Earnings Call Transcript
SouthState Bank Corp (SSB)
Earnings Call Transcript - SSB Q4 2024
Operator, Operator
Good morning, and welcome to SouthState's Fourth Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Will Matthews, SouthState's Chief Financial Officer. Thank you. Please go ahead.
William Matthews, CFO
Good morning, and welcome to SouthState’s fourth quarter 2024 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. As always, John and I will make some brief remarks to highlight a few items of interest and then move into questions. Our comments will reference the earnings release and investor presentation, which you can find on our website under the Investor Relations tab. Before we begin our remarks, I want to remind you that comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. 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 our forward-looking statements and risks and uncertainties that may affect us. Now I'll turn the call over to John Corbett, our CEO.
John Corbett, CEO
Thank you, Will. Good morning, everybody. Thanks for joining us for SouthState's fourth quarter results. For the quarter, we clearly felt the effects of the Federal Reserve's first rate cut in September. In October, we started to see deposit growth across all our regions, and the growth occurred even as we were cutting deposit rates at the same time. Now, some of the growth is seasonal, and it's amplified by the normal pickup in municipal deposits during the tax collection cycle. So deposits normally get a little inflated in the fourth quarter anyway. Steve used some of the excess liquidity and he paid down our brokered CDs. But if you back out that decline in brokered CDs, customer deposits actually grew by 9% on an annualized basis. So it's nice to feel like we've reached the end of the tightening cycle. Liquidity is improving, and deposit pricing is becoming more rational. That improving backdrop led to a 9% pickup in PP&R for the quarter, led by a 6% increase in total revenue. For the year as a whole, I feel like our regional presidents did a great job managing the inverted yield curve. They were able to generate moderate mid-single-digit growth, and they did it with an eye on maintaining our net interest margin. Earlier this month, we announced a sale leaseback transaction on approximately 170 branches. We've looked at this type of transaction several times over the years and felt like the stars aligned now. We're able to harvest approximately $225 million of off-balance sheet capital, and the cost of capital is very attractive compared to other sources of capital. We now have the option to convert this extra capital into future revenue growth. And finally, our biggest development was the regulatory approval of Independent financial in December and the subsequent closing on January 1. When we announced the acquisition in May, we modeled a closing at the end of the first quarter, so things progressed a little faster than planned. We've got the conversion scheduled for Memorial Day, so we should have a relatively clean fourth quarter after cost savings. Our teams have spent a lot of time together over the last few months, and I can sense both their excitement and their eagerness to finish the integration and keep building the company and serving our clients. Our strategy has been to build the company in the best geographies in the country with the best scale and the best business model. And the Independent franchise fits that strategy like a glove. The Census Bureau released their latest report in December. And not surprisingly, Florida, Texas, and the Carolinas continue to lead the nation for growth. Will, why don't you go ahead and walk us through the moving parts in the balance sheet and the income statement.
William Matthews, CFO
Thank you, John. As you said, the fourth quarter was a good end to the year in several respects. High level, $24 million in revenue growth versus $7 million in expense growth made for a solid quarter of operating leverage. Balance sheet growth was in line with our mid-single-digit guidance, with loans up 4.2% annualized and deposits up 4.5% annualized, or over 9% excluding brokered, as John noted. For the year, loans grew 5% and deposits grew 3%. On the income statement, a 15 basis point reduction in our cost of total deposits helped drive an 8 basis point improvement in our NIM to 3.48%. Net interest income grew by $18 million over Q3 on the same day count. Non-interest income of $80 million was up almost $6 million from the third quarter on somewhat broad-based improvement, led by correspondent, which was up $3.7 million with flat variation margin expense. Mortgage income was up $1.6 million, with wealth up $800,000. And I'll note that wealth had a record year, with its $45.5 million in revenue up 15% over the prior year. Deposit service charge income was also up $1.1 million. Non-interest expenses were up $7 million in the quarter to $250.7 million, which was at the high end of our guidance. The largest increase was in commission expense, which was up over $3 million due to higher performance in commission-based businesses. Even with the growth in expenses, our efficiency ratio improved quarter-over-quarter by 140 basis points to 54.4%. On credit and credit expense, we had $5 million in net charge-offs for the quarter, or 6 basis points annualized, which brought our full year net charge-offs to $18 million, also 6 basis points. Our fourth quarter provision expense was $6 million, leaving reserve levels flat. The ending total allowance to loans was healthy at over 1.5%. Our 30 to 89 past dues were 22 basis points, which is down $14 million from Q3 and also down from year-end 2023's 24 basis points. NPAs ended the year at 63 basis points, up 6 basis points from year-end 2023 levels. I'll note that approximately 23% of our non-performing loans are SBA loans with a 75% guarantee, and 46% of our non-performing loans are current on payments. Substandard loans were also up. We continue to view these as transitional substandard loans for the most part, with downgrades primarily due to interest rates rather than as indicative of expected losses. As to capital, we ended the year with healthy capital levels with CET1 at 12.6%. Our Q4 and full year ROAA of 1.27% and 1.21%, respectively, provided us with a healthy capital formation rate. Operator, we will now move to questions.
