Q4 2021 SouthState Corp Earnings Call
Hello, everybody and a warm welcome it to the South State Corporation fourth quarter earnings call. My name is Miss I said there'll be a place that if you would like to ask any questions on today's call that will be stopped so they buy one you said I think he patch if you change your mind that would be still fill it by Chi I now have the pleasure handing over to our house today will Matthews.
To begin we'll either T.
Good morning, and welcome to South state's fourth quarter 2021 earnings call.
This is will Matthews and joining me on this call are Robert Hill, John Corbett, Steve Young.
Doug Williams and Pat Oakes of Atlantic Capital are also joining us to provide some color on their quarter.
The format for this call will be that we will provide prepared remarks, and we will then open it up for questions.
Yesterday evening, both companies issued press releases to announce earnings for Q4 2021.
We have also posted presentation slides that we will refer to on today's call on our Investor Relations website.
Before we begin our remarks I want to remind you that comments. We make may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Any such forward looking statements, we may make are subject to the safe Harbor rules.
Please review the forward looking disclaimer and Safe Harbor language in the press release and presentation for more information about risks and uncertainties, which may affect us.
Now I will turn the call over to Robert Hill Executive Chairman.
Thank you will and good morning, and thank you for joining our call today to discuss the fourth quarter of 2021.
This was a year of transition for the company, one where we moved past integration and quickly move toward execution.
I've always felt that the best sign of how a merger was progressing whats how quickly the company returned to growing its customer base post integration.
Our team moved into growth mode, almost immediately and you can certainly see the momentum building in the company, we're adding customers, adding talented bankers and seeing excellent opportunities to grow market share in great markets.
We're making progress in each of our guiding principles.
This profitability and growth.
Our balance sheet remains very strong and growing and this strength will help us achieve the profitability potential of the bank.
2022, as the year of internal focus any year, where I believe we will make significant further progress in all three areas I will now turn the call over to John .
Thanks, Robert Good morning, everybody I Hope you and your families are doing well.
As we reflect on 2021, it was a challenging year in many ways, but I'm proud of the way our team prevailed and successfully completed the largest conversion in our history last summer.
And as soon as the conversion was complete our bankers turned on the growth.
We continue to see a lot of positive momentum in the southeast as we accelerate out of this pandemic cycle.
If we step back and look at loans and deposits. This past year in 2021, we originated roughly $10 billion of new loans.
To put that in perspective, we originated about $7 billion in 2019 before the pandemic at about $6 5 billion in 2020, So 2021 solved 40% to 50% higher lending volumes in the past two years.
And we saw that trend accelerate in the fourth quarter as loan originations increased another 19% from third quarter levels to a new record of $3 $1 billion.
That level of loan production resulted in 7% annualized loan growth in the fourth quarter compared to 10% loan growth in the third quarter.
After the vaccine is rolled out last spring, we guided to mid single digit loan growth in the back half of 2021, and we wound up at eight 5%, so a little better than our guidance.
The excess liquidity from the Fed's monetary policy continues to flow onto our balance sheet.
Deposits were up 18% in the fourth quarter, even as we drove our deposit costs down to just six basis points.
And the excess liquidity in the system continues to lead to elevated loan payoffs.
Many of our clients have wisely sold their operating businesses at high valuations.
Our sold commercial real estate to lock in the gain from historically low cap rates.
A few weeks ago. The census Bureau, released the latest population migration trends for 2021, and the conclusions clear the south one the population battle during the pandemic.
The northeast the Midwest and the West all loss population and the South gained 786000 people.
Not surprising the south state footprint is in the fastest growing markets in the country.
Florida ranked number two for population growth behind Texas.
Followed by Georgia, North Carolina, and South Carolina.
Placing south state in four of the six fastest growing states in America.
That population growth is driving strong housing demand as well as demand for new construction and really all housing related products, including furniture appliances and building materials.
I'll give you a quick update on Atlantic capital are Doug is here to comment on the fourth quarter for Atlanta capital. They continue to deliver outstanding results with 22% annualized loan growth in the fourth quarter.
