SouthState Corp
NYSE:SSB
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SouthState Corp
Earnings Call Analysis
Q4-2023 Analysis
SouthState Corp
In the arena of interest rates and margins, we embark on a narrative journey highlighting stability amidst economic fluctuations. The company's Net Interest Margin (NIM), a pivotal gauge of financial health, has maintained its balance, aligning with the forecasts for the quarter. The year 2024 foretells a NIM averaging between 3.45% and 3.55%, with a trajectory that could ascend slightly in the latter half. Peering further into the fiscal crystal ball, 2025 whispers promises of NIMs between 3.55% and 3.65%, with the potential for a more pronounced rise to a range reminiscent of 2018 and 2019 levels, around 3.75% to 3.90%, as we greet 2026.
On the strategic chessboard of capital management and mergers and acquisitions (M&A), the company appears poised with a robust cache of excess capital and readiness for action. The narrative weaves through the strong desire to pursue M&A activities, particularly with partners representing 10% to a third of the company's size. Doubling down on growth in high-potential markets like Tennessee or Texas is a strategic highlight, although regulatory headwinds invite caution. Yet, this war chest of capital has begun to lend itself to share repurchases, a subtle but telling move made in the fourth quarter.
In the domain of loan growth, the company's tale treads a path of conservative optimism. Pipeline downturns mark the closing phase of the year, slipping down by approximately 25% from the start. Despite the deceleration, the winds of loan growth still carry a robust breeze. This firm establishes its guidance firmly on mid-single-digit growth, bolstered by robust residential real estate expansion, with the specter of declining rates possibly fueling a resurgence in Commercial Real Estate (CRE) activity and continual engagement with the Commercial & Industrial (C&I) sector.
In the corridors of fee income, the narrative underscores a steadfast projection, with fee-to-average assets expected to hover within the 55 to 65 basis point range for 2024. The forecast intimates a dichotomy of yield curve normalization, where the latter half of the year could witness ascension into the higher echelons of this range. Gazing into 2025's horizon, aspirations loom for a recapture of the more halcyon days of 60 to 70 basis points, evoking a period where interest rate-sensitive operations thrived amidst stable conditions. Yet, until such an economic equilibrium is reestablished, certain sectors, like the correspondent and fixed income businesses, remain hostage to the whims of the loan volume and interest rate climate.
On the technological front, the company unfolds a narrative of transformation recently past and near completion. The focus of 2023 was the enhancement of customer and employee experiences, which shall continue seamlessly into 2024, marked by the theme 'finish the drill'. Major technology spendings are now tales of yesteryear, with only the last strokes of the brush remaining on this masterpiece of fiscal prudence and technological advancement. Investors can now anticipate a future where technology costs rise only modestly, in stark contrast to the surges of the preceding years.
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Hello, and welcome to the SouthState Corporation Q4 2023 Earnings Conference Call. [Operator Instructions]
I will now turn the conference over to Will Matthews. Please go ahead.
Good morning, and welcome to SouthState's Fourth Quarter 2023 Earnings Call. This is Will Matthews, and I'm here with John Corbett, Steve Young and Jeremy Lucas. John and I will provide some brief prepared remarks, and then we'll open it up for questions.
As always, a copy of our earnings release and presentation slides are on our Investor Relations website. Before we begin our remarks, I want to remind you that comments that we make may include forward-looking statements, within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us.
Now I'll turn the call over to John Corbett, our CEO.
Thanks, Will. Good morning, everybody. Thank you for joining us. You can see in the earnings release that SouthState delivered a solid quarter that was consistent with our guidance. High level, it was another quarter of steady loan and customer deposit growth with mid-single-digit growth in both. NIM dipped a couple 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 surprising, Florida, South Carolina, North Carolina and Georgia, we're all on the top 5 fastest-growing states in the country during 2023. And since the pandemic, over 1 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 4 years ago this month. That significant event in our history was an opportunity to catch our breath and spend a couple of years to retool the guts of the bank, specifically in the areas of technology and risk management.
Our goal 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 3 lines of defense. Now during the first couple of years, those technology and risk management changes took a toll on our employees and impacted the customer experience. But it was short-term pain for long-term gain.
So with a larger bank infrastructure in place, our focus pivoted in 2023 to making our employees' and customers' lives better. We needed to refine the new technology so that it was serving us rather than the other way around. And I think we've been largely successful, employee engagement is now back to the top quartile of our peers, and we're beginning to leverage the power of the new technology.
