Q4 2020 South State Corp Earnings Call

Good morning, and welcome to the South State Corporation Quarterly earnings Conference call. Today's call is being recorded and participants will be in listen only mode for the first part of the call. Later, we will open the line for questions with the research analyst community I will now turn the call over to will Matthews South of the Corporation Chiefs.

And so officer. Please go ahead.

Good morning, and welcome to South state's fourth quarter of 2020 earnings call. This is will Matthews and joining me on this call are Robert Hill, John Corbett.

Steve Young and thereby of course.

One of that for this call will be that we will provide prepared remarks, and we will then open it up for questions.

Yesterday evening, we issued a press release to announce the earnings for Q4, 'twenty and 'twenty.

We have also posted presentation slides that we will refer to on today's call on our Investor Relations website.

And we begin our remarks I want to remind you of the comments. We make may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and.

Such forward looking statements, we may make are subject to the safe Harbor rules.

Please review the forward looking disclaimer and Safe Harbor language and the press release and presentation for more information about risks and uncertainties, which may affect us.

And I will turn the call over to Robert Hill Executive chair of them.

Good morning, and thank you for joining us today is the.

A pleasure to be with you and a pleasure to have the opportunity to represent such a great group of people as we report our performance this quarter each quarter each month and each week. This team continues to make significant strides of creating a bank. The channel now were only bring me about a couple of years ago and.

I'm pleased with our performance and the areas of soundness profitability and growth.

But I'm, even more pleased with the leadership team and the culture. The just being developed I want to thank our team for a tremendous job and 2020.

Great teams rise to the occasion and challenging times and this team of certainly risen to the occasion.

I'll now turn the call over to John Corbett.

Thank you Robert Good morning, everyone and I Hope you and your families are doing well and staying healthy.

We continue to make significant strides integrating center state and South state and.

And it's been gratifying to watch our teams gel together and watch their confidence growth.

Since closing, we fully integrated the three lines of business of wealth of correspondent and mortgage.

And we've unveiled a new logo.

As well as watching the new website and a new mobile app.

And recently the board formally adopted our combined core values and guiding principles.

At the same time or continues to prepare for our upcoming systems conversion and day.

For the fourth quarter. The company produced earnings per share of a dollar and 21 cents all of the GAAP basis.

Adjusting for merger and other nonrecurring items earnings per share came in at the dollar and 44 cents.

For the return on tangible common equity of $15 four per cent.

For the entire year the company produced a record P. PNR of $629 million on a combined business faces with only two basis points of charge offs.

Asset quality remained strong with special mention and classified loans remaining flat from third quarter levels and <unk>.

Payment deferrals continue to trend down.

We ended the quarter with just 1% of loans on deferral and two thirds of those are making interest payments.

And the revenue side correspondent banking and mortgage continue to outperform in this low rate environment, and they helped to offset industry wide margin compression and sluggish loan growth.

For 2020, our profit and correspondent banking work double our 2019 profits and mortgage was almost four times as profitable.

Residential mortgage demand continues to be strong, but we intentionally slowed the mortgage pipeline and the fourth quarter. So that we could integrate the center state and South state mortgage computer systems together.

This resulted in a drop in mortgage income for the quarter.

But we anticipate the mortgage will be of strong source of fee income in 2021 now that the systems consolidation is complete.

We announced last quarter, our agreement to acquire Dunkin' Williams of broker dealer and Memphis, Tennessee.

And we've now received all regulatory approvals for the acquisition, we anticipate closing the transaction on February of the first.

We're very excited for what.

Welcome Duncan to our South state team and to expand our correspondent platform by adding a broker dealer.

With record low mortgage rates, we continue to see runoff and our residential portfolio has our clients appropriately refinance into a secondary market product.

However, excluding the residential run off of $203 million.

And P. P. P forgiveness of the commercial loan portfolio did grow modestly and the fourth quarter.

Commercial loan production increased 24% from third quarter levels and the.

The pipeline now stands at $3 $2 billion, which is close for the pipeline levels pre COVID-19.

Deposit growth continues to be strong with core deposits, increasing over 12% annualized and we use some of our excess liquidity last quarter, the pay off of $700 million Federal home loan Bank advance.

We'll reduce our interest cost over the next few years.

Meanwhile, our deposit cost continue to move down to 17 basis points, a 3% reduction during the quarter.

Now I'll turn the call over the wheel Matthews to provide additional detail.

Thanks, John.

Net interest margin was 314 on of taxable equivalent basis down eight basis points from Q3.

Loan yields of four to seven were down eight basis points from Q3 accretion.

