So learning a lesson from a couple of bank failures is the right approach and appropriate approach. What will come from that in the mid-term and long-term, we will have to wait and see what happens by segment. But to date, I don’t feel as if we’ve been asked questions that are not appropriate for banking. I suppose that there’ll be an increased focus on asset liability management with an increased focus on deposits, but with regards to the overall policy change or regulatory changes, it’s too early to know what will be formalized.Terence McEvoy Thanks for that, Andy. And then as my follow-up, I’ve noticed the last couple of weeks some larger banks are getting out of the auto floor plan business. Can you just remind me was that an area you focused on when you joined or was it more on the auto finance side on the consumer business?
And if not, is that an opportunity that would make sense for Associated?Andrew Harmening We’ll review all of – one thing that we’ve said is we’re going to review all of our categories and make sure we can move towards maximizing returns. We’ve already made one of those moves in TPO, third-party origination on mortgage, which really didn’t have anything to do with what occurred in the last 30 days as much as the fact that we have more maturity across all of our lending verticals. With regards to the floor plan, we don’t have immediate plans to enter into that. We’re not in the floor plan business today. We are in the indirect auto business. That was initially started, if you might remember, as a hedge against mortgage volatility. And gosh, I think we’ve seen a little mortgage volatility.
So it’s working as we had hoped. We believe it’s significantly better yields than what we’d seen in third party. So we like where that had started. But if we see an opportunity in floor plan where there are good yields and good relationship value and an opportunity for deposits, we would consider it. But we don’t have immediate plans to enter into that.Terence McEvoy Great. Thanks for taking my questions.Andrew Harmening All right. Thank you.Operator Our next question comes from the line of Brody Preston with UBS. Please proceed with your question.Brody Preston Hey. Good evening, everyone. Thanks for taking my questions. I just wanted to clarify on the interest rate assumptions. Could you restate when the two cuts you expect to occur in the back half of the year are?Andrew Harmening September and November.Brody Preston Okay, great.
And I hear you on the dollar impact, but as I think through kind of dynamic balance sheet modeling just given higher deposit betas and worsening kind of mixes across the industry, is there a possibility where maybe that second cut is actually, maybe beneficial or neutral as it relates to NII and NIM just giving that the second cut might help a little bit more on the deposit costs?Derek Meyer Yes. I’m not sure that’ll be a great…Andrew Harmening That’s a very good question.Derek Meyer That’ll be a great case study. Typically deposit costs keep going up for another month or two or three after the last hike. So it’s not obvious to me that that would help. But I know why you’re asking, if you could immediately take advantage of it with deposit pricing.
It might, but I haven’t seen it successfully play out that way before. That being said, I’ve seen a lot of things this quarter that I haven’t seen before.Andrew Harmening I think that for me, Brody, the real question for our industry is deposit mix shift, and that impacts everybody on the demand deposit side. There’s some view that is a reversion to the norm that maybe that money went into there during some of the stimulus and it’s coming back out through spend. That’s logical. And if that is the case, we would expect that impact to decrease every quarter over the next three, four, five, six quarters until that kind of has worked its way through the system. I think that is maybe as significant of an impact to margin going forward.Brody Preston Got it.
And just one more on the margin front. I guess, it helped me think through the – or this is more on the NII front with the lower NII guide. Is it a – I’m assuming it’s mostly due to funding, and is it a mix of worsening funding mix or are you also expecting accelerating betas?Derek Meyer So the guidance contemplates beta as it get just above 53%. So those have crept up. We’ve shared, I think it was just below 50% in our last one. That’s largely driven by mix. Probably the new development, and it’s largely what Andy is talking about is the mix, it was non-interest bearing. For us, those were largely stable as a percent of deposits for the last four quarters. And there was really much more movement than – had been happening really in the last quarter.
And you put that together with a little bit higher deposit betas and you end up with sort of what our guidance comes out to be, which is flattish NII quarter-to-quarter.Brody Preston Got it. Okay. And I just had a couple last ones just on the auto book. I just wanted a couple of clarifications. Could you remind me what the, I guess if you had to define it by FICO score or Prime versus Super-Prime or whatever, like, could you help me define where most of those – what most of those loans – who most of those loans would be made to from a demographic perspective as it relates to credit score?Andrew Harmening I’m going to start with the easy part, then I’m going to turn it over to our expert, Pat Ahern. This is Andy. I believe about 96% or 97% of these loans would be considered Prime or Super-Prime.
And if you use our scorecard model, we actually believe that 99% of them are. The average FICO in the first quarter, for example, at the time we did the loan was 772 in the first quarter. So pretty strong borrowers and that’s where we’re staying. That’s the neighborhood we expect to live in because typically when you lend to them, they pay you back. And so – maybe give a little more color around that, Pat?Patrick Ahern Yes. I mean the metrics across, say the last 12 – rolling kind of 12, 13-month averages have maintained at the same levels Andy is talking about. I think across the whole portfolio, the FICO is like 755, 760, so that’s only increased this last go around. But we’ve seen a fair amount of nice stability there. And we like a lot of other lending areas, we have not stretched to find volume there.Brody Preston Got it.
