SouthState Corp
NYSE:SSB
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SouthState Corp
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Jennifer Demba - Truist
Brody Preston - Stephens Inc
Catherine Mealor - KBW
Stephen Scouten - Piper Sandler
Christopher Marinac - FIG Partners
Hello and warm welcome to the SouthState Corporation Third Quarter Earnings Call. My name is Melissa and I will be your operator. [Operator Instructions]
I now have the pleasure of handing over to Will Matthews to begin. Will over to you.
Good morning, and welcome to SouthState's third 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 Q3 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 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.
Good morning and thank you for your interest in SouthState. We are pleased to report our performance for the third quarter. The performance was solid and the team made nice progress in each of our three areas of focus; soundness, profitability and growth. We knew going into 2021 that this would be a year of significant change for the company, building the foundation for larger bank which included new technology and talent. These are difficult changes and take time to adjust but this year has positioned us well for the future.
As an investor, it’s hard to see the benefits in the short-term of an MOE that the third quarter was a quarter that provided a glimpse into the future opportunities for SouthState. Just as 2021 was a year of change, 2022 will be a year of focusing on ourselves. The internal opportunities for growth, efficiency, advancing talent, technology and building our culture are real and meaningful. We have great a market, a strong and growing team, and so many opportunities to make our company better. We look forward to reporting to you the progress we make in these areas over the next year.
I will now turn the call over to John.
Thank you, Robert. Good morning, everybody. Hope you and your families are doing well.
Throughout the pandemic, we've talked about the population migration to the southeast, the rapid reopening of our markets and our growing loan pipelines. Not surprising, loan production increased significantly last spring following the vaccine rollout. And that trend continued in the third quarter. In fact, loan production of 2.6 billion in the third quarter is a record for us and is 72% higher than a year ago.
Our previous guidance was for mid-single digit loan growth in the second half of this year and we exceeded that guidance the third quarter with 10% annualized loan growth. Most of the growth was in CNI loans, which has been the trend over the last few quarters. A portion of the CNI loan growth this quarter was associated with seasonal businesses that support hurricane cleanup efforts for large power companies. So some of this quarter's growth is seasonal and temporary.
Our cash position at 14% of our balance sheet is materially higher than our peers and we're working to deploy that excess cash as interest rates drift upwards. Security's increased by over $700 million last quarter and loans increased by $573 million, excluding PPP.
So we deployed about 1.3 billion of our surplus cash into earning assets. The growth in loans and rising rates resulted in our core net interest income growing by $5.8 million in the quarter. We were encouraged by the Feds commentary a few weeks ago about tapering their asset purchases, and we believe that SouthState is in a unique position to benefit from rising rates over the next year.
Asset quality continues to be a non-event with net charge offs of zero basis points during the quarter. As a result, we released $38.9 million in reserves. After the reserve release, our adjusted earnings per share landed at $1.94 and our return on tangible common equity was 18.7%. Doug is here with us and will 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 16, 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 MOE in 2020 and the opportunity with Atlanta 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 got to be focused on continuing our recruiting and our organic loan growth, refining 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 to provide further details on the quarter.
Thanks, John. I'll cover some highlights on margin, non-interest income and non-interest expense as well as credit and a 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 PPP accretion, improved by 5.8 million from Q2, 2.5 million which was due to an additional day count and the remainder 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 margin was 2.86% for Q3 flat with Q2. Loan yields of 4.07% were up slightly from Q2, but loan yields excluding PPP loans were down 10 basis points to 391.
New loan yields in Q3 were 318 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 4 basis points to 13 basis points.
Core loan growth excluding PPP loans was 571 million. Our CNI loans grew by 336 million, followed by owner occupied CRE at 93 million and construction which includes consumer construction per mortgages at 85 million. Single family residential excluding construction permit loans declined by 14 million in the quarter. Our commercial pipeline remained strong and 4.7 billion at quarter end.