Accretion was $12 7 million and for the quarter down $9 6 million and we recognized $16 6 million and deferred G. P. P fees, and Q4 versus eight and a half million and Q3.

So if you consider the net change and the two reduced accretion income and increased PPP deferred fee recognition. They reduced interest income by approximately one and a half million from Q3.

NIM, excluding accretion was $2 nine up four basis points from Q3.

Now, excluding the accretion and the total Pvp declined four basis points to 292%.

Our loan repricing mix, excluding the PPP loans is 48% fixed 30% floating and 22% of adjustable.

Loans declined $573 million or $155 million, excluding PPP loans and the quarter for of two 7% annualized rate and non PPP loans the clubs.

John noted absent declines and the single family residential portfolio.

Ex PPP loans grew slightly on the quarter.

We put some of our excess cash to work and the securities portfolio, which grew by $710 million during the quarter.

Our total cost of deposits improved another three basis points to 17 basis points for the quarter.

Yeah.

Our Cds are relatively short with 72% coming due and this year.

We continue to carry significant liquidity for and a half billion on average for the fourth quarter weighing on our margin.

And we paid off the $700 million of FHL advance and early December So we had a partial benefit and our liability costs this quarter.

Turning to noninterest income our non interest income of $97 9 million was down $17 million from Q3, primarily due to a $23 million decline and mortgage banking revenue.

Mortgage production of one point for 1 billion was strong so down about 10% from Q3 levels and cash margins remained healthy up approximately 45 basis points from Q3.

As John said the decline in mortgage revenue was largely caused by a significant drop and the pipeline and loans held for sale and a vast of our mid January of systems integration.

We continue to be of purchase oriented mortgage letter with purchase volume representing approximately two thirds of our retail volume.

Our correspondent banking division had another good quarter with revenue of 27 7 million.

We expect the Dunkin the Williams acquisition to close February one so we should see a partial quarters the impact of this business and Q1.

We again and welcome that team for the company.

Other noninterest income was up for and a half million approximately three and a half million of which was a reduction of the CVA on swaps.

Steve has responsibility for these non interest income business lines and he's available to answer questions of them during the Q&A session.

On expenses and I.

And for the quarter was $278 million, including $20 million of merger related expenses of 39 million and the FH LP pay off and the related swap termination.

For and operating and I of $219 7 million.

A couple of larger items of note and the quarter.

We aligned the methodology for our crew and FICA and on the set of <unk> to recognize them and the year are rather than at payment, resulting in a $3 $3 million accrual and Q4.

We also spent one and a half million dollars with an outside vendor associated with the upgrade of our mobile banking App and related call center activity.

So outside of these two unusual items operating and I E was approximately flat with Q3.

We did spend a bit more and business development and employee recruiting and the recognition of expenses were up about $1 2 million from Q3.

Our efficiency ratio was 62 per share excluding the merger related expenses and the swap termination penalty.

Note that the $22 million hit to mortgage revenue from the pipeline of the clot impacted our efficiency ratio by a little over 350 basis points.

We continue to be on track with our cost saves and on merger related expenses. We recognized approximately 60 per cent of the estimated 205 million debt to date some of them.

Which occurred on a center state side pretty close.

Turning to credit on slide <unk>.

Referrals are now down to a little over 1% and we expect them to range between 1% and the one five per share over the next several months.

Undersized and classified assets were approximately flat down a few basis points from Q3 levels.

And as John said net charge offs remained very low and were again below $1 million for the quarter.

And again we're.

And were 32 basis points of assets down one basis point from Q3.

Our provision for credit losses was $18 million for the quarter with another 200000 and for the reserve for unfunded commitment liability.

And our seasonal modeling this quarter, we weighted to Moody's economic scenarios the.

Baseline and downside S. Three scenario and light of the worsening Covid statistics and the potential of that stimulus PPP forbearance programs et cetera, maybe masking of losses incurred and the economy and and our portfolio that are not yet realized.

On slide eight our reserve coverage, excluding PPP loans grew to 2.2%, including the reserve for unfunded commitments for 2.0 of 1% just including the reserve for unfunded loans.

Our loss absorption capacity ratio ended the quarter of 262% similar to the Q3 level.

For the effective tax rate as noted in the release, we had a onetime benefit from and NOL carry back under the cares Act ex.

Excluding that our effective tax rate for the quarter and year was approximately 19%.

Turning to capital our capital ratio has continued to grow and Q4 with our TCE ratio growing 27 basis points ending at $8, one zero per cent or.

Our CET, one and total risk based ratios grew by approximately 30 basis points ending of 11, 8% and 14, 2%.