We've now received approvals from both the OCC and from the Atlanta capital to shareholders.
But we're like many acquirers were just waiting for federal reserve approval.
We're hopeful for a close in the next couple of months, but that is entirely subject to the federal reserve timing.
As we move into 2022, we're excited about our momentum we've been intentionally patient about deploying our excess cash.
Cash now makes up 15% of our balance sheet.
And with an improving economy and accelerating loan growth, we have a real opportunity to deploy that excess cash into a higher rate environment and drive our revenue higher in 2022.
I'll turn it over to Wil. So he can give you additional color.
Thanks, John I'll cover some highlights on margin noninterest income and noninterest expense as well as credit and the provision for credit losses.
Slide 12 shows net interest margin trends.
We had net interest income of $258 million in the quarter.
The 245 million, we reported excluding accretion was our best quarter ever for core net interest income and was up 6 million from the third quarter.
Loan yields ex PPP were flat with Q3 levels and incremental improvement in our cost of deposits six basis points combined with $508 million of growth in average loans helped drive the growth in core net interest income.
Although we deploy some cash into loans and securities are dry powder remains extensive as noted on slide 17.
We ended the year with $6 4 billion and interest, earning cash and fed funds sold up $700 million from the third quarter and up $2 1 billion from a year ago.
Fourth quarter deposit growth was one 5 billion some of which we believe to be seasonal or temporary due to municipal tax collections or asset and business sales by clients.
We estimate the more temporary deposit balance growth to be approximately half of the quarter's growth.
Noninterest income improved approximately 5 million from the prior quarter with a record quarter for our correspondent division and improvement in service charge income somewhat offset by a decline in our mortgage revenue.
As noted on slide 14 mortgage had a strong quarter of production of almost $1 4 billion, but.
But a tightening of margins.
$156 million decline in the pipeline led to a decline in revenue.
Service charge income increased from Q3 due to the ending of waivers.
Fourth quarter seasonality.
Operating N I E was up $2 7 million from Q3 due to a number of factors one of which was the loan growth incentive kickers being triggered in the back half of the year.
There is other expense categories were slightly higher as noted in the release.
Turning to credit.
Asset quality metrics continue to be very strong as noted on slide 26.
We had another quarter of net loan recoveries before DDA charge offs with total net charge offs of two basis points.
We recorded a $9 million negative provision for credit losses in the quarter.
Given the changing nature of forecasts for fiscal stimulus and the impacts of all micron, we waited Moody's S. Three scenario of 45% in the baseline scenario of 55% a slightly more conservative waiting then for Q3.
And the reserves were one 7% of loans.
Or one 4%, including the reserve for unfunded commitments as noted on slide 31.
On the capital front, we repurchased approximately 632000 shares in the fourth quarter, bringing the 2021 full year total to 182 million shares or approximately two 6% of the company.
Our 2021 capital return, including dividends was approximately $282 million as outlined on slide 22.
This represented a total payout ratio dividends and repurchases of approximately 52% of adjusted earnings and approximately 59% of reported earnings.
And capital levels remained strong with CET, one close to 12% and ending tangible book value per share was $44 62.
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 Atlantic Capital's fourth quarter results with you.
As you know we filed our earnings release and Investor presentation last night and those are available on our website.
I would like to thank by Atlantic capital teammates for another great quarter and for a great year, Despite pandemic related uncertainties and the distractions of merger integration planning.
Main focus on helping our clients pursue opportunities and be challenges.
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 Atlanta caliber recorded another quarter of solid operating results.
As we reported in Atlanta capital earned 57 cents per diluted share for the fourth quarter of 2021 compared to 65 cents in the third quarter, excluding merger related expense earnings per share were 59 cents.
For the full year, we earned $2.45 per diluted share that figure.
Excluding merger related expense was $2.60.
Pre provision net revenue for the quarter was $14 $3 million or $15 1 billion excluding merger expense.
Loans held for investment excluding Triple P loans grew 22% annualized from the third quarter and 14% for the full 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.
Since Atlantic capital became a public company six years ago. These commercial loan categories have grown at a compound average growth rate of more than 13%.
