Q3 2021 SouthState Corp Earnings Call
Common equity.
Was 18, 7%.
Doug is here with us and we'll comment later in the call on another strong quarter at Atlanta capital They had 12% loan growth.
I do want to report that we received regulatory approval for the acquisition from the OCC.
And we are now awaiting federal reserve approval.
The shareholder vote is scheduled for November 16th So we're hopeful for a close in the first quarter.
We originally thought there was a chance we could convert the computer systems in the first quarter.
But it looks more likely in the second quarter, so that will push back the cost savings by about 90 days.
We've accomplished a lot strategically in the last two years.
With the MLP in 2020.
And the opportunity with Atlantic capital in 2021.
As we look ahead. It only makes sense that 2022 will be a year that we are internally focused rather than focused on bank M&A.
We're going to be focused on continuing our recruiting and our organic loan growth.
Finding our processes and new technology.
And improving our profitability.
As we saw in this quarter's results, 10% loan growth with an improvement in the expense base and a little lift in interest rates can have a powerful compounding effect in the quarters ahead.
I'll turn it over to will now provide further details on the quarter.
Thanks, John I'll cover some highlights on margin noninterest income and noninterest expense as well as credit in our provision for credit losses.
As shown on slide 11, net interest income for the quarter totaled $260 million core net interest income, excluding all accretion, including P. P. P accretion improved by $5 8 million from Q2, two and a half million of which was due to an additional day count and the remainder of which was due to stronger net interest income per day our loan.
Growth and continued improvement in deposit funding costs helped improve our core net interest income.
Our net interest margin was 286% for Q3 flat with Q2.
Loan yields of four 7% were up slightly from Q2, but loan yields excluding PPP loans were down 10 basis points to 391.
New loan yields in Q3 were $3 <unk> down 24 basis points from Q2.
As a reminder, and as illustrated on Slide 16, the average 10 year Treasury yield was down 26 basis points in Q3 versus Q2.
Overall cost of funds declined four basis points to 13 basis points.
Core loan growth, excluding PPP loans was $571 million.
Our C&I loans grew about $336 million, followed by owner occupied CRE at $93 million and construction, which includes consumer construction perm mortgages at $85 million.
<unk> family residential excluding construction perm loans declined by $14 million in the quarter.
Our commercial pipeline remains strong at $4 7 billion at quarter end as you'll note on slide 12, we had another good quarter of loan production.
On the deposit side, our cost of total deposits declined three basis points to nine basis points and total deposits grew over $318 million after a $344 million reduction in Cds.
We continued to deploy some of the excess cash into both loan growth and securities with security is growing about $615 million versus Q2 balances.
As you can see on slide 17 investments moved to 15, 7% of assets and our fed funds sold balances were at 13, 9% of assets and we remain below peers and securities to assets and well above peers and cash to assets. So we continue to have extensive dry powder.
Additionally, you'll note our asset sensitive profile and low historical deposit beta illustrated on slides 18 and 19.
Turning to noninterest income noninterest income of 87 million was up 8 million from Q2 as highlighted on slide 13 mortgage banking income improved by $5 5 million from last quarter's $10 1 million, but remains well below last year's record third quarter production was $1 3 billion with purchase loans.
I think 70% of total volume.
We sold 54% of our volume in the secondary market down 3% from Q2.
After last year's record margins gain on sale margins have returned to levels more consistent with historical levels with a slight improvement from Q2.
Turning to slide 14 correspondent income was $25 2 million down slightly from Q2's, $25 9 million.
Deposit fee income also increased $2 2 million some of which is attributable to fee waivers last quarter associated with our core system conversion.
Non interest expense total N I E. Excluding merger related expenses was $214 7 million down approximately 4 million from Q2 in spite of a loss on the sale of a piece of acquired or E. Due to a zoning issue and higher health insurance expenses due to claims activity.
Q3 also reflects a full quarter of merit increases which were effective July one.
