Hello all, and a warm welcome to the SouthState Corporation First Quarter 2022 Conference Call. My name is Lydia, and I'll be your operator today. If you'd like to ask a question at the end of the presentation, you may do so by pressing star followed by one on your telephone keypad. It's my pleasure to now hand you over to our host, Will Matthews, Chief Financial Officer. Please go ahead when you're 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 the call will be that we'll provide prepared remarks and we'll 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 showed progress in many areas, as you will hear from John and Will. 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. 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 that create a high-performing bank, and to see this reunion is a welcome sign of the potential at 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 thrive. It's incredibly strong. We continue to see population migration from all over the country and construction activity is very brisk. 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. COVID really hasn't been an economic constraint over the last year with the favorable political environment in the Southeast. 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 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, where we 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 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. 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 pricing 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 of deposits fell another basis point to an all-time low of just 5 basis points. We held our nose and were 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. 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 in the quarter similar to the third quarter. Excluding the Atlantic Capital acquired loan balances, our linked quarter annualized loan growth was 6.3%. We continue to believe that rising rates will slow the prepayment speeds and be a tailwind to net loan growth at 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 estimate that the net impact of these product changes will be about $0.08-0.10 per share on an annual basis beginning in the third quarter. As I 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. 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 can 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. In a general sense, 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 2022 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 3.80% 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 a full quarter. Cost of 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, but we continue to have a lot of dry powder, with $5.4 billion in 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 in the quarter at $1.27 billion.
As gain on sale margins compress 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 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. 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 an incentive system with division and region-level measures meant to drive a culture of ownership. Department or division-level performance versus budget, whether in net income for a revenue-generating division or in 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 saves ahead of schedule as some employees have departed before we had modeled, so ACBI's NIE run rate in March was slightly lower than we had expected. The conversion is scheduled for late July. Even with the addition of ACBI for two more months than we had in Q1, we currently foresee NIE running in the low 20s for the remaining three quarters of the year, possibly in the high 20s 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, non-performing assets, and criticized unclassified assets. $1.4 million of the $2.3 million in net charge-offs were DDA overdraft charge-offs, so loan net charge-offs were less than $1 million. Continued improvement in economic forecasts led us to record a negative provision of $8 million for the quarter or a - $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 1.14% or 1.25%, including the reserve for 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 us approximately $370,000 shares remaining in our repurchase authorization. As noted on slide 28, this quarter's significant move in rates caused an AOCI swing, which led to an 8% decline in our TBV per share to $41.05 and brought our TCE ratio to 7.05%. I'll also refer you to the high-quality nature of our investment portfolio as noted on slide 27.
Our ending regulatory capital levels remain strong with CET1 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 shift 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. If you'd like to ask a question, please press star followed by the number one on your telephone keypad now. If you change your mind, it's star followed by two. When preparing to ask your question, please ensure your devices are unmuted locally. Our first question today comes from Stephen Scouten of Piper Sandler. Your line is open, Stephen.
Yeah, good morning, everyone. Thanks for the time. I'm curious first, maybe if we could talk a little bit further about the asset sensitivity. Obviously that's a bigger story even though stocks aren't getting credit for it yet today. You guys look extremely well-positioned there, and you noted the five basis point deposit beta last time around. I'm wondering what the underlying assumptions are within the I guess it's the up 4.7% in your ramp scenario. If you could remind us on that, because I would think given all the you know the 12% liquidity or whatnot, you'd actually be much more asset sensitive than peers than maybe that modeling would show me. Just maybe some of the conservatism that I assume is in your assumptions?
Sure, Stephen. This is Steve. Let me kind of give you the bottom line up front and then tell you why we think this. Our net interest margin was 2.77% in the first quarter. You know, based on Moody's consensus forecast to be at 2.25%-2.5% Fed funds rate at the end of the fourth quarter. You know, 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%.
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. You know, as you mentioned, we are asset sensitive. It's roughly 6 basis points for every 25 basis point hike. You know, the reasons for that, we have a couple of slides in the deck, just to kind of unpack it. You know, page 19 speaks to our loan portfolio, and we have about 32% of our loan portfolio is floating, daily, 18% variable and then 50% fixed. If you combine that floating rate loan portfolio with our excess cash of 12%, we have about a third of our interest earning assets, of our $41 billion interest earning assets that float daily.