As you'll note on Slide 12, we have another good quarter of loan production. On the deposit side, our cost of total deposits declined to 3 basis points to 9 basis points, and total deposits grew over 318 million after a $344 million reduction in CDs. We continue to deploy some of the excess cash into both loan growth and securities with securities grown by 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 13.9% of assets. And we remain below peers and securities to assets and well above peers in 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 non-interest income, non-interest income of 87 million was up 8 million from Q2. It’s highlighted on Slide 13, mortgage banking income improved by 5.5 million from last quarter's 10.1 million that remains well below last year's record third quarter. Production was 1.3 billion with purchased loans representing 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 Q2s 25.9 million. Deposit fee income also increased 2.2 billion, some of which is attributable to fee waivers last quarter associated with our core system conversion.
Our non-interest expense, total NIE 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 ORE 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 1. Also, as John referenced, we've refined our conversion date for Atlantic Capital and is now expected to occur in the second quarter of 2022 rather than Q1. So with respect to NIE and 2022 modeling this was slightly pushed back much of our costs realization by a few months.
I will now discuss credit, with respect to CECL and the allowance improvements in economic projections impacting our loss drivers led to another reduction in the allowance for credit losses. These improved economic forecasts caused us to record a negative provision for loan losses of $38.9 million.
For this quarter's weightings of Moody's economic scenarios in our CECL modeling, we reviewed the underlying assumptions in the Moody's baseline and S3 scenarios and decided to move to a slightly more conservative weighting than Q2 with baseline at 60% and S3 at 40% versus 2/3rds, 1/3rd last quarter.
On that note, as shown on Slide 24, we had another quarter of excellent loss results with less than $50,000 in net charge offs. This brings our five-quarter cumulative net charge offs to 5 basis points or an average of 1 basis point per quarter. Our past dues NPAs criticized and classified assets remain low.
Our ending reserves excluding PPP loans are shown on Slide 29 and we are 135 basis points or 147 basis points including the reserves for unfunded commitments, the 75 million and 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 485,000 shares in Q3, and an additional warrant 20,000 shares in early October. We were out of the market until the Atlantic Capital shareholder meeting which is scheduled for November 16.
Even with the increase in loan growth and repurchase activity, our capital ratios remained strong, with a leverage ratio of 8.1%, CET1 of 11.9% and total risk-based capital at 13.7%. TBV 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 Atlantic 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, 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 and meet challenges.
While the economic recoveries 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, Atlantic Capital earned $0.65 per diluted share for the third quarter of 2021 compared to $0.58 in the second quarter and $0.40 per diluted share in the third quarter of last year.
Pre-provision net revenue was $14.7 million, a 9% annualized increase from the second quarter and an increase of 36% compared to the third quarter of 2020.
Loan held for investment excluding PPP loans grew 12% annualized from the second quarter of 2021 and 14% year-over-year, loan origination volume was strong across all 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 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-performing assets as a percent of total assets was 0.10% at quarter end and 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 PPP 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, Atlantic 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. Payments volumes, service charges and average deposits in the payments in 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. Non-interest 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 with the strength of Atlantic Capital 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. [Operator Instructions] Our first question today comes from Jennifer Demba of Truist. Jennifer over to you.
Congratulations on a very good quarter. Do you think your pipeline and your business momentum right now could mean better than mid-single digit loan growth continuing over the near term?
Yes, Jennifer, there's a slide we put in the deck on page 12, which I think is very illustrative of what's going on through the pandemic and the rising loan production that we've experienced. This quarter with loan production origination to 2.6 billion. That's up from last quarter and it's up 72% from a year ago. And from a net growth standpoint, it's the highest net loan growth we've had at 573 million. If you go back 2.5 years, it's more than double, the net loan growth dollars that we've experienced. Part of this is seasonal basis that we had -- we did some business with some companies to do hurricane cleanup for power companies. And that was a part of the growth this quarter.
Our pipelines are growing into October. But at the same time, we're continuing to see sales of some operating companies and some sales of some CRE properties with these low cap rates. So I think our guidance, Jennifer, originally it was mid-single digit 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 pay downs, we might be low to mid-single digit 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're on track mid to upper single digits in 2022.
Okay. Can you quantify how much of that loan production in the third quarter was from that more hurricane related lending?
Yes, 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 and the Gulf Coast states that come in after the hurricane. 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 it's about a third of the overall growth.