Also as John referenced we've refined our conversion date for Atlantic capital is now expected to occur in the second quarter of 2022, rather than Q1.
With respect to NII and 2022 modeling this will slightly pushed back much of our cost save realization by a few months.
I'll now discuss credit.
With respect to seasonal and the allowance improvements and economic projections impacting our Los drivers led to another reduction in the allowance for credit losses.
These improved economic forecast caused us to record a negative provision for loan losses of $38 $9 million.
For this quarter's weightings of Moody's economic scenarios and our seasonal modeling we reviewed the underlying assumptions in the Moody's baseline in S. Three scenarios and decided to move to a slightly more conservative weighting than Q2 with baseline at 60% and S. Three at 40% versus two thirds, one third last quarter.
On that note as shown on slide 24, we had another quarter of excellent Los results with less than $50000 in net charge offs.
This brings our five quarter cumulative net charge offs to five basis points or an average of one basis point per quarter.
Our past dues NPA as criticized and classified assets remain alone.
Our ending reserves, excluding PPP loans are shown on slide 29, and were 135 basis points or 147 basis points, including the reserve for unfunded commitments.
The $75 million in remaining unrecognized discount on acquired loans represents another 33 basis points.
Turning to capital with the pending Atlantic capital merger and Safe Harbor limitations, our repurchase activity was more muted during the quarter. After announcement with total repurchases of 485000 shares in Q3 and an additional 120000 shares in early October.
Out of the market until the Atlantic capital shareholder meeting, which is scheduled for November 16th.
Even with the increase in loan growth in repurchase activity, our capital ratios remained strong with a leverage ratio of eight 1% C. T. One of 11, 9% and total risk based capital at 13, 7%.
<unk> per share ended the quarter at $43 98 up 10, 4% over the last year.
I'll now turn it over to Doug to give a few highlights on Atlantic Capital's quarter.
Thank you will and good morning, I'm pleased to have this opportunity to share Atlanta Capital's third quarter results with you.
As you know we filed our earnings release and Investor presentation last night and those are available on our website.
First of all I'd like to thank my Atlantic capital teammates for another great quarter. Despite the added work of merger integration planning and related distractions. They remain focused on helping our clients pursue opportunities that meet challenges.
While the economic recovery slowed during the quarter due to the Delta variant surge and there are uncertainties about the effect of fiscal and monetary policies on the course of the economy, our clients are performing well and continue to make investments for the future.
Those investments are driving our new business pipelines and resulting loan growth.
With strong growth in loans deposits and revenue Atlantic capital recorded another quarter of solid operating results.
As we reported Atlanta capital or <unk> 65 cents per diluted share for the third quarter of 2021 compared to 58% from the second quarter and 40 cents per diluted share in the third quarter of last year.
Pre provision net revenue was $14 $7 million.
9% annualized increase from the second quarter, and an increase of 36% compared to the third quarter of 2020.
Phone filled for investment excluding triple P loans grew 12% annualized from the second quarter of 2021, and 14% year over year.
Loan origination volume was strong across all of our banking teams in net loan growth was particularly strong in the commercial and industrial and commercial owner occupied real estate categories.
Atlantic Capital became a public company almost six years ago. These commercial loan categories have grown at a 13% compound average growth rate.
Credit quality is excellent there were no net charge offs during the quarter non.
Nonperforming assets as a percent of total assets was 0.10% at quarter end.
Criticized and classified loans decreased 34%.
As you've seen we recorded a negative provision of $2 $4 million for the quarter.
The allowance for credit losses, excluding triple P loans was 1.18% at quarter end.
With sharp focus on corporate Treasury management business for Atlanta, based enterprises and for high volume payments and Fintech companies across the country.
Atlanta capital has built a strong core deposit franchise.
Since we became a public company almost six years ago average total deposits have grown 20% compounded annually and average demand deposits have grown at a 30% compound average growth rate.