Credit quality is excellent.
Charge offs for the quarter were 11 basis points of loans for the full year net charge offs were six basis points.
Nonperforming assets as a percent of total assets was 0.11% at quarter end and classified loans as a percent of total loans was one 5% compared to 3.25% at the end of 2020.
As you've seen we recorded a negative provision of $731000 for the quarter compared to $2 4 million last quarter.
The allowance for credit losses, including Triple P loans was 106 basis points 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 six years ago average total deposits have grown more than 20% compounded annually and average demand deposits have grown at a 30% compound average growth rate.
Payments volumes service charges and average deposits in the payments and Fintech business grew more than 40% annualized during the quarter.
For the fourth quarter average noninterest bearing deposits increased 33% annualized on a linked quarter basis and grew 52% year over year.
Noninterest bearing demand deposits averaged more than 44% of average total deposits.
The average cost of all deposits was seven basis points.
As we look ahead to our pending merger with South state our new business pipelines are robust and we expect continued strong momentum in loan deposit and revenue growth.
I'll be available to answer your questions during the Q&A portion of our call. This morning now back to John .
Alright, Thanks, Doug.
All of the pieces are starting to come together the population growth in the southeast the growth in loans in both the Atlantic capital and South State and.
And a lot of dry powder in the form of excess cash to invest into a rising rate environment.
Operator. Please go ahead and open the line for questions.
Thank you if you would like to ask a question.
So they buy one when you kind of think he pants.
Change your mind that'd be stuff when they buy <unk>.
Please ensure that you are on mute.
I had a question.
We'll take our first question today.
Stephen Scouten.
Well good morning, everyone.
Yeah.
Good morning, Yes can you hear me.
Okay, great. So again can you hear on that versus maybe yeah, I cant again.
Hear me.
Yes.
Okay, sorry about that yes, we can I'm curious first I know you spoke to you'd been patient about excess cash and I think EBIT kind of laid out.
Targets in terms of liquidity deployment expectations last quarter, maybe the quarter previous as well I'm wondering if you could give us an update there just in terms of how you're thinking about the pace of deployment with where rates have moved to now and where they look to be going.
Sure sure Steven it's Steve.
Yes, so I think what we've guided to over the last several quarters is that our investment securities to assets would be somewhere between 16 and 18% by the end of the year and I think right now were around 17%.
Yes.
As we think about the future.
All of this excess powder on the balance sheet and today, our loan to deposit ratio with and really without ACI is 68%. So as we think about the next 24 months. Our goal is to take this loan to deposit ratio from 68 closer to 80% in the next two years and if we can do that.
That will spend a fair amount of the excess liquidity, having said that there is still probably $3 million that still dry after all of that and so as we integrate the Atlanta capital into the mix in our investment portfolio will probably have a better guidance as we think about that next quarter. Once we get the close there, but right now there's really no change in that guidance.
But just from a big picture perspective, 68% loan to deposit ratio going towards 80.
In the middle of that will put the securities portfolio together and look at reinvesting if it's opportunistic.
Okay. That's helpful and then.
Can you give any.
Color as to where you think expenses are going to go here in 'twenty, two maybe pre Atlantic capital and how that kind of clouds. The overall number but on a on a core basis can you talk about what do you think expense growth will be and kind of what the drivers of that would be maybe at new hires maybe it's just inflation kind of how we can think about that.
Yeah.
Sure Stephen as well.
You know the fourth quarter, and I and legacy South state was up a bit from the third quarter.
The items that we noted in there in the release.
And as I mentioned I think in our third quarter call. Our goal for 2022 is to try to.
The inflation and NIH to low single digits.
And that's certainly our plan and our budget.
We do recognize there is inflationary environment that we're all subject to and Thats, what we have to compete in the market, but that would be our plan. So if you look at the Q4 run rate.
Up a bit from Q3.
Something.
That general range, where we were in Q4, it's maybe a little bit higher as sort of how we see things shaping up in 2022.
But again, we'll have to compete with market forces.
And react accordingly, but that's our that's our plan right now.
