Q4 2023 SouthState Corp Earnings Call

Presentation

Operator

Hello, and welcome to the South State Corporation Q4 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions) I will now turn the conference over to Will Matthews. Please go ahead.

Good morning, and welcome to South State'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 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 South State 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 South State, 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 were all in the top five fastest-growing states in the country during 2023. And since the pandemic over 1 million people. I've moved to Florida.
So ST is a company that was forged during the great recession during a decade of rapid consolidation. The culmination of that period was a merger of equals announced four years ago this month. That significant event in our history was an opportunity to catch our breath and spend a couple of years to retool the guts of the bank, specifically in the areas of technology and risk management.
Our goal was 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 strengthen the three lines of defense. And 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, 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 sales state reported solid performance and sound 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 did replace, a 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 percent from 30% last quarter, bringing us near the levels we were pre-pandemic for DDA as a percentage of deposits.
Turning to the income statement. Our 3.48% NIM was down 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 now 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 complement our leadership on their performance in this challenging environment. We track various metrics versus the Mortgage Bankers Association quarterly performance report and our team consistently outperforms the industry in several key metrics.
Operating expenses of $246 million, which excludes the $25.7 million for the FDIC special assessment, were in line with our expectations and were above Q3 levels due to some of the items we mentioned in our third quarter call. Looking ahead, we expect NIE for Q1 in the mid to high-240s, subject to normal variations in expense categories impacted by non-interest income and performance.
With respect to credit, we recognized $7.7 million in net charge-offs during 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 two years, we provisioned $196 million against only $29 million in net charge-offs. So we built our reserves appropriately under CECL in advance of potential credit deterioration.
For overall asset quality trends, NPAs were up $8 million, driven by an increase in SBA loan non-accruals, which are 75% or more government guaranteed. Special mention loans declined and substandard loans increased. The increase in over 90 days 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 path to NPAs are centered at 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 the 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.

Question and Answer Session

Operator

Thank you. If you have a question, please press star one on your telephone keypad. One moment, please, for your first. Catherine Mealor, KBW.

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

Sure, Catherine, it's Steve. I think for asking the question. We have a page that we show every quarter on page 11, the NIM trend. As you mentioned, it went down from three 3.50%, 3.48%, so two basis points. But within our guidance between 3.45% and 3.50%. Our deposit costs increased 16 basis points, which was within our guidance of 15 to 20.
As we think about 2024, it's interest-earning asset, that's rate forecast and then our deposit beta assumptions. 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 for the last several quarters. So we're thinking 2024, $41 billion. We start out like the fourth quarter within the [40.4] range on that. So I wouldn't expect that to be much different coming out of the out of Q1. There's some seasonality as it relates to the second assumption, which is the rate forecast on the Moody's consensus, which is what we use shows for rate cuts in 2024. They started in April and then we have four 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 costs increased similarly on 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 and then 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 exiting the back half in that 3.50% to 3.50%. So that's kind of how we're thinking about 24 with the those assumptions on fields.
We think about 25, and we think about another four rate cuts in 25. You were thinking as 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 a The last point I'll make is and if we kind of play this out and the forward curve is sort of showing that at the end 25, we sort of have a 3% to 3.5% Fed funds rate and sort of a flatter upward sloping curve. 2026 would look a lot like 2018, 2019 when our NIM were in the 3.75%, maybe 3.90% range. So anyway, as we kind of think about the short, medium and long. That's sort of how we're thinking about it related to the forecast.

It is really helpful things that first of all, 26 guidance, this earnings season.

You want the '28, we can give that too.

And it's interesting. It feels like you just got upward momentum in your margin. And I think I'm curious, it's how you are thinking about how deposit costs play into that. You've got such a cut opportunity to reprice assets yet all the way up, even if we get rate cuts, I feel like your loan yields are still going to be moving up on just given the way you're structured there. And so is are there significant decline in deposit costs throughout all these assumptions? Or is it more kind of a stabilization in deposit costs? And then just really what's driving the higher margin is just upward momentum on the asset side?

No, it's a good, good question, um. So maybe start with asset side. I think we talked about last quarter. But just to reiterate, we 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, in 2026 to $3 billion. So it's a healthy amount every year. And so yes, those are somewhere in the 4.60% to 4.80% range for all three of those years, kind of fixed in there. As we think about so that that's going to be a tailwind, assuming that 5-year treasury doesn't move much lower than three, it will be spread over that from.
If you think about on the deposit rates, you know, on the 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 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 help CDs. There's another $4 billion that eventually will reprice to the front end of the curve over time. And then now that we have securities that will reprice up anyway, you have 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 your help to margin. I don't know if that's helpful, but for how we think about it.

Operator

Stephen Scouten, Piper Sandler.

Hey, good morning, everyone.
I'm kind of curious, you mentioned the DDA percentage will look kind of back down to the pre-pandemic level. Do we think that can kind of stabilize here at this level or you expect a little bit more our mix shifted as we move on maybe prior to potential rate?

