SouthState Bank Corp (SSB) 2021 Q4 法說會逐字稿

Hello, everybody, and a warm welcome to the SouthState Corporation Fourth Quarter Earnings Call. My name is Melissa, and I'll be your operator. (Operator Instructions)

I now have the pleasure of handing over to our host today, Will Matthews to begin. Will, over to you.

Good morning, and welcome to SouthState's Fourth Quarter 2021 Earnings Call. This is Will Matthews, and joining me on this call are Robert Hill, John Corbett, and Steve Young. Doug 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've 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 press release and presentation for more information about risks and uncertainties, which may affect us.

Now I'll 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 and one where we moved past integration and quickly moved toward execution. I've always felt that the best sign of how our merger was progressing was 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 are making progress in each of our guiding principles, soundness, 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 is a year of internal focus any year where I believe we will make significant further progress in all 3 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 in new loans. To put that in perspective, we originated about $7 billion in 2019 before the pandemic and about $6.5 billion 2020. So 2021 saw 40% to 50% higher lending volume in the past 2 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 vaccines rolled out last spring, we guided to mid-single-digit loan growth in the back half of 2021, and we wound up at 8.5%, 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 6 basis points. And the excess liquidity in the system continues to lead the elevated loan payoffs. Many of our clients have wisely sold their operating businesses at high valuations or 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 conclusion is clear. The south won the population battle during the pandemic. The Northeast, the Midwest and the West, all lost population, and the South gained 786,000 people.

Not surprising, the SouthState footprint is in the fastest-growing markets in the country. Florida ranked #2 for population group behind Texas, followed by Georgia, North Carolina and South Carolina, placing SouthState in 4 of the 6 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. Doug is here to comment on the fourth quarter for Atlantic Capital, and 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 Atlantic Capital shareholders. But we're like many acquirers, we're 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 Will, 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, incremental improvement in our cost of deposits to 6 basis points, combined with $508 million growth in average loans helped drive the growth in core net interest income. Although we deployed some cash into loans and securities, our dry powder remains extensive, as noted on Slide 17. We ended the year with $6.4 billion in interest earning cash and funds sold up $700 million from the third quarter and up $2.1 billion from a year ago.

Fourth quarter deposit growth was $1.5 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 a tightening of margins and a $156 million decline in the pipeline led to a decline in revenue.

Service charge income increased from Q3 due to the ending of waivers and fourth quarter seasonality. Operating NIE 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. Various other expense categories were slightly higher as noted in the release.

Turning to credit. Our 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 2 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 omicron, we weighted Moody's S3 scenario of 45% and the baseline scenario of 55%, a slightly more conservative weighting than for Q3. [Ending] reserves were 1.27% of loans or 1.4%, including the reserve for unfunded commitments as noted on Slide 31.

On the capital front, we repurchased approximately 632,000 shares in the fourth quarter bringing the 2021 full year total to 1.82 million shares or approximately 2.6% 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.

Ending capital levels remained strong with CET1 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'd like to thank my Atlantic Capital teammates for another great quarter and for a great year. Despite pandemic-related uncertainties and the distractions of merger integration planning, they remain focused on helping our clients pursue opportunities and meet 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, Atlantic Capital recorded another quarter of solid operating results. As we reported, Atlantic Capital earned $0.57 per diluted share for the fourth quarter of 2021 compared to $0.65 in the third quarter, excluding merger-related expense, earnings per share were $0.59.

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 million, excluding merger expense. Loans held for investment, excluding PPP 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, and 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 6 years ago, these commercial loan categories have grown at a compound average growth rate of more than 13%. Credit quality is excellent. Net charge-offs for the quarter were 11 basis points of loans. For the full year, net charge-offs were 6 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 1.5% compared to 3.25% at the end of 2020. As you've seen, we recorded a negative provision of $731,000 for the quarter compared to $2.4 million last quarter. The allowance for credit losses, including PPP 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, Atlantic Capital has built a strong core deposit franchise.

Since we became a public company 6 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 7 basis points.

As we look ahead to our pending merger of SouthState, 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.