Okay, great well I'll, let somebody else jump on thanks for the color.
Yeah.
Thank you Steven we'll now move to Michael <unk> of Raymond James Michael. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Just wanted to talk about slide 13, I think it is really compelling.
Fact that the origination.
Volumes have been up so.
Mislead you.
Year on year.
Obviously, the pay downs have been an issue doug's, obviously growing at a really high rate as well you know when do you think the paydowns slow as it is it as rates rise.
Talked about M&A activity in selling businesses and things like that but when can we expect to see a more robust pick up in net loan growth.
Any commentary would be helpful. Thanks.
Hey, Michael it's Jon good morning.
For the for the back half of the year, we wound up at about eight 5% annualized loan growth was 10% in the third quarter, 7% this quarter, but yes to your point, it's kind of interesting our loan production went up but our net growth went down and so we spent some time analyzing that.
And sure enough, we looked at our big pay offs, and we had about $170 million more of large payoffs in the fourth quarter than we did in the third and you go down the list and it's.
Yes, it's family businesses multi generational operating companies that sold.
We had a lot of real estate investors that are selling CRE at these record low.
Cap rates to get the game. So I do think that interest rates play a big big part of this and the extra liquidity in the system.
We've kind of thought that at this level of loan production, we ought to be producing high single digits to 10%. If we could slow the prepayments down so I think as interest rates drift up youre going to have less prepayments on residential and as interest rates drift up the cap rates are going to move up.
CRE and those gains are going to be less so there's probably going to be less churn in the CRE portfolio.
You know I feel I'm real pleased with the level of production.
And if you get a little less liquidity in the system, a little higher interest rates. It could it could very easily move in the high single digits to 10% loan growth where we're at.
Okay. That's very helpful. Thanks, John and then maybe just following up on slide 19, because I think this is also a pretty compelling.
Don't know if this is for Steve or well, but if you can comment on some of the assumptions.
For that one year change, which was relatively unchanged.
From last quarter in terms of what that implies in terms of securities portfolio deployment deposit betas.
Et cetera, and then.
What the impact.
Potentially be based on initial purchase accounting marks.
And the like from the addition of <unk>.
Yeah, Michael It's Steve maybe will can follow up with anything I missed but.
All of this is doing is taking our balance sheet as a point in time static balance sheet. So it's not growing at for securities or anything like that and just shocking it for rate 100 basis points across the curve.
So when you look at that number what it what it does is it makes the.
The net income of the bank up about 15% now we all know there'll be a 100 basis points in one day, but this is directionally just tells you.
Incrementally moved 25 basis points, what have you that's how that would play out.
Per our model.
A couple of things to note on that slide two is our.
Our floating rate loans are around 31% on a on a daily basis and then we have about.
Another 20% that are variable and the.
A lot of that re prices in the first year at only 49% fixed so that drives some of it but you know I kind of go back to what really is the.
The asset sensitivity to our entire franchise, obviously, we have a lot of cash sitting on the balance sheet today.
We normally don't have so 15% of assets. That's obviously a driver number two our floating rate loan portfolio is probably well within peers, it's pretty normal for our size, but the.
Piece that I think is probably the most important is just our deposit portfolio and the power of our franchise.
In a rates up environment.
We have a slide in here the detailed out our deposit but yeah. We have 59% of our deposits are in checking accounts versus 41% for our peers and so that's just a significant advantage or change we have 816000 checking accounts and a million to total.
No.
And higher rate that's when.
The beta stage stay lower than hopefully peers, and Thats, where you outperformed so all of that is built into this model, but hopefully that helps answer your question Steve.
Stephen it's well I'll, just elaborate a little bit on that the modeling we use does.
Incorporate our historical deposit betas.
And as Steve just alluded to.
Yes, one thing Thats, a little bit different this time around is that we're entering this.
Rising rate cycle with a much lower loan to deposit ratio. If you look back to the last one I think we ended up.
Second and third quarter of 19 with a loan to deposit ratio in the low to mid Ninety's 90, 394% or so.
And as Steve said, we're at 68% today and that's not uncommon.
The question will be.
