SouthState (SSB) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Chief Financial Officer - William E. Matthews
• Chief Executive Officer - John C. Corbett

TAKEAWAYS

• Loans Growth -- 9% annualized, driven by broad-based growth across the footprint and a 13% year-over-year increase in commercial and industrial (C&I) lending.
• Deposits Growth -- 9% annualized, reflecting strong core relationship expansion and the bank's successful entry into the Texas and Colorado markets.
• Net Interest Margin -- 3.78%, remaining flat compared to the second quarter as a result of a strategic shift toward floating rate loans.
• Net Interest Income -- $591.5 million, an increase of $15.6 million from the first quarter.
• Diluted EPS -- $2.30, matching the adjusted diluted earnings per share reported for the quarter.
• Net Income -- $223.8 million, supported by healthy balance sheet expansion and margin stability.
• Noninterest Income -- $93.9 million, a decrease from $96.7 million in the prior quarter as higher treasury rates impacted capital markets activity.
• Noninterest Expense -- $374.8 million, an increase of $17 million from the second quarter primarily due to merit increases and the revenue producer hiring initiative.
• Floating Rate Loans -- 39% of the total portfolio, an increase from 28% at the time of the Independent Financial merger announcement in 2024.
• Net Charge-offs -- 9 basis points, representing the ninth time in the last 10 quarters that net charge-offs remained below 10 basis points.
• Efficiency Ratio -- 52%, reflecting the impact of higher salaries and employee benefits expense during the third quarter.
• Provision for Credit Losses -- $20.3 million, reflecting the impact of the quarter's loan growth.
• Cost of Deposits -- 1.80%, an increase of 4 basis points from the prior quarter following the recent interest rate hike.
• Loan Yield -- 5.92%, an increase of 1 basis point compared to the second quarter.
• CET1 Capital Ratio -- 11.1%, representing a healthy capital position above the company's long-term target range of 11% to 12%.
• Share Repurchases -- 250,000 shares, bringing total year-to-date repurchases to 2.75 million shares at a total payout ratio of 67%.
• Tangible Book Value Per Share -- $58.19, an increase of 7% over the last 12 months.
• Loan-to-Deposit Ratio -- 90%, consistent with management's stated target of maintaining a ratio around the 90% level.
• New Customer Money Yield -- 2.95%, representing the blended rate for new non-wholesale deposits including certificates of deposit.
• Revenue Producer Hiring Cost -- $15 million year to date, reflecting the successful addition of relationship managers in North Carolina, Atlanta, and Texas.
• C&I Loan Production -- Nearly $5 billion, representing a 45% increase compared to the prior year.
• Legacy Loan Repricing -- $1 billion per quarter, with fixed-rate loans expected to reprice approximately 150 basis points higher through the end of 2027.
• NIM Guidance Range -- 3.75% to 3.85%, representing a 5 basis-point increase from previous guidance due to continued asset sensitivity.
• 2027 Expense Outlook -- 3.5% to 4% growth, based on early budgeting estimates for the upcoming fiscal year.
• Regulatory Capital Impact -- 85 basis points, representing the potential improvement to the CET1 ratio if proposed tailoring rules for risk-weighted assets are finalized.

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RISKS

• CEO Corbett noted, "Capital markets activity, however, pulled back as treasury rates moved higher during the quarter," reflecting a sensitivity to rapid movements in the yield curve.
• Stephen Dean Young indicated that capital markets income "will be a little bit more muted until rates settle down a little bit," following an 87 basis-point shock in the five-year treasury rate.
• CEO Corbett warned that the commercial real estate pipeline has Pull back, stating, "The pipeline's down about 14%."

SUMMARY

SouthState Bank Corporation (NYSE:SSB) reported steady balance sheet growth and margin stability for the third quarter of 2026. Management reported that both loans and deposits grew at a 9% annualized rate, supported by expansion in high-growth markets including Texas and the Southeast. The company stated that net interest margin remained flat due to a successful strategy of increasing floating rate loan exposure and managing deposit costs. Management indicated that credit quality remains stable with low net charge-offs, although capital markets income experienced a temporary decline as a result of rising treasury yields. The company confirmed it remains focused on hiring revenue-producing talent and investing in organic growth while maintaining a disciplined capital return strategy.

• The revenue producer hiring initiative led to a 10% increase in commercial relationship bankers over the past year. CEO Corbett stated, "These bankers have already originated about $1 billion in new loans and have a healthy pipeline."
• Management reported a significant shift in portfolio composition to mitigate interest rate volatility. CEO Corbett stated, "Today, we have moved the floating rate loan percentage up to 39% of the portfolio. And recently, about 55 to 60% of new loans are being originated with a floating rate."
• The bank is preparing to launch new fee-income products to diversify noninterest revenue, including a new commodities platform and an FX platform expected to be fully established by early 2027.
• Loan pricing is expected to benefit from the repricing of the legacy fixed-rate book, with Young noting that approximately $1 billion in loans per quarter will reprice approximately 150 basis points higher through 2027.
• Texas has become a primary driver for talent acquisition and sales growth, with management reporting a 22% increase in the relationship management sales force in that geography compared to the previous year.
• Management confirmed its intention to maintain a conservative loan-to-deposit target of approximately 90% for the medium term.