Operator, Operator
Thank you. Our first question comes from Catherine Mealor from KBW. Please go ahead. Your line is open.
Catherine Mealor, Analyst
Thanks. Good morning. Really nice to see the higher NII this quarter and NIM expansion. I wanted to see if you could just update us on your thoughts on the margin moving forward, especially now that we've got the deal closed, and what you're thinking about. Maybe two updates, kind of where the margin is with updated thoughts on marks? And then also with a couple of cuts out of the Fed's projection versus the last time we spoke, what that does to the margin projection over the course of the year. Thanks.
Stephen Young, CRO
Sure, Catherine. This is Steve. And yes, thanks for recognizing the NIM expansion. We were really happy about that this quarter. 8 basis points, the margin was up to 3.48%, which is higher than our guide of 4 basis points to 5 basis points. And really, as John mentioned, a lot of that was the deposit cost work that the regional presidents did, and really did a great job of bringing that together. Yes, so now that we closed Independent on January 1, probably just need to update you on the NIM guidance for 2025 and kind of the moving parts and assumptions. Kind of the bottom line, not much has changed other than our closing date, but I think maybe walking you through the parts and pieces hopefully will help you. So, as we think about the major assumptions for 2025 now that Independent has closed on January 1, there's the average earning assets. The second is our rate forecast. The third is how the SouthState legacy fixed-rate loan reprices. And the fourth is just around the merger marks as you mentioned. So, as we think about the expected average earning assets for the full year, we expect about $59 billion. That's based on a mid-single-digit loan growth rate for the year. We are assuming that we start the year somewhere around $58 billion, maybe a little less, and then ending the year a little over $60 billion. Second is our rate forecast. So we have no rate cuts in this guidance. We're holding rates flat from the December 31, 2024, yield curve. And then the third part, which we've talked about many times, is just our legacy loan repricing book. We have approximately $1 billion a quarter that's repricing from the high fours into the high sixes or early sevens. That's about a 200 basis point pickup. And that should increase the margin as time goes on by about 3 basis points. So if you run that math, it's $20 million over that earning assets. And then the fourth one, the last one, is what you mentioned, the merger marks. So our team is working to finalize the merger marks by March 31. Just kind of anecdotally from the announcement date, the three-year treasury, which is really the approximate average life of the Independent financial loans, that three-year treasury fell by about 34 basis points. We originally modeled around a 7.5% discount rate. So we would expect, assuming spreads don't change a whole lot, something less in that 30 to 35 basis point range, something like that, depending on, as you know, many moving parts. So we'll have a little bit more capital at day one and a little less earnings absent doing anything else. So based on all these assumptions, we'd expect NIM to be between 3.60% and 3.70% in the first quarter, and then we would exit the fourth quarter of this year because of the legacy loan repricing between 3.70% and 3.80%. Having said all that, as I mentioned before, we're likely to have some excess capital from less day one interest marks on Independent, as well as some capital from our previously announced sale leaseback transaction that will hopefully get done at the end of the first quarter. So we would expect we would take some of that excess capital and deploy it at a potential securities restructure at the end of the first quarter. Our expectation would be we would offset the additional lease expense of around $30 million to $35 million annually. This would equate to an additional 5 basis point margin expansion starting in the second quarter. So in the summary of all of that, we would add 5 basis points to the second quarter to fourth quarter margin in 2025. And we would start at 3.60% to 3.70% in the first quarter, exiting at 3.75% to 3.85%. As well as it gives us additional capital to deploy in the future and the future revenue growth versus what we originally modeled. And then lastly, as I think about 2026 and an upwardly sloping yield curve, we'd expect NIM expansion to continue to do it as the continued repricing of the legacy SouthState back book of 3 basis points per quarter. So all of this is sort of in line, but there's a lot of moving parts, and hopefully that helps you model as you think throughout the year.