How how different betas this time around given all the liquidity on all of our competitors balance sheets.
Absent a big.
Removal of other liquidity in it.
Very rapidly one would expect that betas would be lower across the industry and this and this.
At this time round it we'll see.
Yes, just to marry up one other thing.
I know, we will have 10-K disclosures that will come out at some point, but.
This is a net income disclosure not a net interest income disclosure. So net interest income disclosure will be closer to 9%, but the net income disclosure is what we have here, which is a bit of more of a permanent one that youll hear about.
Yeah.
Helpful. Because I think that's up quarter on quarter, correct, because I think.
The NII sensitivity in the last quarter was closer to 6% and now you're saying nine for NII.
Well now it's nine with the with the shock of ramp was around six so that may be.
And maybe what you're thinking Michael.
I don't think it's changed that dramatically.
No it hasn't.
Okay understood maybe maybe just one final one for me so Steve maybe if you can go into the the increase in correspondent banking. This quarter is a little bit more than we were expecting can you just talk about the puts and takes as.
As we think about 2022.
Yeah.
Sure Yes, it was.
Really great quarter from the correspondent team and kind of the driver of that this quarter was our interest rate swap business. I think this quarter was up about $7 million quarter to quarter action that fixed income business was down couple of million dollars and it really comes back to if you think about the.
For the environment, we were in the fourth quarter. It was just like US there was a lot of loan production that was going on and then also the yield curve was a little bit flatter in the fourth quarter before it steep enough in the first quarter. So those ingredients along with just great loan production kind of caused the fourth quarter to be very strong and fix.
Income to be a little a little weaker, but ultimately up $5 million. So very happy about that as we think about.
Overall fee income.
Our guidance hasn't changed for that and several quarters I think we've laid it out as a percentage of assets and what we've said is on a stand alone South state would be 80 to 90 basis points on a standalone basis.
Atlantic capital.
Combined would be more like 75 to 85 basis points non interest income to assets and we don't really see that changing a whole lot over the course of the next 12 to 24 months. So hope that's helpful.
Very helpful. Thanks for taking all my questions.
Thank you Michael.
Thank you Michael we'll now move over to a question from Jennifer Denver from tourist Jennifer. Please go ahead.
Thanks, Good morning.
Good morning, good morning.
Well.
Question about your buyback appetite.
At this point over the next several months.
How are you thinking about that.
Okay.
Jennifer it's John .
The board authorized a buyback of 5% of the company about a year ago, and we're a little more than halfway through that 1 million eight shares out of the three and a half million. So we bought back two 6% of the company.
Our thinking is we're continuing to generate excess capital.
We do not.
Believe that we're going to be growing theres no need to grow the balance sheet, because we've got so much liquidity today. So we think we'll continue to generate excess capital and.
And we think that as interest rates rise in the course of the next year or so bank valuations will improve so we think it's a good time.
To put our capital to use in buybacks.
So we've been reasonably active in last two or three quarters.
And if the valuation stay close to where they are today, we'd probably continue to stay active.
A couple of quarters.
Okay great.
And what is your outlook on the correspondent.
Oh, Thank you Gary So the next yes.
With higher rates.
Yes.
Steve.
You know I think what we've said over the course of the.
Several quarters is that be ranging between $24 $28 million. This quarter, we had 30, which was a really good quarter for us, but I think the same guidance as kind of the same theme as what we've talked about and I'll tell you why.
Yes back to all of this excess liquidity in the banking system at all of our.
Clients. They all have this excess liquidity, so they have more than others and they're going to do one or two things with it over the next 24 months just like we are where they are they've got a loan it or they're going to invest.
And so for US we have the products to both sell them on the fixed income side, if the yield curve gets steeper or if the yield.
Yield curve gets flatter will probably be more interest rate swap business.
The slide that we put out there.
On the page.
15, and it shows the last I think five quarters of fee income for.
For the correspondent and then we have 1060 financial institution clients and you can see it's reasonably steady but for different reasons sometimes.
The arc revenues, which is our interest rate swap business does better and the environment and sometimes our fixed income does a little bit better in a lot of that really depends upon the yield curve and how that moves so I hope that's helpful.