And Nick tangible book value per share was $41.16 of <unk>.

All of 33 from Q3 and up $2 three from the year ago quarter.

I'll turn it back to you of job.

Alright. Thank you will I would be remiss, if I didn't close by thanking our south state came for a remarkable year and 2020.

It's been exactly one year ago, we announced the merger of equals between center state and South state.

Over our first year together, we face the challenges of enduring a worldwide pandemic.

The economic shutdown.

The recession the.

P P P stampede over Easter weekend and the.

Feelings of isolation of working from home.

And the South state team overcame all of these challenges.

While simultaneously navigating the most complex thing you can do and banking.

Integrating the merger of equals.

They've done an outstanding job and I'm very proud of them the <unk>.

Round work, we've laid in 2020 is going to pay big dividends and the years to come.

I'll now turn the call back of the operator, so we can open the line for questions.

Thank you we will now begin the question and answer the question.

You asked the question you May press.

And then one zone.

No.

If you are you the speakerphone, please pick up your handset it for questions.

He withdraw your question please.

At this time, we reported.

And clearly to assemble there okay.

The first question today comes from and Jennifer Dunbar and curious.

Please go ahead.

Thank you good morning.

Hey, good morning.

Question as we've talked the other management team over the last week and a half of so.

It seems like there are more and more opportunities to look at acquisition.

Opportunities.

Across the country just wondering what your interest is now once you get past your system conversions and.

And many thanks.

Yeah. Good morning, Jennifer This is John really nothing's changed from our message that we've delivered of the past are you know we're in the middle of a large transaction and things are going very very well, but we've still got a large.

Version ahead of Us and May.

And that's where our focus is that's where our attention is but having said that.

You know this yield curve continues to stay low and flat the.

Whole industries going to face these revenue headwinds and.

I think we want to remain opportunistic.

And we get past the conversion and keep our options open continues to have conversations with with banks that we've talked to you for many many years just hasn't gone into the second base with any of those conversations until we get past the conversion.

Right and you.

You talked about.

The mortgage pipeline declining intentionally in the.

And the fourth quarter, what are you seeing here and the first quarter in terms of.

The production trends and and <unk>.

How strong do you think mortgage could be in 'twenty one.

It's the.

As it relates to mortgage the kind of backup for a second but yes. If we were a combined entity in 2019.

Duction of the the mortgage bankers.

Bankers would have been about $3 $2 billion.

2020 on the combined business day, we did about five and a half of $1 billion of really good pick up there and the fourth quarter. Our closings were about 1 billion for some of the annualized about somewhere in the five and a half five six range.

You know, we're cognizant of the NBA forecast the mortgage would be down 20, and 25 per cent next year, having said that we do.

A higher mix of the Bill mentioned.

And the purchase the most others and so this quarter it was close to two thirds and.

So.

<unk> got the systems converted and put it in the middle of January and though.

Of this month and it was very nice to see everybody on one system and the deal.

All of the manage it on one system. So we're seeing robust activity again.

Mortgage is always hard to predict predict but we would expect.

Because of our market and others, we should be in good shape for 2021.

Thanks, a lot.

The next question comes from Michael Rose Raymond James. Please go ahead.

Hey, good morning, and hope you all are well I guess the biggest question that I have.

<unk> built the reserve a little bit of.

This quarter, you talked about deferrals, ranging kind of around these levels credit metrics, you know generally moves and the right direction. You know we've seen a lot of other banks talk about the yeah.

The declining reserves of reserve releases as we move forward. Obviously, you guys are and really strong markets and then you kind of talked about some of the stimulus programs masking. Some some losses. So I guess I'm trying to reconcile all of this and you know with the credit Mark and everything what why why not have a more positive kind of outlook on cash.

And just given what we're seeing and the and the metrics. Thanks.

Sure Michael Good morning, it's well and maybe I'll start you know I think that the our thought is that you know as the fed noted the economy's path is dependent upon the virus and our view.

At the end of the year was that there was enough uncertainty around the virus, whether it's new strains are the dissemination of.

The vaccines herd immunity et cetera that are reserved for release at this point.

Based on what we know would've been too early and would not have not been appropriate.

You know we also saw a disappointing December jobs report after the day of the Moody's forecast of.

And I'd, just say looking forward as the picture becomes clearer and forecasting.

Improvement and economic factors becomes less difficult and that could reserve results and reserve leases at that time.

Our if you look at our position relative to peers.

We would argue that our credit quality is very good our results.

It's been very good.

And clearly our reserve position is higher than many of which we think puts us in a and a very good position regardless of the.