John Corbett, CEO
Yes. And Catherine, let me maybe jump into this as well. Just say that that potential securities portfolio restructuring is just potential at this point. We've made no decisions, and we'll continue to evaluate that through the quarter, maybe see how the marks shape up as we get toward the end of the quarter, and then make a decision at that point. So nothing has been decided in that regard thus far.
Catherine Mealor, Analyst
That makes sense. And so in your exit margin, as we talked about last quarter, it was 3.75% to 3.85%. So it almost feels like a little bit of a better margin this quarter. So maybe you're coming in kind of with a better core base, and then the impact of taking a few cuts out of the forecast is really offset by that better base plus what you can do on the bond restructure to kind of leave you at the same level exiting 2025. Is that a fair way to…
John Corbett, CEO
Yes, I think a fair way to say it. And I think we talked about the second and third quarter was Independent. We thought would add 10 to 15 basis points of margin expansion to us. And I think with the rates down a little bit in that curve, probably adds 10, not 15. And then, of course, that additional gives us a little extra capital day one, so we can decide how to deploy that.
Stephen Young, CRO
Yes, and even with rates flat, we would expect to get a little bit of continued pick up on cost of deposits just as CDs mature and things like that from where we start off in the first quarter, that would help to even stay flat.
Catherine Mealor, Analyst
I understand you've mentioned before that each rate cut contributes approximately 3 to 5 basis points to your margin. Considering the combined company, is this still an accurate perspective, especially since the guidance does not indicate any cuts?
John Corbett, CEO
Sure. I find this quite fascinating as we consider fair value accounting for a moment. The way I see it is, if we maintain the normalized upward-sloping yield curve, the legacy loan repricing would add about 3 basis points per quarter. Additionally, if we experience rate cuts, we could gain another 1 to 2 basis points, bringing the total to around 4 to 5 basis points if there are cuts in 2025, due to the company being somewhat more sensitive to liabilities. On the other hand, if rates were to rise, we would still see a 3 basis point increase in the margin from our back book, but we might lose 1 or 2 basis points from the legacy Independent combined basis. This would still result in a positive contribution, although not as significant. Overall, this transaction, as we previously mentioned, makes our balance sheet more neutral, and the primary driver of our net interest margin will be the repricing of loans from the legacy SouthState. Furthermore, if we do have rate cuts, we can expect to enhance our net interest margin from the Independent deposit franchise as well.
Catherine Mealor, Analyst
Okay. All very helpful. Thank you. And congrats on closing the deal early.
John Corbett, CEO
Thank you.
Operator, Operator
Our next question comes from Stephen Scouten from Piper Sandler. Please go ahead. Your line is open.
Stephen Scouten, Analyst
Yes, thanks. Appreciate it. I wanted to see if there were any additional thoughts around the sale leaseback. I know, John, you said kind of things aligned here with the math and just the thought process, but can you walk us through kind of why you felt like that was the right decision now, and if, let's say, you weren't to do a security restructure for whatever reason, what the other priorities for the excess capital might be?
John Corbett, CEO
Yes, sure. Stephen, good morning. Yes, so we've kind of done a lot of branch repositioning over the last decade, and we're very comfortable with the branch network that we've got today. So entering into this long-term sale leaseback kind of is a nod to the fact that we plan on being in these branches for quite some time. So really it's about harvesting capital, off-balance sheet capital that we're not getting any credit for. And when we ran the numbers, the cost of capital was more attractive than other sources of capital. So really, it's more of a capital management exercise that will give us flexibility going forward. And the other thing is, as we've looked at it, one of the things you want to look at is the spread of the cap rate versus the risk-free rate. And it was pretty narrow. So we felt like this was a good opportunity to do it.