Okay. Thanks, so much.
Alright, thank you.
Thank you Jennifer will take our next question from Catherine Mealor of <unk> Catherine. Please go ahead.
Thanks, Good morning.
Yes.
Good morning.
Oh, one more follow up on fees service charges.
With the price to see the increase this quarter I'm, assuming some of that's just kind of a higher seasonal fourth quarter like we typically see but how do you think about the outlook for service charges and some changes we're seeing.
Overdraft fees in the industry.
Well why don't I take the quarter.
And then let John take the outlook going forward. So youre right catheter, there's two really two components.
Or for that roughly forming a pickup.
Hum.
One of it is just seasonal card use Christmas shopping et cetera that occurred and then the other bigger factor was we still had some waivers in.
Place in the third quarter post conversion.
We did the conversion in the second quarter kept some waivers out there fourth quarter. Those are all expired. So we had none of those in the fourth quarter, but the combination of those two items really led to the increase quarter over quarter.
And as far as going forward clearly the market is moving very quickly Kathryn as it relates to overdraft fees and practices and I would just tell you that that's something we continually evaluate we continue to make adjustments to and we'll do that in the future.
Generally as you look at the service charge number.
It's hard because we haven't really seen a full kind of normal year of service charges with south data centers they combine.
The first time, we saw that together with Covid.
Do you think we're still.
We're still not at a full kind of operating run rate.
It truly shows the benefit of the merger is that fair or do you think there is still.
Kind of headwinds and maybe this quarters run rates, maybe you kind of a more appropriate.
Dave.
Yes.
No.
Kathryn I'd say.
My impression is that the fourth quarter did have some seasonal I don't have that most fourth quarters or I guess.
As long as consumer behavior, it is where it is but.
The fourth quarter as the first quarter when we didn't have any of the waivers and so if you normalized for a little bit of seasonality, maybe the fourth quarter's run rate is a pretty good look with with you.
Where we are our legacy South state, we don't have a good year of history to show yet obviously with the conversion of cord cutting in the second quarter and then the waivers that we did and then the fourth quarter of course, having some some seasonality so.
Yes that makes sense that makes sense.
And then on work on loan yields.
That's actually stayed in a little bit more stable than I was expecting so any kind of color you can give on loan pricing.
Where do you think that loan yield maybe bottomed before we kind of get start to get the benefit of higher rates.
Yes Catherine.
No.
This quarter I think our loan yield for the portfolio ex accretion all of that was around $3 77.
[noise] arent going on yields for loans within the $3 13 range I think for this quarter and a lot of that as you know has to do with where you are out on the curve. We had a fair amount of production at a fair amount of that we ended up swapping to floating ratios because.
We felt like maybe the fed will probably start moving rates the same legal or client.
So.
The way I think about that.
If we can get.
Our rates to move up from a from a fed funds LIBOR perspective, 31% of our portfolio, we should be bottoming out here in the next quarter or so and then from there will start increasing with the rest of the market.
Okay.
Great very helpful. Thank you.
Thank you Catherine we are now going to move over to Christopher <unk> of Janney Montgomery.
Chris maybe Keith.
Thank you ma'am.
I wanted to ask you about the accretion income relative to total NII will slide you gave was very helpful. And just as a reminder, does that relationship change much with <unk> coming in and will continue to decline. This next two years.
Yeah.
Yeah, let me take them maybe in components.
So the PPP.
Deferred fee accretion, that's essentially gone I mean, we've got a little bit less on balance sheet, but that's that's.
You can take that out of your models. If you hadn't already of course, and I would say our normalized <unk>.
Run rate for the regular acquired accretion as you are today, we think of that in the sort of 5% to 16 range. This quarter is a little bit higher than that and some of that is hard to predict but that's sort of how I think about it we don't anticipate the.
The accretion on the Atlantic capital side.
Dramatically changing our accretion we don't think accretion would be a big part of the story posted Atlanta capital closing so.
Not a big number addition, there in our modeling.