<unk> volumes service charges and average deposits in the payments and Fintech business continued to grow in the 40% range.
For the third quarter average deposits increased 13% annualized on a linked quarter basis and grew 38% year over year. The average cost of deposits was eight basis points down from 10 basis points last quarter.
Noninterest bearing demand deposits averaged more than 39% of average total deposits.
As we look ahead to the fourth quarter and to 2020, our new business pipelines are robust and we expect continued strong momentum in loan deposit and revenue growth.
Pat Oakes and I will be available to answer your questions. During the Q&A portion of our call. This morning.
Now back to John.
Thanks, Doug So we're encouraged with the healthy loan growth in the quarter, our progress on expense savings and growth in core net interest income and.
And with the strength of Atlantic Capital's results in a rising interest rate backdrop, we're feeling good about our momentum as we head into 2022.
Operator, let's open the line for questions.
Thank you if you would like to ask a question that'll be staff when they buy one.
Pat.
Phillip I G. If you change your mind.
First question today comes from Dennis agenda, that's true.
Is that EBITDA.
Thank you good morning.
Good morning, Jennifer.
Congratulations on a very good quarter do you think your pipeline and your business momentum right now.
Need better than mid single digit loan growth.
Continuing over the near term.
Yeah, Jennifer there is a slide we put in the deck on page 12, which I think is very illustrative.
What's gone on through the pandemic and the rising loan production that we've experienced this.
This quarter with loan production originations of $2 6 billion.
Its up from last quarter, and it's up 72% from a year ago.
From a net growth standpoint, it's.
It's the highest net loan growth we've had 573 million. If you go back two and a half years its more than double that.
The net loan growth dollars that we've experienced.
You know part of this is is.
Is seasonal basis that we had we did some business with some.
Companies that do hurricane cleanup for power companies and that was a part of the growth.
Quarter our.
Lines are growing into October but.
But at the same time, we are continuing to see sales of some operating companies and some sales of some CRE properties with these low cap rates.
I think our guidance Jennifer originally it was mid single digits for the back half of this year.
We wound up at 10% for the third quarter as I look ahead into the fourth quarter, maybe because of some of these seasonal businesses as well as some of these casinos, we might be low to mid single.
Growth in the fourth quarter, but I think our trajectory as we head into 2022 is going to look like mid to upper single digits, which I think is the guidance. We've given previously so I think we are on track mid to upper single digits in 2022.
Okay and can you quantify how much of that.
Loan production in the third quarter was from.
That more hurricane related.
Wendy.
Yeah, it's about a third of the net loan growth that's business that we have some clients that do work for large power companies in the northeast in the Gulf Coast States that come in after the Hurricanes, so that business typically increases in the third quarter, it's flat in the fourth and you see some of it.
Come down in the first and second quarter of the following year. So its about a third of the overall growth.
Okay.
My My last question is on asset quality or losses have been extraordinarily low.
What what's your outlook for the couple of years do you think they can stay.
<unk>.
Really low maybe not quite this low but that.
That really lab.
I think historically, if you looked at the asset quality metrics of our company.
Doug that at zero percent charge offs, south state's Interstate all very conservative underwriters relative to peer groups and the metrics. If you go back through the cycle right now Jennifer we're sitting on a tremendous amount of cash on the sidelines.
With our banks, but also with our consumer and commercial customers. So.
I would think that at least in the short to intermediate time period in the next year or so we will continue to see good asset quality metrics as long as there's so much cash and our clients our balance sheets.
Thank you.
Thank you.
Thank you Jennifer will now be leaving Eva T Brady Preston with Stephens Brody AVG.
Hey, good morning, everyone.
Good morning.
I wanted to just a real quick just on the on the seasonal the hurricane a commercial relationship so.
In terms of modeling should we expect that this kind of similar.
I think you said it was about a third of the overall C&I growth and that's about $110 million to $115 million or so.