And this is just the last one on this and it’s something that I’m wondering just about consumers as a whole. When you underwrite those auto loans, is there any – I guess in the model or in the process, is there any part that looks at the, like the durability or the stability of that borrower’s credit score, like over a multi-year timeframe? And I ask just because, if you have a marginal borrower that might be marginally prime that gets a bunch of cash given to them from the government and then they can make 12 months of consistent payments, that really helps the FICO score when maybe behaviorally they’re not necessarily, what the FICO score that is at the end of the 12 months indicates they would be. So is there any kind of like stability to that FICO score given like through time?Andrew Harmening Yes.
Let me make sure I give my perspective on how a consumer operates. And the way a consumer operates is if they like to pay, doesn’t really matter what their income level is, they pay. And so typically what you see, the consumer can get a little bit more healthy, but somebody that is not a payer before they get stimulus doesn’t all of a sudden become a really disciplined consumer. That has not been my experience. With regards to the durability of the score, that view doesn’t exist to my knowledge. And so when we look at what it is, we look well beyond just a FICO score. So when we say a balanced scorecard, we’re looking at multiple iterations. And what we did Brody, is we bought data, in this when we took over the business and brought in a team that has been in this business for decades.
So I don’t have a bigger concern on an inflated FICO and in short period of time somebody going from sub-prime or near prime to prime and super-prime. I just think that’d be a very, very big stretch for that to happen. And I think what’s important is that’s not the only measurement we’re using, when we’re underwriting this and that is the nature of the balance scorecard.Brody Preston Awesome. That’s very helpful. Thank you.Patrick Ahern You’re welcome.Andrew Harmening Thanks for joining us, Brody.Brody Preston Happy too.Operator Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.Jon Arfstrom Thanks. Good afternoon, guys.Andrew Harmening Hey, John.Jon Arfstrom Question on Slide 4.
With some money market, the non-interest bearing decline, it looks a lot like others, but I’m just curious how much of that runoff happened after March 8? And I’m specifically looking at the money market piece of that. Was some of that rate driven are intentional and just kind of curious what happened kind of pre and post March 8?Andrew Harmening I don’t have the exact breakdown, but I’ll say a couple of things here. We did see some uninsured deposits leave the bank. And our numbers surely would’ve looked different on core customers had Silicon Valley Bank had the failures not occurred, so that’s one thing. The second piece – but it’s not crazy numbers for us. And what I would say though still is there is a mix shift that is going on that was happening before Silicon Valley Bank.
And to be clear, it’s happening in our industry. It’s not unique to Associated in my opinion across the Board, it’s a consumer behavior.Jon Arfstrom Okay. And I guess maybe another way to get at this, if – we’re sitting here in 90 days, does Slide 4 looks similar, just perhaps not as amplified? Is that fair?Andrew Harmening It would make me sad if it looked the same because I just told you that I thought we were going to grow deposit for the year. So will it look somewhat similar? Let me take a pause on that. Maybe with the – I was going to say similar with different numbers. The magnitude of the loss we wouldn’t think would be as significant. The challenge on non-interest bearing we think at some level will stay the same. So the mix could be similar, but just not to such exaggerated dollars, if that makes sense.Jon Arfstrom Yes.
Okay. And then how about just bigger picture more on Slide 3, loan growth drivers from here? It sounds like you’re saying commercial is a little bit slower, maybe some of it’s self-imposed, maybe the pipelines have changed a bit, but how about Slide 3? How does that look as the year progresses?Andrew Harmening Yes. We think mortgage warehouse, if you look at that and you look back and there’s a table in the back that shows the average deposit, that just spiked at the end of the quarter. We don’t expect that to be a similar phenomena the rest of the year. So if that is not a high growth that it would be surprising to me unless something changes wildly with interest rates that that would be a primary grower for us. We’d expect the modest growth and mortgage, although we’re out of the TPO.
Unless again, there’s a large change in interest rates for the refinance, like it booms this year, which we don’t anticipate, we wouldn’t see a large retrench there. We would think that there’d be steady growth in the commercial part of our business and I’m not so sure that that reapproach would change. So there’d be a little bit of – and we’ll have steady growth in the auto finance, assuming that we can continue to lend to high quality borrowers is that a good yield.Jon Arfstrom Okay. And then just one more on the expense growth guidance. You talked about already taking some actions to get to that lower growth level. Can you give us some examples of what you’re doing? And then also where you feel it’s necessary to spend money? Thank you.Andrew Harmening Yes.
Sure. So one thing that I’ve said is that we’d go into each year with a plan for growth. And then we would be immediately ready and willing to pull levers on the expense side if we didn’t see that growth emerging. So we have a decent amount of growth, but not to what I thought was the upper range of that. One thing we did is we pulled the lever on third party origination, but we also recognized were our mortgage volume was overall, and we decreased our staffing both contractors and FTE in that category.Then we looked at the rest of the year and we looked at where strategic adds were being made and what were necessary in this environment. We put a process in place that requires it to go through quite a process to add any of those people, including up to our CFO having to sign off on that.