Now in 2024, as we approach the end of the COVID era and hopefully, a more normal yield curve, we believe we can deliver outsized shareholder returns in the future. It's a future that's possible because of the hard work, over the last few years. So I'll close by thanking our team, for preparing us for this next chapter.
I'll pass it back to Will now to walk you through the details on the quarter.
Thank you, John. As you noted, the fourth quarter was a good finish to a year in which SouthState reported solid performance in soundness, profitability and growth, while facing a relatively volatile environment. I'll touch on a few details before we move to Q&A.
On the balance sheet, fourth quarter annualized loan growth of 5% brought our full year growth to 7%. Customer deposit growth, excluding the maturing brokered CDs we didn't replace of 5% annualized, approximately matched the loan growth rate. For the full year, total deposits grew 2%, with customer deposits essentially flat. DDAs represented 29% of total deposits at quarter end, down another 1% from 30% last quarter, leaving us near the levels we were prepandemic for DDA as a percentage of deposits.
Turning to the income statement. Our 3.48% NIM was down 2 basis points from the prior quarter and consistent with our 3.45% to 3.50% guidance. Loan yields in Q4 were up 12 basis points and deposits were up 16 basis points, in line with our 15 to 20 basis point guidance. This brings our cycle-to-date loan beta to 36% and our cycle-to-date deposit beta to 30%. Our net interest income of $354 million was essentially flat with the third quarter.
For the full year 2023 margin comparison versus 2022, '23's NIM of 3.63% was 26 basis points higher than '22's, while the cost of deposits rose from 10 basis points in 2022 to 120 basis points in 2023 in a period of 500 basis points of Fed rate hikes not to mention the March crisis. While it's been a challenging period in which to manage a financial institution balance sheet, I think our margin performance during this period of rapid change really highlights the value of our core funding base.
Noninterest income of $65 million was down $8 million from Q3, and at 58 basis points of assets was in line with our 55 to 60 basis points guidance. Correspondent revenue was $3.4 million after $12.7 million in interest expense on swap collateral for $16 million in gross revenue, down approximately $9 million from Q3. Wealth had a record quarter with revenue exceeding $10 million, and we had a strong quarter in deposit fees, similar to Q3 and last year's fourth quarter.
Mortgage revenue continued to be weak, though I'll compliment our leadership on their performance in this challenged environment. We track various metrics versus the Mortgage Bankers Association quarterly performance report and our team consistently outperforms the industry in several key metrics. Operating expenses of $246 million, which excludes the $25.7 million for the FDIC special assessment, were in line with our expectations and 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 noninterest 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. And over the last 2 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 nonaccruals, which are 75% or more government guaranteed. Special mention loans declined and substandard loans increased. The increase in over 90s is due to utility company storm repair receivables in our factoring business. These typically turn slowly, and the majority of these have been collected since quarter end. Loan past dues were down quarter-over-quarter. 60% of our NPAs are current on payments, and the past 2 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 CE Tier 1 of 11.8% or 10.2%, if AOCI were included in the calculation. The move down in interest rates caused our AOCI to shrink, helping our ending TCE to grow to 8.2%. Our ending TBV per share grew to $46.32, up $6.23 for the year. During the fourth quarter, we purchased 100,000 shares at a volume-weighted average price of $67.45. We continue to believe risk-weighted asset growth and capital formation rate should be in a range that allows us to continue to grow our regulatory capital ratios and provide us with great flexibility.
Operator, we'll now take questions.
[Operator Instructions] Your first question comes from the line of Catherine Mealor with KBW.
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.
Sure, Catherine. It's Steve. Thanks for asking the question. We have a page that we show every quarter on Page 11 that's the NIM trend. And, as you mentioned, it went down from 3.50% to 3.48%, so 2 basis points, but within our guidance of between 3.45% and 3.50%. Our deposit costs increased 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 '24, we're sort of just reiterating the $41 billion. That's sort of what we thought about the last several quarters. So we're thinking 2024, $41 billion, we start out. I think the fourth quarter was in the $40.4 billion range. So I wouldn't expect that to be much different coming out of first quarter's seasonality.
As it relates to the second assumption, which is the rate forecast, the Moody's consensus, which is what we use, shows 4 rate cuts in 2024. They start in April. And then we have 4 rate cuts in 2025. So you would end the year at 4.5% Fed funds in '24 and our assumption you would hit Fed funds rate at 3.50% by the end of '25.