Yes, Steve, it is hard to say. I think a few quarters ago, we probably would have thought this would be where we end up, given that we've seen continued decline in that percentage. I don't think it's unreasonable to assume it might go down further from here on, I don't know what how much further build up the pace of that change is still mitigated quite a bit the last few quarters, but it's hard to say that we're at the end necessarily but it was it's hard to know.

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

okay. And how should we think about kind of the provision reserves moving forward? I mean, obviously, you guys have talked about how much you've built relative to net charge-offs and we'll say you don't really see material or significant loss content in the book. So kind of felt like a big directional reversal this quarter. Maybe what kind of a normalized net charge-off for you as you think about your portfolio and you think we could see this reserve start to trend down given no significant worsening in the quarter?

Yes. Stephen, I think, um, the way I think about it are our charge-offs last year were 8 basis points, and that's that -- 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 last couple of years and in advance of potential deterioration in the economy, but to pay our charge-off levels from here that could lead to provision expense to cover those charge-offs. And depending on whatever else the model tells us as far as normalized charge-off was?
I don't have a good number to estimate. I mean, you look back at our peer group and 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 be great if we could.

Okay, good and then just last thing for me on maybe the -- 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 rates presumably coming down, making the math a little bit better. I'm just kind of wondering how you think about M&A this year and the potential for?

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 Steven, really no change from our prior guidance. I mean our ideal partner, if we were to do something, would be 10% -- 10% to a third of our pro forma company.
Some weren't great markets in the Southeast and we'd prefer to double down in our existing high-growth markets. But the regulatory environment is a little tough for that right now. So we've updated our population map on page 6. And if we were to do a market extension type of DoD 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 and 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 in M&A.

The helpful commentary, John, thanks a lot, guys. Appreciate the time today.

Operator

Michael Rose, Raymond James.

Hey, good morning, everyone. Thanks for taking my questions. I had just wanted to get some comments on Slide 12, which is the loan production chart. And obviously, it's come down since a very strong 2022 on I know some of that is just your kind of conservative nature and maybe not wanting to take on other people's.
Yes, 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 areas that you can maybe push to 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'd previously kind of talked about mid-single digit loan growth rate for next year. So just wanted to get some context there.
Thanks.

Yes, Michael, it's John. That graph is very interesting to me on Page 12, and we kind of ahead peak record production in the second quarter of 2022. And if you think back or 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 uncertainty in economies, I feel like that's a very appropriate level of growth with where we are in the cycle. And 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 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 a from a asset quality standpoint, CRE activity has been very low in 23 with the recent rise in rates. You know, 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 hope that's helpful, Michael, very much.

So and then maybe just one for Steve. I think we stepped out in correspondent this quarter was a little bit greater than what some of us were kind of expecting. I know there's typically a 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 a fee to average assets kind of in there 55 to 65 basis point range. Any reason to think that that might be different as we progress through the 2024?
Thanks.

Sure. No, thanks, Mike, for the question. Um, you know, our week one on Page 31 is our fee income percentage. And you can see that there were $65 million this quarter, 58 basis points of average assets. Of course, that was within our guidance. We said at the low end of the 55 to 65 range in the fourth quarter, just what we saw.
Yes, we're just kind of reiterating the same guidance for 2024. We would sort of expect a 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 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 reasoning 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 a 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 the way I kind of think about the variability in margin and our kind of our interest sensitive businesses as 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 stuff. That's kind of how we're thinking about it.
And like you like you mentioned your correspondent with them on the mortgage, although mortgage is probably less volatile at this point but correspondent, I don't think that probably yes. 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 to the towards the back half of the year as rates stabilize.

That's very helpful. And then maybe if I can just squeeze one more in for John, just just reflecting on your comments at the beginning of the call around technology costs, I think I was struck by how much of the spend is increased in three years' time or four years' time, up $68 million. As you as you think about going forward, just conceptually, any larger technology products are recalls that you need to do? Or is it just more around? Yes, just because that's a pretty big lift in costs in a couple of years? Thanks.

Yes, sure, Tom. And I think our motto for 2023 was building a better bank and really was focused on the customer experience, the employee experience and getting feedback from our team, how to take friction out of that technology for 2024, it's kind of finished the drill is the 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 the last few years say,

Michael, that Steve, the only other comment I would make is remember when we did the MOU back out four years ago, that was one of the main reasons we did it. It was a investment in technology that we needed to make and so we use use that period as an opportunity to take costs out of certain areas and reallocate it to the technology. And so that's sort of been the story of the last several years.

Makes sense. Thanks for all the color.

Operator

Brandon King, Truist Securities.

Hey, good morning. Saia-burgess up. So I appreciate the near-term guidance on expenses, but are you expecting expenses to kind of stay in that similar range throughout the year or kind of growth rate or you think is a good base case assumption?