INDUSTRY GLOSSARY

• NIM (Net Interest Margin): A measure of the difference between the interest income generated by a bank and the amount of interest paid out to their lenders, relative to the amount of their interest-earning assets.
• PCL (Provision for Credit Losses): An estimation of potential losses that a company might experience due to credit risk.
• C&I (Commercial and Industrial): Loans made to businesses or corporations, rather than individual consumers.
• CET1 (Common Equity Tier 1): A capital adequacy ratio that measures a bank's core equity capital compared with its total risk-weighted assets.
• TCE (Tangible Common Equity): A measure of a company's capital, which is used to determine how much of a bank's capital is available to cover losses.
• AOCI (Accumulated Other Comprehensive Income): A section of shareholders' equity that includes unrealized gains and losses on certain types of investments.
• TBV (Tangible Book Value per Share): The value of a company's tangible assets divided by the number of shares outstanding.
• ACL (Allowance for Credit Losses): A reserve established to cover estimated credit losses on loans.
• PPNR (Pre-Provision Net Revenue): The amount of revenue a bank earns before taking into account the provision for credit losses and income taxes.

Full Conference Call Transcript

Operator: To withdraw your question, press 1 again. I would now like to hand the conference over to Will Matthews, chief financial officer Mister Matthews, please go ahead.

William E. Matthews: Good morning, and welcome to South State's third quarter 26 Earnings Call. This is Will Matthews, and I am here with John C. Corbett, Steve Young, and Jeremy Lucas. We will follow our typical pattern of brief remarks followed by Q&A. I will refer you to the earnings release and investor presentation under the Investor Relations tab of our website. Before we begin our remarks, I want to remind you that the comments we make may include forward-looking statements within the meaning of the federal securities laws and 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 which may affect us. Now I will turn the call over to you, John.

John C. Corbett: Good morning, everyone. Thank you for joining us. South State delivered another quarter of healthy growth, strong profitability, and stable credit. there is an ongoing debate about the trade offs between growing the balance sheet versus protecting the margin. I am pleased to report that in the third quarter, South State did both. Loans grew 9% annualized with growth broad based across our footprint and led by C and I up 12%. The Southeast and Texas are among the most vibrant markets in the country, and we are benefiting from strong underlying market growth. As planned, we have grown our commercial relationship bankers by 10% over the last year.

These bankers have already originated about $1 billion in new loans and have a healthy pipeline. Deposits also grew 9%. And without sacrificing margin, which held flat with the second quarter at 3.78%. That net interest margin stability reflects a deliberate shift over the last couple years towards more floating rate loans. When we announced the independent financial deal in 2024, the percentage of floating rate loans in the combined portfolio was only 28%. Today, we have moved the floating rate loan percentage up to 39% of the portfolio. And recently, about 55 to 60% of new loans are being originated with a floating rate.

This strategy will help provide net interest margin stability assuming the Fed continues its rate hiking path. Credit continues to remain solid with net charge offs of only 9 basis points. Capital markets activity, however, pulled back as treasury rates moved higher during the quarter. Steve will give you an update on that business going forward. We continue to see South State shares as a compelling value. And we are going to stay opportunistic with buybacks as we were this quarter. Over the last year, we have repurchased roughly 5% of our shares outstanding. Before I turn it back to Will, I wanna thank our bankers for focusing on the fundamentals.

Growing loans, growing core relationship deposits, deepening client relationships, and staying disciplined on credit. Will?

William E. Matthews: Thanks, John. Our net interest margin of 3.78%, in line with our 3.75 to 3.80 guidance. And was flat with Q2. Our cost of deposits increased by 4 basis points to 1.80 reflecting the quarter's rate hike. Loan yields of 5.92 were up a basis point with accretion of $27 million down $6 million. Accretion income exceeded CDI amortization expense by $6 million in the quarter further narrowing the gap between the 2 purchase accounting items. This is illustrated on the NIM slide in our deck. Excluding accretion, loan yields were up 7 basis points and NIM was up 4 basis points to 3.61%.

Additionally, and I only reference this because we have gotten so many questions about accretion income over the last couple of years, I will point out that our third quarter PPNR per share excluding all accretion income and CDI amortization expense, was up 10.5% versus the third quarter of 25. And the 9 months year to date comparison of the same metric versus 25 was up 13.9% to $9.10 for the first 3 quarters of 26. Net interest income of $592 million was up $16 million from Q1, The impact of the extra day in the quarter was approximately equal to the decline in the accretion income versus Q2.

As John noted, we had another good quarter for growth both in loans and deposits, each up 9% annualized. Noninterest income of $94 million was down $3 million from Q2 due to a decline in our capital markets businesses. NIE of $375 million was $17 million above Q2's levels primarily due to employee compensation expense. Some factors in that increase include 1, higher incentive accruals including for growth and production, 2, higher salaries, with a July 1st merit increase date for much of the employee base, and 3, lower deferred loan costs in the quarter.

