SouthState Corp
NYSE:SSB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
71.99
110.98
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
SouthState Corp
You don't have any saved screeners yet
A warm welcome to the SouthState Corporation First Quarter 2022 Conference Call. My name is Lydia and I'll be your operator today. [Operator Instructions] It's my pleasure to now hand you over to our host, Will Matthews, Chief Financial Officer. Please go ahead when you are ready.
Good morning and welcome to SouthState's first quarter 2022 earnings call. This is Will Matthews and joining me on this call are Robert Hill, John Corbett and Steve Young.
The format for this call will be that we will provide prepared remarks and we will then open it up for questions. Yesterday evening, we issued a press release to announce earnings for Q1, 2022. We’ve also posted presentation slides that we will refer to on today's call 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 Private Securities Litigation Reform Act of 1995. 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 SouthState earnings call. Our results for the first quarter should progress in many areas as you will hear from John and Will. The area where I see the most excitement as we started 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. These events 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 and 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 they create a high performing bank. And to see this reunion is a welcome sign of the potential of SouthState.
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 drive, 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 of slower construction after the housing crisis. Our shipping ports, airports, 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 the favorable political environment of the Southeast. But our clients are struggling with labor shortages and wage pressure to meet the spike in consumer demand. We released earnings last night and reported earnings per share of $1.39 when you exclude merger related expenses, our adjusted earnings per share 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, when we review their cash balances and our 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 1, 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 in Atlanta and also expanding our new FinTech and payments verticals.
Our balance sheet remains liquid and we're in perfect position 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 that built this company. Over the last two years, we felt like our deposit franchise was a coiled spring of Green's 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 in cash and then continued growing deposits in the first quarter by 7.5% annualized and that's excluding Atlantic Capital. Also, our cost to deposits fell another basis point to an all time low of just 5 basis points. We held our nose and we're deliberately patient to hang on to 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 Atlantic Capital. We still ended the quarter with 12% of the balance sheet in 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 hit $2.6 billion the quarter similar to the third quarter and excluding the Atlantic Capital acquired loan balances our linked quarter annualized loan growth with 6.3%. We continue to believe that rising rates will slow the prepayment speeds and the tailwind to net loan growth and 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 for overdrafts and to introduce the new deposit product with no overdraft fees. We estimate that the net impact of these product changes will be about $0.08 to $0.10 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 CenterState and SouthState and we put it on paper, there was no global pandemic in the model. There was no recession and interest rates weren't at zero. But our bankers are tough, and they're leaders and they plowed ahead with both grit and grace. They worked through the conversion and the integration. And now the bank is growing. Credit quality is pristine, and our deposit franchise is incredibly valuable again.
I'll turn it over to Will and he will give you additional details on the numbers.
Thanks, John. I'll cover some highlights on margin, non-interest income and non-interest expense as well as credit and the provision for credit losses. As John said, I'll reiterate that we're pleased with the quarter and that we're 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 ‘22 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. The yields on non-PPP loans of 380 were down 10 basis points from Q4 and total accretion and PPP fees of 7.7 million were down 5.7 million from the fourth quarter.
The ACBI purchase accounting marks are outlined on Slide 33. Looking ahead the next few quarters we would expect to see accretion run in the $10 million range, including ACBI for the full quarter. Cost to total deposits reached 5 basis points for the quarter a new low for us. Taxable equivalent margin of 277 fell 1 basis point from Q4 with the lower accretion and PPP fee income causing a differential of approximately 6 basis points.
With the yield curve move in the quarter, we deployed some cash in the bond portfolio that we continue to have a lot of dry powder with 5.4 billion and Fed Funds roughly 12% of our balance sheet. Non-interest income of 86 million was down approximately 6 million from Q4.
Slide 13 shows our mortgage highlights and we had solid production the quarter at 1.27 billion. As gain on sale margins compress and mortgage rates move up the relative attractiveness of portfolio versus secondary. 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 that portfolio number. We benefit in this environment from being a purchase focused mortgage company representing approximately 70% of our production and 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 in 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 at higher rates, presumably influenced by AOCI sticker shock at some of our clients.