Yes, Brian, thank you and thanks, Thea. 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 components of compensation, et cetera, that fluctuate with revenue volumes as some of the fee businesses in particular that -- if that turns out differently than we expect those could move up or down. But for the full year, I think consensus has is right around $1 billion. And that feels like a pretty good spot based on what we see today proper.

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 it does go into effect?

Yes, Steve, as you know. We made some changes maybe 15 to 18 months ago. We are contemplating any new changes. I know there was a new paper that came out a few days ago, but as I understand it and the earliest that would be approved is in October 25. So I think it's probably just too early. And of course, we're thinking about it, but but we haven't run the math on on any effect that would have on us for sure. But anyway, that that's kind of how we're thinking about it.

Okay. And then lastly, on deposit pricing and those CDs continue to be headwind near term, but could you potentially quantify or give some context around no near term CD repricings? And then as you're looking in doing the numbers, when could that potentially turn into a tailwind, maybe even 2024 25?

Sure, Ben, 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 or just CDs by nature. Retail CDs are generally pretty short in nature, and we have retooled a couple of our retail products and to continue to shorten those up. But the other day CDs only make up 12% of our total deposits. So it'll it'll be a little bit of a tailwind. I think the exception price or negotiated rates on the money markets probably the place we but more liability sensitivity as we've thought about it.
Thank you.

Operator

Samuel Varga, UBS.

I wanted to go back to the margin discussion just for a little bit. Just to clarify on the obviously, I'm not being too far into the 25 and 26 guidance. But just to clarify, you're assuming that the mid to longer end of the curve is staying flattish, but current levels, so there's the steepness of the curve.

If you look at the Moody's consensus forecast, I believe that yes, today, the sum of all that five year part, which is where we put a lot of our assets is somewhere in the 4% range. When I say by the end of 25, it's in that 3.5% range, give or take of sort of a flat curve by the time they cut eight rates and until. And so that's sort of our assumption for for rates.
We don't see if the five-year part of the curve, it went up to 5%. Of course, our repricing would be stronger. But yes, we might have other issues. And if the five year goes down to 3% the next year, then there's probably other rate issues, but anyway, that's helped.

But you're saying that for the end of '25. At the end of '24 is the Moody's consensus --

It's a little higher than that, and it's a little higher than that somewhere between 3.50% and 3.75%, I think. And then by the end of 25, around 3.5%? 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 for like 4.5. So it does move around for sure. So we'll find out for sure.

And then that in terms of the down betas for 24, what sort of assumptions do you have there for the deposit betas?

Yes. Let me 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 on 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 a 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 that's let's talk about 2026, but it is a it is a linear ramp and it takes time to do it. But Tom, that would agree 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 on that first couple of rate cuts.

And 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. I'm not here in front of me.

Thanks for expressing my questions. I appreciate it.

Operator

Russell Gunther, Stephens.

Hey, good morning, guys. Just a couple of quick clarifier 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?

That's right. And that would be then total?

Okay. Excellent. Understood. Thank you. And then just lastly, as you guys kind of balance, you mentioned the potential for a bond restructure versus buying back stock and 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. And then guidance for 24 to roughly.

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 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% or more than 15% of our portfolio restructure and done.
Obviously, we'd be thinking about in terms of earnback period less than three years. That's how we would think about it. It's a lever you we're thinking about what were you kind of just better 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 that positions go. If rates do fall are the best positioned on 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 four or five. So that's from a perspective of the bond restructure it certainly from a table. And from your point of view, it's a lever if they continue to have higher rates and YORNIM. has some pressure. That's a way that we can level set it. But that's just on the on restructure on the capital side.

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

Operator

Gary Tenner, 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, what looks like somewhere in the range of $1.5 billion of net loan growth. So from a from a funding perspective of that loan growth, what are the cash flows projected on the securities portfolio for the year? And how lean would you run cash as you're thinking about kind of remixing assets on the balance sheet a little bit?

Sure. You know, 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, $1.5 billion, $1.6 billion something like that. We have our securities portfolio that that's running off somewhere depending on rates, $700 million to $800 million a year. So that would imply that you have about 2% to 3% deposit growth assumptions built in there.
We think could flow in the front end, it probably ramps in the back end. If you think about on your QT 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. So just to make sure I was clear, our average -- our expected average for the year of earning assets is $41 billion. It will start out a little lower than that, of course, and that's a little higher than that based on as assumptions.

Appreciate that. And then just with the commentary in the press release with the reduction in brokered deposits, it does what the brokered balances are at year end.

I don't have that in front of me, but I think it's around $700 -- $720 million or so. We've really brought that down over the -- during the March banking situation. We took it up $1.2 billion just to make sure that we had plenty of liquidity, fortress balance sheet, and then a source that's run off quite a bit over the year. As I think about 2024, atleast 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 to $1.5 billion range. Somewhere in there is typically how we run it depending on rates.

Operator

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 did 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.

Operator

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