I will note that our revenue producer hiring initiative has been very successful with the addition of some great talent and some great wins in terms of production. The total cost of this group of employees including not just compensation, but also recruiting and business development expenses, is approximately $15 million year to date. Looking to the fourth quarter, with qualifiers around variable expenses that are hard to predict such as commissions, deferred loan costs, etcetera. We expect Q4 NIE to approximate or perhaps be slightly above Q3 levels, bringing the full year NIE pretty close to the level we guided to at the beginning of the year.

Recall that we guided to 2026 NIE growth of approximately 4% over 2025 levels with approximately 100 basis points of that increase due to our revenue producer hiring initiative. We have enjoyed more recruiting success than we expected, so that component will be higher than the 1% impact But we should basically be in line with the approximate 4% increase guidance we gave for the year. Looking ahead to 2027, we are still early in our budgeting process, and these thoughts could change but we would estimate an increase to NIE in the 3.5 to 4% range at this stage. As always, our commission based businesses and our recruiting success could cause the increase to be slightly higher.

We will refine our modeling through the fourth quarter and provide further 2027 expense guidance in the January earnings call. The third quarter's 9 basis points of net charge offs makes 9 out of the last 10 quarters at a level below 10 basis points. Our provision expense of $20 million was primarily driven by the quarter's loan growth. Asset quality trends remain stable to improving, we continue to feel good about our credit quality. Turning to capital. We repurchased 250 thousand shares in the quarter for a 40% total payout ratio including dividends. This brings our year to date total to 2.75 million shares repurchased.

For a 67% total payout ratio year to date and a trailing 12 months total payout ratio of 75%. Both of which are slightly above our longer term guidance of 40% to 60% for a total payout ratio. Capital levels remain very healthy CET 1 ended 11.1%, TCE of 8.4%, and TBV per share of $58.00 and cents were both reduced slightly by the impact of the move in treasury yields, on AOCI. Operator, we will now take questions.

Operator: Thank you. We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star then the number 1 on your telephone keypad to raise your hand. To withdraw your question, press star then 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by for a moment while we compile the Q&A roster. Your first question comes from the line of John McDonald from Truist Securities. Your line is open. Please go ahead.

John McDonald: Great. Thank you. Good morning. I was hoping Steve could give a little bit of color on the correspondent capital markets income this quarter. What drove that down? Then also whether you can get back to that $25 million guidance range you talked about previously.

Stephen Dean Young: Sure. Hey, John. Good morning. Yeah. As you mentioned, you look on page 12, corresponding income this quarter was $20.1 million, $24.8 million in our $25 million guide. And I think I mentioned on the call last quarter, we were thinking that $25 million would be the number absent a wacky. I think what I said wacky rate scenario, and I guess that is what we got in the fourth quarter. The 5 year treasury went up 87 basis points in a quarter and 60 basis points, so that was in September. So you know, it did move a lot.

I think based on that shock in rates in the third quarter, I think that what I would expect for the next quarter or so or is more in line with where we were in the third quarter before--sort of some point rates will settle back down and then we will head back toward $25 million. But I think that is probably where we are for the next quarter or so. that it will be a little bit more muted until rates settle down a little bit.

John McDonald: So, Steve, so that is kinda between the, you know, where you were this quarter on 2020 and the 2025. Is that what you are pointing to?

Stephen Dean Young: Yep. that is right. Yeah. that is what. that is our expectation right now.

John McDonald: Okay. And then maybe any updated thoughts? it is just to further that comment. You know, there is 2 businesses that really sort of make up most of that income. 1 is the fixed income business and 1 is the interest rate swap business. And so when the curve gets steeper, the interest rate swap business, you know, has a little bit more of a challenge whereas the fixed income business does a little bit better. And so we are seeing the handoff from the swap business to the fixed income business. And that is not always exactly linear, but eventually, it happens. It should happen, this quarter. Okay. Great.

And then maybe just a follow-up on Will's comments on the expense front. Sounds like something in the 375 ballpark in the fourth quarter will and then growing 3.5% to 4% for next year. And that is inclusive of kind of your hiring plans next year and everything else. I know it is an early look. Just the thoughts behind that.

William E. Matthews: Yeah, John. I mean, if you look at back to the beginning of the year, you know, we did guide to 4% increase for the year, and that was a normal 3% inflationary type. Growth plus an estimate of a 100 basis points for the new hires. You know, it is hard to predict, of course, the level of your success and the timing of your success when you are hiring new revenue producers. You know, we are pleased that we are know, ahead of pace there. We. As I mentioned in my prepared remarks, we spent 15 million year to date on that. And that is an annual budget of about $14 million.

So for the full year, we are probably. That number is probably $21 million to $22 million attributable to that. Effort. You know, we would not call that a miss, though. We would call that, you know, we were more successful in that. And I think, you know, those folks have been productive as some of their non solicits burn off. I think they will continue to be productive and maybe even more so. So that is a bit on this year. For next year, it looks like consensus right now is in that being 25 to being 35 range, which would be right in there with that 3.5 to 4%, range that I gave you.

We are still finalizing budgets, of course, and there could be some slight tweaks here or there, but that feels like a pretty good number sitting from where we sit today. Okay. Understood. Thank you. you.

