SouthState Bank Corp (SSB) 2022 Q1 法說會逐字稿

Hello all, and a warm welcome to the SouthState Corporation First Quarter 2022 Conference Call. My name is Lydia, and I will be your operator today. (Operator Instructions)

It's my pleasure to now hand you over to our host, Will Matthews, Chief Financial Officer. Please go ahead, when you are ready.

Good morning, and welcome to SouthState's First Quarter 2022 Earnings Call. This is Will Matthews, and joining me on this call are Robert Hill, John Corbett, and Steve Young.

The format for the call will be that we will 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 accelerating. 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. And keep in mind that this follows a decade of slower construction after the housing crisis. Our shipping ports, airports, theme parks, hotels and restaurants are all near record capacity as consumers return to their pre-pandemic lifestyles. And COVID really hasn't been an economic constraint over the last year with the favorable political environment in the Southeast, but our clients are struggling with labor shortages and wage pressure to meet the spike in consumer demand.

We released our earnings last night and reported earnings per share of $1.39, when you exclude merger-related expenses, our adjusted earnings per share 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, we review their cash balances and our unfunded lines of credit, we're pretty bullish on the strength and resilience of our clients over this next year.

We closed on the Atlantic Capital acquisition in Atlanta on March 1, and we're on track for systems conversion in the third quarter. The Atlantic Capital team has delivered excellent balance sheet growth since the announcement last summer. And really, they haven't missed a beat. We remain excited about the strategic fit in Atlanta and also expanding our new FinTech and payments verticals.

Our balance sheet remains liquid and we're in a perfect position for rising rates. During my 33-year banking career, I was always taught that the most valuable part of the balance sheet is the right side of the balance sheet. And while that principle has certainly been challenged in a 0 rate environment, that is the mindset to build this company. Over the last 2 years, we felt like our deposit franchise was a coiled spring of Greens Power if we could just get the 5-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 nerves and we're deliberately patient to hang on to our excess cash during the record low rates of 2021. This quarter, however, we began deploying the cash into the investment portfolio as the yield curve dramatically improved. The investment portfolio grew $2 billion during the quarter from $7 billion to $9 billion, with about half of that growth attributable to Atlantic Capital. We still ended the quarter with 12% of the balance sheet in cash and only a 68% loan-to-deposit ratio. So we will experience significant revenue improvement as we continue to deploy our surplus cash into this more favorable rate environment.

Our loan production hit $2.6 billion in the quarter similar to the third quarter. And 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 NSFBs 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 to $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 2 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 0, but our bankers are tough and their leaders, and they plowed ahead with both Grid and Grace. They work 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, noninterest income and noninterest 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 '22 was our highest quarter for net interest income, excluding accretion, up $9 million from Q4. We did have Atlantic Capital revenue for the month of March, but we also had 2 fewer days in Q1 versus Q4. Yields on non-PPP loans of $380 million 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 2.77% 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.

Noninterest 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 term loans are included in that portfolio number. We benefited in this environment from being a purchase-focused mortgage company, representing approximately 70% of our production, and our servicing business should be better in the higher rate environment, but margins in the business are under competitive pressure and are likely to remain so for the foreseeable future.

Our correspondent division had good performance with $28 million in revenue for the quarter, as noted on Slide 14. Our interest rate swaps business experienced good demand, but our fixed income business was a bit weaker in spite of the market providing an opportunity to invest cash at higher rates, presumably influenced by AOCI sticker shock at some of our clients.

Turning to expenses. Operating NIE of $218 million, including 1 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 an 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 3 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 ACBS NIE run rate in March was slightly lower than we had expected. The conversion is scheduled for late July. Given the addition of ACBI for 2 more months than we had in Q1, we currently foresee NIE running in the low 230s for the remaining 3 quarters of the year, possibly on the high 220s for the fourth quarter, with Atlantic Capital cost save realization offset somewhat by annual wage increases and general inflation pressures.

Moving to credit. We continue to report strong asset quality metrics. Slide 26 shows continuing low trends of net charge-offs, nonperforming assets and criticized and classified assets. $1.4 million of the $2.3 million in net charge-offs were DDA overdraft charge-offs to loan net charge-offs were less than $1 million. Continued improvement in economic forecast led us to record a negative provision of $8 million for the quarter or a negative $25 million, excluding the day 1 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-calling nature of our investment portfolio, as noted on Slide 27. Our ending regulatory capital levels remained 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.