That's all part of that assumption. You know, we have a slide in there, and I think we referenced it a few different earnings calls, but it's page 20 and it really speaks to the deposit betas. What this did is it went back to our previous interest rate hiking cycle in 2015 to 2019, and graphed the combined company to see what the betas were. That's where you can see that we ended up at the Fed funds rate at 2.5%. Our deposit beta was 5% on the first 100 basis points and 24% over the entire cycle. The last part is just the deposit portfolio.
John mentioned it earlier, it's a granular deposit base, and that's why we think the betas hopefully will outperform in this cycle. Page 18 speaks to the deposit mix. 60% of our deposits are in checking accounts versus our peers at 43%. Then you can see we've added a new graph in there that describes it's 36% of our checking account balances are commercial, 34% small business and 30% retail. You can look at the average sizes of those balances. You know, it's a very granular base at five basis points. 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 or will be similar to what they were in the last cycle.
I'll just add in Stephen as well. You know, the rate sensitivity on that slide 19 is a static balance sheet. The numbers that Steve gave for the NIM improvement throughout the year also assume we continue at sort of our expected loan growth rate. He mentioned a static earning asset base that would be remixed. We're assuming no deposit growth and that, you know, some of the cash is remixed into loans, you know, in that high single digit range throughout the period.
Okay, great. That's all extremely helpful. Just last tie-up there, the 24% deposit beta last cycle, is that similar to what you're modeling in the current rate sensitivity assumptions?
We've modeled that our betas are turned on immediately, even though we're not certain that is going to be the case. Yes, we're using historical deposit betas in our modeling.
Okay.
Stephen, just to add one other thing, you know, we're this time, what's different about this time is probably for the entire industry, but we're starting out at a 68% loan-to-deposit ratio. You know, we're not saying we're gonna grow deposits from here. We'll probably, you know, shrink some deposits, I would imagine, that were excess, but clearly, we always are growing deposits from just regular commercial clients. What we're saying is that, you know, the same thing we said last time is we're 68% loan-to-deposit ratio right now, heading toward an 80% loan-to-deposit ratio by the end of 2023. If you do that math and you look at our 12% cash to assets today, it basically moves down to 2%-3% by the end of 2023, which sort of right sizes all of that, the balance sheet management.
I guess just to.
Got it.
Further comment on 2023. You know, if Fed funds moves like latest consensus has it now, which would be to hit 3% in 2030, you're gonna see further improvement from that 3.20%-3.30% range Steve mentioned in Q4. You know, you'll see improvement in 2023 margins from that point as well if that rate environment in fact occurs.
Yeah. That's phenomenal detail, guys. Thank you. 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. The commentary around resi mortgage and portfolio and more of that production. Obviously with the addition of ACBI, I guess that's a you know, that's now down to a smaller percentage of the balance sheet. Could we see that, resi real estate move back towards 20% 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. I mean, ultimately we're a growth company in 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 quarters has been high single digits, up to 10%. You know, as 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, 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. We still feel, you know, the guidance we gave previously is good guidance, high single digits to 10%. Steve, how about the residential portfolio?
Yeah. We have a slide in there on page 13, and it speaks to sort of the production quarter-to-quarter and year-to-year. You know, the only comment I would make on that, Stephen, is, you know, if you look, this quarter we were 53% portfolio, which and then 47% secondary. If you look at that a year ago, we were 67% secondary. You know, the main difference is the gain on sale margins. You know, the gain on sale margins a year ago on that graph were 4.3%. You know, we sold more in the secondary. Today they're down to 2.87%, which is more in line.
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, but gain on sale portfolio margins are lower. I would think that over the course of the next several quarters, I'd say probably toward 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 quarter, guys. I look forward to when the market rewards everyone for it. Appreciate it.
Likewise. Thanks, Stephen.
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.
Yeah, hi, Michael.
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 which one it is exactly. You know, if you can just kind of walk us through kind of what happened this quarter and then, you know, with rates moving, what the expectation would be for the business as we move forward? Thanks.
Sure, Michael. Page 14 in our deck speaks to the correspondent division. You'll see that over the past four quarters or so, you know, the revenue has sort of ranged 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 continues to be our guidance. It doesn't change. What we're seeing, you can see on this graph at certain times, you know, our interest rates, our ARC revenues 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.
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. 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 five-year and the 10-year are a little bit closer to flat. I would expect our ARC revenues to be a little higher than fixed income. At the end of the day, I don't know that anything major has changed in our guidance.
That's very helpful color, Steve. Maybe just going back to the margin, which I think the commentary was, you know, very bullish. I think you said kind of exiting the year in the 3.20%-3.30% range. Just to put a finer point on it, are you assuming the forward curve, meaning, you know, seven or eight more rate hikes from here in that outlook?