On our deposit beta, Page 17, which is -- our cycle-to-date beta is 30%. And we would continue to expect deposit cost to increase similarly in the fourth quarter, before we get rate cuts sometime in the second quarter is how we see it. So deposit costs between [ 1.70%, 1.80% ] in the first quarter.
So I guess based on all those assumptions, we would expect the full year NIM to average somewhere between 3.45% and 3.55% for the full year in 2024. And we would sort of expect the first half to be in that 3.40% to 3.50% range and then exiting the back half in that 3.50% to 3.60% range. So that's kind of how we're thinking about '24 with those assumptions. As we think about '25 and you think about another 4 rate cuts in '25, we're thinking that we model it somewhere in that 3.55% to 3.65% NIM range in 2025, depending on how we exit.
And then 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 '25 we sort of have a 3% to 3.5% Fed funds rate and sort of a flat or upward slipping curve, 2026 would look a lot like 2018, 2019 when our NIMs were in the 3.75% -- well, 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.
That's really helpful. I think it's the first one I've gotten '26 guidance in this earnings season. So that was really helpful.
You want '28, we can tell that, too.
I love it. No, that is really helpful. And it's just -- it's interesting. It feels like you just got upward momentum in your margin. And I think -- I'm curious how you are thinking about how deposit cost play into that? I mean, you've got such an opportunity to reprice assets on the way up. Even if we get rate cuts, I feel like your loan yields are still going to be moving up, just given the way you're structured there.
And so are there significant declines in deposit costs throughout all these assumptions? Or is it more kind of a stabilization in deposit costs and then just -- and really what's driving the higher margin is just upward momentum on the asset side?
Yes. No, it's a good question. So I'll maybe start with the asset side. And I think we talked about it last quarter, but just to reiterate. In 2024, we have a little over $4 billion of fixed rate and adjustable rate repricings that are going to happen in 2024. I think in 2025, it's like $3.3 billion and 2026 it's $3 billion. So it's a healthy amount every year. And so those are somewhere in the [ 460 to 480 ] range for all 3 of those years, so they're kind of fixed in there. As we think about -- so that's going to be a tailwind assuming that the 5-year treasury doesn't move much lower than $3 billion. They'll be at spread over that.
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 looked in the earnings release, I think our money market accounts went up maybe $3 billion or so, and our CDs went up about $2 billion. And a lot of that was negotiated rates. And so in our total portfolio of deposits, we have about a little over $10 billion of negotiated rates that we've given to our team to -- that they've managed to exception price.
On the flip side of that, we have about $10 billion of floating rate loans. About 30% of our loans is floating. So you kind of look at both of those and they sort of maybe not perfectly offset each other, but helped. CDs is another $4 billion that eventually will reprice to the front end of the curve over time. And then the -- we have securities that will reprice.
So anyway, I guess the big tailwind, to your point, is really trying to manage the floating rate assets versus the negotiated deposits and CDs and then the fixed rate loans over time are sort of your help to margin. I don't know if that's helpful, but sort of how we think about it.
Your next question comes from the line of Stephen Scouten with Piper Sandler.
I'm kind of curious, you mentioned the DDA percentage, Will, was kind of back down to the prepandemic level. Do we think this can kind of stabilize here at this level? Or do you expect a little bit more mix shift as we move on maybe prior to potential rate cuts?
Stephen, it's hard to say. I think a few quarters ago, we probably would have thought this is where we end up. It's -- given that we've seen a continued decline in that percentage, I don't think it's unreasonable to assume it might go down further from here. I don't know what -- how much further. The pace of that change has mitigated quite a bit the last few quarters. But it's hard to say that we're at the end necessarily, but it's really -- it's hard to know.
Yes. And to Will's point, I mean, it's sort of been a situation where it's gone down 1%, 1.2%. It's just -- when does the Fed pivot and it's probably at that point is when all that changes. But that's a -- that's the 64-thousand-dollar question.
For sure. Okay. And how should we think about kind of the provision and reserves moving forward? I mean, obviously, you guys have talked about how much you've built relative to net charge-offs. I think Will said you don't really see material or significant loss content in the book. So it kind of felt like a big directional reversal this quarter. Maybe what's kind of normalized net charge-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?
Yes. Yes, Steve. And I think -- the way I think about it, our charge-offs last year were 8 basis points. And that's -- they've been very low for the last several years. But I think it's reasonable to expect they normalize a bit from such a low level. And to the extent they do, that would impact provision expense. So we did, as we highlighted, build our reserve the last couple of years in advance of potential deterioration in the economy. But depending on our charge-off levels from here, that could lead to -- provision expenses to cover those charge-offs and depending on whatever else the model tells us. As far as normalized charge-off, I don't have a good number to estimate. I mean you look back at peer group, it'd certainly be higher than what we have 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.