Turning to expenses, operating NIE of 218 million including one month of Atlantic Capital came in a bit better than budget with good performance pretty much across the board in various expense categories. 2022 is the first full year after the MOE system conversion and our integration continues to progress nicely. We also implemented this year and incentive system with division and region level measures meant to drive a culture of ownership, department or division level performance versus budget whether a net income for revenue generating division or NIE for a 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'll have Atlantic Capital expenses in our expense base for a full quarter for the remaining three quarters of the year. Its NIE run rate was 15 million per quarter. We've achieved some of the cost save ahead of schedule at some employees have departed before we had modeled so ACBIs NIE run rate in March was slightly lower than we had expected. The conversion is scheduled for late July. Given the addition of ACBI for two more months than we had in Q1, we currently foresee NIE running in the low 230s for the remaining three quarters of the year, possibly in the high 220s 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 in metrics. Slide 26 shows continuing low trends of net charge-offs non-performing assets and criticized and classified assets. 1.4 million of the 2.3 million in net charge-offs were DDA overdraft charge-offs, so low net charge-offs were less than a million. Continued improvement and economic forecasts led 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-PCD loans at Atlantic Capital. In arriving at our provision release, we rated the Moody's baseline and more recessionary S3 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 ACBI preliminary loan marks. Our ending allowance to loans was 114 or 125 including the reserve unfunded commitments with another 38 basis points in the unrecognized discount on acquired loans.
On the capital front, we repurchased approximately 1 million shares in the first quarter and an additional 300,000 shares in April, bringing the year-to-date purchases to just over 1.3 million shares and leaving approximately 370,000 shares remaining in our repurchase authorization.
As noted on Slide 28, this quarter significant move in rates caused an AOCI swing, which led to an 8% decline in our TVV per share to $41.05 and brought our TTU ratio to 705. I'll also refer you to the high quality nature of our investment portfolio is noted on Slide 27.Our ending regulatory capital levels remain strong with CET 1 of 11.4% and total risk-based capital of 13.3%.
I'll now turn it back to you John.
All right. Thank you, Will. This is the kind of environment when SouthState will thrive. Between the population shifts to the Southeast, a 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. [Operator Instructions]Our first question today comes from Stephen Scouten of Piper Sandler. Your line is open, Stephen.
Yes. Good morning, everyone. Thanks for the time. I'm curious first, maybe if we could talk a little bit about the further about the asset sensitivity. Obviously, that's a bigger story, even though stocks aren't getting credit for it yet today, but you guys look extremely well positioned there. And you noted the 5 basis point, deposit beta last time around, but I'm wondering what the underlying assumptions are within the I guess it's up 4.7% in your ramp scenario, if you could remind us on that, because I would think given all the 12% liquidity or whatnot, you'd actually be much more acid sensitive than peers, then maybe that modeling would show me? So just maybe some of the conservatism that I assume is in your assumptions.
Sure, Stephen, this is this is Steve. Let me kind of give you the bottom line up front, and then tell you why we think this. So, our net interest margin was 2.77% in the first quarter. Based on Moody's consensus forecast to be at 2.25% to 2.5% Fed Funds rate at the end of the fourth quarter and with about a $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 3.2% and 3.3%. And that improvement, if the Moody's consensus is right would be somewhere between 15 and 20 basis points per quarter starting in the second quarter. So, as you mentioned, we are asset sensitive, it's roughly 6 basis points for every 25 basis point hike. The reasons for that, we have a couple of slides in the deck, just too kind of unpack it. Page 19 speaks to our loan portfolio. And we have about 32% of our loan portfolio; it's floating daily 18% variable and then 50% fixed. If you combine that floating rate loan portfolio with an excess cash of 12%, we have about a third of our interest earning assets of our 41 billion interest rating assets that float daily. So that makes us that's all part of that assumption.
We have a slide in there, I think we've referenced a few different earnings calls. But it's Page 20 and it really speaks to the deposit betas. And what this did is it went back to our previous interest rate hiking cycle in 2015 2019, and graphed the combined company to see what the betas were. And that's where you can see that we ended up at the Fed funds rate at 2.5%, deposit beta was 5% on the first 100 basis points, and 24% over the 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 betas hopefully will outperform in this cycle. Page 18 speaks to 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 its 36% of our checking account balances or commercials 34% small business and 30% retail, so and you can look at the average sizes of those ounces. It's a very granular base at 5 basis points. So anyway, I would just to summarize all of that. It's really two things. We have about a third of our balance sheet that's floating, and we think the deposit base and the betas will be lower that will be similar to what they were in the last cycle.
And I'll just add in Stephen as well, the rate sensitivity on that slide 19 is a static balance sheet. And the numbers that Steve gave for the NIM improvement throughout the year. Also assume we continue with sort of our expected loan growth rate he mentioned a static earning asset base that's the only asset base that we remixed. We're assuming no deposit growth and some of the cash is remixed into loans and that high single-digit range throughout the period.
Okay, great. That's all extremely helpful. So that is just the last tie up there. The 24% deposit beta last cycle is that similar to what you're modeling in 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 this is going to be the case, and yes, we're using historical deposit beta in our model.