That level of seasonality in the third quarter.
Every year going forward.
You know, it's just like predicting the weather so our clients. This year had client relationships, where storms landed so it might be a little bit outsized. This year that it would be in the future, but it's a business we like a lot of.
The counterparty on the other end of the repayment is these large publicly traded power companies. So this year I think there's a little more outside of just because of where the hurricanes landed.
Got it okay.
Okay.
Maybe it is on the mortgage the mortgage business.
Could you tell me what the what's the size of the servicing portfolio was at the end of the quarter I think it was $5 8 billion at June 30, you know just in terms of the size of the loan servicing.
Brody, Steve I don't have the number in front of me, but it's pretty close to that number it might be closer to 6 billion and we did grow it a little bit over the quarter, but.
So somewhere in that general general vicinity.
Okay. Okay. Thank you.
The last couple of quarters.
You know you you've ratcheted down the amount of the amount of production you have sold into the secondary market.
You know from like 70% ish or so closer to like 55%.
You know just thinking about the puts and takes between your expectations around growth on the commercial side.
You know and then the residential production should we expect you know the the secondary percentage to kind of remain in the 55% range going forward or should we expect that to move back up to the 70% range.
Yeah, but I would think it's probably somewhere in between but I would think it's probably closer to 60.
You know I think whats going to happen. If you looked at the MBA forecast for next year. The refinance index is supposed to be considerably down.
Which doesn't bother us very much.
Because 70% of our business is purchase but what that will do on our portfolio loans likely as those just allow for less refinance there and so just the natural evolution of loan growth in our own portfolio, it'll just stick longer because we won't have as much prepayment.
But obviously as we think about the the.
Economics of whether to sell alone or whether to keep alone. It has to do with the gain on sale margins that has to do with what our liquidity positions are there several things I think 60% is probably a good modeling.
Uh huh.
Okay. Thank you for that.
This is on the balance sheet the securities growth you know.
Thinking about the yields that you put on this quarter or what where are they what's the effective duration of the portfolio and you know what are your current plans for Chris.
For securities growth here in the fourth quarter.
Yeah, Steve again, we had a slide in there I think it's page 16, which just describe sort of the growth in our securities book and also sort of the the position and our cash position. So at the end of the third quarter, we had $5 $7 billion in cash and $6.
$4 billion Securities book as you mentioned it did grow 700 million I think we mentioned on the call. We have our best forecast, what's going to grow at 500 million or so a quarter.
What happen of course in the in the end of September we had saw a nice rate increase since they took advantage of some of that towards the end of the quarter.
As we think about that portfolio and as you all model relative to us and Atlanta capital combined.
Today, we're around little less than 16% of investment assets.
You know I think for us as we look at it as a combined company on a $45 billion balance sheet, we're somewhere between 16 and 18%.
<unk> is the way I would kind of model. It so maybe 17 or so and then you know we're just going to see what the yield curve does from here. There's so much uncertainty, but I think we've gotten to a position we'd feel a lot more comfortable with than where we were a few quarters, where we were more like 11 or 12% of assets.
Well I would just add that you know that that.
That assumes that we don't have unexpected additional.
Deposit growth I think the industry received more liquidity coming in deposits. This year than many of US expected. So it's hard to predict but based on what we see today that that's our expectation.
And if you look at that kind of play that out to the end of next year with Atlantic capital and with sort of flat deposit rates and with our loan growth. The way John mentioned that we're still going to have $4 billion of cash sitting on the balance sheet. So I think we're going to have plenty of flexibility to do whatever is necessary when the time comes.
Yeah.
Got it okay and I just have a couple more here.
On the origination side on the loans you know what are what are new origination yields coming on at you know a lot of other companies since then.
Demand how competitive it is and so I just wanted to get a sense from you whether that's hanging out.
Yep.
We think we will mentioned in his remarks I think it's 318 this quarter was the new production and you know.