Kind of moving we face.

And and Michael Michael It's John Let me just add on to what will said about the AR Reserve you know where.

And where we are with the reserves is do the national factors not our franchise I mean, we're following these models of these national models, but if you look at the credit performance as you've mentioned.

This bank has had three quarters in a row with only one basis point of charge offs. So we think the underwriting of sound deferrals of way down and we're.

And we're feeling every day, we're feeling better and better and more optimistic that we've turned the corner relative to credit.

But there is national Phenomenons going on and we wanted that reflected and the loan loss reserve, but as far as their own book every day, we feel better.

Okay. So it sounds like maybe just you guys are being conservative just given.

You know that the more of the macro at this point as opposed to anything on your own portfolio. Okay. That's helpful. And then maybe just the just just one more for me it looks like the pipelines.

We're up a little bit I know everybody's having you know pay down issues. You know we had some of you talked about the mortgage issue would you expect kind of pay downs to the slow as we as we kind of move through the year and I guess ex P. P. P and some big you know the the runoff from the acquired book and what what's kind of the core loan growth outlook.

You know for the year I assume it's going be a little bit slower and the front half, but but probably accelerate and the back half like others have talked about any of any sort of initial stab at what growth could look like given the strong pipeline. Thanks, Yeah, I think that I think that's right and as I tried to articulate in the prepared remarks, you know, we did see loan growth and our commercial loan portfolio.

The O a little bit this quarter, it's really the residential payoffs that are creating such a headwind and but that residential payoffs as we're controlling that product into the secondary market and making the C. So.

I do feel like we're turning the quarter on credit.

Get more optimistic each day, if I had the guess I think we head into 'twenty and 'twenty, one we're probably into the low to mid single digit growth and I do think of pick up more on the back end of the year than the front, but encouraged pipeline wise you know before the pandemic the pipeline was about three.

$4 billion at the low last summer it got down to $2 4 billion and I looked at it this.

This morning, we're back up the $3 3 billion. So it's really really close and I do.

And do want to be cautious however from an underwriting standpoint, you know the the world is awash with the liquidity right now and everybody is trying to put this liquidity to work and as I talk to Dan and others about credit and we are seeing some competitive forces where there is some structure creep and deals where people are becoming more.

For.

Aggressive as far as being willing to drop guarantees and lower down payments. So we think there's opportunities, but we're going to pass on some of them as well of the structures. The two lives.

Yeah.

Thank you I appreciate all the color.

The next question comes from Stephen Scouten of Piper Sandler. Please go home.

Hey, good morning, everyone.

Okay.

And I was I wanted to just one clarifying question on the loan loss reserve and your answer was good there about the models versus your markets and your book, but well when you talked about kind of looking at two different scenarios the base case and the and the S. Three I think you'd called it and was that of change quarter over quarter or is that kind of the same mix you had and the scenario weighting of the quarter before.

Yeah, Steve and it was a change we were baseline only before and so we we did way there and a more pessimistic scenario for part of.

And of the weighting.

This quarter. So it was the change.

Perfect. Thanks, and then I guess with the balance sheet, you know you'd think they mentioned was for and a half billion give or take of excess liquidity and you noted $710 million and securities purchases this quarter, but as it looks like liquidity somebody's going to hang around for a little bit longer what could we continue to see and the securities book and and what are you seeing on new investment yield.

And there.

Sure Steven.

Youre right and we still continue to have a fair amount of excess liquidity when we didn't see the after the election rates are loans, we took the opportunity.

And to buy a little bit higher yields.

Yeah with the more of an opportunity.

And as we think about that portfolio historically, the way we've thought of it as the percentage of assets and so.

And today, we're not quite the 12 per cent of assets and we've tried to manage that 12 to 13 per cent of assets.

Yeah, obviously.

I'm not sure how all of the excess liquidity is going to play out over the next few quarters.

But and we also want to make sure that we're not locking into the investments that really does give you a whole lot of yield at the lowest rates.

But I guess for my perspective, I think the way to think about it model. It it's somewhere between 12 and 13% of assets and so we have.

You know of change anything in the future and I hope that's helpful.

As far as going on yields.

Pretty vanilla there.

The investments out for the liquidity.

Going on and sales of somewhere between one and the quarter of one of the half.

Yes.

Okay perfect very helpful. And then just last thing for me thinking about the $3 5 million share repurchase you know obviously your stock's done and done very well I think and this kind of recovery environment, we've seen and the group but.

You're also building capital extremely rapidly so how aggressive could you remain with the share repurchases from here.

