended the quarter with 12% of the balance sheet and cash.

And only a 68% loan to deposit ratio.

So we will experience significant revenue improvement as we continue to deploy our surplus cash into this more favorable rate environment.

Our loan production at $2 $6 billion in the quarter similar to the third quarter.

And excluding the Atlantic capital acquired loan balances our linked quarter annualized loan growth was six 3%.

We continue to believe that rising rates will slow the prepayment speeds and be a tailwind to net loan growth in our current production levels.

Along with our earnings release, we announced that we will be modifying our consumer overdraft program.

We plan to eliminate NSF fees.

To eliminate transfer fees to cover overdrafts.

And to introduce a new deposit product with no overdraft fees we.

We estimate that the net impact of these product changes will be about <unk> 10 per share on an annual basis, beginning in the third quarter.

As a wrap up I want to thank our team for their great work over the last quarter and over the last two years.

When we modeled the merger of equals between center stayed in South state.

And we put it on paper.

There was no global pandemic in the model.

There was no recession and interest rates went to zero.

But our bankers are tough and their leaders and they plowed ahead with both grit and Grace they worked through the conversion and the integration and now the bank is growing.

Quality is pristine and our deposit franchise is incredibly valuable again.

I'll turn it over to will and he can give you additional details on the numbers.

Thanks, John I'll cover some highlights on margin noninterest income and noninterest expense as well as credit and the provision for credit losses.

The general sense I'll reiterate that we're pleased with the quarter and that we are enthusiastic about the remainder of the year given what we believe will be a better revenue environment.

Slide 11 shows our net interest margin trends.

Q1 of 'twenty, two was our highest quarter for net interest income excluding accretion up 9 million from Q4.

We did have Atlantic capital revenue for the month of March but we also had two fewer days in Q1 versus Q4.

Yields on non PPP loans of 380 were down 10 basis points from Q4, and total accretion in P. P. P fees of $7 7 million were down $5 7 million from the fourth quarter.

The ACB I purchase accounting marks are outlined on slide 33 looking.

Looking ahead. The next few quarters, we would expect to see accretion run in the $10 million range, including ACB for a full quarter.

Cost of total deposits reached five basis points for the quarter, a new low for us.

Taxable equivalent margin of $2 77 fell one basis point from Q4, with the lower accretion and PPP fee income, causing a differential of approximately six basis points.

With the yield curve move in the quarter, we deployed some cash in the bond portfolio, but we continue to have a lot of dry powder with $5 4 billion in fed funds, roughly 12% of our balance sheet.

Noninterest income of $86 million was down approximately 6 million from Q4.

Slide 13 shows our mortgage highlight and we had solid production in the quarter at 1.2 dollars 7 billion.

Gain on sale margins compressed and mortgage rates move up the relative attractiveness of portfolio versus secondary increases.

For the first quarter, 47% of our production went to the secondary market with 53% in the portfolio and construction to Perm loans are included in the portfolio a number.

We benefited in this environment from being a purchase focused mortgage company, representing approximately 70% of our production.

In our servicing business should be better in the higher rate environment, but margins in the business are under competitive pressure and are likely to remain so for the foreseeable future.

Our correspondent Division had good performance with $28 million of revenue for the quarter as noted on slide 14.

Our interest rate swaps business experienced good demand, but our fixed income business was a bit weaker in spite of the market, providing an opportunity to invest cash in higher rates, presumably influenced by a OCI sticker shock in some of our clients.

Turning to expenses operating NII of $218 million, including one month of Atlantic capital came in a bit better than budget with good performance pretty much across the board and various expense categories.

2022 is the first full year after the system conversion in our integration continues to progress nicely.

We also implemented this year in incentive system with division in region level measures meant to drive a culture of ownership.

Department or division level performance versus budget weather in net income for our revenue generating division or an N. I E for support area is a meaningful component of incentive pay for 2022.

We believe this incentive structure will help us continue to maintain a focus on revenue growth and cost control.