Part of this is of course, the duration of what the lending you're doing and you were trying to be prudent there relative to the swapping some some larger deals.
Yeah, and you know sometimes that shows up in that yield day, one and it doesn't show up over a period of time, depending on what LIBOR. So far does so yeah. Our yield was 318 with the backup in rates I would expect.
Particularly the five year treasuries backed up probably 30 or 40 basis points I would expect that those new production yields would start moving back up towards three.
Got it Okay, and then last one just on the provision you all took another 20 minutes or so at a V. A.
The reserve ratio this quarter.
You know could you just refresh me real quick I thought it was like the day one combined was 115.
Per center stage, South Bay, and you know is that still a good level to think about you know for mine it from a normalized provisioning perspective.
Going forward.
Yeah, but it's well.
It's it's a hard question to answer.
I think that is a reasonable.
You know forecast, but the complexity.
You have with Cecil being adopted when it was and then the the.
Precedented government.
Reaction that has occurred and then the leading to a recession, where people didn't have credit losses is going to impact.
The statistical historical correlation between you know recessionary type economic.
[noise] tricks and Los drivers.
And and resulting losses, so it'll be an interesting issue for the whole industry to tackle when you're going to have a dataset come into the historical data that's gonna be abnormal at best So yeah, I think I think that's a reasonable way to model, but I just wanted to clarify that it's a it's a tough modeling proposition.
Based on the fact that we've been through a period with really no losses in spite of a recession.
Understood. Thank you very much for taking my questions everyone I appreciate it.
Thank you Brody.
Thank you Brady, we now meeting on T. Kathryn Miller of K B W.
Please go ahead.
Thanks, Good morning.
Hey, good morning.
I guess a question on expenses a nice reduction in expenses. This quarter, just given we have the cost savings fully coming in but you know we've.
Seen from really.
Some of your peers that have.
Have reported so far and an increase in expenses, just given wage inflation and mix higher technology costs and all the things do you think that some of your thoughts on expense growth from here and.
Do you think that kind of thing.
Their run rate is for 2022, maybe once they got ACD as cost saving fully in there.
Yeah.
Sure Catherine.
We we still expect you know in the shorter term Q4 to be what we had projected before there are always a few things that move one way or another that are hard to predict you know this quarter. We had some you know things with health.
Health insurance claims for example, we're self insured, but but generally we think that that range of you know to.
210 to $2 15 that we've expressed before is about right for the fourth quarter. So similar to Q3.
Looking ahead, we're still completing our budgeting process the guidance that we've given to the team is that we need to and expect to be in the low single digits.
In terms of our expense growth for next year.
You know and as we've said you know what.
Atlantic Capital, we expect to save roughly a third of their expense base. That's about 20 men on an annualized basis or 5 million a quarter.
With us doing the conversion late Q2, you'll you'll start to see that in Q3 and it will show up more in Q4 for them.
Now having said all that of course, we are in the same competitive market everyone else is for labor and all that but.
We're working hard to try to keep our expense growth down to that low single digit range.
And I think he mentioned earlier that the ECB I conversion you think as late Q2.
Have you changed when you believe you'll close the deal.
Yeah.
No we have not.
Noted the two remaining.
Things, we need to achieve to be able to close would be one the shareholder vote on.
Which is scheduled for November 16th and then secondly, you receive federal reserve approval, we received OCC approval.
So we have we have no reason to believe that our <unk>.
Currently play on January one closing.
Would be beyond that but you know its out of our control.
Okay great.
Okay. Thank you so much.
Thank you guys.
Now, leaving a that key Stephen Scouten of Piper Sandler Stephens. Please proceed with your question.
Hey, good morning, everyone.
Hey, good morning.
I am just to follow up on your comment there did I hear you say that correctly that you guys do need D. C fed approval on the deal and I know, we just I think there was one two days ago that maybe got D. C fed approval, but I'd say, there's another deal kind of in your markets. It's been delayed so.