Operator: Your next question comes from the line of Jared David Shaw with Barclays Capital. Your line is open. Please go ahead.

Jared David Shaw: Hey. Thanks. Good morning. You know, I guess maybe just sticking with the relationship manager hiring and you called out the billion dollars of growth. From that team. I mean, should we be thinking about loan growth going into going into beginning of the year? I mean, could that accelerate as more of those new hires like you said, start hitting their stride? Hey, Jared.

John C. Corbett: it is John. Good morning. You know, it was a great quarter for loan production and loan growth in the third quarter. We had 5. nearly $5 billion of production. that is up 45% from a year ago, and a decent amount of that is attributable to these new hires that we have joined our team. You know, last quarter, we mentioned we thought we would see strength in the C&I category for the back half of the year, and we have. C and I category is up 13% year over year. So as we are heading into, next year, we. We are we are looking at the pipeline has backed off just a little bit when rates came up.

So our full year guidance for 2026 was mid to high single digits. Last few quarters, it is felt like we would be in the high end of that based on the pipeline. So we have grown 9.5% year to date. I would imagine with the spike in rates and the pipeline dipping a little bit, we are probably more like the mid single digits in the fourth quarter. Still, for the year, I think we would be in the high single digit range.

Next year, I think our guidance is pretty much the same in that mid to high single digit range, you really cannot tell quarter to quarter, but I feel like the current pace and current guide that stays with us into 2027.

Jared David Shaw: Thanks. And I guess just sticking with that theme, what is what is been the client sentiment as you have been out there speaking with commercial borrowers? Are they feeling with the rate environment and the macro backdrop?

John C. Corbett: Yeah. I mean, if you are in a real estate oriented business, you know, the rate increase has a little bit more impact on your business. And so we are seeing some pullback in those areas. The pipeline's down about 14%. You know, we started the year with a $5 billion pipeline, It shot up to about $6.4 billion in the first quarter. A lot of that is getting pulled through to closings, and now we are right back to about the $5 billion range. But the C and I activity still feels good, feels strong. CRE is a little bit weaker. Thanks.

Operator: Your next question comes from the line W. Your line is open. Please go ahead.

Will: Yeah. Hey. Great. Good morning, guys. Morning. Good morning. Hey, John. I wanted to go back to a comment you made initially in your prepared remarks. Just your ability to protect NIM while still showing an attractive level of loan growth that is frankly, know, quite a differentiating trend compared to some of the other results we have seen with some of the higher growth Southeast banks out there. I guess the question, though, is do you feel like this trend is durable in this kind of higher-for-longer rate environment? where we kind of live in this high to. You know, high single digit, high 3.70s NIM range, but can still show high single digit growth.

Maybe if you could just give us your high level views on maybe those 2 dynamics.

Stephen Dean Young: Sure. Will, this is Steve. I will just kind of talk a little bit about NIM. As you mentioned, I mean, it was stable and this quarter at 3.78%, and we grew our interest earning assets 1.11, which is sort of in that mid to upper single digit range. So really happy with that. You know, deposit costs increased 4 basis points, which was within our expectations. And so you know, as we think about going forward, I kinda lay out, where we see the pluses and minuses there to NIM. You know, if you look at. You know, think about the 4 different areas, it is interest earning assets.

You know, for us, John, just mentioned that we think mid to upper single digits, all the way through 2027, best we can tell that is sort of where we think that will be. You know, if you look at you know, the average, for 2027, that would be around $6 billion. that is sort of how we are thinking about it today. The rate forecast changed, as. You know, from Janet, we had no rate hikes and now we have, in our models, we have 2 total Fed rate hikes; 1 that is already in September, and then 1 more in December And then we are using the same yield curve. So that we had at 39.

So, you know, the 5 years roughly about 5%, which is where we do a lot of our fixed pricing off of then, you know, as it relates to deposit costs, you know, we have, you know, 40% of the existing beta of the book on the up beta. And then, of course, we have new deposits that will be on a little higher. So we kind of use a 50% total beta on the growth and the existing book. And then loan accretion really has been pretty steady. Last year, I think we said at the beginning of the year, $125 million for 2020 6.

That seems about where we are going to be maybe half of that for next year. But based on all those assumptions, we expect NIM to be between 3.75% and 3.85%, and this range is 5 basis points higher than last quarter. And it is really due to your question to a couple different things. it is due to the Fed rate hikes, and we are a little bit asked sensitive when we have the floating rate loans that John mentioned in his prepared remarks versus our exception price deposits. The second is the higher yield curve for fixed asset repricing. And then the third is just new production on the steeper yield curve.

So based on all those assumptions, our models, we expect this range to stay in effect through 2027. So, you know, it is a positive story for us. A lot of that is driven by our asset sensitivity and really the fixed asset repricing that we have talked about last quarter.