Yes. We're assuming that the you know back to the Moody's consensus forecast, which we use to do our modeling, is that we would have a 2.25%-2.5% Fed funds rate at the end of the fourth quarter. As Will mentioned, you know, that moves into 2023, whereby we would get to a 3%. That's what the Moody's forecast says today. If that's true, we would get another 15-20 basis points improvement from the fourth quarter in the full year 2023.
Got it. Okay. Very, very clear. Okay. Thanks for taking my questions.
Yeah, thanks, Mike.
The next question in the queue comes from Kevin Fitzsimmons of D.A. Davidson. Your line is open, Kevin.
Hey, good morning, everyone.
Morning.
Just wanted to talk about credit. Obviously, there were a lot of moving parts this quarter with the day two 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, you know, there's this kind of lingering concern out there in the market, not necessarily on the Street about a recession, but there's a lot of, you know, there is some uncertainty. With that ACL ratio down to about 1.14% now, and the size of the releases taken this past quarter, how do you feel about provisioning and where that ACL migrates to going forward? Does it still have room to run down, or should we be just applying a reserve for loan debts going forward?
Yeah, Kevin, you know, I share your frustration with the inability to predict that. It's obviously a function of the CECL model and the impact of changes in economic forecasts on that. Maybe sort of unpack that just a little bit. 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. We also weighted 50% their S3 scenario, which is their recessionary scenario. That on the probability curve is, in their lingo, a 90% chance that things are better than that, than the S3, and a 10% chance things are worse.
At a 50/50 weighting of those two, essentially you're at 70% on that. You know, if you pictured a straight line, a horizontal line between zero being the happy days are here again and 100 being a terrible economic event, we're at 70% by going 50% of 90% and 50% of 50%. We have used weightings between 50/50 and 2/3 baseline, one-third over the last number of quarters. We've been in that effectively weighted average range of 63%-70% just to keep that mental image of the horizontal line as the example.
If we had gone 100% baseline, just stick with whatever we think is going to happen and not weigh in another scenario with more pessimism, it would have told us to have a reserve about 40 basis points below where we are, t o where we were at the end of the quarter. If we'd gone with 100% S3, it would've had us about 40 basis points higher.
Now, the thing that I'll caution you is that that changes quarter by quarter as those forecasts and the underlying economic metrics that are loss drivers in the CECL model change. If you know, it could be that in a worse time, S3 is a lot worse and baseline is a lot worse. Those are not static amount there. Anyway, that's sort of the underlying thing. It could go lower if their forecasts continue to improve, but it could also get worse.
As we all know with CECL, if the projections are moved to you know to predict worsening economic outlook quickly, then you'll see a quick reaction through the provisions for credit loss to build that back up just based on the variability that CECL imposes.
Yeah. 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%-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 three basis points.
I do not share the market's concern about a near-term recession the way the market reacted when the yield curve inverted. You know, there's a lot of macro monetary forces going on right now with that yield curve that are maybe not normal market forces. We're pretty bullish in the near term for the next year or so. Our clients are bullish, and we like their underwriting standards that we've got right now. 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. 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. It's not you guys doing an MOE anymore, it's someone else. I'm curious with that potential for producers to be onboarded what kind of opportunity that might represent for you, and is that included within that guidance for expenses? Thanks.
Yeah. The opportunity is huge. You know, 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 at 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. Our ability to recruit from the biggest banks is better than it's really ever been. They're in these key markets. They're bankers that have been at the same place sometimes their whole career with huge books of business.
We've just got a great fit here when they come on board out of, you know, 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. We're real bullish on the opportunities to recruit and I'm just real proud of our team and what they're delivering. You know, from an expense standpoint, we'll, you know, we're not gonna let the budget restrict us from hiring if there's opportunities.
Yeah. 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 all these, you know, this asset sensitivity, 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, you know, or is there a certain price range where you're gonna be more aggressive in terms of stepping in?
You know, Kevin, we've always said that, you know, our first priority and first desire in investing capital is to invest in growth. Anytime we can deploy capital into growth, we prefer to do that. You know, we believe we've got a pretty good opportunity ahead of us to continue to grow loans nicely and accelerate that growth a bit. It's likely that you'll see us pivot to investing capital in growth if that growth materializes. You know, 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 2021. As I said, about $370,000 shares remain. You know, it depends upon the opportunity set, but our preference is to invest it in growth.
Got it. All right. Thank you, guys.
All right.
As a reminder, if you'd like to ask a question, it's star followed by the number one on your telephone keypad.