Looking ahead, we will have Atlantic capital expenses, and our expense base for a full quarter for the remaining three quarters of the year. It's Eni a run rate was $15 million per quarter.

We've achieved some of the cost savings ahead of schedule at some employees have departed before we had modeled so a CBS N I E run rate in March was slightly lower than we had expected.

Conversion is scheduled for late July give.

Given the addition of ACB I for two more months than we had in Q1, we currently foresee NII running in the low to <unk> for the remaining three quarters of the year, possibly in the high $2 20 for the fourth quarter with Atlantic capital cost save realization offset somewhat by annual wage increases and general inflation pressures.

Moving to credit we continue to report strong asset quality metrics.

Slide 26 shows continuing low trends of net charge offs nonperforming assets and criticized and classified assets.

One $4 million of the $2 3 million in net charge offs were DDA overdraft charge offs. So loan net charge offs were less than a million dollars.

Continued improvement in economic forecasts lead us to record a negative provision of $8 million for the quarter or a negative $25 million. Excluding the day, one provision for acquired non PCI loans at Atlantic capital.

In arriving at our provision release, we related the Moody's baseline and more recessionary, there's three scenarios equally this quarter, a slightly more conservative weighting than the prior quarter.

Slide 33 outlines the total loss absorption capacity at the end of the quarter, including the ACB I preliminary loan marks our ending allowance to loans was 114 or $1 25, including the reserve for unfunded commitments with another 38 basis points and the unrecognized discount on acquired loans.

On the capital front, we repurchased approximately 1 million shares in the first quarter and an additional 300000 shares in April bringing the year to date purchases to just over one 3 million shares and leaving US approximately 370000 shares remaining in our repurchase authorization.

As noted on slide 28, this quarter significant move in rates caused in a OCR swing, which led to an 8% decline in our T V per share to $41.05 and brought our TCE ratio to seven O five ill.

I'll also refer you to the high quality nature of our investment portfolio as noted on slide 27.

Our ending regulatory capital levels remained strong with CET, one of 11, 4% and total risk based capital of 13, 3%.

I'll now turn it back to you John .

Alright, Thank you will.

This is the kind of environment when south state will thrive.

Between the population shifts to the southeast of.

Our liquid balance sheet.

Steady loan growth and rising rates, we've got a very nice ramp ahead of us.

Operator. Please go ahead and open the line for questions.

Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad now.

Change your mind and stuff, but if I take I went through Pang Das. Your question. Please ensure your devices I need to thank Lee.

Our first question today comes from Steve.

Stephen Scouten of Piper Sandler Your line is open Steven.

Yeah.

Yeah. Good morning, everyone. Thanks for the time.

Good morning, just first maybe if we could talk a little bit about the further about the asset sensitivity.

Obviously, that's a bigger store, even though stacks aren't getting credit for it yet today, but that you guys look extremely well position there and you noted a five basis point.

Deposit beta last time around and I'm wondering what are the underlying assumptions are within the.

I guess, if the app.

Four 7% in your ramped scenario, if you could remind us on that because I would think given all of the 12% liquidity or whatnot, you would actually be much more asset sensitive than peers, and maybe that modeling with xiaomi. So just maybe.

Some of the conservatism that I assume is in your assumptions.

Sure Steven this is Steve.

Well, let me kind of give you the bottom line upfront and then I'll tell you why we think this.

So our net interest margin.

Does 277% in the first quarter.

Based on Moody's consensus forecast to be at two in a quarter to two 5% fed funds rate at the end of the fourth quarter.

And.

With about $41 billion interest, earning asset base, which we expect to be reasonably flat, we would expect NIM to be at the end of the fourth quarter somewhere between three 2% and three 3%.

And that improvement.

If it's if it.

The Moody's consensus is right would be somewhere between 15 and 20 basis points.

Quarter, starting in the second quarter so.

As you mentioned, we are asset sensitive.

Roughly six basis points for every 25 basis point hike.

The reasons for that we have a couple of slides in the deck just to kind of unpack it.