All right. Thanks, Doug. All the pieces are starting to come together. The population growth in the Southeast, the growth in loans at both Atlantic Capital and SouthState 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.

(Operator Instructions)

We'll take our first question today from Stephen Scouten of Piper Sandler.

So I'm curious first -- I know you spoke to -- you've been patient about excess cash. And I think Steve had kind of laid out some 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, Stephen. It's Steve. Yes. So I think what we've guided to over the last several quarters is that our investment securities assets would be somewhere between 16% and 18% by the end of the year and I think right now, we're around 17%. As we think about the future, we've got all this excess powder on the balance sheet. And today, our loan-to-deposit ratio with and really without ACBI 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 2 years. And if we can do that, that will spend a fair amount of the excess liquidity. Having said that, there's still probably $3 million that's still dry after all that. And so as we integrate the Atlantic Capital into the mix and their investment portfolio, we'll probably have better guidance as we think about that next quarter once we get the close through.

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%. And in the middle of that, we'll put a securities portfolio together and look at reinvesting it 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 '22, maybe pre-Atlantic capital? I know that kind of clouds the overall numbers. But on a core basis, can you talk about where you think expense growth will be and kind of what the drivers of that will be in terms of maybe it's new hires, maybe is just inflation and kind of how we can think about that?

Sure, Stephen. It's Will. The fourth quarter NIE and legacy South it was up a bit from the third quarter, and there are a few 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 hold the inflation in NIE to low single digits. And that's certainly our plan and our budget. We do recognize there's an inflationary environment that we're all subject to, and that's 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 in that general range where we were in Q4 to maybe a little bit higher is 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 plan right now.

We will now move over to Michael Rose of Raymond James.

Just want to talk about Slide 13. I think it's really compelling the fact that the origination volumes have been up so nicely year-on-year. Obviously, the paydowns have been an issue. [Doug's] obviously grown at a really high rate as well. When do you think the paydown slow? Is it as rates rise, you talked about M&A activity and selling businesses and things like that. But when can we expect to see a more robust pickup in net loan growth? Any commentary would be helpful.

Yes. Michael, it's John. For the back half of the year, we wound up at about 8.5% annualized loan growth. It 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've spent some time analyzing that. And sure enough, we looked at our big payoffs, 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 family businesses, multigenerational 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 gain. So I do think that interest rates play a big, big part of this and the extra liquidity in the system. So we 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, you're going to have less prepayments on residential. And as interest rates drift up, the cap rates are going to move up on CRE, and those gains are going to be less. So there's probably going to be less churn in the CRE portfolio. So I feel -- I'm really pleased with the level of production -- And if you get a little less liquidity in the system, a little higher interest rates, it could very easily move into high single digits to 10% loan growth, where we're at.

Okay. That's very helpful. And then maybe just following up on Slide 19, because I think this is also pretty compelling. I don't know if this is for Steve or Will, but if you can comment on some of the assumptions for that 1-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 could potentially be based on initial purchase accounting marks and the like from the addition of ACBI?

Yes. Michael, it's Steve. Maybe Will can follow up if anything I missed. But all this is doing is taking our balance sheet at a point in time, static balance sheet. So it's not growing it for securities or anything like that and just shocking it for rates 100 basis points across the curve. And so when you look at that number, what it does is it makes the net income of the bank up about 15% that we all know it's not all going to be 100 basis points on 1 day. But this is directionally just tells you as you incrementally move 25 basis points and what have you, that's how that would play out per our model.

A couple of things to note on that Slide 2 is our floating rate loans are around 31% on a daily basis. And then we have about another 20% that are variable and a lot of that reprices in the first year and only 49% fixed, so that drives some of it. But I kind of go back to what really is the asset sensitivity to our entire franchise. Obviously, we have a lot of cash sitting on the balance sheet today that 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 and 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 that details on our deposits. But 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 816,000 checking accounts and 1.2 million total accounts and higher rates, that's when the betas stay lower than hopefully peers, and that's where you outperform. So all of that is built into this model, but hopefully, that helps to answer your question.