Will: Great. that is that is very helpful, Steve. I appreciate all that color. Maybe just to dig a little deeper into deposit costs this quarter. Obviously, a really great result there. Again, very differentiating relative to some other high bank high growth names out there. Could you talk just a little bit about your deposit strategy in the quarter and maybe just how you were able to achieve 9% growth while balancing and managing cost of funds so well? Are you incentivizing differently? Are you looking and tapping, some of your, you know, less expensive markets for deposits? Just kind of how are you attacking, deposit growth in this environment?

Stephen Dean Young: Well, you know, it is really no new strategy here. it is continuation of existing strategy. Certainly, focus has changed and gotten more precise. But, I mean, where we are seeing a lot of really good wins, this quarter, you know, we saw a lot going on in the treasury management area. I think we opened up new accounts that. For new clients to the bank, new treasury management accounts, that was about 700, a little over $700 million. You know, underneath the. But in the middle of that, we had quarterly tax payments go out for $500 million, and we had public funds down $250 million. So it sort of wiped out the temporary parts of that.

But the but the. what is going on in the underlying bank is we are growing real relationships with new money at great rates. And if you look at sort of our new money, if you look at all the money that is new to the bank, from a customer perspective, we are raising money somewhere. If you look at CDs, money markets DDA altogether, it is it is a little less than 3%. So that is that is where the new money is coming in, but I would say no huge change in strategy.

I just think it is we are seeing a lot of momentum particularly on the treasury management side, but we are also seeing it throughout the bank, and we are also seeing, you know, new geographies like Texas and Colorado where they did not have that product a year ago. Yeah. We are starting to see some momentum there.

John C. Corbett: And, Will, you did ask about incentives, not to say that we did tweak a little bit sort of our intercompany crediting to maybe reemphasize the importance of deposits so that there is a little bit of incentive change in that regard too.

Stephen Dean Young: Yeah.

Will: Okay. that is helpful, guys. Thank you. And maybe 1 clarification on the margin, the kind of increased guide that you have received. Is it really a steeper curve that kind of gets us to the upside case there, the 3.85%? Or. and yeah.

Stephen Dean Young: If Sure. Yeah. No. It is. it is it is both. You know, obviously, treasurer, I just mentioned it. You know, it is the negative to the to the fee income side on correspondent, but we got a 80 basis point shock in the 5 year, but it is a positive to NIM. You know, we have, as I mentioned last quarter, we. Over we have about $1 billion a month over the next 5. Or, excuse me, billion-dollar quarter over the next 5 quarters. So through the end of 2027 that will reprice on the South State legacy loan book and those are fixed rate repricings, and they come in around $5.15. that is about where the coupon is.

And we think those will move up you know, somewhere around 150 basis points if rates do not move a whole lot And that is a significant tailwind to fix that fixed rate repricing into NIM. We also have securities that, you know, will reprice that are maturing, that are about $1 billion, a little over $1 billion over the next 5 quarters. That probably will have an increase of about 2%. So that fixed asset repricing is significant. I would also say it is a combination of that it is a combination of the Fed rate hikes where our floating rate loans are outpacing our the margin increase. that is probably 1 to 2 basis points versus our deposits.

And then we also have new production that you know, there will be a little bit higher. But those 3 things kind of make up that guide. Got it. Okay. Excellent. I appreciate that color, Steve. I will step back. Thanks for the questions.

Operator: Your next question comes from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.

Michael Rose: Hey. Good morning, guys. Thanks for that. Wanted to get a thought on buybacks here. Obviously, you guys bought back a decent amount this quarter, but a little bit less than in prior quarters. Can you just talk about kind of the thought process here in capital levels and you know, maybe what the tailoring rules will do for CET1. Thanks.

William E. Matthews: Sure. Sure, Michael. it is Will. You know, we have. In the last year, you know, as I. As we said, been above our expectations for the long term total payout ratio, which we have said is 40 to 60%. Know, if you look back to, well, Q3 was at 40%. Year to date, it is been 67%. Trailing 12 months has been 75%. So we have been more active you know, over the past year. I would say we still think that 40% to 60% makes sense for a company that is a growth company and growth markets like ours.

Given that we have been more active in repurchasing over the last year, I would say looking at 2027, without the benefit of crystal ball, we are likely at the lower end of that payout ratio range in 2027. So we were 40% in the fourth quarter, so we are probably the lower end of the 40 to 60% in 2027. Recognizing that in 2026, we have been north of the top end of that range. You know, as.

With respect to the tailoring rules and whatnot, we while that will benefit our CET 1 if it becomes finalized by reducing the risk weighted assets, today, we do not see us changing our capital risk appetite, if you will, in light of that. So, you know, we still think that, you know, CET1 in the 11% to 12% range, it makes sense for us. For all the reasons about growth and just being a company with a bit of a margin of safety sort of philosophy. You know? But if those did pass, you would see our CET1 improve probably by about 85 basis points or so. Very helpful, Will.

Michael Rose: And then maybe just, 1 follow-up for Steve. Just as we think about kind of the 3.5% to 4% expense growth, how should we think about that toggle with the kind of fees to average assets? I would assume if we get another rate hike or 2, the correspondent will continue to be a little bit depressed here. So is it kind of the way to think about it is you would kind of be towards the lower end of that expense growth. If the fees to average assets, you know, kind of are at the lower end and then would scale upward. You know, if that were to kind of revert higher.