Yeah, Stephen It's Jon I mean, I think what you've always heard from US is that we feel like our role is to be active capital allocators.

This reauthorization of the board gave us yesterday gives us three and a half million shares which is about five per cent of the company and as you noted the capital formation rates pretty strong mid teens, our OTC E and with all of the liquidity, it's unlikely that we're going to grow our balance sheet. So we see that.

Capital rate continue to build so all I would tell you is the buyback is in place to maintain maximum optionality and it's something we look at quarter by quarter. We don't budget. It is it's not a budgeted item for us.

We look at just facts and circumstances of how we can deploy capital every quarter, but we have been active in the past and now we have that flexibility going forward.

Got it thanks, a lot for the color and I appreciate the time of this morning.

You bet.

The next question is from Catherine Mealor, Okay. VW. Please go ahead.

Thanks, Good morning.

Good morning.

I wanted to just follow up on just your big picture thoughts on the outlook for the core net interest margin pulling out P. P P and pulling out the impact of the computer for Yelp.

Yeah.

Yeah, Hey, Kathryn, it's John I'm going to let Steve answer that.

A couple of comments about NIM before he does it's such an important driver of the performance of the bank.

However, we benefited this past year 2020 from having sort of diversified revenue beyond then.

And for 2020.

Even with the yield curve doing what it was.

The company.

And we beat the consensus forecast for the calendar year, I think a year ago before we announced the merger was $597 million, we actually as the combined business company and 629 billion of ours. It was about a 5% beat of pretax pre provision profits and the yield curve as we think about it.

And go in two directions here.

We could wind up and of prolonged recession, and the yield curve could remain low and flat and if it does our NIM is going to continue to compress I mean, we've hit the floor on deposit costs and got it down to 17 basis points. So we can't really push that lever anymore, but and that's an area of that prolonged.

Session and we're going to continue to see.

Fee income businesses outperformed you go back to 2019 and fee income businesses on a combined basis, the $309 million. This past year jumped to $421 billion. So big increase to offset the NIM and what youre going to get with South state and of a prolonged recession is you're probably going to get.

Better asset quality performance, if you looked at the last three quarters, one basis point of charge offs, only 1% deferral and we've got we've got a very strong reserve over 2%.

On the flip side of it.

If we flip to a recovery mode, where the yield curve steepens and it sort of what we've started to see here and the last month or two with the stimulus and the probably of what you're gonna see is our fee businesses are going to pull back but our margin. We think is going to open quite a bit faster than most of the industry because of our core deposits again are so strong.

And we're going to get more than our fair share of loan growth because of the markets. We're in but you know and and this recessionary environment with that diversified fee income it's given us.

The 15% mid teens, our TCE boy and the rates go up if the yield curve Steepens. We look for that return on equity you didn't go back and the upper teens and maybe closer to 20 and so that's a big picture of how the business is performing as a whole and the puts and takes but specifically, Steve if we wound up where the.

For the yield curve state, where it is today and how does that looks for yes.

And so on and the answer to your question a little bit more direct Kathryn.

And if the rate forecast and similar to where we are now for for the year 2021, and we assume the load of mid single digit loan growth and 2021.

And the lack of a bunch of and as we assume the fourth quarter net interest income dollars is kind of of the baseline.

We would expect low to mid single digit percentage decline in net interest income and 'twenty 'twenty one.

And naturally it would be better of the yield curve gets deeper and the rates rise and just the sort of that last point.

Back to our core deposits.

We are checking makes up 54 per cent of our total deposits of about 800000 and checking accounts and the <unk>.

And 70 basis point cost of the deposits so.

And as we think about the net debt.

And that's sort of how we think about it and for 'twenty and 'twenty one.

Great that's helpful and and in that scenario and then just.

And back onto your point, John how do we think about debt.

Kathryn and I think our loved and can you hear me.

Pardon me it looks like Catherine's line disconnected.

Okay.

And next question is from Kevin Fitzsimmons of D. A Davidson. Please go ahead.

Hey, good morning, everyone.

Hey, Kevin.

Most of my modeling questions have been asked and answered just maybe taking a step back more of a bigger picture of issue now we've been you know us.

You all mentioned a year from some of the M O getting announced and now you've had.

You know of little little over half of year of being together and you're coming up to the main conversion and may.

I'm just curious if you take a step back and I know, we've been dealing with the different environment than you've got some vision. When this was announced but would have been what had been some of the main.

Positive tier.

The ways of surprises and and maybe something that's a little more challenging than you might have envisioned when you when you announced this deal and it sort of sitting in the hindsight today.

Yeah, Kevin so.