And Stephen (sic) [Michael] it's Will. 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, one thing that's 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 and I think we ended second or third quarter of '19 with the loan-to-deposit ratio in the low to mid-90s, 93%, 94% or so. And as Steve said, we're at 68% today, and that's not uncommon.

So the question will be how different are betas this time around, given all the liquidity on all of our competitors' balance sheet, absent a big removal of all the liquidity very rapidly, one would expect that betas would be lower across the industry in this time around, and we'll see.

And just to marry up one other thing, I know we'll 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 probably a more permanent one that you all care about.

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 9% for NII.

Well, 9% with the shock, a ramp was around 6%. So maybe what you're thinking, Michael. I don't think it's changed that dramatically quarter.

No, it hasn't. Okay. Understood. Maybe just one final one for me. So Steve, maybe if you can go into 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 we think about 2022?

Sure. Yes, it was a 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. Actually our fixed income business was down a couple of million dollars. And it really comes back to -- if you think about the environment we were in, 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 steepened up in the first quarter.

So those ingredients, along with just great loan production, kind of caused the fourth quarter to be very strong and fixed income to be 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 in several quarters. I think we've slated out as a percentage of assets. And what we've said is on a standalone, SouthState would be 80 to 90 basis points on a stand-alone basis. And with Atlantic Capital, combined would be more like 75 to 85 basis points of noninterest income to assets, and we don't really see that changing a whole lot over the next -- the course of the next 12 to 24 months. So I hope that's helpful.

We'll now move over to our question from Jennifer Demba from Truist.

A question about your buyback appetite at this point over the next several months, how are you thinking about that?

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, 1.8 million shares out of the 3.5 million. So we bought back 2.6% of the company. Our thinking is we're continuing to generate excess capital. We do not believe that we're going to be growing -- there's 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 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 and buybacks. So we've been reasonably active in the last 2 or 3 quarters. And if the valuation stay close to where they are today, we probably continue to stay active in the next couple of quarters.

Okay. Great. And what is your outlook on the correspondent banking area for the next year with higher rates?

Yes. Jennifer, it's Steve. I think what we've said over the course of several quarters is that we'll be ranging between $24 million to $28 million. This quarter, we hit $30 million, which was a really good quarter for us. I think the same guidance is kind of the same theme as what we've talked about, and I'll tell you why.

Back to all of this excess liquidity in the banking system in all of our clients, they all have this excess liquidity, some have more than others. And they're going to do 1 or 2 things with it over the next 24 months just like we are, whether they're going to loan it or they're going to invest it.

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 curve gets flatter, we'll probably do more interest rate swap business. There's a slide that we put out there on Page 15, and it shows the last, I think, 5 quarters of fee income for the correspondent, we have 1,060 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 in the environment. And sometimes, our fixed income does a little bit better. And a lot of that really depends upon the yield curve and how that moves. So I hope that's helpful.

We'll take our next question from Catherine Mealor of KBW.

One more follow-up on fees. On just service charges, I was surprised 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 in overdraft fees in the industry?

Why don't I take the quarter and then let John sort of take the outlook going forward. So you're right, Catherine. There's really 2 components accounted for that roughly $4 million pickup. 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 had -- we did the conversion in the second quarter, kept some waivers out there. Fourth quarter, those had all expired. So we had none of those in the fourth quarter. But the combination of those 2 items really led to the increase quarter-over-quarter.

Yes. And as far as going forward, clearly, the market is moving very quickly, Catherine, 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 as we haven't really seen a full kind of normal year of service charges with SouthState and CenterState combined since the first time we saw that together was in COVID. So do you think we're still not at a full kind of operating run rate that truly shows the benefit of the merger, is that fair? Or do you think there's still kind of headwinds and maybe this quarter's run rate may be kind of more appropriate base?

Catherine, 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 is where it is. But the fourth quarter is the first quarter where we didn't have any of the waivers. And so if you normalize for a little bit of the seasonality, maybe the fourth quarter's run rate is a pretty good look with where we are legacy South, we don't have a good year of history to show you yet, obviously, with the conversion occurring in the second quarter and then the waivers that we did and then the fourth quarter, of course, having some seasonality, so...