Page 19 speaks to our loan portfolio and we have about 32% of our loan portfolio is floating daily 18% variable 50% fixed.

If you combine that.

Floating rate loan portfolio with our excess cash at 12% we have about a third of our interest earning assets of our 41 billion in interest earning assets.

Daily So that makes us that's all part of that assumption.

We have a slide in there I think we referenced a few different earnings calls, but it's page 20.

It really speaks to the deposit betas.

This did is it went back to our previous interest rate hiking cycle.

In 2015, 2019 and graph the combined company.

See what the betas were in Thats, where you can see that we ended up at the fed.

That funds rate at two 5%.

Part of that data was 5% on the first 100 basis points and 24% over the area.

Entire cycle.

So the last part is just the deposit portfolio John mentioned it earlier, it's a granular deposit base and that's why we think that data hopefully we'll outperform in this and this and the cycle page 18 speaks to.

The deposit mix, 60% of our deposits are in checking accounts versus our peers a 43%.

And then you can see we've added a new graph in there that describes it 36% of our checking account balances are commercial 34% small business and 30% retail so and you can look at the average size of those ounces.

Yes, it's a very granular basis five basis points so anyway.

Summarize all of that.

It's really two things we have about a third of our balance sheet floating and we think the deposit base and the betas will be lower or it will be similar to what they were in the in the last cycle and I'll, just add and Stephen as well.

The rate sensitivity on slide 19 is a static balance sheet.

And the numbers that Steve gave for.

The NIM improvement throughout the year also assume we continue as sort of our expected.

Loan growth rate, he mentioned, a static earning asset base.

That's basically we remixed we're assuming no deposit growth in that.

Some of the cash is remix into loans.

And then high single digit.

<unk> throughout.

Throughout the period.

Okay.

Okay, Great. That's all extremely helpful. So that.

Last tie up there the 24% deposit beta last cycle is that similar to what you're modeling and then in the current rate sensitivity assumptions.

We've modeled that our betas are turned on immediately even though we're not certain that it is going to be the case and yes, we're using historical.

Deposit betas in our in our modeling.

Even just add one other thing this time, what's different about this time and it's probably for the entire industry, but we're starting out at a 68% loan to deposit ratio.

So our ability, we're not saying we're going to grow deposits from here will probably shrink some deposits I would imagine that where excess but clearly we are growing deposits from just regular commercial clients. So what we're saying is that you know.

The same thing we said last time as we're 68% loan to deposit ratio right now heading toward 80% loan to deposit ratio by the end of 2023.

And if you do that math and you look at our 12% cash assets today, It basically moved down to 2% to 3% by the end of 2023, which sort of right size as all of that the balance sheet management.

And I guess just look at it.

Are they coming on in 'twenty three.

Fed funds moves like Moody's consensus had it now which would be 3% and 23, you're going to see further improvement from that $3 20 to $3 30 range Steve mentioned.

Q4.

You'll see improvement in 2023 margin from that from that point as well if that if the rate environment in fact occurs.

Yeah, that's phenomenal detail guys. Thank you and then just my only other question is around loan growth and how you guys are feeling about kind of this is just north of 6% run rate.

This quarter into the rest of the year and then the commentary around <unk> mortgage and portfolio in more of that production.

Obviously with the addition of ACB I guess, that's a you know that's now down to a smaller percentage of the balance sheet. So could we see that resi real estate move back towards 20% given given the strength of that dynamic between portfolio and secondary.

Yeah I'll start Stephen This is John and then Steve can talk about residential but ultimately we are a growth company and great growth markets kind of our mantra is to grow everything good in the bank at an annualized rate of about 10% through a cycle or.

Our guidance on loan growth.

Last couple of quarters has been high single digits up to 10%.

Is prepayment speeds slow down with the rise in rates, we think that our current production levels will produce that level of growth.

We're looking at April right now.

We're exceeding that level of growth we are in the double digit range for April so we'll see how it plays out but.

We still feel.