Okay. Good. And then just last thing for me. Maybe to John, this is maybe more your side of the coin here, wondering around M&A in this environment. Obviously, I know '23 was a tough year, but you guys fared phenomenally well. So a relatively advantaged currency rate, presumably coming down, making the math a little bit better? I'm just kind of wondering how you would think about M&A this year and the potential for executing a deal?
Yes, sure. As I've said previously, we're open for business. And to your point, I suspect that the math is becoming easier with the lower interest rate marks. But Stephen, really no change from our prior guidance. I mean our ideal partner, if we were to do something, would be 10% to 1/3 of our pro forma company. We're in great markets in the Southeast, and we prefer to double down on our existing high-growth markets, but the regulatory environment is a little tough for that right now.
So we've updated our population map on Page 6. And if we were to do a market extension type of deal, it'd need to be in a similar high-growth market like Tennessee or Texas. But from a capital management standpoint, I think we're in a good spot with excess capital, and we've got flexibility to use that capital. We can deploy it in share repurchases, we bought a little bit of shares back in the fourth quarter. We could do a bond restructure or we could deploy it at M&A.
Your next question comes from the line of Michael Rose with Raymond James.
I just wanted to get some comments on Slide 12, which is the loan production chart. Obviously, it's come down since a very strong 2022. I know some of that is just your kind of conservative nature and maybe not wanting to take on other people's credits as they move out of the banks. But just 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. And I would assume that some of the CRE portfolios are some areas where you'd be a little bit more cautious. But I think you had previously kind of talked about a mid-single-digit loan growth rate for next year. So just wanted to get some context there.
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. And if you think back, well, what happened in the second quarter of 2022? That's when the Fed started raising short-term interest rates. And precipitously after that, you've seen a steady trend downward of production. So the Fed is getting what it wants. For 2023, we guided to mid-single-digit growth for the year, and we ended at 7% growth. So given the uncertain economies, I feel like that's a very appropriate level of growth with where we are in the cycle.
Pipelines for the end of the year are down considerably from where they were at the beginning of '23, down about 25%. But even though the pipelines are slowing down, Michael, there's kind of an embedded tailwind of loan growth because with rates where they are, there's going to be slowing prepayments and there's continuing to be funding of loans that are unfunded that we made in 2021, '22.
So our guidance really hasn't changed. We think mid-single-digit growth is reasonable and until rates decline. But where do we see that growth? For us, we've seen a considerable amount of residential real estate growth in '23 and we're getting a nice coupon for that growth, and there's just more people moving into our markets than there are homes available. So I feel good about those credits from an asset quality standpoint.
CRE activity has been very low in '23 with the rise in rates. You might see a little pickup there in '24 with the 5-year treasury down, as much as it is. And then we've just got a continuous push on the C&I middle market space. So that's an area that we're leaning into. So I hope that's helpful, Michael.
Very much so. And then maybe just one for Steve. I think the step down in correspondent this quarter was a little bit greater than what some of us were kind of expecting. I know there's typically kind of a seasonal rebound in the first quarter. Can you just kind of walk us through the dynamics there? And I think you had previously kind of talked about a fee to average assets kind of in the 55 to 65 basis point range. Any reason to think that, that might be different as we progress through 2024?
Sure. Thanks, Mike, for the question. Yes, on Page 31 is our fee income percentage. You can see that we're $65 million this quarter, 58 basis points of average assets. And of course, that was within our guide of -- we said it was at the low end of the 55 to 65 range in the fourth quarter just with what we saw.
Our -- we're just kind of reiterating the same guidance for 2024. We would sort of expect noninterest income to average assets to be in the 55 to 65 basis points for the full year. It's going to start on the lower end of the range, like the fourth -- like we had in the fourth quarter, for the first half of the year and probably the upper end of the range in the back half of the year. And the reason for that is just sort of the yield curve normalizing and sort of our interest rate-sensitive businesses like mortgage and correspondent, they just perform better when things are a little bit more normal from that perspective.
So as you kind of take that into 2025, we would expect our noninterest income to average assets to return to that 60 to 70 basis points, which was approximately the 2022 level. So -- but the way I kind of think about the variability in margin and our kind of our interest-sensitive businesses is we need a little bit more yield curve normalization for those things to sort of get back to, I'll call it, more normal levels. So that's kind of how we're thinking about it.