Okay. My last question is on asset quality. Your losses has been extraordinarily low. What's your outlook for the couple of years do you think they can stay really low? Maybe not quite this low, but really low?
I think historically, if you look at the asset quality metrics of our company, Doug's at 0% charge offs, SouthState, CenterState, 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'll continue to see good asset quality metrics, as long as there's so much cash in our clients balance sheets.
Thank you, Jennifer. We now be moving over to Brody Preston of Stephens. Brody over to you.
I wanted to just real quick -- just on the seasonal the hurricane commercial relationship. So in terms of modeling, should we expect that, this kind of similar? I think you said there's about a third of the overall CNI growth. So that's about, $110 million to $115 million or so should I expect that level of seasonality in the third quarter, every year going forward?
This is like predicting the weather. So our clients this year, had client relationships where storms landed, so it might be a little bit outside this year that it would be in the future. But it's a business we like a lot. Or the counterparty on the other end of the repayment is these large publicly traded power companies. So this year, I think it’s a little more outsized, just because of where the hurricanes landed.
Got it. Okay. Okay. Maybe it's on the mortgage, the mortgage business. Could you help? Could you tell me what the size of the servicing portfolio was at the end of the quarter? I think it was 5.8 billion on June 30. Just in terms of the size of the loan you're servicing?
Hi, Brody, It’s 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 yes, somewhere in that general vicinity.
Okay. Okay, thank you. And, the last couple of quarters, you've ratcheted down the amount of production you've sold into the secondary market, from like, 70% or so closer to like, 55%. Just thinking about the puts and the takes between your expectations around growth on the commercial side. And then, the residential production, should we expect the secondary percentage to kind of remain in the 55% range going forward? Or should we expect it to move back up to the 70% range?
Hey, Brody. I would think it's probably somewhere in between, I think it's probably closer to 60. I think what's going to happen, if you look 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 businesses purchase, but what that will do on our portfolio loans likely is, they'll just allow for less refinance there. And so just the natural evolution of loan growth in our own portfolio, it will just stick longer, because we won't have as much prepayment. But, obviously, as we think about the economics of whether to sell a loan, or whether to keep loan, it has to do with the gain on sale margins, it has to do with what our liquidity positions are. There are several things, but I think 60% is probably a good modeling. That’s how we model it.
Okay, thank you for that. Just on the balance sheet, the securities growth, thinking about the yield that you put on this quarter, what where are they? What's the effective duration of the portfolio? And what are your current plans for securities growth here in the fourth quarter?
Hi, Brody, Steve, again. We had a slide in there, I think it's page 16, which just describes sort of the growth in our securities book, and also sort of the position in our cash position. So at the end of the third quarter, we have $5.7 billion in cash and the $6.4 billion securities book. As you mentioned, it did grow 700 million, I think we mentioned on the call. Our best forecast it’s going to grow 500 million or so, the quarter. What happened, of course, in the end of the September, we had saw a nice rate increase, and so took advantage of some of that toward the end of the quarter.
As we think about that portfolio, and as you all model relative to us, and Atlantic Capital combined, today we're around less than 16% of investments to assets. 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%, is the way I would kind of model it, so maybe 17 or so. And then, 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 feel a lot more comfortable with, than where we were a few quarters where we were more like 11% or 12% of that. That's, it.
Brody, it’s Will. I'll just add that, that assumes that we don't have unexpected additional deposit growth. I think the industry received more liquidity coming in to deposits this year than many of us expected. So, it's hard to predict. But based on what we see today that's our expectation.
And if you look at that, and 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 it, 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.
Okay. And I just have a couple more here. On the origination side on the loans, what are new origination yields coming on at, a lot of other companies have had bemoaned how competitive it is. And so I just wanted to get a sense from you where that's hanging out?
Brody, I think, Will mentioned in his remarks, I think it's 318, this quarter, that was the new production. And part of this is, of course, the duration of what the lending you're doing, and you're trying to be prudent there relative to swapping some larger deals. And sometimes that shows up in the yield day one and doesn't show up over a period of time, depending on what LIBOR so far does. So, yes, our yield was 318. With the pack up and rates I'd expect, particularly the five-year treasuries backed up probably 30 or 40 basis points, I would expect those new production yields would start moving back up towards 350.