You know the guidance. We gave previously is good guidance high single digits to 10% and Steve how about the residential portfolio.

A slide in there on page 13, and it speaks to sort of the production quarter to quarter and year to year and you know the only comment I would make on that Stephen as you know if you look.

This quarter, we were 53% portfolio, which ended at 47%.

Secondary if you look at that a year ago, we were 67 per cent secondary.

The main difference is the gain on sale margins you know the gain on sale margins a year ago on a graph or four 3% though.

We sold more in the secondary.

Today, they are down to two and 287, which is more in line. So.

I kind of think about that gain on sale margins a year ago or high <unk>.

<unk> were low and so we didn't want a portfolio now rates are.

Higher gain on sale portfolio.

Margins are lower so.

I would I would think that over the course of the next.

Several quarters.

Say probably towards the end of the year, we will get to maybe more of a 50 50 mix just because we like.

Some of this portfolio arms and other things in a higher rate environment.

Perfect very helpful. Congrats on a great quarter, guys I look forward to when the market rewards with everyone for it appreciate it.

Likewise, thanks, Dave.

Okay.

Thank you. Our next question today comes from Michael Weiss of Raymond James. Please go ahead.

Yeah.

Hey, good morning, everyone. Thanks for taking my questions.

I wanted to dig.

Just wanted to dig into the correspondent business.

A little bit and kind of what you're seeing there I. Appreciate the color that you provide on the slides I'm trying to pull up I was wondering is exactly but yes.

If you can just kind of walk us through kind of what happened this quarter and then you know with rates moving with the expectation.

Would be for the business as we move forward. Thanks.

Sure Michael Page 14 in our deck speaks to the correspondent.

Division and.

Youll see that over the past.

Four quarters or so the revenue is sort of a range between 25 and $30 million I think our guidance that we've given you all is somewhere between $24 million and $28 million and then that continues to be our guidance that it doesn't change.

Yeah, what we're seeing you can see on this graph at certain times.

Just right our arc revenues.

Higher than fixed income and sometimes fixed income is higher than that arent revenues and it has to deal with the shape of the curve.

But at the end of the day, the way I kind of looked at it from a big picture perspective is.

Banking system today has a lot of excess liquidity and our correspondent banks 1100 of them almost 200 of them are going to either loan that money or invest that money and so we continue to see that guidance to be very similar to what we've had I would anticipate this next quarter because of the.

The change in rates because the five year, the 10 year, a little bit closer to flat.

Flat I would expect our revenues to be a little higher than fixed income but.

At the end of the day I don't know that anything major has changed their guidance.

That's that's very helpful color, Steve and then maybe just going back to the margin, which I think the commentary was.

We're very bullish I think you said kind of exiting the year in the 320 to $3 30 range just to put a finer point on it are you assuming the forward curve, meaning seven or eight more rate hikes from here.

And that outlook yet.

Yes, we are.

Assuming that the back to the Moody's consensus forecasts, which we used to do our modeling is that we would have a $2, 25% to 2.5% fed funds rate at the end of the <unk>.

Fourth quarter.

And then as Bill mentioned.

<unk> moved into 2023, where whereby we would get to a 3% that's what Moody's forecasts are today and if that's true.

We would get another 15 to 20 basis points improvement from the fourth quarter and the full year 2023.

Got it okay very very clear.

Okay. Thanks for taking my questions.

Yeah. Thanks, Mike.

The next question comes from Kevin Fitzsimmons of D. A Davidson your line is open Kevin.

Yeah.

Hey, good morning, everyone.

Good morning, just wanted just wanted to talk about credit obviously it was there were a lot of moving parts. This quarter with the day two provision, but then the big release, as well, which which I can't argue with given given the outlook.

But then on top of that John you mentioned at the beginning of the call, but you know there's this kind of a lingering concern out there in the market not not necessarily on the street about a recession, but theres a lot of you know.

There is some uncertainty so how do you with that.

<unk> ratio down to about 114 now.