Is that the toggle we should we should kind of contemplate as we are thinking about, you know, fees and expenses? Thanks.

Stephen Dean Young: Yeah. I think generally, Michael, I think this quarter, we did $94 million of fee income. That was 54 basis points of assets. So, you know, our guide has been 55 to 60 basis points, but you know, like I said, in the next quarter or 2, they are probably going to be on the lower end of that, maybe similar to where we were in fourth quarter. Or, excuse me, in the third quarter. So that. that is probably, accurate. And then, you know, as I mentioned, the NIM guide has gone up. And so as we kind of think about the balance of the 2, total revenue really does not change in this environment.

And we are headed towards, you know, 10% PPNR growth year over year. So, you know, if you kind of think about just big picture, how we are thinking about it, that is how we are trying to land all of those moving parts. Well, we get it. Thanks, guys. I will step back.

Operator: Your next call comes from the line of Janet Lee with TD Cowen. Your line is open. Please go ahead.

Janet Lee: Good morning. Good morning. Like you held the obviously raised the NIM guide, which is positive, and it seems like you held the line pretty well on deposit cost this quarter as well. And you are pointing to if I heard it correctly, 50% total deposit beta through the cycle, Are you able to share where those new deposits are coming into the bank as it stands and just kind of a follow-up question to what was asked earlier, how you are able to bring in those deposits at such low cost. Are you able to share where these new deposits, which seem to be coming in at a slightly higher price versus before.

Stephen Dean Young: Sure. Yeah. No. This is Steve. You know, the new customer money, when you include all you know, so if you just look at new non CD money, which would be DDAs, money markets, you know, savings accounts, this came in around 2.30% this quarter. But if you add the CDs, which is a real part of what we are doing, as you know, that moves new customer money up in the 2.95% range for the quarter. That was, you know, for the third quarter. And then if you add any wholesale, if, that could be closer in the 3.30%, you know, 3.40% range. So if you kind of, you know, put.

Peel back the onion, that is the way, you know, the pricing for the third quarter went. Of course, most of the quarter, there was not a fed rate hike until the very end. So, you know, my guess is it will go up a little bit, and that is part of the guide of the betas and all that stuff. But that is sort of where the third quarter fell out at. I think in the new. If you looked at our new money markets, you know, accounts, if you just look at that granularity, you know, this. We raised new money about $670 million at 3.12% for the quarter.

If you look at new and renewed CDs, I think it was $1.65 billion at 3.62%. So that kind of gives you more color behind that new customer money, but those are kind of the parts and pieces that if you kind of summarize all that new customer money at 2.95% is where we saw, that come in. Got it. Thanks for all the color.

Janet Lee: In terms of capital deployment, what is your stand-- can you give us an updated stance on M&A? Is this something that is still on the cards or is it not an attractive option in a current environment?

John C. Corbett: Hey, Jared. it is John. I mean, nothing's changed on our thinking there. The bank's performing great. We were growing talent. The balance sheet is really growing well. We got strong earnings. As we think about capital priorities, the first priority is keep growing our dividend alongside of earnings growth. That would be 1. Number 2 is the organic balance sheet growth. In the fastest markets in the country. So we are blessed with a great pipeline. Number 3 would be share repurchases. As long as the valuations are as attractive as they are now. And, M&A would be the lowest priority.

Janet Lee: Got it. If I could squeeze 1 more. How do we. Insert. Are there any certain markets or categories within your lending? Is there any spread compression that you are seeing in any 1 particular area? Depending on who you talk to, some people are pointing to some multifamily spread compression in Texas. Wondering if that is something that you are seeing in any particular ways.

John C. Corbett: Yeah. Jared, where we have seen spread compression is probably a result of the yield curve moving up as quickly as it is. Unlike the capital markets business, a lot of these loans come with a fixed rate commitment. From the time of the commitment to the time of the closing. Which might be 45 days or so. And if the rates move up significantly, sometimes the competition, sometimes we do not raise the rate as quickly as the yield curve, so you do wind up seeing some spread compression. My guess is most of it is tied to the fact of how rapidly the yield curves moved up.

If the yield curve stabilizes, I still think there is attractive spreads in the markets that we are lending into. Got it. Thank you.

Operator: Your next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open. Please go ahead.

Gary Tenner: Thanks. Good morning. You have talked a little bit about kind of the beta assumption on the deposit side with high rates. I am just curious, the last hiking cycle you were in Texas yet. I am just wondering if you are contemplating any differences, you know, through that franchise on a combined basis? going forward.

Stephen Dean Young: Yeah. Sure, Gary. This is Steve. Yeah, that is all included in that guide. I think if you remember before the merger with Independent, I think South State Legacy was somewhere around 30%, maybe 32, 33% up betas. And then, Texas and Colorado, we are in the mid fifties. And so that combined was about 40% on the existing. So that is sort of part of that guide just for the existing book. And then, you know, so, you know, if you kinda play that out over a couple rate hikes, yeah, we were around a 1.75 cost of deposits. You know, maybe the second quarter, somewhere in there.