Stephen Scouten, Analyst
Got it. Okay. And does the math around potential securities restructure, I mean, is that slightly more advantageous if rates remain high or what's kind of the puts and takes for maybe the best mathematical environment for you to get something done if that becomes the path?
Stephen Young, CRO
Yes, Stephen, this is Steve. I think the most important factor is determining where our capital marks will land. Based on that, we'll decide whether to pursue a bond restructure or a securities restructure, and to what extent. There are many variables involved with the Independent transaction, including the sale leaseback. By the end of the first quarter, we'll have clear answers, and during the call in April, we'll be able to share all the details. I would describe the sale leaseback as an appealing way to access capital. We can utilize this capital in various ways, including a securities restructure, among other options. We'll make those decisions as we move forward. And Stephen, I would add that if we consider a portfolio restructure in response to your question, there are various approaches we can take. We could focus on bonds that are significantly underperforming and approaching their swap rates, or we could consider those that are performing moderately but offer a better recovery profile. We will evaluate all of these factors. As we mentioned previously, we have not finalized our marks yet, and that process is still ongoing. We aim to have a clearer picture by the end of the first quarter. While the results may not be fully conclusive, they should be much closer to final. Currently, we believe our capital position will be better than the 10.4% CET1 we announced during the merger announcement. It is likely to be above this threshold, potentially closer to the 11% range at closing. Therefore, we have more flexibility and options regarding our capital base than we anticipated nine months ago.
John Corbett, CEO
Yes, the last thing I want to mention is that we appreciate our revenue and PP&R profile as we previously forecasted. We are pleased with our revenue and margins. Additionally, we have extra capital available for any necessary actions, which provides us with a great advantage.
Stephen Scouten, Analyst
Got it, got it. And just the last thing for me, I know the ink's barely dry here on IBTX closing, but everybody is getting kind of bulled up on M&A. If we do see a more active environment where more banks try to, let's call it, like hit this 18-24 month window that we think we have, would you guys think you'd be prepared to do another deal right now if it came to pass if the right deal hit your desk, or do you really want to just focus on the integration, the build out within the Texas markets and let that play out first going forward?
John Corbett, CEO
A lot of our talk about our strategy is finding the best scale in the banking business model. And today we feel like, Stephen, the best scale is somewhere in that $60 billion to $80 billion of assets. So for 2025, our focus is entirely on integrating IBTX and getting that team productive and growing and feeling good about the partnership. And then the second thing in 2025 is just going to be learning what the new regulations are under the Trump administration and getting a better understanding of what the hurdles at $100 billion would be. So until we know what those hurdles might be, we think the $60 billion to $80 billion in size is the best place to be, but we're going to learn more as the year progresses.
Operator, Operator
Our next question comes from Russell Gunther from Stephens. Please go ahead. Your line is open.
Russell Gunther, Analyst
Hey, good morning, guys. I wanted to start back on the legacy SouthState NIM, if we could, the fixed repricing opportunity is strong and well understood. But could you guys spend a minute in terms of how you're thinking about the other side of the balance sheet, deposit cost trends, and then just any kind of CD maturity and rate repricing opportunities embedded in the guide?
John Corbett, CEO
Sure. No, it's a good question, Russell. As we think about the pro forma company, and we think about the first quarter deposit cost, I would kind of model around 2% would be a good way to think about it as a pro forma company. After remember that in the fourth quarter, the last rate cut came in the mid-end of December, so we didn't really get that into our deposit costs until January. So if you took us as a pro forma company, it would be a little higher if you looked at the fourth quarter, but if you look at the first quarter, we'd be around 2%. And then as it relates to the CD repricing opportunity, there certainly is one there. But if you looked at our beta and what we told the street that our beta combined would be. Our peak deposit pricing as a combined company was the third quarter around 2.29%, 2.3%. And so there's been 100 basis points of cuts. If we end up about 2%, that would be about a 30% beta. We were expecting kind of 20% on a standalone, 40% IBTX in 2025, I think, on a combined. So we're doing a little bit better than we originally expected, originally modeled, but I would kind of use 2% as a guide. And maybe it drifts down a base point or two over time, but I wouldn't expect a huge change to that.