And in the size of the release has taken this past quarter, how do you feel about provisioning and where that T. C. L. Migrates to going forward does it still have room to run down or should we be just.

Just applying.

For long debt going forward.

Yes, Kevin.

I share your frustration with the inability to predict that and it's obviously a function of the seasonal model and the impact of changes in economic forecasts on that so maybe sort of unpack that just a little bit so as I said in my comments.

For this quarter, we used a 50 50 weighting of two scenarios the baseline scenario, which is Moody's.

Sort of middle of the road forecast, where they assume there's a 50% chance of things being better or worse than that.

And then we also weighted.

Weighted 50% there as three scenario, which is their recessionary scenario and that on the.

Probability curve is and Theyre lingo has a 90% chance that things are better than that then that three and a 10% chance things were worse and so at a 50 50 weighting of those two essentially you are at 70%.

On that if you if you picture to a straight line.

On a line between zero and the happy days are here again, and the other being a terrible economic event, where we're 70 by going to 50% of 90 and 50% or 50.

And we have used weightings between.

50, 50, and two thirds based on one third over the last number of quarters. So we've internet effectively weighted average range of 63 to 70, just to keep that mental image of a horizontal line as an example, if.

If we have done 100% baseline so just stick with what I think's going to happen and not wait in another scenario with more pessimism. It would've told us to have a reserve of about 40 basis points below where we are to where we were at the end of the quarter and if we'd gone with 100% is three.

Three and what it has about 40 basis points higher.

The thing that I'll caution you as it did.

That changes quarter by quarter as those forecasts in the underlying.

Economic.

Ah metrics and that are loss drivers and see some model change so as.

It could be that in a worst time S. Three is a lot worse in baseline is a lot worse. So those are not static.

Amount in there, saying that that's sort of the underlying thing we.

It could go lower if their forecasts continue to improve they can also get worse as we all know is seasonal as the projections are moved to.

Two.

To predict worsening economic.

Outlook quickly then youll see.

A quick reaction through the provisions for credit loss to build that back up just based on the variability that's seasonal in buses and Kevin look that's all the modeling and accounting stuff.

That's a lot of detail there, but the reality is.

As we're going out in the marketplace meeting with our customers and we're doing portfolio reviews of different asset classes.

We just we don't see near term issues at all.

We're looking at our line utilization rates there they are still very low there 5% to 10% below.

What they were in 2019, telling us that our clients aren't having to lean heavily on their lines. They've got a lot of cash we looked at our loan to values of our commercial real estate portfolio.

It's very conservative.

Go back and I looked at our five year charge off rate as it averages about three basis points. So.

I do not share the market's concern about a near term recession the way the market reacted when the yield curve inverted.

There's a lot of macro monetary forces going on right now with that yield curve that are maybe not normal market forces. So so we're pretty bullish in the near term for the next year or so our clients are bullish and we liked the underwriting standards that we've got right now and so so we don't we don't see near term issues.

Okay.

Very helpful. Thank you.

One question earlier.

Earlier talked about expenses and with the obvious focus of.

Trying to help us blend together E C b I and legacy.

South state, but can you talk a little bit about the environment for hiring I know just recently you guys put a release out about some hires made in some different markets in your footprint. There's also some large in market mergers going on so it's not <unk>.

You guys doing an MLP anymore, it's someone else, but just I'm curious with with that potential for producers to be.

To be on boarded how your how are you.

What kind of opportunity that might represent for you and is that included within that guidance for expenses.

Yeah, the opportunity is huge Gregg lapointe, as our chief banking officer, but really use our chief recruiting officer. He's out on the street all the time meeting with bankers that other banks were not responding to bankers that are looking to leave we're reaching out and telling our story.

Talking about the south state culture, and our ability to recruit from the biggest banks is better than it's really ever been and they are in these key markets and their bankers.

It had been at the same place sometimes their whole career with huge books of business and we've just got a great fit here when they come onboard.

Tourist or Wells Fargo, where we've got the balance sheet scale, the treasury management products the capital markets products that they can easily bring their clients over and they are having tremendous success. So we're real bullish on the opportunities to recruit and.