And like you mentioned, correspondent with the -- and mortgage, although mortgage is probably less volatile at this point, but correspondent, I don't think that probably -- if you think about the fixed income business, until they start cutting rates, that's probably not going to improve a lot our interest rate swap business because of the lack of loan volume in the industry in the fourth quarter, probably in the first quarter. It's probably not going to ramp towards the back half of the year as rates stabilize.
Very helpful. And then maybe if I can just squeeze one more in for John. Just reflecting on your comments at the beginning of the call around technology costs, I think I was struck by how much the spend had increased in 3 years' time or 4 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 cost in a couple of years.
Yes, sure. I think our motto for 2023 was building a better bank and really it was focused on the customer experience, the employee experience and getting feedback from our team, how to take friction out of the technology. For 2024, it's kind of finish the drill is the theme, and it's really the technology and process improvements that were already put in place the last couple of years. We just want to complete those projects. So there's really not, Michael, new significant technology platforms that we've got in the queue to update. So I think the bulk of our technology spending increases is in the rearview mirror. I mean there's always going to be growth in that category, but nowhere near the level we've seen in the last few years.
Michael, this is Steve. The only other comment I would make is, remember, when we did the MOE back 4 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 the technology. And so that's sort of been the story the last several years.
Your next question comes from the line of Brandon King with Truist Securities.
So appreciate the near-term guidance on expenses, but are you expecting expenses to kind of stay in that similar range throughout the year? Or what kind of growth rate do you think is a good base case assumption?
Yes, Brandon, thanks. The -- I'd say for the full year, I think around that $1 billion number is about what we would expect at this point. There are, of course, some -- there's some components of compensation, et cetera, that fluctuate the revenue volumes in some of the fee businesses in particular that if that turns out differently, then we expect those could move up or down. But for the full year, I think consensus has us right around $1 billion, and that feels like a pretty good spot based on what we see today.
Okay. And on fees, with the CFPB overdraft proposal, are you considering any potential changes to your overdraft policies? And I guess if not, what could be the potential impact if that does go into effect?
Yes, Brandon, this is Steve. We made some changes maybe 15 to 18 months ago. We aren't contemplating any new changes. I know there was a new paper that came out a few days ago. But as I understand it, the earliest that would be approved is in October of '25. So I think it's probably just too early. And of course, we're thinking about it. But we haven't run the math on any effect that would have on us for sure. But anyway, that's kind of how we're thinking about it.
Okay. And then lastly, on deposit pricing. I know CDs continue to be a headwind near term, but could you potentially quantify or give some context around near-term CD repricing? And then as you're looking in doing the numbers, when could that potentially turn into a tailwind maybe even in 2024, 2025?
Sure. Brandon, this is Steve. I think we have about $4 billion of CDs. I think 90% of that roughly come due in 2024. We have a fair amount coming due in the first quarter. I want to say it's not quite half, but it's a fair amount. So as we think about repricing, we're just -- CDs by nature, retail CDs, are generally pretty short in nature, and we retooled a couple of our retail products to continue to shorten those up.
But at the end of the day, CDs only make up 12% of our total deposits. So it will be a little bit of a tailwind. I think the exception price or negotiated rates on the money market is probably the place we put more liability sensitivity as we've thought about it.
Your next question comes from the line of Samuel Varga with UBS.
I wanted to go back to the margin discussion just for a little bit. Just to clarify on the -- obviously, I'm not digging too far into the '25 and '26, guys, but just to clarify, you're assuming that the mid- to longer end of the curve is staying flattish than current levels. So there is a steepness that occurs?
Yes. If you look at the Moody's consensus forecast, I believe that today, the -- all that 5-year part, which is where we put a lot of our assets is somewhere in the 4% range. I want to say by the end of '25, it's in that 3.5% range, give or take, so sort of a flat curve by the time they've cut 8 rates and so on. So that's sort of our assumption for rates. We don't see -- if the 5-year part of the curve went up to 5%, of course, our repricing would be stronger, but we might have other issues. And if the 5-year goes down to 3% the next year, then there's probably other rate issues. But anyway, that's how.
But you were saying that for the end of '25, Steve. So there is at the end of '24 is Moody's consensus is a little higher than that, isn't it?
It's a little higher than -- somewhere between 3.50% and 3.75%, I think. And then by the end of '25, it's around 3.5%. So yes. As you know, at the end of October, I think when we had our earnings call, I think the 5-year Treasury Moody's consensus was 4 -- like 4.5%. So it does move around for sure. So we'll find out for sure.