Russell Gunther, Analyst
Okay, great. No, I appreciate that. Thank you. And then just switching gears, if you guys could give us a sense for how you'd expect the correspondent banking business to trend over the course of the year and any update to your kind of pro forma be to average asset guide.
John Corbett, CEO
Sure. Thank you, Russell. On page 25, we analyze the non-interest income relative to average assets. As Will mentioned earlier, non-interest income saw a significant increase of $5.7 million from the third quarter. It reached 69 basis points of average assets, exceeding our guidance of 65 basis points. This was an excellent quarter, largely driven by a $3.5 million increase in correspondent banking, primarily due to fixed-income sales from our newly recruited SBA securitization team in Houston. They performed exceptionally well. Additionally, there were other growth areas in mortgage and wealth management, which had a great year. Following the closure of IBTX, I don’t anticipate any changes to our guidance; we are still targeting 50 to 55 basis points of non-interest income, leaning towards the higher end of that range. If we approach 55 basis points, potential improvements could arise if the Fed decides to cut rates again, which would benefit some of our capital markets businesses, possibly trending towards 60 basis points. To summarize, in the correspondent bank space, we generated around $70 million in revenue this year, with projections for the fourth quarter annualizing to about $80 million. If we receive rate cuts from this point, we might see revenues increase to around $90 million for 2023. That’s our expectation.
Russell Gunther, Analyst
Okay. Got it. Very good. All right, guys. That's it for me. Thanks for taking my question.
John Corbett, CEO
Thank you.
Operator, Operator
Our next question comes from Michael Rose from Raymond James. Please go ahead. Your line is open.
Michael Rose, Analyst
Hey, good morning guys. Thanks for taking my questions. Hey, just wanted to get a sense on the lending environment right now, both in your core markets and then in Texas. And just what we could expect as we move through the year, just looking at pipelines. It looks like the environment is a little bit more favorable, but I think most companies that have reported are talking more about a back half acceleration in loan growth. Just wanted to see what you guys are seeing in your markets and on both sides of the table. Thanks.
John Corbett, CEO
Yes. Michael, good morning. It's John. Earlier in 2024, we guided to a mid-single-digit loan growth, and that's really where we landed. We had about 5% loan growth for the year, so in line with the guidance. In the fourth quarter, loan production was up about 17%. We did about $1.6 billion in originations in the third quarter, $1.9 billion in the fourth quarter. Some of that was seasonal lending that we see this time of year for, we do a lot of business with storm repair companies after the hurricanes. Generally, on the customer sentiment front, I'd say that clients are still adjusting to higher interest rates in their budgets, both consumers and businesses. Along with other forms of inflation, it just makes things tighter in people's budgets. So some folks are waiting to see if rates come down, and they may not come down. So I think there's a lot of optimism from our clients about the deregulatory pro-growth agenda here. But sometimes there's a lag effect from that optimism until you see it in the pipeline. So, as we head into 2025, I think continuing with that mid-single-digit growth is appropriate. It might be a little bit slower to begin with and pick up later. You asked about the pipelines of IBTX and SouthState. SouthState, we had good closings in the fourth quarter and our pipelines are a little softer as we start the first quarter, down about 10%. But I talked with Dan Brooks yesterday in Texas, and the pipelines in Texas and Colorado have actually picked up some, so they're feeling good about their pipeline growth headed into the year.
Michael Rose, Analyst
Great. And then maybe one for Steve, any updated expectations as it relates to expenses to the average assets or assets on a pro forma basis? Thanks.