Just real proud of our team and what they're delivering so from.

From an expense standpoint will.

Yeah.

But we're not going to let the budget restrict us from hiring if theres opportunities yeah, and we have assumed we will be we will continue to have the success that we've had.

In that arena as we think about our costs going forward.

Yeah.

Okay, Great. One last one for me for me just given the bullishness in the fact that.

This.

These are all of the asset sensitivity.

The market doesn't seem to be necessarily you don't necessarily seem to be getting rewarded you did buy back shares.

Quarter should we expect that kind of pace or.

Or was there a certain price range, where you're going to be more aggressive in terms of stepping in.

Kevin we've.

We've always said that our first priority and first desire and investing capital is to invest in growth.

And.

Anytime, we can deploy capital and to grow with we'd prefer to do that.

We believe we've got a pretty good opportunity ahead of us to continue to grow grow loans nicely and accelerate that growth a bit so it's likely that you'll see us.

Pivot to investing capital and growth if that growth materializes.

Very active in capital returns over the last year.

It was up about $3 1 million of that $3 5 million share authorization from January of 'twenty one.

At about 370000 shares remain.

So it.

It depends upon the opportunity set but our preference is to invest in growth.

Okay.

Got it alright, thank you guys.

Alright.

Yeah.

As a reminder, if you'd like to ask a question star followed by the number one on your telephone keypad.

Our next question in the queue comes from Jennifer again that all Securities. Your line is open.

Hey, this is Brandon King on for Jamie Good morning.

Hey, Brad.

Hey, so our deposit growth.

Organic basis was strong in the quarter and I was just wondering what you're seeing later this year as far as deposit growth and where we could potentially see the loan to deposit ratio and though by the end of the year.

Sure Brett. This is Steve you know, we we did see really good deposit growth in the first quarter. Some of that is seasonal and typically what happens is the second and third quarter are a little down and then it comes back in the fourth and first quarter, but but as you know kind of how we're thinking about the fourth quarter of this year.

Year in really all the way through 2023 is to hold our deposit.

Balances flat.

And as we think about you know as we think about the interest rate discussion around betas, we think that we probably could grow more in our markets, but we're trying to manage both margin and and.

<unk> growth so.

I think what we've we just articulated on the call with today, we're at 68% loan to deposit ratio.

And if we don't grow deposits for the next you know call. It 21 months through the end of 2023 by the end of 2023 with our forecast for loans to be at the high single digits, we would see our loan to deposit ratio being about 80%.

With the way we would really do that is we would take the excess cash that we have today, which is about a $5 4 billion in cash call. It about.

$4 5 billion of that is sort of.

Excess four to $4 5 billion and that will go to loan growth over the next two.

21 months and.

And as you can appreciate it Brandon one of the hard things to predict with deposit growth.

Fed reacts with with their own balance sheet. So we think it appropriate to conservatively assume we don't grow deposits.

At this point.

Okay. That's helpful.

Then in regards to Atlanta capital I know they had a pretty substantial growing fintech payments business I wonder if there's been any sort of update there as far as how that could be extended further or any opportunities you're seeing in the market there.

Yeah. This is John .

Kurt China runs that business for us and over the last few years, they've been growing deposit balances and fee income at a compound growth rate of about 40%.

So in some respects.

That growth in the payments business, the Fintech business was sort of outstripping the Atlanta capital balance.

Balance sheet size. So now as we have joined together they can continue growing that business as they had in the past. So we just look for that continued growth rate. If they can keep doing that instead of a larger balance sheet, they're not going to be constrained as it might have been before so it does a great job and we're excited to add those verticals.

Yeah.

Right. Thanks, that's all the questions I had.

Thank you.

Our next question today comes from Samuel Barker of Stephens, Inc. Please go ahead.

Good morning, Simeon market with a broader question how are you.

Well thank you.

I apologize if you already made some comments on this but I wanted to circle back on the loan production.

Wanted to ask if.