Our next question in the queue comes from Jennifer Demba of Truist Securities. Your line is open.
Hey, this is Brandon King on for Jenny. Good morning.
Hey, Brandon.
Hey. 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 end up by the end of the year?
Sure, Brandon. This is Steve. You know, we did see really good deposit growth in the first quarter. Some of that is seasonal. 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 you know, kind of how we're thinking about the fourth quarter this year and really all the way through 2023 is to hold our deposits balances flat. As we think about the interest rate discussion around betas, we think that you know, we probably could grow more in our markets. But we're trying to manage both margin and you know, and growth.
I think what we just articulated on the call was today we're at 68% loan to deposit ratio. 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 being in 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 $5.4 billion in cash. Call it about $4.5 billion of that is sort of excess. $4 billion-4.5 billion, and that'll go to loan growth over the next, you know, 21 months.
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. We think it appropriate to conservatively assume we don't grow deposits at this point.
Okay. That's helpful. 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 could be expanded further or any opportunities you're seeing in the market there?
Yeah. This is John. You know, Kurt Shreiner 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 of about 40%. In some respects, that growth in the payments business, the fintech business, was sort of outstripping the Atlantic Capital balance sheet size. Now as we've joined together, they can continue growing that business as they had in the past. We just look for that continued growth rate. If they can keep doing that inside of a larger balance sheet, they're not gonna be constrained as they might have been before. Kurt does a great job, and we're excited to add those verticals.
All right. Thanks. That's all the questions I had.
Thank you.
Our next question today comes from Samuel Varga of Stephens Inc. Please go ahead.
Good morning. Samuel Varga from Brody Preston. 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. I just wanted to ask if the quarter-over-quarter decline, granted some of that is seasonality for sure, if that was in any way due to the ACBI being folded in, or was that purely market dynamics?
Yeah, no. That's not a result of the fold in. Atlantic Capital kind of rolled in on March 1. If you exclude the acquired balances, that loan growth was 6.3%. Just a lot of growth, you know, coming out of Florida and Atlanta and we're getting some good growth out of Alabama as well. 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. It's kind of across the board, but that growth rate excluded the acquired balances of Atlantic Capital.
Again, I guess, you know, as I think about residential, we talked about it earlier, but you know, as we put more production on the balance sheet and less in fee income, you know, we're going to see less fee income moving forward. I think before we'd guided our non-interest income to assets to be between 75 and 85 basis points. We think now with you know, a little bit more of that mortgage production, some of the NSF fees going away, so it'll be between 70 basis points and 80 basis points from here on.
Understood. That's very helpful. Actually did want to circle back on mortgage a little bit, and ask how, I guess, refi volumes are trending, and specifically, if you could just give some color on since quarter end through April, how has that looked?
We have a slide there on page 13 and you can see the production this quarter is $1.271 billion of which 70% was purchased, 30% was refinanced. That refinance volume is going to trend down as the 30-year mortgage rates are in the fives. We would expect the purchase volume to continue to remain strong. We're seeing a lot of activity, continued activity. Particularly in the construction perm loans for our individual borrowers. We have a private wealth group. There's a fair amount of construction loans that we do directly to high-net-worth individuals that have relationships with us. I would say that the refinance volume is gonna fall off, there's no doubt about it. But w e do think the purchase volume, at least for the short run, is good.
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. Then, just one last one on mortgage. Gain on sale margins are pretty nicely stabilized for you, it seems, at this level. Could you give some commentary on the outlook from here moving forward?
Yeah, I think they're, you know, gain on sale margins are coming in, and particularly as you have this big movement in rates, you're gonna have. I would just expect mortgage, you know, back to part of that guidance of the non-interest income to come down 5 basis points, you know, somewhere between 70 and 80 basis points in total. I have the vision that mortgage probably is gonna come down some more in the secondary side as gain on sale margins are tightened, and we put more production on the portfolio.
Just to step back to 10,000 or 20,000 feet, you know, 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 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?
Yeah, I think, you know, our guidance has been $24 million-28 million a quarter. You know, if you look at that graph for the last several quarters, it's been somewhere between $25 million and 30 million. 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. In reality, you know, the banks had an AOCI hit like everybody did, and they're a little bit, you know, shell-shocked right now. You know, they'll come back in when this thing settles down. To your point, over time, fixed income will get better, if we have a steep yield curve.
In the short run, we think our 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.
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, so we'll probably see you on the road. If you have any questions in the near-term, just reach out to Will or Steve. Have a great day.
This concludes today's call. Thank you very much for joining. You may now disconnect.