And then Stephen just add one other thing, this time what's different about this time, it's probably for the entire industry, but we're starting out at a 68% loan-to-deposit ratio. And so our ability, we're not saying we're going to grow deposits from here, we'll probably shrink some deposits; I would imagine that we're excess. But clearly, we always are growing deposits from just regular commercial clients. So what we're saying is that same thing we did last time as we're 68% loan-to-deposit ratio right now heading toward an 80% loan-to-deposit ratio by the end of 2023. And if you do that math and you look at our 12%, cash to assets today, it basically moved down to 2% to 3% by the end of 2023, which sort of right sizes of all of that, the balance sheet management.
And I guess, on‘23 if Fed Funds, moves like Moody’s consensus has it now, which would be to hit 3% in ‘23, you're going to see further improvement from that 320 to 330 range Steve mentioned in Q4, you'll see improvement in 2023 margin from that point as well, if that rate environment in fact occurs.
Yes, that's phenomenal detail, guys. Thank you. And then just my only other question is around loan growth, how you guys are feeling about kind of this, just north of 6% run rate, this quarter into the rest of the year, and then the commentary around resi mortgage and portfolio and more of that production obviously, with the addition of ACBI I guess 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 the strength of that dynamic between portfolio and secondary?
Yes, I'll start Stephen this is John and Steve can talk about residential. But I mean, ultimately, we're 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, our guidance on loan growth the last couple of quarters has been high single digits up to 10%as prepayment speed slowdown with the rising rates, we think that our current production levels will produce that level of growth. We're looking at April right now. And we're exceeding that level of growth. We're in the double-digit range for April. So we'll see how it plays out. But we still feel the guidance we gave previously this is good guidance high single-digits but 10%. And, Steve, how about the residential portfolio.
And we have a slide in there on Page 13 and it speaks to sort of the production quarter-to-quarter and year-to-year. And the only comment I would make on that Stephen is, if you look this quarter we were 53% portfolio and then 47% secondary, if you look at that a year ago, we were 67% secondary. The main difference is the gain on sale margins, the gain on sale margins a year ago on that graph are 4.3%. So, we sold more in the secondary. Today, they're down to 287 which is more in line. So the way I kind of think about that gain on sale margins a year ago, were high rates were low. And so we didn't want a portfolio now rates are higher, again, on sale portfolio margins are low. So, I would think that over the course of the next several quarters, I'd say probably towards the end of the year, we'll 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 core guys. I look forward to when the market rewards everyone for it. I Appreciate it.
Likewise. Thank you.
Thank you. Our next question today comes from Michael Rose of Raymond James. Please go ahead.
Hey, good morning, everyone. Thanks for taking my questions. Just wanted to dig into the correspondence 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 which one it is exactly. But, if you can just kind of walk us through kind of what happened this quarter and then 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 correspondence division and you'll see that over the past four quarters or so, the revenue is sort of range between $25 million and $30 million. I think our guidance that we've given you all is somewhere between 24 million and 28 million and that that continues to be our guidance but this doesn't change. What we're seeing, you can see on this graph that certain times our interest rates are arc revenues is are higher than fixed income. And sometimes fixed income is higher than arc revenues. And it has to do with the shape of the curve. But at the end of the day, the way I kind of look at it from a big picture perspective is the banking system today has a lot of excess liquidity. And our correspondent banks, 1,100 of them, almost 1,200 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 change in rates. And because the 5 year and the 10 year a little bit closer to flat, I would expect arc revenues to be a little higher than fixed income, but that at the end of the day, I don't know that anything major has changed in their guidance.
That's very helpful Corbett, Steve. And then maybe just going back to the margin, which I think the commentary was very bullish, I think you said kind of exiting the year in the 320 to 330 range. Just to put a finer point on it. Are you assuming the forward curve, meaning 7 or 8 more rate hikes from here in that outlook? Yep.
Yes, we're assuming that back to the Moody's consensus forecast, which we use to do our modeling is that we would have a 225 to 2.5% Fed Funds rate at the end of the fourth quarter. And then, as Will mentioned that moved into 2023, where whereby we get to 3%. That's what the Moody's forecast says today. And if that's true, we would get another 15 to 20 basis points improvement from the fourth quarter in the full year 2023.
Got it. Okay. Very, very clear. Okay, thanks for taking my questions.
Yes, thanks, Mike.
The next question in the queue comes from Kevin Fitzsimmons of DA Davidson. Your line is open, Kevin.