So if you use 50% over the next couple of quarters, you know, you get to maybe by the end of the first quarter, if those rate hikes come through, you are close to 2. that is kinda how we are thinking about modeling it. I appreciate that.

Gary Tenner: And then on the correspondent banking business, just thinking of the kind of the variation margin? You know, obviously, the gross number was lower this quarter, but I. But the duration margin increased as well. So just wondering how to think of that more from a net basis. You have talked about the gross a little bit, but just thinking about the net Yep.

Stephen Dean Young: No. that is good. And we look at that number. it is sort of I guess, somewhat related to that income, but really not a lot, and we can talk about that offline. But, basically, that number tracks 2 things. it is the rate of the, 10 year treasury and then also the Fed funds rate. So it moves around with that. But I think in the in the fourth. Or in the third quarter, you know, that average 10 year treasury rate was up from 42 to 75. So it was up 33 basis points. And, of course, it is really spiked at the end of the quarter.

So that is where you see the variation margin times the Fed funds, which also went up at the end of the quarter come up. So our expectation, I think, this quarter is in the $5.5 million range. Negative. I would think it is probably if things kind of go as we think for 4 q, maybe it is in the $6.5 million to $7 million range, somewhere in there. Be our expectation, on a negative basis just for the variation margin. Thank you.

Operator: Your next question comes from the line of Anthony Elian with JPMorgan. Your line is open. Please go ahead.

Anthony Elian: Hi, everyone. On correspondent earlier this year, you talked about some new products that could provide a lift to fee income? The timing on rolling out some of those new products changed given the higher rate backdrop and when could we potentially see that $25 million of income turn into 30 million?

Stephen Dean Young: Sure. No. Great question. And, yes, we are moving forward on those projects really a couple of different products that we are offering out. 1 is a new FX platform. 1 is a commodities platform. And those were doing some test trades on commodities now, and we see that to be rolled out probably on a real basis in the first quarter. And then also on the FX side, I think that is been that project's gotten delayed a little bit maybe to the maybe April 1.

So we will see some we will see some benefit to both of those, but I do not think I think that both of those, if you kinda add them together, probably on a full run rate basis. You know, $10 million to the $15 million range, you know, in year 1. Once they are fully established. So, you know, maybe it is a couple million dollars a quarter or something like that once they are fully instituted. Thank you.

Anthony Elian: And then on capital, what exactly is driving the expectation for 2027 total payout ratio? To be at the lower end of your 40 to 60% guide I get that this year will be above that range, but you still have a lot of buyback remaining Your CET1 is within the 11 to 12% range you provided. And you potentially have tailoring coming. Thank you.

William E. Matthews: Yes, Anthony. I would say 2 things. 1, the tailoring today is not part of the equation for us. It may become as we study it further but today, it is not. You know, the you know, and we do not have firm plans we put in place and say lock and load. that is where we are going to go with buybacks for the next 12 months. But looking at, you know, again, the long term total payout ratio and where we have been the last year, think it makes sense to be at the lower end of the range this year. We you know, we. Our CET1 appetite is to be in the 11% to 12% range.

We are just shy of 11.15% in this quarter. We have got, we think, good growth prospects ahead of us. So from a priority standpoint, while you know, capital return through repurchases is certainly on the list, We think growth at appropriate returns on capital levels is superior in terms of long term shareholder value versus share-- and right now, we think that is probably where we will be investing more capital next year. Okay. Thank you.

Operator: Your next question comes from the line of David Chiaverini with Jefferies. Your line is open. Please go ahead.

David Chiaverini: Hi. Good morning. This is Brian on for David. Thanks for taking the question. Just on credit, obviously, it is been fairly strong, at least over the past few quarters. Just wondering, with the 5 year up as much as it is, if you are foreseeing any potential incremental stress on CRE borrowers as they come to their resets and maturities next year?

John C. Corbett: Yeah, we are not at this point, Brian. You know, you are seeing the, classified, criticized, asset trends are all kind of improving. We are talking to our credit folks. We do not really see any material changes to the charge offs in the near term. And those CRE loans that you are referencing, you know, they are-- a lot of these were originated coming out of COVID in 2012. And the weighted average loan-to-value is around 55%. So there is just a lot of margin in those deals. And they are either right sized at maturity or if the cash flow is a little less or they are able to move it to another lender, a permanent lender.

So far, not seeing issues. Then, naturally, if the long term treasuries continue to move up materially from here, that could create issues. But right now, we are not experiencing that. Great. Thanks for that.

David Chiaverini: And just on the loan to deposit ratio, I think in the past, you have quoted looking to stick no higher than 92%. I guess just wanted to see if that is still the same focus going into next year or if there is some, you know, potential wiggle room around that number.

Stephen Dean Young: Yeah, no, that is right. I think for us, you know, sort of target is around 90%. You know, there might be a quarter or 2 that move higher than that for a little bit, but not much higher than 92% in any particular quarter, but the target would be 90%. that is how I would model it. And, you know, you saw that this quarter. I mean, you saw that in the second quarter, we grew loans, I think, 11%, deposits 3%, and that got us to 90%.