I guess have you gotten any insight on what that timeline might be I know you said you don't have any reason to believe that change but.
Just anecdotally, what you're hearing from some people.
Okay.
Hey, Stephen it's John.
You know, we got OCC approval, rather rapidly as well.
Well said the shareholder vote is set so we've heard nothing concerning at all from the Federal reserve, but we do know that they've got a lot on their plate right now so I think the ball's in their court and so we're optimistic and haven't heard any reason why there would be delays but.
That's in Washington.
Okay Fair enough and then John you mentioned kind of for 2022, the strategic focus is really more on.
You know holding in H E B I organic growth continued new hires and.
You also put out some pretty impressive press releases around the new talent, you've been able to add I'm. Just wondering if you can frame that up in some way kind of if you have numbers on how many lenders you've added over the last 12 months or what kind of what your total pool of lenders are or what percentage increase anything like that that would kind of frame up just how big an opportunity that's been on the hiring front.
Yeah, we added a we did a press release, we added nine bankers in the third quarter.
The trend is very similar they typically.
20 to 25, 30 year veterans coming out of the largest banks in the metro markets typically there long term middle market bankers commercial bankers and treasury specialists. So we've just got a unique opportunity here.
With the company that we built that has both an entrepreneurial culture as well as the scale to compete with the largest banks that it's become a very very attractive platform.
For us so I look for that pace to continue you know I think in the last 12 months I think it's been in the neighborhood of eight to 10, a quarter. So 35 40 bankers a year that we're looking to add.
And we're really encouraged with the platform, we've got and the traction that it has for these bigger bankers.
Okay very helpful and maybe just last thing for me I know.
Capital had a recent press release talking about their expanded self relationship and I'm just wondering I don't know if that was.
Still available if there's any commentary there of just understanding what that expanded relationship means and what it could mean for the pro forma company any increases to kind of expectation since the deal was announced.
Stephen the.
The press release that you're referring to we talked about that we are beginning to issue a secured credit cards for yourself.
And I think that's it.
At the close of the quarter, we have several thousand cards outstanding now with our.
Average balance of maybe a couple of hundred dollars.
And again these are secured card. So this this is another avenue of loan growth.
Under the <unk> program, we have the credit builder account base.
Secured installment senior secured installment loans.
Have an average balance in the several hundred dollar range and now we're adding the credit card secured credit cards with.
Average balances maybe in the couple of hundred dollar range and we expect this to grow rapidly over the next few quarters.
Earlier this year, we had a $200 billion guidance for them at four so we've increased that to $500 million.
To accommodate anticipated growth.
You'll see.
Growth accelerate over the next few quarters from the bank and.
So.
Yeah.
Perfect. That's really helpful. Thanks for all the color guys and congrats on a great quarter.
Thank you Sue.
Thank you Steven before we move on to our final question that'll be stuff when they buy one if you'd like to make just a question. If you change your minds that would be stopped by teach comes to your question.
Our next question is from Christopher <unk>.
<unk> of Janney Montgomery Scott Christopher Please go ahead.
Thank you ma'am.
If we stick with Doug for a second the really strong deposit growth as well as the cash that's still outstanding and Atlanta capital was any of that temporary or is that still kind of a permanent part of your course.
Yeah, Theres some seasonality as you know Chris we.
We typically bill.
Build balances in the last two quarters of the year, but.
That's that's going to stick around.
It did last year and you know I don't see any so.
Significant moves to withdraw liquidity from the system.
A monetary policy and so forth so.
It is organic I think it will stick around there's some seasonality there related to the.
The ACTH processing business with payroll companies, but.
I think we'll see most of it I think.
Yeah, Chris I would focus on the average not that period, Andy Island, because that period end balances inflated.
But the payroll business, we have Thursday is a big number for us so the quarter ended on a Thursday, so that doesn't inflate the balance.