Hey, good morning, everyone. All right. Just wanted to talk about credit. Obviously, it was there were a lot of moving parts this quarter with the day 2 provision but then the big release as well, which, I can't argue with given the outlook. But then on top of that, like, John, you mentioned at the beginning of the call that, there's this kind of lingering concern out there in the market, not necessarily on the street, about recession. But there is some uncertainty. So how do you with that ATL ratio down to about 114 now and the size of the release has taken this past quarter? How do you feel about provisioning? And where that ATL migrates to going forward? Does it still have room to run down or should we be just applying a reserve for loan growth going forward?
Yes, Kevin, and I share your frustration with the inability to predict that and it's obviously a function of the Cecil model, and the impact of changes and 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 forecasts where they assume there's a 50% chance of things being better or worse than that. And now we also weighed 50%, their S3 scenario, which is their recessionary scenario, and that on the probability curve is in their lingo, is a 90% chance that things are better than that than S3 and a 10% chance things are worse. And so at a 50/50 weighting of those two, essentially, you're at 70%on that if you if you pictured a straight line, horizontal line, between zero being the happy days are here again and 100 million economic event, we're at 70% by one 50% of 90 % and 50% of 50%.
And we use weightings between 50/50 and two-thirds based on one-third over the last number of quarters. So we've been an effectively weighted average range of 63 to 70. Just to keep that mental image the horizontal line is the example. If we have gone 100% baseline, so just stick with whatever you think going happen and not wait in another scenario with more pessimism. It would have told us to have a reserve about 40 basis points below where we were at the end of the quarter. And if we go with 100%, S3 would have had about 40 basis points higher. Now the thing that I'll caution you is that change is quarter-by-quarter as those forecasts and the underlying economic metrics and their last drivers in the Cecil model change. So it could be that in a worst time, S3 is a lot worse, and baseline is a lot worse. So those are not static amount there. So anyway, that's sort of the underlying thing. It could go lower if their forecasts continue to improve, they could also get worse. And as we all know, as Cecil, if the projections are moved to predict worsening economic outlook quickly, then you'll see a quick reaction through the provisions for credit loss to build a backup just based on the variability that Cecil imposes.
And Kevin, look, that's all the modeling and accounting stuff. That's a lot of detail there. 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 don't see near-term issues at all. We're looking at our line utilization rates, they're still very low. They're 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. I go back and I look at our five-year charge-off rate, it averages about 3 basis points. So, I do not share the markets 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 we're pretty bullish in the near-term for the next year. So our clients are bullish. And we liked their underwriting standards that we've got right now. And so we don't see near-term issues.
That's very helpful. Thank you. One question. You earlier talked about expenses, and with the obvious focus of trying to help us blend together ACBI and legacy, SouthState, 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 you guys doing an MoU anymore it's someone else. But just I'm curious with that potential for producers to be on boarded. What kind of opportunity that might represent for you. And is that included within that guidance for expenses? Thanks.
Yes, that the opportunity is huge. Greg LaPointe is our Chief Banking Officer. But really, he's our Chief Recruiting Officer. He's out on the street all the time meeting with bankers and other banks. We're not responding to bankers that are looking to leave, we're reaching out and telling our story talking about the SouthState culture, and our ability to recruit from the biggest banks is better than it's really ever been. And they're in these key markets. And they're bankers that have 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 on board at a Truist 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're 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 an expense standpoint, well, we're not going to let the budget restrict us from hiring, if there's opportunities.
Yes, and we have assumed we'll continue to have the success that we've had in that arena as we think about our costs going forward.
Okay, great. One last one from me just given the bullishness and the fact that this asset sensitivity the markets doesn't seem to be necessarily, you don't necessarily seem to be getting rewarded. You did buy back shares in the quarter, should we expect that kind of pace or is there a certain price range where you're going to be more aggressive in terms of stepping in?
Kevin, we've always said that our first priority and first desire in investing capital is to invest in growth. And anytime we can deploy capital into growth, we prefer to do that. We believe we've got a pretty good opportunity to have us to continue to grow loans nicely and accelerate that growth a bit. So it's likely that you'll see us pivot to investing capital and growth, it's that growth materializes. We’ve been very active in capital returns over the last year, we've used up about 3.1 million of that 3.5 million share authorization from January of ‘21 and that is about 370,000 shares remain. So, it depends upon on the opportunity set, but our preference is to invest in growth.
Got it. All right. Thanks. Thank you, guys.
[Operator Instructions]Our next question in the queue comes from Jennifer Demba of Truist Securities. Your line is open.
Hey, this is Brandon King on for Jimmy. Good morning.
Hey, Brandon.
Hey, so deposit growth on an 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 particularly see the loan-to-deposit ratio and by the end of the year?