William Matthews, CFO
Yes. Hey, Michael, it's Will, I'll take that one. First off, I guess a couple assumptions to keep in mind. We're currently assuming that the sale leaseback closes March 1, which would give you 10 months of the higher lease expense net of the foregone depreciation. So that's roughly $30 million or so in NIE to add to the year for that 10 month period. We're also assuming that we achieve approximately 50% of the cost saves in 2025. So that's $45 million or so. Because our conversion date, even though we closed earlier, conversion date remains the end of May, more all day weekend. And as John noted earlier, you'll have some folks stick around through post conversion, and then you really have more of a clean quarter in Q4. And we still have to finalize, of course, the marks, as Steve noted. And that includes the CDI mark, which is amortized on an accelerated basis. So depending on how that shapes up, it could have an impact as well. So with all that high level, I would say for the earlier part of the year, the first quarter or two, a range of $355 million to $365 million in NIE per quarter. And then as we exit the year in the last quarter, the range would be more in the $340 million to $350 million, and that would be after any sort of inflationary pickup in 2025 over 2024 levels, the mid-year raises, things like that.
Michael Rose, Analyst
Okay, great. Finally, I noticed that brokered deposits decreased for both you and IBTX this quarter. Is there anything more to address regarding this? It seems like you feel confident about your position moving forward. Thanks.
Stephen Young, CRO
Yes, Michael, this is Steve. I guess, as you think about what happened this past quarter for both us and Independent, we had really good customer deposit growth in the fourth quarter. I think ex-brokered CDs, our deposit growth was around 9%. So I think we use brokered as a bit of a lever depending on the growth in customer deposits. So our expectation is that customer deposits are kind of mid-single-digit growth next year, and we'll use brokered as sort of a lever in order to fund the loan growth. So that's kind of how we're thinking about it.
Michael Rose, Analyst
All right, great. Thanks for taking my questions.
John Corbett, CEO
Thank you.
Operator, Operator
Our next question comes from Samuel Varga from UBS. Please go ahead. Your line is open.
Samuel Varga, Analyst
Hey, good morning. I wanted to start off actually in the credit front with the deal closed. I wanted to see if you could give us some data thoughts around the sort of combined loss rate given how impressive 2024 was.
John Corbett, CEO
Client payment performance has been strong throughout 2024. Our past dues, as Will mentioned, are only 22 basis points at the end of the quarter. Charge-offs are in the 6 basis point range, indicating that our clients are performing exceptionally well. We have noticed a slight increase in classified assets, particularly classified loans, but this is more related to floating rates and debt service coverage rather than payment performance. According to our credit team, there isn't much risk of loss in our commercial real estate (CRE) portfolio. Our substandard loans have a 56% loan-to-value ratio, meaning there is substantial equity and solid institutional sponsors involved. Most of the classified loans we are observing are CRE projects that are in the stabilization phase. For instance, 64% of our commercial real estate loans are floating rate, which may show a slightly negative debt service coverage. However, if we apply the current permanent interest rate from the market, the debt service coverage would be positive. This is part of the transitional phase we are experiencing. As these loans mature, the properties are sold, and we are witnessing ample liquidity in the market, especially in the multifamily sector, where these loans mature and are taken off the books. Looking ahead to 2025, if we do experience charge-offs and losses, we don't anticipate it coming from the CRE side; it will probably occur in the commercial and industrial (C&I) area, particularly in the middle market due to rising interest rates, or more likely in the Small Business Administration (SBA) or small business sector, which are still feeling the impact of higher interest rates, labor costs, and general inflation. This assessment applies to both our Independent book and the SouthState book as well.
William Matthews, CFO
Yes. And Sam, I'll just add, if you look at the fourth quarter for Independent, they had pretty flat production, similar to what they had in the third quarter, but they had a little higher level of pay downs, and many of those were in some of their criticized credits. So the kind of pay downs you like to see occur. In terms of loss rate, 6 basis points is a great year. And while we would love to operate at that level, that's probably not sustainable at that very low level going forward. But also remind you, too, that on the combined basis, when we do the purchase county marks, of course we'll have the non-PCD split. We'll have the credit mark on the PCD that goes into the allowance, but they also have a credit mark on non-PCD that is booked plus the day one provision or the double count as we affectionately call it. So a lot of loss absorption capacity created through that exercise as well.
Michael Rose, Analyst
Great. Thanks for the color to both of you. And then John, perhaps just on the revenue synergy side, I understand that when you do the DMS, obviously you're not assuming anything there. But if you could just give us some updated thoughts especially in the fee income side around perhaps cross-sell opportunities or enhancing any of the products that you might have and how that might impact 2025 and potentially beyond?