Chris I would just add that I think what we've said a couple of quarters ago, then as we thought about 2020.
Two was that our accretion income would be somewhere in that $5 million to $6 million range and after we got through PPP. So I think it's the same.
<unk>.
For the last several quarters.
Great Steve Thanks for that and well. Thank you as well just a quick follow up on Doug and Pat from Atlantic capital the change in cash and deposits that we saw a period added with any of that seasonal for them and if that's something that would come back at the first half of the year.
Chris This is Doug some of it is seasonal we see that every every fourth quarter.
But theres also some strong organic growth in the midst of all that so I think youll.
Perhaps it would be modestly lower.
In the first quarter of this year, but not significantly so Pat would you yes. So Chris if you look at the average deposit growth was pretty flat and part of that was us driving down some deposit cost is particular products that probably caused a decrease if you carve that piece out it was actually up for the quarter and then the period end number it just depends on the data leak, especially with our payments business.
Not significantly.
<unk> because of the Thursday.
And then at year end it was down because of the day. The week goes on a Friday. So you really look at averages and when you look at that.
Okay.
Got it thanks, I appreciate that Thats helpful.
And Chris the mix has also continued to change more towards non interest bearing DDA.
DDA was non interest bearing DDA was 44%.
On average in the fourth quarter that was up from the third quarter.
And those those are those deposits that category of deposits continues to grow at a very strong pace.
Yes, good point, Doug Thank you again.
Thank you Christopher before we move on to our final question. As a reminder, if you would still like to ask a question. It will be staff when they buy one on your telephone keypad thoughtfully by Keith you change your mind.
Really the key Brady Preston with Stephens, Inc.
Hey, good morning, everyone.
Hey, Brian .
I wanted to ask just on just to follow up on the RF revenues I, just wanted to clarify where that.
Does that all kind of like what you would consider operating or were there any kind of mark to market gains within that just because the $7 million quarter over quarter increase was relatively large.
No no. It was all organic no mark to market in that I mean, if you remember.
As I've described it on this call or another but.
In 2020, when the yield curve is flat that business did $80 million of revenue for the year of 2020.
This quarter at $17 million is a really good quarter, but not a record quarter by any means but that is better than that over the last couple of quarters.
Got it that's helpful. Thank you.
And then just maybe one more on fees just the <unk>.
Mortgage production it looks like it looks like you all are continuing to balance sheet.
A relatively larger mix of mortgage production than you historically have.
And so I guess I wanted to ask one why and then to the gain on sale margins are going to track. This level going forward do you envision maintaining that mix of portfolio of our secondary just given that the margins are starting to get a little slimmer.
Yes Brady.
This is Steve I think Youre referencing page 14, and hopefully this disclosure that we'll put together over the last couple of quarters has been helpful.
Helpful for me as we look at it yes.
Yes, the mortgage production is affected with very robust I mean, it was almost a $1 billion for this quarter last quarter was a $1 three and then the fourth quarter of last year, which was an excellent quarter with $1 four so really.
Year to year.
Production 2020, which was a record year for US was $5 5 billion. This year with a five four so.
Congratulations to that team, they've just been really working hard and doing well.
Things that strike me on this page are a couple of things one is.
If you look at the trend on the gain on sale margins a year ago. They were 456% now there are 283 with $2. Eight three is just much more of a normalized gain on sale margins. So there's nothing to be alarm about that that's just more normal, but thats down 170 basis points, which is obviously taking away some of the fee income.
And that's why I think what you see in the top right column there as we're moving more of that production, which was a year ago, 72% secondary now down to 53% secondary and and so I would assume.
That as we kind of move forward here into higher rates and we're getting more opportunities to do arms on balance sheet will have more of an opportunity is to continue to kind of that mix. So I would say of that 55.
55% secondary 45%.
Portfolio would probably be a good.
Mix.
One of the things that are driving that.
Again to the portfolio or it's just there's just a lot of new construction.
<unk>.
Single family home owners who've come in there and do a custom built house because there's just not a lot of inventory. So we're doing a lot of that and we're doing a construction loan and then are.
Putting an arm on it on the backend.