Between our two companies.

The center state probably it's the all of the 20 acquisitions and once a decade or so south day, you know a large number of acquisitions and there's a lot of experience here, but and MLB is different and I would tell you looking back on it but what makes it different.

Is the is the volume of decisions that have to be made and the volume of change that occurs.

If you do it right if you get in the room and you look at the best practices of both companies and you take the time to choose the best path forward, you're going to wind up with a better company better run company than either company would have been standalone, but it takes a lot of effort to have those discussions you know of.

<unk> make those decisions and that's what we're doing I mean, the the south state franchise.

And had some sort of processes in place with technology that center stage.

Bankers are just thrilled.

To take advantage of one of them is the new mobile app that we put in place and legacy South State last month, we added 300000 of checking account users to that platform. The center state clients will go on and in May.

South deep has got a great Treasury platform Center State has great capital markets through the correspondent bank. So so the the the challenge and the work is taking the time to make the right decisions and it's just the high volume, but the end product is is every bit as good as we hoped it would be.

That's great. Thank you and just a quick follow up on the the the question before on M&A and your potential interest there on one hand, you guys have a you know a very strong geographic franchise. So how do you weigh.

The opportunities for more scale versus.

The where exactly you want to be from a franchise perspective, because I'm, assuming there's probably some states or some markets you don't have interest in but when you look at the South East and General I would assume your primary interest would be and markets are already in but how.

What is high on your list of interest in terms of markets, you're not currently and thanks.

Yeah Kevin.

Back to your comment.

We don't believe and M&A for the sake of scale only I mean, that's not the primary driver.

It's got to make financial sense to do a deal, but if we had our druthers strategically we would love to continue the dial down and build density in these high growth urban markets and the South East We love the markets were in and.

Charlotte Greenville, and Atlanta, Charleston, and you get down to Florida.

And the Orlando Tampa Jacksonville markets, we would love to continue to build density in those markets and if interest rates stay low and there continues to be <unk>.

The pressures I think we've got a track record of being able to consolidate banks that have branch overlap and you look at the last decade.

And we've acquired over 400 branches and consolidated over 200, and that's driven our average branch size from 27 million debt now its well over 100, and I think it's of $108 million. So.

Now whether or not all of those stores will line up that would be what our preference would be.

That's great thanks very much.

You bet.

The next question is from the Dirty Preston of Stephens, Inc. Please go ahead.

Hey, good morning, everyone.

And he's already and.

And I've got a handful of questions of I'll, just I'll just ask some of them now and then maybe hop back and the Qs. It got there and got a chance to hop back on but I just wanted to clarify something on on the mortgage side I appreciate the the.

The color around the reduction and the closings it looks about 12, 5% off the quarterly run rate from from earlier in the year on the combined business basis, but I'm, assuming the slowdown more dramatically impacted the locked pipeline given the swing and the fair value marks so I just wanted to get a sense for what the decrease was and the lock.

Pipeline and the <unk> relative to <unk>, and then how that's shaping up and <unk> and now that you've got the conversion behind you.

Yeah, and this is Steve.

Youre exactly right and it's related to the locked pipeline and I believe the numbers.

And right in front of me, but the pace here.

And here it is $954 million at the end of the third quarter versus 670 for at the end of the fourth quarter. If you look at our <unk>.

Cash gain on margin and just looked at it from that perspective, and the fourth quarter, we were and the four five per cent range versus the third quarter and more of a 4% and that's back to the essential nature of what we were trying to do in order to convert for the systems and raise margins on our way into the system conversion and so obviously that's good.

And bring less volume of the pipeline, but as we get the systems converted here in January now we can.

Kind of getting back to normal and more normal margins and more normal walks.

That's helpful and just thinking about it.

No. That's that's very helpful. I appreciate that and then just on the incentive expense that you called out I wanted to ask if that was more of a true up for the year. The maybe won't reoccur moving forward or is that something that will stay and the run rate.

Yeah, Brody and it really reflects two different methodologies one company.

Expensing it at the time of payment and one company accruing and in the year of of being earned and so where we moved to the methodology.

Where we are accruing it and the year earned so it's its of catch up and the fourth quarter of.

But of course, we'll be paying for like expense on on all of incentives going forward.

But you know one half the company I guess would of would've expense it and and.

And the first quarter, when and paid out for <unk> for last years of incentives.

Okay understood.

Yeah, no. It does and then of course C&I growth in the quarter was actually pretty strong and you know of.

About 12% annualized and so I wanted to ask was there anything specific that drove that.

Yeah.

We continue to see great activity and our middle market Bank that we've been building.