The quarter over quarter decline granted some of that is seasonality for sure.

And any way due to the CPI.

You see that being folded in or is that purely market dynamics.

Yeah, No. That's that's not a result of the Fulton Atlantic capital kind of rolled in on March one.

So.

If you exclude the acquired balances that loan growth was six 3%.

Just a lot of growth coming out of Florida, and Atlanta and.

And we're getting some good growth of Alabama, as well, but it's kind of a nice mix of C&I.

E consumers growing again, it was not last year, but consumers growing again, and then and then residential so.

It's kind of across the board.

But that growth rate, excluding the acquired balances of Atlanta capital.

And I guess.

I guess as I think about residential we talked about it earlier, but.

You know as we put more production on the on the balance sheet and lessen the fee income.

We're going to see less fee income moving forward I think before we guided.

Our secondary fee income to be there would be a non interest income to assets to be between 75, and 85 basis points, we think now with a little bit more of that mortgage production and within that the fee.

Going away there'll be between 70 basis points and 80 basis points from here on.

Understood. That's very helpful. And then actually I did want to circle back on mortgage a little bit and ask them.

How I guess refi volumes are trending and specifically if you could just give some color on since since quarter end after April how's that looked.

Yes, so we have a slide there on page 13, and you can see the production this quarter the $1 271 of which 70% was purchased 30% was refinance so.

That's going to that refinance volume is going to trend down.

You know the 30 year mortgage rates are in the fives. So we would expect the purchase volume to continue to remain strong we're seeing a lot of activity continued activity, particularly in the construction to perm loans for our individual borrowers we have a private wealth group, there's a there's a fair amount of construction.

Construction loans that we do directly to high net worth individuals that have relationships with us so.

I would say that the refinance volume is going to fall fall off there is no doubt about it.

We do think the purchase volume at least for the short run is good and we've never been a refinance focused shop, obviously, we've gotten our share when the refinance market is big but.

Our focus is on purchase activity historically.

Understood. Thank you for that color and then just one last one on mortgage.

Gain on sale margins are pretty nice to stabilize at this level and so could you give some commentary on the outlook from here moving forward.

Yeah, I think the gain on sale margins are coming in and particularly as you have this big movement in rates Youre going to have so I would just expect mortgage back to part of that guidance at the non interest income to come down five basis points.

Yes, somewhere between 70 and 80 basis points in total.

Yeah.

<unk> vision that mortgage probably is going to come down some more in the secondary side as gain on sale margins are tightened and we put more production on the portfolio and just to step back to 10.

10 or 20000 feet.

You know what.

Mortgage will not be a big part of the story in this kind of environment, but our expectation with this with this yield curve is that.

The other cylinders in the engine I E. The net interest margin.

More than make up for that and we were excited to have a yield curve back in our business.

Thank you if I could just sneak one sneak one more quick on the.

Fixed income revenue.

The revenue side of things.

I guess should we expect some revenue pick up.

Somewhat intend them with how communion banks are increasing.

Bond purchases or are those two not moved at all.

Yeah, I think our guidance has been $24 million to $28 million a quarter and if you look at that graph for the last several quarters. It's been somewhere between 25 and 30, we don't think that any of that changes the nature of it might change between our Ark in our fixed income and our correspondent division.

Reality.

The banks had an Aoc I hit like everybody did in there a little bit.

Shell shock right now, but they'll come back in when this thing settles down and to your point over time fixed income will get better.

If if we have a steep yield curve, but in the short run we think arc revenues will be a little bit better than fixed income, but the total pie will be similar to what we've had.

Great. Thank you for taking my questions I appreciate it.

You bet.

Okay.

As a final reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

We have no further questions in the queue. So I'll hand back to John Corbett for closing remarks.

Well, thanks, guys for calling in today I think we're hitting four different investor conferences. The next couple of months that we will probably see on the road, but if you have any questions in the near term just reach out to will it have a great day.

This concludes today's call. Thank you very much for joining you may now disconnect your lines.

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