That makes sense. And then on loans on loan yields, that's actually stated a little bit more stable than I was expecting. So any kind of color you can give on loan pricing and where you think that loan yield maybe bottoms before we kind of get -- start to get the benefit of higher rates?

Yes. Sure, Catherine. This quarter, I think our loan yield for the portfolio ex accretion, all of that was around 3.77%. And our going on yield for loans was in 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, a fair amount of that. We ended up swapping to floating ratio because we felt like maybe the Fed would probably start being rates the same reason our clients did.

So the way I think about that is if we can get rates to move up 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, we'll start increasing with the rest of the market.

We're now going to move over to Christopher Marinac of Janney Montgomery.

I wanted to ask about the accretion income relative to total NII. Will, the slide you gave was very helpful, just as a reminder, does that relationship change much with ACBI coming in? Or will it continue to decline this next 2 years?

Yes. Let me take it maybe in components. So PPP -- deferred fee accretion, that's essentially gone. I mean we've got a little bit less than balance sheet, but that's -- you take that out of your models if you haven't already, of course. And I'd say our normalized run rate for the regular acquired accretion, as you are today, we think of that in the sort of $5 million to $6 million range. This quarter is a little bit higher than that, and some of that's hard to predict. But that's sort of how I think about it.

We don't anticipate the accretion on the Atlantic Capital side, dramatically changing our accretion. We don't think accretion will be a big part of the story post Atlantic Capital closing. So not a big number addition there in our modeling.

And Chris, I'd just add that I think what we've said a couple of quarters ago that as we thought about to 2022 was that our accretion income would be somewhere in the $5 million to $6 million range. And after we got through PPP, so I think it's the same that we've set for the last several quarters.

Great, Steve. And just a quick follow-up on Doug and Pat from Atlantic Capital. The change in cash and deposits that we saw at period end, was any of that seasonal for them? And if that's something that would come back this first half of the year?

Chris, this is Doug. Some of it is seasonal. We see that every fourth quarter, but there's also some strong organic growth in the midst of all that. So I think perhaps there'll 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, right, it's pretty flat. And part of that was us driving down some deposit costs in 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 a day of the week, especially with our payments business, it was up significantly at [930] because of the Thursday. And then at year-end, it was down because of the day of the weakest on a Friday. So you really have to look at averages when you look at that.

And Chris, the mix has also continued to change more towards noninterest-bearing DDA. DDA was -- noninterest-bearing DDA was 44% on average in the fourth quarter. That was up from the third quarter. And those deposits -- that category of deposits continues to grow at a very strong pace.

(Operator Instructions) We'll now move over to Brody Preston of Stephens Inc.

I wanted to ask just on -- just a follow-up on the ARC revenues. I just wanted to clarify, was 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 is relatively large?

No, no, it was all organic, no mark-to-market in that. I mean if you remember, I don't know if I've described it on this call or another, but on -- in 2020, when the yield curve is flat, that business did $80 million in revenue for the year 2020. So this quarter at $17 million is a really good quarter, but not a record quarter by means, but it's better than they've been over the last couple of quarters.

And then just maybe one more on fees, just the mortgage production. It looks like you all are continuing to balance sheet a relatively larger mix of the mortgage production than you historically have. So I guess I wanted to ask, one why? And then two, if the gain on sale margins are going to track this level going forward, do you envision maintaining that mix of portfolio versus secondary, just given that the margins are starting to get a little slimmer?

Yes. Brody, this is Steve. I think you're referencing Page 14 and hopefully this disclosure that we've put together over the last couple of quarters has been helpful. And it's helpful for me as we look at it. The mortgage production just back to -- it's very robust, I mean it was almost $1.4 billion this quarter, last quarter, it was $1.3 billion, and then fourth quarter last year, which was an excellent quarter was $1.4 billion.