Sure, Brandon, this is Steve. We did see really good deposit growth in the first quarter, some of that is seasonal. And typically, what happens is the second third quarter are a little down. And then that comes back in the fourth and first quarter but as the kind of how we're thinking about the fourth quarter this year, and really all the way through 2023 is to hold our deposit balances flat. And as we think about the interest rate discussion around betas, we think that, we probably could grow more in our market, but we're trying to manage both margin and growth. So I think what we've just articulated on the call was today where it's 68%, loan-to-deposit ratio. And if we don't grow deposits for the next call it 21 months or the end of 2023. By the end of 2023 with our forecasts for loans being high single-digits, we would see our loan-to-deposit ratio being about 80%. And 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, 4 to 4.5 billion. And that'll go to loan growth over the next21 months.
And as you can appreciate, Brandon, one of the hard things to predict with deposit growth is how the Fed reacts with their own balance sheet. So we think it appropriate to assert conservatively assume we don't grow deposits at this point.
Okay, that's helpful. And then in regards to Atlantic Capital, I know they had a pretty substantial growing FinTech payments business. And I wonder if there's been any sort of update there as far as how that can be expanded further and the opportunities we're seeing in the market there?
This is John. Runs that business for us. And over the last few years, they've been growing deposit balances and fee income at a compounded growth rate about 14%. So in some respects, that growth in the payments business, the FinTech business was sort of outstripping the Atlantic Capital balance sheet size. As now as we've 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 inside of a larger balance sheet. They're not going to be constrained as they might have been before. So it does a great job and we're excited to add those verticals.
Our next question today comes from Samuel Varga of Stephens Inc. Please go ahead.
I apologize if you already made some comments on this. But I wanted to circle back on the loan production. And just wanted to ask if the quarter-over-quarter decline granted some of that a seasonality for sure. Is that was in any way due to the ACBI being folded in or is that journey market dynamics?
Yes, no, that's not a result of the folding its Atlantic Capital kind of rolled in on March 1. And so if you exclude the acquired balances that loan growth was 6.3% just a lot of growth coming out of Florida and Atlanta. And we're getting some good growth out of Alabama as well. But it's kind of a nice mix of C&I, CRE, consumers growing again, it was not last year, but consumers growing again, and then residential. So it's kind of across the board. But that growth rate excluded the acquired balances of Atlantic Capital.
And I guess, it's I think about residential we talked about earlier. But, as we put more production on the balance sheet less than fee income, we're going to see less fee income moving forward, I think before we'd guided our secondary fee income to be 30 of non -interest income, the assets to be between 75 and 85 basis points. We think now with a little bit more of that mortgage production, some of the fees going away, there'll be between 70 basis points and 80 basis points from here on.
Understood, that's very helpful. And then actually, they'd want to circle back on a mortgage a little bit and asked how I guess refi volumes are trending. And specifically, if you could just give some color on since quarter end through April how's that looked?
Yes, so we have a slide there on Page 13. And you can see the production this quarters, a billion to 71, of which 70% was purchased 30% was refinance. So, that's going that refinance volume is going to trend down. As the mortgage rates are in the 5. 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 fair amount of construction and 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-off, there's no doubt about it. But we do think that purchase volume at least for the short run is good.
And we've never been a refinance focus. Obviously, we've gotten our share when 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 much stabilized there it seems at this level and so could you give some commentary on the outlook from here moving forward?
I think, gain on sale margins are coming in and particularly as you have this big movement rates you're going to have. So I would just expect mortgage backed part of that guidance at the non-interest income to come down 5 basis points, somewhere between 70 and 80 basis points in total. I had the vision, that mortgage probably is going to come down to more in the secondary side, as gain on sale margins are tight, and then we put more production on the portfolio.
And just to step back to 10 or 20,000 feet, mortgage will not be a big part of the story in this kind of environment. But our expectation 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're excited to have a yield curve back in our business.
Thank you. If I could just sneak one more in quick on the fixed income and revenue side of things. I guess, should we expect some revenue pickup, somewhat in tandem with how community banks are increasing bond purchases or are those two not linked at all?
Yes, I think, our guidance has been 24 to 20 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 arc and our fixed income and our correspondent division. But in reality, the banks had an AOCI hit like everybody did and they're a little bit shell shocked up 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 we have a steep yield curve, but in the 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.
[Operator Instructions] 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 for different investor conferences next couple of months that we'll probably see on the road, but if you have any questions in the near term just reach out to Will and Steve. Have a great day.
This concludes today's call. Thank you very much for joining. You may now disconnect your line.