But you know again on in aerospace, we had 13% linked quarter annualized growth in deposits and we had a.
38, 36, 38% growth year over year.
So strong you know mid mid teens percentage average growth in the past. So I think it's a trend that is sustainable.
Great. Thanks for that and back to the South state side I just wanted to ask more about the correspondent banking business. Both on the AARC opportunities in the next couple of quarters as well as any new products that you have.
Envision in the future.
Yeah, Chris Yeah, we.
And that business has been really performed pretty steadily this year.
If you think about the opportunity there you know all the banking system has excess deposits that they have to do one or two things either have to loan it or invested.
And so just like we have all this excess liquidity set of our clients and thousands of clients and so you know I would think the shape of the yield curve is going to going to matter. There. So as the yield curve gets deeper we'll do more fixed income as the yield curve getting flatter, we'll do more swap income on loans.
Even the last couple of days, you've seen the interest curve the interest rate curve flattened my guess is that arent going to pick up some but.
Anyway, I think what we are.
We're trying to do is build out some I'll call it little specialties within some of those fixed income and arc products I don't think they're huge needle movers.
Relative to the income, but you'll you'll just continue to see I think really solid performance out of that group.
The great business, the $100 million plus revenue business, so that it doesn't really done really well and been pretty steady.
Great Steve Thanks for that and just last question, perhaps for well its the fixed rate lending in the portfolio I think it's 49% do you envision that changing much as 2022 and 'twenty three came into focus, particularly post the merger.
Yeah, Chris we really done that's been a pretty consistent.
Number for us over time, and I'll remind you too that fixed rate lending we do predict.
With the exception of some portfolio of mortgages generally going to be in that five year sort of range and so there's sort of a constant.
Amortization of that Rolling out you know rolling through.
And you know and that's an important part of our asset sensitivity, but I think it's even more important I guess is that is that core funding base.
We've got a slot in the deck that shows our our deposit costs.
Over the last cycle beginning back in 2015, that's on slide 19 of the deck. If you take a look at that but I think that that's really more of the asset sensitivity story.
And in fact, the the loan repricing, but to answer your question directly no I don't see that changing lifting differently from where it is today.
Chris I'd add we did have this new slide in there I think we will have had at page 19, and I. Just think it's worth you know when you have time to look at it for probably everyone on the call.
Because I do think it illustrates the.
Rising rate interest rate sensitivity, we have and you know so much of it is tied to our deposit base and it really illustrates the importance of our deposits and what we did in the slide on page 19 was we went back to the last rate cycle, starting in the fourth quarter of 2015, all the way to the end of the rate cycle.
Second quarter 2019, and we planted three things we've plotted our combined deposit costs, which is the bottom line middle line as the fed funds rate and the and the top line at the five year Treasury, which is where we do a lot of our lending and commercial lending and others and you know what it shows is our combined deposit beta.
Only 24%.
But I would probably direct you to.
The second quarter of 2018, you know in.
In the second quarter, a team the fed funds rate with only 175, but our deposit beta was only 15% to debate. The five year Treasury was 275, and our combined bank traded at more than three times tangible book.
The secret to this franchise is the rising rate and the deposit lag in the in the book. So anyway, just wanted to back the interest rate sensitivity. We tried to put that slide in just to give you. Some history of the combined company, where we think the future earnings power is.
If we get a little yield curve Hill.
No I appreciate that that's great disclosure, thanks for highlighting that the grass.
Yeah.
Okay is that was our final question. Thank you Christopher.
We will now hand back to the management team for any final remarks.
Alright, Melissa Thank you and thank you all for joining US. This morning, we appreciate your coverage of South state and as always if you have any questions on your modeling don't hesitate to reach out to will and Steve and hope you have a great day and as we sit here with Doug and Pat go briefs.
[laughter].
Okay.
This concludes today's call. Thank you for joining and have a great rest of it.
Yeah.
[music].