(Operator Instructions) Our first question today comes from Stephen Scouten of Piper Sandler.

I'm curious, first, maybe if we could talk a little bit about the -- further about the asset sensitivity. Obviously, that's a bigger story even though stocks aren't getting credit for you yet today, but you guys look extremely well positioned there, and you noted the 5 basis point deposit beta last time around. But I'm wondering what the underlying assumptions are within the -- I guess, it's up 4.7% in your ramp scenario, if you could remind us on that. Because I would think, given all the 12% liquidity or whatnot, you'd actually be much more asset-sensitive than peers than maybe that modeling would show me. So just maybe some of the conservatism I assume is in your assumptions?

Sure, Stephen. This is Steve. Let me kind of give you the bottom line upfront and then tell you why we think this. So our net interest margin was 2.77% in the first quarter. Based on Moody's consensus forecast to be at 2.25% to 2.5% Fed funds rate at the end of the fourth quarter. And with about a $41 billion interest-earning asset base, which we expect to be reasonably flat, we would expect NIM to be at the end of the fourth quarter, somewhere between 3.2% and 3.3%. And that improvement, if it's -- if the Moody's consensus is right, would be somewhere between 15 and 20 basis points per quarter starting in the second quarter.

So as you mentioned, we are asset sensitive. It's roughly 6 basis points for every 25 basis point hike. The reasons for that, we have a couple of slides in the deck just to kind of unpack it, Page 19 speaks to our loan portfolio. And we have about 32% of our loan portfolio is floating daily, 18% variable and then 50% fixed. If you combine that floating rate loan portfolio with our excess cash of 12%, we have about 1/3 of our interest-earning assets of our $41 billion interest-earning assets that float daily. So that makes us -- that's all part of that assumption.

We have a slide in there. I think we referenced a few different earnings calls, but it's Page 20. And it really speaks to the deposit betas. And what this did is it went back to our previous interest rate hiking cycle in 2015, 2019 and graft the combined company to see what the betas were. And that's where you can see that we ended up at the Fed funds rate at 2.5% and our deposit beta was 5% on the first 100 basis points and 24% over the entire cycle. So the last part is just the deposit portfolio. John mentioned it earlier. It's a granular deposit base, and that's why we think 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 of 43%. And 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. So -- and you can look at the average sizes of those balances it's a very granular base at 5 basis points. So anyway, I would -- just to summarize all of that, it's really 2 things. We have about 1/3 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.

And I'll just add in, Stephen, as well. The rate sensitivity on Slide 19 is a static balance sheet and the numbers that Steve gave for the NIM improvement throughout the year, also assume we continue at sort of our expected loan growth, right? He mentioned a static earning asset base that -- that earning asset base would be remixed. We're assuming no deposit growth and that some of the cash is remixed into loans in that the high single-digit range throughout the period.

Okay. Great. That's all extremely helpful. So that -- and just the last tie up, there is a 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. And yes, we're using historical deposit betas in our modeling.

And Stephen, just to add one other thing. We -- this time, what's different about this time, it's probably for the entire industry, but we're starting out at a 68% loan-to-deposit ratio. And so our ability -- we're not saying we're going to grow deposits from here. We'll probably shrink some deposits, I would imagine that were excess. But clearly, we always are growing deposits from just regular commercial clients. So what we're saying is that -- the same thing we said last time is we're 68% loan-to-deposit ratio right now heading toward a 80% loan-to-deposit ratio by the end of 2023. And if you do that math and you look at our 12% cash assets today, it basically moved down to 2% to 3% by the end of 2023, which sort of rightsizes all of that -- the balance sheet management.

And I guess just... Further comment on '23. If Fed funds moves like Moody's consensus has it now, which would be to hit 3% in '23, you're going to see further improvement from that $320 million to $330 million range Steve mentioned in Q4, you'll see improvement in 2023 margin from that point as well, if that rate environment, in fact, occurs.

Yes. That's phenomenal detail, guys. And then just my only other question is around loan growth, how you guys are feeling about kind of this just north of 6% run rate this quarter into the rest of the year. And then the commentary around resi mortgage and portfolio and more of that production. Obviously, with the addition of ACBI, I guess, that's now down to a smaller percentage of the balance sheet. So could we see that resi real estate move back towards 20% given the strength of that dynamic between portfolio and secondary?