And this quarter is 9% and 9%, and I would expect you know, as we continue to grow loans mid to upper single digits, the deposit growth would stay in check there, to keep that 90% over the over the medium term. Great. Thank you.

Operator: Your next question comes from the line of Timur Braziler from UBS. Your line is open. Please go ahead.

Timur Braziler: Hi. Good morning. Just a couple of follow-up questions for me. On the deposit side, do you have the spot rate at the end of the quarter?

William E. Matthews: You know, I do not have it in front of me. We, you know, we typically do not disclose it. But you know, it was not it was not a dramatic. I do not know the quarter exactly where we started, where we ended, but it was not I mean, we were only up 4 basis points, so it was not a kind of a radical thing as I recall, but I do not have the number in front of me. Okay.

Timur Braziler: And, you know, I have been getting some questions, some investor kind of pushback the course of the quarter. On correspondent banking looking at where those levels were during the last hiking cycle versus where they are now still implies some downside. Maybe just talk us through what is changed in that business and why the levels that you saw in 2024, end of 23, early 2024, why that is kind of off the table here in this rate hiking cycle.

Stephen Dean Young: Yeah. I think a couple things. 1 is, you know, in 2024, there was a bit of a liquidity situation going on in the banking industry. Of course, we serve a lot of bank clients. And so loan growth really went down to very little in that environment. And you know, remember, we do interest rate swaps, you know, on particular loans. So that is you know, there is a lot more volume going through the pipe. And so even if even if the yield curve is not perfect for that business, there is still, you know, volume As it relates to fixed income, same issue.

Remember, 2024, everybody was talking about AOCI and how significant it was, and it was because rates shocked up so significantly. This certainly was a bit of a rate shock, but not near anywhere near a 300 basis-point shock. So what we are seeing clients do now is clients are investing. People look at this opportunity and they see, you know, 3 and 4 year duration paper in the 5.5 sometimes as high as the 6% range. Which is a lot steeper and a better place to invest than, you know, a few years ago. Great.

Timur Braziler: And then just last 1 for me. You brought up the success you are having hiring. Just any color you can provide on which institutions you are having most success hiring from.

John C. Corbett: Yeah. it is very diverse based upon the market, but we are getting a lot of bankers out of the regional banks and some out of the money center banks. You know, the-- where we are having the most success, I think I have mentioned before, is in Texas. The total relationship management Salesforce in Texas is up 22%. From the same period last year. So that just pleases us as we integrated that bank over the last couple of years. Dan Strode leads it for us. They have not only just drank the Kool Aid of the South State culture. They are out selling the South State Kool Aid. North Carolina is up 19%. Year over year.

Atlanta is up 16%. So in the geographies overall, we have increased the salesforce by 13%. Great color. Thank you.

Operator: Your next question comes from the line of Christopher Marinac of Janney Montgomery Scott. Your line is open. Please go ahead.

Christopher Marinac: Hey. Good morning. Thanks for hosting us today. And Steve, just want to go back to the deposit comment you made a little while ago about the near 3% all in. Does that number go up further from here this quarter? Or can you manage it up to be about the same?

Stephen Dean Young: Yeah. it is a good question, Chris. You know, if you looked at the last several quarters and you looked at that number, it ticked up, you know, I do not have the all-in number from last quarter, but I am thinking about the money market rates were up maybe 20 basis points or so from last quarter, but that reflect the whole thing. So my expectation is, you know, rates are up so I would expect it to come up some, but I just do not have a great prediction on what that, you know, would be in the next quarter. But I do think based on our modeling that beta is probably, you know, pretty accurate.

You know, we, you know, if you think about there is the new money part, and then there is the. Which is what you are referencing, and then there is the existing book. And the existing book, the way we manage that is mainly through exception pricing, and we have already, you know, for the September rate hike, already factored that into the fourth quarter guidance. But, you know, I would expect it to probably be somewhere in that 3% range, but I. it is a little early to be able to tell that. Going into the next quarter.

And as you have success on the treasury side, particularly in your new that is also gonna drive that new money or hold back the new money rate as well. It should. I mean, that is. You know, our job is to grow our treasury management accounts, treasury management balances, small business accounts, small business balances, retail and checking. So, I mean, our focus in the way the incentives are set up in the, you know, in the offices as well as in the RM level is very much, pro checking, and that is where we believe the exists, and that is where we are focused. Sounds great. Thanks for that additional color. Appreciate it. Sure. Thanks, Chris.

Operator: We have reached the end of the Q&A session. I will now turn the call back to John C. Corbett for closing remarks.

John C. Corbett: Alright. Thank you, Tracy. I will just wrap up by saying that we are in the middle of a budget season now. And so far, we are liking what we are seeing for 2027. For several years, we have been focused on investing in technology and infrastructure, but now we are investing in people and expanding the sales team and that is a lot more fun and rewarding. As you have seen in our balance sheet growth, it is working and our net interest margin is stable, and it is headed in the right direction with the back book repricing or floating rate assets, which gives us confidence headed into 2027.

So I wanna thank you for joining us this morning. If you have any follow-up questions, do not hesitate to reach out. Have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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