We've had great luck from a recruiting standpoint, and I think we issued a press release sometime in the fourth quarter were retired nine commercial bankers too.

The two middle market bankers that were in Jacksonville.

So some of them up and Charlotte. So just just the activity of the energy and our C&I and middle market Bank is very very strong. So I would look for that to continue.

Okay, Great and then the last one for right now and all of our pop back into the queue.

John Thanks for the color on how the pipeline and stacking up and it's good to see it sort of back up almost a year ago levels.

Wanted to ask what's the what's the sort of historic pull through rate on the pipeline.

Oh, Yeah, that's a good question.

And I don't I don't have that stat in front of me.

Birdie I'll have to get back to you on that.

Okay, and and I would I would also add just as well the AR.

With the pull through rate to the other other thing that's one of the factor and of course as the the payoff rate.

And as well now and that fluctuates of course and different environments Brody as you know.

Understood.

Alright, Thank you I'll hop back in the queue.

The next question comes from Christopher Merrimack of Janney Montgomery, Scott and please go ahead.

Thanks, Good morning, I know, we'll talk a little bit about the cost of all sort of new hires or just the other expenses related to that I was just curious John or whomever.

What's your outlook for that in general how competitive is it and do you have.

The sort of and he gets an internal goal of of new producers that you'd like the crude this next year.

Yeah, and I've talked of Gregg Lapointe, who is our chief banking officer, the other night and the opportunity set for.

Hiring of.

Commercial bankers middle market bankers from some of the largest banks of the country is better than we've ever seen and these are not the b and C. Bankers. These are folks that have spent their entire careers and some of these banks and their 2030 year veteran bankers. So.

You know, we're going to continue to pursue those and again, it's kind of like the buybacks, Chris it's not something you're really budget you just take advantage of it when the opportunities. There are Greg said the other night I think he is talking to another nine people and Atlanta, the Carolinas and Florida. So.

You know and there's there's occasionally there's retirements and turnover of those kinds of things but.

And we'll just update you every quarter and we were not putting the limit on how many great bankers, we're going to add to the company.

No I appreciate that and that all makes sense just a quick one for Steve on the correspondent banking business can you remind us on seasonality either in the the third and fourth quarter debt with your most recent success and we're just what would happen. This next couple of quarters and the seasonal standpoint.

Sure. So let me kind of take a step back and and maybe the because we have the dunkin' ways of acquisition and and so on.

Let me try to help frame that up for you and maybe help frame up the.

The entire fee income businesses.

And as it relates to the correspondent this year was just a record year, Brad Jones, who leave the in the southern and phenomenal job.

Our fee income was approximately 110 million of the combined business base and since your last year is around 60, 65, I think millions of about $50 million most.

Most of that increase was driven are of interest rate swap product and of course fixed income and got a little bit better.

Yeah.

Think about.

How that rolls into our forecasts for fee income.

It's really our guidance really hasn't changed from the law.

Last quarter and.

And we talked about mortgage and the potential declines there and and we really don't see anything changing for 2021 based on what happened in the fourth quarter.

Yeah, we would expect the.

Total fee income.

Decrease from the whole 2020 levels, which was around 420 million.

The approximate.

The fourth quarter levels, which is about 10% below the 2020 level. So as we think about the entire bucket of fee income. We've got some puts and takes and there we went from 309 million to $420 million.

The mortgage is going to be a little bit more challenging the interest.

Interest rate swap environment will not be and probably has about bust, but it will be offset by our acquisition of Duncan Williams and the fixed income there. So hopefully I know, there's a lot of moving parts and there, but hopefully that helps frame up how we're thinking about it.

Okay, and again 10 per cent applies for the whole fee income not not just and correspondent is that right right.

Okay.

Super Steve. Thank you very much for the information here.

The next question comes from Catherine Mealor with <unk>. Please go ahead of them.

Thanks, and back I'm, sorry, My my call dropped the challenges of working from home.

And actually Chris Mary and I, just got my my second question. So E. The answered that perfectly and then and I ask just one other on just P. T P and the next round.

So far are you seeing as activity and and what are your expectations for.

And what type of P. P T lab, which you may see this year.

Yeah. Good question Catherine you remember last year, our numbers, we did almost 20000 loans for $2 4 billion.

We turned the portal on a little over a week ago for round two.

And right now we've got 5200 applications for $600 million, So right now where we stand after about eight or nine days of having the port of Logan. We're at about 25 per cent of what we actually did last year.