I'll start, Stephen, this is John, and then Steve can talk about residential. But I mean, ultimately, we're a growth company and great growth markets, kind of our mantra is to grow everything good in the bank at an annualized rate of about 10% through a cycle. Our guidance on loan growth in the last couple of quarters has been high single digits up to 10%, 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. But we still feel the guidance we gave previously is good guidance, high single-digits to 10%. And Steve, how about the residential portfolio?

Yes, we have a slide in there on Page 13, and it speaks to sort of the production quarter-to-quarter and year-to-year. And the only comment I would make on that, Stephen, is if you look this quarter, we were 53% portfolio, which -- and the 47% secondary. If you look at that a year ago, we were 67% secondary. The main difference is the gain on sale margins. The gain on sale margins a year ago on that graph are 4.3%. So we sold more in the secondary. Today, they're down to 287, which is more in line. So the way I kind of think about that gain on sale margins a year ago were high, rates were low. And so we didn't want a portfolio. Now rates are higher, but gain on sale portfolio margins are lower. So 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 these 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.

Our next question today comes from Michael Rose of Raymond James.

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 provided on the slides of trying to pull up, wondering which it is exactly. But if you can just kind of walk us through kind of what happened this quarter and then with rates moving with the expectation would be for the business as we move forward.

Sure, Michael. Page 14 in our deck speaks to the correspondent division and you'll see that over the past 4 quarters or so, the revenue is sort of range between 25 and $30 million. I think our guidance that we've given you all is somewhere between 24 and $28 million, and that continues to be our guidance. It doesn't change. What we're seeing -- you can see on this graph that certain times, 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.

But at the end of the day, the way I kind of look at it from a big picture perspective is the banking system today has a lot of excess liquidity. And our correspondent banks 1,100 of them, almost 1,200 of them are going to either loan that money or invest that money. And so we continue to see that guidance to be very similar to what we've had. I would anticipate this next quarter because of the change in rates and because the 5-year and the 10-year are a little bit closer to flat, I would expect our ARC revenues to be a little higher than fixed income. But at the end of the day, I don't know that anything major has changed in our guidance.

That's very helpful color, Steve. And then maybe just going back to the margin, which I think the commentary was very bullish. I think you said kind of exiting the year in the 3.20% to 3.30% range. Just to put a finer point on it. Are you assuming the forward curve, meaning 7 or 8 more rate hikes from here in that outlook?

Yes. We're assuming that -- back to the Moody's consensus forecast, which we used to do our modeling is that we would have a 2.25% to 2.5% Fed funds rate at the end of the fourth quarter.

And then as Will mentioned, that, that moved into 2023, whereby we get to 3%, that's what the Moody's forecast says today. And if that's true, we would get another 15 to 20 basis points improvement from the fourth quarter in the full year 2023.

The next question in the queue comes from Kevin Fitzsimmons of D.A. Davidson.

Just wanted to talk about credit. Obviously, it was -- there were a lot of moving parts this quarter with the day 2 provision, but then the big release as well, which I can't argue with given the outlook. But then on top of that, like John, you mentioned at the beginning of the call that there's this kind of lingering concern out there in the market, not necessarily on the street about a recession, but there's a lot of -- there is some uncertainty. So how do you -- with that ACL ratio down to about 114 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 growth going forward?

Yes, Kevin, and I share your frustration with the inability to predict that and it's obviously a function of the CECL model and the impact of changes in economic forecasts on that. So maybe sort of unpack that just a little bit. So as I said in my comments, for this quarter, we used a 50-50 weighting of 2 scenarios. The baseline scenario, which is Moody's sort of middle-of-the-road forecast where they assume there's a 50% chance of things being better or worse than that.

And now we also weighted 50% of their S3 scenario, which is their recessionary scenario. And that on the probability curve is in their lingo is a 90% chance that things are better than the S3 and a 10% chance things are worse. And so at a 50-50 weighting of those 2, essentially, you're at 70% on that, if you've pictured a straight line horizontal line between 0 being happy days are here again and $100 billion a terrible economic event. We're at 70% by going to 50% of 90% and 50% of 50. The -- and we have used weightings between 50-50 and 2/3 based on 1/3 over the last number of quarters. So we've been in that effectively weighted average range of 63% to 70% just to keep that middle image of the horizontal line as an example.

If we have done 100% baseline, so just particularly whatever lease thing is going to happen and not wait in another scenario with more pessimism, it would have told us to have a reserve about 40 basis points below where we are -- where we were at the end of the quarter. And if we go with 100% S3, it would have had us about 40 basis points higher. And the thing that I'll caution you is that that changes quarter-by-quarter as those forecasts and the underlying economic metrics and that are loss drivers in the CECL model change. So it could be that in a worst time, S3 is a lot worse and baseline is a lot worse. So those are not static amount there. So that's sort of the underlying thing. We -- it could go lower if their forecasts continue to improve, it could also get worse. And as we all know with CECL, if the projections are moved to predict worsening economic outlook quickly, then you'll see a quick reaction through the provisions for credit loss to build back up just based on the variability that CECL imposes.

And Kevin, look, that's all the modeling and accounting stuff. That's a lot of detail there. The reality is as we're going out in the marketplace, meeting with our customers, and we're doing portfolio reviews of different asset classes, we just -- we don't see near-term issues at all. We're looking at our line utilization rates. They're still very low. They're 5% to 10% below what they were in 2019, telling us that our clients aren't having to lean heavily on their lines. They've got a lot of cash. We looked at our loan to values of our commercial real estate portfolio. It's very conservative. I go back and I look at our 5-year charge-off rate, it averages about 3 basis points. So I do not share the markets concern about a near-term recession the way the market reacted when the yield curve inverted. There's a lot of macro monetary forces going on right now with that yield curve that are maybe not normal market forces. So we're pretty bullish in the near term for the next year or so, and our clients are bullish, and we like the underwriting standards that we've got right now. And so we don't see near-term issues.

That's very helpful. One question. You earlier talked about expenses and with the obvious focus of trying to help us blend together ACBI and legacy SouthState. But can you talk a little bit about the environment for hiring? I know just recently, you guys put a release out about some hires made in some different markets in your footprint. There's also some large in-market mergers going on. So it's not you guys doing an MOE anymore, it someone else, but just I'm curious with that potential for producers to be onboarded, how you -- what kind of opportunity that might represent for you? And is that included within that guidance for expenses?

Yes. The opportunity is huge. Greg Lapointe is our Chief Banking Officer, but really, he's our Chief Recruiting Officer. He's out on the street all the time, meeting with bankers 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 and our ability to recruit from the biggest banks is better than it's really ever been. And they're in these key markets and their bankers that have been at the same place sometimes their whole career with huge books of business. And we've just got a great fit here when they come on board out of Truist or Wells Fargo, where we've got the balance sheet scale, the treasury management products, the capital markets products that they can easily bring their clients over and they're having tremendous success. So we're real bullish on the opportunities to recruit. And I'm just really proud of our team and what they're delivering. So from an expense standpoint, we'll -- if -- we're not going to let the budget restrict us from hiring if there's opportunities.

Yes. And we have assumed we will be -- 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 for me. Just given the bullishness and the fact that this -- all this asset sensitivity, the market doesn't seem to be -- you don't necessarily seem to be getting rewarded. You did buy back shares in the quarter. Should we expect that kind of pace? Or is there a certain price range where you're going to be more aggressive in terms of stepping in?

Kevin, we've always said that our first priority and first desire in investing capital is to invest in growth. And any time we can deploy capital into growth, we prefer to do that. We believe we've got a pretty good opportunity to have us to continue to grow loans nicely and accelerate that growth a bit. So it's likely that you'll see us pivot to investing capital and growth if that growth materializes. We've been very active in capital returns over the last year. We've used up about $3.1 million of that $3.5 million share authorization from January of '21. And as I said, about 370,000 shares remain. So it depends upon on the opportunity set, but our preference is to invest in growth.

(Operator Instructions) Our next question in the queue comes from Jennifer Demba of Truist Securities.

This is Brandon King on for Jenny. So deposit growth on an organic basis was strong in the quarter. And I was just wondering what you're seeing later this year as far as deposit growth and where we could particularly see the loan-to-deposit ratio by the end of the year?

Sure, Brandon, this is Steve. We did see really good deposit growth in the first quarter. Some of that is seasonal. 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 kind of how we're thinking about the fourth quarter this year and really all the way through 2023 is to hold our deposit balances flat. And as we think about the interest rate discussion around betas, we think that we probably could grow more in our markets, but we're trying to manage both margin and growth.

So I think what we just articulated on the call was today, we're at 68% loan-to-deposit ratio. And if we don't grow deposits for the next, call it, 21 months through the end of 2023, by the end of 2023 with our forecast for loans to be in the high single-digits, we would see our loan-to-deposit ratio being about 80%. And the way we would really do that is we would take the excess cash that we have today, which is about -- we have a $5.4 billion in cash, call it about $4.5 billion of that is sort of excess, $4 billion to $4.5 billion, and that will go to growth -- loan growth over the next 21 months.

And as you can appreciate, Brandon, one of the hard things to predict with deposit growth is how the Fed reacts with their own balance sheet. So we think it appropriate to conservatively assume we don't grow deposits at this point.

Okay. That's helpful. And then in regards to landing 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.

This is John. (inaudible) 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 40%. So in some respects, that growth in the payments business, the FinTech business was sort of outstripping the Atlantic Capital balance sheet size. So now as we've joined together, they can continue growing that business as they had in the past. So we just look for that continued growth rate if they can keep doing that inside of a larger balance sheet, they're not going to be constrained as they might have been before. So Kurt does a great job, and we're excited to add those verticals.

Our next question today comes from Samuel Varga of Stephens Inc.

This is Samuel Varga for Brody Preston. I apologize if you already made some comments on this, but I wanted to circle back on the loan production. And I just wanted to ask if the quarter-over-quarter decline granted some of that seasonality for sure, because that was in any way due to the ACBI being folded in? Or is that purely market dynamics?

Yes. No, that's not a result of the Atlantic Capital kind of rolled in on March 1. So if you exclude the acquired balances, that loan growth was 6.3%. Just a lot of growth coming out of Florida and Atlanta, and we're getting some good growth out of Alabama as well. But it's kind of a nice mix of C&I, CRE consumer is growing again. It was not last year, but consumers growing again and then residential. So it's kind of across the board, but that growth rate excluded the acquired balances of Atlanta Capital.

I guess, as I think about residential, we talked about it earlier, but as we put more production on the balance sheet and less in fee income, we're going to see less fee income moving forward. I think before we guided our secondary fee income to be -- our noninterest income to assets to be between 75 and 85 basis points. We think now with a little bit more of that mortgage production, some of the NSF fees going away, so it will be between 70 basis points and 80 basis points from here on.

Understood. That's very helpful. And then I actually didn't 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 after April, how has that looked?

Yes. So we have a slide there on Page 13. And you can see the production this quarter was $1.271 billion of which 70% was purchased, 30% was refinanced. So that's going -- that refinance volume is going to trend down as the 30-year mortgage rates are in the 5s. So we would expect the purchase volume to continue to remain strong. We're seeing a lot of activity, continued activity, particularly in the construction of the term 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. So I would say that the refinance volume is going to fall off. There's no doubt about it, but we do think the purchase volume, at least for the short run is good.

And we've never been a refinanced focused job. Obviously, we've gotten our share when the refinance market is big, but our focus is on purchase activity historically.

Understood. And then just one last one on mortgage. Gain on sale margins are pretty nice to stabilize for you it seems at this level. And so could you give some commentary on the outlook from here moving forward?

Yes. I think the gain on sale margins are coming in and particularly as you have this big movement in rates, you're going to have. So I would just expect mortgage back to part of that guidance at the noninterest income to come down 5 basis points, somewhere between 70 and 80 basis points in total. I would envision that mortgage probably is going to come down some more in the secondary side gain on sale margins are tightened then we put more production on the portfolio.

And just to step back to 10,000 or 20,000 feet, mortgage will not be a big part of the story in this kind of environment. But our expectation with this yield curve is that the other cylinders in the engine i.e., the net interest margin more than make up for that. And we're excited to have a yield curve back in our business.

If I can just sneak one more in quick. On the fixed income revenue side of things, I guess, should we expect some revenue pick up somewhat in tandem with how community banks are increasing bond purchases? Or are those 2 not linked at all?

Yes. I think our guidance has been $24 million to $28 million a quarter. And if you look at that graph for the last several quarters, it's been somewhere between 25% and 30%. We don't think that any of that changes the nature of it might change between our ARC and our fixed income and our correspondent division. But in reality, the banks had an AOCI hit like everybody did, and they're a little bit shell-shocked right now. But they'll come back in when this thing settles down. And to your point, over time, fixed income will get better. if we have a steep yield curve. But in the 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.

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

Well, thanks, guys, for calling in today. I think we're hitting 4 different investor conferences in the next couple of months. So we'll probably see you on the road. But if you have any questions in the 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 your lines.