There's a lot of commentary, but I would just describe it.
Strong production year, where that portfolio, we saw in the in the fourth quarter.
Consumer real estate went up around 6% if you pulled out HELOC theres been more like 9%, so I kind of see that as sort of a good run rate going forward.
Got it that's very helpful. Thank you for that and then just on the origination yield $3 13.
It was down five bad second quarter over quarter, and similar to the core loan yield without without any accretion and so I guess, just as we think about new origination yields going forward.
All that are on different kind of a fed rate hike assumptions, but do you expect maybe further compression on new origination yields in the first and second quarters of the year.
Depending on what the fed does or just can you help us think about think about that.
Yes.
The way I would say it is our average loan size this quarter was up a little bit and so typically as you get a higher.
New loan origination those spreads tighten up a little bit just because of the nature of that so I guess, it probably depends upon our mix.
The end of the day, we have a loan pricing model.
That prices to the curve and so as the curve moves up we still while they continue to get our spreads and Theres always a dance in there, particularly when rates rise for the first quarter or two but long term that model works and overtime you do get the spreads.
The question is with all the liquidity is sitting in the system.
This year with this time, which is a great question and I don't think any of US know the answer but I do know that when the security yields go to two 5% and you can do it with free yes. It makes it a whole lot easier or alone.
To be more disciplined on that.
Got it okay.
And then just on the loan growth rate, particularly within C&I. So you all had a good year here I think it was up like 13%.
When you exclude PPP related loans.
This quarter was a little bit light relative to H eight and what some of your peers are putting up and so I wanted to ask is there was there anything specific that drove that beyond the business sales.
You noted Jon and if you can help us think about.
The sizes of those pay downs within C&I it would be helpful.
Sure.
If you recall in the third quarter.
We had a seasonal surge in C&I loans that was attributed to some hurricane cleanup business that we do and we mentioned that that would that would.
Starting to tail off seasonally in the fourth quarter and the first quarter. So that was a little bit of a headwind, but we're still happy year over year C&I has grown 13%.
And a lot of that is attributable to the middle market bankers that Gregg Lapointe is recruited and brought in to the company.
But I do think that this particular quarter at a 6% growth there was probably the seasonality of the hurricane business as well as just more of these operating companies selling and paying off at a higher rate than they did in the third quarter.
Got it thank you for that and if I can just sneak in just a couple more quick ones on on slide 25.
You all have given me a good detail around the checking accounts and I wanted to ask do you know if that two thirds, one third mix of commercial versus retail checking and similar to what it was last cycle on a pro forma basis.
Yes, Brady this is Steve.
I think we've checked that that number it's a good question, but I don't think we've looked at it pre <unk> on a combined pro forma.
I don't think so I would ignorant.
I normally say, it's close to that royalty, but we don't we haven't we haven't put that together so a good question.
Okay. Okay, and then just one on the Securities book.
Do you happen.
Now with the duration of the effective duration of the portfolio is and then for the total portfolio do you know what.
On the book is floating rate.
Yeah.
Yes, I think our effective duration for the entire book is around $4 seven years.
I think the floating piece is about six 6% of the book So really most of those are fixed securities.
And that's part of my comments when we bring on the book for ACB of high they are a little bit of a longer portfolio will examine all of that when we put the fair value marks depending on what state would close.
Put all that together at that point and really that was for the full portfolio of answer Steve gave you. We don't have it broken out by <unk>.
<unk> and HTM.
My guess would be the <unk> would be a little bit shorter.
Just be.
Good way, but when you put an HTM typically don't have precisely in front of us.
Got it. Thank you there and thanks for taking my questions everyone I really appreciate it.
Thank you.
Thank you Brady that was our final question.
I'm going to hand back to the management team.
Alright, Thanks, Melissa and thank you all for joining US. This morning. We appreciate your continued coverage of South state and Atlanta capital.
And as always if you have any questions don't hesitate to reach out to will or Steve as you're working on your models and I Hope you have a great day.
This concludes today's call. Thank you all for joining and have a great rest of your day.
Yeah.
Yeah.
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