Talking to Richard Murray Who's driving the program for US the applications were really strong in the first couple of days and they've started slowing down somewhat so if you had to ask them about the crystal ball, where we wind up we're guessing that we might wind up and the 40% to 50% of what we did last year round, one which would.

And maybe it winds up and the billions of billions of two range.

And Catherine this is Steve let me just add to that on the yeah on the.

The round one forgiveness under that's the question and the <unk>.

And model there and you know in the fourth quarter, we had about $400 million forgiven and the fourth quarter and yeah. As John mentioned, we're really focused on helping our clients with TTP round, two and putting forgiveness of a little bit back on the back burner, just because we need to get the the new funds into the.

And our clients hands and so we would expect there to be forgiveness, that's probably the.

Similar in the first quarter versus the fourth quarter and it should be heavier in the second and third quarter. So hopefully that helps you from a modeling of since we think about the forgiveness. It and then the last thing I know, Chris asked me and I did not actually answer.

Just around the seasonality of our fee income and.

And he comes right. The there is some seasonality typically and the first quarter and he has the little lighter generally around mortgage and correspondence historically been that way and always work out that way of typically it's a little bit strong little bit weaker and then it strengthens during the year and hopefully that's helpful.

Great and that is thanks.

Thanks, so much.

Yeah.

Next question is the follow up and 30 Hudson and Stephens Inc. Please go ahead.

Yeah. Thanks, guys I just wanted to ask a couple of follow up questions on the NIM.

Core loan yields ex P. P P and accretion continue to hold up fairly well.

Following the combination and so I wanted to ask if you could give us a sense for for what the roll on roll off looks like right. Now you know what the new origination yields versus restaurants rolling off the back book.

Brody Steve.

If you looked at our loan yield.

And look at and ex accretion and ex PPP loans for the.

Our fourth quarter, our loan yield was four O eight.

Uh-huh, our new production yields and the fourth quarter came on and around 337.

And so you know that's the that's the.

Two numbers, I think and the third quarter or the production yields of around two weeks.

So you know and the yield curve moved back up so.

Probably and you can think about 'twenty and 'twenty one.

I would think that the loan yields and probably be about three and a half range for the year, depending on where the yield purpose of of course.

Okay understood and I guess I, just I was looking back you know at.

Sort.

And the legacy Center state and South state exclusive and looking back a couple of years ago at one of our origination yields looked like and.

You know they were you know for and a half of 5% somewhere in that range sort of consistently and so I wanted that that's sort of what I was getting at is there sort of a higher and.

Higher yielding back book that might be rolling off and the near term or was there of repricing that occurred.

Since that time, just given the the fixed versus floating nature of the book that is mitigating that.

No the huge difference I mean that.

Typically we're putting on five year duration instruments, and so you know what we're rolling out today of what we rolled out or put all of them in 2016 or repricing today.

For 2016, and the environment is totally different and it was in 2019 and 20 of them is for higher so yeah.

The most significant difference of the overall average time deposits.

The point.

Okay I appreciate that and then on accretion and I didn't see it and the release you had a table and last quarters really so I wanted to ask what the ending balance of.

Of the unrecognized accretion on acquired loans was and and also how much P E and it is leftover from the legacy South state.

The portfolio from from the acquisitions that they had done.

Yes, Brody, it's well on slide eight on net loss absorption capacity slide we've got about $97 7 million of at 12 31.

And the remaining unrecognized discounts I can't cite for you the amount of debt that is on <unk>.

Older acquisitions, it would be and eggs.

A significant amount, but I don't know the numbers precisely.

Okay, and so as I think about accretion moving forward you know the the pretty good step down this corner from the 22 to the 12 and so I just wanted to get a sense for what you all thought the run rate on the Accretable yield would look like in 'twenty and 'twenty one.

Yeah, and and if and if you'll recall the.

And I know you listen to them of million participate and a lot of calls every quarter, but if you recall our last quarter. We had some discussion around the difficulty of predicting accretion and I would refer everyone back to those comments, but but having said that I would also say you know Q4 feels a lot more representative than Q3, where in Q3.

The 22, and a half million roughly in Q4 as it was 12 and asked me and that feels.

Given the the remaining balance and it feels like a more normalized level, but it is not.

A scientific Lee accurate prediction and.

That feels more like a normalized level.

Understood. Thank you all for taking my questions. This morning I appreciate it.

Thanks Brody.

So it concludes our question and answer session and I'd like to turn the conference back over to John Corbett for any closing remarks.

Alright, well the there's been great questions. Thank you guys and if you have any follow up questions that youre working on your models don't hesitate to call Stephen will.

Thank you for your continued interest and our company and I Hope you have a great day.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.