So really, Year-to-year, the production -- 2020, which is a record year for us was $5.5 billion. This year, we did $5.4 billion. So congratulations to that team. They've just been really working hard and doing well.

The things that strike me on the page are a couple of things. One is that if you look at the trend on the gain on sale margins, a year ago, they were 4.56%. Now they're 2.83%. Well, 2.83% is just much more of a normal gain on sale margin. So there's nothing to be alarmed about that. It's just normal, but that's 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 is we're moving more of that production, which was a year ago, 72% as secondary, now down to 53% secondary. 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, we'll have more of an opportunity to continue kind of that mix. So I would say that 55% secondary, 45% portfolio would probably be a good mix.

And some of the things that are driving that, again, to the portfolio is just -- there's just a lot of new construction on single-family homeowners who're coming there and doing a custom -- [they'll help] 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 putting an ARM on it on the back end.

So anyway, that's a lot of commentary, but I would just describe it's a really strong production year for that portfolio. We saw in the fourth quarter consumer real estate went up around 6%. If you pull out HELOCs, it's been more like 9%. So I kind of see that as sort of a good run rate going forward.

And then just on the origination yields, the [3.13%] that was down 5 bps, I think, quarter-over-quarter, similar to the core loan yield without any accretion. And so I guess, just as we think about new origination yields going forward, I know that we've all got our own different kind of fed rate hike assumptions. But do you expect maybe further compression on new origination yields in the first and second quarter of the year depending on what the Fed does? Or just can you help us think about that?

Yes. Brody, 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. At the end of the day, we have a loan pricing model prices to the curve.

And so as the curve moves up, we still want to continue to get our spreads. And there's always [a dance] in there, particularly when rates rise for the first quarter or 2, but long term, that model works. And over time, you do get the spreads. The question is, with all the liquidity sitting in the system, will you get it this year with this time, which is a great question. I don't think any of us know the answer. I do know that when security yields go to 2.5%, you can do it risk-free, it makes it a whole lot easier on the loan to be more disciplined on that.

And then just on the loan growth front, particularly within C&I. So you all had a good year here. I think it was up like 13% when you exclude any PPP-related loans, but this quarter was a little bit light relative to [H8] and what some of your peers were putting up. And so I wanted to ask, is there -- was there anything specific that drove that beyond the business sales that you noted, John? And if you could help us think about the size of those paydowns within C&I, that would be helpful.

Sure. Brody, 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 start 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 Doug (inaudible) has recruited and brought into the company. But I do think that this particular quarter at a 6% growth, it was probably the seasonality of the hurricane business as well as just more operating companies selling and paying off at a higher rate than they did in the third quarter.

Got it. And if I could just sneak in just a couple more quick ones. On Slide 25, you all have given really good detail around the checking accounts. And I wanted to ask you know if that 2/3 to 1/3 mix of commercial versus retail checking is similar to what it was last cycle on a pro forma basis?

Yes. Brody, this is Steve. I don't think we've checked that number. It's a good question, but I don't think we've looked at it pre LOE.

Pro forma, yes, I don't think so. I would imminently say it's close to that, Brody, but we haven't put that together. So good question.

Okay. And then just one on the securities book. Do you happen to know what the duration -- the effective duration of the AFS portfolio is? And then for the total portfolio, do you know what percent of the book is floating rate?

Yes. I think our effective duration for the entire book is around 4.7 years. I think the floating piece is about 6% of the book. So really, most of those are fixed securities. When we -- and that's part of my comments. When we bring on the book for ACBI, they have a little bit of a longer portfolio. We'll examine all that when we put the fair value marks depending on which day we close and put all that together at that point.

And Brody, that was for the full portfolio, the answer Steve gave, we don't have it broken out by AFS and HTM. My guess would be that AFS will be a little bit shorter just what you put in HTM typically, but don't have it precisely in front of us.

That was our final question. So I'm going to hand back to the management team.

All right. Thanks, Melissa, and thank you all for joining us this morning. We appreciate your continued coverage of SouthState and Atlantic Capital. And as always, if you have any questions, don't hesitate to reach out to Will or Steve you 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.