Got it. Okay. And then, last one, just on the provision, you all took another 20 bps or so out of the reserve ratio this quarter, could you just refresh me real quick, I thought it was, but the day one combined was 115 percentage [indiscernible]? And is that still a good level to think about from a normalized provisioning perspective going forward?
Brody, it’s Will. It's a hard question to answer. So, I think that is a reasonable forecast, but the complexity you have with CECL being adopted when it was and then the unprecedented government reaction that has occurred, and then leading to a recession, where people didn't have credit losses is going to impact the statistical historical correlation between, recessionary type economic metrics and loss drivers and resulting losses. So, it'll be an interesting issue for the whole industry to tackle when you're going to have a data set come into the historical data that's going to be abnormal at best. So yes, I think that's a reasonable way to model but I just want to clarify that 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.
Thank you, Brody. We're now moving on to Catherine Mealor of KBW. Catherine please go ahead.
Have a question on expenses. So nice reduction in expenses this quarter just given we have the cost savings fully coming in. But we've seen from really most of your peers that have reported so far an increase in expenses just given wage inflation and mixed higher technology costs and all the things. So just do you update us on what your thoughts on expense growth from here and what do you think a kind of fair run rate is for 2022, maybe once they've got ACDI cost savings fully in there?
Sure, Catherine. We still expect, 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. This quarter, we had some -- things with health insurance claims, for example, we're self-insured. But generally, we think that range of 210 to 215, that we expressed before is, is about right for the fourth quarter. So similar to Q3.
Looking ahead, we're still completing our budgeting process, the guidance that we have 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. And as we've said, in our Atlantic Capital, we expect to save roughly a third of their expense base, that's about 20 million on an annualized basis, or 5 million a quarter. With us doing the conversion, late Q2, you'll start to see that in Q3, and it'll show up more in Q4 for them.
Now, having said all that, of course, we are in the same competitive market, everyone else's for labor and all that. But we're working hard to try to keep our expense growth down to that low single digit range.
I think you mentioned earlier that the ACDI conversion, you think it's late Q2, have you changed when you believe you'll close the deal?
No, we have not. As you noted, the two remaining things we need to achieve to deal that close we won the shareholder vote on, which is scheduled for November 16. And then, secondly, received federal reserve approval, we received OCC approval. So we have no reason to believe that are currently playing January 1 closing, would be beyond that. But it's out of our control.
Thank you, Catherine. We are now moving over to Stephen Scouten of Piper Sandler.
Just a follow up, Will, on your comment there. Did I hear you say that correctly that you guys do need DC fed approval on the deal? And I know, we just -- I think that was one or two days ago that maybe got DC fed approval. But not sure there's another deal kind of in your markets. It's been delayed. So I guess have you gotten any insights on what that timeline might be? I know, you said you don't have any reason to believe it's changed. But just anecdotally, what you're hearing from people.
Hi, Stephen. It’s John. We got OCC approval rather rapidly. As Will 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 balls 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 holding in ACDI organic growth, continued new hires, and you all 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?
Yes. We added, we did a press release, we added nine bankers in the third quarter. And the trend is very similar. They've typically, 20 to 25, 30 year, veterans coming out of the largest banks in the metro markets, typically they are 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 has become a very, very attractive platform for us. So I look for that pace to continue. I think in the last 12 months, I think it's been in the neighborhood of 8 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 attraction that it has for these bigger bankers.
Okay, very helpful. Maybe just last thing for me. I know Atlantic Capital had a recent press release talking about their expanded self relationship. And I'm just wondering, I don't know, 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 expectations since the deal was announced?
Stephen, the press release that you're referring to talked about, that we are beginning to issue, secured credit cards for self. And I think, as of the close of the quarter, we have several 1000 cards outstanding now with average balance of maybe a couple of hundred dollars. And again, these are secured cards. So this was another avenue of loan growth. Under the self program, we have the credit builder account, these are the secured installments -- CD secured installment loans, that have an average balance in the several $100 range. And now we're adding the credit card secured credit cards with average balances, maybe in the couple $100 range. And we expect this to grow rapidly over the next few quarters.