John Corbett, CEO
Yeah, Samuel, it's John. We want to keep the Independent bank, bankers doing what they've been doing. They've been doing a great job. They've been growing a great bank and have been doing it with quality clients and have one of the best asset quality histories in the country. So we really want them to continue doing what they're doing and are comfortable doing. Over time, we see opportunities there. We see opportunities to layer in a treasury management platform that could be attractive to more C&I clients in those markets. And they're great markets. I think Dan Brooks told me yesterday, Texas had the number one job creation in the country last year, which occurs frequently. So we think there's tremendous C&I opportunities to layer on top of the great CRE work that they've done historically.
Stephen Young, CRO
Yes, and then this is Steve. I guess this, kind of the more immediate pieces and parts would be our capital markets product, particularly our interest rate swap. I know, in January, I think we've already done a transaction or two there from our capital markets group just to help facilitate some lending at IBTX. I think the mortgage platform, the retail platform. And then probably, just as we think about the wealth platform, private capital management, which is the Independent wealth advisors, I think that continues to grow and hopefully get some lift from some of the partnerships and platforms that we can provide. But I'd say probably in the immediate sense it would be in the capital market space. And then over time, it's going to be, as John mentioned, treasury, mortgage, wealth, retail.
Michael Rose, Analyst
Got it. Thank you for taking my questions.
Operator, Operator
Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead. Your line is open.
Gary Tenner, Analyst
Thanks. Good morning, everybody. I wanted to ask just about the IBTX loan book. It just looks like based on what you had in your deck that their loans declined by something approaching $1 billion since announcement. I don't recall there being any kind of targeted runoff portfolios there, but can you kind of give us a sense of maybe where that's come from and if there's anything behind the scenes driving a particular part of that runoff?
John Corbett, CEO
Yes. Hey Gary, it's John. Sure. So if you'll recall back in our prior calls over the summer and the spring, we talked about the mortgage warehouse business and that was a business that we were going to wind down and exit. So that is the bulk of that change. And then in the fourth quarter, the loan production at IBTX was roughly the same as the third quarter, but they did have some elevated paydowns. They had about $158 million of commercial real estate sales of properties. There was a collection of apartment properties in Colorado, $95 million that refinanced into the permanent market with Fannie Mae, and they were fortunate to kind of exit $75 million of watch list credits. So between the mortgage warehouse exit that we had telegraphed over the summer and some of these pay downs in the fourth quarter, that's the difference.
Stephen Young, CRO
Yes. And just to add, on the mortgage warehouse, we modeled that in our transaction. So that's why our NIM guidance really isn't changing. But we modeled that upfront. We just didn't certainly talk about it in May, but that was certainly modeled.
Gary Tenner, Analyst
I appreciate the reminder about the sold mortgage warehouse business. Regarding the sale leaseback and a possible trade, can I interpret your comments to mean that at the very least, anything you pursue would help to offset the additional lease costs? That seems to be the minimum level of activity expected.
Stephen Young, CRO
Well, I would say the minimum would be that we don't take any action at all. As I mentioned earlier, we have not made any firm decisions. It would be reasonable to consider a model where the increased non-interest expense from the sale leaseback, after accounting for the interest on the cash we receive, could allow for a smaller restructure to at least balance that out. However, nothing has been decided at this time, and we will wait to determine next steps after we have completed all assessments. Yes, we wouldn’t take any action until later in the first quarter, so nothing would take effect then. When we have our call in the second quarter, you will know exactly what we did.
Gary Tenner, Analyst
All right. Thanks, guys.
John Corbett, CEO
Thank you.
Operator, Operator
We have no further questions. I would like to turn the call back over to John Corbett for closing remarks.
John Corbett, CEO
All right. Thanks a lot and thanks for joining us this morning. And given the January 1 close at Independent, I just want to extend a special welcome to all of our partners and team members from Independent. We know the investment community here, you're jumping around and covering a lot of companies. So thanks for calling in. If you have any follow-up questions, don't hesitate to give us a ring. Have a great day. Thanks.
Operator, Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect.