Q1 2024 SouthState Corp Earnings Call

Participants

William Matthews; Chief Financial Officer; SouthState Corp

John Corbett; Chief Executive Officer, Director; SouthState Corp

Stephen Young; Chief Strategy Officer; SouthState Corp

Stephen Scouten; Analyst; Piper Sandler & Co

Catherine Mealor; Analyst; KBW Inc

Michael Rose; Analyst; Raymond James Financial Inc

Brandon King; Analyst; Truist Securities Inc

Gary Tenner; Analyst; Davidson & Co Ca

David Bishop; Analyst; Hovde Group LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by My name is Abby, and I will be your conference operator today.
At this time, I would like to welcome everyone to the SouthState Corporation First Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one is second time.
Thank you. And I would now like to turn the conference over to Mr. Will Matthews, you may begin.

William Matthews

Good morning, and welcome to SouthState's First Quarter 2024 earnings call. This is Will Matthews. And I'm here with John Corbett, Steve Young and Jeremy Lucas. As always, John and I will make some brief remarks and then move into questions. We understand you can all read our earnings release and the investor presentation, copies of which are on our Investor Relations website with us. I won't regurgitate all of the information, but rather will tried to point out a few key highlights and items of interest before moving onto Q&A.
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.

John Corbett

Thank you, Will, and good morning, everybody. Thanks for joining us. As you've seen in our earnings release, South State delivered a solid and steady quarter. That was consistent with our guidance at a high level. It was another quarter of positive, but modest growth for both loans and deposits. Asset quality continues to be good with past-dues, non-accruals and charge-offs all declining in the quarter. Net interest margin dipped to the low end of our guidance, but should be at or near bottom.
And capital ratios are on the higher end of our peer group and have grown every quarter over the last year, like every other banker and investor. We're trying to understand the broader macro picture. The risk of a recession and what the yield curve's going to look like. At the same time, we believe the dynamics will be different in every region of the country as we study, our bank and our markets. Commercial loan pipelines took a sharp drop of about 25% following the banking turmoil last spring, and they stayed low through the summer and early fall, but by November, pipeline started growing again.
And the last few months have now returned to the same level they were before the banking turmoil and the momentum seems to be building, which is encouraging. But with rates where they are CRE activity, not surprising is much slower. So nearly all of the pipeline growth and momentum has been in the C&I portfolio. In fact, as it relates to commercial real estate, our concentration ratios for both CRE and construction are at the lowest levels they've been in three years.
And by course, in our credit team are doing a great job servicing and analyzing our loan portfolio. And while rising interest rates are putting pressure on debt service coverage ratios, the South is disproportionately benefiting from net migration. And we clearly see that in the rental rate trends on all types of commercial real estate in the last three years, rental rates in our markets have increased 16% for office compared to 3% outside our markets. Rental rates are up 21% in multi-family versus 14% outside our markets and rents are up 38% and industrial compared to 24% outside our markets.
On fee income, we were up for the quarter. We saw some improvement in mortgages. The gain on sale margin opened up. Wealth management continues to be a reliable and growing contributor, and we now have assets under management over $8 billion. And our correspondent division recently expanded with the addition of a new team that specializes in the packaging and sale of the government guaranteed portion of SBA loans. This is a long-standing and experienced team based in Houston, and Steve can give you more information.
And finally, as we think about capital management over the last year, we've maintained a level balance sheet at $45 billion in assets while earning a return on tangible common equity in the mid 10s. As a result, we've seen our capital ratios increase every quarter. Our CET 1 currently sits at about 12%. We've also significantly increased our loan loss reserves, which currently sit at 1.6%.
I mentioned earlier that we're all trying to play economist and forecast the yield curve. And obviously we don't have a crystal ball. And the only thing we know for sure is that all of our forecasts will be wrong. So our goal is flexibility and optionality. And with these higher levels of capital and reserves. We're in a perfect position to be opportunistic regardless if we have a soft landing, hard landing or no landing at all. I'll pass it back to Will now to walk you through the details on the quarter.

William Matthews

Thank you, John. Total revenue for the quarter was in line with forecasts as now came in at the lower end of our guidance range at 341 basis points and non-interest income to average assets came in above guidance at 64 basis points. Deposit costs increased 14 basis points, which was two basis points less than last quarter's increase. And the cost of deposits at 174 basis points was in line with our guidance.
Loan yields increased eight basis points. That brings our cumulative total of deposit beta to 33%, and our cumulative loan beta 37% deposit mix shift was part of that deposit cost increase, though the shift appears to have slowed. The average mix of DDAs to total deposits at 28.5% in Q1 was down from Q4's average 29.9%. However, Q1's beginning ending an average mix were all in the 28.5% range. Steve will give some color on our future margin guidance in the Q&A.
Relative to Q4, our net interest income declined $10 million with one fewer day. Noninterest income was $6 million higher should total revenue declined by $4 million sequentially. The noninterest income beat was driven by better mortgage revenue and lower interest on swap variation margin collateral. And I say excluding nonrecurring items, was down $4.9 million versus Q4, but that's partially due to the adoption of the proportional amortization method for low-income housing tax credits.
This adoption shortens the period over which these credits amortize and essentially reduced NAV by a net $2.1 million and moved about $3.5 million in passive losses to the income tax line. Thus and comparing NIE and PPNR for Q1 versus Q4 on a normalized basis. If you adjust for this accounting method adoption, Q1 NIE would have been down $2.8 million compared with Q4 and Q1 PPNR would have been down $1.5 million from Q4.
We had some positives and negatives in the first quarter had the usual higher PICA and 41K expense, which was offset by lower professional fees associated projects as well as lower business development and travel expense. For the full year, we still think in NIE in the $990 million to $1 billion area is a good estimate dependent, of course, on expense items that vary with revenue.
With respect to income taxes, in addition to the impact of the accounting method adoption I mentioned, we had two nonrecurring items related to a state DTA revaluation and amended state tax returns, driving our tax expense of about $3 million for future quarters, we expect to see an effective tax rate in the 23.5% range, absent any other anticipated discrete or nonrecurring adjustments.
Our $12.7 million in provision for credit losses versus $2.7 million in net charge-offs caused our total reserve to grow by two basis points to 1.6%. NPIs were down slightly. We saw some continued loan migration into substandard as we monitor and downgrade credits due to higher interest costs with many of these being floating rate borrowers that could reduce their rate by 150 basis points or so. If they fixed the rate using the swap curve, but many are elected to do so at this point due to expectations of lower rates or a sale.
I'll note that the largest addition to the substandard list from Q4 paid off in Q1 with the property selling for an amount that was approximately 134% of our loan balance. That was clearly a substandard loan with very little risk of loss, as evidenced by the margin of safety in the sale price versus our loan balance, only one quarter after our downgrade. I'll note that our expectation continues to be that we will not see significant losses in the loan portfolio based upon current forecasts.
And lastly, on the balance sheet front, our growth was moderate with loans up 3.5% annualized and deposits up 1.4% annualized with brokered CDs essentially flat. We repurchased another 100,000 shares in the quarter and our capital ratios remain very healthy, putting us in a good position with plenty of optionality. We believe operator will not questions.

Question and Answer Session

Operator

(Operator Instructions) Stephen Scouten with Piper Sandler.

Stephen Scouten

Your line is open and good morning, everyone, and thanks for the time here. I'm just wondering if you guys can walk through kind of how you're thinking about the NIM. from here. I think last quarter we were looking at for cuts in maybe '24 and four and '25, just given the move in the forward curve and how that might shift your guidance on the NIM?

Stephen Young

Sure, Stephen, this is Steve. Good morning. I'm here as you mentioned, just to kind of give you the framework of the NIM discussion last quarter were at $341 million. Deposit costs were $174 million our kind of our guidance going forward continues on three things. It's interest earning assets, our rate forecast and deposit beta. So on our interest earning assets, the first part that we've mentioned for the full year would be averaged average around $41 billion. So there's really no change to that guidance, we still think loan growth is sort of mid-single digits. We think deposit growth is in that 2% to 3% range. And then we used the investment portfolio runoff to fund the loan growth.
So I think from an interest earning asset that really hasn't changed. The rate cut forecast last quarter, I think mid-teens, I mentioned four rate cuts in '24 and four and '25 this quarter. Moody's baseline shows two cuts in 2024 and four cuts in '25. So that's two less to fewer rate cuts than we originally projecting.
The third piece is just deposit beta. Page 17 Shows our cycle of eight beta 33%, and we would expect sort of going forward the deposit costs to increase sort of in the 5 basis points to 10 basis points in the second quarter and some assuming we get a rate cut in the third quarter, which is what the Moody's baseline says, we would peak somewhere in the mid $180 millions on the deposit costs.
So with all those assumptions, we would expect NIM. for the full year 2024 the range between 340 and 350 and sort of start from the lower end than the first quarter to the higher end in the fourth quarter. And as you mentioned, I think in the previous quarter, we guided $345 million to $355 million. And really the difference and the guidance is based on the rate cut forecast having only two cuts versus four cuts, which really cost us about five basis points in 2024.
So that's kind of how we're thinking about the year based on the Moody's baseline. And happy to answer any additional questions on that.

Stephen Scouten

Yes, no, that's really helpful, Stephen. So so based on that change, you guys in practice looked like you're slightly liability-sensitive and nimble a little better with more cuts. And does this move into more C&I lending, does that start to change that dynamic slowly over time?

Stephen Young

Yes, I think, Steven, it probably does over time, but I don't think it materially changes anything in the short run. I mean one of the questions that investors have asked us is, you know, if rate cut stay flat, kind of how does that affect your name and for us. You know, we've talked about our fixed rate book. Our fixed rate loan book continues to be sort of a tailwind to margin. And this this quarter, our total loan our yield went up, I think eight basis points.
So, you know, we'll probably continue to see that somewhere between 7 basis points and 10 basis points of movement in the loan yield on a go forward basis, assuming higher for longer and the rate cuts. And you know, our deposit costs probably will go up somewhere between 5 basis points and 10 basis points. If we continue on this path. So we kind of see sort of the NIM a bottoming out.
And then for us, we think that each rate cut from here whenever that happens and is somewhere between 3 basis points and 5 basis points of NIM improvement per cut. And until we can go into that math, if you'd like at some point, but that's sort of how we're thinking about that $340 million to $350 million range. If we have two cuts, we probably see it getting in the upper $340 million by the end of the year. If we're, you know, no rate cuts. It's probably sort of that $340 million to $345 million range would be our current expectation.

Stephen Scouten

Got it. Very helpful. And then just the last thing for me on what kind of metrics might you guys have on hand as you've looked at stressing your portfolio for higher for higher rates in oh four, potentially higher for longer and what that looks like as the fixed rate loans reprice higher? Do you have any metrics kind of showing what happens that debt service coverage or kind of what gives you comfort over around the loan book as a whole?

John Corbett

Yes, Stephen, yes, we had a tick-up in our sub-standards really for the last few quarters, and it went up a little bit this quarter, a little less than it did the prior quarter. And to your point, it's predominantly a rising rate story. And then some of it's from tenant downsizing, the office portfolio but as Will said earlier, we don't see loss content in our portfolio stepping back and there's tangible non subjective asset quality metrics. And then there's subjective tangible subjective grading metrics.
The tangible metrics, past dues, non-accruals, charge-offs were all down for the quarter. And then as we think about loan grading, we've seen a lot of different approaches in the banks we've acquired over the years. Our approach is simple. If the loans are $1 below breakeven cash flow, we graded substandard, even if it has 50% cash equity, the guarantors got millions and liquidity. There's no risk of loss,
But I'll give you some specifics of our largest loan, as Will mentioned in the fourth quarter that got added a substandard paid off at a substantial profit and then the largest one that added in the first quarter, kind of getting back to your question about stressing it, it's a floating rate multifamily development loan in Georgia, I checked on it yesterday and it's reached 90% occupancy, but it's got a 0.93 debt service coverage because it's a floating rate. It's scheduled to go to the permanent market, the Fannie Mae market in the fourth quarter, and it's going to cash flow sign because the exit rate's about 125 basis points less than the current floating rate.
So we've got detail in the deck that shows you our average debt service coverage ratios. We've kind of gone in and look quarter by quarter at the rate reset risks over the next two years. And we've got something in the deck that says we're about 7% or 8% of our commercial real estate loans reset per year for the next two years. So it's not a lock. And as we stress those to the current rate, they're all still cash flow. And, you know, in the low ones so we just don't see a lot of loss content there, even though we may you move the substandard stuff.

Stephen Scouten

Yes. Extremely helpful color. Appreciate it.
John, thanks for all the times one.

John Corbett

You bet.

Operator

Catherine Mealor, KBW.

Catherine Mealor

Thanks.
Good morning and more to come if you have follow-up questions of it on the maybe the average size of some of the substandard loans that increase I know your average loan size is very low and that's part of what we love about the risk in your portfolio, but is it can you talk a little bit about the changes that we saw in office and multifamily in the substandard? And are there any kind of larger credits within that or there's still some does it just kind of I guess is it a lot of smaller credits or are there kind of a couple of larger credits that were kind of speaking to some of the details that you just gave us in that, John?

John Corbett

Yes. So the move, Catherine, in the first quarter, there's probably four or five loans that make up 75% or 80% of those, the largest of which is that multifamily loan I mentioned that's up 0.93 debt service coverage.
It's going to be fine. It'll go to the permanent market in the fourth quarter. There's a couple of office loans in there. One of them, it's a tenant remix story, but it's got a good guarantor, good location. We don't think there's loss and that is one. That's a $10 million-$15 million range. We might take a reserve on that of a couple of million dollars, but that kind of gives you a flavor of the top three or four.

Catherine Mealor

Great. That's helpful. And then your comment well on photos that as you said, if the borrower chose to move the loan from floating to fixed, then they would be at basically the credit would be fine if you can talk about that dynamic and what you're seeing your borrowers appetite for that?

William Matthews

Sure, I will and John can fill in whatever we got. We're only route I mean, essentially was inverted yield curve on that that presents that opportunity. Just I just met. I mentioned in the remarks that the fixed rate loan would be at a lower grade, but a lot of borrowers still have plans to mitigate exit the property like the one that happened in the first quarter and they don't want to fix a rate even though the debt service requirement will go down.
And some have plans to go the current market, but maybe and they're not at a stage yet. They never leave the rig in a little bit and think that rates may go down from here. So maybe and finalizing stabilization period, early stabilization period. So I can't yet. So the permanent market, all of those kind of factors I think are in play there.

John Corbett

And maybe just to add that you know, obviously that nobody wants a prepayment penalty right before you sell it. So that would probably be the right other factor.

Catherine Mealor

That makes sense. Okay. That's great. And so as you're seeing and you're looking at your in your classifieds today, are there any that you look at that you make that may have that you think there's a high likelihood that they migrate from substandard into non-accrual? Or is it more just kind of rate dynamic that's driving all of it?

John Corbett

When you dig into the substandard portfolio, the past due portion of a cap rate is only 12 basis points. So really this is not a payment issue. This is not a collateral issue. It's really just a cash flow issue. That's that we think is temporary because of this rate phenomenon.

William Matthews

It's not Catherine, that we know for certain that our NPAs don't move up from here a little bit on. It's hard to have a crystal ball in that regard. But two things I'd say is one, we know that our team digging through our portfolio still has not see a material loss content. And secondly, you know, as you know, from following us, as we highlight in the deck, we have a we've built our reserve proactively pretty significantly the last couple of years as well.

Catherine Mealor

Yes, for sure it doesn't really help what it is. You don't dig in on credit, but just wanted to clarify a couple of things.
And then the one thing on the margin. I wanted to ask about is that higher for longer and Ray scenario that you kind of laid out, Steve, do you think it's kind of amazing that you still think in that scenario, the deposit costs are just kind of increasing by that five.
Is that about some five to 10 basis points kind of a quarter and still some the margin is able to stabilize. Can you talk about in a higher for longer rate scenario, maybe where you think deposit costs peak out versus the on the one eight, the mid-twenties range that you talked about if we start to get cuts in the back half of the year?

John Corbett

You never can measure this by a month or even 45 days. But you know, I'd say the general commentary that we're seeing right now is that post January, maybe a little bit of February, we did see a little bit of the acceleration in deposit costs now?
Yes, again, there's been three and two inflation reports. And so the answer is I don't know, but I do think what we're seeing anyway is that deposit costs are and you've seen that through the industry to, I think where we're seeing that so far. But to your point, if deposit costs are still or if Fed funds is still $5.5 million in December where our deposit costs be. I think the way we're thinking about it, they're modeling it. It's somewhere between a 5 basis points to 10 basis points a quarter would be higher.
Our loan yields going to go down 7 basis points to 10 basis points, somewhere in there, and we would think margin would kind of hold in there because of the two factors, but that's the crystal ball is not that great on the higher for longer, but that's kind of how we're thinking about it.

Catherine Mealor

Is that coming from right, great. Thank you for all my questions.

Operator

Michael Rose with Raymond James.

Michael Rose

Hey, good morning, guys. Thanks for taking my questions. And one maybe for morning on the maybe just for Steve, just if we are in this higher for longer environment, understanding that you just kind of added a team to the correspondent business, but just wondering to get your kind of updated expectations as it relates to kind of the fixed income and the swap fees and then the other components and how we should just be thinking about maybe on that fee to average assets ratio which was kind of at the higher end of the guidance that you had previously laid out. Thanks.

John Corbett

Yes, no, no, Michael, it blew through the guidance, as you mentioned, how I hope I'll tell you that it was a great quarter for fee income, but much better than we expected, to be honest with you to your mention of our fee income was $72 million or 64 basis points, which was higher than our guide of $55 million to $60 million in the first half of the year.
And you know, as you mentioned, we have two interest rate-sensitive businesses, primarily one being mortgage and one being correspondent. So I think what we mentioned before, was we thought that noninterest income to average assets would be sort of in that 55 basis points to 60 basis point in the first half of the year until they cut rates and then it would be 60 basis points to 65 basis points in the back half. And then as we get into '25 as they really start moving through rate cuts 60 basis points to 70 basis points.
And the way I would kind of characterize it, I'd just say it's been delayed a little bit, so they don't cut rates until the third quarter. I would kind of expect them our noninterest income to average assets to be sort of that 55 basis points to 60 basis point range. And then as they cut rates, that will create some volatility and other things for both mortgage fixed income and our swap desk.
And that we think, again, towards the end of the year in that 55 basis points to 60 basis points and really our guidance for '25 hasn't changed 60 basis points to 70 basis points basis points, which is the 60 to 70 basis points, is really what 2022 noninterest income to average assets. So kind of a pathway is sort of benign. And we're kind of at the lows of these businesses until we start seeing some rate movement and then it'll move up five or so basis points. And then from there, as we really get down the rate cutting cycle, we'd see it kind of go up 10 basis points to 15 basis points, which is a bit more normal.

Michael Rose

It's very helpful. I appreciate it. And then maybe just one for John. I know I'm it's really hard to predict the economy, but just wanted to get a sense for the competitive landscape. And I know you guys are somewhat cautious, always kind of have been in have a great world view, but is the environment where people are starting to pull back is that creating opportunities for you guys with a bigger balance sheet versus a lot of the banks here in your marketplace? And just wondering to get a sense for borrower demand and your willingness to make loans at this point in the cycle? Thanks.

John Corbett

Borrower demand is up, Michael. We said in our prepared remarks, the pipelines really shrunk after Silicon Valley last spring and but in November, they really started picking up. So our pipelines are up about 33% since November, a little over $1 billion. And most of it's C&I it's pretty broad based. It's not CRE related. And as you think about the Southeast, clearly, there's the net migration story, but there's a lot of them to the manufacturing story in the Southeast.
We've opened seven new auto plants in the last three years for electric vehicles and batteries, and every one of those plants has thousands of new jobs. Generally speaking, there's fewer supply chain issues than they were before. The ports are not backed up in Savannah and Charleston like they were container shipping cost has come back down to $2,500 bucks a container, but labor is still tight and there's some slack maybe in white-collar jobs, but there's a considerable labor shortage still in construction and hospitality.
So overall, it feels like the Southeast is going to continue to grow and be able to work its way through these interest rate increases.

Michael Rose

Very helpful. Maybe just finally for me, it looks like you guys repurchased a little bit of common stock again this quarter. Your capital levels are pretty solid. Just any thoughts there just given where the stock is trading at and understanding your premium to most peers, but just wanted to get a sense for what the what the thought process is around the buyback. Thanks.

William Matthews

Yes, Michael, as well, I think our attitude remains one of on a being opportunistic and being having the ability and flexibility to use that buyback authorization, particularly if we see our weakness when our window is open, I think we also though value the optionality that we think we have from a strong capital and strong reserve position to allow us to grow organically to execute other things with that capital.
So I think you see here today, we like the flexibility being able to do something with it. But we're we also like the strong capital position we're in and we think accreting capital probably continues to make sense for them.

Michael Rose

Understood. Thanks for taking my question.

Operator

Brandon King, Truist Securities.

Brandon King

Hey, good morning volume. So I wanted to follow up on the comments around the acceleration in deposit costs, I guess some acceleration in the quarter. Could you kind of describe where you saw that in sizing or what type of accounts, the type of customers, et cetera?

Stephen Young

Hey, Brian, it's Steve. I would call it a deceleration in deposit costs, um, you know, last quarter I think let me think through I think the second quarter it shows that on page 17, I think, but in the second quarter or excuse me, the third quarter, our deposit costs were up 33 basis points in the fourth quarter, they were up 16 basis points.
And then the fourth and the first quarter, they were up 14 basis points. So it's been coming down. And I think in them as we look at the first quarter, there's a bit of a remix and some seasonality. I guess as I think about the deposit base sort of some of the pluses and minuses happening in the first quarter.
So the minuses first would be just around public funds. Typically, there's some seasonality. There's typically have a little bit higher on deposit costs. And those are ran down a couple of hundred million dollars, which is typical in the first quarter.
On the positive side, we had a really good growth and have over the last couple of quarters in our homeowners association business, over $100 million a team led by you have heard and that team brings in a little bit lower cost of deposits or significantly lower cost of deposits have a lot of cash management business. So I kind of look at it as there's a bit of a remix within that whole deposit piece. But I wouldn't certainly shouldn't call accelerating, I would call it decelerating the general.

Brandon King

Time referring to kind of, I guess the pickup after the CPR report, as you alluded earlier?

Stephen Young

I'm sorry if I if I'm -- I may have been misunderstood. I think what I was saying was that we did see and during the quarter a deceleration of deposit costs. But it's hard to know how as we continue to see these other CTI. reports, as we think in the second, third, fourth quarter, how that plays out, but what we actually see on the ground of a little bit of deceleration, and that's why our guide is kind of that 5 basis points to 10 basis points of deposit costs versus 14 basis points last quarter. But if we stay at a higher for longer, how will that look in the third or fourth quarter?
I don't know that we know for sure.

Brandon King

Okay. Okay. Thanks for the clarity. And I guess on blooming garden regarding credit and I recognize you know, the movement in special mention and substandard but not really affecting loss content. But in your view, how do you see potential credit loss trajectory if kind of rates stay here for a while and even if you know long term yields continued to rise higher?

John Corbett

No, I think we're trying to forecast and ask our credit team that same question. And we're trying to understand where the loss content might come from in a higher for longer. So we had a meeting of the day, and Steve asked our Chief Credit Officer, Dan, and not the magnitude of losses that where would those losses come from this cycle. And I thought his answer was insightful.
He thought that the 40% of it would probably be in the C&I portfolio. He thought that 40% of whatever the potential losses would be would probably be in office and in the other 20% would be in a smaller SBA and consumer kind of losses. So interestingly, he sold no loss content or very little to no loss content in multifamily retail or industrial.
So I thought that was an enlightening answer of kind of what his crystal ball was, but you can't judge the magnitude of this right now. It doesn't look like them. There's much magnitude at all, but that's where he sees potential loss content.

Brandon King

I'm just curious what sort of assumptions are you making with those comments as far as kind of get there?

John Corbett

That would be probably, I guess higher for longer means basically static kind of rate curve in its brand and it's a five year treasury and it's kind of assuming the five year treasury stays in that 5% or less range if the five-year treasury moves to 6%- 7%. I think the industry's headed for more noticeable losses across the board, particularly series.

Brandon King

Okay. That's very helpful. Take my questions.

John Corbett

You bet.

Operator

Gary Tenner, D.A. Davidson.

Gary Tenner

Thanks. Good morning. I just wanted to ask a follow-up on the fee income side of things.
You know, particularly in mortgage and correspondent banking. Given that you're at the top end of the range this quarter, what are you seeing in terms of maybe early second quarter activity in both areas and is the correspondent is the push out of lower rates? Is that just keep the variation margin?
Interest piece? I are a little bit deeper into the year. Is that the biggest delta in terms of that line item?

Stephen Young

Yeah, the case, Gary, that's, right. I think as we think about correspond, we were sort of near the bottom on sort of the gross income, we think somewhere in that $14 million to $18 million range over the next few quarters that you're right with the move up in long term interest rate variation margin gets to be a little higher. So that moves with that, I'll call it contract income account up a few million dollars a quarter. So in and we think as we think about mortgage.
The second quarter should be a good quarter, but it's a little too early to tell. We definitely did have a spike-up in the first quarter. So as we think about the entire picture and think about where on noninterest income to average assets, we just really think with all the things we're looking at today, we think it's probably in that 55 basis points to 60 basis points range until we get some footing on whether we get rate cuts when we get them, the fixed income business, of course, right now with higher rates is a much challenging business.
And as we move our SBA team up in Houston that we just recruited over, that'll help that but it takes a few quarters to get that up and move them, but they're really mostly a 2025 event.

Gary Tenner

Okay. Thank you for that. And then just one question on the construction piece, obviously not much the way of new commitments I'd assume in that business right now, hence the kind of rolling over of the period-end balances, how much kind of planned exits are there in the construction side? Is it like over the remaining the remainder of the year?

John Corbett

You're right, Gary. I think our construction development portfolio decreased significantly, but down by like $500 million roughly in the quarter. And that was some of these projects just coming to completion.
But, Will, as far as the unfunded piece that's left in construction, you have that number?

William Matthews

Unfunded piece, it was around $2 billion. And the biggest piece of that would be most of the largest property type within that. And then secondly, the owner constructed single-family residential, so alone to Gary Tenner to build his Custom House, reduce the borrower, not the builder that the second biggest I'm going to just kind of budget in the category.

John Corbett

But the ratio of construction to capital, Gary drop pretty significantly during the quarter, below 50%. And we really don't see in the near term that moving up even with some of those fundings, we sort of think there's payoffs along the way and it kind of drift sideways roughly from here.

William Matthews

We've not been refilling that bucket, and that's why you've seen of that number come down. It has the last couple of quarters as well as the reserve for unfunded supporting lease as well as those amounts come down.

Gary Tenner

But you're saying it sounds like you're saying that funding of existing commitments sort of offsets exits for the remainder of the year versus another step-down.

William Matthews

That's definitely as it looks like right now.

Gary Tenner

Thank you.

Operator

Dave Bishop, Hovde Group.

David Bishop

Yes, good morning. A quick question during the preamble. I think up I think it was well noted maybe the loan repricing on the fixed rate side could provide a tailwind. Just remind us what the I guess, the dollar volume of repricing looks like over the next few quarters and what they might be pricing to and from that?

Stephen Young

Yes, this is Steve. You know, when we are thinking about loan repricing, basically it's rough numbers, $1 billion a quarter. I think they have about $3.3 billion left in 2024, and that's repricing in that 467 coupon. So our average loan yield this quarter was around 7.5 basis points. So yes, it's not quite 300 basis points, but somewhere in that in that general range. Next year we have about $3.5 billion, a 493 coupon repricing in 2025. So it's a kind of look at it over the next seven or so quarters.
Yes, it's roughly $7 billion. If you add another $1 billion or so in securities repricing over the next seven quarters or so. That's kind of how I think about the mix to get to the end of '25. And so one of the questions. I think it seems like sentiment has changed the higher for longer. And what I wanted to do maybe before we close, just to think about a little bit around when rate cuts do happen.
And we don't know when they're when they're going to happen, but sort of the pluses and minuses in our and our book, the way we're thinking about it and how we're sort of guiding in that 3 basis points to 5 basis points on margin expansion when that happens and you don't have to really do with our loan kind of construct or we have about $10 billion of floating rate loans.
And if we get six rate cuts, that will cost us $150 million and we also have a $37 billion deposit portfolio. We're sort of math modeling at 20% down beta and 33% on the way, up 20% on the way down. So that would help us by $110 million or so. If we get to the end of next year, we have six rate cuts, but really the single left that really sort of propelled everything is the $8 billion or so. We just talked about that reprices somewhere in that 2% to 3% range above where we are today.
For this call it 2%, that's $160 million. So you lose $150 million on the floating again, $110 million on the on the deposits and then you gain another $160 million on the on the fixed rate repricing, you have $120 million or so on a run rate on $40 billion. That's about a 30 basis points improvement. And that's sort of how we unpack the 3basis points to 5 basis points.
Yes. As we think about rate cuts, I know everybody right now is thinking that we're going to be higher for longer. And certainly that's what the data is telling us. But to the extent the Fed does pivot at some point, that's how we're thinking about sort of rates now.

David Bishop

I appreciate that. That's great color. And then final question, I noticed ticked up maybe a housekeeping a little bit of a tick-up in the short term cash and liquidity, did that have anything to do with the seasonality you mentioned?

Stephen Young

It's not really probably at the end of the quarter type of event. Sometimes it moves around a little bit. But typically, we're trying to manage that cash bucket somewhere around 2.5% to 2% to 3% of assets. So sometimes it moves a little higher, some that will lower, but that's generally how we do.

David Bishop

Great. Thank you.

Operator

There are no further questions at this time. I will now turn the call back to Mr. John Corbett for closing remarks.

John Corbett

Very much for joining us this morning. We know it's busy with a lot of calls out there. So if we can provide any other clarity for your models. Don't hesitate to give us a range and hope you have a great day.

Operator

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.