Earlier this year, we had a $200 million guidance limit or so we've increased that to $500 million to accommodate anticipated growth. So I think you'll see growth accelerate over the next few quarters from that.
Perfect, that's really helpful. Thanks for all the color guys and congrats on a great quarter.
Thank you, Stephen. [Operator Instructions] Our next question is from Christopher Marinac of Janney Montgomery Scott.
I guess if we stick with Doug for a second, these really strong deposit growth and as well as the cash that's still outstanding in Atlantic Capital, is any of that temporary, Doug? Is that still kind of a permanent part of your push?
There's some seasonality as you know, Chris, we typically build balances in the last two quarters of the year. But that's going to stick around, it did the last year. And I don't see any significant moves to withdraw liquidity from the system in terms of monetary policy and so forth. So it is organic. I think it will stick around. There's some seasonality there related to the ACH processing business for payroll companies, but I think we'll see most of them. Hang around.
Yes, Chris, I would focus on the average, not that period ending balance, because our period end balances inflated. With the payroll business, we have Thursday is a number for us. So quarter ended on a Thursday, so that does inflate the balance.
But, again, on an average basis, we had 13% linked quarter annualized growth in deposits and we had 36%, 38% growth year-over-year. So strong, mid-teens percentage average growth in deposits. So think it's a trend that's sustainable.
Great, thanks for that. And back to the SouthState side. I just want to ask more about the correspondent banking business, both on the ARC opportunities in the next couple quarters as well as any new products that you envision in the future.
Hey, Chris, that business has been really performed pretty steadily this year. If you think about the opportunity there, all the banking system has excess deposits that they have to do one or two things, they either have to loan it or invest it. And so just like we have all this excess liquidity so do our clients or 1000 clients. And so I would think that shape of the yield curve is going to matter there. So as the yield curve gets deeper, we'll do more fixed income as the yield curve gets flatter, we'll do more swap income on loans. Even in the last couple of days, you've seen the interest curve -- interest rate curve, flatten my guess is that are to pick up some but anyway, I think what we're trying to do is build out some -- I'll call 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 just continue to see I think really solid performance out of that group. It's a great business $100 million plus revenue business so done really well and been pretty steady.
Great, Steve, thanks for that. And just last question, perhaps for Will, is the fixed rate lending in the portfolio, I think it's 49%. Do you envision that changing much as 2022 and '23 coming to focus, particularly post the merger?
No, Chris, really no, that's been a pretty consistent number for us over time. And I'll remind you, the fixed rate leading we do with the exception of some portfolio mortgages generally going to be in that five year sort of range. And so there's sort of a constant amortization of that rolling up -- rolling through. And that's an important point of our asset sensitivity, but I think it's even more important, I guess is that core funding base and we've got a slide in the deck that shows our deposit costs over the last cycle beginning back in 2015. That's on Slide 19 of the deck. If you want to take a look at that. I think that's really more of the asset sensitivity story than in fact, the loan repricing, but to answer your question directly, no, I don't see that changing really significantly from where it is today.
And Chris, I would add, we did have this new slide in there and Will added it at page 19. And I just think it's worth, when you have time to look at it, for probably everyone that's on the call. Because I do think it illustrates the rising rate, interest rate sensitivity we have and so much of it is tied to our deposit base. And it really illustrates the importance of our deposits. And what we did on 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, the second quarter 2019
And we plotted three things, we plotted our combined deposit costs, which is the bottom-line, middle-line is the Fed funds rate and the top-line is the five year treasury, which is where we do a lot of our lending and commercial lending and others. And what it shows is our combined deposit beta was only 24%. But I probably direct you to the second quarter of 2018. In the second quarter a team, the Fed funds rate was only 175. But our deposit beta was only 15% at the date, 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 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 low yield curve.
No, I appreciate that. That's great disclosure. Thanks for highlighting that graph.
Okay. As that was our final question. Thank you, Christopher. I'll 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 SouthState. 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 bright.
This concludes today's call. Thank you all for joining and have a great rest of your day.