Got it. That's very helpful. And then in terms of the down betas for '24, what sort of assumptions do you have there for deposit down betas?
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. So for instance, if I kind of run the math on we're at 5.5% Fed funds rate and over the next couple of years, they cut it to 3.5% or 200 basis points, you would expect from our peak, maybe 40 basis points of pressure to be relieved coming back by 2026. And I know I'm not still talking about 2026, but it is a linear ramp and it takes time to do it. But that would be really consistent if you kind of look back at our history. It's a 20% beta, but there's always a little bit of a lag in that first couple rate cuts.
That makes sense. And just a quick one. Do you happen to have the spot interest-bearing deposit costs for December or year-end?
No, we don't.
Not here in front of me or John.
Your next question comes from the line of Russell Gunther with Stephens.
Just a couple of quick clarifiers at this point. The 20% down beta you're contemplating that through the cycle, and that would compare to the update of roughly 30%. Did I hear that right?
Yes, that's right. And that would be total deposit beta.
Yes. Okay. Excellent. Understood. And then just lastly, as you guys kind of balance, you mentioned the potential for a bond restructure versus buying back stock, just kind of walk us through the thought process there. And then if you could confirm any potential bond restructure that would get done would be likely accretive to that NIM guidance for '24.
Sure, Russell. It's Steve. Yes, we've talked about that on the call. I think it was last quarter, we talked about it. And I think it's the same kind of calculus. It's really just trying to think about our uses of capital. I think we talked up to maybe a 10%, more than 15% of our portfolio restructure and obviously, we'd be thinking about it in terms of earn back period less than 3 years. That's how we would think about it. It's a lever. We're thinking about what we're -- kind of just back to positioning the balance sheet, thinking about the future. If rates come down, we are thinking about liability sensitivity a little bit, and we want to think about how to position. If rates do fall, how to best position all the balance sheet.
And of course, that takes time to do it. But we've been thinking about it for the last couple of quarters. Certainly, we want to think about it for the next 4 or 5. So that's from a perspective of the bond restructure. It's certainly something on the table. And to your point, it's a lever. If they continue to have higher rates and our NIM has some pressure, that's a way that we can level set it. But that's just on the restructuring on the capital side.
Yes. And as you noted, I mean, with the 11.8% CET1 that does give us the luxury of considering more than one option. And certainly, share repurchases are user's capital that we think about as well. And 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, you're going to see that CET1 continue to climb from there. So we like the flexibility we've got with our capital position today and continue to think about all those options we mentioned.
Your next question comes from the line of Gary Tenner with D.A. Davidson.
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?
Sure. I guess this really -- I don't think it's changed a whole lot, as you think about, if we have mid-single-digit loan growth, that's, I don't know, $1.5 billion, $1.6 billion, something like that. We have our securities portfolio that's [ reading ] off somewhere, depending on rates, $700 million, $800 million a year. So that would imply that you have about 2% to 3% deposit growth assumptions built in there.
We think it's slow in the front end, it probably ramps in the back end. If you think about Q2 and all that stuff, if they end up bringing that back, I would imagine that liquidity in the system would get better in the back half. But -- so just to make sure I was clear, our average -- our expected average for the year of earning assets is $41 billion. Our -- if -- it will start out a little lower than that, of course, end up a little higher than that based on those assumptions.
Okay. I appreciate that. And then just with the commentary in the press release of the reduction in brokered deposits, can you tell us what the brokered balances are at year-end?
I don't have that in front of me, but I think it's around $700 million, stepping $720 million or so. We've really brought that down over -- during the March banking situation, we took it up $1.2 billion just to make sure that we have plenty of liquidity, fortress balance sheet and then, of course, yes, that's run off quite a bit over the year.
As I think about 2024, at least in the first half, I certainly think we'll replace those and potentially grow it a little bit, but it will be somewhere in that range. Historically, we run about 3% of average deposits. So it'd be about $1 billion, somewhere in that $500 million $1.5 billion. I don't know. Somewhere in there is typically how we run it, depending on rates.
There are no further questions at this time. I will turn the call to John Corbett for closing remarks.
All right. I know you guys have had a busy morning with a lot of calls. So thank you for joining us. If we can provide any other clarity on your models, don't hesitate to give us a ring. And I hope you have a great day.
This concludes today's conference call. We thank you for joining. You may now disconnect your lines.